Making a Statement

As tax season approaches, taxpayers often ponder how their tax dollars are being spent. They are not alone. Political leaders at state, county, city and special purpose governments are wondering the same thing. A lack of standards that would enable year-to-year comparisons between programs, departments and functions has long been a barrier to proving whether or not money is being spent on programs that produce the most public benefit. But now that is changing.

In June 1999, the Governmental Accounting Standards Board (GASB) issued Statement 34, "Basic Financial Statements for State and Local Governments."

"The overall theme to GASB Statement 34 is accountability," said Brenda Halpin, director of the Policy Services Division of the Connecticut State Comptroller. "The government unit is being held accountable to its citizens, its legislature and other necessary officials."

For the first time, GASB 34 requires governments to establish and track the cost of acquiring, owning, operating and maintaining public-works infrastructure such as roads, bridges and sidewalks. They can be shown on the books using traditional private-sector methods of calculating asset depreciation or by adopting an asset-management system that proves maintenance spending is adequate to prevent infrastructure deterioration.

Making the right choice can be difficult, according to Bruce Bielefelt, auditor-controller of Nevada County, Calif.

The Challenge
The GASB 34 reporting requirements present a significant challenge to organizations at all levels of government, especially those lacking the tools to collect, track, record and analyze the required data. "Some small rural counties do not have MIS departments, yet they have to produce the same reports, in the same format, as larger counties with larger staffs and budgets to hire consultants to make their systems GASB 34 compliant," said Steve Monaghan, CIO of Nevada County.

Bielefelt, on the other hand, sees being small as an advantage, with fewer programs and less coordination required to produce the desired results.

Some states plan to upgrade to meet the new data collection and reporting requirements. "Currently, our accounting system cannot handle some of the requirements for implementing GASB 34, and those issues are being handled manually and centrally," said Halpin. "We are currently in the process of implementing a new accounting system that will be able to fully implement the requirements of GASB 34."

Monaghan said Nevada County will also begin looking for a new accounting system that is fully GASB 34 compliant. In the meantime, he says the county has to improvise. "Many small county legacy systems do not capture the required data. It is extra work," he said.

School districts must also comply with the new standards. The Nevada County Superintendent of Schools Office is currently waiting for the California Department of Education to provide GASB compliant reporting modules for their standard reporting system, according to Gail Headstrom, director of Business Services. "In implementing GASB 34, one of our biggest fears is that people in district business offices do not come from a business background, especially in smaller districts where the superintendent and the business manager may be the same person," she said.

But the challenge is not over once the financial data is collected, compiled and put in the required formats, according to Bielefelt. "The real challenge is explaining the collected financial statements to the users, requiring department managers work with us in explaining any inconsistencies between individual statements and the summaries. The management discussion and analysis section has to be clear, concise and user-friendly," said Bielefelt.

Practical Solutions
Although many agencies are waiting to implement GASB 34 requirements on schedule, early implementers have gained some useful insight. They shared that insight with GASB managers and staff, which contributed to the publication of Statements 37 and 38. They also posted their results on the Internet, sharing their practical knowledge with agencies currently implementing the GASB 34 reporting model.

Two early city implementers are Alexandria, Va., and Orlando, Fla. An early school implementer is the Breca City, Ohio, School District. Links to these early adopters' Web pages, with sample reports and background information, can be found on the Virginia Auditor of Public Accounts Web site. Additional information on Alexandria's experience can be found online in the November 2001 Journal of Accountancy.

GASB 34 raised the accounting and reporting bar for government while generating the need for new or upgraded accounting systems. The end result is improved accountability. "GASB 34 is the most exciting thing to come down the road for improving government in the last 25 years," said Bielefelt. "It gives everyone increased visibility into how taxes are being spent on government programs and services."

Russ Steele is a freelance writer living in Nevada County, Calif.