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1 of 8 CITY OF LARAMIE ACCOUNTING INFORMATION SYSTEM: PURPOSES, PRINCIPLES AND PRACTICES Purposes of the Accounting Information System The accounting system is the central information system – like a central nervous system – that collects and organizes all information about the organization’s operations and its status. This information is particularly valuable because it is measured in a standard unit: the dollar. An effective accounting system allows the City Council and administration to: 1. Provide public services efficiently 2. Report to the public on the uses of tax revenue and the provision of services 3. Plan future expansion of public service 4. Set budgets to guide planned future activities 5. Report to departmental managers so that they may effectively and efficiently manage resources assigned to them 6. Comply with legal accounting and reporting requirements under Generally Accepted Accounting Principles (GAAP) and pronouncements of the Government Accounting Standards Board (or “GASB”) applicable to municipal governments, including Management’s Discussion and Analysis of the financial statements Principles used in the Accounting Information System The City of Laramie collects and processes information through its accounting information system, and reports from it, in accordance with the following principles: 1. The accounting system is designed to produce reports to City decision-makers that are useful and understandable. Useful: Reports are useful if they give decision-makers timely and accurate information. Understandable. They are understandable if the accounting information is presented so that non-accountants may easily interpret it and use it in their decisions. 2. Accounting information in these reports must be reliable and relevant. Reliable: Information is reliable when it may be verified – that is, it is free from any bias in measurement – it faithfully represents the underlying economic resources, obligations and transactions, and it is neutral – there is no bias intended to achieve any particular outcome. Relevant: Information is relevant if it is timely and has predictive or feedback value to the users. Timeliness: Information is available to decision-makers when they need it. Predictive Value: Information has predictive value when it helps a decision-maker forecast the effects of past or present events. Feedback Value: Information has feedback value when it allows a decision ---PAGE BREAK--- 2 of 8 -maker to confirm or correct prior expectations. 3. To be useful for decision-making, accounting information must be comparable and consistent. Both comparability and consistency are qualities of the interaction between numbers rather than of the numbers themselves. Comparability: Comparability between periods within an organization or between organizations provides more useful information for decision-makers. Consistency: Consistency is conformity from period to period, as long as accounting policies remain unchanged. This allows a clearer understanding of any changes in the underlying economic conditions being reported through the accounting information system. Conventions Used In collecting and recording accounting information the following conventions are used: Period of Time: The flow of transactions is divided into fiscal years each of 12 months duration. Each transaction is recorded in the period in accordance with the date on which the underlying economic event occurs. For example, revenues, costs, and expenses are recorded in the period in which a service is provided or received. Revenues, donations, and receipts are recorded only when a transaction has occurred that creates a legal, collectible debt. Costs, assets, expenses and liabilities are recorded when a legal financial obligation to a vendor is created, as through receipt of a requested good or service. Expenditures are capitalized when the asset acquired is expected to be of use for more than one year. Capital Assets: Beginning in July 2002, the City is required (under GASB 34) to capitalize certain purchased items on the balance sheet. Capital assets are assets, including infrastructure assets that have economic value beyond the year in which they are acquired. They are recorded at historical cost and depreciated over their expected useful lives to appropriately charge future taxpayers for the benefits they receive from these long-lived assets. Capital assets are improvements to existing capital assets or wholly new assets that provide a benefit to taxpayers that last more than one year. For example, a new building is a capital asset; expenditures to return an existing building to its prior operational state are repairs. But installation of an elevator is a new capital asset attached to a building. For example, replacement of 20 broken or leaking windows does not improve the building and would be expensed (account 4340); installation of 20 highly insulating replacement windows for $30,000 would be capitalized even though each window costs less than $5,000 because they make the building more energy-efficient. Similarly, purchase and installation for $6,000 of a single skylight to improve lighting in a work area would be capitalized. A $15,000 project to replace several broken or defective water meters would not be capitalized (use account 4399). However, a project to replace water meters with better meters, that include telemetry for remote reading, would be capitalized. ---PAGE BREAK--- 3 of 8 For simplicity, only expenditures of more than $5,000 for individual assets or construction projects are capitalized. Individual items or construction, repair, or maintenance projects costing less than $5,000 are always expensed as acquired and not capitalized, even if they enhance an existing capital asset. Note that the cut-off for capital expenditures of more than $1,000 used in the budget does not apply for financial accounting purposes. Estimated useful lives for depreciating capital assets are: - Land: not depreciated - Buildings: 40 years - Land improvements (sidewalks, roads, fences, landscaping, etc.): 20 years - Lines and pipes: 40 years - Furniture and furnishings: 7 years - Vehicles, trucks, and trailers: 5 years - Computer equipment: 5 years - Machinery and equipment: 7 years - Equipment used in Waste Water and Water improvements & systems: 15 years Historical Cost: Economic activities and resources are measured at the exchange value at the time the transactions occur. Conservatism: In choosing between alternative methods of accounting, the one that is least likely to overstate assets and revenues is preferred. Assets are reduced to fair market value if it is less than the historical cost. Capital assets are depreciated so as to approximate the extended term benefit to taxpayers and the decline in the fair market value over time and from use. What This Means For You The practical effect of these goals, principles, and conventions is that departmental and divisional personnel responsible for originating and processing purchasing requisitions and vendor documents must: 1. Correctly allocate transactions to accounts. To ensure that accounting reports accurately reflect the underlying economic transactions, it is vital that all transactions are entered to the appropriate accounts. The attached documents are designed to guide your allocation of expenditures to expense and asset accounts. These guides should be followed carefully. If you have any doubts about which account to charge for an expenditure, please contact the accounting supervisor. 2. Consistently allocate transactions to accounts. Thus, the same type of expenditure must always be allocated to the same element and object accounts. To ensure that accounting information is comparable between periods and across departments and divisions, the same or comparable type of expenditure should always be charged to the same account. Changes in charged accounts should only be made with the approval of the accounting supervisor who can then make the necessary adjustments to maintain comparability over time and between operational units. ---PAGE BREAK--- 4 of 8 3. Accurately enter the account numbers, amounts, and other required information on purchase requisitions, other accounting documents, and the accounting system. The quality of accounting reports and, thus, of the decisions made by department heads and other City personnel, is dependent on the quality of the information being entered into the system. In addition to being correctly and consistently allocated, all transactions must be accurately recorded to appropriately reflect the economic or business purpose of the transaction. 4. Efficiently manage operations, expenditures, and cash flow. Every City employee who is responsibility for purchasing and ordering goods and services or processing requisitions and purchase orders has a fiduciary duty to minimize the cost of City services to the taxpayers. Therefore, the following policies must be followed: a. No purchases may be made from a related persons or business entity without the approval of the Finance Director. A person may be “related” through family or business connections. b. For every purchase over $1,500, bids must be received from at least 3 potential suppliers, unless the item is unique and there are not three potential supplies of that product or service. c. For purchase over $7,500, formal, written bids must be received from at least 3 potential suppliers, unless the item is unique and there are not three potential supplies of that product or service, and submitted to City Council for formal approval. Documents That Help Three documents have been prepared that should help you correctly, consistently, accurately, and efficiently account for expenditures: 1. Purchase Expenditures Allocation Chart. This chart describes common transactions and indicates the element/object account to which they should be charged. For transactions not included on this listing, it is recommended that you consult with the Accounting Supervisor before entering account codes on accounting documents or into the system. 2. New Accounts Cross-Reference. The new accounts are listed in numerical order and cross-referenced to the most appropriate old account number. Because of substantial changes in the chart of accounts, this cross-reference list gives only a very rough guide to allocation of expenditures to accounts. 3. Old Accounts Cross-Reference. The old accounts are listed in numerical order and cross -referenced to the most appropriate new account number. Because of substantial changes in the chart of accounts, this cross-reference list gives only a very rough guide to allocation of expenditures to accounts. Structure of Accounting Transactions are grouped in six principal accounting categories: Funds, Departments, Divisions, Activities, Elements and Objects. ---PAGE BREAK--- 5 of 8 Funds are like books of account for each of the City’s separate and largely independent operations. For all except the General Fund (100) funds separate accounts are legally required and each fund operates substantially independently. The General Fund (100) is used for all operating receipts and expenditures associated with the services normally provided by the City. Personnel from operating departments (see below) are permitted to access the accounting records for this fund. Usually only personnel from the accounting department are authorized to make entries to other funds. Fund 110 accumulates all transactions related to Laramie Economic Development. Fund 120 relates only to activities surrounding the provision of 911 Emergency Services. Fund 130 relates to all activities regarding the new Recreation Center GASB 34 requires that the City capitalize certain expenditures as described above. Capital assets are accounted for in the General Fund unless legal restrictions require them to be separately accounted for. There are four funds that accumulate capital assets outside the General Fund: Council Construction - Fund 300 Parks and Recreation Development - Fund 310 West Laramie Capital Projects - Fund 320 Special Purpose Tax - Fund 340 Tax revenue (net of related expenditures) designated for service on the debt incurred for the Territorial Park is accounted for in the Territorial Park Debt Service - Fund 400 The City maintains two Enterprise Funds. Municipal governments generally collect tax revenues to provide certain services to the community that would not otherwise be performed. They usually do not collect payment for these services. However, most municipalities also provide marketable services that individual businesses and homeowners may wish to purchase according to their individual needs. Such business activities are accounted for in “enterprise funds.” These funds should at least cover the costs of their operations out of revenues generated from the sale of their services. The City of Laramie has two such funds: Fund 510 is for the production and sale of Utilities. Fund 520 is for the fee-based collection and disposal of Solid Waste. The City is required to separately account for certain fiduciary obligations in individual funds. By preventing co-mingling of these funds with operational funds, the City is better able to manage the funds for: Health Insurance (the City is self-insured for employee health insurance) – Fund 710 Maintenance and operation of the Cemetery – Fund 720 Pooled Cash (for operations) – Fund 800 Funds 998 (Fixed Assets) and 999 (Long Term Debt) are used by the accounting department for General Funds only for the conversion to the new accounting system in July 2002. GASB 34 ---PAGE BREAK--- 6 of 8 now requires that assets and liabilities be reported on the balance sheet and begin depreciating. Departments are the City’s principal operating units. A Fund may have several departments, as in the General Fund, but smaller funds comprise only a single department (e.g. E911 Fund). Within Departments, Divisions are operational sub-units that allow the Department manager to more effectively allocate resources and supervise activities. Activities are assets (100), liabilities (200), revenues (300) and expenses (400 - 800). In most cases only revenues and expenses are identified to departments. Purchase of a capital asset is entered as an asset within a Fund and a liability (e.g. accounts payable). Expenses are further disaggregated into Elements (2 digits 10 to 90) and Objects (2 digits 01 to 99). Objects are the individual expense accounts (e.g. Vehicle Repairs) that capture expenditures related to specified activities. Elements are groups of related object accounts (e.g. Repairs and Maintenance). An expenditure for police training is an expense and is accounted for in an Object account within an Element category in the Police Department. Fire training would be under the same object and element but within the Fire Department. See the Expenditure Allocation Chart for a guide to accounting for common expenditures by elements and objects. The Relationship Between Accounting Groups Accounting transactions are coded and accounted so that they may be grouped by operational department or division, as well as by accounting categories (funds, activities, elements and objects) reflected on financial statements. The relationship between these categories may be visualized by thinking of accounting transactions as entries on a grid. The vertical columns are nested operational units: Funds, Departments within funds, and Divisions within departments (See Figure 1 below). The horizontal rows are nested accounting categories: Activities, and within expenses, Elements and Objects. Any accounting entry is located within the grid at the intersection of vertical and horizontal categories. Accounting information may be sliced vertically or horizontally. Thus, the Accounting Information System is designed to provide information both for operational management purposes (e.g. all expenses within departments and divisions – a vertical ‘cut’) and for financial reporting purposes (e.g. the total of training expense – a horizontal ‘cut’). ---PAGE BREAK--- 7 of 8 FIGURE 1 - VERTICAL GROUPINGS FUND DEPARTMENT DIVISION GENERAL FUND 100 CITY MANAGER DEPARTMENT 100 10 CITY MANAGER - ADMINISTRATION 10 CITY ATTORNEY 15 MUNICIPAL COURT 20 CITY CLERK 25 CITY COUNCIL 30 GENERAL 35 SAFETY 40 POLICE DEPARTMENT 100 20 ADMINISTRATION 10 PATROL 15 INVESTIGATION 20 SPECIAL OPS 25 L.A.R.C. 30 POLICE GRANTS 35 ANIMAL CONTROL 40 FIRE DEPARTMENT 100 30 ADMINISTRATION 10 E.M.S. 15 OPERATIONS 20 PREVENTION 25 TRAINING 30 EMERGENCY MANAGEMENT 35 PUBLIC WORKS DEPARTMENT 100 40 ADMINISTRATION 10 ENGINEERING 15 FACILITIES MANAGEMENT 20 STREETS 25 FLEET SERVICES 30 PARKS AND RECREATION DEPARTMENT 100 50 PARKS 15 CEMETERY 20 MOSQUITO 25 RECREATION 40 ICE RINK 45 S.A.C.C. 50 TEEN CENTER 55 PLANNING 80 CODE ADMINISTRATION 85 ---PAGE BREAK--- 8 of 8 ADMINISTRATIVE SERVICES DEPARTMENT 100 60 FINANCE 10 INFORMATION SYSTEMS 15 HUMAN RESOURCES 20 RECREATION CENTER 130 ADMINISTRATION 13 10 SPECIFIC PURPOSE TAX FUND 340 CITY HALL BOILER/ REMODEL 15 CH REMODEL CDBG GRANT 16 CH REMODEL SLIB GRANT 17 RECREATION CENTER DEPARTMENT 20 RECREATION OUTDOOR POOL DEPARTMENT 25 ICE RINK DEPARTMENT 30 DOWNTOWN DEVELOPMENT ASSOCIATION streetscape 35 EAST SIDE TANK 40 L.L.P.C.C. BOILER 45 STREETS / UTILITIES RECONSTRUCTION 50 UTILITIES FUND 510 WATER DEPARTMENT ADMINISTRATION 70 10 PUMPING & WELLS 70 15 FILTER TREATMENT PLANT 70 20 TRANSMISSION & DELIVERY 70 25 METERS 70 30 MONOLITH RANCH 70 35 WATER RIGHTS 40 SEWER DEPARTMENT WASTE WATER ADMINISTRATION 80 10 COLLECTION 80 15 TREATMENT 80 20 BIOSOLIDS 80 25 WASTE WATER INDUSTRIAL PRETREATMENT. 80 30 LIFT STATION 80 35 SOLID WASTE FUND 520 ADMINISTRATION 90 10 COLLECTION 90 15 DISPOSAL 90 20