Agenda - Council - 01/13/1981 - Laserfiche WebLink

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. . . -States Move to GAAP Many states are taking the initiative in moving to GAAP. New York State Comp~roller Edward V. Regan in a September memo to Governor Hugh Carey. said activities of his office are "moving the State from an archaic checkbook, or cash basis, for running government to a system conforming with generally accepted accounting principles." The conversion is expected to take severa) years. Similarly, Puerto Rico has begun to convert a cash system to modified accrual as a more accurate measure of its fiscal condition. Under its timetable, the Commonwealth will have in place: -A computerized general ledger by fiscal 1981 ......:An accounts payable and encumbrance system by fiscal 1982 -Procedures to account for fixed assets by fiscal 1983 -Final implementation of its central government accounting system by fiscal 1984. Maryland, one of the first states to adopt GAAP, began in 1975. Last year, the project was operational. Did anyone notice? Officials in Annapolis say the bond market did. Last January, Maryland and a state with cash-basis accounting each sold more than $100 million of AAA-rated bonds on consecutive days. Maryland's interest rate was 0.15 percentage point lower, equal to a $600.000 saving, in part reflecting conversion to GAAP, said Maryland's Comptroller Louis V. Goldstein. The saving paid the cost of the new accounting system, plus independent audits for 1979 and 1980. according to a report to the legislature. Under GAAP, Maryland's financials now show all revenues when measurable and available instead of when cash is rec~ived, and all expenditures when the liability is incurred rather than when the payment is made. Also reported are contractual obligations incurred, and all other liabilities which exist at the close of the fiscal year. Omission of any of these could cloud the state's true. fiscal condition. Under the cash-basis system used prior to 1979, for example, about $150 million of unpaid liabilities or uncollected receivables may have gone unreported. New York City Events have a. way of coming full circle. New York City, where it all started, now wants back into the bond market. Mayor Edward Koch told a Wall Street group last month: "New York has eliminated all budgetary and accounting abuses that characterized its practices prior to 1975." . Recently, the City unveiled its integrated financial management system. Called IFMS, it centralizes budgeting, accounting, purchasing, and payroll in a single database computer network. "It's among the most sophisticated financial control systems of any government entity in the United States," says the mayor. From IFMS comes detailed monthly reports tracking $13.5 billion of annual revenues and expenditures within 30 days of the close of each month. Previously considered unauditable, the city is now audited by a "Big Eight" accounting firm. That data is being examined by S&P as part of a request by the city to have its suspended rating reviewed relative to New York City's proposed re-entry into the bond market. .. "''" Independent Audits " If New York City can bring order out of its chaos, can any governmental unit credibly '~~i.(\;daim an inability to comply with accounting and auditing standards? 4