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2012-06 Fund Balance Policy RESOLUTION 2012-06 III A RESOLUTION OF THE VILLAGE COUNCIL OF THE VILLAGE OF NORTH PALM BEACH, FLORIDA, ADOPTING A FUND BALANCE POLICY FOR THE VILLAGE TO BE INCORPORATED INTO THE VILLAGE'S ACCOUNTING POLICIES AND PROCEDURES MANUAL FOR INTERNAL CONTROLS; PROVIDING FOR CONFLICTS; AND PROVIDING FOR AN EFFECTIVE DATE. WHEREAS, the Government Accounting Standards Board ("GASB") issued Statement No. 54 ("Fund Balance Reporting and Governmental Fund Type Defmitions") in order to enhance the usefulness of fund balance information in governmental financial statements by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing governmental fund type definitions; and WHEREAS, the Village Administration is recommending the adoption of a Fund Balance Policy consistent with GASB Statement No. 54 to be incorporated into the Village's Accounting Policies and Procedures Manual for Internal Controls; and WHEREAS, the Fund Balance Policy has been reviewed and approved by the Village's Audit Committee; and WHEREAS, the Village Council determines that the adoption of the Fund Balance Policy proposed by Village Administration is in the best interests of the Village and its residents. NOW, THEREFORE, BE IT RESOLVED BY THE VILLAGE COUNCIL OF NORTH PALM BEACH, FLORIDA as follows: Section 1. The foregoing recitals are hereby ratified and are incorporated herein. Section 2. The Village Council hereby adopts a Fund Balance Policy, a copy of which is attached hereto and incorporated herein by reference, and directs that the Policy be included in the Village's Accounting Policies and Procedures Manual for Internal Controls. Section 3. All resolutions or parts of resolutions in conflict herewith are hereby repealed to the extent of such conflict. Section 4. This Resolution shall take effect retroactive to October 1, 2010. PASSED AND ADOPTED THIS 12th DAY OF JANUARY, 2012. v,9,k) 10 a 1 Ml €�e Seal) ,�; ,, / MAYOR . , ttja ,c.1� A0; ti�o,t.);$1t);\ lt' 4 • 'AT;I ST: 9)),N° a 97.„4 46 %/J�� ji, ''' '''''''f' i��I�O��G./ VILLAGE CLERK Fund Balance Policy Purpose The following policy has been adopted by the Village of North.Palm Beach in order to address the implications of Governmental Accounting Standards Board ("GASB") Statement No. 54, Fund Balance Reporting and Government Fund Definitions. This policy and the procedures promulgated under it supersede all previous regulations regarding the Village's fund balance and reserve policies. Fund Type Definitions The following definitions will be used in reporting activity in governmental funds across the Village. The Village may or may not report all fund types in any given reporting period,based on actual circumstances and activity. The general fund is used to account for all financial resources not accounted for and reported in another fund. Special revenue funds are used to account and report the proceeds of specific revenue sources that are restricted or committed to expenditures for specific purposes other than debt service or capital projects. The term "proceeds of specific revenue sources" establishes that one or more specific restricted or committed revenues should be the foundation for a special revenue fund. Those specific restricted or committed revenues may be initially received in another fund and subsequently distributed to a special revenue fund. Those amounts should not be recognized as revenue in the fund initially receiving them; however, those inflows should be recognized as revenue in the special revenue fund in which they will be expended in accordance with specified purposes. Special revenue funds should not be used to account for resources held in trust for individuals,private organizations,or other governments. The restricted or committed proceeds of specific revenue sources should be expected to continue to comprise a substantial portion of the inflows reported in the fund.Other resources(investment earnings and transfers from other fund, for example) also may be reported in the fund if those resources are restricted, committed or assigned to the specified purpose of the fund. Debt service funds are used to account for all financial resources restricted,committed or assigned to expenditures for principal and interest.Debt service funds should be used to report resources if legally mandated. Financial resources that are being accumulated for principal and interest maturing in future years also should be reported in debt service funds. Capital proiects funds are used to account for all financial resources restricted, committed or assigned to expenditures for capital outlays,including the acquisition or construction of capital facilities and other capital assets. Capital projects funds exclude those types of capital-related outflows financed by proprietary funds or for assets that will be held in trust for individuals, private organizations,or other governments. Permanent funds are used to account for and report resources that are restricted to the extent that only earnings,and not principal,may be used for purposes that support the Village's programs— that is, for the benefit of the Village or its citizenry. Permanent funds do not include private- purpose trust funds,which should be used to report situations in which the Village is required to use the principal or earnings for the benefit of individuals, private organizations, or other governments. Fund Balance Reporting in Governmental Funds • Fund balance will be reported in governmental funds under the following categories using the definitions provided by GASB Statement No.54: Nonspendable fund balance includes amounts that cannot be spent because they are either(a)not in spendable form or (b) legally or contractually required to be maintained intact. The "not in spendable form" criterion includes items that are not expected to be converted to cash, for example, inventories and prepaid amounts. It also includes the long-term amount of loans and notes receivable,as well as property acquired for resale.However,if the use of the proceeds from the collection of those receivables or from the sale of those properties is restricted,committed,or assigned, then they should be included in the appropriate fund balance classification (restricted, committed, or assigned), rather than nonspendable fund balance. The corpus (or principal) of a permanent fund is an example of an amount that is legally or contractually required to be maintained intact Restricted fund balance includes amounts that are restricted to specific purposes when constraints placed on the use of resources are either: (a) Externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments;or (b) Imposed by law through constitutional provisions or enabling legislation. Enabling legislation authorizes the Village to assess,levy,charge,or otherwise mandate payment or resources(from external resource providers)and includes a legally enforceable requirement that those resources be used only for the specific purposes stipulated in the legislation. Legal enforceability means the government can be compelled by an external party— such as citizens, public interest groups,or the judiciary—to use resources created by enabling legislation only for the purposes specified by the legislation. Committed fund balance includes amounts that can be used only for specific purposes pursuant to constraints imposed by an ordinance, the Village's highest level of decision making authority. Those committed amounts cannot be used for any other purpose unless the Village removes or changes the specified use by taking the same type of action (an ordinance) it employed to previously commit those amounts. Committed fund balance should incorporate contractual obligations to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual requirements. Amounts in the committed fund balance classification may be redeployed for other purposes pursuant to an ordinance.Constraints imposed on the use of committed amounts are imposed by the Village, separate from the authorization to raise the underlying revenue.Therefore,compliance with constraints imposed by the Village that commit amounts to specific purposes is not considered to be legally enforceable. An ordinance that commits fund balance to a specific purpose should be adopted prior to the end of the reporting period, but the amount,if any,which will be subject to the constraint,may be determined in the subsequent period. Assigned fund balance includes amounts intended to be used by the Village for specific purposes, but are neither restricted nor committed. Intent should be expressed by the Village Council or the Village Manager to which the Village Council has delegated authority to assign amounts to be used for specific purposes. The authority for making an assignment is not required to be the Village's highest level of decision-making authority. Constraints imposed on the use of assigned amounts are more easily removed or modified than those imposed on amounts that are classified as committed. 111 In governmental funds other than the general fund, assigned fund balance includes all remaining amounts (except for negative balances) that are not classified as nonspendable and are neither restricted nor committed.In the general fund,assigned fund balance includes all amounts that are intended to be used for specific purposes in accordance with the Village's expressed intent,but are • neither restricted nor committed. By reporting particular amounts that are not restricted or committed in a special revenue, capital projects,debt service, or permanent fund,the Village has assigned those amounts to the purpose of the respective funds.Assignment within the general fund conveys that the intended use of those amounts is for a specific purpose that is narrower than the general purposes of the Village itself.An assignment for an amount to a specific purpose should not be reported if the assignment would result in a deficit in unassigned fund balance. An appropriation of existing fund balance to eliminate a projected budgetary deficit in the subsequent year's budget in an amount no greater than the projected excess of expected expenditures over expected revenues satisfies the criteria to be classified as an assignment of fund balance. Unassigned fund balance includes the residual classification for the general fund. This classification represents fund balance that has not been assigned to other funds and that has not been restricted,committed, or assigned to specific purposes within the general fund. The general fund should be the only fund that reports a positive unassigned fund balance amount. In other governmental funds, it may be necessary to report a negative unassigned fund balance if expenditures incurred for specific purposes exceeded the amounts restricted, committed, or assigned to those purposes. Operational Guidelines The following guidelines address the classification and use of fund balance in governmental funds: Classifying fund balance amounts— Fund balance classifications depict the nature of the net resources that are reported in a governmental fund. An individual governmental fund may include nonspendable resources and amounts that are restricted, committed, or assigned, or any combination of those classifications. The general fund may also include an unassigned amount. Encumbrance reporting - Encumbering amounts for specific purposes for which resources have already been restricted,committed or assigned should not result in separate display of encumbered amounts. Encumbered amounts for specific purposes for which amounts have not been previously restricted, committed or assigned, will be classified as committed or assigned, as appropriate, based on the definitions and criteria set forth in GASB Statement No.54. Prioritization of fund balance use-When an expenditure is incurred for purposes for which both restricted and unrestricted (committed,assigned,or unassigned)amounts are available, it shall be the policy of the Village to consider restricted amounts to have been reduced first. When an expenditure is incurred for purposes for which amounts in any of the unrestricted fund balance classification could be used,it shall be the policy of the Village that committed amounts would be reduced first,followed by assigned amounts and then unassigned amounts. Implementation and Review Upon adoption of this policy the Village authorizes the Village Manager to establish and review any standards and procedures which may be necessary for its implementation. The Village Manager shall review this policy at least annually and make any recommendations for changes to the Village Council. •