DISTRICT OF COLUMBIA SUMMARY OF MAJOR ACCOUNTING PRINCIPLES SEPTEMBER 30, 1979 ACTIVITIES INCLUDED IN THE FINANCIAL STATEMENTS Operations of all District departments, offices and agencies are included in the financial statements. The following are also included. District Unemployment Compensation and Retirement Trust Funds District of Columbia General Hospital Commission O Superior Court and Court of Appeals of the District of Columbia Certain multi-governmental organizations are not included in the District's financial statements because they are not operated solely by the District. These include the Pennsylvania Avenue Development Corporation and the Metropolitan Council of Governments. Accounting for the District's participation in the Washington Metropolitan Area Transit Authority is described in Note 5. FINANCIAL STATEMENTS PRESENTED Accounting principles and financial reporting for state and local governments are evolving to provide more meaningful reporting to citizens and other users of public sector financial statements. Consolidated Financial Statements have been prepared to facilitate an understanding of the overall financial position and financial activity of the District as a single entity. Exhibits I through IV, which present General Purpose Financial Statements, have been prepared using the "fund accounting" basis of reporting generally followed in the public sector an include information reconciling them to the amounts in the consolidated financial statements. The Consolidated Financial Statements reflect transactions between the District and outside parties (individuals, companies and other governmental units) and exclude transactions among District agencies. The statements present the District's financial condition and operations as those of a single entity. The Consolidated Financial Statements have been presented in accordance with the suggestions of the American Institute of Certified Public Accountants' publication, "An Experiment in Government Accounting and Reporting by the AICPA State and Local Government Accounting Committee." At the present time, very few public entities present their financial statements on a consolidated basis. Accordingly, comparison between the financial statements of the District presented herein and those of other governmental units should be undertaken with the recognition that similar substantial adjustments as described in Exhibit IV will be necessary to achieve comparability. ACCOUNTING PRINCIPLES USED IN ALL FINANCIAL STATEMENTS Preparation of the Financial Statements - Accrual Basis The financial statements reflect transactions in the year revenues are earned and costs are incurred (the "accrual basis of accounting"), rather than when cash is received or paid. Certain estimated costs, such as employee benefits (annual leave and retirement benefits), are reflected as they are incurred, rather than when they are paid in the future. Receivables Receivables represent amounts earned, but not collected, for the performance of services or taxes due. Receivables include amounts for hospital, and water and sewer services provided, even if a billing has not been rendered. Receivables are reduced for estimated uncollectible amounts. Materials and Supplies Materials and supplies represent items in central storage facilities. These items are reflected principally at their most recent purchase price. Property and Equipment Property and equipment is reflected at cost, which was estimated for some items. Donated property is reflected at estimated value when received. Costs of normal repair and maintenance are expensed. Costs of major repairs, which extend the estimated useful life of property, are added to the cost of property. Depreciation is reflected evenly over the estimated period of time the property is expected to be used. Estimated years of use for each type of property follow. As of September 30, 1979, $16 million of goods and services had been ordered, but not received. These undelivered orders are not reflected in the financial statements until the goods are received or services are rendered. Taxes Individual income, general sales and gross receipts taxes are reflected as revenue and receivables when reported as withheld by employers or collected by merchants. Corporate income and other self-assessed taxes are reflected as income when received. Unpaid taxes are reflected as accounts receivable and revenue when identified. Tax refunds owed, but unpaid, are reflected as liabilities. Property taxes are levied as of July 1 for the following 12 months. As of September 30, 1979, $68 million of property taxes had been collected, which are applicable to months after that date and will be reported as revenue in 1980. Cost-Reimbursable Grants As with most states and cities, the District receives Federal grants for reimbursement of costs incurred in providing certain services. Grant revenues are reflected to the extent that reimbursable costs are incurred. Receivables are reflected for costs incurred, but not reimbursed, and liabilities are reflected for amounts collected in advance of incurring costs. Workers' Compensation The $64 million liability for workers' compensation represents the present value of aggregate estimated amount to be paid in future years to disabled District employees. The 1979 cost was $24 million. (2) DISTRICT OF COLUMBIA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1979 (1) ORGANIZATION AND AUTHORITY The District of Columbia is governed by the District of Columbia Self- The Home Rule Act gives the District general taxing authority, but prohibits a nonresident income tax. The Act provides that annually the Federal government will make payments to the District in recognition of the services that the Federal government receives from the District and the fact that approximately one-third of the District's land area is owned by the Federal government, which is exempt from property taxes. The Federal Payment is determined by the U. S. Congress. The District's operating and capital budgets are subject to Congressional approval (see Note 3). PRIOR ANNUAL FINANCIAL REPORTS As described in the District's 1978 Annual Financial Report, certain information normally presented in financial statements was excluded or was incomplete because the accounting records did not provide the information. During 1979, the District continued to improve its accounting records to provide this information. In 1978, certain entities (District Unemployment Compensation Trust, Stadium/ It was not practical to revise prior financial statments for comparison to (3) BUDGET COMPLIANCE Operating Budget The District's annual operating budget must balance estimated receipts with estimated expenditures. After approval by the Council, the budget is approved by the U.S. President and Congress. The final budget is enacted by Congress and changes must be approved by Congress. The budget is prepared on the basis specified by Congress, which is substantially different from that used for financial reporting purposes. For example, depreciation, all Federal grants and certain entities (National Capital Housing Authority, Redevelopment Land Agency, and Stadium/Armory Complex) are excluded from the appropriated budget. Receipts for budget purposes are recorded when cash is received. Also, police and fire employees' payroll withholdings for their future pensions are included as receipts in the budget. Obligations for goods and services are recorded when ordered, rather than when the goods are consumed and services are rendered. However, there are exceptions to this policy employee benefits (pensions, workers' compensation, annual vacation leave), interest and the repayment of debt are recorded as expenditures for budget purposes when actually paid. See the accompanying Summary of Major Accounting Principles for a discussion of how these and other matters are reflected for financial reporting purposes. - The accompanying Reconciliation of Consolidated Costs of Services and Revenues to Budget summarizes the differences in accounting for financial reporting and budget purposes. Capital Projects Budget Capital projects (see Note 4) are approved by the Council, the President and Congress. Capital project costs are paid from the proceeds of borrowings from the Federal government and Federal capital grants. As of September 30, 1979, active capital projects authorized by Congress had balances of approximately $300 million to be expended in 1980 and future years. As of September 30, 1979, approximately $37 million in excess of appropriations was committed for certain transportation capital projects. Congress has denied the District's request for appropriation of these expenditures, and appropriation remains unresolved. The District anticipates a reprogramming of surplus District capital funds to offset, at least partially, the excess. These overcommitments arose primarily in prior years when project cost records were insufficient. |