1.) Letter of Transmittal—Review the capital-projects related discussions and presentations.
1a. Summarize and describe the nature of the information in the Letter of Transmittal.
The State of Indiana CAFR’s Letter of Transmittal (starting on page ix) is addressed to the Governor, Members of the General Assembly, and the Citizens of the State of Indiana. It includes the following sections: Letter from the State Auditor, Profile of the Government, Factors Affecting Economic and Financial Conditions, and Awards.
Letter from the State Auditor (not labeled as such): This section contains some informationsimilar to what is found in a standard audit report. This section includes a statement that the Auditor of State and State Budget Agency are responsible for the report itself, but the data presented is the responsibility of the state agencies that provide it. There is a paragraph stating that the Indiana State Board of Accounts (who audits Indiana’s G&NP entities and is considered to be independent) provides the Independent Auditor’s Report on the financial statements. The state is responsible for internal controls. The internal control structure is evaluated periodically and modified if necessary. GAAP provides for both government wide statements (using full accrual) and fund statements (using modified accrual). Infrastructure is capitalized in government wide statements. Capital assets, aside from infrastructure, are depreciated the same as in private businesses.
The Profile of the Government: Indiana is involved heavily in manufacturing and agriculture. Indiana has a population slightly under 7 million. Roughly ¾ of the population is urban and the other ¼ is rural. The largest cities are Indianapolis, Fort Wayne, Evansville, South Bend, and Carmel. The next part of the government profile gives a brief overview of the history of the Indiana government and its structure. The state of Indiana provides services to its citizens “including education, transportation, public health, public safety, welfare, conservation, and economic development.” (pg. x) The Indiana General Assembly is responsible for adopting the biennial budget. There is some further information regarding budgeting included in this section.
The Factors Affecting Economic and Financial Conditions section includes information regarding: Local Economy, Cash Management and Investments, Debt Administration, Financial Policies, Long-Term Financial Planning, and Major Initiatives.
The Awards Section mentions that the State of Indiana received a GFOA Certificate of Achievement of Excellence in Financial Reporting for its 2017 CAFR (the prior year) and that it is believed that the state will earn the award again for this 2018 CAFR.
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1b. Who would be primarily interested in a Letter of Transmittal?
Anyone seeking to gain a broader overview of the information presented in the CAFR before diving deeper into the data. There are a wide variety of people who may be interested in reading the Letter of Transmittal. It is arguable that anyone who is reading over the CAFR should read the Letter of Transmittal first, (because of the holistic overview it is supposed to provide) unless they are only interested in one certain section, or looking for very specific information. These users could include, but are not limited to: the citizens of Indiana, investors and brokers, lenders, other state and local governments (including municipalities within Indiana), and companies with operations located partially or fully in Indiana, or those who may consider investing in doing business in Indiana in the future.
The citizens of Indiana may be interested because they fund the government through taxes, and therefore want to hold the government accountable for those funds. They want to be able to see that their dollars are going somewhere they approve of, so that they can continue to support those in office or lobby against them. Investors would include those who own government securities, such as municipal bonds from municipalities within Indiana. Companies doing business in Indiana may be interested as well, particularly in the “Factors Affecting Economic and Financial Conditions” section.
1c. Which were the most significant general government capital projects?
The State is overhauling its legacy IT system by means of a new project called Project NextDOR, which was initiated by the Indiana Department of Revenue. This upgrade should enhance the efficiency and effectiveness of Indiana’s information technology systems and environment, for both citizens and government workers.
The State is transitioning the county abstract process to a new system called “Gateway” which is Indiana’s local government online repository. This transition was initiated by the Department of Local Government and the Auditor of State, and the hope is that the submission and compilation processes will be less complicated, and more efficient. This will also provide more widespread access to local unit tax information through the online database.
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1d. Which planned capital projects were discussed?
Aside from the two projects mentioned in the answer to the previous question, there was also mention (under the Major Initiatives – Transportation header, pg. xii) that the Indiana Department of Transportation is in the process of executing a $12 billion construction program, although the report does not go into further detail in this section regarding the construction. There is also mention of capital projects within the “Major Initiatives – Higher Education” section, presumably mainly construction on college campuses. The previously mentioned two projects are also still likely in the process of being implemented at the time this CAFR was issued. There are other less major capital projects may have not been included in the Letter of Transmittal, for the sake of brevity.
2.) Management Discussion and Analysis—
2a. Summarize and describe the nature of the information in the MD&A.
The MD&A is exactly what the name implies, a discussion and analysis of the financial performance of the State of Indiana by those who are charged with management/governance. The MD&A includes subsections over topics such as: Financial Highlights, information covering how the financial statements are presented (including the difference between government wide and fund statement reporting styles), explanations regarding the differences between governmental, proprietary, and fiduciary funds. These are discussed at the beginning of the MD&A. The majority of the MD&A however, is the explanations of specific numbers and operational practices. These explanations cover almost every section of the financial statements, for both governments wide and fund statements. The MD&A is similar to the Letter of Transmittal, and the Notes to the Financial statements, in that it attempts to provide more information to give the reader a better view of the financial standing of the government entity rather than if they had just read the financial statements alone without any accompanying explanatory information.
The MD&A is helpful in understanding management’s reasoning and mindset behind the financial statements. They are essentially explaining why the numbers in the financial statements are what they are. The MD&A is useful for those instances when explanations for specific figures are necessary (in management’s opinion) to fully understand the situation or the reasoning behind why a certain figure has increased or decreased.
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2b. Who would be primarily interested in MD&A?
The same parties that would be interested in the Letter of Transmittal (question 1b) would likely be interested in the MD&A. The MD&A actually states outright that it should be read in conjunction with the Letter of Transmittal and the Financial Statements. Similar to the Letter of Transmittal, the MD&A helps to give a more holistic overview of the financial position of the State of Indiana.Citizens of Indiana, investors, lenders, other G&NP, credit rating agencies, businesses; all of these parties may be interested in reading the MD&A.
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2c. What discussions and analysis relate to general capital assets?
Capital assets are just over half of the total assets for the primary government. Much of the discussion in the 2018 CAFR MD&A regarding general capital assets relates to the increase in total capital assets due to the Indiana Department of Transportation’s current projects in upgrading infrastructure. These include increases in land, roads, bridges, and other types of infrastructure. There is also a significant increase in in computer software capital assets that are necessary to maintain the infrastructural project.
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3.) Financial Statements—
3a. What were the major types of Capital Project Funds revenue, other financing resources, expenditures, and other financing uses?
Due to there being no major capital project funds, this information is difficult to glean from the report. Knowing that there is a major overhaul in the State’s infrastructure, we can assume that there are significant expenditures and possibly other financing uses of resources related to these improvements. There are certainly going to be interfund transfers to help fund the project.
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3b. What funds are reports as major funds?
The funds reported as major funds under the Governmental funds sections include: General Fund, Public Welfare-Medicaid Assistance Fund, and US Department of Health and Human Services fund. Other funds are consolidated into the Non-Major Governmental Funds column.
The fund reported as a major fund under the Proprietary funds sections is the “Unemployment Compensation Fund”. All other funds are consolidated in the “Non-Major Enterprise Funds” column (aside from the internal service funds.) See figure 7 (pg 29) and figure 8 (pg 36) for these major fund column headings.
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3c. How are the presented?
These funds are presented discretely, in their own columns. They are important enough that they should be shown separately from other funds. Combining them all together may be misleading, when each of the major funds serves a specific purpose and comprises such a significate portion of the overall fund total. This type of presentation is more transparent and appropriate.
3d. What types of reconciling items are included in the reconciliation of fund balance and changes in fund balance in the governmental fund financial statements and net position and changed in net position for governmental activities in the government-wide financial statements?
Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position:
Items that are relevant to this reconciliation arise from multiple types of differences between the two levels of reporting. In government-wide statements, capital assets are capitalized at cost and costs are offset by accumulated depreciation/amortization. Government-wide statements use flow of economic resources measurement basis, and therefore “expenses reported in the statement of activities do not require the use of current financial resources” (pg. 63) This means that the receivables and payables are accrued in the government-wide statements, but not in the fund statements. There is also differences in reporting for internal service funds between government-wide and fund financial statements. All of these are items that will need to be reconciled between the two types of statements to ensure accurate and transparent reporting.
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4.) Describe the different reporting options used in the government-wide financial statements. Answer one of the following two questions:
4b.) How many discretely presented components did you identify? For what reason(s) were the component units discretely presented?
The main discretely presented component units in the State of Indiana 2018 CAFR Government-wide financial statements include, but are not limited to the following: “the Indiana Finance Authority, the State Lottery Commission of Indiana, the Indiana Bond Bank, the Indiana Housing and Community Development Authority, and colleges and universities that receive state funding.” Other discretely presented component units include: “Ports of Indiana, Indiana State Fair Commission, and Indiana Political Subdivision Risk Management Commission.”
Similar to the reasoning behind separation of major and non-major funds in fund level reporting, these component units are discretely presented due to the fact that they either effect/comprise a significant enough portion of the overall statement amounts, or they differ in governance and operation enough from the primary government to warrant separate discrete presentation, or both. Essentially, if the report were to not show these component units discretely, the overall statements may be misleading. This type of presentation enhances transparency and allows for more precise reporting. The more information that the users of the report have the better.
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Figure 1: Certificate of Achievement for Excellence for Comprehensive (CAFR)
Figure 2 Significant
General Governmental Capital Projects
Figure 3 MD&A
explaniations
Figure 4Read MD&A
in Context
Figure 5 MD&A and Capital Assets
Figure 6 Internal Transfers
Figure 7 Major Funds
Figure 8 Major Funds (cont)
Figure 9 Reconciling Items
Figure 10 Component Units
Figure 11 Auditor’s Responsiblity
Figure 12
Discretely Presented Component Units
Figure 13 Discretely Presenting Component Units—Who’s included?
