Top Takeaways from the 2018 VGFOA Spring Conference
June 13, 2018
This year’s 2018 Virginia Government Finance Officers’ Association (VGFOA) spring conference demonstrated the organization’s commitment to fostering financial excellence in government by creating opportunities for professional development. In addition to the opportunities for professional networking and relationship-building, regional and national economic updates were provided to attendees, highlighting positive trends in job growth and consumer spending while also illustrating the disparity between the urban and rural areas of the region. The conference also highlighted changes to government accounting standards that will impact local government financial reporting. Additionally, sessions on fraud and public-sector innovation made this conference well-rounded for Virginia government accounting and finance professionals.
Updated Accounting and Financial Reporting Standards
Conference sessions focused on new standards that were adopted by the Governmental Accounting Standards Board (GASB) – including pronouncements are expected to go into effect on June 30th. The conference sessions focused specifically on Statements 74, 75, 81, 85 and 86.
Statements No. 74 and 75 – Post Employment Benefits Plans Other than Pension Plans
Statement No. 74 is relevant to the Virginia Retirement System (VRS) and includes new financial statement requirements that include a statement of fiduciary net position and a statement of changes in fiduciary net position for defined contribution “other post-employment benefits plans” (OPEB) that are administered through trusts and meet the following criteria:
- Contributions from employers and non-employer contributing entities to the OPEB plan and earnings on those contributions are irrevocable.
- OPEB plan assets are dedicated to providing OPEB to plan members in accordance with the benefit terms.
- OPEB plan assets are legally protected from the creditors of employers, non-employer contributing entities, and the OPEB plan administrator. If the plan is a defined benefit OPEB plan, plan assets also are legally protected from creditors of the plan members.
Statement No. 75 addresses accounting and financial reporting for OPEB that is provided to the employees of state and local governmental employers. The Statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. For defined benefit OPEB, Statement No. 75 identifies the methods and assumptions that are required to be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service.
Statement No. 81 – Irrevocable Split-Interest Agreements
Statement No. 81 is intended to improve accounting and financial reporting for irrevocable split-interest agreements by providing recognition and measurement guidance for situations in which a government is a beneficiary of the agreement. Split-interest agreements are a type of giving agreement used by donors to provide resources to two or more beneficiaries, including governments. This Statement enhances the comparability of financial statements by providing accounting and financial reporting guidance for irrevocable split-interest agreements in which a government is a beneficiary.
Statement No. 85 – Omnibus
Statement No. 85 addresses a variety of topics including issues related to blending component units, goodwill, fair value measurement and application, and OPEB. The Statement includes amendments to some of the existing literature including, blending component units, goodwill and negative goodwill, real estate classification for operations and investment purposes, fair value measurement and application, pension (employer), and OPEB (pension and employer) updates.
Statement No. 86 – Debt Extinguishment Issues
Statement No. 86 covers debt extinguishment issues found through researching Statements 7 and 23 on debt refundings and Statement 62 on debt extinguishments. This Statement amends requirements for extinguished prepaid insurance associated with debt, establishes standards for in-substance defeasance transactions where existing resources are placed in an irrevocable trust, and establishes an additional disclosure requirement related to debt that is defeased in substance.
Public Sector Innovation
One of the noteworthy conference sessions , “Innovation in the Public Sector” focused on the need for local entities to keep up with public expectations that their government provide the same level of digital services as commercial organizations. Statistics revealed that as of 2016, 85% of citizens expected the same or higher quality from government digital services as they did from commercial organizations. Additionally, 70% of citizens feel that public agencies could provide a better customer experience by using the latest technologies.
While the benefits of increased innovation and adoption of new technologies focused on automation and digitization, the reality of the barriers faced by many agencies was a shared concern. Conversations within the session focused on the difficulty obtaining the capital funds necessary to update existing systems, let alone adopt new technologies where the focus is on efficiency and customer experience, with no direct link to revenue generation. Additional discussions questioned the ability of organizations to move to a value-focused, automation-driven digital model when many agencies are still firmly entrenched in an outdated paper-based, manual environment with a culture of “that’s how it’s always been done”. While the benefits of innovation are apparent, and the expectations of citizens are clear, the path to modernization may be less straightforward.
Identifying and Managing Financial Fraud
The “50 Shades of Fraud” session focused on financial fraud as a crime for profit, rather than one of passion, and illustrated that those who are caught committing fraud are unlikely to face consequences commensurate to the impact their theft has had on those from whom they’ve stolen – especially in comparison to those convicted of committing other crimes. Financially, statistics presented showed that when fraud occurs: 53% of victims recover nothing, 32% of victims make a partial recovery, while only 15% of victims recovered all losses.
The session noted the importance of understanding the thoughts of the people who commit fraud, and reiterated the ubiquitous “Fraud Triangle” – the three factors that lead someone to commit fraud:
- Incentive: The person has a perceived pressure they are facing that encourages them to carry out the fraud
- Opportunity: There is a perceived opportunity in which the person believes they can carry out the fraud without getting caught
- Rationalization: The person rationalizes that committing the fraud is right, and believes it’s owed to him or her
The session further noted that most fraud is discovered through tips, rather than through audits or structured reviews. This highlights the need to augment effective oversight and controls with a confidential reporting process that includes effective investigation and corrective action.
Overall, the spring 2018 VGFOA conference was informative and enlightening. The messages provided through each of the sessions made very clear, that government accounting in Virginia is changing at a rapid pace. Bringing this community together, in one central location, is critical to the success and growth of Virginia government accounting.