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Multi – GAAP Reporting for Public Sector

February, 2018

09_Multi-GAAP_Reporting_for_Public_Sector
February 27, 2018

Multi – GAAP Reporting for Public Sector

Managing GASB 34 Compliance in SAP Business ByDesign

By: Teresa Blackwell, Director, SAP Business ByDesign Practice & Jay M. Winchester, Proposal Writer

With tax time rapidly approaching, we’ve been discussing how SAP’s Business ByDesign helps simplify an organization’s tax reporting burden. Today’s topic? Multi-GAAP reporting for Public Sector.

Entities that report under the Governmental Accounting Standards Board (GASB) rules must present financial statements according to two different bases of Generally Accepted Accounting Principles (GAAP) reporting: Full Accrual and Modified Accrual. This reporting requirement is based on GASB Statement 34, Basic Financial Statements – and Management’s Discussion and Analysis for State and Local Governments.

  • Full Accrual accounting takes the long view. Financial events are recognized when they occur regardless of whether funds are available or received.
  • Modified Accrual is focused on the short term and tracks closely to the budget. Funds are recognized when they are measurable and available.

The table below summarizes the key differences between these two versions of GAAP.

 Modified AccrualFull Accrual  
Accounts Payable  In the absence of an applicable modification, accounts payable are recognized in the fiscal year in which the agency incurs the liability.    Recognize a payable in the fiscal year in which the agency incurs the liability.    
Prepaid Items  Prepaid items may be recognized using the purchases method (expensed when purchased) or the consumption method (held in inventory when purchased, expensed when consumed).Consumption method: Recognize an asset when an item is purchased and an expense when an item is used or consumed.    
Long-Term Liabilities – Current Portion  Recognize the liability as it matures or to the extent the liability is expected to be liquidated with expendable available financial resources.Recognize the liability in the fiscal year in which the agency incurs the liability.    
Long-Term Liabilities – NoncurrentThe portion that does not meet the criteria for recognition as a current liability is a noncurrent long-term liability.Recognize the liability in the fiscal year in which the agency incurs the liability.
  RevenuesGovernmental funds recognize revenues as cash is received during or soon after the end of the year and when it is earned and both measurable and available (within 60 days).Recognize the revenue in the fiscal year in which the agency earns the revenue and it is measurable. Availability is not a factor.
ExpendituresIn the absence of an applicable modification, expenditures are recognized in the fiscal year in which they are expended or when they are subject to accrual. Accruals are recorded when they are expected to use expendable financial resources.Fund expenditures are recognized in the fiscal year in which the agency incurs a liability. Adjustments may be needed to ensure the matching principle is followed.
Capital Asset Acquisitions  Recognize the expenditure at the acquisition date.    Recognize the cost of the asset and depreciate the value over the expected useful life of the asset.
Inventories  Inventory may be recognized using the purchases method (expensed when purchased) or the consumption method (held in inventory when purchased, expensed when consumed).    Consumption method: Recognize an asset when inventory is purchased and an expense when inventory is used or consumed.    
Compensated AbsencesRecognize a liability as payments come due each fiscal year on the occurrence of resignations or retirements.Recognize the liability and the expense in the fiscal year in which the agency incurs the liability.    
Claims & Judgments    Recognize a liability to the extent they are normally expected to be liquidated with expendable available financial resources.Recognize the liability in the fiscal year in which the agency incurs the liability.    

Clearly, there are differences between the two bases of accounting. Many government entities and agencies take a two-step approach to this process. In Step 1, they maintain the general ledger throughout the year on the modified accrual basis. In Step 2, they then reconcile that view at year end or quarterly to the full accrual basis of accounting. There are tools available to assist with this reconciliation.

There are limitations to this process:

  • It’s a manual process requiring time and effort from key accounting staff.
  • Reporting is limited. The full accrual reports can only be prepared after the reconciliation has been completed.
  • Pro-active, long term decision making may be impeded. The modified accrual basis is short term by nature. If decision makers only see modified accrual basis reports, they may ignore the longer time horizons supported by reports based on the full accrual method.

Fortunately, SAP Business ByDesign comes with a solution built in. The account structure in ByDesign permits entities to set up multiple sets of books with different rules and features. These include:

  • Different accounting rules – Modified or Full Accrual
  • Different charts of accounts – some entities may report on one chart of accounts locally but report to a regulatory agency under a different chart of accounts. Examples might include utilities reporting to the Federal Energy Regulatory Commission (FERC), or a school district reporting to a state education agency.
  • Different fiscal years – a city may have a trust or pension fund with a different fiscal year than the city.

Setting up this structure in ByDesign is easily accomplished during implementation.  The result is that ByDesign’s financial users view reports based on any set of books. The rules for each set of books are defined at set up and each transaction is posted based on the rules.  While the transaction is seamless to end users, it is viewable in the general ledger detail at any time.

Find out more about how SAP’s Business ByDesign helps drive the effectiveness and efficiency of your organization by getting in touch with Phoenix Consulting today.

February 27, 2018
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01_Digital_Transformation_for_Public_SectorAn_Introduction
February 25, 2018

Digital Transformation for Public Sector: An Introduction

Delivering the Benefits of Digital Transformation for Public Sector

By: Teresa Blackwell, Director, SAP Business ByDesign Practice, & Jay M. Winchester, Proposal Writer

A current hot topic in the IT world is the concept of digital transformation. This begs a fundamental question: What is digital transformation?

The Digital Transformation Definition
Typically, the digital transformation definition involves the fundamental changes resulting directly from the intelligent, across-the-board application of digital technologies like Artificial Intelligence (AI), Augmented Reality (AR) and Application Program Interfaces (APIs). From the humanist perspective, digital transformation refers to the application of these technologies to every segment and aspect of society, resulting in new innovations and creative answers to societal problems. It’s a grand and sweeping vision. However, for our purposes, we are going to take a few steps down from that perspective and in a series of blog posts, look at Digital Transformation for the Public Sector.

From this narrowed perspective, the digital transformation definition becomes more focused. Instead of using new technologies to enhance and support the way Public Sector work has always been done, these technologies are applied in ways that transform how work is carried out, enabling innovation and creativity while increasing effectiveness and efficiency. When managed properly and carefully, the benefits of digital transformation are many. When mismanaged or handled carelessly, the benefits of digital transformation diminish and organizational problems increase.

Examples of the Benefits of Digital Transformation
In a certain sense, and at the base level of day-to-day activities, digital transformation involves freedom from the inbox, achieved through the use of powerful applications to manage workflows. Those routine and often mundane day-to-day tasks are transformed through the application of defined rules. These rules remove the requirement for personnel to make a series of decisions in order to complete a task, which often slows the pace of completion while adversely affecting the quality of the work. Once workflow rules are applied, employees are free think strategically about fulfilling their responsibilities. They are also empowered to undertake the in-depth analysis that leads to better decisions and better results.

For example, where is the value in having a manager approve every invoice for an item that is purchased daily? An application built around real-world, day-to-day workflows enables the establishment of workflow rules that then govern the approval process. This then removes the manager from that process, enabling him or her to be re-tasked with analyzing these transactions to ensure items are purchased at the best possible price. If that same application is also built on best practices, that manager can then determine the effectiveness of the processes. He can then recommend changes required to increase that effectiveness, thus achieving greater efficiencies in the invoice approval and purchasing processes. He also is saving the organization money.

A typical issue faced by many Public Sector entities involves the sheer volume of legacy applications in place to facilitate the work involved in foundational areas like Human Resources, Finance, Supply Chain and so on. This usually results from the implementation of an application to handle one key task. Initially, this works well- as long as the focus of the organization stays the same. But how often does an organization remain stationary? As the needs and requirements of the organization evolve, other applications and work-arounds- many developed by employees who may or may not still be in the organization- are implemented to help facilitate new tasks and responsibilities. The end result is a complex web of technologies that may or may not ‘talk’ to each other. This in turn results in minimal effectiveness and decreased efficiencies. In the process of digital transformation, a strategic decision involves replacing this gigantic stumbling block with a single, module-based ERP solution designed and developed specifically to empower the organization to meet its growing requirements list, as well as the demands of its customers. If this ERP solution is cloud-based, there are even more gains available to Public Sector entities, including the ‘holy grail’ of budgeters everywhere: decreased IT spending

The Journey to Enterprise Digital Transformation
These are just two examples of how digital transformation impacts an organization, one at the task level and the other at the organizational level. Inherent in this transformative strategy is the promise of dramatic impacts and sweeping change across all aspects of an organization. While it’s a tantalizing vision, it’s important to remember two key concepts: First, enterprise digital transformation is a journey, and like any journey, its success depends on planning that identifies and targets specific areas requiring change. This likely means involving digital transformation consulting to help you define a digital transformation framework. Second, a crucial element in the success of your journey to digitally transform the way in which your organization works depends on the quality of the technologies driving those changes. Adopting the right digital transformation architecture is key.

Over the course of this seven-part series, we’ll dive deeper into both these concepts. We’ll also examine other factors that might hinder or help your progress from where you are today to where you want to be tomorrow. The promise inherent in the concept of digital transformation within Public Sector organizations is a powerful one that touches on every aspect of what you do, how you do it and- most importantly- why you do it. Digital Transformation also holds out the promise of another key benefit: Improving the digital customer experience.

Find out more about how SAP’s Business ByDesign delivers the benefits of digital transformation for your organization by getting in touch with us today.

February 25, 2018
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02_Dealing_with_Digital_Disruption
February 20, 2018

Dealing with Digital Disruption

How Public Sector Entities Can Turn Its Negative Impacts into Positives

Welcome to Part 2 of our series on Digital Transformation for the Public Sector.  Today’s topic is dealing with digital disruption in a manner that turns its negative impacts into positives.  Before we get to that, we need to define the term digital disruption.

Digital Disruption Definition

What does digital disruption mean?  First, understand that digital disruption is a natural outgrowth of digital transformation.  This makes escaping digital disruption impossible for any organization engaged in the battle to gain efficiencies and increase effectiveness.  The cresting wave of digital disruption is going to wash over your organization, and there isn’t anything that can stop it.

While it sounds like dire straits, tagging the disruption as negative or positive depends on your perspective.  If you’re skilled at turning lemons into lemonade, dealing with digital disruption is right up your alley.  Here’s why: Although new or emerging technologies tend to disrupt the status quo, they also bring with them the promise of opportunity.

This idea is inherent in how this term is defined. The digital disruption definition found in the Gartner IT Glossary states that it is “…an effect that changes the fundamental expectations and behaviors in a culture, market, industry or process that is caused by, or expressed through, digital capabilities, channels or assets.”  The blog for the Oxford College of Marketing defines our term this way: “Digital disruption is a transformation that is caused by emerging digital technologies and business models. These innovative new technologies and models can impact the value of existing products and services offered in the industry. This is why the term ‘disruption’ is used, as the emergence of these new digital products/services/businesses disrupts the current market and causes the need for re-evaluation.”

Examples of Digital Disruption

To see these definitions in action, let’s use Uber as an example.  Most understand how Uber’s service disrupted the taxi industry- but not very many know that it also disrupted airports.  Cab drivers haunt airports looking for fares, and most airports have agreements with the companies to pay for this privilege.  To ensure airports get paid, the companies install transponders in their cabs so that taxi activity can be tracked.

However, when airport travelers started using Uber’s services, airports found themselves caught in a case of digital disruption.  Since Uber drivers use their personal vehicles, transponders could not be installed in them, so driver activity couldn’t be tracked- and the airports couldn’t charge Uber.  The IT team at San Francisco’s airport solved the problem by developing a system that detected Uber’s GPS app, used by every Uber driver.  When an Uber car entered the airport’s perimeter, its presence was registered and its activity tracked. Uber was charged according to its agreement with the airport.

Here’s another example: In the Public Sector, many government entities are struggling to continue providing key citizen services in the face of dwindling funds.  However, many are forced to either suspend or end important services, or raise the price of these services through increased taxes or outright fees.  This causes citizens to seek out alternative providers, exactly the scenario that digital disruptors seek out.  Why?  Because there is a gap between what the citizenry wants and what the government provides.  The technological advantages championed by disruptors enable them to establish fill the gap with new digital business models based on delivering value to customers through reduced costs, economies of scale and- the ultimate arbiter- improved customer experiences. They deliver the same or enhanced value as the government entities without duplicating the investment of capital, coping with seemingly endless regulatory requirements and overcoming the other burdensome impediments that bind many Public Sector entities.

Solving the Public Sector Dilemma

So what’s a well-intentioned Public Sector organization to do? How can it change digital disruption from a negative to a positive? Simple- embrace the change. Here are eight effective strategies to help with this effort:

  1. Don’t run from change; Face it. Change is coming. Organizations looking to improve their effectiveness and increase their efficiencies must understand that early adoption of new technologies is a way of life. Understand how digital disruption works in your favor. Challenge the assumptions inherent in the way your processes work.
  2. Don’t wait; Start moving forward today. The key here is to respond deliberately, not reactively. When you act, act strategically. Evaluate and refine everything you do. Plan how you’ll cope with change when it comes. Prepare now to take advantage of opportunities when they appear.
  3. Visualize how your best self serves your constituents. Take off the blinders, give yourself permission to dream big and focus on your constituency. Will new technologies solve their biggest issues and concerns? How? Are there new technologies enabling you to improve processes, deliver better service or reduce costs? If so, adopt them now.
  4. Reduced costs trump increased value nearly every time. The one near absolute of digital disruption is this: customer demand is driven through reduced costs. It is the single greatest attribute that almost every digital disruptor brings to the table.
  5. Benefit from the change. Think about the IT spend that bought those systems and servers running your organization’s ERP software and activities. If it were possible to remove that hardware, and the costs associated with service or upgrades, would you benefit financially? If so, say ‘hello’ to cloud-based ERP systems and ‘good-bye’ to all that hardware.
  6. Understand how the job must be done. Think in terms of inputs and what steps are essential to arriving at your desired outputs.  Eliminate as many of the interim steps as possible. In the end, if a process does not add value, eliminate it.
  7. Understand the inherent trade-offs. Every opportunity for advancement comes with some trade-off. Identify those trade-offs. Realize when ‘just good enough’ is, well, just good enough. If providing 25% of a service enables substantial savings, then perhaps that 25% is just good enough.
  8. Partner with the change. As a Public Sector entity facing the prospect of digital disruption, realize that you don’t have to be a victim. There is an alternative: Partner with disruptors. Help level the playing field between older, established partners and new up-and-coming entities. Work to change laws and regulations that strangle innovation. Establish Public-Private partnerships when appropriate.

Coping with changes brought on by digital disruption is never easy. Finding ways to work through the disruption and seize the opportunities it provides is a crucial in determining the success of your digital transformation.

Find out more about how SAP’s Business ByDesign delivers the benefits of digital transformation for your organization by getting in touch here.

By: Teresa Blackwell, Director, SAP Business ByDesign Practice, & Jay M. Winchester, Proposal Writer

February 20, 2018
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