GFOA of the US & Canada

GFOA Standing Committees Meet and Approve Recommended Practices

GFOA’s seven standing committees met on June 14, 2008, prior to the beginning of the GFOA’s annual conference in Ft. Lauderdale. The committees passed several recommended practices (RPs), which will go before the Executive Board for approval this fall. Below is a summary of the committees’ activities.

The Committee on Governmental Budgeting and Fiscal Policy approved three RPs. The first, Considerations for Prefunding OPEB Obligations, developed in conjunction with the Committee on Retirement and Benefits Administration, strongly conveys that OPEB involving explicit benefit payments be prefunded on an actuarial basis in most instances. A new RP, Presentation of the Capital Budget in the Operating Budget Document, focuses on the presentation of the major capital program highlights in the operating budget document. The committee also updated the RP on Business Preparedness and Continuity Guidelines, which encourages state and local governments to be prepared to react to various disasters immediately, knowing that aid from the federal government may not come in a timely fashion.

The Committee on Accounting, Auditing, and Financial Reporting (CAAFR) revised two existing RPs to incorporate guidance from a discussion document on Guidance on Monitoring Internal Control Systems, recently issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. After some discussion, the CAAFR agreed to incorporate appropriate revisions to the RP on Enhancing Management Involvement with Internal Control and Audit Committees.

The CAAFR also considered and approved testimony on the GASB exposure draft (ED) on Fund Balance Reporting and Governmental Fund Type Definitions. The GFOA position was jointly prepared with the Committee on Governmental Budgeting and Fiscal Policy and will be provided as testimony to the GASB at its public hearing, to be held on July 14 in Kansas City, Missouri, in conjunction with the annual conference of the National Association of Counties. The CAAFR also agreed on a response to the GASB ED to amend Concepts Statement No. 2, Service Efforts and Accomplishments Reporting. This position will be provided to the GASB as testimony at its public hearing on July 29, 2008, in Atlanta, Georgia, in conjunction with the Association of Government Accountants’ Professional Development Conference.

The Committee on Cash Management reviewed and revised four RPs and passed a new one. Use of Local Government Investment Pools (LGIPs), newly drafted in 2007, was revised in light of recent market events affecting LGIPs. Primary modifications highlight that LGIPs are typically not guaranteed by sponsoring entities and may not provide adequate diversification on their own. The Use of Derivatives RP was renamed Use of Derivatives and Structured Investments by State and Local Governments for Non-Pension Fund PortfoliosRepurchase Agreements and Reverse Repurchase Agreements RP was modified with clearer definitions, updated abbreviations, and references. The Securities Lending Programs for Non-Pension Fund Portfolios RP underwent significant modification to more clearly explain steps involved in securities lending programs, as well as risks and steps to mitigate these. The committee also drafted one new RP, Selection of a Merchant Card Service Provider, that provides important background information on this emerging service, the benefits of its use, and steps governments can take to select appropriate service providers.

The Committee on Canadian Issues approved its first Canadian-specific recommended practice that will be submitted to GFOA’s Executive Board for final approval. In addition, the committee discussed Canadian participation at the GFOA annual conference, which included the recruitment of Canadian speakers and the Canadian-specific session. The committee also decided on the next financial theme for the fall Canadian newsletter.

The Committee on Economic Development and Capital Planning developed outlines and drafts for current and future recommended practices. The committee plans to finalize two recommended practices prior to the Executive Board’s fall meeting. The first focuses on economic development incentives, and the second provides guidelines and suggestions for incorporating resiliency into capital projects. The committee continues to work on outlines for the following RPs: Cost/Benefit Analysis for Economic Development Projects; Economic Development Project Monitoring, Privatization; and Outsourcing for Capital Projects.

The Governmental Debt Management Committee approved revisions to two RPs, Selection of Underwriters and Selection of Financial Advisors. The updated versions expand the considerations governments must undertake when choosing finance professionals. Furthermore, the RPs reflect the position taken in the Selecting and Managing the Method of Sale of State and Local Bonds RP that in negotiated sales, a financial advisor should not resign to become underwriter for that transaction. The committee also approved a public policy statement supporting comparable credit ratings for all securities. The policy, however, was not adopted at the annual business meeting. Over the next six months, the committee is planning to develop a new RP on Disclosure and revise the RP on Pricing Bonds in a Negotiated Sale.

The Committee on Retirement and Benefits Administration approved two RPs. The first—Considerations for Prefunding OPEB Obligations—co-authored by the Budget Committee, recommends that OPEB involving explicit benefit payments be prefunded on an actuarial basis. The RP further recommends that prefunding of OPEB resulting from an implicit rate subsidy also is desirable, yet recognizes that in some instances, prefunding an amount less than the annual required contribution or maintaining pay-as-you-go funding may be appropriate. The committee also approved a significant update to its Alternative Investments RP from 2000. The updated RP recommends that prudence and appropriate due diligence be exercised in the use of alternative investments in public pension and OPEB portfolios and sets forth several criteria that systems should consider before adding alternative investments to their portfolios.