Every local municipality and state have to prepare a Comprehensive Annual Financial Report (CAFR) which details how they have earned their revenues and spent their budgeted money through expenditures. The CAFR is a set of government financial statements which should comply with accounting requirements put forth by the GASB standards. This paper performs a review of the North Carolina local government’s financial statements and audit reports.
Comparison of CAFR
Publication Method of CAFR
The publication method of the North Carolina State and the city of Raleigh NC are similar. They comply with the standards of GASB since they have three sections. The first three sections introduce the CAFR with a message from the leaders of the specific regions. There are minor differences in the way the financial statements are presented. The North Carolina State financial statements are organized in a way that is simple and easy to understand. However, the financial statements of the city of Raleigh are more detailed as it has a section of accounting funds and enterprising funds (Office of The City Manager, 2017).
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Audit and Budget Information of the CAFR
The CAFR should have an audited report which verifies the auditor. Information about the audit and budget in the CAFR are based on the standards of the GASB (The User’s Perspective, 2006). The differences in the CAFR between the two regions is that North Carolina has information regarding the internal audit while the city of Raleigh has information has information regarding the external auditor. The budget information for the two is also quite clear and there is no much difference between the CAFR of North Carolina and Raleigh.
Type of Audit Report
There is no significant difference in the nature of the audit report issued. The type of audit report that has been issued of unqualified opinion suggesting that the CAFR are free from misrepresentation. The financial reports are also according to the GASB.
Internal Audit Function
Both the city of Raleigh and North Carolina do not have an internal audit. This is because there is no section regarding an internal audit on both sections of the CAFR.
Analysis of Local Government Entity
The CAFR of North Carolina State for the fiscal year ending June 2018 gives a clear picture of how the government earns its money and uses it for both governmental and enterprise activities. The first section of the CAFR is the introduction which contains the names of the state administrators and the positions held by those state administrators. The state is a government agency and runs as a local government entity. The State of North Carolina is headed by the Governor and is assisted by the Speaker of the House, the president pro Tempore and state controller. The introductory section provides a message from the governor detailing the financial information. It also includes a profile of the State and a summary of various financial statements. It also provides a summary of the economic outlook for the state by considering factors such as the state GDP and personal income growth.
The financial section is the largest section which includes a breakdown of the sources of revenue and expenses. The primary division is based on revenues which are divided based on different sources of funds such as government funds, agency funds, highway funds, and investment funds. It also provides an analysis of financial statements of the different revenues and expenses that have been incurred. The statistical section provides a summary of the financial trends, revenue capacity, debt capacity, demographic and economic information, and operating information for the North Carolina State.
Budget-to-Actual Reports
The budget represents the legal authority of spending money. It is an important tool as it links the financial reporting objectives set by the GASB. An evaluation of the basis of accounting used for the budget and financial statements shows that North Carolina follows the state set by the GASB. The comparison of the budget and actual reports showed that they comply with the GASB standards. The financial statements are provided on an accrual basis in the actual reports which give a picture of the revenues and expenditures. Each fund is also provided with its own statement and a separate reporting of the major accounts including capital assets and debts. A standardized statement allowed for a proper assessment of the full finances and the operating results.
Source of Revenue
a. Property taxes and how they are accounted for
The primary source of tax revenues for the North Carolina State are the property taxes and sales taxes. Property taxes are accounted for by tax impositions on real property such as land, building, any other improvements of the land, and personal property. The property tax rate was 0.88. The property taxes accounted for the largest portion of the total local-level tax revenue in the region.
b. Other sources identified as primary revenue for the entity
The major sources of revenues detailed in the CAFR include government funds, proprietary funds, fiduciary funds, and component units. The major sources of revenues detailed in the government revenues include program revenues and general revenues. Program revenues included charges for services, operating gains and contributions, and capital gains and contributions. General revenues include taxes such as individual income tax, corporate income tax, sales and use tax, gasoline tax, and franchise tax.
c. Deferred revenue
The deferred or unearned revenue provides income listed as a liability in the balance sheet until the goods have been delivered and services have been performed. The total unearned revenue for the state amounted to 500,654 thousand dollars (Office of the State Controller, 2018). Unearned income included taxable interests, dividends, pensions, social security benefits, and annuities. The unearned revenues were divided into governmental, business type, and component activities.
d. Year-to-year variations in the tax levels of income
The variations of the tax levels of changed positively leading to a significant increase in income levels. The individual income tax increased by 5.5% between the year 2017 and 2018. Insurance tax accounted for the largest increase in tax between 2017 and 2018 and accounted for a total percentage change of 13.57%. The franchise tax accounted for a decrease between the two years and decreased by 9.75%.
e. Various management discussion and analysis items of note
The management discussion and analysis (MD&A) was completed through the letter of transmittal. The MD&A provided an overview of the State’s financial activities and addressed the governmental and business-type activities reported in the financial statements. Additionally, the MD&A focused on the state’s major funds such as the General Funds, the Highway Funds, the Highway Trust Fund, the Unemployment Compensation Fund, and N.C. State Lottery Fund.
f. Information about the general fund
The variations of the tax levels of income were shown in the variation of the general funds. This is because the income tax represented the largest and a significant amount of the General Fund. The General Fund reported a fund balance of $5.39 billion as of June 2018 with an increase of 22.44% (Office of the State Controller, (2018). The fund increased mainly due to the increase and growth in the individual income taxes. A significant increase in estimated tax payments accounted for the majority of the increase.
References
The User’s Perspective. (2006). Coming to a City Near You: The New Statistical Section, Part 1 Retrieved from https://www.gasb.org/cs/ContentServer?c=GASBContent_C&cid=1176156737197&d=&pagename=GASB%2FGASBContent_C%2FUsersArticlePage
Office of the City Manager. (2017). City of Raleigh North Carolina Comprehensive Annual Financial Report. Retrieved from https://www.raleighnc.gov/content/extra/Books/Finance/FY2017CAFR/2/
Office of the State Controller. (2018). State of North Carolina Comprehensive Annual Financial Report. Retrieved from https://files.nc.gov/ncosc/CAFR/2018/2018%20Comprehensive%20Annual%20Financial%20Report_bookmarks.pdf
