02-14-11 Regular Meeting of Fiscal Affairs Committee

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CITY OF LA PORTE, TEXAS Notes to the Financial Statements September 30, 2010 1. Summary of significant accounting policies — Continued Governmental fund financial statements are reported using the current financial resources measurement focus and are accounted for using the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual; i.e., when they become both measurable and available. "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the current fiscal period. Most revenue sources are recorded as revenues when received in cash because they are generally not measurable until actually received. The revenues susceptible to accrual are property taxes, sales taxes, hotel taxes, franchise fees, interest income and intergovernmental revenues. A one -year availability period is used for recognition of all other Governmental Fund revenues. Expenditures are recorded when the related fund liability is incurred. However, debt service expenditures, as well as expenditures related to compensated absences are recorded only when payment is due. E. Budgetary Information Annual budgets are adopted on a basis consistent with generally accepted accounting principles. Annual appropriated budgets are adopted for the general, special revenue funds and debt service funds. All annual appropriations lapse at fiscal year -end. Project length financial plans are adopted for all capital projects funds and are revised annually. The City uses the following procedures in establishing the budgets reflected in the financial statements: 1. Prior to September, the City Manager submits to the City Council a proposed operating budget for the fiscal year commencing on the following October 1. The operating budget includes proposed expenditures and the means of financing them. 2. A public hearing is conducted to obtain taxpayer comments. 3. Prior to September 30, the budget is legally enacted through passage of an ordinance. 4. The legal level for expenditure (expense) budget control is the Fund Level. The directors are given latitude to transfer budget funds within their departments, with the exception of personnel services. City Council approves changes between departments as well as amendments to the budget during the year as may be required. 5. Formal budgetary integration is employed as a management control device during the year for the General Fund and Proprietary Funds. Formal budgetary integration is not employed for the Debt Service Fund and Capital Projects Funds because effective budgetary control is alternatively achieved through bond indenture provisions and legally binding construction contracts, respectively. 6. The budget for the General Fund and Special Revenue Funds are adopted on a basis consistent with GAAP. Budgets for the Proprietary Funds are utilized for planning, control and evaluation purposes. They are adopted on a basis consistent with GAAP except that bond principal payments and capital asset acquisitions are treated as expenditures. 7. Budgeted amounts are amended by the City Council during the year. Individual amendments were not material in relation to the original appropriations, which were amended. Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting — under which purchase orders, contracts and other commitments for the expenditure of resources are recorded to reserve that portion of the applicable appropriation — is utilized in the governmental funds throughout the year. Encumbered amounts lapse at year -end. However, encumbrances generally are reappropriated as part of the following year's budget. 48