Voluntary Contributions to GASB Fell Far Short in ’09, GAO Warns

State and local government voluntary contributions to the Governmental ­Accounting Standards Board were $1.2 million in 2009, far less than the $6.6 ­million GASB needed to meet expenses, the Government Accountability Office told Congress in a report released Tuesday.

The report, mandated by the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act, documents growing funding shortfalls each year from 2006 through 2009 for GASB, which sets generally accepted accounting principles for state and local government financial statements. The governments are not required to use GAAP, but must do so to obtain clean opinions on audited financial statements.

The GASB funding gaps are occurring at a time when the use of bond insurance to back muni debt has plummeted and analysts and investors may be more reliant on issuer financial statements based on GAAP to determine the quality of muni securities, according to the GAO.

The report does not contain any recommendations or options for funding GASB. Rather it documents the board’s funding problems, which stem in part from ­growing expenses as well as declining voluntary governmental contributions and the demise of a voluntary bond-fee program. It also provides a range of views on GAAP from stakeholders, including state and local governments and their groups, ­analysts, auditors, investors, rating ­agencies, ­securities firms, and regulators.

Dodd-Frank gives the Securities and Exchange Commission the authority to require the Financial Industry Regulatory Authority to establish a reasonable annual fee to adequately fund GASB, along with rules and procedures to assess and collect the fee from members.

GASB’s program expenses in 2009 were $5.3 million, according to the GAO report. It also was responsible for shouldering $1.3 million of the expenses of the Federal Accounting Foundation, which oversees it and the Financial Accounting Standards Board. But voluntary contributions from governments were only $1.2 million. FAF collected $8.2 million in subscription and publication revenue for GASB and FASB in 2009, and used some of the revenue and other reserve funds to help make up the shortfall, the GAO said.

While voluntary contributions from states totaled about $1 million each year from 2006 through 2009, local government contributions were much less, the report said. City and county contributions dropped to less than $40,000 in 2009 from nearly $150,000 in 2006.

Bond fees, which were collected by the National Association of State Auditors, Comptrollers and Treasurers under a program that ended in 2007, were ­almost $450,000 in 2006, but it remitted only $12,000 in residual amounts in 2009. GASB also received a $7 million grant from the New York city-based nonprofit Alfred P. Sloan Foundation over a ­seven-year period ending in 2006.

In interviews and a roundtable, some analysts told GAO officials that ­GAAP-based financial statements are more ­comprehensive and transparent and that they may not consider the bonds of issuers who do not use GAAP. But other stakeholders said GAAP-based financial statements are complex and expensive to prepare, ­particularly for small, infrequent issuers.

The GAO report cited other related reports and studies, including a National Association of State Comptrollers’ survey that found states completed their fiscal year 2009 audited financial statements in an ­average of nearly seven months, with seven states taking over nine months.

It also cited a 2008 study by W. R. Baber and A. K. Gore in the Accounting Review that found interest costs on new public debt issued in 1995 through 2002 by issuers in states that required GAAP-based financial statements were about 16 basis points lower than the interest costs on new debt of other issuers.

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Washington
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