Other Auditor Reports 12/31/2006

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New Accounting and Reporting Standards Economic Condition Reporting – The Statistical Section (GASB Statements No. 44) This statement is effective for periods beginning after June 15, 2005 and therefore, was implemented by the City for the year ended December 31, 2006. The provisions of this statement significantly changed the content and presentation of the information in the statistical section of the City's Comprehensive Annual Financial Report (CAFR). Other Post - Employment Benefits (GASB Statements No. 45) In the past, most governmental employers offering post employment benefits accounted for them on a pay -as- you -go basis. However, the Governmental Accounting Standards Board (GASB), in July 2004, issued Statement No. 45, Accounting and Financial Reporting by Employers for Post employment Benefits Other Than Pensions, which will make the pay -as- you -go accounting for these benefits a "thing of the past ". Why the change in position by the GASB, you ask? The answer is less than nebulous— frequency of occurrence, significance, and disparity. Post employment benefits have become more prevalent in the governmental arena as a means of attracting and retaining talented employees, as a result of legislation, or a combination of the two. Post employment benefits may also comprise a significant cost to the employer, especially if the benefits involve providing healthcare coverage after separation from active employment. Further, these benefits represent a form of compensation, the cost of which should be recognized over the period of time that an employee earns the benefit. Disparity in practice developed as some governmental employers simply followed the pay -as- you -go accounting whereas others opted to report an accrual -basis liability on their financial statements by following the provision of Financial Accounting Standards Board Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, which applies to the private sector. Several bridges must be crossed on the path to adopting GASB Statement No. 45. First, the other post employment benefits or "OPEB" benefits must be identified. Simply speaking, OPEB benefits under the context of the new GASB standard are in essence any type of benefit provided to an employee over a period of time after their separation from service, not necessarily retirement, and obviously not limited to healthcare benefits. Another important aspect is determining the "substantive plan ". The substantive plan is the employers' and the employees' mutual understanding of the OPEB benefit, not necessarily what is written down. In fact, the OPEB plan may not have been previously written down at all! Then one must determine whether the substantive plan is a defined contribution plan or a defined benefit plan: • a defined contribution OPEB plan, under GASB Statement No. 45, is "....plan having terms that (a) provide an individual account for each plan member and (b) specify how contributions to an active plan member's account are to be determined, rather than the income or other benefits the member or his or her beneficiaries are to receive at or after separation from employment." This is similar to a 401(k) plan or a 403(b) plan. (12)