Discussion Posts 4

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Nov 24, 2024

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1 Discussion Posts Student’s Name Institutional Affiliation Instructor Name Course Date

2 Discussion 1. Business Type Activities Enterprise and internal service funds are employed as accounting records for business- related operations. Regarding their nature and objectives, these operations differ from the government’s. In this conversation, we will look at government actions that may be classified as business-type activities and examine various justifications for doing so. Municipal water utilities are an example of a business-style operation inside the government. Because it entails collecting customer money via user fees or charges, providing water services to the general public may be considered a business-like activity. The water utility strives to recoup expenses, produce surpluses, or maintain enough reserves while operating autonomously, often competing with private sector organizations. Financial accounting regulations that follow the principles of the Financial Accounting Standards Board (FASB) and accrual accounting are necessary to evaluate and report financial performance for such operations effectively. However, providing water services is part of what the government does. They can argue that because the government must protect the welfare of its people, access to clean water should be subsidized or directly given by the government. This viewpoint emphasizes distributing critical services fairly more than pursuing profit. A public transportation system is another example of possible business-type activity in the government. Passengers are often required to pay fares for public transportation services like buses and light rail systems to defray operational expenses (Fairlie et al., 2021). The supply of public transportation may be considered a business-like operation emphasizing revenue generation, cost recovery, and efficiency, similar to the water utility example. As a result, accrual accounting and accounting principles that adhere to FASB standards may be more suitable for financial reporting. Opponents can counter that public transit is a necessary element of urban

3 infrastructure and a public benefit that the government should support. They can argue that putting profits first in public transit might lead to greater costs, less accessibility for low-income people, and a lesser emphasis on helping underprivileged regions. With an emphasis on its social and accessible components, public transportation is best categorized as a governmental activity from this angle. References Fairlie, R., & Fossen, F. M. (2021). The early impacts of the COVID-19 pandemic on business sales. Small Business Economics , 1-12. Discussion 2: Other Post-Employee Benefits (OPEB) A substantial benefit offered to retired government workers is Other Post Employee Benefits (OPEB), which includes healthcare, life insurance, and other non-pension benefits. Regarding OPEB, the Governmental Accounting Standards Board (GASB) and governments encounter several difficulties. The price of delivering OPEB and maintaining its long-term finance is one of the biggest problems that GASB and governments deal with. Government finances may be burdened by retired workers’ significant future healthcare and benefit liabilities. Governments need help figuring out the best ways to finance these responsibilities and correctly anticipating these future expenditures. GASB creates accounting and reporting guidelines for OPEB to increase openness and give readers of financial statements full data. However, governments, especially smaller ones with fewer resources and accounting competence, may need help to adhere to these criteria. The OPEB legal and regulatory environment is ever-changing, with prospective adjustments to healthcare laws, retirement benefits, and other pertinent regulations. To remain compliant,

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4 governments must keep up with these changes and modify their OPEB programs as necessary. Governments that provide OPEB have a serious dilemma as healthcare expenses keep rising. Government finances may be pressured due to the unpredictable nature of healthcare costs, which may affect the viability of OPEB systems. Several approaches may be taken to deal with these problems. Investigating the use of actuarial values to calculate OPEB obligations is one option. Actuarial studies may assist governments in creating suitable finance strategies and provide insights into anticipated future expenses (Eger et al., 2021). To guarantee the availability of resources to fulfill OPEB commitments, governments may also consider adopting financing structures like trust funds or pre-funding agreements. Governments may overcome these difficulties by spending money on accounting and finance staff training and capacity development. This may improve the quality and thoroughness of OPEB reporting and guarantee a thorough grasp of GASB requirements. Governments could also consider using software and technological advancements that simplify accounting procedures and make it easier to comply with reporting standards. Governments should set up effective monitoring and compliance procedures to handle the shifting legal and regulatory landscape. It is important to regularly assess OPEB programs to find any possible effects of new rules or legislation. Governments may ensure that their OPEB programs comply with changing legal standards by working with legal counsel and obtaining professional advice. To combat growing healthcare expenses, governments might investigate cost-containment measures. This may include negotiating advantageous contracts with healthcare suppliers, implementing wellness and preventative care plans, looking into self-insurance possibilities, and encouraging openness and competition in the healthcare markets. Governments may lessen the cost of OPEB by taking an active role in controlling healthcare expenses.

5 References Eger, R. J., Johnson, L. E., Lowensohn, S., & Styles, A. K. (2021). Municipal OPEB Contributions: The Roles of Governance Structure, Fiscal, and Socioeconomic Factors During and After the Great Recession. Journal of Governmental & Nonprofit Accounting . Discussion 3: Self-Insurance Self-insurance is a risk management tactic where an organization bears financial responsibility for future losses or obligations rather than buying conventional insurance coverage. Governments often use self-insurance to manage risks related to various issues, including workers’ compensation, property damage, liability claims, and employee benefits. The government body creates a dedicated fund to cover future losses rather than paying premiums to an insurance firm. This fund builds up resources through regular payments, and when a loss occurs, the required funds are used to pay the costs. The idea of self-insurance has several potential advantages. First and foremost, it gives the government body more power and flexibility. Through self-insurance, the business may customize coverage to meet its unique requirements, possibly cutting costs by removing extraneous coverage components. Self-insurance further permits direct administration and control of claims, facilitating faster claims processing and lowering administrative costs (Tietze, 2022). Additionally, it removes reliance on outside insurance providers and their fee schedules. Self-insurance, however, also has drawbacks and issues to think about. Large, catastrophic losses might burden the self-insurance fund’s resources, which is a serious concern. Governments must carefully evaluate the risk they are exposed to and ensure enough resources are available to cover any possible catastrophic catastrophes. Comprehensive risk assessments, expert consultations,

6 and regular funding level reviews may all be necessary to achieve this. The knowledge and resources needed for efficient self-insurance management provide another difficulty. Several alternatives might be taken into consideration to overcome these issues and guarantee the success of self-insurance schemes. Collaboration between government agencies may be advantageous since it enables the sharing and pooling of risks. Smaller organizations may use bigger organizations’ knowledge and financial capabilities by combining their resources, resulting in a more long-lasting self-insurance scheme. Governments might also work with risk management consultants and subject matter experts to improve their knowledge of risks and better their self-insurance plans. Furthermore, appropriate risk management techniques, including safety procedures and preventative measures, may lessen prospective losses and reduce the frequency and severity of claims. References Tietze, U. (2022). National Report of the United States of America. World review of capture fisheries and aquaculture insurance 2022 , pp. 682 , 89. Discussion 4: Internal Service Fund Decision Making Making choices for the United States government primarily based on cost thresholds and projections within internal service budgets might result in several issues. More flexibility is needed. The city may be limiting its choices for cost-effective solutions by accounting for the car repair service in an internal service fund and invoicing departments at “full cost” (Vanness et al., 2021). The possibility for departments to be overcharged is another issue. The real costs for certain projects may not be adequately reflected by billing at “full cost” based on fixed and variable charges. If the repair work in the above situation only requires 60 hours, the cost per

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7 hour would be $60, much more expensive than the typical variable cost of $40. This mismatch can cause departments to be overcharged, drive up expenditures, and affect their budgets. Furthermore, difficulties may arise from a need for more cost transparency. Departments may need detailed breakdowns of fixed and variable costs to pinpoint the elements causing the spending. It is challenging to comprehend the underlying cost drivers and assess the effectiveness of the internal service fund due to this lack of openness. Departments could find it easier to successfully manage their budgets and take wise judgments with a clear grasp of the cost breakdown. Fixed expenses can make it difficult to keep costs under control. According to the scenario, the department has set monthly expenses of $80,000 that don’t change depending on the service provided. Due to their limited ability to influence these fixed expenses, departments may experience inefficiencies and financial difficulties due to this lack of flexibility. It becomes essential to effectively manage the distribution of fixed expenditures and ensure they match the services provided. References Vanness, D. J., Lomas, J., & Ahn, H. (2021). A health opportunity cost threshold for cost- effectiveness analysis in the United States. Annals of internal medicine , 174 (1), 25-32.

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