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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Notes & Samples

NOTE 17 – Risk Management
Required Note Disclosures

Agencies must report estimated losses from claims as an expenditure or expense and as a liability if both of the following conditions are met:

  • Information available before the financial statements are issued indicates it is probable an asset was impaired or a liability incurred at the date of the financial statements. It must also be probable one or more future events will occur confirming the fact of the loss.
  • The amount of the loss can be reasonably estimated.

This requirement is not related to funding. That is, even though funding is not yet provided for the payment of any estimated losses, the accrual of loss may still be required if it is both probable and can be reasonably estimated. It is likely the state may have millions of dollars of unreported losses that are not reported on the financial statements because they will be eliminated in future periods but are disclosed in the Note 17. Examples include:

  • Workers’ compensation payments
  • Medical payments for Medicaid and Medicare
  • Outstanding lawsuits
  • Challenges to certain revenue collections

For more information about risk pools, see Public Entity Risk Pool.

Agencies must disclose in aggregate the following claims and judgments information in a table format:

  • Beginning Balance — the amount of liabilities at the beginning of each fiscal year
  • Increases — current year amounts incurred plus changes in prior year claims
  • Decreases — payments attributable to events for the current and prior fiscal years
  • Ending Balance — the amount of liabilities at fiscal year-end

Present the total claim liability reconciliation (include both short-term and long-term risk management liabilities) for two years (current and prior) in columnar format, as shown below:

  Beginning Balance Increases Decreases Ending Balance

Agencies must also include:

  • Beginning balances and changes included in Note 5 for claims and judgments
  • Current year changes that are related to the incurred liability and the related expenditure or expense with current year resources
  • Amounts incurred and paid within the current fiscal year resulting in no ending balance

Most agencies do not have Note 5 long-term liabilities related to claims and judgments and will only disclose current year claims and judgments changes in Note 17. Agencies with long-term claims and judgments in Note 5 must ensure current year payments (decreases) applicable to long-term liability beginning balances are not double-counted in the aggregate Note 17 decreases calculation. These payments are already included in Note 5 as reductions and must not be picked up again. Calculate current year payments (decreases) that apply to current year accruals (additions) separately to alleviate the tendency to double-count payments that apply to Note 5 beginning balances. The following example illustrates the proper disclosure when an agency has claims and judgments in Note 5 and Note 17.


An agency had a $200.00 claims payment that applied to a Note 5 beginning balance liability. In addition, current year accruals paid in the current year are $600.00.

  Beginning Balance Increases Decreases Ending Balance
Note 5 Disclosure $1,000.00   $200.00 $800.00
Current Year 0.00 600.00 600.00 0.00
Note 17 Disclosure $1,000.00 600.00 $800.00 $800.00

If applicable, include the following in this note:

  • Describe the types of risks to which your agency is exposed:
    • Property and casualty
    • Health benefits
    • Workers’ compensation
  • Describe how the risk is handled for its financial impact:
    • Purchase of commercial insurance
    • Participation in a public entity risk pool
    • Retention of risk (most likely)
  • If there is insurance coverage:
    • Describe significant reductions in insurance coverage from the prior year
    • Indicate whether settlements exceeded insurance coverage for each of the past three fiscal years
  • If the agency participates in a risk pool:
    • Describe the nature of the participation
    • Note the rights and responsibilities of both the agency and the pool
  • If the agency retains the risk:
    • Describe how liabilities are presented and include the effects of specific, incremental claim adjustment expenditures/expenses, salvage and subrogation. Also indicate if other allocated or unallocated claim adjustment expenditures/expenses are included.
Glenn Hegar
Texas Comptroller of Public Accounts
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