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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Notes & Samples

NOTE 17 – Risk Management

Background

In general, risk is defined as the:

  • Uncertainty of loss
  • Possibility of loss
    –OR–
  • Deviation of actual results from expected outcomes

GASB 10 establishes risk as the specific exposure covered by an insurance contract (such as insured property or a potential liability).

Agencies must consider the following GASB statements when preparing Note 17:

  • GASB 10 addresses the accounting and reporting requirements for risk financing and insurance-related activities of governmental entities including public entity risk pools.
  • GASB 30 amends GASB 10 by changing the accounting treatment and disclosure of risk pools and entities other than pools.
  • GASB Interpretation 4 applies to capitalization contributions made to and received by public entity risk pools — both with and without transfer or pooling of risk. Generally, the state is not involved in public entity risk pools and retains the risk of loss. However, for reporting the risk of loss, agencies must meet certain requirements as disclosed in Public Entity Risk Pool.
  • GASB 66 amends GASB 10 by allowing risk financing activities to be reported under the special revenue fund (when applicable). GASB 10 limits risk financing activities to the general fund and the internal service fund.
  • GASB 102 focuses on enhancing transparency in financial reporting by requiring agencies to disclose key risks related to significant Concentrations or Constraints that could impair the agency’s ability to obtain resources or manage spending effectively.

General Information

Agencies must perform two separate evaluations for Note 17, as required by GASB 10.

Identify and Evaluate Risk of Loss as Required by GASB 10

  • Determine if the agency is exposed to risk of loss. Risks of loss include:
    • Tort claims and legal liability
    • Theft, damage or destruction of assets
    • Business interruption
    • Errors and omissions
    • Employee-related injuries or illnesses
    • Natural disasters or other physical risks
  • If an exposure meets the scope of GASB 10, the agency must evaluate how the risk is financed. Risk-related payments may be made through:
    • A fully insured arrangement with a third-party insurer
    • Direct payments by the agency under a self-insurance program
      –OR–
    • Participation in a public entity risk pool
  • When a self‑insurance program is used, the agency must disclose the related information in the risk management note because it reflects the assumption of risk for employee-related benefits (such as health, dental and other medical coverage).

Evaluate Vulnerabilities Due to Concentrations or Constraints as Required by GASB 102

  • Agencies must evaluate if concentrations or constraints create a vulnerability to a substantial impact:
    • Concentrations — Lack of diversity in operations
    • Constraints — Limitation on revenue
  • After identifying potential concentrations or constraints, agencies must assess if:
    • The condition is known prior to issuance of the financial statements
    • The condition creates exposure to a substantial impact
      –AND–
    • An event related to that condition has occurred or is likely to occur within the near term
  • If vulnerabilities are present and potentially significant, agencies must determine if additional disclosures are necessary.

Note 17 Submission Requirements

Agencies must complete the GASB 102 Certain Risk Disclosures questionnaire. If a disclosure is necessary, the agency must submit a copy of the agency’s Note 17 from its published AFR through the ONDSS web application. The required format is a Microsoft Word document (latest version: docx) with header information that includes: agency name/number and note number/name. If Note 17 contains a table, include the table in the Word document — rather than as a separate Excel document or other database application file. If Note 17 does not apply, do NOT submit a note to indicate “not applicable.”