(Another interesting bit of information surfaced today):

American City & County

Cities required to present Y2K report cards

BY Margaret Simmons

05/30/99

The Year 2000 challenge is one of the most serious undertakings facing governmental entities today. Not only are they faced with the daunting task of testing all systems for compliance with the Year 2000; they also are challenged to correct all systems that are not expected to work properly as they enter the year 2000. And now, their budgets have to reflect how well they think they are doing in both regards.

Disclosure requirements instituted by the Securities and Exchange Commission and the Governmental Accounting Standards Board (GASB), as well as the audit issues raised by the American Institute of Certified Public Accountants (AICPA), have created a disclosure crisis for local government finance officials. Indeed, the Y2K problem is changing the way in which government accountants and auditors are required to report the financial activities of their particular entities.

A Y2K meltdown could wreak havoc on many government operations outside of information technology systems. For example, local governments could feel the effects in everything from transportation systems to elevators-anything that might contain date recognition features that could cause machinery to cease working when it can no longer properly interpret dates.

Fixing those systems is only part of the solution. Rule-making bodies governing local government finance have determined that it also is necessary to disclose information related to Y2K in local government budgets.

GASB's technical bulletin Released in October 1998, GASB Technical Bulletin 93-1, "Disclosures about Year 2000 Issues," requires specific disclosures in financial statements dated after Oct. 31, 1998. Financial statements for periods ending after Dec. 31, 1999, do not have to meet the requirement unless systems and other equipment are not Year 2000 compliant as of the report's balance sheet date.

The Technical Bulletin requires the government to describe any pertinent Y2K issues and any significant resources committed to make critical computer systems and equipment Year 2000 compliant. It also re-quires that the government declare the phase or stage it is in regarding its solution to the Y2K problem.

Compliance spans four stages: awareness, assessment, remediation and validation/testing. The awareness stage is the time period when the budget is established and the project plan for dealing with the Year 2000 issue is written. In the assessment stage, all systems that are critical to conducting governmental operations should be identified.

Those systems could include software applications, system software and hardware and embedded chips. In the remediation stage, all changes are made to the systems and equipment, and the final stage involves testing those systems.

Jim Petra, the Ohio Auditor of State, suggests going beyond those stages. A sample disclosure form on the auditor's web site (http://soccer.dec.odn.state.oh.us.) contains suggestions for complying with the requirements. "Governments should prepare [to disclose] the stages of work in process or completed as of the end of the government's reporting period to make computer systems and other electronic equipment Year 2000 compliant," notes Petra on the web site.

They also should disclose committed resources, he adds. The auditor's office requires each statement to incorporate the following words: "Because of the unprecedented nature of the Year 2000 issue, its effects and the success of related remediation efforts will not be fully determinable until the year 2000 and thereafter. Management cannot assure that the [government] is or will be Year 2000 ready, that the [government's] remediation efforts will be successful in whole or in part, or that the parties with whom the [government] does business will be Year 2000 ready."

Recently, finance directors and those charged with budget preparation have questioned where the disclosures on Y2K should be located in a government's Comprehensive Annual Financial Report. Because the year 2000 disclosures are required by a GASB pronouncement, they are considered "Generally Accepted Accounting Principles." Consequently, if the disclosures are in the footnotes and they are material to the financial statements, they must be covered by the auditor's opinion.

However, the AICPA has cautioned auditors about being associated with such disclosures.

Originally, Y2K disclosures were required to be in the footnotes, and, because of scope limitations, most entities were told to expect (or actually received) a qualified audit opinion. Such qualification was necessary because, for the most part, the disclosures are neither assertable by management nor verifiable by auditors.

Recognizing the dilemma for auditors, GASB recently amended Technical Bulletin 98-1 to allow Year 2000 disclosures to be reported as part of the required Supplementary Information. That amendment apparently removes the requirement that the auditor issue a qualified opinion on Y2K disclosures. Many governments have delayed issuing their financial statements to take advantage of the amendment, and others are planning to reissue their statements to remove the qualified opinion.

Securities and Exchange Commission releases The SEC's Interpretive Releases Nos. 33-7558 and 34-40277, "Disclosure of Year 2000 Issues" and "Consequences by Public Companies, Investment Advisors, Investment Companies and Municipal Securities Issuers" require issuers of securities to disclose Year 2000 issues. They cover government issuers, as well as public companies, investment advisors and investment companies that are issuing securities.

Congress exempted municipal securities offerings from the registration requirements and civil liability provisions of the Securities Act of 1933. It also exempted them from a mandated system of periodic reporting under the SEC Act of 1934. However, it did not exempt those securities from the antifraud provision of those acts. And that is where the Y2K disclosures come into play.

The antifraud provisions prohibit misleading statements in the offering, purchasing or selling of municipal securities. In addition, in recent years, the antifraud provisions as to municipal securities issues have been interpreted with increasing broadness. Basically, the provisions require all governments that issue securities to consider

Year 2000 issues in preparing all disclosure documents, whether official statements, disclosure covenants that provide for continuing disclosure, or any other information that is reasonably expected to reach investors and the trading markets.

The SEC is well aware of the fact that local governments cannot absolutely ensure Y2K compliance. In fact, a recent SEC report states, "It is not, and will not, be possible for [a government] to represent that it has achieved complete Year 2000 compliance and, thus, to guarantee its remediation efforts."

Ohio State Auditor Petra cautions that governments should not claim that they are Year 2000 compliant, and that auditors should not attest to such a claim. Governments may, however, represent that individual systems are compliant, he says.

Advice from GFOA Some governments are concerned about submitting statements with qualified audit opinions. And, the deadline for submitting statements to the Government Finance Officers' Association for review for the Certificate of Excellence in Financial Reporting is approaching. (The deadline is six months after the close of the fiscal year. Thus, for local governments on a calendar fiscal year, the deadline would normally be June.) GFOA is allowing a 30-day extension on its due date because some governments still are unsure about the status of the audit opinion and the placement of the disclosures. GFOA will accept a budget statement containing a qualified audit opinion issued pursuant to Y2K. However, the statement will be rejected if the qualification is caused by failure to present the required disclosures.

The provisions and required disclosures of the GASB Technical Bulletins and SEC releases are extensive. However, the requirements are achieving an important goal: providing financial statement users and purchasers of municipal securities with information needed to assess outstanding commitments and the current stage of Y2K readiness.

Information on disclosure requirements can be found at www.gfoa.org/resrch/specrpt/Y2K.htm; at www.aicpa.org; or at www.gasb.org.

Margaret Simmons is the financial services administrator for Clearwater, Fla., and president of the Florida Government Finance Officer's Association. ______

'Just passing it on. . .

:)

-- FM (vidprof@aol.com), May 28, 1999

Answers

FM

Good Score! In a somewhat related manner I went and checked a local cities clerks web site and looked for y2k related information. In it there was an indication that water - waste water could be a problem. Well I Emailed the information and related Y2k water info from the net to people in MUCH higher positions and asked about my concerns. The city then posted their documents on its web site and the state of the remediation of the systems.

Dig into your cities documents. They could be online, or at the city hall. Be pro active! Find out the weak points and tell everyone what you find. This is where the rubber meets the road.

Good luck

-- Brian (imager@home.com), May 28, 1999.