GASB proposal on accounting for grants.

A Governmental Accounting Standards Board exposure draft would change accounting requirements for grants and other forms of financial assistance, including pass-through grants, food stamps and on-behalf payments.

"Governments have done a masterful job of scrambling their transactions, and GASB is trying to sort out who's doing what and why," commented Randall Finden, assistant deputy auditor of the state of Washington. He added the GASB proposal could have far-reaching effects since grants are a significant part of local and state government financing.

Pass-through grants are received by a government entity that then either transfers the money to another government entity or spends it on that entity's behalf. The ED requires recipients to recognize all cash pass-through grants as revenues and expenditures in a government, proprietary or trust fund. Only in rare cases when a recipient government serves solely as a cash conduit--that is, it has no administrative or direct financial involvement in the program--would grants be reported in agency funds (which recognize only increases and decreases in cash, not revenues and expenditures).

For food stamps, the ED requires state governments to report their distributions as revenues and expenditures in either the general or a special revenue fund, whether the state government distributes the benefits directly or through agents and whether the benefits are in paper or electronic form.

On-behalf payments for fringe benefits and salaries are direct payments made by one entity to a third-party recipient for the employees of another, legally separate entity (the employer). The proposal requires employer-governments to recognize revenues and expenditures or expenses for such payments.

The ED is expected to be the first in a series of proposed GASB standards addressing government grants.

Food stamp controversy. The proposed accounting requirement for food stamps would be controversial, Finden predicted. A recent GASB survey found over 80% of the responding states were not reporting food stamp transactions in their government funds, as required by the proposal.

Further, in the proposal's alternative view section two of the GASB's five members said the ED represents piecemeal standard setting based on assumptions about long-range objectives that have yet to be resolved. They asserted that well-defined and consistently applied terminology and guidance can be achieved only through a comprehensive standard.

If adopted as a final statement, the accounting requirements would be effective for periods beginning after June 15, 1995.

The comment deadline is March 31, 1994. Until then, one copy of the ED, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance, is available without charge by calling the GASB order department at [phone], ext. 10.