A2511 - REDLINE - 2018_02_16 SD.PDF

MARICOPA COUNTY INTERNAL POLICY
Policy Number: A2511
Policy Title:
POLICY FOR PREPAID EXPENSESPREPAID Current Adoption 9-17-20082-21-2018
Date:
EXPENSES
Current
9-17-20082-21-2018
Implementation Date:
Board Agenda C-18-09-026-6-00C-
Approved by: Number: 18-09-026-6-01
BOARD OF DIRECTORS Original Adoption
10-1-2008
Date:
I. PURPOSE Commented [MG1]: Updated to current Policy Template
The purpose of the Maricopa County Prepaid Expense Policy is to provide guidelines to County
Departments and County District(s) including the Flood Control District, Library District, and Stadium
District for the establishment, appropriate usage, and reporting of Prepaid Expenses.
This policy defines Prepaid Expenses. It also details the overall responsibilities and processes to be
followed by departments when utilizing Prepaid Expenses. This policy also offers specific information
and detailed procedures to be followed.
Department directors and administrators are responsible for ensuring all personnel are aware and
comply with the requirements of this policy.
This policy does not replace or supersede specific policies for prepaid items that are listed in the
Maricopa County General Travel Policy as it pertains to the advance payment for County travel.
II. APPLICATION
This policy applies to all County Departments, Elected Officials and Special Districts.
II.III. DEFINITIONS Commented [MG2]: Reordered Definitions alphabetically
A. Appointing Authority: An elected official, the single administrative or executive head of a
Department/Special District, or the designated representative authorized to act in this capacity.
A. Department - Refers to the department, office, or agency under budgetary responsibility and
oversight of the Maricopa County Board of Supervisors and the Maricopa County District(s) Board
of Director(s). The County Districts include the Flood Control District, Library District, and Stadium
District.
B. Consumption Method of Accounting: - The method under which purchases are debited to a
prepaid asset account and are recorded as expenditures or expenses when used.
C. Department: Refers to the department, office, or agency under budgetary responsibility and
oversight of the Maricopa County Board of Supervisors and the Maricopa County District(s) Board
of Director(s). The County Districts include the Flood Control District, Library District, and Stadium
District.
D. Fund: A fiscal and accounting entity with a self-balancing set of accounts segregated for the
purpose of carrying out specific activities or obtaining certain objectives in accordance with
regulations, restrictions, or limitations.

Policy Title: Policy Number: A2511
POLICY FOR PREPAID EXPENSESPREPAID
Current Adoption
EXPENSES 10-1-20082-21-2018
Date:
B.
C.E. GASB: - Governmental Accounting Standards Board. The entity created to establish
standards of financial accounting and reporting for state and local governmental entities.
D.F. General Fund: - County’s primary operating Fund.
E.G. Governmental Funds: - County General Fund, special revenue Funds, debt service
Funds, and capital projects fFunds.
F. Fund - A fiscal and accounting entity with a self-balancing set of accounts segregated for the
purpose of carrying out specific activities or obtaining certain objectives in accordance with
regulations, restrictions, or limitations.
G. OMB Circular A-133 – Issued pursuant to the Federal Single Audit Act. This circular sets the
standards for Federal Single Audits, outlines the auditee and auditor responsibilities, and identifies
Federal grant compliance requirements.
H. Prepaid eExpense: - Amounts paid in advance for a benefit not yet received. This type of expense
normally includes costs paid in one fiscal year (or period) that benefits a future year (or period).
I. Proprietary fFunds: - Include enterprise Funds and internal service Funds. Enterprise Funds
report activity for which a fee is charged to external users for goods or services. Internal service
Funds operate on a cost reimbursement basis and generally provide services to only other County
Departments.
J. Purchases Method of Accounting: - The accounting method under which purchases are
recorded as expenditures when acquired.
K. Uniform Administrative Rules, Cost Principles, and Audit Requirements for Federal Grants
(Uniform Grant Guidance): The Federal OMB has issued a final guidance regulating the
management of grants. This guidance supersedes Federal OMB Circulars A-21, A-87, A-89, A-
102, A-110, A-122, A-133 and the Single Audit Act. The Federal OMB Uniform Grant Guidance —
2 CFR Part 200 consolidated aforementioned circulars into a streamlined format improving clarity
and accessibility.
III.IV. BACKGROUND
A. Under normal circumstances, goods and services are paid for upon receipt. There are a limited
number of occasions when paying for a service or item before delivery (or use) of an item (or
service) would be necessary. This type of transaction would be classified as a pPrepaid
eExpense. Prepaid eExpenses can be defined as costs paid in one fiscal year or period that
benefits a future year or period.
B. The Governmental Accounting Standards Board (GASB) has issued guidance for the reporting
and treatment of expenses. GASB further specifies that if the governmental agency utilizes the
cConsumption mMethod of aAccounting for purchases, then the purchases are debited to a
prepaid asset account and are recorded as expenditures or expenses as consumed. Under the
cConsumption mMethod, pPrepaid eExpenses are accounted for in the period that the benefit
was received,; and therefore, the initial purchase is recorded as a prepaid item on the balance
sheet. The cConsumption mMethod follows the accounting matching principal pertaining to the
recognition of expenditures/expenses. Maricopa The County utilizes the cConsumption mMethod
of aAccounting for pPrepaid eExpenses for pProprietary Ffunds (i.e., Internal Service Funds).
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Policy Title: Policy Number: A2511
POLICY FOR PREPAID EXPENSESPREPAID
Current Adoption
EXPENSES 10-1-20082-21-2018
Date:
C. An alternate method of accounting, known as the Ppurchases mMethod is also permitted under
GASB. Under this method of accounting, purchases are recorded as expenditures when
acquired.
D. The accounting method used by the County is determined by fFund type (i.e., gGovernmental
fFunds or pProprietary fFunds). The County utilizes the pPurchases mMethod of aAccounting for
prepaid expenditures in Ggovernmental fFunds and the cConsumption mMethod of aAccounting
for pPropriety fFunds.
IV.V. GUIDELINESPOLICY
A. Maricopa County’s Governmental Funds follow the modified accrual basis of accounting and
utilize the pPurchases mMethod of aAccounting for expenditures; therefore, the County expenses
purchases at the time the purchase is made. Additionally, the County’s normal purchasing
procedures require that purchases be paid for only when a product or service has been received.
B. The following are examples of prepaid purchases that would be considered acceptable for
gGovernmental fFunds. These types of purchases would be expensed at the time of purchase.
1. Nominal expenditures including subscriptions, professional associations, membership fees,
conference fees, etc. These purchases are generally nominal amounts, made in advance,
and provide a benefit over time.
2. Prepaid postage metering and prepaid bulk mail if used by a County dDepartment.
3. Prepayment of licensing agreements that benefit future periods. Examples may include
computer software licensing agreements, electronic resources such as eBooks, or other
subscriptions.
4. Prepayment of warranties that benefit future periods. Examples may include vehicle and
computer warranties.
C. On the other hand, the County’s pProprietary fFunds follow the full accrual basis of accounting.
This accounting method allows for the cConsumption mMethod of aAccounting to be used. The
cConsumption mMethod of aAccounting for expenses requires that purchases be recorded as an
asset (prepaid asset) when purchased and then expensed when consumed.
D. The following are examples of prepaid purchases, which would be recorded as a prepaid asset at
the time of purchase and are acceptable for pProprietary fFunds:
1. County-wide medical insurance and other health care insurance policies, etc., that provide a
benefit over a period of time (generally one year), if applicable. These types of prepaid assets
would generally be purchased by the County’s Employee Health Initiative Department
(Internal Service Fund).
2. County-wide liability insurance policies including general liability, automobile liability, medical
malpractice insurance, etc., that provide a benefit over a period of time (generally one year),
if applicable. These types of insurance policies would generally be purchased through the
County’s Risk Management Department (Internal Service Fund).
Inventory items used in the normal course of business are not considered part of this policy.
E. The following are normally not an acceptable prepaid purchase regardless of the type of fFund
(gGovernmental fFund or pProprietary fFund).:
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Policy Title: Policy Number: A2511
POLICY FOR PREPAID EXPENSESPREPAID
Current Adoption
EXPENSES 10-1-20082-21-2018
Date:
1. Real Estate Leases – The real estate contracts usually require the County to pay in advance
on a month-to-month basis. The contract will govern when the vendor will be paid. Departments
should not pay vendors in advance of the contracted agreement.
2. Grant funded programs should not prepay any expenditure including payments to
subrecipients. Federal OMB Uniform Grant Guidance – 2 CFR Part 200, Appendix XI – Circular
A-133 Appendix B – Compliance Supplement, cash management requirements require
subrecipients to be funded on the same basis and conform to the same standards of timing
that apply to the County.
3. Prepayment for goods and/or services not yet received or provided by vendor(s). Examples
include, but are not limited to, legal services including retainers, expert witnesses, contract
employees, consulting services, contracted services, etc.
For contracts that extend over a period of time, vendors may invoice the County using a percentage
of completion, hourly based on an established hourly rate, or other acceptable methods in which
the County does not pay for goods and/or services not received.
V.VI. PROCEDURESGUIDELINES
A. Department Guidelines
1. Departmental management should develop an internal program to document and report any
allowable pPrepaid eExpenses made in the current year that will be used in a future period. A
report listing all prepaid items will need to be created and submitted to the Department of
Finance at the end of each fiscal year. This requirement is included in the County-wide Fiscal
Year End Closing Package as it pertains to the financial statement audit and is updated
annually.
2. Generally, prepayments should only be made for items described previously. If departmental
management feels that an expense should be prepaid, and it is not described previously in
this policy as an acceptable pPrepaid eExpense, they can request an exemption in writing to
the Department of Finance. The request should include a description of the transaction to be
prepaid and the business rationale for this request. For example, if management can
demonstrate that the County would realize substantial savings if a purchase was prepaid, an
exemption may be permitted.
B. Department of Finance Guidelines
1. Department management will submit to the Department of Finance a written request for an
exemption if they believe that an expense should be prepaid but is not similar in nature to
those described previously.
2. The Department of Finance will work with dDepartment management to determine if the
prepayment of an expense would be in the County’s best interest. If the specific prepayment
is approved, the Department of Finance will issue a memo to the requesting dDepartment
indicating the approval and list any specific reporting requirements. This memo must be
attached to the invoice when sent to Finance for payment. The invoice, pPrepaid eExpense
approval memo, and all supporting documentation will be retained for the required retention
period.
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Policy Title: Policy Number: A2511
POLICY FOR PREPAID EXPENSESPREPAID
Current Adoption
EXPENSES 10-1-20082-21-2018
Date:
VI.VII. RELATED DOCUMENTS
A. Codification of Governmental Accounting and Financial Reporting Standards—Published by the
Governmental Accounting Standards Board, June 30, 2007, (1600.127, page 85).
B. Uniform Grant Guidance – 2 CFR Part 200.Federal OMB Circular A-133 (Appendix B – Compliance
Supplement).
C. Uniform Accounting Manual for Arizona Counties (UAMAC) issued by the Arizona Auditor General.
D. Maricopa County Policy Number A2313 – General Travel Policy. Formatted: Font: Italic
E. Agendas 9/17/2008 C-18-09-018-6-00 (County); C-18-09-021-6-00 (Library); 10/1/2008 C-18-09-
025-6-00 (Flood); C-18-09-026-6-00 (Stadium).
Revision History
Version Revision Date Description of Revision
1 9-17-2008 Initial version. (Board of Supervisors: C-18-09-018-6-00 (County); Library
District: C-18-09-021-6-00 (Library)).
2 10-1-2008 (Flood Control District: C-18-09-025-6-00 (Flood); Stadium District: C-18-
09-026-6-00 (Stadium)).
3 2-21-2018 Reviewed by the Department of Finance and revised to reflect consistent
terminology, updated reference to County financial system and County
organizational structure (Board of Supervisors: C-18-09-018-6-01; Flood
Control District: C-18-09-025-6-01; Library District: C-18-09-021-6-01;
Stadium District: C-18-09-026-6-01).
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