FAG Grants 2009/2010

[selinaM]

The NSW Local Government Grants Commissions has advised it will be depositing the first instalment of the FAG grant for 2009/2010 by the 26th June. LGGC has labelled this as an ‘Advance Payment’. Ideally it would be neat and tidy to receipt it as Income in Advance Liability, so as to keep our budgets for next year correct. However under AASB 1004, as LG Solutions has previously noted in response to a similar question in issue No. 2008/7, “Council would be deemed to control the funds as a result of having received it”, and therefore will need to include it as Income in 2008/2009. Are all Councils treating it this way?

[ken]

Some background to SelinaM's query;

1. AASB 1004 - Contributions states;

at paragraph 20 that "This Standard requires contributions...to be recognised as income when the transferee local government...obtains control over them, irrespective of whether restrictions or conditions are imposed on the use of the contributions."

at paragraph 27 that "Control of amounts in the nature of voluntary transfers arises when the transferee can benefit from funds transferred to it and deny or regulate the access of others to those benefits. Therefore, control arises when, for example, government departments can use funds granted or transferred to purchase goods and services or retain those funds for future purchases."

while paragraph 28 states that recognition of the grant/contribution as income "may coincide with the date of its receipt" provided the grant criteria are also satisfied on receipt. Since the FAG grant criteria is that the money be provided to a Local Govt. Council, then the criteria will in fact be met & recognition as income should occur.

Hence our recommendation in the June 2009 edition of LG "Debits & Credits" that the grant needs to be recorded as Income.

2. Don't forget that as per the June 2009 newsletter, we also recommended that Council's record the unspent 09/10 FAG grant received in advance (or that part of it that is unspent) at 30/6/09 as an INTERNAL RESTRICTION at NOte 6(c) so that the amount does not distort the Unrestricted Cash & Investments balance.

We recommended INTERNAL restrictions as opposed to EXTERNAL resitrctions since the FAG grant is not tied and so any unspent funds at YE do not qualify as an EXTERNAL restriction. INTERNAL restrictions however are nominated & adopted by Council.

3. Unfortunately, regardless of our recommendation at (2) above, the Note 13 ratio for the Unrestricted Current Ratio will be affected by the unspent FAG grant at YE (ie. your ratio will be higher) since this ratio does not take into account Internal Reserves but only External Reserves.

[selinaM]

Thanks Ken.