GLOSSARY OF TERMS, Exams of Financial Management

Download GLOSSARY OF TERMS and more Exams Financial Management in PDF only on Docsity! 1 Office of Financial Management June 2018 GLOSSARY OF TERMS Account — A fiscal and accounting entity with a self-balancing set of general ledger codes in which cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, are recorded and segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. For reporting purposes, the state identifies major accounts, and administratively combines all remaining accounts into roll-up funds. Most accounts are set up in state law to isolate specific activities. Account code or number — The three-character alpha/numeric code assigned by OFM to identify each account. (See the Fund Reference Manual.) Accrual basis — The basis of accounting whereby revenues are recognized when they are earned and measurable regardless of when collected, and expenses are recorded on a matching basis when incurred. All proprietary and fiduciary funds use the accrual basis of accounting. Accrued expenditures — Expenditures that meet the appropriate recognition criteria of the account type involved but have not been paid. Accrued expenditures are expected to be paid in a subsequent accounting period. Accrued liabilities — Liabilities reflecting the obligation to pay for goods or services that have been incurred or received but not paid for by the end of the accounting period. Accrued liabilities related to refunds of revenue are offset to the revenue originally recorded. Accrued revenues — Revenues that meet the appropriate recognition criteria of the fund type involved, but are not realized until a subsequent accounting period. Also refers to Accrual Basis and Modified Accrual Basis. Acquisition — This type of project includes the acquisition of land, structures, and buildings. These are fixed assets that have no relationship to the addition or improvement to, or the repair or replacement of, existing fixed assets. Examples of an acquisition are purchase of a tract of land or purchase of a building. Activity — An activity is something an organization does to accomplish its goals and objectives. An activity consumes resources and produces a product, service or result. One way to define activities is to consider how agency employees describe their jobs. What do you do? For whom? Why is it valuable? For the Activity Inventory, an agency’s work should be broken down into its discrete functions or services. 2 Office of Financial Management June 2018 Addendum — A written or graphic instrument issued by the architect before execution of the construction contract that modifies or interprets the bidding documents by additions, deletions, clarifications, or corrections. Additional services — Professional services that may, if authorized or confirmed in writing by the agency/institution, be rendered by the architect or other consultants in addition to the basic services identified in the owner-architect agreement. See Form C-100 (2014) Sections B3 and B4. Additive alternate bid — An amount stated in the bid to be added to the amount of the base bid if the corresponding change in work, as described in the bidding documents, is accepted. Agency Budget System (ABS) —ABS is the state’s new software solution system that allows agencies to develop, share and electronically submit their biennial and supplemental budget requests. ABS supports multiple budget versions to assist agencies in developing operating and transportation budget requests. ABS was launched June 11, 2018, and replaced the aging Budget Development System (BDS). Allocation — Spending authority assigned to an agency from a lump-sum appropriation that is designated for expenditure by specific governmental units and/or for specific purposes, activities, or objects. For example, the Legislature may provide a lump-sum appropriation to OFM for allocation to agencies on an as-needed basis, or according to specified criteria. Allotment — An agency’s plan of estimated expenditures, revenues, cash disbursements, and cash receipts for each month of the biennium. Alternate financing — Proposals that cover a wide range of financial contracts that call for the development or use of space by state agencies through a contractual arrangement with a developer or financing entity. The sale of debt obligations, Certificates of Participation (COPs) through the State Treasurer may be involved, or financing may be offered by a private developer. Title to the property involved may transfer to the state either upon exercise of an option or at the termination of the contract. Alternative analysis — Involves identifying different ways of meeting the functional requirements of the program including various construction solutions to a problem or whether to lease, buy, build, or use some other financing techniques. This requires using approaches such as cost-benefit or life- cycle costing analysis to determine comparable costs of alternatives. Alternative public works — Refers to public works processes authorized under RCW 39.10 and includes General Contractor/Construction Manager (GC/CM) and Design-Build. To use these procedures, the project must meet the criteria (including project size) stipulated in RCW 39.10. Appropriation — A legal authorization to make expenditures and incur obligations for specific purposes from a specific account over a specific time period. Appropriations typically limit expenditures to a specific amount and purpose within a fiscal year or biennial timeframe. Only the Legislature can make appropriations in Washington State. 5 Office of Financial Management June 2018 Change order — A written authorization provided to a contractor approving a change from the original plans, specifications, or other contract documents, as well as a change in the cost. With the proper signatures, a change order is considered a legal document. Collective bargaining — A mutual obligation of the state and of employees' exclusive bargaining representatives to meet at reasonable times and bargain in good faith in an effort to reach agreement on wages, hours, and other terms and conditions of employment as defined in RCW 41.80. Commissioning and training — The process for achieving, verifying, and documenting that the performance of a building and its various systems meet design intent together with the owner and occupants operational needs. The process extends through all phases of a project, from initial concept to occupancy and operation, and includes the training of maintenance personnel. Compensation impact model (CIM) — A financial projection model used by the Office of Financial Management (OFM) to estimate the effect on state agency budgets of changes in salaries and benefit costs. Construction document phase — The phase of the A/E's services in which the architect prepares the construction documents from the approved design development documents and assists the agency/institution in preparation of the bidding documents. Construction management (CM) — Involves a contractual arrangement in which an owner employs an agent-consultant called a construction manager to coordinate and manage all of the construction trades. This additional management expertise is usually used on larger, more complex construction projects. However, an owner on a smaller project may retain a construction manager for that person’s construction expertise to act as the representative for the owner on the project. Constructability review — The cost for an independent consultant or contractor to determine if a unique or unusual project can physically be built as designed. This is to reduce construction change orders and claims. This review should be conducted at 75 percent completion of the construction documents. Consultant — An independent individual or entity contracting with an agency to perform a professional service or render an opinion or recommendation according to the consultant’s methods and without being subject to the control of the agency except as to the result of the work. The agency monitors progress under the contract and authorizes payment. Contingency — The need for cost contingency is generated by a lack of information, at a particular point in time, for the task being estimated. Appropriate contingency amounts are dependent on the degree of risk present and the extent of the technical challenge surrounding the task. The design contingency legitimately covers uncertainties in a project and should be reduced through each phase of the design. Construction contingencies should be limited to 5 percent on new construction and 10 percent on remodeling work. Contingencies should not be considered as opportunities for extra work or to change original budget decisions. 6 Office of Financial Management June 2018 Contract documents — The drawings, specifications, conditions, agreement, and other documents prepared by the designer that illustrate and describe the work of the construction contract and the terms and conditions under which it shall be done and paid. Contractor — A person, firm or corporation who or which, in the pursuit of an independent business undertakes to, or offers to undertake, or submits a bid to, construct, alter, repair, add to, subtract from, improve, move, or demolish, for another, any building, excavation or other structure, project, development, or improvement attached to real estate or to do any part thereof. Corrective maintenance — Unscheduled repair or replacement of equipment, systems, or components of facilities that requires immediate action to restore service or repair problems that will interrupt building service or agency activities. This work is normally funded from the operating budget. Cost/benefit analysis — An analysis in which consequences of the investment are measured in or converted to economic terms and qualitative benefits. Cost estimate — The sum established by the agency/institution as available for the entire project, including the construction budget, acquisition costs, furnishings and equipment, compensation for professional services and all contingencies. The cost estimate is used to develop capital project budgets. Cost estimating — An element of basic services in an architect/engineer (A/E) agreement that includes an estimate of construction cost from quantity surveys and unit costs of building elements for the project. Cost estimates shall include the elements of work to complete the project, all costs and fees and taxes necessary to complete the work, plus appropriate construction estimating contingencies to cover unidentified costs necessary to complete the project. Interactive cost estimating is additional work beyond basic services in which additional design alternatives are estimated. Independent cost estimating, if needed, covers cost estimates by an independent third party contracted with the owner and used to validate cost estimates prepared by the A/E. Debt limit — Washington State’s legal restriction (RCW 39.42.132) on the amount that can be paid for debt service on bonds, notes, or other borrowed money. The Washington State Constitution (Article 8, Section 1(b)) mandates that payments of principal and interest in any fiscal year cannot exceed 9 percent of the arithmetic mean of general state revenues for the three preceding fiscal years. This debt limit of 9 percent of revenues is to be reduced in downward steps to 8 percent by July 1, 2034. Debt service fund — A fund type established to account for the accumulation of resources for, and the payment of, general long-term obligation principal and interest. Dedicated accounts — Accounts set up by law to receive revenue from a specific source and to be spent for a specific purpose. Deferred maintenance — A backlog of activities that agencies deem necessary to bring facilities into good repair. Deferred maintenance is generally work that is left undone due to the lack of resources or perceived lower priority than projects funded. Failure to perform deferred work may 7 Office of Financial Management June 2018 result in the progressive deterioration of the facility condition or performance, and if not addressed, will significantly increase restoration cost. Deferred maintenance backlog reduction plans must be submitted with the capital budget request. Design build — An alternative contracting method of project delivery subject to provisions in RCW 39.10 in which the agency/institution contracts directly with a single entity that is responsible for both design and construction services for a construction project. Design/code plan check (ICBO) — The cost for design document plan check that is performed by the International Conference of Building Officials (ICBO) only when required by local code officials. This requirement should be identified in the permit review process. Design development phase — The phase of the A/E's services in which the consultant prepares the design development documents, from the approved schematic design studies, for submission to the agency/institution for approval. Design service contingency — Includes an allowance for uncertainty in scoping and pricing additional services, covers variability in estimating reimbursables, includes design fees for owner directed changes and includes design fees for changes during construction that are beyond the scope of basic services and are not a result of errors or omissions by the A/E. The total amount for design services contingency ranges from 5 to 10 percent of total consultant services cost depending on the complexity of the project. Designer — A party to a contract to provide professional design services to an owner, often an architect or a professional engineer. Also, one (individual or corporate) who performs the design function in construction, as a package deal, a turnkey project, or a development management project. Economic life — Economic life in the context of cost/benefit analysis refers to the span of years necessary to compare similar costs of operating and maintaining alternative solutions. It may not equate to the time required to fully depreciate the structure. The economic life span should be the same for each alternative for a project. The period of time, extending from the date of installation to the date of retirement for the intended service, over which a prudent owner expects to retain the property in order to obtain a minimum cost. Efficiency measure — A measure that shows the relationship between inputs (dollars or FTEs) to output or outcome. Energy life cycle cost analysis (LCCA) review — As required by RCW 39.35, the Department of Enterprise Services will review the Energy Conservation Report (ELCCA) for a project. The fee for this review shall not exceed $2,000 unless mutually agreed to. Entitlement — A service or grant that, under state or federal law, must be provided to all eligible applicants. Equipment — Tangible property other than land, buildings, improvements other than buildings, or infrastructure which is used in operations and with a useful life of more than one year. Examples are 10 Office of Financial Management June 2018 General contractor/construction manager (GC/CM) — A GC/CM is a firm with which an agency or institution has selected and negotiated a guaranteed maximum allowable construction cost for a project. A competitive selection process is used through a formal advertisement and competitive bids to provide services during the design phase that may include life-cycle cost design considerations, value engineering, scheduling, cost estimating, constructability, alternative construction options for cost savings, and sequencing of work. The GC/CM acts as the construction manager and general contractor during the construction phase. The GC/CM process is considered an alternative contracting method and is subject to provisions in RCW 39.10. General fund — A fund established to account for all financial resources and transactions except those required by law to be accounted for in specific dedicated accounts. General Fund-State (GF-S) — Refers to the basic account that receives revenue from Washington’s sales, property, business and occupation, and other general taxes and is spent for operations such as public schools, social services, and corrections. General fund accounts — A group of accounts within the state's fund structure. These accounts within the General Fund are a grouping of accounts normally classified as Special Revenue Funds or Capital Projects Funds but which are considered a part of the total General Fund. General obligation bonds — Statewide bond issues whose repayment is guaranteed by the full faith, credit, and taxing power of the state and that are subject to the state’s debt limit. General obligations bonds are the traditional form of government debt financing for major construction projects. Generally Accepted Accounting Principles (GAAP) — Uniform minimum standards for financial accounting and reporting. They govern the form and content of the financial statements of an entity. GAAP encompass the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. They include not only broad guidelines of general application but also detailed practices and procedures. Geotechnical investigation — The cost to do soils boring, sampling, testing, and prepare recommendations. The soil boring and sampling process, together with associated laboratory tests are necessary to establish subsurface profiles and the relative strengths, compressibility and other characteristics of the various strata encountered within depths likely to have an influence on the design of the project. GMAP — Government Management, Accountability, and Performance was a management initiative focused on improving the results of state government. Agency directors reported in regular meetings with the Governor on the most important management and policy challenges. Reports focused on performance in measurable terms. GMAP was closed out April 24, 2013 to transition to Results Washington. Goals — Broad, high-level, issue-oriented statements of an organization's desired future direction or desired state. 11 Office of Financial Management June 2018 Governmental funds — A fund classification used to account for most typical governmental functions. The acquisition, use, and balance of the state's resources and related current liabilities, unless required to be accounted for in proprietary funds or fiduciary funds, are accounted for in this classification of funds. There are five types of governmental funds: General Fund, Special Revenue funds, Capital Projects funds, Debt Service funds, and Permanent funds. Governmental purposes — As used in the context of use of bond/COP proceeds to pay the costs of facilities expected to be owned or used by, or to make any loan or grant to, a state and local government unit as defined in Treas. Reg. 1.103-1. This includes any state or political subdivision thereof that has been delegated substantial taxing, police, or condemnation power under state law or any instrumentality thereof. Governor’s emergency fund — An appropriation made available to the Governor for unforeseen expenditure requirements in state agencies. Grant — Awards of financial assistance, including cooperative agreements, in the form of money or property in lieu of money to an eligible grantee. Capital grants are restricted for the acquisition, constructions, or renovation of capital assets associated with a specific program. Operating grants support all or a portion of current operating expenses within a certain program. HVAC balancing — The cost to test and balance designed heating, ventilation, and air conditioning systems, including water flows, at the completion of construction. Improvement — A legal term referring to anything erected on and affixed to land (e.g., buildings, roads, fences, and services), which legally becomes part of the land, according to common law and statutory definition. Incremental budgeting — Any budget development approach that focuses on incremental changes to a previous spending level or other defined expenditure base. Information technology — Equipment, software, services, and products used in processing information, office automation, and telecommunications (voice, data, and/or video). Information technology portfolio — The planning and management process for information technology resources and investments overseen by the Office of the Chief Information Officer. Initial costs — The same as “first cost” or the cost to provide the service or product in today’s dollars for a project. Different from life cycle costs, or future costs. Initiative 601 — A law on state budget restrictions approved by voters in the November 1993 general election. Its primary requirements are: an expenditure limit based on inflation and population growth (applicable to state General Fund expenditures only); an emergency reserve account for any GF-S revenues above the expenditure limit; a percentage limit on how much state fees can be raised without legislative approval; and a two-thirds legislative vote requirement on certain state tax increases. 12 Office of Financial Management June 2018 Inspection (on site) — The examination of work completed or in progress to determine its conformance with the requirements of the contract documents. Internal service fund — A fund type used to report activities that provide goods or services to other funds, departments, or agencies of the state on a cost reimbursement basis. Internal service funds are used where the state is the predominate participant in the activity. Lean — Lean is a systematic approach to improving value to customers by eliminating waste. The focus is on the customer and the work steps (or “value stream”) that create products or services for customers. Lean thinking, tools, and techniques offer an opportunity to streamline business processes to save time, effort and money that can be better used on what customers value most. Lease purchase and lease development — Lease purchase and lease development agreements are forms of financing contracts that enable a building to be built or substantially remodeled to state specifications by a private developer. In both cases, the developer finances the project and recovers the cost through least payments. By the end of the lease period, the state may exercise the option to purchase at a predetermined price. There is no tax exemption for the developer, and market interest rates prevail. Any funds required to pay the cost of lease-development proposals should be requested through the operating budget. For reference, see RCW 39.94, Financing Contracts. Lease — Leases are contracts entered into by the state which provide for the use and purchase of real or personal property, and provide for payment by the state through the operating budget. All financing contracts must be approved by the state Finance Committee. A lease must have the approval of OFM if it is for space under development or has an obligation of over $1 million annually, regardless of the length of the lease obligation. LEEDTM (Leadership in Energy and Environmental Design) — LEEDTM is a green building certification program that recognizes best-in-class building strategies and practices. RCW 39.35D states that all new construction of state-owned buildings over 5,000 square feet and renovations to state-owned buildings when the cost is greater than 50 percent of the assessed value of the building shall be designed and built to a minimum LEEDTM Silver Standard. Life-cycle cost — The capital and operational cost of a construction item, system, or building during its estimated useful life. Life cycle cost analysis — The identification of a total life-cycle cost of a facility project. Life-cycle cost analysis is defined as the programmatic and technical considerations of all cost elements associated with capital facility alternatives under consideration. These cost elements may include any or all of the following: Capital Investment Costs, Lease Costs, Financial Costs, Operations Costs, Maintenance Costs, Alternations Costs, Replacement Costs, Denial of Use Costs, Lost Revenue, and Associated Costs. Local accounts — Accounts under the control of an agency with cash on deposit in a local bank account and requiring the signature of agency officials on a check for disbursement. Some local funds are on deposit with the State Treasurer as a matter of convenience or statutory requirement. 15 Office of Financial Management June 2018 Outcome measure — A measure of the result of a service provided. This type of measure indicates the impact on the problem or issue the service or program was designed to achieve. Also known as results. Outline specifications — An abbreviated set of specification requirements normally included early in the design process. Output measure — An indicator of how much work has been completed. The number of units of a product of service produced or delivered. Owner — The first party to the construction contract, who pays the contractor (the second party) for the construction work; also, the party who owns the rights to the land upon which the work is done and who, therefore, owns the work; also, the client of a designer, a construction manager, a project manager, or a development manager. Performance bond — A bond issued by a surety company on behalf of a contractor to guarantee an owner proper performance of the construction contract. Performance budgeting — The act of considering and making funding choices based on desired outcomes. Performance budgeting focuses on the results to be gained through investment decisions. Performance measure — A quantitative indicator that can be used to determine whether an agency’s programs or services are directly contributing to the achievement or progress toward some objective. Activity performance measures reported in the budget should tell the story of whether the activity is achieving its purpose and contributes to statewide goals. These measures are most likely to be intermediate or immediate outcomes or output measures. Phased construction — Construction in which design and production more or less overlap, thus shortening project time; usually practiced in construction management projects. See Fast Track. Policy level — Incremental expenditures that may represent revised strategies or substantial differences in program direction and can include proposed program reductions. Examples can include discretionary workload expenditures necessary to address workload not defined as mandatory, new programs or changes in the level or scope of existing programs, or program reductions and other changes. Predesign study — A report and process completed at the beginning of a project that clearly and accurately defines the need/problem to be addressed. The predesign study provides an analysis of alternatives and describes the selected alternative in detail with cost estimates. This study is the basis for large stand-alone capital projects. Predictive maintenance — A refinement to preventive maintenance that integrates scheduled maintenance with system monitoring and analysis (e.g., vibration analysis, thermal/energy analysis) to identify inefficient operation or imminent breakdown. Predictive maintenance ideally reduces the cost of maintaining components that are working adequately. 16 Office of Financial Management June 2018 Preservation project — Projects that maintain and preserve existing state facilities and assets, and do not significantly change the program use of a facility. Examples would include roof replacement and exterior renovation, utility system upgrade, and repairing streets and parking lots. Preventive maintenance — A maintenance strategy where inspections are made or actions are taken on a scheduled basis to reduce service interruptions, reduce the premature failure of facilities, systems, and equipment, and continue efficient operations. Actual inspection and maintenance is performed on pre-specified schedules established by manufacturer or facility manager. Primary purpose — As used in defining a project type, the identification of the dominant driver behind the project; the area where the impact of not correcting the deficiency is most acute. Priorities of government (POG) — Washington’s adaptation of the "Price of Government" budget approach first developed by Peter Hutchinson and David Osborne. This form of budgeting focuses on statewide results and strategies as the criteria for purchasing decisions. Program — Any of the major activities of an agency expressed as a primary function or organizational unit. Agencies may not alter their program structure without the explicit approval of the Legislature and OFM. Program projects — Projects that are intended to accomplish a program goal such as changing or improving the use of existing space, or creating a new facility or asset through construction or purchase. These projects may have a major impact on future operating budgets − such as the construction of a new prison or university branch campus. Programming — The work necessary to define the scope of a project, conduct master planning for future work, or delineate the existing conditions. This work may require field measurements or building systems testing and surveys. Project delivery system — Method of how an owner plans to contract a project, i.e., design/bid/build, design/build, GC/CM, etc. Proprietary fund — A fund classification used to account for the state’s ongoing organizations and activities that are similar to those often found in the private sector. These funds are considered self-supporting in that the services rendered by them are financed through user charges or on a cost reimbursement basis. There are two types of proprietary funds: enterprise funds and internal service funds. Proviso — Language in budget bills that places conditions and limitations on the use of appropriations. Example: “Up to $500,000 of the General Fund-State appropriation is provided solely for five additional inspectors in the food safety program.” Real property — Property that is fixed, immovable, and permanent. Real property includes land, structures affixed to the land, property affixed to the structures, and in some cases, trees etc., growing on the land. 17 Office of Financial Management June 2018 Reappropriation — Capital budget appropriation that reauthorizes the unexpended portion of previously appropriated funds. Because capital projects often overlap fiscal periods, it is necessary to reauthorize some expenditure authority to ensure project completion. Receipts — Unless otherwise qualified, cash received during a fiscal year irrespective of when the monies are earned. Record drawings — The revised drawings that truly reflect what was constructed including field verification. Reimbursable expenses — Amounts expended for or on account of the project that, in accordance with the terms of the appropriate agreement, are to be reimbursed by the agency/institution such as telephone charges and travel expenses in accordance with state guidelines. Reserve or fund balance — In budget terminology, the difference between budgeted resources and expenditures. Reserved allotment status — The portion of expenditure authority not expected to be used because of circumstances such as the Governor’s across-the-board allotment reductions, technical corrections, or proviso compliance. Results Washington — Results Washington combines the best aspects of previous performance management and performance budgeting efforts such as Government Management Accountability and Performance (GMAP) and Priorities of Government (POG) with a significantly expanded Lean initiative that will involve all state agencies. Retainage — Those portions of cash amounts due to be paid to a contractor for work completed that are held back (retained) by the agency/institution and not paid until some later date; often at substantial completion or at final completion of the work, according to the terms and conditions of the contract and any relevant legal statue; as a security for proper performance of work and fulfillment of contractor’s requirements. Revenues — Cash receipts and receivables of a governmental unit derived from taxes and other sources. Reversion — Unused appropriation authority. If an agency does not spend all of its appropriation in the timeframe specified by the budget, the authorization to spend that dollar amount expires. Revised Code of Washington (RCW) — The Revised Code of Washington is the compilation of all permanent state laws now in effect. It is a collection of session laws (enacted by the Legislature and signed by the Governor or enacted via the initiative process), arranged by topic, with amendments added and repealed laws removed. It does not include temporary laws, such as appropriation acts. Revolving fund/account — An internal service fund established to carry out a cycle of operations. The amounts expended from the account are restored to the account from earnings from operations or by transfers from other accounts, so that the account is always intact.