Utilizing the comprehensive annual financial report (CAFR) obtained for Exercise 1-1, follow these instructions:

  a. Internal Service Funds.

    (1) Use of Funds. What activities of the government are reported as being administered by internal service funds? (Note: Working capital funds. revolving funds, industrial funds, and intragovernmental service funds are other names used for funds of the type discussed in Chapter 7.) If internal service funds are not used by the reporting entity, does the report disclose how financing and accounting for activities such as purchasing, motor pools, printing, data processing, and other activities commonly used by more than one fund are handled? Does the report state the basis of accounting used for the internal service funds? Is the accounting for all funds in this category on the same basis? If so, is the financial statement presentation consistent with the stated basis? If the basis of accounting is not stated, analyze the statements to determine which basis is used-accrual, modified accrual, or cash basis.

    (2) Fund Disclosure. In the balance sheet(s) or statement(s) of net assets dis playing information for the internal service fund(s), are assets classified in accord with practices of profit-seeking businesses, or are current, capital, and other assets not separately displayed? If there are receivables other than from other funds or other governments, are allowances for estimated uncollectibles provided? Are allowances for depreciation deducted from related capital asset accounts?

   Are current liabilities and long-term debt properly distinguished in the balance sheet? Are long term loans from other funds properly distinguished from capital contributions received from other funds?

   Are budgetary accounts (Estimated Revenues, Appropriations, Encumbrances) used by the internal service funds? From what sources were revenues actually obtained by each internal service fund How are costs and expenses of each fund classified? Are noncash expenses, such as depreciation, separately disclosed? Do the revenues of each fund exceed the costs and expenses of the period Compute the net income (or net loss) of each fund in this category as a percentage of its operating revenue for the period. Does the net income (or net loss) for any fund exceed 5 percent of operating revenues? If so, do the statements or the accompanying notes explain how the excess is being used or how the deficiency is being financed?

    (3) Statement of Cash Flows. Is a statement of cash flows presented for inter nal service funds? If so, how does the cash provided by operations shown in this statement relate to the revenues and expenses shown in the statement of revenues, expenses, and changes in net assets, or other similarly titled operating statement? Are cash flows from financing activities presented separately for noncapital- and capital-related activities? Is there a section for cash flows from investing activities?

    (4) Government-wide Financial Statements. Is there a column for business type activities on the statement of net assets and statement of activities? Is there any evidence that the internal service fund account balances were collapsed into the Governmental Activities column? If enterprise funds are the predominant participants in the internal service fund, do you see evidence that the internal service fund balances are reported in the Business-type Activities column of the government-wide statements?

b. Enterprise Funds.

     (1) Use of Funds. What activities of the government are reported as being administered by enterprise funds? Does the government own and operate its water utility? Electric utility? Gas utility? Transportation system? Are combining statements presented in the financial section of the CAFR for all enterprise funds, or are separate statements presented for each enterprise fund? Do all enterprise funds use accrual accounting? Are all funds in this category earning revenues at least equal to costs and expenses? If not, how is the operating deficit being financed? What sources furnished the original investment in fund assets? Do the notes include segment information on individual enterprise funds where applicable (see "Required Segment Information" section of this chapter)?

   Are sales to other funds or other governments separately disclosed? Are there receivables from other funds or other governments? How are receivables from component units, if any, disclosed? Is there any evidence that enterprise funds contribute amounts to the General Fund in lieu of taxes to help support services received by the enterprise? Is there any evidence that enterprise funds make excessively large contributions to the General Fund or any other funds?

    (2) Utility Funds. Is it possible to tell from the report whether utilities of this government are subject to the same regulations as investor-owned utilities in the same state? (If the utility statements use account titles prescribed by the NARUC and the FERC, as described in this chapter, there is a good chance that the governmentally owned utilities are subject to at least some supervision by a state regulatory agency.) What rate of return on sales (or operating revenues) is being earned by each utility fund? What rate of return on total assets is being earned by each utility fund?

   Is depreciation taken on the utility plant? Are accounting policies and accounting changes properly disclosed? If so, what method of depreciation is being used? Does each utility account for its own debt service and construction activities in the manner described in this chapter? What spe cial funds or restricted assets are utilized by each utility?

    (3) Nonutility Enterprise Funds. Is the accounting for nonutility enterprise funds the same as investor-owned enterprises in the same industries? (In order to answer this, you may need to refer to publications of trade associations or to handbooks or encyclopedias of accounting systems found in business libraries.) If you cannot find information about investor-owned counterparts of the governmental nonutility enterprise funds, do the statements of the latter provide evidence that generally accepted accounting principles devised for profit-seeking businesses were used?

    (4) Government-wide Financial Statements. What proportion of the net assets of the business-type activities are reported as invested in capital assets, restricted, and unrestricted? Were the business type activities profitable; that is, did revenues exceed expenses?