GLOSSARY
accrual basis of accounting: Transactions are recorded when they occur regardless of when cash is paid or received. Commissions use a modified form of accrual accounting (see Modified Accrual Basis) for Governmental funds. However, the accrual basis of accounting is used for the preparation of annual government-wide financial statements where governmental activities are reported (governmental activities are defined later).
active investment management: Active management of an investment portfolio implies that the investing official may sell some securities in order to shift assets into other instruments. This may be done simply to rebalance a portfolio that has become overconcentrated in one sector, or it may reflect an effort to enhance total returns by trading or swapping into securities that are expected to outperform the original holding. Active investment management requires expertise and frequent monitoring of financial markets.
administrative costs: Costs incurred for a common or joint purpose that benefits more than one cost objective, supports the general management and administration of a First 5 commission, and/or those costs not readily assignable to a specifically benefited cost objective.
advance payment: Any payment made to a contractor before work has been performed or goods have been delivered.
appropriation: Appropriations represent the maximum expenditures that are authorized by the governing body of the commission. They represent (by budget category) amounts that cannot be legally exceeded. Internal reporting must provide timely information so the Board of the commission can determine that the spending limits authorized have not been exceeded.
assigned fund balance: That portion of the fund balance that reflects a commission's intended use of resources, which is established either by the county First 5 Commission, a body created by the commission, such as a commission finance committee, or an official designated by the commission (e.g., an Executive Director).
balance sheet: The financial statement disclosing the assets, liabilities, and equity of the governmental funds (which includes general funds and special revenue funds). Governments are also required to disclose assets, liabilities and equity on a “government-wide entity” basis, using accrual accounting. This is known as the Statement of Net Assets.
bankers’ acceptance: A time draft drawn on and accepted by a bank to pay a specified amount of money on a specified date. Bankers’ acceptances are short-term, non-interest bearing notes sold at a discount and redeemed at maturity at face value by the accepting bank. Bankers’ acceptances are backed by the issuers’ guarantee to pay, the underlying goods being financed, and the guarantee of the accepting bank.
bidder’s conference: A meeting with potential providers before the proposal submission date.
broker: A person or firm that acts as an intermediary by purchasing and selling securities for others rather than for its own account.
budgetary basis of accounting: The form of accounting used to describe revenues and expenditures in the budget document. The term "basis of accounting" is used to describe the timing of recognition, that is, when the effects of transactions or events should be recognized. The basis of accounting used for purposes of financial reporting in accordance with generally accepted accounting principles (GAAP) is not necessarily the same basis used in preparing the budget document. For example, governmental funds are required to use the modified accrual basis of accounting in GAAP financial statements whereas the cash basis of accounting or the "cash plus encumbrances" basis of accounting may be used in those same funds for budgetary purposes. Disparities between GAAP and the budgetary basis of accounting often occur because of regulations that govern budgeting (e.g., laws or ordinances of the state, county, city or some other jurisdiction) which differ from GAAP. There are four basic categories of difference between the budgetary basis of accounting and the basis of accounting that follows generally accepted accounting principles (GAAP) for state and local governments. They are:
capital assets: Land, improvements to land, easements, buildings, building improvements, vehicles, machinery, equipment, works of art and historical treasures, infrastructure, and all other tangible or intangible assets that are used in operations and that have initial useful lives extending beyond a single reporting period. Capital assets historically were also referred to as fixed assets, but that terminology is no longer used in practice.
cash basis of accounting: Basis of accounting that recognizes transactions or events when related cash amounts are received or disbursed.
certificate of deposit: A time deposit in a financial institution documented by a certificate that bears a specified dollar amount of the deposit, a specified maturity date and a specified interest rate.
collateral: Underlying securities that are pledged to secure deposits of public funds. Also used in conjunction with repurchase agreements to protect the entity from default by the counter party.
collateralization: The process by which a borrower pledges securities, property, or other deposits for the purpose of securing the repayment of a loan and/or security.
CAFR (comprehensive annual financial report: An annual financial report that conforms to the requirements of the Governmental Accounting Standards Board.
commercial paper: An unsecured short-term promissory note issued by corporations, with maturities ranging from 2 to 270 days.
committed fund balance: That portion of fund balance that includes funds whose use is contrained by limits imposed by the government's highest level of decision making (for First 5 county organizations, the County First 5 Commission), and for which the removal or modification of use of funds can be acomplished only by formal action of the same level of decision making that established the constraints.
contract: A legally binding agreement between two parties for the provision of goods or services.
county pooled investment funds: The aggregate of all funds from public agencies placed in the custody of the county treasurer or chief finance officer for investment and reinvestment.
coupon: The annual rate of interest that a bond’s issuer promises to pay the bondholder on the bond’s face value; a certificate attached to a bond evidencing interest due on a payment date.
credit quality: The measurement of the financial strength of a bond issuer. This measurement helps an investor to understand an issuer’s ability to make timely interest payments and repay the loan principal upon maturity. Generally, the higher the credit quality of a bond issuer, the lower the interest rate paid by the issuer because the risk of default is lower. Credit quality ratings are provided by nationally recognized rating agencies.
custodian: A bank or other financial institution that keeps custody of stock certificates and other assets.
dealer: Someone who acts as a principal in all transactions, including underwriting, buying, and selling securities, including from his/her own account.
derivative: Securities that are based on, or derived from, some underlying asset, reference date, or index.
disbursements: The payment of cash for expenditures. Such payments may precede the expenditures (an advance), coincide with the expenditures (a direct payment), or follow the expenditures (the payment of a liability).
discount securities: Securities that pay no interest. They are issued at a discount from their face value. An investor's return on investment is the difference between the discounted purchase price and the maturity (or sale) price. U.S. Treasury bills are an example of a discount security.
encumbrances: Contractual obligations to make future payments. Encumbrances represent the estimated amount of future expenditures that will result when, for example, purchase orders are placed and contracts are signed. Since the amount of an appropriation cannot be legally exceeded, the placing of purchase orders and the signing of contracts are critical events in controlling the commissions’ funds. The financial resources of a fund are said to be encumbered when a transaction is executed that requires performance on the part of another party before the commission becomes liable to perform its part of the transaction (make payment to the entity). Consistent with the enactment of GASB Statement 54, encumbrances are no longer reported separately in the financial statements. For governments that use encumbrance accounting, significant encumbrances should be disclosed in the notes to the financial statements by major funds and non-major funds in the aggregate in conjunction with required disclosures about other significant commitments.
evaluation costs: Costs incurred by First 5 commissions in the evaluation of funded programs, in accordance with their accountability framework, and data collection and evaluation for required reporting to state and local stakeholders.
expenditures: Take place when a vendor or contractor performs on a contract or a purchase order, as well as when goods or services are received. An expenditure and a corresponding liability or cash disbursement will be recorded at the time goods or services are received or at the time funds are granted to an authorized recipient.
fiduciary funds: Funds used to report assets held in a trustee or agency capacity for others and which therefore cannot be used to support the government's own programs. The fiduciary fund category includes pension (and other employee benefit) trust funds, investment trust funds, private-purpose trust funds, and agency funds.
fund balance: The value of the funds available to the commission. Fund balance is the difference between fund assets and fund liabilities of governmental funds.
GAAP: Abbreviation for "generally accepted accounting principles," which are conventions, rules, and procedures that serve as the norm for the fair presentation of financial statements. The Governmental Accounting Standards Board (GASB) is responsible for setting GAAP for state and local governments.
Governmental Accounting Standards Board (GASB): Ultimate authoritative accounting and financial reporting standard-setting body for state and local governments. The GASB was established in June 1984.
governmental activities: Governmental activities are basically all of the governmental funds reported together on an accrual basis. Also, governmental activities include all related capital assets and long-term liabilities and are reported at the government-wide level of reporting.
governmental funds:Funds generally used to account for tax-supported activities. There are five different types of governmental funds: the general fund, special revenue funds, debt service funds, capital projects funds, and permanent funds.
guaranteed investment contracts (GICs): An agreement acknowledging receipt of funds for deposit, specifying terms for withdrawal, and guaranteeing a rate of interest to be paid.
interest-only strips: The interest cash flow portion of a stripped mortgage-backed security or bond. The holder receives no principal payments. A significant loss in value can occur on interest only strips created from mortgage-backed securities when the underlying mortgage prepayments accelerate, typically in a falling interest-rate environment.
internal control (framework): Integrated set of policies and procedures designed to assist management to achieve its goals and objectives. To be comprehensive, the framework must: 1) prove a favorable control environment, 2) provide for the continuing assessment of risk, 3) provide for the design, implementation, and maintenance of effective control-related policies and procedures, 4) provide for the effective communication of information, and 5) provide for the ongoing monitoring of the effectiveness of control-related policies and procedures as well as the resolution of potential problems identified by controls.
inverse floaters: A security that reacts inversely to the direction of interest rates. These securities can be very volatile and can lose value in a rising interest-rate environment.
liquidity: The ability to convert securities into cash on a short notice. Liquidity incorporates a security holder’s ability to sell an instrument without significant loss, as well as other factors that might expedite quick exchange for cash. An example of an illiquid asset would be a nonnegotiable bank certificate of deposit, for which the holder must pay an interest penalty for premature redemption.
local agency investment fund: A voluntary investment fund open to government entities and certain non-profit organizations in California that is managed by the State Treasurer’s Office.
local agency investment fund (LAIF): A voluntary investment fund open to government entities and certain non-profit organizations in California that is managed by the State Treasurer's Office.
local agency investment fund: A voluntary investment fund open to government entities and certain non-profit organizations in California that is managed by the State Treasurer’s Office.
local government investment pool (LGIP): Investment pools that range from the State Treasurer's Office Local Agency Investment Fund (LAIF) to county pools, to Joint Powers Authorities (JPAs). These funds are not subject to the same SEC rules applicable to money market mutual funds.
long-term financial plan: A plan that assesses the long-term financial implications of current and proposed policies, programs, and assumptions and develops appropriate strategies to achieve its goals. A financial plan illustrates the likely financial outcomes of particular courses of action or factors affecting the environment in which the government operates. A financial plan is not a forecast of what is certain to happen but rather a device to highlight significant issues or problems that must be addressed if goals are to be achieved.
market value: The price at which a security is trading and presumably could be purchased or sold at a particular point in time.
material: Materiality in auditing and accounting relates to the importance of an amount, transaction or discrepancy. It usually depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. In government, materiality has both a quantitative and a qualitative aspect, where materiality often concerns the nature rather than the size of an amount, such as illegal acts, bribery, corruption and related party transactions. Because of the importance of transparency in the public sector, commissions should discuss with and understand the level of materiality that will be chosen by the auditors of their financial statements.
maturity: The date on which the principal or stated value of an investment becomes due and payable.
medium-term note: Corporate or depository institution debt securities that meets certain minimum quality standards (as specified in the California Government Code) with a remaining maturity of five years or less.
modified accrual basis of accounting: The basis of accounting adapted to government fund accounting where revenues are recognized when received in cash or when resources are considered available (except for material or available revenues which should be accrued to reflect properly the taxes levied and the revenues earned – not applicable to county commissions). Expenditures are recognized when the related fund liability is incurred.
multi-year budgeting: A multi-year budget is a document that authorizes a government’s appropriations (i.e., planned expenditures) and anticipated revenues for two or more consecutive budgetary years. A multi-year budget also may consist of a biennial budget with one or two financial plans that serve as the tentative spending plans for the out-years (i.e., the first year appropriations are formally adopted, whereas the subsequent year “appropriations” are not).
mutual funds: An investment company that pools money and can invest in a variety of securities, including fixed-income securities and money market instruments.
National Advisory Council on State and Local Budgeting (NACSLB): A cooperative effort of eight state and local government associations to improve governmental budgeting. To this end, the NACSLB developed a comprehensive set of 59 recommended budgeting practices. These practices address all steps of the budgeting process including: the analysis and goal setting that occurs before the written budget document is produced, the items that should be included in the budget document, and the monitoring and evaluation that occurs after the document is adopted. The recommended practices are available on the Web.
nonspendable fund balance: Amounts in fund balance that cannot be spent because they are either not in spendable form (e.g., prepaid items and inventories) or legally/contractually required to be maintained intact (e.g., the reinvested principal provided by an endowment).
note: A written promise to pay a specified amount to a certain entity on demand or on a specified date.
object of expenditure: In the context of the classification of expenditures, the article purchased or the service obtained, rather than the purpose for which the article or service was purchased or obtained (e.g. personal services, contractual services, materials and supplies).
outcome: The end result that is sought. A service may have more than one outcome.
par: Face value or principal value of a bond, typically $1,000 per bond.
passive investment management: An investment strategy in which securities are bought with the intention of holding them to maturity or investing in benchmark products designed to yield a market rate of return.
performance contract: A type of contract that specifies the end results desired rather than the specific details of how a product should be manufactured or how a service should be delivered.
performance measure: A particular value or characteristic designated to measure input, output, outcome, efficiency, or effectiveness.
portfolio: Combined holding of more than one stock, bond, commodity, real estate investment, cash equivalent, or other asset. The purpose of a portfolio is to reduce risk by diversification.
principal: The face value or par value of a debt instrument, or the amount of capital invested in a given security.
program costs: Costs incurred by local First 5 commissions readily assignable to a program, grantee, contractee, or service provider (other than post-contract program evaluation activities) and/or in the execution of direct service provision.
progress payments: Partial payments related to steps or phases toward the completion of the required services under a contract.
progress report: A report on contract performance or fiscal compliance made at specific intervals during the term of a contract.
proposal review committee: A committee or panel that convenes to evaluate the qualifications of bidders who respond to a request for proposals (RFP).
proprietary funds:Funds that focus on the determination of operating income, changes in net assets (or cost recovery), financial position, and cash flows. There are two different types of proprietary funds: enterprise funds and internal service funds.
prudent investor standard: A statement, often included in laws and investment policies, that specifies the responsibility of government officials in their investment decisions with public funds. The prudent investor standard holds the investor to a higher standard of care than the average prudent person. The prudent investor standard states: “These persons shall act with care, skill, prudence, and diligence under the circumstances then prevailing when investing, reinvesting, purchasing, acquiring, exchanging, selling, and managing funds.” The “prudent expert rule” holds an investor to an even higher standard and is often cited in contracts with investment advisors.
prudent person rule: A statement, often included in laws and investment policies, that specifies the responsibility of government officials in their investment decisions with public funds. The prudent person rule states: “Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived.”
repurchase agreements: An agreement of one party (for example, a financial institution) to sell securities to a second party (such as a local agency) and simultaneous agreement by the first party to repurchase the securities at a specified price from the second party on demand or at a specified date.
request for information (RFI): The document used to obtain information from potential providers before a solicitation document (RFP) is issued.
request for proposals (RFP): The solicitation document that is most appropriate in those situations in which it is necessary and appropriate to evaluate bidders on the basis of their qualifications as well as their price. The RFP describes the qualification requirements, performance specifications, time frames, and other requirements and asks bidders to describe how they would accomplish the services and at what price.
request for qualifications (RFQ): An RFQ is used when a commission has specific requirements as to how services are to be delivered. In an RFQ, the applicant demonstrates their qualifications to provide those services according to the model that the commission has specified. In addition, the commission asks applicants to demonstrate their knowledge of, and commitment to, the specified model.
restricted fund balance: Amounts in fund balance that have constraints imposed externally from creditors, grantors, contributors, laws or regulations of other governments, or imposed constitutionally by enabling legislation.
return on investment: Investors will face a multitude of securities and other instruments with varying quoted interest rates, coupons, prices, yields, and other numbers. The amount of income received from an investment, expressed as a percentage of its price, is the rate of return. A market rate of return is the yield that an investor can expect to receive in the current interest rate environment utilizing a buy-and-hold investment strategy. Total return is interest income plus capital gains (or minus losses) on an investment and is the most important measure of performance as it is the actual return on investment during a specific time interval. Many investors consider the holding period (from purchase until maturity or sale) the easiest interval to measure the return on investment. Others measure the investment return on a security or portfolio according to various time intervals (monthly, quarterly or annually).
reverse repurchase agreements: An agreement of one party (for example, a financial institution) to purchase securities at a specified price from a second party (such as a public agency) and a simultaneous agreement by the first party to resell the securities at a specified price to the second party on demand or at a specified date.
risk-based monitoring: An approach to contract monitoring in which reporting requirements are based on a given provider’s risk profile.
Rule G-37 of the Municipal Securities Rulemaking Board: Federal regulations to sever any connection between the making of political contributions and the awarding of municipal securities business.
safekeeping: A procedure where securities are held by a third party acting as custodian for a fee.
Securities and Exchange Commission (SEC): The federal agency responsible for supervising and regulating the securities industry.
securities lending agreement: An agreement of one party (for example, a local agency) to borrow securities at a specified price from a second party (for example, another local agency) with a simultaneous agreement by the first party to return the security at a specified price to the second party on demand or at a specified date. These agreements generally are collateralized and involve a third-party custodian to hold the securities and collateral. Economically similar to reverse repurchase agreement.
sole source procurement: A noncompetitive procurement in which only a single provider is afforded the opportunity to offer a price for desired goods or services.
secondary market: The market where securities are sold after their initial issuance.
stakeholder: The term "stakeholder" refers to anyone affected by or who has a stake in government. This term includes, but is not limited to: citizens, customers, elected officials, management, employees and their representatives (whether unions or other agents), businesses, other governments, and the media.
statement of activities: A government-wide presentation of its activities by function or program using the accrual basis of accounting. The statement presents revenues, expenditures, and a reconciliation of net assets.
statement of net assets: The government-wide presentation of assets, liabilities, and equity of governmental activities which includes all funds. It is the government-wide balance sheet. The Statement of Net Assets is presented on an accrual basis.
statement of revenues, expenditures, and changes in fund balances: The governmental fund presentation of the revenues, expenditures, and other finance sources and uses of funds. This statement is presented on a modified accrual basis.
statement of work: A definition of the services to be delivered and/or the outcomes to be achieved.
supplantation: Occurs when new funds are used to fund existing programs. No funds provided by the commission should be used to supplant state or local general fund money for any purpose. In general terms the word supplant means to take the place of, or take the place of something else.
trustee, trust company, or trust department of a bank: A financial institution with powers to act in a fiduciary capacity for the benefit of the bondholders in enforcing the terms of the bond contract.
U.S. Treasury obligations: Debt obligations of the U.S. government sold by the Treasury Department in the forms of bills, notes, and bonds. Bills are short-term obligations that mature in one year or less and are sold at a discount. Notes are obligations that mature between one year and 10 years. Bonds are long-term obligations that generally mature in 10 years or more.
unassigned fund balance: That portion of the fund balance portion that does not meet the requirements of the other classifications (assigned, committed, nonspendable, restricted).
weighted average maturity (WAM): The average maturity of all the securities that comprise a portfolio, typically expressed in days or years.
yield: The percentage return on an investment; also called “return.” There are several yield calculations that can be made, such as “yield to maturity” and “yield to call.” Yield to maturity is the promised return assuming all interest and principal payments are made and reinvested at the same rate taking into account price appreciation (if priced below par) or depreciation (if priced above par). Yield to call is the yield an investor will receive if the security is called prior to maturity.
yield curve: A graphic representation that shows the relationship at a given point in time between yields and maturity for bonds that are identical in every way except maturity.
zero-interest accrual: Zero interest accrual means the security has the potential to realize zero interest depending upon the structure of the security. Zero coupon bonds and similar investments that start at a level below the face value are legal because their value does increase.