January 2019: MVH Fund
FSG Financial Solutions Group Inc.
The Auditor of the State of Indiana makes road funding distributions to local governments out of the Motor Vehicle Highway Account and the Local Road and Street Account as prescribed by formulas set out in statute. These distributions are made possible due to fuel taxes, vehicle registration costs, and other transportation related fees.
With the passage of HEA 1002-2017, local governments will see a change in how dollars from the Motor Vehicle Highway Account are distributed. As required by statute, the first 70 million dollars collected from the gasoline tax will be transferred into the state highway road constructions and improvement fund. As a result of this change, local units will no longer see MVHI and MVHII accelerated distributions. Instead, MVH dollars will be distributed only on a monthly basis.
The MVH & LRS Distributions for August 2018—July 2019 may be viewed on https://www.in.gov/auditor/1264.htm.
FSG Action Plan:
You will need to create the new Sub Fund in your accounting system. This will appear to be a new fund rather then a sub-fund in most accounting systems. FSG also recommends your legislative body approve a resolution creating the new sub-fund, the amount to be deposited into the new fund, and the portion of the 2019 budget to be transferred. (For a Sample Resolution or additional services, please contact our office.)
1. To create the new sub fund, calculate the estimated annual revenue to the Restricted Sub Fund and transfer a matching amount of 2019 MVH Budget. (If you anticipate $100,000 in revenue to the sub-fund then we need $100,000 in Budget.)
2. Create the Resolution. This is not required to create the new sub fund but it will insure everyone is, “on the same page” regarding these changes. The resolution does not need to be completed before setting up the sub fund because the sub fund is not a “new” Fund. The resolution needs to include the newly created sub fund name and number, and the percent that you plan to contribute each month, and use the same amount each month, all year. (we recommend the minimum 50% starting out.) It should also include the uses of the new sub fund to further clarify and explain what the sub-fund is to be used for.
3. During preparation of the 2020 Budget, be sure to go back and review the status of the new sub-fund, and what needs to be done for the future year.
FROM STATE EXAMINER DIRECTIVE 2018-2 A Directive is a pronouncement by the State Board of Accounts (the Board) that sets forth a policy or procedure that the Board will use to enforce a law or Uniform Compliance Guideline (UCG) to conduct audits, and to carry out its duties as set forth by the Indiana legislature. The Board has the authority to direct public officers in keeping the accounts of their offices, including the use of forms, records, and systems of accounting and reporting adopted by the Board. A person who refuses to follow a Directive is subject to a civil action for an infraction.
The purpose of State Examiner Directive 2018-2 is to authorize and require counties, cities and towns that receive distributions from the State Motor Vehicle Account to create a new sub-fund within the MVH Fund to properly manage and account for the usage restrictions that were included in House Enrolled Act 1002-2017 and House Enrolled Act 1290-2018. This Directive applies to all local governmental units that receive distributions from the Motor Vehicle Highway Account.
The sub-fund will be referred to as “MVH Restricted” and will be used to account for MVH monies which have been statutorily restricted for construction, reconstruction and preservation purposes.
On the chart of accounts, the MVH Fund and MVH Restricted sub-fund shall be shown as follows:
Fund 1176 MVH
Sub Fund 1173 MVH Restricted
Cities and Towns
Fund 201 MVH
Sub Fund 203 MVH Restricted
Together, MVH and MVH Restricted shall constitute the total MVH Fund.MVH and MVH Restricted will be shown separately on the Annual Financial Report and Annual Operational Report.
Starting on January 1, 2019, the political subdivision must post at the time of receipt of the distribution from the State Motor Vehicle Highway Account fifty percent (50%) of the distribution to MVH Restricted.
The political subdivision, by ordinance or resolution, may elect to allocate more than fifty percent (50%) of the distributions to MVH Restricted. During the same fiscal year, the political subdivision may transfer, by ordinance or resolution, the amount allocated in excess of the 50% requirement from MVH Restricted to MVH. In no event can any transfers from MVH Restricted to MVH reduce the fiscal year distributions from the State Motor Vehicle Highway Account below the 50% requirement for MVH Restricted.
Any amounts allocated in excess of the required 50% of distributions which remain in MVH Restricted at the end of the fiscal year must remain in MVH Restricted until expended for construction, reconstruction, or preservation.
Qualified expenditures will then be entered accordingly to MVH and MVH Restricted.
This Directive may be amended from time to time and may be rescinded at any time in writing by the State Examiner or a Deputy State Examiner.
To view State Examiner Directive 2018-2 in its entirety, go to: https://secure.in.gov/sboa/4488.htm
Frequently asked questions regarding the State Examiner Directive 2018-2:
Q. Can we establish a beginning balance for MVH Restricted?
A. The political subdivision may, by ordinance or resolution, establish a January 1, 2019 beginning balance for MVH Restricted. The amount may be any portion up to and including 100% of the MVH ending balance at December 31, 2018, “but you are not required to transfer a beginning balance. The Fund can begin at $0.” FSG. A book entry reflecting the MVH Restricted January 1, 2019 beginning balance and a corresponding reduction of the January 1, 2019 beginning balance for MVH should be posted. The January 1, 2019 beginning balances for MVH and MVH Restricted should equal the December 31, 2018 ending balance for MVH.
The amount established for the MVH Restricted may not be transferred back to MVH at a later time. Instead, it must be expended for construction, reconstruction, or preservation through the MVH Restricted.
Q. Does all of the MVH money received each year have to be spent in that same year?
A. No. Statute does not provide that MVH money received must be expended in the same year of receipt, and there is no statutory penalty if the MVH money is not spent in the year received.
Balances remaining in MVH or MVH Restricted at year end do not revert to another fund or to the State but remain in MVH and MVH Restricted respectively.
Q. If we do not meet the 50% requirement, what are the implications?
A. SBOA will not be issuing public report comments regarding the 50% requirement for activity occurring in 2018. However, the establishment of MVH Restricted for 2019 allows for clear accountability that at least 50% of MVH distribution from the State have been restricted for construction, reconstruction and preservation use. Non-compliance of either creation of the sub-fund or receipting of at least 50% of MVH distributions will result in a public report comment.
MVH and MVH Restricted Sub-Fund Information from the SBOA
The following are categories as provided in the 2018 Annual Highway Operational Report for items related to MVH and specifically the MVH Restricted sub-fund. These were developed to bring professionally based standardized application to the statutory definitions provided under IC 8-14-1-1(4) through IC 8-14-1-1(7) and were compiled by a committee chaired by the Local Technical Assistance Program at Purdue University (LTAP). This is what the Indiana State Board of Accounts will consider when determining compliance with the MVH Restricted sub-fund. Items identified under the heading of Construction, Reconstruction, and Preservation would be considered in compliance with expenditures allocated to the MVH Restricted sub-fund. Expenditure items identified under either the heading of Maintenance and Repair or General Administration and Unallocated would not be considered in compliance if allocated to the MVH Restricted sub-fund expenditures.
Construction, Reconstruction and Preservation (CRP)
Maintenance and Repair (these are not considered CRP)
General Administration and Unallocated (these are not considered CRP)
*To view the Sub-Fund information and requirements from the SBOA in its entirety, including definitions and examples, go to:
Additional Questions and Answers from Financial Solutions Group
Q. Do we need an ordinance to create the MVH Restricted sub-fund?
A. No, but as stated in the FSG Action Plan above, FSG Recommends doing so. An ordinance is not required because a “fund” is not being created. Even though it will be shown separately on your ledgers, the Directive requires the creation of a sub-fund from the already existing MVH fund. The creation of the sub-fund is part of the accounting system prescribed by SBOA.
Q. What if I already have a Fund 203?
A. According to the SBOA Funds 201-269 are reserved for Statutorily established Funds. the SBOA has said, “We realize many cities/towns have been using this fund number incorrectly and we know it will be an inconvenience on their end, but it is imperative for transparency and comparability of data that all cities and towns use fund 203 for MVH Restricted.” So if you have a Fund currently labeled 203, it must be changed.
Q. Can we pay Salaries, Wages, and Benefits from the new sub-fund?
A. Yes, you can as long as the wages are related to construction, reconstruction and preservation. The workers time must also be backed by audit-able documentation that the work was performed in construction, reconstruction or preservation capacities.