The UCA is Here to Stay!
On November 24, 2020, the Michigan Department of Treasury released the final version of the Michigan Uniform Chart of Accounts (“UCA,” or the “Chart”), which represents the culmination of a multi-year effort to revise the Chart that had been in place since 2002. Public Act 2 of 1968 placed a requirement on the Michigan Department of Treasury (“Treasury”) to prescribe a uniform chart of accounts to be utilized by local units of government in Michigan to establish a uniform reporting format and promote comparability across multiple entities. This final Chart of Accounts supersedes and replaces all previous versions, including the expanded Chart issued in 2017, and establishes a final timeline for implementing the changes.
Going forward, Treasury intends to issue improvements and modifications to the Chart, but their current guidance indicates these will not be significant updates that should cause hesitation or delays in implementation. As a result, Yeo & Yeo recommends that all governmental clients start taking steps to implement the changes.
The 2002 version of the UCA was mainly a response to the Governmental Accounting Standards Board (GASB) issuance of Statement No. 34, which was the most significant change in governmental financial reporting history. Since GASB 34 was issued, many significant governmental accounting changes needed to be reflected in the UCA, which was why the revised final Chart was issued.
The new Uniform Chart of Accounts is available on Treasury’s Bulletins, Manuals and Forms website page. Also included for your reference is a Release Memo, some Frequently Asked Questions, and the implementation date schedule.
Local units must implement the UCA starting with their first fiscal or calendar year-end of October 31, 2022, or later. This is the minimum for local units to comply, but there may be reasons (such as general ledger budgetary integration or software limitations) to implement the Chart as of the beginning of the fiscal or calendar year, which is the approach Treasury recommends. For example, a government with a December 31 year-end would need to adopt the changes by January 1, 2022 – which is only months away from when this article was written. Local units with September 30 fiscal year-ends will be last on the schedule, with October 1, 2022 being the target date for beginning-of-year implementations. Early implementation is allowed and encouraged.
The UCA requires that a basic account structure of three sets of three digits be used. These three sets of digits are assigned for Fund, Activity, and Account. Many of the old numbers remain unchanged (for example, the General Fund is still 101), but new numbers have been added, and there are instances where past numbers have changed, so care should be taken when mapping out the changes that need to be made. Most common Funds, Activities, and Accounts are specified by the UCA, but each section also contains “OPEN” numbers which can be used where a certain fund/activity/account may not be specifically identified. There are also fund/activity/account numbers that are “RESERVED” by Treasury for future use and should not be used.
Some of the more significant changes from the old to the new Chart of Accounts include:
- New fund numbers added for Fiduciary funds under GASB Statement No. 84.
- The Judicial function has been separated from General Government where it was previously included. This will apply to funding units that operate District, Circuit, and Probate courts.
- New fund balance accounts under GASB Statement No. 54 – non-spendable, restricted, committed, assigned, unassigned.
- New accounts for deferred inflows of resources, deferred outflows of resources, and net position as introduced by GASB Statement No. 63.
Additionally, UCA has specified accounting practices such as the requirement to allocate all costs to the function that was benefited. This means that the prior practice employed by many governmental units to budget and pay for certain employee benefits and payroll taxes using an “Other” function code will need to be changed to allocate these costs to the same department where the other employment costs are charged for similar employees. This may cause changes to the way payroll systems are charging these costs and changes in how these costs are budgeted.
Treasury expects local units that use QuickBooks to comply with the UCA, even though that software does not require the use of account numbers. QuickBooks has the capacity to use account numbers, but the option must be selected for that feature to work. Account numbers in QuickBooks are limited to seven digits, which would not allow the full nine-digit UCA account number to be used. In this case, since most governments have separate QuickBooks companies for each fund, the Fund number can be omitted. As a reminder, Yeo & Yeo does not recommend the use of QuickBooks for local governments in general due to factors such as the chart of accounts, lack of ability to integrate multiple funds in the accounting system, the ability to change historical transactions, and the lack of a formalized annual closing process.
Compliance with the UCA (among other things) is reported by the independent auditors when we complete the Auditing Procedures Report and submit the annual financial statements to Treasury on our clients’ behalf.
Many other changes are required by the Uniform Chart of Accounts, and how these changes affect your local unit may vary widely. Please do not hesitate to reach out to your Yeo & Yeo Government Services Group for assistance with anything related to the UCA. We are here to help.