Subscription Based IT Arrangements for Government Entities

This article is relevant to entities following generally accepted accounting principles as issued by the Government Accounting Standards Board (GASB). In general, this article does not apply to for-profit or non-profit entities.

Most governments have put the final polishing touches on their implementation of GASB 87 – Leases. So, it’s time to turn the attention to GASB 96 – Subscription Based IT Arrangements (SBITAs). The overall concept and underlying accounting between the two standards are relatively consistent. This article will provide a general overview of what a SBITA is (and what it isn’t) along with an important clarification for an item found in the GASB 2023 Implementation Guide.

In GASB 96, SBITA is defined as “a contract that conveys the right to use another party’s information technology software, alone or in combination with tangible capital assets, as specified in the contract for a period of time in an exchange transaction.” In plain terms, a SBITA is the government’s right and ability to use the software for a duration of time, but never own the software. This includes arrangements such as software as a service (SaaS), and infrastructure as a service (IaaS). SaaS or IaaS may also be referred to as cloud-based computing arrangements. SaaS provides only the software component, while IaaS provides both the software and the hardware items such as storage, network, servers, etc.

A few examples of items that do not qualify as SBITAs:

  • Any software in which the end-user owns the software and is not licensed based on a subscription.
  • Contracts that only provide IT support services.
  • Contracts that are for the combination of both IT software and hardware, in which the software component is insignificant to the total contract. These would presumably be accounted for as a lease of IT equipment under GASB 87.

The recently issued GASB 2023 Implementation Guide also provides additional clarification on the important concept of a perpetual license, as follows:

“If a licensing agreement for a vendor’s software automatically renews until cancelled, it is notconsidered perpetual. Instead, each renewal year is considered an option to terminate, and since the agreement includes an option to terminate, it is not a purchase. In contrast, a truly perpetual license is considered a purchase, would not include a provision for termination, and would follow Statement 51, Intangible Assets.”

The remainder of the accounting regarding subscription terms, modifications, and methods for computing the initial subscription liability and right-to-use intangible are in-line with GASB 87. There are some nuances to GASB 96 regarding the different stages of software implementation and operation, but these are relatively straightforward and can be applied using best judgment.

GASB 96 is effective for reporting periods beginning after June 15, 2022.

October 16, 2023

It’s the Lease We Could Do

If it feels like we’ve been discussing the impacts of the new lease standard for a long time, it’s because we have. In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2016-02. The implementation date of the standard has been delayed multiple times, but nearly 7 years later, it is finally time to apply the impacts of everybody’s favorite ASU: Accounting Standards Codification 842, Leases.

Private companies will be required to implement the standard for years beginning after December 15, 2021, i.e. calendar years ending December 31, 2022.  The implementation will require lessees and lessors to recognize and measure leases as of the adoption date, or January 1, 2022.

Remember, this is only for reporting under Generally Accepted Accounting Principles (GAAP), and does not affect reporting for income tax purposes.  If your company is required to follow GAAP, please keep reading.

So, what does ASC 842 require? Here’s a brief overview:

From a lessee perspective, all leases will be recorded on the balance sheet, with the exception of short-term leases. At lease commencement, a lessee will classify a lease as either a financing lease or an operating lease. A lease is considered a financing lease when it meets any of the following criteria:

  • The lease transfers ownership of the leased asset to the lessee at the end of the lease term
  • The lease grants the lessee an option to purchase the underlying asset, and the lessee is reasonably certain to exercise the option. (Note: this does not have to be a bargain purchase option)
  • The lease term is for a major part of the remaining economic life of the asset
  • The present value of the minimum lease payments equals or exceeds the fair value of the asset
  • The asset is not expected to have any value or alternative use to the lessor at the end of the term

Sounds like the definition of a capital lease in the previous standard, right? If none of this criterion is met, the lease is determined to be an operating lease.  However, under the new standard, both types of leases will be recorded on the balance sheet.

In addition, both types of leases will initially be measured the same. A lease liability will be credited by using a discount rate on the future lease payments, and a “right-of-use” asset will be debited.  Subsequent measurement between the two types of leases differs slightly as financing leases will require the recognition of an interest component, while operating leases will not.  Overall, the expenses and cash flows from a leasing transaction have not significantly changed from the previous guidance.  The primary difference is the recognition of lease assets and liabilities on the balance sheet for operating leases when these were previously off-balance sheet transactions.

From a lessor perspective, the accounting is largely unchanged.  Lessors will classify leases as sales-type, direct financing, or operating.  Sales-type and direct-financing leases will require the de-recognition of the underlying asset and a net investment in the lease, similar to current guidance. 

Seems straightforward.  Using present value models and discounted cash flows is not a new concept. Implementation should be a breeze. 

A few other items to consider that may impact the recognition and measurement of right-of-use assets and lease liabilities.

Lease terms: lease terms may include renewal options.  Do you include the time period for the renewal options in the initial calculations? The answerdepends on if you are reasonably certain to exercise the option.  What does reasonably certain mean? Well, that’s up to you to decide if you’ll take that renewal option that might be 10 years from now.  

Lease payments: Leases may include variable payments, payments that escalate over the lease term, or may have purchase and termination options.

Discount rates: What discount rate is appropriate? The guidance would indicate the rate implicit in the lease, but this isn’t easily determined very often. Additional clarification by the FASB suggests the lessees incremental borrowing rate or the risk-free discount rate (for non-public entities) may be used.

Logistically, implementation may be difficult in even identifying and accumulating all of the lease information for your company.  This documentation is not always centralized and could exist in multiple places.  There’s also the need to identify embedded leases within contracts and separating lease and non-lease components, among other intricacies.

After everything is implemented, we’ll also have to consider the effect on the financial statements.  The standard will have an impact on debt-to-equity ratios, debt service coverage ratios and EBITDA calculations.  It will certainly make a difference in decisions to lease or buy equipment, vehicles, or office space.  It’s important to talk to your lenders sooner rather than later to make sure they are aware of the changes that will be coming in your 2022 financial statements.  For many clients, this may be more trouble than it’s worth and lenders might remove the effects of the standard for their analyses anyway.  The option of a reporting exception in your GAAP basis financial statements might be worth exploring.

While the concept in its simplest form is rather straightforward, the FASB hasn’t disappointed in including complexities that will make implementation a task.  Your KT auditor and advisor will be reaching out soon if they haven’t already.  If you have any questions, please contact a member of our lease implementation team. Our lease implementation team members include: Jean Smith, Jeff Yennie, Austin Eichacker, and Kyle Kopren.

September 27, 2022

Office of Management and Budget Memorandum 20-26 Update

Earlier this summer the Office of Management and Budget (OMB) issued Memorandum 20-26- (M-20-26).  This memorandum provided additional guidance allowing flexibilities on audit requirements of federal award recipients.  The memorandum also provided additional information (rescinding the previous extensions as issued in Memorandum 20-17) regarding extensions of the Data Collection Form due date for single audit filers.  Previously, there was a six-month extension for year ends through June 30, 2020.  M-20-26 revised the extension deadlines and now the six-month extension is only applicable for year ends through September 30, 2019.  There is now a three-month extension for year ends October 31, 2019 through December 31, 2019 and there is no longer an extension for any 2020 year ends. 

In order to take advantage of an extension, no additional documentation is required to file the Data Collection Form.  In addition, utilizing the extended due date does not affect the low-risk auditee evaluation.   The OMB has suggested documenting the reasons for the delayed filing. 

If you have any questions regarding extended due dates of the Data Collection Form, feel free to reach out.

September 3, 2020

Coronavirus Relief Fund (CRF): No Double-Dipping

Double-dipping isn’t about chips and queso anymore. 

By this point everybody is somewhat familiar with the Coronavirus Aid, Relief and Economic Security (CARES) Act.  Discussions about the Paycheck Protection Programs (PPP) and Economic Injury Disaster Loans (EIDL) are now common points of discussion at the office and at home (or your brand-new home office).  The rules regarding eligible expenditures, loan forgiveness, and measurement periods will make your head spin. 

A couple of items to keep in mind as the Federal government continues updating and releasing more information on CARES Act funding:

Specific in the guidance issued for state and local governments, the CARES Act requires that the payments from the Coronavirus Relief Fund (CRF) be used to cover expenses that are 1) necessary expenditures incurred due to the public health emergency, 2) were not accounted for in the most recently approved budget, and 3) were incurred during the period March 1, 2020 through December 30, 2020.  Additional guidance on eligible uses of the CRF funds for state and local governments can be found at

Further, be mindful of cost-reimbursement type contracts.  For cost-reimbursement type contracts double-dipping is an immediate concern.  Payroll paid for by PPP funds for employees that are also charged to a Federal program creates an unintended duplication of payment by the Federal government when the PPP loan is forgiven.  Be cognizant of what types of expenses and payroll items are being charged to normal Federal funding programs and the funding received through the CRF.

Information and updates regarding the CARES Act is constantly changing and evolving.  There are multiple resources available online, and KT has a dedicated team of experts available to answer any questions you might have. Watch our blog and social media for the latest updates.

May 27, 2020

5 Tips for Effective Service on a Nonprofit Board of Directors

Jeff YennieMany of us at some point in our careers will be approached to join a board of directors for a nonprofit organization.  During the early stages of your career this can be a great way to network, become involved in your community and continue to build your resume.  As you progress in your profession and build your network, the board positions you hold can help provide job or career opportunities, name recognition, and more than likely, more organizations asking you to join their board of directors. 

Being involved with a nonprofit that you believe in and support can provide a sense of fulfillment and deeper appreciation for the mission of the nonprofit.  But when we agree to join a board of directors, do we know what we are signing up for?  Have we thought about the responsibilities of a board member?  This article will help identify and define board member roles and provide some helpful tips to consider as a board member of a nonprofit organization.

From the Council of Nonprofits, board members are in place to provide “foresight, oversight, and insight” to the management of the organization.  As a board member you also have a fiduciary duty to that organization.  Holding a fiduciary duty means that as a board member, you act in the best interest of the organization.  Combining a board members’ oversight of the organization with their fiduciary responsibility leads us to assume that a board member is integral in the success of the organization, and not simply a rubber stamp of approval. 

Tip #1:  Learn how to read the organization’s financial statements 

Reading and understanding the financial statements is the first step to becoming a better board member. Understanding whether the financial statements accurately reflect the true financial picture of the organization will lead to better budgeting and forecasting, better operational decisions, and more productive conversations between board members and management.  If there are financial statement items or disclosures that you don’t understand or feel comfortable with, don’t hesitate to inquire of the organization’s finance director or the external CPA firm for guidance. 

Tip #2: Review the bank statements and bank reconciliations

Make it a practice to review the bank statements and bank reconciliations.  Ensuring that cash is reconciled at the end of each month can help prevent longer term problems.  If the bank balance does not reconcile to the accounting records, the financial statements you just learned how to read in Tip #1 are misstated.  This may not be something that is reviewed by the board each month, depending on the size of the organization, but a few times per year is worth considering.

Tip #3: Make risk assessment part of the annual process

Understanding what internal and external factors are a risk to the organization is instrumental to continued success.  Ask questions such as: Is the organization at risk of losing their primary funding source?  Are there any upcoming anticipated cash flow problems?  Is the technology too far out of date and need replaced?  Is our executive director retiring and we don’t know who will be the replacement?  These types of questions can initiate conversations and lead to productive board meetings. 

Tip #4: Help management set goals, both financially and operationally

Goal setting is good practice in our personal and professional lives.  Integrating goal setting into an organization that we serve as a board member can help keep the nonprofit on track in completing their mission.  Reviewing budget to actual will help identify potential areas for goal setting in a financial sense.  Reviewing operational metrics such as clients served, results of fundraising events, or number of annual contributors can help find areas of improvement to set attainable and measurable goals for the nonprofit.   

Tip #5: Develop policies

A policy and best practices handbook to define operational guidelines will help direct the staff, management, and board as they work towards accomplishing the mission of the nonprofit.  The bylaws typically include the primary policies of the organization, and an annual review of the bylaws should take place to determine if any revisions need to be made. The board of directors should also consider developing board specific policies.  These policies could include: election of officers, conflicts of interest, code of conduct, confidentiality, compensation, reimbursement of travel expenses, and board member term limits, among others.  Developing policies will help provide clear direction for the organization and ensure that future management and board members have the information and ability to continue to carry out the mission of the nonprofit.

If you have any questions feel free to reach out to any of the KTLLP Nonprofit Team members.


March 4, 2019

Making Fish Tacos with Jeff Yennie

I had the opportunity to travel to Alaska a few summers back for a week of fishing on the Kenai Peninsula.  As part of the return trip, my luggage included a 50 pound box of vacuum sealed fillets of silver salmon, halibut, lingcod and rockfish.  I’d ate and cooked plenty of salmon and halibut before, but I didn’t have a clue what to do with the lingcod or rockfish.  And then, while flipping through a cookbook, grilled fish tacos entered and changed my life forever.

The recipe below is from an America’s Test Kitchen cookbook.  I don’t claim it to be my own, but here’s what you’ll need:

2-3 fillets of white flaky fish (mahi-mahi, rockfish, bass, or walleye)
Chili powder
Peppers in adobo sauce (you’ll find them in the Mexican aisle of the grocery store)
Lime juice
Olive oil
Salt and Pepper
Cilantro, if desired

Prep work:
Start by mixing about 2-3 teaspoons of chili powder with a pinch or two of salt.  This will be the seasoning that you put on the fish.  I brush the fillets with olive oil, and then rub the seasoning mixture onto one side of the fillet.  Set the fish aside.

Next, shred the cabbage.  I usually shred about a 2-3 cups of cabbage, which will be enough for 4-6 tacos.  Drizzle some olive oil and lime juice over the cabbage, mix it up, and season with salt and pepper.

Finally, mince anywhere from 2-6 peppers from the adobo sauce, and then mix in with about half a cup or a cup of mayo, and about a tablespoon of lime juice.

Grill work:
The grill needs to be nice and hot.  Oil the grates by putting vegetable oil on a paper towel and then applying to the grates.  This will help keep the fish from sticking.

Once the grill is hot, put the fish on the grates, seasoned side down.  Let the fish cook for 3-5 minutes depending on the thickness of the fillet, and then flip.  Cook for another 3-5 minutes or until done.  Cover the fish and set aside.

The most important step:  Put the tortillas on the grill for about 20-30 seconds per side, or until they are warmed up and a little crispy.  A cold tortilla just isn’t the same.

Prepping the tacos:
Put about a spoonful or two of the mayo mixture on each tortilla, add the cabbage, and then top with the fish.  I usually squeeze a lime wedge over the top.  You could add in the cilantro at this point also.

Enjoy on a patio and with your favorite cold beverage while Summer is still here.

August 3, 2018

Internal Controls over Electronic Payments

Jeff YenniePaying our home utility bills, credit card statements, or even sending money to friends and family has never been easier.  I write less than 20 physical checks each year.  I can logon to the bank website and pay all of my utility bills in less than 5 minutes.  No check needs to be written and I can save the stamp.   If I logon to my online credit card statement, I can review all of my transactions and have the payment directly withdrawn from my checking account within a day or two.  Businesses and non-profit organizations may not be using online bill pay as often as I do personally.  However, as I continue to work with organizations in Rapid City and surrounding areas, electronic payments are being used more frequently.  Like any other payment, electronic payments need to be subject to appropriate internal controls.

Let’s assume your organization pays all bills with a physical check and has the following internal control procedures.  Invoices are received and then reviewed and approved by the executive director, Mary.  The invoices are then given to an administrative employee, Peter, to post to the general ledger and print the checks.  The checks and invoices are then given to the finance manager, Paul, to sign the checks.  Paul reviews each invoice and check before signing, to make sure the amounts agree, and then gives the signed checks to the receptionist to mail.  These controls segregate the approval, posting, signing, and mailing of the checks, which mitigates any risk of the same person having absolute control over the entire process.

Now let’s assume the organization starts paying its electricity bill online each month.  The electricity invoice is received and approved by Mary.  The invoice goes to Peter to post to the general ledger.  Peter posts the expense to the general ledger and uses the online bill pay function to make the payment.  The physical checks go to Paul and follow the normal process as described in the previous paragraph.

What is wrong in this scenario?  Peter has limited oversight regarding the electricity bill.  He could pay the organization’s electricity bill and his personal electricity bill.  It is possible to make an online payment for more than one utility account in the same transaction.  As a result, there would be one entry to the general ledger and one expense on the bank statement, even though Peter paid two separate bills.  Unless Mary remembers the exact amount of the electricity bill each month during her review of the bank statement, this scheme could go on for a while.

This example is fairly simple but illustrates the importance of ensuring the internal controls over cash disbursements follow the same process whether a physical check is printed, signed and mailed, or an electronic payment is made using some form of online bill pay.  Hopefully, such fraudulent transactions would be caught during a review process, but without the correct processes, the fraud opportunity is available.  Mitigating controls are not nearly as important as preventative controls.

A preventative control that could be implemented in this scenario would be Peter printing the payment verification and giving this to Paul along with the physical checks and invoices.  Paul could agree the payment verification to the invoice during his review process.  Alternatively, a dummy check could be generated for the electric bill so the expense is attached to a check number in the system and given to Paul for his review during the normal process.

If you have questions on your internal controls surrounding cash disbursements and electronic payments, feel free to contact the not-for-profit team at KT.


March 7, 2018

Budgeting for Non-Profits

Jeff YennieThe favorite time of year for most nonprofit board members, executive directors and accounting personnel is when the budget process is in full swing, right?  While budgeting can be painstakingly boring, tedious and time consuming, the annual budget is the document that will help your nonprofit achieve financial stability to continue operating the programs that our communities need.

It is important to remember that the budget is a guideline of best laid plans, and plans are more often achieved when they are realistic and intentional.  In an article on the National Council of Nonprofits website, the author discusses the myth that the budgets of a nonprofit organization need to balance.  The process should not be focused on creating a budget that is balanced, but rather focused on creating a budget that defines the goals of the organization and reflects those goals accurately.  For example, if the goal is to begin building surplus cash reserves, the budget should reflect this and would have a net profit at the end of the year, allowing cash reserves to increase. Alternatively, if the organization already has adequate cash reserves but wants to start a new program to further the organization’s mission, hire additional staff, increase their online presence by creating a new website, or invest in new equipment or computers, then the budget should reflect these goals and potentially show a deficit for the year.  The fact that the organization’s budget and financial statements show a net loss for the year can be a positive outcome, as long as it was intentional and reflects the goals of the organization.

In addition to creating a budget that is intentional and realistic, it is also important to monitor the budget during the year after it is approved.  The budget is only a useful tool if it is referred to throughout the year.  Comparing actual revenue or expenses to budget figures can help management and the board determine if they are ahead or behind schedule.  Monitoring will allow management to determine the need for a potential budget amendment, or identify any unexpected expenses or revenues.  This process will also assist management determine from an operational standpoint which programs are working well and where overspending may be occurring.

Next time your organization is sitting down to start the budgeting process, take a step back and look at the big picture.  Keep an open mind and focus on defining what the goals of the organization are for the year, and how these goals should impact your budget. And lastly, and most importantly, make it a point to review and adjust the budget during the year as needed.   If you need advice or have any questions please feel free to contact the Non-Profit Team at Ketel Thorstenson.

December 10, 2017

Meet the Non-Profit Team Series: Jeff Yennie

Jeff YennieHello. I am Jeff Yennie and I am a Manager on the KTLLP Non-Profit Team.

I am a Wyoming native and a Rapid City transplant, moving to the Black Hills after finishing college in 2011.  I grew up in Green River, WY and then attended the University of Wyoming earning my undergraduate and graduate degrees from the UW accounting program.  I’ve spent my public accounting career at Ketel Thorstenson working for clients in several different industries, but tend to focus more these days on cities and school district audits in the summer and fall and retail and manufacturing clients during the winter and spring with a few not-for-profit clients still mixed into my schedule throughout the year.  On a personal note, I have a broad range of hobbies that I enjoy, however fly fishing seems to be the one constant and continuous activity that I’ve participated in since I was a child. I grew up fishing the mountains of western Wyoming in the summer and still return each year to spend time fishing and hiking in the mountains.  I’ve spent the last few years getting accustomed to the smaller creeks of the Black Hills and have started to figure out the local brown trout (finally).

Music is another hobby of mine having grown up in a musical family (my dad was a music teacher).  Although I don’t play much music anymore and my guitars are collecting dust in the basement, I enjoy finding new music to listen to.  It usually works out that any new music I listen to is actually from older artists.  I have a reputation around the office for listening to the “old country” of past generations such as George Jones, Merle Haggard, Charley Pride, John Prine, Kris Kristofferson and many others.

Other favorite activities include playing cards (cribbage is a favorite and have recently started playing pinochle), yard games, trying different beers and grilling.  The best beer I’ve tried recently is Melvin IPA from Melvin Brewery out of Alpine, WY and my favorite meal to prepare on the grill is fish tacos.  Look for a future blog post with a fish taco recipe.

November 30, 2017

Uniform Guidance – Audit Requirements

Jeff YennieThe new Uniform Guidance (UG) provides detail of the audit requirements in Subsection F, part 200.500.  The new audit requirements are not drastically different than the previous audit requirements; however there are some key elements that have changed and will have an impact on audits performed under the UG.  This article will highlight those changes that will be effective for audits with December 31, 2015 year ends.

The first key difference is that the audit threshold has increased to $750,000.  For entities that were previously required to have Single Audits under OMB Circular A-133 with federal expenditures between $500,000 and $750,000, compliance audits will no longer be applicable.  Only those organizations with federal expenditures in excess of $750,000 will be required to have a Single Audit under UG.

Under both A-133 and UG, the auditor is required to use a risk assessment process to determine which federal programs will be audited in detail (treated as a major program).  Under A-133, federal programs exceeding $300,000 of annual expenditures were required to be audited every third year and potentially more often depending on other risk factors.  This threshold is now $750,000 under UG (unless total federal expenditures exceed $25 million).  As a result, fewer programs may need to be audited under UG.

Another key difference as a result of the UG is the determination criteria related to qualifying as a low-risk auditee.  The UG adds the requirement that the auditor cannot have reported substantial doubt about the entity’s ability to continue as a going concern in the prior two audit periods.  In the previous A-133 requirements, going concern issues would not have precluded an entity from being considered a low-risk auditee.  The other requirements to qualify as a low-risk auditee are essentially the same.

Whether an entity qualifies as a low-risk auditee determines how many federal programs are audited as a major program.  Previously, auditors were required to obtain coverage of 50 percent of total federal expenditures for a high-risk auditee, and 25 percent coverage if an entity qualified as a low-risk auditee.  Under the new UG, these percentages decrease to 40 percent and 20 percent audit coverage for high-risk and low-risk auditees, respectively.

The last change that auditees should be aware of is the reportable questioned costs threshold has increased.  Auditors were previously required to include questioned costs over $10,000.  This threshold has changed to $25,000.  The auditor is required to report known (specifically identified) questioned costs greater than $25,000.  Auditor’s must also report known questioned costs when likely questioned costs are greater than $25,000 for a compliance requirement of a program audited as a major program.

Additional detail of the audit requirements under the Uniform Guidance can be found at and then selecting Title 2 – Grants and Agreements from the drop-down menu.  From there, select Chapter 2, and then Part 200.500 for the auditing requirements.  Please contact Traci Hanson, Shelley Goodrich, or Jeff Yennie if you have any questions.

December 8, 2015