Title 19 | Chapter 10 | Subchapter 1
TITLE 19 - PUBLIC FINANCE
CHAPTER 10 - CLAIMS AGAINST THE STATE
SUBCHAPTER 1 - GENERAL PROVISIONS
19-10-101. Investigatory powers.
The Director of the Department of Finance and Administration, as soon as the director learns of facts from which he or she concludes that a claim, other than for personal injury or death of a state employee, may be filed under this chapter against the state or any of its agencies, departments, or institutions, whether or not the claim has already been filed, is authorized and directed to investigate and take evidence concerning the claim. The director is, for this purpose, authorized to exercise all necessary investigatory powers conferred upon him or her by this chapter. All information acquired by the director shall be made available to the Arkansas State Claims Commission prior to the hearing and determination thereof.
History. Acts 1949, No. 462, § 12; 1951, No. 373, § 7; A.S.A. 1947, § 13-1412.
R1-19-10-101 Claims, Judgments & Other Contingent Liabilities
Claims and judgments are obligations related to the payment of claims declared or court imposed awards. Generally, the events creating these obligations have already occurred and one can reasonably determine their future impact. Contingent liabilities are potential future amounts to be paid based on conditions that existed as of the financial statement date. The circumstances related to contingent liabilities have occurred, but their future impact may not be certain for a variety of reasons including, but not limited to, a claim not being asserted or the amount owed not being determinable. Examples of claims, judgments and other contingent liabilities may include, but are not limited to, claims brought before or awards made by the Arkansas State Claims Commission (ASCC) or other courts where jurisdiction may reside, accrued leave, potential benefits under the State Workers’ Compensation Program and disputed costs in connection with federal funding.
Federal Claims & Judgments
Federal awards shall be paid upon receipt of a court order. In the absence of a court order, claims may be paid upon receipt of an out-of-court settlement recommendation made in writing by the Attorney General of the State after an investigation by the Chief Fiscal Officer of the State determines that payment will be in the best interest of the State and upon receiving favorable review from the Legislative Council or Joint Budget Committee. (ACA §19-4-1614)
PLEASE NOTE: Also refer to ACA §19-4-1614 and ACA §19-4-1615 for claims and judgments related to wages or salaries for personal services rendered.
ASCC Claims & Judgments
When the Director of the Department of Finance and Administration is made aware of a potential claim that may be filed with the ASCC, he/she shall investigate such claims, other than those involving personal injury or death of a state employee. Any information obtained from such investigation will be made available to the ASCC prior to the related hearing. (ACA §19-10-101)
Awards, other than those related to wages and salaries, are to be paid upon order by the ASCC. If the award is $12,500 or less, the DFA-OA-Funds Group will reimburse the ASCC fund that paid the award via a fund transfer from the paying agency’s fund to be charged for the expenditure of the judgment. Awards involving wages and salaries are processed through the State’s payroll system to ensure the appropriate reporting and payments for payroll tax purposes. All awards, including awards for wages and salaries, in excess of $12,500 require an appropriation from the General Assembly prior to payment. (ACA §19-10-215)
When a valid claim is to be paid from funds not in the State Treasury, the ASCC Clerk will notify the agency, board, commission or institution of higher education that the claim is charged. Upon receipt of the notification, the agency, board, commission or institution of higher education is required to deliver a check to the ASCC Clerk from the agency, board, commission or institution of higher education’s cash funds. The check is to be deposited into the Miscellaneous Revolving Fund as a non-revenue receipt for disbursement to the complainant. (ACA §19-10-213)
When an agency admits liability to a claim filed with the ASCC and the claim involves a contract or the claim exceeds $12,500, the state agency, board, commission or institution of higher education responsible for the payment of the settlement or judgment shall file a written report to the Litigation Reports Oversight Subcommittee of the Arkansas Legislative Council within 30 days after adjudication by ASCC. The report shall include a statement of facts surrounding the claim and an explanation of the agency, board, commission or institution of higher education’s liability. (ACA §19-10-212)
Generally Accepted Accounting Principles (GAAP) require disclosure and, in some cases, recording of claims, judgments and other contingent liabilities that are reasonably possible (i.e. more than remote, less than likely). The liability for claims, judgments and other contingent liabilities should be recognized (or recorded) when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. As such, if not previously recorded, judicial awards shall be recorded as liabilities when judgment is rendered. Failure to disclose or record such would cause a misstatement in the financial statements. It is imperative that agencies that believe they may have circumstances that meet the criteria for claims, judgments and other contingent liabilities contact the agency’s liaison in the DFA-OA-CAFR Section to discuss the circumstances and obtain assistance in determining if the item can or should be recorded as a liability of the agency.
All judicial awards and contingent liabilities shall be recorded by each state agency, board, commission or institution of higher education utilizing the appropriate accounts, funds and periods as instructed in the Fiscal Year-End Closing Instructions unless instructed otherwise in writing by the CAFR Section. All items that are recorded as liabilities or may be considered claims or contingent liabilities if the liability may exceed $500,000 shall be disclosed to the CAFR Section in the agency’s Year-End Disclosure Package returned to the CAFR Section. Additionally, disclosure may be required if the aggregate liability exceeds $500,000. The disclosure should take the form of completing the Claims and Judgments/Contingencies Questionnaire Section of the Year-End Disclosure Package. Regardless of whether the circumstances for the potential claim or liability existed before or after the end of the fiscal year, if an agency determines that a liability should be recorded or the agency becomes aware of a potential claim or contingent liability after completion and submission of the Year-End Disclosure Package to the CAFR Section, the agency should contact their agency’s liaison in the CAFR section to disclose the determination made and the additional details identified to arrive at such decision.
Recording Contingent Liabilities
All contingent liabilities that are probable (the future event or events are likely to occur) and the related loss can be reasonably estimated should be recorded by each agency, board, commission or institution of higher education on or before year-end. All contingent liabilities should be recorded in non-budget relevant accounts in period "15" to fund 7006101. All amounts expected to be paid within one year of the fiscal year end should be recorded as current liabilities. Any prior year entries to record the claims, judgments or contingent liabilities should be reversed prior to recording current year items. Examples of general journal entries to record some common contingent liabilities follow:
5010091000 Accrued Compensated Absence Expense
2230002000 Non-Current Accrued Compensated Absences
2115007000 Compensated Absences Current
2114003000 Claims Incurred but not Reported
Questioned Costs Related to Federal Awards Expected to be Repaid
4050004100 NBR – Grant Revenue
2114003000 Claims Incurred but not Reported
PLEASE NOTE: These examples are for illustrative purposes only. The nature of the claim or contingent liability will determine what accounts should be used for recording the liability. Please contact the CAFR Section for assistance in recording the liability.