Designing a Chart of Accounts for Government Entities: A Comprehensive Guide

When implementing financial systems for municipalities, counties, states, or public universities, one of the most critical—and often contentious—elements is the chart of accounts (COA) design. Getting it right can mean the difference between a smooth implementation and a project plagued by delays, change orders, and even failure.

Why Chart of Accounts Design Matters

A poorly designed chart of accounts can lead to:

• Delayed system conversions and project timelines
• Failed ERP implementations
• Budget overruns and change orders
• The need to replace system integrators

As one experienced CPA with over 30 years in financial systems notes, “Chart of accounts design is very emotional.” Different stakeholders often have strong opinions about how it should be structured, and finding consensus can be challenging.

Understanding the Fundamentals

The Universal Structure

Regardless of whether you’re using paper ledgers or sophisticated ERP systems like Oracle Fusion or PeopleSoft, all charts of accounts share a common structure:

• The “What” (Account Segment): This represents what the transaction is—cash, accounts receivable, salaries, rent expense, etc. There’s essentially only one “what” in any chart of accounts structure.
• The “Where” (All Other Segments): Every other segment represents where something occurs—which department, location, company, or cost center.

GASB and CAFR Requirements

Public entities must comply with GASB (Governmental Accounting Standards Board) standards and produce a Comprehensive Annual Financial Report (CAFR). Three specific concepts are mandatory:

1. Fund Type

Examples include general funds, capital funds, restricted funds, debt service funds, enterprise funds, and fiduciary funds. While most entities use standard terminology, alternative terms are acceptable as long as the underlying concept aligns with GASB requirements.

2. Object (The Account)

This is your traditional account structure—the “what” that must be reported.

3. Function

This represents a summary of broad categories showing how public money is being used. For municipalities, this might include general government, public safety, health services, and utilities. Universities often call these “programs,” but the concept remains the same.

A Sample Structure Approach

One effective approach uses intelligent numbering within segments:

Fund Segment (4-5 characters)

• First character: Legal entity designator (typically a letter)
• Second character: Fund type (G for general, C for capital, E for enterprise)
• Remaining 2-3 characters: Specific fund number within that type

This structure can accommodate 99 funds per fund type for small to medium entities, or up to 999 for larger organizations.

Object Segment (5 characters)

A traditional account structure with the first character indicating the account type (1 for assets, 2 for liabilities, etc.) and remaining characters providing detail.

Function/Department/Activity (FDA) Segment (6 characters)

Using intelligent numbering in pairs:

• First two characters: Function level (required for CAFR reporting)
• Middle two characters: Department
• Last two characters: Activity

For example: 21-14-11 might represent Public Safety (21) – Police Department (14) – Patrol Activity (11).

Key Considerations

Balance Sheet Requirements

You’ll need balance sheets at two levels:

1. Legal entity level: Where the tax ID resides
2. Fund level: Specifically for net position reporting

Intelligent Numbering

While some practitioners express concern about intelligent numbering, it’s already ubiquitous in accounting—everyone knows assets start with “1” and liabilities with “2.” When properly documented with reference guides, users adapt quickly.

Reporting Hierarchy

Using parent-child relationships in your hierarchy allows you to report at the appropriate level for CAFR requirements while maintaining detailed tracking for internal management and budgeting purposes.

Implementation Best Practices

When transforming a chart of accounts from a legacy system to a new ERP:

1. Identify current intelligent numbering schemes and dimensions
2. Map all required dimensions (fund, object, function)
3. Identify all fund types in your system
4. Determine rollup structures beyond the required dimensions
5. Identify legal entity handling in your structure
6. Determine where balance sheets and net position reporting occur
7. Map budget control points
8. Ensure complete mapping to the new system

The Emotional Reality

Perhaps the most important takeaway is recognizing that chart of accounts design generates strong emotions and opinions. There’s rarely one “right” way to structure a COA—what matters is that your structure:

• Complies with GASB and CAFR requirements
• Accommodates your organization’s size and complexity
• Supports both external reporting and internal management needs
• Can be understood and maintained by your team

The goal isn’t to create a perfect structure that everyone loves, but rather to create a functional structure that meets regulatory requirements while supporting your organization’s operational needs. Finding consensus early and managing expectations throughout the process is crucial to project success.

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Whether you’re implementing Oracle Fusion, moving from a legacy system, or designing a chart of accounts from scratch, remember that the structure you choose should serve your organization’s specific needs while maintaining compliance with governmental accounting standards. Take time to understand your requirements, study examples from similar entities, and don’t be afraid to adapt proven approaches to your unique situation.

Resources
Florida State Chart of Accounts