RD309 - Virginia Small Business Financing Authority (A Component Unit of the Commonwealth of Virginia) Management’s Financial Statements and Supplementary Information for the Fiscal Years ending June 30, 2019 and 2020 (Unaudited)

Executive Summary:

Management’s Responsibility for the Financial Statements

The financial statements, management discussion and notes which follow herein have not been prepared or audited by a certified public accountant. The management of the Virginia Small Business Financing Authority (“VSBFA" or the “Authority") is responsible for the preparation and presentation of these financial statements, management discussion and notes which follow and for the implementation and maintenance of internal controls relating to the preparation and fair presentation of financial statements which are free from material misstatement, whether due to fraud or error.

In management’s opinion, the financial statements, management discussion and notes presented herein present fairly, in all material respects, the financial position of the Virginia Small Business Financing Authority as of June 30, 2019 and June 30, 2020, and the changes in net position from the 2019 fiscal year-end to the 2020 fiscal year-end.

Non-GASB Compliant Financial Statements

These statements have been prepared with generally accepted accounting principles in mind; however, these statements do not meet all U.S. Governmental Accounting Standards Board (GASB) requirements and therefore cannot be considered to be fully compliant with GASB.

GASB 70 and Significant Reporting Methodology

• The Authority’s SSBCI Cash Collateral Program and the State Cash Collateral Program (collectively referred to here as “CCP") utilize reserve accounts owned by the Authority and established at participating banks. VSBFA commits these reserve account funds for the support of specific loans for a specified period of time and up to a specified maximum amount. In the event of a loss on a defaulted CCP enrolled loan, the participating bank may – after liquidation of its primary collateral and completion of its collection efforts - file a claim with the Authority to request that the related CCP deposit be utilized to offset the bank’s deficiency loss (or a portion thereof.)

• Funds held in CCP Reserve Accounts are recognized as Restricted Assets and in accordance with GASB 70, the Authority does not record a liability and related expense against these CCP Reserve Accounts (Restricted Assets) unless there is a greater than 50% chance that the Authority will be required to make a future payment related to support provided under the Cash Collateral Program. In accordance with GASB 70 and in anticipation of potential claims on two loans supported through the SSBCI Cash Collateral Program, the Authority has, as of June 30, 2020, recorded a Restricted Liability of $363,254 against the SSBCI Cash Collateral Program reserve accounts, which are reflected as Restricted Assets on the Authority’s balance sheet.

• The Virginia Department of Accounts and the Virginia Auditor of Public Accounts have determined that the CCP reserves provided under the Cash Collateral Program constitute a non-exchange financial guarantee under the Governmental Accounting Standards Board (GASB) Statement No. 70. As defined by GASB 70, a non-exchange financial guaranty is typically provided by a government for the obligations of a private entity, not-for-profit organization or an individual, and the government providing the guarantee or support has not directly received equal or approximately equal value in exchange for that guarantee or support.