Governments: How Opioid Settlements Could Impact Your Financial Statements

  • Regulations
  • 5/29/2024
Hispanic panelist answers audience question with empathy

Key insights

  • There’s $26 billion coming to state and local governments from opioid lawsuit settlements over the next 18 years.
  • Each state distributes opioid settlement funding differently, so recording and accounting for it can be complicated for local governments.
  • Learn key questions each state should consider regarding opioid settlements.

Learn what governments need to know about opioid settlements.

Consult an Advisor

State and local governments are due to receive $26 billion from opioid lawsuit settlements over the next 18 years. Each state distributes this funding differently, so how do you record these funds?

The Governmental Accounting Standards Board’s (GASB) tobacco settlement bulletin indicates an exchange transaction has taken place at the settlement date. However for opioid settlements, each state may have resolved these contingencies differently, making it difficult to estimate the expected stream of payments.

What questions should state and local governments consider regarding opioid settlements?

Ask these key questions:

  • What governments are party to the settlement transaction?
  • How does the state view paying settlement amounts to local governments?
  • Are local governments party to the settlement transaction directly, or is the state considered the participating party and the amounts pass through the state to the local government?
  • Can the amount of the settlement be estimated? Is the amount collectable?

How these questions are researched and analyzed can help determine how to recognize revenue and whether to record a receivable for future payments received. Keep in mind revenue recognition in governmental funds will be affected by the availability period.

Some states may not have allocated payments down to the local level yet and may do so in the form of grants recorded under GASB No. 33, Accounting and Financial Reports for Nonexchange Transactions. Analyze these grant requirements as those funds will be recognized differently.

How can governments prepare for their audits?

Be proactive, transparent, and prepared to help create a smoother audit process and demonstrate compliance with accounting standards and disclosure requirements related to opioid settlements.

Review these areas ahead of your audit:

  • Disclosure and transparency in your financial statements
  • Revenue recognition as it relates to the terms of the settlement to determine proper accounting treatment
  • Internal controls and compliance around receipt, allocation, and use of settlement funds
  • Documentation and retention, from legal agreements and settlement terms to correspondence

Settlements can be complex and accurate reporting is essential. Discuss with your auditors early on to avoid delays and watch for more guidance from your state representatives as this unfolds.

How we can help

CLA’s state and local government team continues to keep tabs on this issue. Our professionals are prepared to discuss the nuances of opioid settlements and can share guidance around appropriate accounting treatment.

Contact us

Learn what governments need to know about opioid settlements. Complete the form below to connect with CLA.

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