Claims & Judgments - Accrual of Tort/Litigation Liability (GASB 62)
Accruing the long-term liability for pending claims and judgments against the government (personal injury, property damage, employment claims) when loss is probable and estimable.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Claims & Judgments Expense (Government-Wide) | Expense (+) | 2,850,000.00 | - |
| Claims & Judgments Liability - Long-Term (Government-Wide) | Liability (+) | - | 2,550,000.00 |
| Claims & Judgments Liability - Current Portion (Gov-Wide) | Liability (+) | - | 300,000.00 |
💡 Accountant's Note
Governments face ongoing tort liability (slip-and-fall on public property, police misconduct, vehicle accidents, employment discrimination). Under GASB 62 (incorporating SFAS 5 guidance), a liability is accrued when loss is probable and can be reasonably estimated. The liability includes both reported claims (known cases) and IBNR (incurred but not reported) claims, estimated actuarially. In governmental funds, only the current maturity (expected payment within 12 months) appears as a fund liability — the long-term portion is only in government-wide statements. Many governments use a Self-Insurance Internal Service Fund to manage this liability.
Practitioner & Systems Framework
💻 ERP Architecture
The claims and judgments liability calculation requires input from the government's risk management office and outside legal counsel. For governments with significant claim volumes, an actuarial study is needed to estimate IBNR claims. Self-insured governments should maintain a risk management information system (RMIS) tracking all open claims, reserves, and payments.
⚠️ Audit Flags
Auditors send legal confirmation letters to all legal counsel representing the government. Risk management officer inquiry and review of claims register are required. IBNR estimate methodology must be reasonable and consistently applied. Undisclosed large settlements after year-end are a subsequent events matter.
📄 Required Documentation
Claims register (open cases with reserve estimates), legal counsel response to audit confirmation letters, actuarial study for IBNR estimate (if material), risk management fund reserves, self-insurance coverage limits and excess insurance policies, rollforward of claims liability.
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