With the settlements with various pharmaceutical companies and distributors being finalized recently, and more still being disputed, there’s been a lot of uncertainty about what the accounting for these settlement funds looks look. The timing of the receipts, as well as whether or not your organization was an original party to the lawsuit makes a difference in how these payments should be accounted for.

The State of California has a website with resources on the Opioid Settlements that includes the status of each lawsuit and payment information for each settlement. The site can be found here.

California’s allocation from the National Opioid Settlements will be distributed by the National Settlement Administrator as follows:

  • ​15% allocated to the State of California to use for future opioid remediation activities (California State Fund)
  • 70% allocated to Participating Subdivisions to use for opioid remediating activities (Abatement Accounts Fund) – This is the source most agencies will see. The settlement funding received qualifies as a nonexchange transaction. As such, no revenue would be recognized until offsetting opioid crisis mitigation expenditures have been incurred. Upon receipt of the funds, an unearned revenue would be recorded, and revenues are only recognized as offsetting expenditures are incurred. Additionally, no receivable would be recorded for any future settlement fund expected to be received.
  • 15% allocated to Plaintiff Subdivisions to use for future opioid remediation activities and to reimburse past opioid-related expenses (California Subdivision Fund). – You will only receive these funds if you were a named party to the original lawsuit.  This funding is considered an exchange transaction and you would recognize the revenue and a receivable to the extent that it was measurable. Keep in mind your organization’s revenue availability period, and defer any funding received outside the availability period as unavailable revenue. (There could be some uncertainty about the collectability of the settlements. If this is the case, an allowance for doubtful accounts should be determined and recorded.)

GFOA just released a Timely Accounting Discussions (T.A.D.) video explaining the accounting in less than ten minutes! Feel free to check it out for more information.

Thank you to Ryan Domino, Kelly Telford, and Lance, Soll & Lunghard, LLP (LSL) for providing this important guidance.

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Ryan Domino, CPA, is a partner in LSL’s government services department and has over 11 years of experience working with government agencies. His primary area of expertise and focus is researching auditing and accounting standards, including GASB pronouncements, and the federal Uniform Guidance, and conducting the audits of special districts and mid-size cities. He has also earned the AICPA’s Advanced Certification for the planning and execution of Single Audits.

As a government services partner, Ryan oversees engagements for a variety of governmental clients, providing accounting guidance and other services, including audits, consulting and other agreed-upon procedures, and ACFR preparation, with a high level of care and precision. Ryan is also a regular speaker at LSL’s annual GASB Update on technical topics and is responsible for overseeing the government services department’s annual audit trainings.

Ryan is an active member in a number of professional organizations, including CSMFO, CalCPA and AICPA, and is a member of GFOA’s Special Review Committee for the Award for Excellence in Financial Reporting program.