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Financial Management Series Number 1 Basics of Local Government Financial Management Alan Probst Local Government Specialist Local Government Center UW-Extension.

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Presentation on theme: "Financial Management Series Number 1 Basics of Local Government Financial Management Alan Probst Local Government Specialist Local Government Center UW-Extension."— Presentation transcript:

1 Financial Management Series Number 1 Basics of Local Government Financial Management Alan Probst Local Government Specialist Local Government Center UW-Extension Basics of Local Government Financial Management Alan Probst Local Government Specialist Local Government Center UW-Extension

2 Official’s Responsibility Local government officials have a fiduciary responsibility to manage public funds in the most responsible manner their abilities and the local situation allow Local government officials have a fiduciary responsibility to manage public funds in the most responsible manner their abilities and the local situation allow Misuse of public funds is the most frequent cause for public official indictments Misuse of public funds is the most frequent cause for public official indictments

3 BudgetsBudgets All levels of local government in Wisconsin are required by statute to produce and manage a budget All levels of local government in Wisconsin are required by statute to produce and manage a budget Operating on only an appropriation ordinance, as is still legal in Illinois and some other states, is prohibited in Wisconsin Operating on only an appropriation ordinance, as is still legal in Illinois and some other states, is prohibited in Wisconsin

4 BudgetsBudgets The preparation and approval of a budget is probably the single most important duty of local government officials because it determines what services will be provided, to what extent they will be provided, and how they will be funded. This affects every citizen in their community.

5 BudgetsBudgets Line Item Budgets are the norm in Wisconsin Line Item Budgets are the norm in Wisconsin While not expressly prohibited, Program Budgets are virtually unheard of While not expressly prohibited, Program Budgets are virtually unheard of Line Item Budgets provide a level of detail the public demands and local officials require for decision-making Line Item Budgets provide a level of detail the public demands and local officials require for decision-making

6 Line Item Budgets Provide detail about past, present, and projected expenditures for each department according to line codes recommended by the Government Accounting Standards Board

7 Program Budgets Provide little detail other than total revenue and total expenditures for that fund or account Provide little detail other than total revenue and total expenditures for that fund or account Assume the staff will stay within those limits Assume the staff will stay within those limits Much easier to misuse public funds Much easier to misuse public funds Easier to apply performance measurement methodology Easier to apply performance measurement methodology

8 Fund Accounting Local government accounting is Fund Accounting Local government accounting is Fund Accounting All revenues and expenditures must be assigned to a specific fund All revenues and expenditures must be assigned to a specific fund GASB guidelines GASB guidelines

9 FundsFunds Revenues Revenues General Fund General Fund Special Revenue Funds Special Revenue Funds Debt Service Fund Debt Service Fund Capital Fund Capital Fund Proprietary/Enterprise Funds Proprietary/Enterprise Funds Fiduciary Funds Fiduciary Funds

10 RevenuesRevenues All incoming funds from any source are included in revenues In Wisconsin, revenues primarily come from three sources: Property taxes Property taxes State shared revenues State shared revenues Fines and fees for services Fines and fees for services

11 ExpendituresExpenditures All funds expended by a local government must appear in one of the fund other than Revenue

12 Restricted funds Some funds are considered “Restricted” Restricted funds include: Proprietary Funds Fiduciary Funds Enterprise Funds Special Revenue Funds

13 Restricted Funds Can only be used for the restricted purpose for which they exist Can only be used for the restricted purpose for which they exist Cannot be used to cover deficiencies in the General Fund Cannot be used to cover deficiencies in the General Fund Can be borrowed from to assist General Fund ONLY by resolution with payback plan Can be borrowed from to assist General Fund ONLY by resolution with payback plan

14 Deficit Spending Wisconsin local government cannot operate in a deficit mode Wisconsin local government cannot operate in a deficit mode If insufficient funds exist to cover expenses, local governments must borrow to cover those deficiencies If insufficient funds exist to cover expenses, local governments must borrow to cover those deficiencies

15 Cash Flows Cash flows must always be considered when local governments expend funds Cash flows must always be considered when local governments expend funds Budgeted for does not mean the money is available Budgeted for does not mean the money is available Property taxes come in two payments Property taxes come in two payments State shared revenues come in two payments State shared revenues come in two payments

16 Cash Flows Major purchases or expenditures must be scheduled to coincide with points when cash is available unless borrowing is planned or a sufficient reserve exists to cover the expenditure

17 ReserveReserve Maintaining a General Fund reserve or Contingency Fund is essential to cover unplanned expenditures or when an expenditure cannot wait for a revenue payment Maintaining a General Fund reserve or Contingency Fund is essential to cover unplanned expenditures or when an expenditure cannot wait for a revenue payment A common rule for General Fund reserve or Contingency is six (6) month’s normal operating expenditures A common rule for General Fund reserve or Contingency is six (6) month’s normal operating expenditures

18 Undesignated or “Slush” Funds In local governments, all incoming revenue must be shown in budget documents and assigned to a fund In local governments, all incoming revenue must be shown in budget documents and assigned to a fund All expenditures must be accounted for under the budget All expenditures must be accounted for under the budget “Slush Funds” are not allowable “Slush Funds” are not allowable

19 AuditsAudits Annual audits are required for counties, municipalities, and some towns. An audit is an independent assessment of your government’s external and internal budgetary controls Generally conducted by an independent public accounting firm

20 AuditsAudits Audit findings may be unqualified or qualified Unqualified audits mean there were no irregularities found in your methodology or accounting procedures Qualified audits mean there are concerns with your practices which should be rectified

21 AuditsAudits A good audit, preferably unqualified, is a necessity when attempting to incur debt at a reasonable interest rate Required by most lenders and bond agencies

22 DebtDebt Borrowing money for major purchases and projects is as essential for most local governments as it is for the average citizen Borrowing money for major purchases and projects is as essential for most local governments as it is for the average citizen Borrowing should be according to a plan (capital improvement, strategic, etc.) and managed Borrowing should be according to a plan (capital improvement, strategic, etc.) and managed

23 Performance Budgets Performance budgets focus on missions, goals, and objectives to explain why money is being spent and provide a way to allocate resources to achieve specific results PBB is intended to be a management tool for program improvement, not a “carrot and stick” methodology used to “punish” departments for not meeting goals

24 ReferencesReferences “Management Policies in Local Government Finance” Fifth Edition, ICMA University, International City/County Management Association, Aronson & Schwartz, 2004


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