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Chapter9PFA.pptxPublic Finance Administration
Chapter 9
The Budget Cycle – Executive Implementation
Financial Controls in Local Government
Budget Implementation
Budget Office – approve encumbrances (expenditures not yet paid for), maintaining reserves, dealing with budget amendments and budget transfers between departments/funds
Accounting
Accounting unit (Finance officer, accounting clerks, fiscal officer, etc) – record transactions, maintaining charts of accounts, reconciling accounts
Financial Reporting
Comptroller’s office – providing reports, coordinating with external auditors, etc.
For most local governments, most/all of these functions are contained within a single department, and sometimes power vested within just a few individuals
Communicating Budget Information
Providing transparent budgets to the public is the hallmark of good governance:
Published budgets available to the public
Budgets available on websites
Budgets reviewed for thoroughness and communicative effectiveness by outside organizations (i.e. GFOA)
Budgets should communicate the priorities and values of elected officials, and programs to be administered by local government staff
Organized by departments, programs, or desired outcomes
Clearly explain revenue generation and expenditures
Maintaining budget compliance
Appropriations – legislative authority for staff to incur financial obligations
Encumbrances – approved purchases that are often as yet unpaid but reduce the amount of expenditures available; think of this similar to a check you have written but has not yet been cashed.
Purchase orders – authorizations to departments/individuals to spend money as authorized by the budget
Budgeted expenditures generally terminate fiscal year’s end unless reauthorized by the legislative body
Continuing resolutions allow for emergency/necessary expenditures to continue to be made in the absence of a formal budget until the legislative body approves a new budget
Altering budget authority
Budget transfers
Moving funds from one line item to another, or one department to another
Expenditure alterations within departments usually permitted through bottom-line funding (legislative body authorizes $X total expenses for the department), while transfers between departments often requires legislative approval
Budget amendments
Changing the bottom-line authorized expenditure level
Almost exclusively requires legislative approval
Sometimes done due to unforeseen emergencies, projects carrying from one budget year to another, or changes in legislative priority
Budget Reserves
Funds set aside for emergency, investment, or other non-operational purposes (“Rainy Day Fund”)
Budgeting in times of fiscal crisis
Forecasting the future
Anticipating issues or challenges that can negatively affect revenue generation or expenditure necessity
Example: rapidly rising fuel prices; collapse of local real estate prices (reduced property taxes); local/regional/national recessions; natural or man-made disasters.
Formulating reasonable responses to crisis
Controlling expenditure levels
Properly estimating revenue generation
Identifying essential and non-essential services
Essential: police, fire, water, public works, etc.
Non-essential: recreation, senior services, etc.
Conclusion
Most local governments depend on relatively few staff for budget control – department heads, finance officer, city manager are typical
Budgets should clearly communicate to the public what is being done, why, how it will be accomplished, and from where the funds come
There is often tension between those spending funds (i.e. department heads) and those controlling funds (i.e. finance officer); many departments attempt to spend every dollar to justify existence and/or prevent loss of funding in future budges
A good budget will always estimate expenditures high and revenues low; the opposite sets the government up for fiscal crisis
