112 th Annual Conference May 6-9, 2018 St. Louis, Missouri

Transcription

1 4:15 5:30 May 7, 2018 Rooms th Annual Conference May 6-9, 2018 St. Louis, Missouri Moderator/Speakers: Daryl Okrzesik Treasurer, City Colleges of Chicago, IL Judith M. Marte Chief Financial Officer, Broward County Public Schools, FL Lenny Moore Controller, Montgomery County, MD Kenneth L. Rust Retired CFO, City of Portland, OR Reaching Across the Aisle: How to Improve Communication Between Accounting and Budgeting #GFOA2018

2 Explaining the CAFR to Elected Officials Ensuring that the Right Problem is Being Identified and Addressed Kenneth L. Rust, Retired CFO City of Portland, Oregon

3 The Communication Challenge Budget and Accounting Documents Present Related Information, but in Different Languages Danger of Confusing the Message and Having it Lost in Translation Other Internal and External Parties may Identify the Wrong Problem Critically Important to Explain Key Findings in Terms Understandable to Elected Officials and Citizens 3

4 The Great Riddle: How Can You be Both the Best and the Worst? The Best City routinely receives an Unmodified Opinion on its financial statements: No weaknesses and/or deficiencies with the City s accounting processes CAFR complies with State Law Fund Balances continue to grow City has received the GFOA Award for Excellence in Financial Reporting for 36 consecutive years City has maintained a Aaa bond rating for 40 years The Worst Elected City Auditor compares the City s financial condition to bankrupt cities like Stockton, CA and Detroit, MI External watchdog groups like Truth in Accounting refer to Portland as a sinkhole city, ranked 70 th out of 75 cities Continued decline in City Net Position (Assets minus Liabilities ) for Governmental Activities: Net Position for Governmental Activities now stands at almost negative $1. 6 billion 4

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6 What Affects Net Position? Factors Decreasing Net Position (Expenses > Revenues GAAP Basis) Increases in pensions and other similar liabilities Increases in bonds payable with no off setting assets Non cash expenses (depreciation) that contribute to expenses exceeding revenues Factors Increasing Net Position (Revenues > Expenses GAAP Basis) External grant funding of capital improvements Funding capital improvements from current cash flow Surplus revenues that are unspent (i.e., held in reserve) or used to pay down liabilities 6

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8 What Does This Mean and What Should We Do? GAAP accounting provides a partial view of financial condition: Overemphasizes the treatment of liabilities Underemphasizes future revenues that act as assets GAAP accounting can mask underlying trends and the appropriate policies and actions that should be taken to address those trends Focus should be on preventing or limiting Financial Impairment : Ability to maintain services Cost shifting Fairness and equity Cost effective government in both the short and long term 8

9 Long Term Fiscal Health Snapshot: Looking Beyond the CAFR ITEM CURRENT STATUS FUTURE OUTLOOK TREND Long Term Liabilities PERS Negative, unfunded liability is growing FPD&R Recent labor contracts increase pension costs, continue to monitor Other Post Employment Benefits Improving, continue to monitor Infrastructure Utilities (Water & BES) Stable, continue to monitor Transportation Negative, needs significant additional resources All Other (Parks, Public Safety, Civic, Housing) Negative, needs increased investment Legacy Liabilities Negative, costs still unknown for Portland Harbor and Columbia River Levee projects Employee Costs Negative, costs are growing faster than revenues 9

10 KEY POINTS 01 The Need to Add Clarity to the Assertion We budget according to GAAP 02 Resolving the Tension Between the Objectives for Budgeting and those for Financial Reporting Lenny Moore, CPA, MBA, CGFM Controller Montgomery County, MD

11 Background Information County Location

12 Background Information- County Structure

13 Background Information- Operating Budget

14 Background Information- Capital Budget

15 GFOA Best Practice GFOA recommends that the budget document clearly define the basis of accounting used for budgetary purposes. If the budgetary basis of accounting and the GAAP basis of accounting are the same, this fact should be clearly stated. If the budgetary basis of accounting and the GAAP basis of accounting are different, major differences and similarities between the two bases of accounting should be noted. Disparities may include basis differences, timing differences, fund structure differences, and entity differences. -

16 The Popular Refrain We budget according to GAAP

17 Reasons Why Some Entities Can t Budget According to GAAP GFOA Excerpt The timing of revenue and expenditures may be different under the GAAP basis of accounting than under the budgetary basis of accounting. Encumbered amounts are commonly treated as expenditures under the budgetary basis of accounting while encumbrances are never classified as expenditures under the GAAP basis of accounting. Under the GAAP basis of accounting, changes in the fair value of investments generally are treated as adjustments to revenue, which commonly is not the case under the budgetary basis of accounting. The fund structure used in GAAP financial statements may differ from the fund structure used for budgetary purposes (e.g., debt service payments may be accounted for in the general fund for budgetary purpose, but reported in a debt service fund in the GAAP financial statements). Under the GAAP basis of accounting used in proprietary funds, the receipt of long term debt proceeds, capital outlays and debt service principal payments are not reported in operations

18 Adding Clarity to the Basis of Budgeting Versus Accounting Montgomery County Example

19 Adding Clarity Cont d General Fund ( ) Montgomery County, MD Special Revenue Funds GASB 54 Classification of Fund Balances June 30, 2017 Economic Development Spring Urban Urban District Urban District Revenue Stabilization Total GF 462, ,829 8,334,700 8,334,700 8,797,529 8,797,529 7,027,740 3,387, , , , ,660, ,992,308 35, , , , ,733 7,027,740 3,387, , , , ,660, ,445,250 60,445,573 60,445,573 60,445,573 60,445,573 26,916,962 26,916, ,366, ,366,481 $ 221,554,285 $ 3,387,755 $ 328,132 $ 681,412 $ 359,952 $ 280,660,259 $ 506,971,795

20 Adding Clarity Cont d Montgomery County, MD Fire Tax District Fund GASB 54 Classification of Fund Balance For OMB Purposes June 30, 2017 GASB 54 Fund Balance Classification: Amount W/P Ref. GAAP Classification FB RESTRICTED FOR AMOSS GRANT 7,515 V.C.(1/2) Restricted FB DESIG FOR ENCUMBRANCES 919,154 IV.D Restricted FB RES FOR TRANSFER TO CIP 917,520 V.D Restricted FUND BALANCE FREE (1,904,982) Restricted Total FB 6/30/17 GAAP $ (60,793) III A.1(1/5)

21 Adding Clarity Cont d

22 Quote from NACSLB Definition of the Budget Process: The budget process consists of activities that encompass the development, implementation, and evaluation of a plan for the provision of services and capital assets. Resolving the Tension Mission of the Budget Process: To help decision makers make informed choices about the provision of services and capital assets and to promote stakeholder participation in the process. Key Characteristics of the Budget Process: Incorporates a long-term perspective; Establishes linkages to broad organizational goals; Focuses budget decisions on results and outcomes; Involves and promotes effective communication with stakeholders; and Provides incentives to government management and employees.

23 Resolving the Tension, Cont d

24 Resolving the Tension, Cont d GASB Concepts Statement No. 1

25 Resolving the Tension Despite all these views, government budgeting is more political than technical. The technical aspect of government budgeting involves the preparation of the budget in line with the applicable laws, regulatory and government standards.

26 Resolving the Tension, Cont d

27 Resolving the Tension, Cont d Good MCG

28 Resolving the Tension, Cont d Cash & Equiv $ 2,373,129 Cash w/ FA 54,500 Total OMB Cash $ 2,427,629

29 Resolving the Tension, Cont d Examples of Items Affecting Cash But Not Income Statement Net Increase (Decrease) in Accounts Payable Net Increase (Decrease) in Accounts Payable Fund 501 Net Increase (Decrease) in Accounts Payable Clearing Net Increase (Decrease) in Misc. Accounts Payable Net Increase (Decrease) in Retainage Payable Net Increase (Decrease) in Other Liabilities Net Increase (Decrease) in Due to Other Funds Net Increase (Decrease) in Due to Other Funds Net Increase (Decrease) in Due to State of Maryland Net (Increase) Decrease in Inventory Receiving Net (Increase) Decrease in Inventory Liquor Net (Increase) Decrease in Inventory Pallets Net (Increase) Decrease in Inventory Empty Containers Net Increase (Decrease) in Deposits

30 Resolving the Tension, Cont d

31 Resolving the Tension, Cont d

32 Resolving the Tension, Cont d

33 How to Move from We to Us Judith Marte Chief Financial Officer Broward County Public Schools, FL #GFOA2018

34 How to Move from We to Us Listen Contact Formal Informal Understand the roles Lead Acknowledge Validate Performance Measures Goals KPI s Share work Projections Revenue Estimates Planning Share Staff Work Cycles Training/Professional Development Cross Pollination Succession Management Talent Development #GFOA2018

35 112 th Annual Conference May 6-9, 2018 St. Louis, Missouri Speaker Contact Information: Daryl Okrzesik Judith M. Marte Lenny Moore Kenneth L. Rust Questions: Speakers will take questions and comments. This session is being recorded, please utilize the microphone in the aisle to ask all questions. Provide Feedback: Please take a few minutes to provide your feedback at Discuss/Comment: Join the discussion at #GFOA2018 Contact GFOA: To contact GFOA about session topics please research@gfoa.org #GFOA2018