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Financial Management for Elected Officials January 2013 <br /> <br />Institute for Local Government www.ca-ilg.org 12 <br /> <br /> <br /> <br /> <br />Some Financial Warning Signs <br /> <br />• Operating expenses exceeding revenues <br />by more than five percent during the year <br />• Large mid-year variances in budgeted <br />revenues and expenditures versus actual <br />• Inadequate or late financial reports <br />• Depletion of reserves to balance budget, <br />for example if the reserves fall below ten <br />percent of operating costs. <br />• Outstanding loans between funds at the <br />end of the fiscal year <br />• Expenses exceeding revenues for two <br />consecutive years, with the second year’s <br />deficit being larger than the first year’s <br />• Debt service exceeds 10 percent of <br />current revenues <br />• Increase in debt service as percentage of <br />operating budget each year <br />• Qualified auditor’s opinions <br />• Reports of internal control weaknesses <br />from the agency’s auditors with no <br />corresponding plan to address (or <br />repeated reports of such weaknesses <br />from year to year) <br />• Large turnover in staff responsible for <br />monitoring financial status <br />Financial Reporting and Accounting <br /> <br />Financial reports are an essential oversight tool. There are two basic kinds of financial reports: <br /> <br />• Interim Reports. These include monthly reports, quarterly reports and mid-year budget <br />reviews. <br /> <br />• Annual Reports. Well-managed public agencies typically prepare a report at the end of the <br />year explaining revenues and expenditures levels. <br /> <br />In addition, local agencies that receive federal or <br />other grant moneys may be subject to specific <br />funder financial reporting requirements.20 <br /> <br />Good interim reporting identifies important trends <br />in time for local officials to act on them before <br />serious problems arise. Audited financial reports <br />alert governing body members if there are <br />irregularities in financial practices and financial <br />reporting. Both kinds of reports require a solid <br />financial information system to track revenues and <br />expenditures and provide that information to <br />decision-makers. <br /> <br />Questions to Ask <br /> <br />Interim Reporting <br /> <br />• What kind of reports do agency managers <br />receive? What do they do with them? <br /> <br />• How often do elected officials receive interim <br />financial reports? Does staff review the <br />information in these reports with local <br />officials? <br /> <br />• Do the reports provide meaningful information <br />that gives local officials an accurate portrayal <br />of the agency’s current financial picture to <br />date? <br /> <br />• Do the reports compare expectations with <br />actual results? Do they discuss key variances <br />between the two? <br /> <br />Page 62 of 109