Financial Management: The “Big Picture,” Part 2

In this 2-part series, we’re looking at the “big picture” of financial management for local government agencies. By “Big Picture” I’m referring to the overall management of an entity’s funds and fiscal health. Maintaining the big picture health of an agency is something that all staff, from frontline to leadership, can contribute to. Part 1 addressed how an agency can establish a blueprint for big-picture fiscal health. In Part 2 of this series, I’m going to review some tools an agency can employ to monitor fiscal health

Monitoring Tools

Your agency’s financial systems should be your primary source of fiscal health monitoring. There are many good systems to choose from that are available to agencies of all sizes and types. Emerging trends in these systems includes providing “live” reports or data in a dashboard-like manner, which enables those wanting to review the reports and data to view it from a variety of approaches and methods.

Another emerging trend provides for a hosted system where data is accessible from any location (with the right credentials), and financial transparency can be enhanced. For example, many mid-sized organizations now provide online access to their vouchers or claims to anyone who has such an interest. (Here is a link to the City of Redmond’s “open checkbook” as an example).

In addition, the Washington State Auditor’s Office (SAO) has created a couple of different tools that will help you in assessing your organization’s fiscal health. The first is a comparative financial data set known as the Local Government Financial Reporting System (LGFRS). Using this tool, you can compare your financial results from previous years to peer organizations or over time. The tool is now populated for most types of local governments with at least 10 years of data. Using the tool interface, you can evaluate how your government compares to similar peers with regard to levels of revenues and/or expenditures.

A second tool that is also offered by the SAO is the Financial Intelligence Tool (FIT). Using this tool you can compare fiscal results from your government to a series of benchmarks preset by the Auditor’s Office. This provides a basis for analysis that can be the starting point for a conversation within your agency about how the agency is performing from a financial perspective. While the tool suggests certain financial performance metrics, it may not necessarily be a bad thing if your government deviates from a benchmark (or even two). What is important is that you have the data to review your performance against a benchmark and can understand the basis for any deviation. I’d recommend scheduling some time to review your “FIT” report as a team and to assure yourselves that your overall fiscal health is well understood and in line with your expectations.

Lastly, I always like to point out to elected officials that they can see their agency’s past audit reports on the SAO website as well. In fact, many local governments provide a link on their website to this objective review of their financial and accountability audits as an element of open and transparent government.

“Cash Is King”

Cash is King is an expression sometimes used in analyzing businesses or investment portfolios. It is also very important in your agency’s fiscal health.

Depending on how you conduct your financial activity (either following Generally Accepted Accounting Principles – GAAP, or Cash), knowing your cash and investment position in each fund at each month end is also key to monitoring fiscal health. If you use the cash basis of accounting, then the cash balance in each fund reflects that fund’s equity position. It is a little more complicated using the GAAP accounting basis, but, essentially, the cash and investments balance will reflect fiscal health in that context as well. As a result, consider adding the cash and investment balances to the monthly financial reports that you are monitoring. In my experience this is not very common. However, after working with local governments over the past six months here at MRSC, I can see where this simple step would be a big help to enabling effective fiscal health monitoring at all levels of the agency.

The cash and investment balances should be confirmed and reconciled each month to the entity’s financial records. There should be some confirmation that this is occurring on a timely basis. Then, monitoring these balances can assure the elected officials that the reports reflect this very important fiscal health metric and that the activity (much of which will hit these cash accounts) is validated through the monthly reconciliation that is occurring. Where we see agencies in serious financial difficulty we often also see that cash accounts are not being reconciled to the financial activity on a timely basis. That makes this activity a significant indicator of fiscal health and an important internal control.

Closing

The important, shared responsibility for monitoring and managing the fiscal health of your government should be a standard operating practice each month. The review of reports, cash balances, vouchers, and discussion of any concerns are important steps in providing this oversight. A comprehensive (but easy to understand) monthly financial report from the chief fiscal officer that includes revenue and expenditure activity, cash, and investment balances, and the assurance that bank accounts have been reconciled in a timely manner will provide peace of mind to all involved.

While keeping up with all the items on your list is important, be careful not to lose site of the “Big Picture.”

Questions? Comments?

If you have comments about this blog post, please comment below or email me at mbailey@mrsc.org. If you have questions about this or other local government issues, please use our Ask MRSC form or call us at (206) 625-1300 or (800) 933-6772.