What Not to Miss on Your Agency's Year-End Financial Checklist

Local governments are busy during the last part of the year preparing the preliminary budget, having budget workshops, and holding hearings for next year’s budget.

For those new to local government in Washington, it can be easy to focus on the statutory deadlines for adopting next year’s budget and overlook possible year-end items for the current year’s budget. Here are some best practices to begin each year (sooner rather than later) as part of your year-end checklist.

Complete a Forecast for the Fourth Quarter (Preferably in October)

The annual expenditures of cities and towns (RCW 35.33.121, RCW 35A.33.120) and counties (RCW 36.40.100) are limited to the amount previously authorized by their governing body (i.e., council, commission, board).

If a city, town, or county is going to exceed its authorized expenditures, then its governing body must pass a budget amendment so it does not exceed appropriations. (Special purpose districts should review BARS Manual, Section 2.4.3 - Budget Adoption and Amendments, as well as internal policies, to determine if they are limited to spending within their adopted budget.)

Usually around October, your agency should look at year-to-date expenditures and add anticipated expenditures for the remainder of the year to determine if your entity will be in budget compliance at year-end. You will want to make sure that all monthly, quarterly, semi-annual, or annual payments are projected through the end of the year. This includes payroll, utility payments, service contracts, and any other miscellaneous contracts.

It is also a good idea in October to begin discussions with budget managers regarding upcoming year-end expenditures. Are there any that were not anticipated when the budget was adopted? If so, there should be a discussion of how such expenditures will be funded:

• Did some revenues come in higher than expected?
• Were there some budgeted expenditures that aren’t going to occur after all?
• Will the unanticipated expenditures be paid from fund balance?

Having such discussions will help you determine if a budget amendment is required.

Analyze Cash Balances of All Funds

While your jurisdiction might be within its budgeted appropriations, at MRSC we have seen entities run into problems with a negative cash balance at the end of the year. The biggest culprit is grant reimbursements. This typically occurs when a jurisdiction has a large contract payment due towards the end of the year and the reimbursement from the grantor does not occur until the next fiscal year. As a result, the fund ends the year with a negative cash balance—and as stated in BARS Manual, Section 3.9.1.31, “When a fund has a negative cash balance, it has effectively borrowed money from other funds.”

It seems like each year we receive an inquiry in February or March from an agency that realizes it will have a negative cash balance at year-end and wants to know if it is too late to do an interfund loan. As stated above, per the BARS Manual, the jurisdiction is already effectively borrowing funds.

Why is this an issue? Interfund loans cannot be approved retroactively. The jurisdiction should have interfund loans approved before a fund goes into a negative fund balance, and BARS Manual Section 3.9.1 - Interfund Loans discusses the required procedures, which is that interfund loans first be approved by the governing body. 

BARS Manual Section 3.9.1.31 states that the governing body can adopt a policy allowing negative cash balances to be handled administratively so long as the amount is not significant and does not extend beyond 60 days; otherwise, the local government should follow the procedures in Section 3.9.1.20.

Don’t Forget the Open Period

Cities, towns, and counties have a statutory requirement to record claims incurred during the current fiscal year but received during the open period to the current year’s budget.

Cities and towns have a 20-day open period (RCW 35.33.151/RCW 35A.33.150). A county’s open period is determined by the county auditor and may be between 30-60 days (RCW 36.40.200).

When completing your year-end forecast, make sure to include invoices or claims that you may receive during your agency’s open period to prevent a negative fund balance or to avoid exceeding budgeted appropriations.

Conclusion

Year-end can be a stressful time for local government finance departments. Having a year-end checklist and keeping an eye on year-end expenditures can help prevent stressful surprises as your agency finishes the year.

As always, if you have any questions on budgeting, budget amendments, and interfund loans, feel free to submit them through Ask MRSC.