MRSC has joined with Toni Nelson, Small Cities Specialist, State Auditor's Office, Gayla Gjertsen, Finance Director, City of Tumwater, and Mike Bailey, Administrator of Finance and Information Services, City of Renton, to bring you the "Finance Advisor" column. The "Finance Advisor" will feature a new article each month with timely local government finance information and advice you can use.*

Year-End is a good time to get a financial “checkup”

December 2007

Mike Bailey, Administrator of Finance and Information Services, City of Renton

The end of the year approaches. I know because my budget is in the capable hands of our city council. Another way I know is that we have started our annual year-end “checkup.” In this article, we will share some ideas about how you can use the “slower time” around the holidays to review some important financial vital signs.

Double and Triple Check Your Budget

By now, you should have double and triple checked your budget. Are revenues close to estimates? Is there a potential for any compliance problems with the legally adopted/amended budget? If so, a budget amendment is needed by the end of the year. In Washington State, if you don’t amend the budget before the year ends, it isn’t going to help. So take a hard look at any accounts that may be close and discuss it with the staff that know what activity to expect before the year ends.

Accounting for Expenditures and Revenues

While we are thinking about budget, it is a good time to remind everyone how expenditures and revenues will be accounted for within the financial report. This will depend on your basis of accounting (many use accrual accounting, but I think the majority use cash basis). If you use cash basis, the date on the deposit ticket (for revenues) and the date on the check (for expenditures) will determine which reporting period this activity will fall in to. If you use accrual, it gets a bit more complicated, but generally if you earned the revenue or incurred the expense (regardless of dates on deposit tickets or accounts payable checks) it belongs to this reporting period. Payroll expenses are accrued to the period in which they were incurred as well. If you use accrual accounting, you may need to explain the impact this may have on your budget compliance to other staff (if you order it and receive it this year – it will be counted against this year’s budget).

Cash and Investments

Another important area to review is cash and investments. This is especially true of cash accounts that you aren’t monitoring directly. These include petty cash and imprest cash accounts. These should be counted and reconciled on a periodic basis (monthly or quarterly depending on activity). Sometimes this gets put off – or resolving a difference gets postponed. The end of the year is a good time to make sure all cash can be accounted for. This should include getting all petty cash accounts reimbursed for the expenses they’ve incurred. That helps get those expenses properly coded into this year’s budget and this year’s financial report. Any discrepancies should be resolved by the end of the year. Some agencies like to do their own “surprise” cash counts to provide for additional audit assurance that the money is where it should be. Whatever the method, make sure you can say that all the cash accounts have been independently reviewed.

Investments usually don’t need an audit per se, but you may want to do your own confirmations that the investment account totals agree with your general ledger. Many of us use the Local Government Investment Pool, so this should be easy. When we buy individual investments, we often use the State Treasurer’s Safe Keeping Account, so again this helps simplify the confirmation of investment balances.

Control Accounts

Take a few minutes to make sure that control accounts agree with the detail. This means that you can find individual accounts in your accounts receivable that total the amount shown in the balance sheet (for example). Other examples are clearing accounts for checks, investments (as discussed above), accounts payable, etc. In this way, you will find any errors before trying to close the books for the year.

Documenting this effort will help to illustrate to your auditors that you have good internal controls in place.

Toni Nelson is the "Small Cities Specialist" for the Washington State Auditor's Office, providing both on and off site financial training and assistance to smaller cities and towns throughout the state. Ms. Nelson has been working with the Auditors office for 6 years and prior to that was the Clerk/Treasurer for a small town for 9 years. She has co-authored the "Small Cities Manual" a detailed reference guide for new clerk/treasurers on governmental accounting procedures and presents numerous training workshops throughout the state for AWC, WFOA, WMTA, WMCA and local/regional organizations such as EWFOA and SCWMCA. Ms. Nelson is also a member of and conference track coordinator for the WFOA Education Committee.

Mike Bailey is currently the Administrator of Finance and Information Services for the city of Renton. Previously, he worked as the Director of Finance for the city of Lynnwood for six years. Mr. Bailey also served as president of the Washington Finance Officers Association and is the Vice Chair of the GFOA Budget Committee. An experienced CPA and GFOA budget reviewer, Mr. Bailey co-founded the annual Budget and Fiscal Management Workshops held each summer. Mr. Bailey conducts numerous workshops and has authored various articles on local government finance, including Effective Budgeting in Washington State Cities published by the Association of Washington Cities.

Gayla L. Gjertsen has been the Finance Director for the City of Tumwater for over 15 years and was previously the Director of Administration for the City of Milton for 13 years. She has also served as president of the Washington Finance Officer's Association. Gayla has been a presenter at the annual Budget and Fiscal Management Workshops held each summer for many years, and periodically conducts other workshops and writes about local government finance issues.

*The Articles appearing in the "Finance Advisor" column represent the opinions of the authors and do not necessarily reflect those of the Municipal Research & Services Center.