We Have an Approved Budget – Now What?
Those of you who work in the governmental budget world know the significant effort that it takes to move our local governments through the budget process: seeking internal and external budget input, estimating revenues and expenditures, public hearings, and finally authorization from our governing bodies. We might be tempted to take a break once that budget is approved. However, it is not time to rest. The important work continues with budget monitoring.
Georgia law requires local governments develop a balanced budget for the general fund, special revenue funds and debt service funds. A balanced budget is one in which estimated revenues equal estimated expenditures or estimated revenues plus carryover funds equal estimated expenditures. In addition, Georgia law establishes legal level of control at the department level within a fund. A lower level may be chosen by a local government. Finally, the budget must be approved by ordinance or resolution.
During the development process, you want to make sure the format of the budget document facilitates posting the budget to the accounting system. Posting the approved budget is the first important step in budget monitoring. The budget must be classified by department for each fund. In addition, the budget should be posted to the detailed budget lines for salary and benefits, operating expenditures, and capital asset purchases. Estimated revenue should be posted as well.
Several tools are useful in ensuring a government maintains budgetary compliance. First, the use of purchase orders are important in controlling operating costs. Purchase orders are issued to place a hold on budgeted funds as a result of orders for goods and services, annual contracts or other known costs. Budget checking should occur before any purchase order for operating and capital purchases is issued. Budget checking involves reviewing a budget to actual report to ensure there are sufficient funds available to cover the anticipated expenditure. If sufficient funds are not available, transfer from another budget line item might be necessary. Remember, changing the department budget by fund requires approval of the governing body through ordinance or resolution.
Second, track your revenue closely with budgeted amounts. You cannot spend beyond revenue posted and collected. Revenue collection is critical to having funds available for expenditure. If you are recognizing revenues resulting from receivables and are not following up on the subsequent collection, you are likely to experience cash flow issues. In monitoring your revenues, if amounts recognized do not correspond to your estimated amounts, you will need to adjust your budgeted expenditures down. You cannot spend above the revenues you recognize and collect. Again, this will require approval of the governing board.
Third, project your expenditures quarterly for the remainder of the fiscal year to determine you will stay within your departmental budgets. Many government expenditures are incurred evenly throughout the year. These include personal services costs, utilities, and other recurring costs. Calculate the monthly expenditure and use this as your estimate for the remaining months. Annual contract amounts and other amounts that are not incurred on a monthly basis must be included in the estimated expenditures. Remember to review your outstanding receivables during the projection process to ensure revenues will be available to meet expenditures.
As government finance officers, we play a key role in accountability to taxpayers. We must provide financial reports that disclose how tax revenues are used in providing services. The budget is a primary tool to measure our actual versus planned performance. Constant budget monitoring is the key to successful budgetary compliance.
Tracy Arner, MEd, CPA, CPFO
University of Georgia, Carl Vinson Institute of Government