APS Budget Process & Financial Monitoring – Some Recommendations

This past year the budget process was a problem. The information was published at least 45 days late, often information requests were delayed, financial data was provided in “bulk” with limited summaries, no written explanations were provided for changes in spending and the administration never provided a clear set of priorities and objectives that justified the spending requested.

Often the Budget Commission was frustrated with the process and the final budget passed for FY14 was simply passed because time had run out. In fact, the Chair of the Budget Commission and the two BOE members that were the most active in during the budget process voted against the final FY14 budget. My sense is that even those BOE members that did vote to pass the budget were not entirely satisfied with the process.

There are a number of steps the BOE can take now to improve the process for next year. However, this would require some changes to the budget policy that guides the process and subsequent monitoring of revenues and expenditures.

The following are a series of recommendations that the BOE could implement immediately to avoid a similar problem next year.

Revise the Budget Policy to Include More Detail – In April 2012, the budget policy was modified and deleted detailed information from the required administration presentations. As the policy reads now, the BOE approves the budget at the fund level only. This change resulted in the initial presentations to the Budget Commission being composed of a single slide with only total revenues and total spending presented. Detailed information on spending by category or program was not presented until very late in the process.

Recommendation – The budget policy should be reverted to its prior form and additionally modified to require additional summary information for the programs presented.

Require Complete and Comprehensive Budget Information – the BOE is responsible for approving all the Funds – General, Special Revenue, Debt Service and Capital Improvements. To properly assess the level of resources available and the expenditures requested, the BOE must be able to see the information for the organization as a whole.

In addition, the presentation to the Budget Commission should include the detailed budget for all funds – not just the General Fund and the proposed staffing should be presented at the same time (FTE staffing must be shown in each fund in which salaries are being paid). This past year there was an extensive level of expenditure transfers between funds, but it was impossible to keep up with as the Special Revenues and staffing budgets were not presented until late in the process.

Recommendation – No later than the end of April, the detailed information for all Funds and staffing information should be presented by the administration to the Budget Commission. 

Require Timely Budget Information – the initial budget is scheduled to be released in April. However, this past year the budget information was not released until May. The BOE needs to insist that a comprehensive budget package be presented at a summary level in early April and at a detailed level no later than May 1st. Otherwise, the Commission is unable to properly address the issues that arise during budget discussions and to then make their decisions on policy alternatives.

Recommendation – the Budget Commission must require that the administration present an initial summary budget for all funds in April, followed by a detailed presentation no later than May 1st for the General, Debt Service, Special Revenue and Capital Improvements Funds.

BOE Should Establish the Maximum Class Size and the “65% Test” in Advance of the Budget Preparation – this was a contentious issue during this past budget season and focused the budget discussion away from many other policy alternatives that deserved attention. The maximum class size waiver is one the most important points of leverage that the BOE has. In addition, the GA DOE requires that 65% of spending be in the classroom. These two items establish the initial allocation of resources between Classroom Instruction expenditures and spending on everything else.

Recommendation – the BOE needs to establish the maximum class size waiver it is willing to accept and the targeted percentage of resources that will be directed toward the classroom no later than January/February 2014. This will provide the administration the necessary  guidance needed to prepare the initial budget. 

Require that the Initial Budget be Balanced and Not Rely on Use of Reserves – The current budget process is upside down and backwards. The administration presents its wish list (which always results in a significant deficit) and then the budget discussions focus on how to close the proposed deficit. Instead, the administration should present a balanced budget – or even better – a budget with a surplus. Then the administration can propose and justify additional spending based on the organizations priorities and objectives. The BOE can then consider these additional requests in the context of the priorities and policies the BOE has adopted.

Recommendation – the initial budget presented by the administration must be balanced and not use any General Fund reserves. The BOE should also consider requesting that the initial budget presentation by the administration have a 5-8% surplus and then provide the administration an opportunity to request additional spending to meet specific objectives. The BOE can then make an assessment of the additional expenditure requests and determine if and how they will be funded (deficit spending or raising property taxes).

Establish an Ongoing Quarterly Monitoring Process – as it stands now, the budget information is presented in a specific format. However, the financial information provided to the BOE on a monthly basis is in an entirely different format and at a highly summarized level making it virtually impossible to determine if the budgeted priorities are being carried out by the administration or how actual spending is reallocated between functions and departments.

Further, the difference between the actual spending at a departmental or division level versus the budgeted expenditures is not fully known until the Comprehensive Audit and Financial Report is issued in December – a full six months after the fiscal year is over.

The BOE needs to have a process in place to monitor ongoing spending at a reasonably detailed level and that is compared to budgeted spending to ensure the changing expenditures decisions made by the administration conform to the policy decisions made by the BOE.

Recommendation – on a quarterly basis the Budget Commission should review the actual versus the budgeted spending in the same format and at the same level of detail as originally approved during the budget process. The information presented should include a forecast for the full year in comparison to the annual budget. Also, the BOE should establish budget variance dollar and percentage thresholds that, if exceeded, would require a written explanation for the variance from the administration.

Gain Confidence in the Budget and Other Financial Information Presented – the Budget Commission spent a great deal of time this past year questioning the accuracy and completeness of the financial information provided by the administration and the administration continually had to revise and correct errors in the data presented. By the end of the budget process, it was clear that the Commission had lost trust in the administration’s willingness to provide complete and accurate information to guide the BOE’s decisions.

In addition, as I have noted here in the past, the administration provides an extensive amount of financial “data”, but provides little in terms of easily useful and summarized information. The problem is further compounded as most – if not all – of the BOE members do not have extensive financial backgrounds which they can rely on to interpret and assess complex financial information.

While the administration should be responsible for presenting financial information that is accurate and can be digested by non-financial BOE members, it simply does not and the BOE’s skepticism with the information presented is well founded. In addition, when the BOE questions the administration on financial matters, the answers are often so full of bureaucratic and financial terms that the answers are nearly incomprehensible to non-financial BOE members.

Recommendation – the Budget Commission should consider appointing a small group of financial experts who are familiar with the budgeting and accounting process to assist them in evaluating the completeness and accuracy of the information provided by the administration. This group would be prohibited from making any policy recommendations – that is the purview of the BOE. However, this group would give the BOE additional comfort that the information they receive is accurate and complete. In addition, it would provide the BOE an expert resource to assist them in evaluating the administration’s answers to complex financial questions. (Note – the full credit for this idea goes to Jarod Apperson who suggested this several months ago.)

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