Tips for Governments to Move Forward Post COVID-19

November 10, 2020 | Article

COVID-19 and its resulting impacts have hit state and local governments particularly hard. From special district funding to cash flow and budgeting, there’s much for governments to consider as they move forward into their next normal, post COVID-19.

While the COVID-19 pandemic is unprecedented, governments can still look to tried and true tips to navigate their next steps.

COVID-19 has impacted your government’s future. How do you make sense of it all?

Use Data to Make Strategic Decisions
A key to turning data into information is to provide tools to enhance transparency and to answer commonly asked questions.

Consider using your website to provide transparency into financial information. The City of Fargo, N.D.’s website turns data into information. It is easily navigable and contains links to financial information, including 10 years of audits and budgets. Websites are the windows to customers, and states and local governments should be no different.

Transparency also needs to include debt management. Debt issuances commonly include debt compliance provisions. An investor-focused website should include links to filings with the municipal securities rulemaking bureau if required. All forms of debt and borrowings should be disclosed. Some governments have even included glossaries for common terms to help your government’s citizens and investors understand the nuances of what is contained on the website.

Real-time information is key during times like these. Let your data help you make strategic decisions.

Understand the Importance of a Rainy-Day Fund
COVID-19 has shown that even the best risk assessment may miss nonfinancial risks. That’s why it’s important to have conversations, even now, about rainy-day funds for your government—in simple terms—planning for savings. The Government Finance Officers Association has a best practice recommending a formal policy addressing the level of unrestricted fund balance maintained in the general fund for rainy day purposes or to stabilize tax or rate increases or to provide savings for the future.

A measure that is commonly used is an accumulation of average days spending. For example, if a city has budgeted expenditures for 2020 of $100,000,000, or approximately $274,000 daily, the city adopts a policy of 60 days of savings. Therefore, approximately $16.4 million would need to be deposited in the rainy-day fund. Some governments meet this goal over several years, adjusting for changes in budgeted expenditures, draws from the fund and investment earnings.

Other areas to consider when it comes to rainy-day funds include percentages of revenues and spending.

Remember the Importance of Your Budget
Governments are scrambling to revise budgets due to the effects of COVID-19. More than ever, this has shown the importance of reasonable projections for decision makers including cash flow, receivables and payables, as well as modeling potential outcomes.

Governments should begin projecting revenue by each major category and be prepared to adjust projections on a continual basis. Grant revenue projections are also important, with an understanding that grant revenues are restricted to allowable costs incurred in most cases.

It’s also important to be strategic about spending. Spending should be prioritized into four categories:

  1. Essential services based on core functions of the government.
  2. Vital services that have less urgency.
  3. Nice to have services that can be delayed.
  4. Programs that are not urgent.

Cash flow and budgeting for governments is critical.

Review Your Common Deficiencies in Financial Reporting
Even before the COVID-19 pandemic, the risk of errors in government accounting and financial reporting was on the rise. Identifying common deficiencies and how to improve them can give governments much needed insight as they contemplate next steps.

A common area of deficiencies is the Management Discussion and Analysis (MD&A).

  • Lack of detail on variances and changes in net position. The MD&A should dive into the details of the variances and changes and why the variance happened. Management should strive to articulate the causes of the significant changes to help the readers understand the basic question the MD&A should answer—“why.”
  • Information does not agree to the financial statements. All information presented should be able to be reconciled to the financial statements, so take care to enter the numbers and make sure that any changes to numbers in statements made after MD&A is prepared are reflected properly. However, do not copy the entirety of the financial statements in to the MD&A—only summarized information is necessary.

The next area where to focus is the Government-Wide Statements.

  • Missing capital assets. Capital assets can be overlooked. To help with this, be aware of the capitalization polices, review the detail for capital asset purchases in repairs and maintenance or other expense accounts over capitalization thresholds and hold departments accountable to track assets throughout the year that are purchased. Also consider performing a reconciliation of the capital outlay purchases to the capital asset additions. Don’t wait until year-end or after to start the tracking.

The third area of focus is on the Governmental Funds.

  • Incorrect major fund determination and reporting. Major fund determination can be a tricky area. Any fund that meets the threshold of a major fund must be reported, but classification can change from year to year and capital projects or significant swings in funds can alter the results of the 10% and the 5% test. Especially this year if CARES Act funds are received or COVID-19 costs are incurred, a final calculation should be completed after all adjustments are posted to provide assurance that all major funds are reported properly.
  • Failure to properly report revenue. Due to the modified basis of accounting, reconciling items for revenues are common between government-wide statements and governmental funds. Review all receivable balances to ensure receipt was within the period of availability to be recognized as a current revenue. If outside that period, ensure they are properly reported as deferred inflows of resources on the governmental funds but would be reported as revenue on the government-wide statements.

Planning the Path Forward
These are just some of the tools that a government can use as they make a game plan for the next normal. By analyzing data and key financial metrics, as well as budgeting and planning, governments can begin to enter the next normal.

Your government is facing a critical moment.

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