For state and local governments, the “black swans” have arrived. From an economic standpoint, black swans are immensely disruptive and spontaneous occurrences that have a dramatic impact on economies.
This can be a once-in-a-lifetime learning experience, as the defenses and responses state and local governments develop now could serve them when faced with future black swan events. Here’s a look at the landscape state and local governments have to navigate right now, with advice for next steps and planning.
The impact of COVID-19 is far reaching. We’ve developed resources to help you make sense of it all.
Economic conditions before COVID-19 pandemic:
Key indicators of disruption now:
Right now, governments are feeling the impacts from COVID-19 and are also wrestling with confusion and uncertainty as new regulations and legislation like the CARES Act prove difficult to interpret. They have to manage:
The U.S. Treasury announced new and expanded lending programs in April, such as the Municipal Liquidity Facility. And local government grant programs are due to receive additional funding to address the impacts of COVID-19. It is important to know your options and form a strategic plan for your organization.
Many governments have postponed their budgeting sessions and even cut budgets in the wake of this crisis. The best next step is to build a flexible recovery plan that models for multiple potential percentages of revenue drops (10%, 20%, 30%, etc.). In this planning, all appropriations must be scrutinized anew rather than building off the prior year because the economic environment remains dynamic and uncertain. What should governments consider in preparing budgets this spring and summer in terms of cash flow projections, taxation and other assumptions?
The CARES Act
The CARES Act includes a $150 billion Coronavirus Relief Fund for state, local and tribal governments. These funding opportunities and provisions should be part of your planning strategy. Familiarize yourself with those that apply to your organization and their requirements.
Fiscal First Aid as Suggested by the GFOA
Consider your short-term strategy to get ahold of your budget. According to the Government Finance Officers Association’s (GFOA) Fiscal First Aid: Cash is King guidebook, strategic cash flow can help governments rebalance their budgets and move toward planning and recovery.
Cash Flow Planning Mid-Disruption
Cash flow planning is an important step for governments as they navigate through this crisis, though any planning will have to be flexible and account for multiple assumptions.
☑ Start with reconciled balance of cash (including available reserves).
☑ Revenue and spending analysis forward by month.
☑ Adjustment from previous reconciliation(s). Include explanation(s).
☑ Deficit result indicates short-term borrowing needed (or asset monetization).
We recently held a town hall with our government leaders to discuss the relief provisions for both state and local governments and answer questions.
It’s important to consider the security and protection of your data as you transition your workforce to remote. Hackers see the current state of chaos during this time as an opportunity to step up their efforts. Even without the disruption of a pandemic, it’s not uncommon for organizations to have unforeseen gaps in their cybersecurity preparedness and planning.
Forensics and internal controls are also key for governments navigating through this crisis. They can protect your organization by improving the quality of your information and providing consistent practices for employees. Internal controls come in different levels, or tiers, ranging from policies around credit card use to the separation of duties.
Preventative vs. Detective Controls
Preventative controls are put in place before the fact and deter or prevent unauthorized transactions from occurring. These include segregation of duties, proper authorization and physical safeguards. Detective controls are those which identify issues, like unauthorized transactions, after the fact. These must be performed continually to generate the “perception of detection.” They include independent checks and adequate documentation.
Forensics: Records to Review
Records should be accessed by an individual independent of the process being reviewed and/or records provided by a third party. Essential records to consider reviewing include:
We’ve developed a fraud prevention checklist to help you review common areas prone to fraud schemes.
Be Proactive with Your Government
Governments are not immune from the impact of the COVID-19 pandemic. In the midst of all of the unknown, there’s much to consider and strategies to be proactive with your government. Understanding the impact of relief provisions, remote working situations and potential budgeting opportunities will help you strengthen your government during this time.
Ready to discuss how your government is affected by COVID-19?