2010 budget workshop
DESCRIPTION
2010 Budget Workshop. Learning Objective. Understanding of budgeting in the new environment. Discussion Items. Necessity to budget on cash and accrual basis Budgeting changes Accrual budget illustration Reconciliation from accrual to cash Determining the levy Frequently asked questions. - PowerPoint PPT PresentationTRANSCRIPT
Necessity to budget on cash and accrual basis
Budgeting changes
Accrual budget illustration
Reconciliation from accrual to cash
Determining the levy
Frequently asked questions
To provide meaningful budget comparisons on the audited financial statements
Financial statements are prepared on the accrual basis
Municipalities Act requires that cash budgets are balanced
Ensures budget can be cash flowed
Part of long-term financial planning process - example - Raising cash in increments to fund large capital projects
Method that was used prior to 2009
New format necessary to accommodate change in financial statement format
Starting with either cash or accrual is fine
Reconciliation required to the other method ACCRUAL reconciles to CASH CASH reconciles to
ACCRUAL
Financial statements show budget figures from accrual basis
Starting point method should be method presented in financial reporting to council
These items apply regardless of which method is the starting point
Revenues must be split by function except for taxes and other unconditional revenues
Conditional grants must be split between capital and operating and by function
TCA amortization TCA gain or loss Change in prepaid
expenses and supplies
TCA expenditures TCA sale proceeds Long term debt
issued and repaid Transfers to and
from reserves
Revenues must be split by function except for taxes and other unconditional revenues
Budget Handout - page 1, Lines 11-69 page 2, Line 48 & 52-
56 Most software providers do not have
new accounts setup
Setup new accounts as the need arises
Conditional grants must be split between capital and operating and by function
Budget Handout - page 2 Lines 16-29
Setup new accounts as the need arises
Amortization expense must be split by function and by asset type
Budget Handout - page 5, Line 64 Also - page 3, Lines 51-52 - page 4, Lines 28-29 & 54-57 - page 5, Lines 16-17 & 39-40 - page 6, Lines 25-27 & 49-51
& 58-60
Gains or losses on sold or scrapped assets must be split by function and by asset type
Budget Handout - page 2, Line 54
Budgeted capital expenditures are not included in the accrual budget
Budget Handout - page 3, Line 50 Also - page 4, Line 27 & 53 - page 5, Lines 66-67 - page 6, Lines 23-24 &
48
Budgeted loan principal payments are not included in the accrual budget
Budget Handout - page 5, Line 65
TCA amortization TCA gain or loss Change in prepaid
expenses and supplies
In the reconciliation pr the accrual items get inclusion only items
ar
TCA expenditures TCA sale proceeds Long term debt issued
and repaid Transfers to and from
reserves
ocess from accrual to cash
backed out, and the cash e setup.
Accrual surplus or deficit +/-
Cash flow effect of budgeted capital expenditures and capital proceeds +/-
Change in non financial assets -
Long term debt repaid
+Long term debt issued
+/-Net transfers from (to) reserves
+/-Transfer from Surplus
=Cash surplus or deficit (which must
be $0 or positive)
Page 7 of Handout
Accrual surplus or deficit - Section A +/-
Cash flow effect of capital transactions - Section B -
Long term debt repaid - Section C -
Transfers to reserves - Section C =
Cash surplus or deficit (which must be $0 or positive)
Page 8 in handout
In the real world the tax levy is the last piece of the puzzle.
Most municipal software provides tax tools that allow for easy computation of the levy under different scenarios
No effect if good long-term planning has been done in the past
If past long term planning does not meet short and long range infrastructure needs it is prudent to taxes
Page 9 in handout
TCA process brought to light the need to replace a grader 5 years down the road
2% increase in tax revenue needed
Funds raised and set aside in reserves over the 5 year period to cover the expected cost in 5 years
Page 10 in handout
mill rate by .85 mills to fund grader reserve
levy by $24,430 > $24,000 required to fund grader reserve
Alternative methods? Increase mill rate factors Increase base tax
Currently no requirement to do so
Purpose is to use the amortization cost as an estimate of future capital needs
Costs to complete capital projects
Funding will end up in reserves
Similar concept to funding the accrued landfill liability
Long-term financial planning is stiIl important and relevant even if amortization is funded
Budget for something only if: Prior year prepaid or inventory was
unusually low or high
Current yearend is foreseen to be unusually low or high▪ Example – general insurance was paid
annually now it is paid on a monthly basis
No limit
Must produce a balanced or positive reconciliation to the cash budget
If borrowing required to balance cash budget, Sask Municipal Board approval will be required for debt amortized for 4 years or more.
Use new budget formats
Estimate amortization to be the same as capital expenditures
Risk of bad audit opinion if TCA not done for the 2010 audit
Prepare budget amendments and have these approved by council
End result needs to be: ACCRUAL reconciles to CASH CASH reconciles to
ACCRUAL
In 2009 amortization was not budgeted for
No reason why 2010 budget should be non-compliant
All actual budget comparisons on the 2010 financial statements should be meaningful
TCA acquisitions do not get recorded as expenses on internal reporting, they are shown as asset additions on the statement of financial position
TCA proceeds are not revenues on internal reporting, they are shown as asset disposals on the statement of financial position with the gain or loss on disposal shown on the statement of operations
Budget tool document available at://www.sasktca.ca/resources
Includes reconciliation to accrual basis
Capital expenditures will have to be cleared to the TCA asset accounts at yearend
Don’t record both amortization and capital expenditures in the same financial information
Clearing accounts required to present the debt transactions