the realities of building an lcsa budget and other fun fiscal topics
TRANSCRIPT
The Realities of Building an LCSA Budget
and other Fun Fiscal Topics
Introduction / Overview
1 Government Accounting
2 CA State Overview
3 Building a Budget
4 Internal Control
5 Fraud
6 Cash Handling
7 Cost Allocation
Why Account?
Method of recording transactions
System of keeping financial records
Way of performing internal audits
Aid in analyzing & managing resources
Preparation for calculating taxes due
Functional Financial Reports
Income Statement Balance Sheet(covers a period of time) (snapshot at one point in time)
Revenue AssetsExpense Liabilities
Statement of Cash Flows
Basics of Accounting Timing Cash Accrual Modified Accrual
Accountability Paramount objective of
financial reporting for government
Fiscal accountability Operational Accountability
Four Accounting Principles• Cost – money talks• Accrual – transactions can occur before money changes
hands• Matching – costs and results put in the same time frame• Disclosure – be as comprehensive as possible
Four Accounting Assumptions• Business Entity – there are discrete units of accounting• Going Concern – business is expected to continue• Monetary Unit – things can be measured in local currency• Time Period – transactions need to be properly slotted
Four Accounting Constraints• Objectivity – measurable• Materiality – significant• Consistency – comparisons are valid• Prudence – don’t overstate!
Fiscal Accountability
“The responsibility of governments to
justify that their actions in the current
period have complied with public
decisions concerning the raising and
spending of public moneys in the short
term (usually one budgetary cycle or one
year)”
Operational Accountability
“Governments’ responsibility to report the
extent to which they have met their
operating objectives efficiently and
effectively, using all resources available
for that purpose, and whether they can
continue to met their objectives for the
foreseeable future”
Key Environmental Characteristics
Different financial objectives for different activities
Covering cost (business-type activities)
Covering expenditures (governmental activities)
Fiscal accountability
Annual appropriated budget has force of law
More than just a financial plan
Users of Financial Information
ManagementNot a “primary” user of external
reports
Legislative and oversight bodies
Investors and creditors
Citizens
The Governmental Environment
FinancingFederal – income tax
State – income tax/sales tax/vehicle fees
Local – property tax/sales tax/transfer payments/user
charges/fees/fines/permits
Fund Categories (3)
GovernmentalTax-supported activities
ProprietaryBusiness-type activities
FiduciaryResources held as trustee or agent for outside parties and unavailable for
programs
County Comprehensive Annual Financial Report
CA State Overview2
Have you ever wondered how…
The child support program fits into state government?
The state budget process works?
Child support program funding is spent in California?
California child support compares to other states?
Executive BranchHeaded by the Governor and the elected Constitutional Officers
Governor oversees all agencies and departments and many boards and commissions that are not overseen by the Constitutional Officers.
Executive Branch (continued)
The portion of state government that the Governor oversees is organized into agencies.
The “Governor’s Cabinet” is comprised of 12 Agency Secretaries that are appointed by the Governor.
The Cabinet serves as the Governor’s chief policy advisory body. Each implements the Governor’s policies throughout the state.
More than 60 departments, boards, and commissions report to the Agency Secretaries.
The Department of Child Support Services (DCSS) is part of the California Health and Human Services Agency (CHHS).
CHHSCHHS oversees 13 departments and other state entities, including the DCSS.
CHHS programs provide a range of services including:
Health Care and Public HealthSocial ServicesMental HealthAlcohol and Drug TreatmentIncome AssistanceChild Support
More than 33,000 people work directly for CHHS and its departments and regional facilities throughout the state.
Budget ProcessQuick Facts
The state fiscal year runs from July 1 through June 30.
The federal fiscal year runs from Oct. 1 through Sept. 30.
Each budget cycle focuses on two fiscal years:Current year – non-discretionary updates onlyBudget year – future year budget proposal
Legal authority to spend money in any fiscal year is provided by the annual State Budget Act.
Budget Responsibility
Development of the annual budget is a shared responsibility.
At the lowest level, each department is responsible for developing and submitting budget proposals and cost estimates for the department and the program(s) it oversees.
Agencies are responsible to communicate the Governor’s priorities to the departments and to approve or deny departmental requests based on those priorities. Approved requests are forwarded to the Department of Finance.
Responsibility – Department of Finance (DOF)
Approved proposals and requests are published in the Governor’s January proposal and May revision.
The Governor’s Budget proposal is released each year on or about January 10.
The May Revision is released each year on or about May 15.
The DOF acts as the financial arm of the Governor’s office, providing instruction and oversight for the budget process. All budget proposals and requests are analyzed and either approved or denied by the DOF.
Responsibility – Legislative Analyst’s Office (LAO)
The LAO serves as the “eyes and ears” of the Legislature.
Ensures legislative policy is implemented in a cost efficient and effective manner
Reviews and analyzes budget proposals and the state’s finances
Makes recommendations for legislative action
Responsibility – LegislatureThe Legislature uses the Governor’s budget proposals as a starting point for budget bill discussions and negotiations.
The Legislature determines which proposals will be included in the final budget.
Responsibility – Governor
Once both houses of the Legislature agree and pass the budget bill, it goes to the Governor for final approval or veto.
The Governor may approve the budget bill “as is” or with changes (line-item veto).
Once signed by the Governor, the
Budget Bill becomes… The Budget Act
California Revenues vs. Expenditures 1990-2014
$0.0
$20,000.0
$40,000.0
$60,000.0
$80,000.0
$100,000.0
$120,000.0
Revenue
Expenditures
(in thousands)
National Competition for Funding
DCSS Budget
State OperationsDCSS’ state operations budget includes funding for:
CSE ($76 M)
Judicial Council of California (JCC) contract ($55 M)
State staff (salaries, benefits) and operating expenses & equipment ($50 M)
Office of State Publishing contract ($18 M)
State Disbursement Unit SDU ($15 M)
Locate, SLMS, Fair Hearing & Intercept contracts ($8 M)
Federal costs including IRS intercept fees ($8 M)
Budget Development
The Budget Support Section is responsible for
for all aspects of the child support program.
Requesting budget authority
Submitting proposals
Projecting costs
Allocations to Counties
$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
0 10 20 30 40 50 60
"Equity"
Dollars Per Case
Counties
County Allocation Cases FTEs $ / Case Cases/FTEAlameda 25,768,079$ 34,067 218 756$ 156 Butte 8,773,650$ 11,941 97 735$ 123 Central Sierra 4,940,779$ 6,292 49 785$ 128 Colusa 682,320$ 793 6 860$ 132 Contra Costa 18,331,644$ 30,582 153 599$ 200 Del Norte 2,249,141$ 2,939 18 765$ 163 Eastern Sierra 1,389,595$ 1,575 8 882$ 197 El Dorado 4,747,119$ 6,277 53 756$ 118 Fresno 21,582,116$ 60,423 203 357$ 298 Glenn 790,733$ 1,776 9 445$ 197 Humboldt 5,151,250$ 6,793 46 758$ 148 Imperial 3,379,746$ 11,530 54 293$ 214 Kern 21,570,320$ 54,856 188 393$ 292 Kings 4,133,667$ 10,072 54 410$ 187 Lake 2,638,737$ 2,895 28 911$ 103 Lassen 1,038,022$ 1,744 12 595$ 145 Los Angeles 142,439,904$ 301,016 1,575 473$ 191 Madera 2,842,396$ 6,546 37 434$ 177 Marin 3,645,241$ 3,038 24 1,200$ 127 Mariposa 702,443$ 708 7 992$ 101 Mendocino 3,027,196$ 4,918 27 616$ 182 Merced 9,376,887$ 17,679 79 530$ 224 Monterey 10,810,930$ 17,391 100 622$ 174 Napa 4,021,777$ 4,109 33 979$ 125 Orange 53,577,509$ 71,201 579 752$ 123 Placer 6,030,975$ 9,303 43 648$ 216 Plumas 840,066$ 1,022 8 822$ 128 Riverside 33,892,513$ 88,837 333 382$ 267 Sacramento 31,873,986$ 80,616 318 395$ 254 San Bernardino 38,143,911$ 116,395 404 328$ 288 San Diego 45,234,076$ 79,931 469 566$ 170 San Francisco 12,037,393$ 14,249 90 845$ 158 San Joaquin 14,489,029$ 35,251 165 411$ 214 San Luis Obispo 4,439,121$ 4,457 41 996$ 109 San Mateo 11,171,638$ 11,576 85 965$ 136 Santa Barbara 8,971,916$ 14,189 83 632$ 171 Santa Clara 35,538,529$ 40,961 300 868$ 137 Santa Cruz/San Benito 8,362,558$ 8,833 74 947$ 119 Shasta 7,318,853$ 12,993 81 563$ 160 Sierra-Nevada 4,051,547$ 3,918 26 1,034$ 151 Siskiyou/Modoc 2,850,267$ 3,763 25 757$ 151 Solano 11,874,641$ 18,399 104 645$ 177 Sonoma 14,025,304$ 13,188 96 1,063$ 137 Stanislaus 14,707,908$ 30,615 153 480$ 200 Sutter 2,969,638$ 5,236 28 567$ 187 Tehama 1,828,711$ 4,375 21 418$ 208 Trinity 675,774$ 798 7 847$ 114 Tulare 15,563,451$ 28,579 169 545$ 169 Ventura 20,014,027$ 21,089 193 949$ 109 Yolo 5,743,171$ 8,334 54 689$ 154 Yuba 3,883,527$ 4,612 36 842$ 128
Total / averages 714,143,731$ 1,332,680 7,063 536$ 189
Diversity Across Counties
One BudgetTwo Categories
For statewide tracking purposes, the DCSS budget is divided into two main categories:
1 State Operations
2 Local Assistance
Building a Budget3
Political Environment
Public attitude toward governmentOpposed to increased taxesWant more effective services at lower
costPublic salaries and pensions are too
high
Local political environmentTerm limits and pending electionsInfluence of organized laborDifficult decisions now and in the
future
Budget Status of LCSAs
Fully funded by State with (generally) no County General Fund contribution, but expected to participate in countywide budget reduction strategies.
County Budget Balancing Strategies
Hiring freezeFurloughsMid-year adjustmentsProgram reductions – Targets for FYLabor negotiations – salaries & benefitsRevenue enhancementOther steps?
Practical Considerations
What makes an LCSA budget unique? Labor contracts negotiated by County,
but State/Federal funded Classification management/position
control How to look at cuts/strategies Politics of the process No reserves Cash basis, no fund balance or
carryover
Melding the State, County and DCSS Budget Process
Budget
Process
County
State
DCSS
County Budget TimelineRevenue forecasts – early winter
Budget instructions – first of the calendar year
Meeting with CAO – early spring
Budget hearings – June
New fiscal year begins July 1
Final budget - September
LCSA Budget TimelineNew fiscal year begins July 1
Year-end close for prior fiscal year – July/Aug
Adopt final budget for new fiscal year – Sept
1st Quarter CS 356 Claim – due Oct 15
CS 921 Budget Display - winter
LCSA Budget Timeline (continued)
Mid-year analysis due to CAO – January
2nd Quarter CS 356 Claim – due January 15
Program Plan/Budget narrative due to CAO – Feb
Preliminary Allocation Letter – Feb/Mar
LCSA Budget Timeline (continued)
LCSA Budget Development – in progress Feb/Mar/Apr
3rd Quarter CS 356 Claim – due April 15
Year-end Analysis due to CAO – April
County Budget due (BY & BY +1) – April
LCSA Budget Timeline (continued)
EDP Budget Display – spring
Gear up for year-end closing (again…)
4th Quarter Claim – due July 15
Year-end close – July/August
And the cycle continues…
Don’t for get about Performance Measures during the Fiscal Year!
Unique Aspects of LCSA Budget
Revenue Sources – 66/34 split
Connection to State BudgetCounty target vs. State Budget
process
Potential level of CAO scrutinyGood & Bad
Possibly different COLA assumptions
Bottom line: A Balanced Budget!!!
Budgeting Tips
Own Your Budget
Be prepared – analysis and due diligence
Be proactive – take control of your budget problems
Propose solutions/recommendations
LCSA fiscal staff development
Develop your relationship with your CAO Budget Analyst
Budgeting Tips (continued)
Connect Budget and Performance
Be realistic about service impacts
Take credit for improvements and efficiencies
Quantify impacts and clearly communicate them
Use your performance to establish credibility
Be creative
Relationship with CAO Budget AnalystEducate your analystdepartment background & overview
Keep analyst informed and in the loopemail and cc:
Set expectations
Define rolesdepartment advocate
Establish mutually beneficial relationship
Be Nice!
More Budget Strategies…
Annual Strategic Planning Process
Automation/Technology projectsOne-time investments that yield long-term
savingsExamples
Review service chargesDirect vs. indirect costs
Spend 100%!Understand the componentsConsider your lead time
EDP Recurring & Non-Recurring Funding
Annual LCSA letter requesting budget data
Submit via EDP web form
M&O fundingCurrent needHistorical trend
Non-recurring fundingNew non-recurring projectsLCSAs submit requests in January
Local Perspective - EDP
Things to watch
Local definitions of EDP vs. State definitions
Local charges usually more detailed
Timing issues
Staffing and overhead
Prior Approval Requirements
Administrative and EDP
Policy in CSS Letters 04-20 and 05-05
All automation products and services planned for purchase using EDP or Administrative non-EDP funds
• including personal computers, servers, printers, integrated voice response units, imaging systems, new and existing software, and web contracting services
Administrative and EDP Claim Processes (CS 356)
Federal requirement to:Report expenditures
Expenditure data used:Reconcile funds advanced to
LCSAsTo determine future fundingFor various internal reports
Administrative and EDP Claim Processes (CS 356)
Laws and RulesOMB Circular A-133OMB Circular A-87CFR Part 45, Section
92.25(b)Family Code 17714(b)
Administrative and EDP Claim Processes
Submit quarterly claim 15 days after the end of the quarter
Time certify vs. Time studyTime certify when staff are working 100%
on one activity or functionTime study when staff are spending time
on two or more activities or functions
In the mid-month of quarters one and four(August and February)
Local Perspective - Claims
Quarterly process
Track expenses ongoing
Categorize EDP expenses by claim numbers
Remember cash basis accounting
Less detail than CS 921
Different detail than CS 921
DepreciationTitle 45 CFR, Section 95.705(a)
AT 94-5
LCSA Letter 05-24
CSS Letter 04-20
Approved to purchase
Recover costs over five years
Depreciation
Non-EDP EquipmentPurchase price over $25,000
Depreciate/claim over five yearsEquipment cost $60,000 ($60,000/5)
Year 1 claim $12,000Year 2 claim $12,000Year 3 claim $12,000Year 4 claim $12,000Year 5 claim $12,000
Depreciation
EDP EquipmentPurchase price over $5,000
Depreciate/claim over five years
Including EDP equipment purchased with Admin (Non-EDP) fundsExample: Training room PCs
Local Perspective – Depreciation
Understand the asset
County “float”
Disposition of Assets
For Policy: CSS Letter 04-20 and LCSA Letter 05-19
Determine fair market value
Notify DCSS of disposal
Retain supporting documentation for four years and four months
Consider recycling
Disposition of Assets
Under $5,000
LCSAs may transfer, sell, dispose using county rules
Proceeds must be abated as program income on administrative expense claim
Disposition of Assets
Over $5,000
Transfer equipment
Sell equipment: Proceeds must be abated
Dispose of equipment using county rules
Overhead/Indirect Costs(aka A-87 or Countywide Cost Allocation Plan)
Claim State Controller’s Office approved amount only
Should claim ¼ of the annual cost on quarterly expense claim
Can split overhead costs with EDP
An exception to cash basis claiming rule
POC/MOU Requirements
Title 45 CFR 303.107 for fiscal portion
Agreements should include:
Budget estimates
Covered expenditures
Methods of determining costs
Procedures for billing IV-D agency
Local Perspective
Go through your county review processCounty Counsel
Monitor for renewalTimeframes can be different
When costs change – amendMust go through your county
process
Audits
Authority
OMB A-87 and A-133
CFR 302.10 and 302.14
CSS Letter 04-20
LCSA Letter 05-09 • History and process in this letter
Audits
Keep supporting documentation for at least four years and four months
Two (of six) most common audit findings
• Accrual vs. cash basis accounting
• Income or program income not abated on Administrative Expense Claim
Local Perspective
Get used to audits
Retain backup for required timeframe
Keep findings
Scope of work
What are internal controls?Internal controls should be applied to your personal life as well as to business entities.
Personal internal controls are activities you should perform in order to safeguard and protect your assets (cash, investments, valuables, tax records, identity, etc.) from potential loss.
Examples of personal control activities: Balance your checkbook Keep valuables in a secure, locked area Keep orderly files (tax returns, bank
statements, receipts, etc.) Shred documents containing personal,
identifying information if no longer needed
Authoritative Guidance
The American Institute of Certified Public
Accountants (AICPA) identified minimum
standards governing the formatting and
contents of external financial reports for the
public and private sector, referred to as
generally accepted accounting principles
(GAAP). These practices govern and dictate
what aspects of our program should be
audited.
Authoritative Guidance(continued)
SINGLE AUDIT – annual audit of
government’s federal award programs
Auditors must issue report on internal
controls over compliance and have strict
reporting requirements when compliance
issues related to internal control occur.
GFOA Code of Ethics
Finance officers must:
“…exercise prudence and integrity in the
management of funds in their custody
and in all financial transactions.”
“…not knowingly sign, subscribe to, or
permit the issuance of any statement or
report which contains any misstatement
or which omits any material fact.”
Relationship to Internal Control
Prudence in the management of public
funds
Requires adequate controls in place to
protect
Avoidance of misstatements or the omission
of material facts
Requires sound framework of internal
control to provide a reasonable basis for
assertions
How Achieved
• Management competence
• Staff competence
• Internal control documentation
• Periodic evaluation of internal
control
• Corrective action plan following
periodic evaluation
Management’s Mission and Objectives
All organizations have a purpose/mission
Key managerial objectives arising from management’s mission:
Effectiveness Efficiency Compliance Stewardship reporting
Elements of a Comprehensive Framework of Internal Control
Favorable control environment
Continually assesses risk (risk assessment)
Establishes and maintains effective control related policies and procedures
Effectively communicates information
Monitors the effectiveness of control-related policies and procedures
Favorable Control Environment
• Management is knowledgeable about controls
• Management is committed to establishing and maintaining controls
• Management communicates support to staff at all levels
• Management provides needed resources
Management Communication
• Code of conduct/official policies
• Communicated to staff at all levels
In a practical way
Reinforced periodically
• Communicated to managers at all levels
• Swift and appropriate disciplinary action
Risk Assessment
Management need to anticipate risks
ExternalInternal
Ongoing process
Key Risk IndicatorsChange
Inherent risk characteristics
Change as an Indicator of Risk
Operating environment
Personnel
Information systems and technology
Rapid growth
New programs and services
Structure
Categories of Policies and Procedures
Authorization
Properly designed records
Security of assets and records
Segregation of incompatible duties
Periodic reconciliations
Periodic verifications
Analytical review
Segregation of DutiesAn individual should not be able to commit and conceal an irregularity
Separate incompatible duties
Authorization
Recordkeeping
Custody
Fraud
5
The Fraud TriangleThree Elements
RationalizationOpportunityJustification: Lack of:
“I need this…” Supervision“I’ll pay it back…” Review“My family needs this…” Management
approvalSystem controls
PressureFinancial pressuresPersonal vicesUnrealistic deadlines/expectations at work
Embezzlement Study
Apparent Motivation• Financial problems 4%• Gambling problem/addiction 27%• Desire to live lavishly 60%• Substance abuse 2%• Support a personal business 7%
Embezzlement Study
Age of the perpetrator
Average age 43 years old
Gender of the perpetrator
36% male 64% female
Cash Handling6
Risk
“When money passes through hands, sometimes
it sticks”Stephen Gauthier, GFOA
Cash carries a high risk of theft…
Temptation: most everyone desires money
Portable: physically small and lightweight, may be stolen discretely
Risk
Risk of Theft
2 basic categories of theft
Category 1 LARCENYstealing cash which has already been
recorded inthe books and records, such as cash in
the safe,cash in register, petty cash, deposits
Category 2 SKIMMINGstealing cash received directly, upon
receipt, before it is recorded ii the books and records
How to prevent/detect cash loss
Surveillance cameras Reconcile cash deposits to daily sales reports Two employees should be present whenever
cash is counted Deposits are safely and securely delivered to
the bank Armored car delivery Cash should be entered in the cash register
immediately when received Enter cash register transactions while customer
is present Issue receipts for all customer transactions
Segregation of DutiesCash duties which should be performed separately:
Cash receipts/collections
Cash deposits
Reconciliation of cash
Physical Security
Limit access to safe and cash drawers to authorized personnel.
Change safe combinations/keys when employees terminate or transfer.
Consider surveillance cameras.
Physical Security (continued)
Cash should not be left unattended at any time.
Cashiers must store cash in a locked, secure area with restricted access while away on break/lunch.
Cash left overnight should be secured in the safe until the next business day.
Cost Allocation7
Why a Cost Allocation Plan?
What is a Cost Allocation Plan?
• CAP
• CoCAP
• A-87
• Filed by the county with the State Controller’s Office (SCO) by Dec. 31 each year
• Desk-audited yearly, field audited periodically by SCO
Cost Allocation Plan and User Supplement
Rules
Office of Management and Budget Circular A-87
TimingTimeline of Cost Allocation Accounting
6/30 12/31 6/30 12/31 6/30 12/31 6/30
Costs occur in Central
Departments
X
Costs paidby non-General Fund programs
CAP due to state
Costs allocatedto non-General Fund program
General Services
Expense: RENTAllocation Basis
Square footage occupied
Potential IssuesMixing old and new buildingsUnfinished basement vs.
penthouse
Auditor
Expense: PAYROLLAllocation Basis
Number of employees
Potential IssuesSeasonal swings in numbersNumber of pay codes processedNumber of deductions
processed
Thank you!