Financial Policies: Policy Development Reserve Policies Capital Asset Management Policies

1. Financial Policies: Policy Development Reserve Policies Capital Asset Management Policies October 3, 2013

2. Financial Policies . . . • Are guidelines for operational and strategic decision making related to financial matters • Should be adopted by the governing body • Are VERY IMPORTANT to credit rating agencies • Clarify and crystallize the strategic intent for financial management

3. Financial Policies . . . • Define limits on the actions staff can take • Promote long-term and strategic thinking • Manage risks to financial condition • Should comply with established public management best practices • Are needed by all sizes of governments

5. Policies vs. Procedures • Policies are (overarching) guidelines or principles of financial management decisions; procedures are detailed steps. • Policies are written down in an authoritative document and are approved by the governing body; proceduresmay or may not be written down and are not adopted by the governing body.

6. Policies vs. Procedures • Policies should be concise; procedurescan be lengthy. • Policies are written toward a broad audience; procedures are staff-level directives. • Policies are developed through a process; procedures are often practices that have evolved over time.

7. Control vs. Flexibility • Generally, the more control, the lesser flexibility • Should have more control • To maintain fairness • To remove discretion • Ensure integrity • For areas often associated with areas of risk of mismanagement or fraud, such as debt, procurement, and investments

8. Control vs. Flexibility • Should have more flexibility • To meet performance goals • When the public is involved • To determine details on a case-by-case basis • User Fees

9. Steps to Developing Financial Policies • Establish a vision and values for financial condition • Define the problem the policy will address • Draft the policy • Executive team should review the draft

10. Steps to Developing Financial Policies • Present to elected officials informally • Have a public comment period? • Formally consider and adopt the policy • Put the policy into practice • Monitor and maintain the policy

11. Effective Policies Are . . . • Explicit, in writing, easy to understand, and are formally adopted • Current and relevant • Literal – mean what they say and are written in plain language • Easily accessible – on website, in budget document, known to staff • Concise yet comprehensive

12. Where do I Start?

13. Essential Policies • Fund balance and reserves • Operating budget • Capital budgeting and planning • Debt management • Long-range financial planning • Investment

14. Highly Advisable Policies • Accounting and financial reporting • Revenues • Internal controls • Expenditures • Purchasing • Risk management • Economic development

15. Financial Management That Affects Credit Quality • Revenue and expenditure assumptions • Budget amendments and updates • Long-term financial planning • Long-term capital planning • Investment management policies • Reserve and liquidity policies

16. General Fund Reserve Policies

17. Reasons to Adopt a Reserve Policy • Plan for contingencies • Maintain good standing with rating agencies • Ensure cash availability • Avoid interest expense • Generate investment income • Create a better working relationship between the governing body and staff

18. Level of Constraints on Reserves • Committed – at highest level of decision making (i.e. resolution or ordinance) • Assigned – earmarked for intended use • Unassigned

19. Step 1: Set the Target • How to define the target • As a percentage of regular operating revenues • As a percentage of regular operating expenditures • Number of month’s worth of revenues or expenditures • Fixed amount

20. Step 1: Set the Target GFOA recommends no less than 2 months of regular general fund operating revenues (or expenditures, whichever is less volatile) as unrestricted fund balance

21. Step 1: Set the Target Standard and Poor’s View on Reserves

22. Step 1: Set the Target • Consider Risks • Vulnerability to extreme events (natural disasters) and public safety concerns • Revenue source stability • Expenditure volatility • Leverage • Liquidity • Other funds’ dependency • Growth • Capital projects

23. Step 1: Set the Target • Identify the Drivers • Commitments or assignments • Budget practices • Government size • Borrowing capacity • Outsider perceptions • Political support

24. Step 2: Draft the Policy

25. Capital Asset Management Policies

26. Areas of Capital Asset Management • Capital improvement planning (CIP) • Capital budgeting • Capital project management • Capital asset maintenance

27. Capital Improvement Planning

28. Criteria for Selecting Projects • Results of formal needs assessment • Alignment with goals • Expected useful life • Implications of project deferral • Feasibility of implementation • Operating budget impact • Regional benefits/linkages • Enhancements to quality of life • Economic impact • Environmental impact

29. Funding Strategies • Debt financing • Capital reserves • One-time resources • Earmarking portions of regular revenue streams • Establishing entirely dedicated revenue streams

30. Capital Budgeting • Allocating funds • Budget period – current fiscal year or life of the project? • Budget to actual comparisons are generally since the start of the project, and not by fiscal year • What happens if bids are over budget? • What happens to excess if project comes in under budget?

31. Capital Project Management • Role of a project manager • Prepare the project proposal • Ensure required phases are completed (on schedule) • Authorize all project expenditures • Ensure compliance with all laws and regulations • Periodically report project status

32. Capital Asset Maintenance

33. Contact Information Diane B. Allison, CPA, CGMA, CGFO Director of Business Services Ascension Parish School Board diane.allison@apsb.org Office: (225) 391-7073 Donaldsonville, LA