Transcript 2010 Municipal Financial Statement and Budget Workshop

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Understanding of budgeting in the new
environment
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Necessity to budget on cash and accrual basis
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Budgeting changes

Accrual budget illustration
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Reconciliation from accrual to cash
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Determining the levy
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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
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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

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 TCA expenditures
TCA amortization
 TCA sale proceeds
TCA gain or loss
 Long term debt issued
Change in prepaid
expenses and supplies 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
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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
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Budget Handout - page 3, Line 50
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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 expenditures
TCA sale proceeds
Long term debt issued
and repaid
 Transfers to and from
reserves

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TCA amortization

TCA gain or loss

Change in prepaid
expenses and supplies

In the reconciliation pr ocess from accrual to cash
the accrual items get backed out, and the cash
inclusion only items are 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)
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Page 8 in handout
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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
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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
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Page 10 in handout
mill rate by .85 mills to fund grader reserve

levy by $24,430 > $24,000 required to
fund grader reserve
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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
 CASH
reconciles to
reconciles to
CASH
ACCRUAL
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In 2009 amortization was not budgeted for

No reason why 2010 budget should be noncompliant

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
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Budget tool document available
at://www.sasktca.ca/resources
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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