- Government financial reports
Government financial reports are an important part of
democracy( or a constitutionally limited republic) but, often not widely read or discussed. Online reporting by governments makes these government financial reports more accessible, but not necessarily more understood by the general citizenry.
Governmental financial reports can include not only the
budgetor "Budget Book" or "general fund" as often referred to, but also several other types of government financial reports, financial statements, performance reports, Comprehensive Annual Financial Reports( CAFR), and audits. Many governmental financial reports are online and opened to critical review by constituents (expert or not), taxpayer groups, bond rating firmsand creditors. Online sources for state (and local financial reports, down to local entities like the water board, school board and government corporations including "Comprehensive Annual Financial Reports" or CAFRs) can be found using Internet search engines or through professional organizations like Governmental Accounting Standards Board( GASB), as one example. Ratio analysis is one of the ways to examine the financial conditions of a government from a revenue potential for generating bond ratings, for instance. This gives a comparative or relative status of a government to sell bond debt instruments to fund projects without raising by abrupt tax increases or selling surplus assets (which could be returned to the citizens) any of which might adversely affect an economy and a political career.
One of the key elements in a financial statement is the
Management Discussion and Analysis( MD&A). The MD&A is designed to provide a readable version of the technical financial statements. In June 1999, the Governmental Accounting Standards Board adopted standard 34. Standard 34 requested all cities and states in the US to include an MD&A in their financial statements like a CAFR.
CAFR vs. Budget
The CAFR shows more comprehensive accounting entries that budget reports do not. However, the budget book or genneral fund as oft referred to by politicos, typically includes
performance measures, goals, objectives, discussion of initiatives, and other non-financial data. The CAFR draws a clear line of distinction between "restricted" and "unrestricted" reserves, while the budget book tends to group all reserves together or not mention them at all. (In general, reserves should not be confused with "rainy day funds" or required pension surplus holdings that are generally included in many government budgetary reports, process and media reports.) The CAFR is prepared in accordance with GAAP, as defined by the Government Accounting Standards Board (GASB). The budget books typically look more toward the Government Finance Officers Association( GFOA) for guidance.
:: A budget is typically prepared for each fund operated by the government. Special purpose funds might include business-type funds (called "Enterprise Funds") or dedicated purpose funds (Called "Special Revenue Funds"). All activities that do not belong in any special purpose funds are budgeted and accounted for in the "General Fund". Every government is required to have one, and one, general fund. There are a number of older local governments that persist in calling this the "Corporate Fund", which dates back to the British corporate form of county government. This term can be confusing, since technically, only Enterprise Funds are "corporate" in nature, meaning that their accounting is similar to corporate accounting whether or not a government entity is incorporated or in operation as a corporation non-profit or for profit.
The CAFR includes a comparison of budget to actual, which usually will show how well the budget was followed during the year. Since the budget is the authoritative document in most states, it is not legally permitted for any government to over-spend their budget. (The Federal Government, of course, has their own accounting systems and rules.) The comparison of budget to actual is a good place to find out the differences between government accounting and government budgeting. In general, budgets are prepared using "
cash-flow" type assumptions, and the CAFR is prepared using assumptions that are similar to full accrual accounting. One of the obvious differences is that few governments bother to budget for asset balances (other than cash). The other differences are reconciled in the CAFR.
Comprehensive Annual Financial Report
A "Comprehensive Annual Financial Report" or "CAFR" is a government book keeping practice which started in the post
WWIIeconomic boom and replaced what was regularly an "off-the-books" practice called the "general fixed asset account group". The various levels of government; "general government" or the federal United States, individual state governments and government agencies each began producing a CAFR in the late 1940s to early 1950s to catalog an accurate picture of institutional funds, or financial holdings, assets and total investment incomes for those government and non-governmental entities using the report, which is above and beyond the budget process. In 1945, the Government Corporation Control Act, began the auditing of wholly owned government corporations and mixed ownership corporations, (those that government may have controlling holdings in but operate as private corporations) all of which may come under the term "enterprise funds".
While a budget might indicate that the government or agency has financial trouble and debt, (because of excess spending within the select grouping of "general fund" accounts presented), the CAFR will normally indicate that government possesses large holdings considerably over what is shown in a budget report or "general fund" alone. Examples from recent history include,
Jesse Ventura's career, punctuated by his returning some of the government surpluses to voters as governor of Minnesota. Other rare news events have highlighted the off-the-budget holdings and "enterprise funds" of government. One widely reported example in 1994 (Los Angeles) Orange County Californialost about $1.5 Billion on investments in the derivative (finance)market. The University of Kentucky's holdings 85% of CHA Health insurancestock was exposed in 2005 in the Lexington Herald Leadernewspaper when CHA was sold to Anthem Blue Crossas part of the UK president's effort to raise a billion dollars to fund becoming a top 20 research university an ongoing effort; to name a few examples.
Government Accountability Office,
Working Group on Financial Markets
Revenue(bottom line vs. "top line")
Government Accountability Office investigations of the Department of Defense
Federal Accountability Act(Canada)
External links & reliance documents
* [http://www.treasurydirect.gov/govt/apps/fip/fip.htm Treasury Direct FedInvest site]
* [http://www.answers.com/topic/general-fixed-asset-account-group?cat=biz-fin General Fixed Asset Account Group]
* [http://www.mtas.tennessee.edu/KnowledgeBase.nsf/0/1A6A87DB44C9F11B85257346006F0C29?OpenDocument - Capital Asset Accounting System (another link subject to change without notice]
* [http://www.merage.uci.edu/~jorion/bigbets.html Derivatives and Bankruptcy in Orange County ]
* [http://www.gao.gov/about/history/gaohistory_1945-1954.html GAO History Government Accounting Office]
* [http://www.gfoa.org/services/gfr/articles/gfr0601.pdf 65 years of the Blue Book]
* [http://www.mtas.utk.edu/KnowledgeBase.nsf/bfbd8572d38db861852569ca006e7708/5e3a69ad0ad90af7852571e0006570e4/$FILE/Capital%20Asset%20Acct%20System%20bw.pdf. PDF - Capital Asset Accounting System] (Permission to 'cite' or quote granted in the document)
* [http://www.mtas.utk.edu/public/MTASPUBS.NSF/All/9B4A0C60E9FEDEBC85257346006EC682?OpenDocument - Above Document must now be purchased]
* [http://www.osc.state.ny.us/audits/allaudits/093006/04s74.htm - State of New York Updates]
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