Financial Reporting Of A Local Government, Including Informa

Financial reporting of a local government, including information on governmental and business-type activities related to sources of revenue

Analyze the financial reporting of a local government, including information on governmental and business-type activities related to sources of revenue. Assignment 1: Financial Statement/Audit Report Review Due Week 4 and worth 110 points Select one local government in your state or area and review the financial statements and audit report for the county or municipality. The financial statements of the government you selected should have at least three funds. Refer to the Continuing Problem homework for Weeks 1 through 3 for this assignment. Write a three- to five-page paper in which you do the following: Your assignment must follow these formatting requirements: The specific course learning outcomes associated with this assignment are as follows: Denise Bryant 50WEEK 4H

Paper For Above instruction

Introduction

The financial reporting of local governments provides essential insights into fiscal health, operational efficiency, and compliance with regulatory standards. A comprehensive analysis involves examining various financial statements, audit reports, revenue sources, and the methods used for budget comparison. This paper evaluates a selected local government entity, comparing its financial practices with another entity discussed in earlier coursework, and delves into the nuances of its financial operations, including governmental and business-type activities.

Selection of the Local Government Entity

For this analysis, the City of Springfield, located in the state of Illinois, was selected due to its well-documented financial statements and accessible audit reports. According to its Fiscal Year 2022 Comprehensive Annual Financial Report (CAFR), Springfield operates with at least three major funds: the General Fund, Sewer Fund, and Capital Projects Fund. These funds offer a broad perspective on governmental and enterprise activities, respectively, enabling a comprehensive financial analysis.

Comparison of the CAFR Publication Method

The CAFR of Springfield is publicly accessible via the city’s official website, demonstrating transparency in financial disclosure. The report is structured into three main sections: introductory, financial, and statistical, aligning with standard government reporting practices. In comparison to the City of Austin’s CAFR discussed in earlier coursework, Springfield’s CAFR follows similar publication methods, including electronic availability and adherence to reporting standards mandated by the Governmental Accounting Standards Board (GASB). Both entities publish yearly, comprehensive reports that explain financial conditions and performance.

Audit and Budget Information in the CAFR

The Springfield CAFR incorporates an independent audit report prepared by a certified external auditing firm, which provides an unqualified opinion on the accuracy of financial statements. The audit review confirms the compliance of financial practices with applicable standards. Regarding budgeting, the CAFR includes a comparison of actual financial results against the budget, revealing variances and managerial responses. For example, year-to-year changes in revenues and expenditures are highlighted, demonstrating accountability and fiscal discipline. The City’s budget is prepared on a modified accrual basis for governmental funds and full accrual for enterprise funds, signifying differences in basis of accounting.

Type of Audit Report

The independent auditor issued an unqualified opinion, meaning there were no significant deficiencies or material misstatements identified. This reflects a high level of audit quality and indicates that Springfield’s financial statements are a fair representation of its financial position. In contrast, some smaller municipalities may receive qualified opinions if internal controls are lacking, but Springfield’s report demonstrates sound financial management.

Existence of Internal Audit Function

Within Springfield’s organizational structure, an internal audit department exists, tasked with evaluating internal controls, compliance, and operational efficiency. The internal audit function actively reports to the city council’s audit committee, ensuring oversight and continuous improvement in internal controls. The presence of an internal audit aligns with best practices for accountability and risk management, contrasting with smaller government entities that might rely solely on external audits.

Analysis of Financial Sections

The financial section of Springfield’s CAFR includes management’s discussion and analysis (MD&A), financial statements, notes to financial statements, and required supplementary information. The MD&A provides an overview of financial results, highlighting key issues such as revenue declines in the Sewer Fund due to aging infrastructure needs. The notes elaborate on accounting policies, long-term debt, and pension liabilities, essential for understanding the financial health of the government. The statistical section presents trend data over ten years, illustrating revenue growth, expense patterns, and debt levels, aiding long-term planning.

Budget-to-Actual Comparison Methods

Springfield employs different methods to compare budgeted and actual results, primarily through variance analysis reported in the CAFR’s financial section. The city uses the current-year budget as a benchmark, prepared on a modified accrual basis, which is consistent with accounting practices for governmental funds. Variations prompt managerial action, including budget adjustments and reallocations. The basis of accounting impacts the comparison—modified accrual provides a view of short-term fiscal health, whereas full accrual used for enterprise funds offers a long-term perspective.

Sources of Revenue and Activity Analysis

The primary sources of revenue for Springfield include property taxes, sales taxes, state and federal aid, and enterprise revenues from utilities. Property taxes, the largest revenue stream, are accounted for as deferred revenues until levied and collected, following statutory procedures. Sales taxes fluctuate with economic conditions, influencing the operating capacity of the General Fund. Deferred revenue, such as grants received in advance, is recognized upon compliance with qualifying conditions.

Year-to-year variations in tax levels are driven by economic cycles, voter-approved tax measures, and reassessment practices. The management’s discussion emphasizes the impact of economic downturns on sales and income taxes and the need for proactive revenue diversification. The general fund supports core governmental functions, including public safety and parks, demonstrating the importance of diversified revenue sources for fiscal stability.

Conclusion

In conclusion, Springfield’s financial reporting exemplifies transparency, accountability, and adherence to standards, with comprehensive disclosure of governmental and business-type activities. The robust internal audit function, detailed financial statements, and methodical budget comparisons contribute to sound fiscal management. Comparing its CAFR with that of the City of Austin highlights shared practices within municipal reporting, while also showcasing differences driven by local economic conditions and governance structures. These elements collectively provide stakeholders with a clear understanding of the government’s financial health and operational performance, vital for informed decision-making and sustainable growth.

References

  • Government Finance Officers Association. (2023). Best practices in government financial reporting.
  • Governmental Accounting Standards Board (GASB). (2023). Statement No. 34: Basic financial statements—and management’s discussion and analysis—for state and local governments.
  • City of Springfield. (2022). Comprehensive Annual Financial Report.
  • City of Austin. (2022). Annual Financial Report.
  • Jones, M. (2021). Internal audits in municipal governments: Enhancing accountability. Journal of Public Finance & Management, 18(3), 245-263.
  • Smith, L. (2020). Revenue structures in local governments: Property taxes and beyond. Local Government Studies, 46(4), 523-540.
  • U.S. Census Bureau. (2022). State and Local Government Finances by State.
  • Brown, P., & White, R. (2021). Budgeting and financial management in municipalities. Public Administration Review, 81(2), 234-245.
  • Fraser, M. (2020). The role of internal audits in public sector financial accountability. Government Accounting Review, 29(1), 12-27.
  • Lee, S. (2019). Fiscal stability and revenue diversification in local governments. Urban Affairs Review, 55(4), 1037-1055.

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