Understanding the Financial Report

1. Understanding the Financial Report A.R.S. 48-807 Changes in the Financial Disclosure Laws

2. House Bill 2572 / ARS 48-807 • New legislation has been adopted to address concerns about financial management of Fire District funds • New procedures are now mandated for Fire Districts to follow • Allows a great opportunity to talk about the way SFD operates its finances

3. Board Member Responsibility • Functions include (ARS 48-803, 804, 805) • Monthly board meetings • Annual budget • Determine compensation for District personnel • Publish a financial report (ARS 48-251) • Hire a Fire Chief to handle day to day operations • Handout from AFDA RedBook • There is a fiduciary responsibility by the board to assure proper procedures and practices are being followed as it relates to providing community safety and best fiscal practices.

4. 48-807 Paragraph N A fire district shall reconcile all fund accounts for each calendar month of the fiscal year within thirty days after the end of that calendar month.  All fund accounts shall be reconciled in accordance with generally accepted accounting principles.  The fire district board shall review the reconciled fund accounts monthly.

5. 48-807 Paragraph O A fire district shall produce monthly financial reports in accordance with generally accepted accounting principles to include cash flow projections for each fiscal year.  Cash flow projections shall be updated monthly with the actual revenues and expenditures from the preceding month.  The fire district board shall review the updated cash flow projections each month.  Any financial report or cash flow projection that would indicate that the district is likely to violate section 48-805, subsection d or that would indicate an adverse impact on the ongoing operations or liquidity of the district shall be reported to the county treasurer and the county board of supervisors within ten days after the discovery.

6. Where Does This Come From? • Concerns arising from other Fire Districts in the State of Arizona that have had questionable financial practices, mismanagement of funds, and in some cases, legal ramifications for financial improprieties.

7. What Is The Intent? • Transparency and trust in your local government • Have a solid platform that all communities must utilize to assure uniformity in data collection and reporting • Some best practice guidelines to assure sound financial operations are being employed

8. Where Does SFD Stand? • SFD has a long history of providing sound accounting practices. • The process and format we employ have been considered best practice and we have provided outside audits before we were mandated to have outside reviews. • Multiple GFOA recognitions for Budget • Government Finance Officers Association • We want to maintain compliance and assure our public that we are held to the highest standards. • We want to maintain transparency and financial forecasting for our future longevity and sustainability.

9. Where do we Need to go from Here? • We have a few new requirements that SFD will need to provide to be compliant: • Many of the items we have already started doing • Most of the requirements outlined are what SFD has always provided and operated within

10. Specific Items Required

11. Budget Time • Follow the required timeline and procedural issues as they relate to posting/publishing of financial information. • Board must provide a “Certification” of the Annual Budget • Estimate Revenues and Expenses for the next 2 years at budget- the proposed year and the following year • If there is an estimated expense exceeding revenues for any year- a consolidation or joint operations study must be completed

12. Insufficient Funds • If there is a time where funds are expected to be deficient, the Board Chair may draw warrants (Access line of credit with bank through the County- up to 90%) • The current SFD policy is to have a 15% operating reserve fund that reduces that risk/need. • We are proposing to cap that at $2 million in the FY 2015 budget. Could alter that with cash flow projection based on implementing 2 year format • SFD has not needed to access the line of credit very often (once in the last 25+ years). If funding was needed, there would be interest charges incurred.

13. Monthly Financial Report • The Governing Board must review accounts monthly. • SFD includes the accounts- expenses, revenues, fund balances, etc. in its monthly financial report. • The format will change to accommodate better information and more streamlined reporting. • Reconciliation of the bank statements will be quite obvious in the volume of paperwork you will have to look through and have for review • Staff will be doing all the work but you will be expected to be able to comfortably read and identify any irregularities or areas of concerns

14. Balance Sheets • The District must provide monthly financial reports: • Statement of financial activities • Statement of net assets • While the current format provides this information, we are proposing to streamline the report so it is generated directly from our accounting software and includes more categories for everyone to review and track.

15. Annual Cash Flow Projections • SFD will now be required to present annual cash flow projections. • While this is going to be a best guess scenario, it will help us to see where we are at a given point based on what we project funds to be arriving at SFD annually. • A project that is expected to be completed in 1 month and is delayed and or when we receive the invoice could dramatically skew the projection while really having no impact in the operation or the budget

16. Cash Flow Projections- Monthly Update • The prior format SFD used included a bar graph that clearly illustrated the expenses and revenues each month compared to year to date projections. • We have created a new data spreadsheet that clearly identifies cash flow as we expect it to occur. • This will not simply be budget divided by 12 • Practical and actual monthly calculations/estimations- expenses and revenues will be used to project this report

17. Mandatory Reporting to County Treasurer • If there is a concern with a financial report or if cash flow projections indicate an adverse impact, the SFD Board is required to report the issue within 10 days. • This provides a check and balance for the County Supervisors in AZ to know better what is happening at the local level (when there is concerns or issues)

18. Review Financial Reports Monthly • SFD has provided a financial report at every monthly board meeting in the SFD format for decades. • The new format will now meet the mandated requirements in reporting to better illustrate the data required. • Additional reports and data will be provided. • At each meeting, we will require a formal board action to approve the monthly financial report.

19. Review “Other Financial Information” Monthly • Where there are important components of the budget, the Board will review those items each month. • This could include a monthly report/status of the SRCC. • This could be the expenses for the Station 6 project during construction. • Anything else that would be of financial interest to meet the fiduciary responsibilities of being a board member.

20. Other Miscellaneous Items • The budget- published and then actual must be maintained on the District website for 60 months. • We are now required to publish on the District website- this eliminates the need to post the budget in the newspaper.

21. Where Do We Go From Here • We want to present to you what we expect to produce on a monthly basis • We want to explain what the documents look like and what they mean so the public and you know what is included in the paperwork and how to interpret the monthly finance reports • We will maintain a high level of transparency for all to understand the finances and operations of SFD

22. Accounting Definitions • Assets- items with dollar value owned by SFD • Examples- property, equipment and cash • Equity- Difference between assets and liabilities. • Fund- a fiscal and accounting entity/location for tracking balances in each account • Liabilities- debt owed by SFD • Other Financing Sources- Revenue received from different SFD owned funds (transfers in/out) • Revenue- Income earned from carrying out SFD activities/business • Transfers In/ Transfer Out- accounting practice of allocating funds between accounts

23. Revenue and Expense-Group Summary • This report shows all of the revenue and expense categories by group. • Examples: • Salaries for all employees under the heading 51100 • Training and Tuition for all employee groups are listed under 62750 • Shows the % spent or received Year to Date. • Encumbrances are not included in the expense • Each month equals 8.33% of the budget.

24. Revenue Date of reporting period Fund account name Line item numbers Total Revenue- less any funds carried over from capital account or contingency funds You want to see this number get to zero or be a positive number Revenue for month to date Revenue for year to date

25. Expenses Unfavorable means over allocated If funds get reallocated it tracks where you are in comparison Actual amount assigned in original budget Total budgeted Month to Date expenses Nebulous difference of funds allocated from Fund 10. Amount available to spend in budget Bottom line will never change Month to date less monthly revenue

26. Cash Flow Report • Developed by historical data to get a place to start. • Each month is projected to represent what we think will be an expense or revenue. • While we will try to be accurate, there is a margin of error as we learn this style of projection. • Could expect a large expenditure to be delivered in a month and it arrives late- would throw off report

27. How Much Money Do We Have • We have heard this question before • While it is always tricky to answer that because of the way the operation works- • Irregularity of revenues- taxes, ambulance billing, wildland reimbursement etc. make it difficult to answer at any one specific point • Definitely different than how a for profit business works with revenue and expense flow • This sheet shows the up and down financial flow the District manages on a monthly basis

28. Cash Flow Report All of the 51000 salary line item #’s 3 payrolls and 2 OT cycles Does not show encumbrances-last chart showed $804,015.81 Board Contingency 15% Capital Reserve are funds designed for capital purchase needs

29. Fire Billing and Projects • Shows previous year (if $ still owed) and current year. • Expenses- what we spent: • Fuel, lodging, per diem, wages, and backfill • Total Paid- What has been reimbursed by Feds • Outstanding- waiting for reimbursement • ND Vehicle Revenue- Actual $ collected for the contracting of SFD apparatus and equipment • SFD Collected $79,042 in FY13 for deployments • Projects- revenue generated from services provided to other agencies- Telecom mostly

30. Fire Billing and Projects Since there is FY13 balance the line remains on the report We have expenses but nothing has been paid FY14 Since we were just paid for an outstanding bill this last month, we include to show a $0 balance This is a net profit $ amount

31. Sedona Regional Communications Center (SRCC) Group Summary • Same principals as previously explained when looking at expenses and revenues. • SRCC runs as a project • We have SFD costs for dispatch in SFD budget • SFD pays for services like all other agencies • We have the Expense in SFD budget and show as a revenue in the SRCC project budget

32. SRCC Revenue & Expenses Operating Budget for SRCC Project Fund 50- SRCC is title of this account

33. Balance Sheet • The balance sheet shows 5 accounts broken down by assets, liability, and equity • SFD Operating Expense Fund is called Fund 10. Fund 10 is the number assigned by the accounting software • Assets • First 5 accounts are actual funds for which you will see reconciliations. • The remaining 9 are accounting funds that the staff and auditor use for projections, clearing accounts, place holders. • Liability • Accounts and lines used to identify money that SFD is expected to pay. • These are holding accounts for accounting and auditing purposes.

34. Balance Sheet (cont.) • Equity • Fund balance • The difference between the assets and the liabilities • Contra Account • Will be adjusted with a journal entry effective 6/30/13 as part of the audit process • Total Revenue • Matches the cash flow sheet (taken from Tyler) • Total Expense • Matches the cash flow sheet • In this month it shows ***Fund 10 out of balance by $-2,696.17 (the difference between the 2 sheets) • Staff researches the difference and makes the appropriate journal entry in Tyler.

35. Balance Sheet (page 1) These top 5 are the accounts that are reconciled This number will be the amount we are reconciling later Fund 10 Account

36. Balance Sheet (cont.) • Fund 20- Capital Reserve Fund • Nothing has been taken out of the account so there are no debits. • You see the interest earned. • As the Cash Flow sheet shows- we expect to deduct $425,026 in August (which was done this week). • This fund is really designed to be utilized for future capital purchases. • Each year, when we budget, we will allocate capital project funding from this account as needed. • When this account balance hits zero, we will need to levy for capital purchases accordingly.

37. Balance Sheet (page 2) Fund 20 account No debits or activity in this account so you do not see any transactions except for interest earned $226.38

38. Balance Sheet (cont.) • Fund 98- Payroll Fund • This is the fund that SFD uses to process payroll. • Funds are transferred in from Fund 10 to Fund 98 each pay period to cover payroll expenses. • With the mandated reconciliation process, the transfer checks will now be listed for your review.

39. Balance Sheet (page 3) Fund 98 account These accounts are bookmarks/placeholders for different accounts within the budget framework. Accounts get zero’d out as transfers occur

40. Balance Sheet (cont.) • Fund 99- Accounts Payable (POOL) • Referred to as the POOL account because this is where the money is pooled to pay the accounts payable. • Different accounts listed for the places we hold funds to pay the accounts payable each month. • There are a few different local banks that SFD uses for different funds. They are outlined on the cover sheet provided and help SFD participate in the services of many local banking institutions. • Chase, Bank of America, NYCB Family of Banks

41. Balance Sheet (page 4) Fund 99 account Bank One is not accurate name- changed in system already Accounts Payable checking balance SFD assets match liabilities so there is $0 equity Value in the account is $34,869.38 because that is what is in the accounts

42. Reconciliations • Bank Statement Register by account name: • Tyler Bank Reconciliation • Deposits, checks and interest • Ledger Sheet from Yavapai County • Deposits, Warrants, FDAT, Property Taxes, Coconino transfers, and interest earned • Bank Statement (if applicable) • Copies of checks, deposits, electronic fund transfers(ETFs), interest • Important for SFD Governing Board to confirm that the balances match as part of the fiduciary responsibility of the Financial Report approval. • Notice the Finance Department initials on the documents- that is the internal control process to assure the documents and reconciliations have been reviewed and not altered.

43. Bank Reconciliation • The first 5 funds you saw on the Balance Sheets are reconciled monthly • Fund 10 • County General • The funds that funnel through the County (Yavapai) • Petty Cash • Expenses that need to be paid or reimbursed via check • Could be between check runs and immediate payment required. Balance typically less than $3,000. • SFD Agency • This is the account where purchase and sell t-shirts and SFD SWAG to the general public. This is a self perpetuating fund for these items. • Excess funds can be used for benevolent related issues- funeral flowers, birth of a child (employees), etc. • Office Cash • Small purchase at a location we do not have an account at and have no access to a credit card, • AFLAC Medical and Dependent Care • Funds that are collected through employee contributions via payroll deductions and used to fund qualified health benefits and dependent care, • This is not the employee cost share for health insurance-that money is directly put into the healthcare liability account listed on Fund 10 Balance Sheet page,

44. Fund 10- General Fund Reconciliation

45. Tyler Reconciliation/Statement Specific Fund Name This is deposits made into SFD’s account for various reasons- taxes, FDAT, interest These are the monies that were transferred into SFD accounts $ amount matches the Balance Sheet

46. County Reconciliation/Statement Income to the account comes from- interest paid, FDAT, property taxes received Warrants Redeemed are deductions from account paid to SFD

47. Verification of Numbers

48. Accounts Payable- Fund 99(POOL) • This is the largest reconciliation as it is from where all of the bills and invoices are paid. • Copies of the checks are provided for each board member to personally review. • We welcome any questions about a particular check or expense at any time.

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