Loading...
HomeMy WebLinkAboutResolution No. 2012-022 CITY OF THE COLONY RESOLUTION NO. 2012- (1 A RESOLUTION OF THE CITY OF THE COLONY, TEXAS ADOPTING THE REVISED CITY OF THE COLONY'S FINANCIAL MANAGEMENT POLICY TO BECOME EFFECTIVE UPON ITS PASSAGE AND APPROVAL. WHEREAS, it is the goal of the City to maintain a long-term stable and positive financial condition; and WHEREAS, the City Council of The Colony previously has adopted the Financial Management Policy in November, 2002, and have since been amended, and WHEREAS, it is essential for the City Council to periodically review and amend the financial management policies; and BE IT RESOLVED BY THE CITY OF THE COLONY, TEXAS that: SECTION 1: That the City Council hereby adopts the City's revised Financial Management Policy. SECTION 2: That this resolution shall be in force immediately upon its passage in accordance with the Charter of the City of The Colony and it is accordingly so resolved. PASSED AND APPROVED BY THE CITY COUNCIL OF THE CITY OF THE COLONY, TEXAS, ON THE 20th DAY OF MARCH, 2012. Jo McCourry ayor ATTEST: hristie Wilson, City Secretary CITY OF THE COLONY FINANCIAL MANAGEMENT POLICIES MARCH, 2012 Prepared by the Finance Department Confirmed by the City Council on March 20t' 2012 i FINANCIAL MANAGEMENT POLICIES Table of Contents Page No. 1. Purpose Statement 1 IL Accounting, Auditing and Financial Reporting 1 A. Accounting B. Funds C. External Auditing D. External Auditors Responsible to City Council E. External Auditors Rotation F. External Financial Reporting G. Internal Financial Reporting III Internal Controls 2 A. Written Procedures B. Department Managers Responsible IV. Operating Budget 2 A. Preparation B. Balanced Budget C. Planning D. Reporting E. Control F. Performance Measures and Productivity Indicators V. Capital Improvement Program 3 A. Preparation B. Control C. Program Planning D. Alternate Resources E. Debt Financing F. Street Maintenance G. Water/Wastewater Main Rehabilitation and Replacement H. Water and Wastewater Special Projects 1. Reporting ii FINANCIAL MANAGEMENT POLICIES Table of Contents Page No. VI. Revenue Management 4 A. Simplicity B. Certainty C. Equity D. Administration E. Revenue Adequacy F. Cost/Benefit of Abatement G. Diversification and Stability H. Non-recurring Revenues 1. Property Tax Revenues J. User-Based Fees K. Impact Fees L. General and Administrative Charges M. Utility Rates N. Interest Income 0. Revenue Monitoring VII. Expenditure Control 6 A. Appropriations B. Contingency Account Expenditures C. Purchasing D. Professional Services E. Prompt Payment F. Equipment Financing G. Information Technology VIII. Asset Management 7 A. Investments B. Cash Management C. Investment Performance D. Fixed Assets and Inventory iii FINANCIAL MANAGEMENT POLICIES Table of Contents Page No. IX. Financial Condition and Reserves 7 A. No Operating Deficits B. Interfund Loans C. Operating Reserves D. Risk Management Program E. Loss Financing F. Enterprise Fund Self-Sufficiency X. Debt Management 9 A. General B. Self Supporting-Debt C. Analysis of Financing Alternatives D. Voter Authorization Xl. Staffing and Training 9 A. Adequate Staffing B. Training C. Awards, Credentials X1I. Grants Financial Management 10 A. Grant Solicitation B. Responsibility X111. Annual Review & Reporting 10 iv I. PURPOSE STATEMENT These policies are developed by the City Manager to guide the Finance Director, and staff in financial matters. The overriding goal of the Financial Management Policies is to enable the City to achieve a long-term stable and positive financial condition while conducting its operations consistent with the council-manager form of government established in the City Charter. The watchwords of the City's financial management include integrity, prudent stewardship, planning, accountability, and full disclosure. The purpose of the Financial Management Policies is to provide guidelines for the financial management staff in planning and directing the City's day-to-day financial affairs and in developing recommendations to the City Manager. The scope of the policies spans accounting, auditing, financial reporting, internal controls, operating and capital budgeting, revenue management, cash management, expenditure control, and debt management. II. ACCOUNTING, AUDITING, AND FINANCIAL REPORTING A. ACCOUNTING - The City's Accounting Manager is responsible for establishing the chart of accounts, and for properly recording financial transactions. B. FUNDS - Self-balancing groups of accounts are used to account for City financial transactions in accordance with generally accepted accounting principles. Each fund is created for a specific purpose except for the General Fund, which is used to account for all transactions not accounted for in other funds. Funds are created and fund names are changed by City Council approval through resolution either during the year or in the City Council's approval of the annual operating budget ordinances. C. EXTERNAL AUDITING - The City will be audited annually by outside independent auditors. The auditors must be a CPA firm capable to demonstrate that they have the breadth and depth of staff to conduct the City's audit in accordance with generally accepted auditing standards, generally accepted government auditing standards, and contractual requirements. The auditors' report on the City's financial statements including federal grants single audit when required, will be completed within 120 days of the City's fiscal year end, and the auditors' management letter will be presented to the City staff within 150 days after the City's fiscal year end. An interim management letter will be issued prior to this date if any materially significant internal control weaknesses are discovered. The City staff and auditors will jointly review the management letter with the City Council within 60 days of its receipt by the staff. D. EXTERNAL AUDITORS RESPONSIBLE TO CITY COUNCIL - The external auditors are accountable to the City Council and will have access to direct communication with the City Council if the City staff is unresponsive to auditor recommendations or if the auditors consider such communication necessary to fulfill their legal and professional responsibilities. 1 The City Council may conduct closed session annually with the auditors present without the presence of City staff. Such meeting shall be conducted in accordance with the Open Meetings Act. E. EXTERNAL AUDITOR ROTATION - The City will not require external auditor rotation, but will circulate requests for proposal for audit services periodically, normally at five-year intervals. F. EXTERNAL FINANCIAL REPORTING - The City will prepare and publish a Comprehensive Annual Financial Report (CAFR). The CAFR will be prepared in accordance with generally accepted accounting principles, and will be presented annually to the Government Finance Officers Association (GFOA) for evaluation and awarding of the Certification of Achievement for Excellence in Financial Reporting. The CAFR will be published and presented to the City Council within 120 days after the end of the fiscal year. City staffing limitations may preclude such timely reporting. In such case, the Finance Director will inform the City Manager and the City Manager will inform the City Council of the delay and the reasons therefore. G. INTERNAL FINANCIAL REPORTING - The Finance Department will prepare internal financial reports sufficient for management to plan, monitor, and control the City's financial affairs. Internal financial reporting objectives are addressed throughout the policies. III. INTERNAL CONTROLS A. WRITTEN PROCEDURES - The Finance Director is responsible for developing citywide written guidelines on accounting, cash handling, and other financial matters, which will be approved by the City Manager. The Finance Department will assist department directors as needed in tailoring these guidelines into detailed written procedures to fit each department's requirements. B. DEPARTMENT MANAGERS RESPONSIBLE - Each department director is responsible to the City Manager to ensure that good internal controls are followed throughout his or her department, that all guidelines on accounting and internal controls are implemented, and that all independent auditor internal control recommendations are addressed. IV. OPERATING BUDGET A. PREPARATION - The City's "Operating Budget" is the City's annual financial operating plan. It consists of governmental and proprietary funds, including the general obligation and revenue supported Debt Service Funds, but excluding Capital Projects Funds. The budget is prepared by the Finance Department with the cooperation of all City departments, and is submitted to the City Manager who makes any necessary changes and transmits the document to the City Council. 2 The preliminary budget should be filed with the City Secretary's office on or before July 31 each fiscal year, and presented to the City Council. Thereafter, the final budget should be enacted by the City Council prior to fiscal year end. The operating budget shall be submitted to the GFOA annually for evaluation and awarding of the Award for Distinguished Budget Presentation. B. BALANCED BUDGET - The operating budgets will be balanced, with current revenues, and prior year surpluses greater than or equal to current expenditures/expenses except a rainy day fund reserve of sixty (60) days. C. PLANNING - The budget process will be coordinated to identify major policy issues for City Council's consideration several months prior to the budget approval date. D. REPORTING - Periodic financial reports will be prepared to enable the department directors to manage their budgets and to enable the Finance Department to monitor and control the budget as authorized by the City Council. Summary financial reports will be presented to the City Council each month within four weeks after the month end. Such reports will include current year revenue and expenditures in comparison to budget and prior year actual revenues and expenditures. E. CONTROL - Operating Expenditure Control is addressed in another section of the Policies. F. PERFORMANCE MEASURES AND PRODUCTIVITY INDICATORS - Where appropriate, performance measures and productivity indicators will be used as guidelines and reviewed for efficiency and effectiveness. This information will be included in the annual budgeting process. V. CAPITAL IMPROVEMENT PROGRAM A. PREPARATION - The City's Capital Improvement Program will include all capital projects. The Capital Improvement Plan will be prepared annually on a fiscal year basis. The Capital Improvement Plan will be reviewed annually by the City Council. The Capital Improvement Plan will be prepared by the Finance Department with the involvement of all City departments. B. CONTROL - All capital project expenditures must be approved by City Council. The Finance Department must ensure the availability of resources before a capital project contract is presented by the City Manager to the City Council for approval. C. PROGRAM PLANNING - The Capital Improvement Plan will include capital improvements program plans for future years. The planning time frame should normally be at least five years. The replacement and maintenance for capital items should also be projected for the next 5 years. Future maintenance and operations will be fully costed, so that these costs can be considered in the operating budget. 3 D. ALTERNATE RESOURCES - Where applicable, assessments, impact fees, or other user-based fees should be used to fund capital projects, which have a primary benefit to certain property owners. E. DEBT FINANCING - Recognizing that debt is usually a more expensive financing method, alternative financing sources will be explored before debt is issued. When debt is issued, it will be used to acquire major assets with expected lives, which equal or exceed the average life of the debt issued. The exceptions to this requirement are the traditional costs of marketing and issuing the debt, capitalized labor for design and construction of capital projects, and small component parts which are attached to major equipment purchases. F. STREET MAINTENANCE - The City recognizes that deferred street maintenance increases future capital costs by an estimated 5 to 10 times. Therefore, a portion of the General Fund Budget and/or debt issuances may be set aside each year to maintain the quality of streets. The amount will be established annually so that repairs will be made. G. WATERIWASTEWATER MAIN REHABILITATION AND REPLACEMENT - The City recognizes that deferred water/wastewater main rehabilitation and replacement increases future costs due to loss of potable water from water mains and inflow and infiltration into wastewater mains. Therefore, to ensure that the rehabilitation and replacement program is adequately funded, the City may annually appropriate an amount to provide for a water and wastewater main repair and replacement program. H. WATER AND WASTEWATER SPECIAL PROJECTS - A special fund will be maintained for water and wastewater capital projects. The fund will be funded with operating surpluses, interest earnings, and transfers from water and wastewater operations. As soon as practicable, after each fiscal year end when annual operating results are known, any Water/Wastewater Fund operating surplus in excess of budget which is not required to meet ending resources requirements, may be transferred to the Special Projects Fund with the approval of the City Council. The fund will be used for funding water/wastewater main rehabilitation and replacement, for major capital outlay, and for unplanned projects. 1. REPORTING - Periodic financial reports will be prepared to enable the department managers to manage their capital budgets and to enable the Finance Department to monitor the capital budget as authorized by the City Council. VI. REVENUE MANAGEMENT A. SIMPLICITY - The City will strive to keep the revenue system simple, which will result in a decrease of compliance costs for the taxpayer or service recipient and a corresponding decrease in avoidance to pay. The City will avoid nuisance taxes, fees, or charges as revenue sources. B. CERTAINTY - An understanding of the revenue source increases the reliability of the revenue system. The City will enact consistent collection policies for its revenues so that assurances can be provided that the revenue base will materialize according to budgets and plans. 4 C. EQUITY - The City will strive to maintain equity in the revenue system structure. That is, the City will seek to minimize or eliminate all forms for subsidization between entities, funds, services, utilities, and customers. However, it is recognized that public policy decisions may lead to subsidies in certain circumstances, e.g., senior citizen property tax exemptions or partial property tax abatement. D. ADMINISTRATION - The benefits of revenue will exceed the cost of producing the revenue. The cost of collection will be reviewed annually for cost effectiveness. Where appropriate, the City will use the administrative processes of State or Federal collection agencies in order to reduce administrative costs. E. REVENUE ADEQUACY - The City will require that there be a balance in the revenue system. That is, the revenue base will have the characteristic of fairness and neutrality as it applies to cost of service, willingness to pay, and ability to pay. F. COST/BENEFIT OF ABATEMENT - The City will use due caution in the analysis of any tax, fee, or water and wastewater incentives that are used to encourage development. Ideally, a cost/benefit (fiscal impact) analysis will be performed as a part of such analysis. G. DIVERSIFICATION AND STABILITY - In order to protect the government from fluctuations in revenue source due to fluctuations in the economy, and variations in weather, (in the case of water and wastewater), a diversified revenue system will be maintained. H. NON-RECURRING REVENUES - One-time revenues will not be used for ongoing operations. Non-recurring revenues will be used only for non-recurring expenditures. Care will be taken not to use these revenues for budget balancing purposes. 1. PROPERTY TAX REVENUES - Property shall be assessed at 100% of the fair market value as appraised by the Denton Central Appraisal District. Reappraisal and reassessment shall be done regularly as required by State law. All delinquent taxes will be aggressively pursued, with delinquents greater than 150 days being turned over to the City Attorney or a private attorney, and a penalty assessed to compensate the attorney as allowed by state law, and in accordance with the attorney's contract. J. USER-BASED FEES - For services associated with a user fee or charge, the direct and indirect costs of that service will be offset by a fee where possible. There will be a periodic review of fees and charges to ensure that fees provide adequate coverage of costs of services. User charges may be classified as "full cost recovery," "partial cost recovery," and "minimal cost recovery," based upon City Council policy. K. IMPACT FEES - Impact fees are currently imposed for water, wastewater, roadway, and drainage in accordance with applicable city ordinances and State Law. Impact fees will be re-evaluated at least every five years as required by law. 5 L. GENERAL AND ADMINISTRATIVE CHARGES - A method will be maintained whereby the General Fund can impose a charge to the enterprise funds or special revenue funds for general and administrative services (indirect costs), performed on their behalf. The details will be documented in the annual budget process in the form of transfers between funds. M. UTILITY RATES - The City will review utility rates periodically, and if necessary, adopt new rates that will generate revenues required to fully cover operating expenditures, meet the legal restrictions of all applicable bond covenants, provide for an adequate level of working capital needs and debt service requirements. This policy does not preclude drawing down cash balance to finance current operations. However, it is best that any extra cash balance be used instead to finance capital projects. N. INTEREST INCOME - Interest earned from investment of available monies, whether pooled or not, will be distributed to the funds in accordance with the average monthly cash balances. 0. REVENUE MONITORING - Revenues actually received will be regularly compared to budgeted revenues and variances will be investigated. This process will be summarized in the appropriate budget report. VII. EXPENDITURE CONTROL A. APPROPRIATIONS - The level of budgetary control is the department level budget in the General Fund, Utility Fund and the fund level in all other funds. When budget adjustments (i.e., amendments) between departments and/or fiends are necessary, these must be approved by the City Council. Budget appropriation amendments at lower levels of control shall be made in accordance with the applicable administrative procedures. B. CONTINGENCY ACCOUNT EXPENDITURES - The City Council must approve all contingency account expenditures of $50,000 or more, as discussed under Purchasing. C. PURCHASING - All purchases shall be in accordance with the City's Purchasing Policies. D. PROFESSIONAL SERVICES - Professional services will generally be processed through a request for proposal process, except for smaller contracts. The City Manager may execute any professional services contract for less than $50,000 provided there is an appropriation for such contract. E. PROMPT PAYMENT - All invoices will be paid within 30 days of receipt of goods and services or receipt of invoices, whichever is later in accordance with the prompt payment requirements of state law. Procedures will be used to take advantage of all purchase discounts where considered cost effective. However, payments will also be reasonably delayed in order to maximize the City's investable cash, where such delay does not violate the agreed upon payment terms. 6 F. EQUIPMENT FINANCING - Equipment may be financed when the useful life is at least three years. Vehicles to be replaced are identified and evaluated every year during the budget process. Depending on available resources, financing may be made by debt issuance rather than from the General Fund and Utility Fund accounts. G. INFORMATION TECHNOLOGY - Certain information technology acquisitions will be funded in the Information Technology Department's budget or by debt issuance. Acquisitions may include all related professional services costs for researching and/or implementing an information technology project. Lease cost is also an eligible expense. VIII. ASSET MANAGEMENT A. INVESTMENTS - The City's investment practices will be conducted in accordance with the City Council approved Investment Policies. B. CASH MANAGEMENT - The City's cash flow will be managed to maximize the cash available to invest. C. INVESTMENT PERFORMANCE - A quarterly report on investment performance will be provided by the Finance Director to the City Manager for presentation to the City Council. D. FIXED ASSETS AND INVENTORY - These assets will be reasonably safeguarded and properly accounted for, and prudently insured. IX. FINANCIAL CONDITION AND RESERVES A. NO OPERATING DEFICITS - Current expenditures will be paid with current revenues and prior year surplus. Deferrals, short-term loans, or one-time sources will be avoided as budget balance techniques. Reserves will be used only for emergencies or non-recurring expenditures, except when balances can be reduced because their levels exceed guideline minimums. B. INTERFUND LOANS - Non-routine interfund loans shall be made only in emergencies where other temporary sources of working capital are not available and with the approval of the City Council. At the time an interfund loan is considered, a plan to repay it prior to fiscal year end shall also be considered. A fund will only lend money that it will not need to spend in the immediate future. A loan may be made from a fund only if the fund has ending resources in excess of the minimum requirement for the fund. Total interfund loans outstanding from a fund shall not exceed 15% of the target fund balance for the fund. If any interfund loan is to be repaid from the proceeds of a future debt issue, a proper reimbursement resolution will be approved at the time the loan is authorized. C. OPERATING RESERVES - in accordance with GASB-54, it is the policy of the City of The Colony to classify fund balances as Non-spendable, Restricted, Committed, Assigned, or Unassigned and develop policy for establishment and activity of each classification. Non-spendable fund balance is (a) not in a spendable form such as prepaid items or (b) legally or contractually required to be maintained intact as an endowment. Restricted fund 7 balance consists of amounts that can be spent only on the specific purposes stipulated by law or by the external providers of those resources. Committed fund balances are self- imposed limitations set in place prior to the end of the fiscal year. These amounts can be used only for specific purposes determined by a formal action of the City Council and require the same level of formal action to remove the constraint. Assigned fund balance consists of amounts that are subject to a purpose constraint that represents an intended use established by the City Council. The purpose of the assignment must be narrower than the purpose of the General Fund. Additionally, this category is used to reflect the appropriation of a portion of existing fund balance to eliminate a projected deficit in the subsequent year's budget. Unassigned fund balance represents the residual classification of fund balance and includes all spendable amounts not contained within other classifications. Restricted, Committed, and Assigned fund balance expenditures require prior Council approval. (1) Policy on Committing Funds: It is the policy of the City of The Colony that fund balance amounts will be reported as "Committed Fund Balance" only after formal action and approval by City Council. The action to constrain amounts in such a manner must occur prior to year end; however, the actual dollar amount may be determined in a subsequent period. After approval by the City Council, the amount reported a Committed Fund Balance cannot be reversed without Council approval. (2) Policy of Assigning Funds: Funds that are intended to be used for a specific purpose but have not received the formal approval by Council may be recorded as Assigned Fund Balance. It is the policy of the City of The Colony that fund balance amounts will be reported as "Assigned Fund Balance" only after the City Manager has assigned those amounts based on intentions for use of the City Council. (3) Policy on Unassigned General, Parks, and Utility Fund balances: It is the goal of the City to achieve and maintain an unassigned General Fund, Parks Fund, and Utility Fund balance equal to 60 days of expenditures. The required minimum fund balance of 60 days of expenditures is to provide working capital needs in emergencies. The 60 days fund balance is considered as committed fund balance in the General Fund and is approved by the City Council via the resolution adopting this policy. To the extent reasonably possible, in the event that the General fund balance is drawn down below the target level, it will be replenished by the following fiscal year. (4) Order of fund expenditure When multiple categories of fund balance are available for expenditure, the City will first spend the most restricted category of funds. Normally, this will result in the use of committed, then restricted, and lastly, unassigned fund balances. Failure to meet these standards will be disclosed to the City Council as soon as the situation is recognized and a plan to replenish the ending resources over a reasonable time frame shall be adopted. 8 D. RISK MANAGEMENT PROGRAM - The City will aggressively pursue every opportunity to provide for the public's and City employees' safety and to manage its risks. E. LOSS FINANCING - All reasonable options will be investigated to finance losses. Such options may include risk transfer, insurance, and risk retention. F. ENTERPRISE FUND SELF-SUFFICIENCY - The City's enterprise funds resources will be sufficient to fund operating and capital expenditures. The enterprise funds will pay (where applicable) their fair share of general and administrative expenses in lieu of property taxes and/or franchise fees. If an enterprise fund is temporarily unable to pay all expenses, then the City Council may waive general and administrative expenses in lieu of property taxes and/or franchise fees until the fund is able to pay them. X. DEBT MANAGEMENT A. GENERAL - The City's borrowing practices will be conducted in accordance with the City Council approved Debt Management Policies. B. SELF-SUPPORTING DEBT - When appropriate, self-supporting revenues will pay debt services in lieu of tax revenues. D. ANALYSIS OF FINANCING ALTERNATIVES - The City will explore all financing alternatives in addition to long-term debt including leasing, grants and other aid, developer contributions, impact fees, and use of reserves or current monies. E. VOTER AUTHORIZATION - The City shall obtain voter authorization before issuing General Obligation Bonds as required by law. In general, voter authorization is not required for the issuance of Revenue Bonds and Certificates of Obligation. XI. STAFFING AND TRAINING A. ADEQUATE STAFFING - Staffing levels will be adequate for the fiscal functions of the City to function effectively. Workload shedding alternatives will be explored before adding staff. B. TRAINING - The City will support the continuing education efforts of all financial staff including the investment in time and materials for maintaining a current perspective concerning financial issues. Staff will be held accountable for communicating, teaching, and sharing with other staff members all information and training materials acquired from seminars, conferences, and related education efforts. C. AWARDS, CREDENTIALS - The City will support efforts and involvements which result in meeting standards and receiving exemplary recitations on behalf of any of the City's fiscal policies, practices, processes, products, and personnel. Staff certifications may include Certified Public Accountant, Certified Management Accountant, Certified Internal Auditor, Certified Payroll Professional, Certified Government Finance Officer, Professional Public Buyer, Certified Cash Manager, and others as approved by the City Manager upon recommendation of the Finance Director. 9 XII. GRANTS FINANCIAL MANAGEMENT A. GRANT SOLICITATION - The City will stay informed about available grants and will apply for any, which would be cost/beneficial and meet the City's objectives. B. RESPONSIBILITY - Departments will oversee the day to day operations of grant programs, will monitor performance and compliance, and will also keep Finance Department contacts informed of significant grant-related plans and activities. Departments will also report re-estimated annual grant revenues and expenses to the Finance Department after the second quarter of each year. Finance Department staff members will serve as liaisons with grantor financial management personnel, and will keep the book of accounts for all grants. XIII. ANNUAL REVIEW & REPORTING A. These Policies will be reviewed administratively by the City Manager at least annually, and will be presented to the City Council for confirmation of any significant changes. B. The Finance Director will report annually to the City Council on compliance with these policies. 10