Monthly financial reports can be as detailed as the governing body wishes. The important thing is that the information be presented in a manner that is easy to understand. If something about the report doesn't make sense, ask questions and expect a simple but complete explanation that everyone can understand. If the report continues to be confusing, consider using a format that is easier to read, but still provides the needed information. Elected officials aren't elected because they are financial experts; they are elected to be leaders. If you are unclear about an issue, chances are you are not alone and other members are unclear as well.

The Rural Utility Business Advisor (RUBA) program has a publication called "A Plain English Guide to Sanitation Utility Accounting", with chapters that provide examples and descriptions for the following reports: a balance sheet, a profit and loss, and a budget vs. actual. Work with your administrator to decide exactly how much detail you want to see and what information you want brought to your attention. Detailed financial reports can become confusing and difficult to understand. On the other hand, generalized reports often leave out the details needed to identify potential financial problems. It is possible to personalize your organization's reports so they provide enough detail to keep the governing body well informed, but do not overwhelm the reader with too much detail that hasn't been summarized appropriately. DCRA staff can provide assistance with this.

The bottom line is that a financial report should provide the information needed to make decisions in an easily understood format. The purpose of financial reports is to show where the organization is and to monitor the projected revenues and expenditures to ensure the plan outlined in the budget is being followed. The importance of comparing revenues and expenditures to the budget has to do with the unique role the budget plays in government. The budget is adopted by the governing body and legally authorizes the expenditures of the government, whether federal, state, or local. Because it is illegal to spend money without an appropriation by the governing body, the budget is adopted as an appropriations ordinance.

What is a monthly financial report and why is it necessary?

A monthly financial report creates a snapshot of an organization's financial situation by reporting on its revenues and expenditures (money in and money out). One of the goals of a monthly financial report is to compare the monthly and year-to-date activity against the amounts budgeted to ensure the municipality is on track with its budget projections. If there are any areas where the organization may be overspending or under-receiving, this could require adjustments to the budget to ensure the organization can meet its goals.

What is included in a monthly financial report?

At a minimum, the council should see the month's income, expenses, current reconciled bank statement, and a current summary showing the monthly expenses compared to the approved budget for that fiscal year.

There are many types of financial reports. The most common type of financial report is a simple comparison of revenues and expenditures. This type of report when used in business is often called a "profit and loss statement."

Since the business of government is not to generate profit, the purpose of a report to a governing body is to keep it informed and ensure that the finances are adequate to provide the services and accomplish the goals identified for the fiscal year. A monthly financial report to a local government should, at a minimum, compare actual revenues and expenditures with the amounts budgeted. This type of report is often called a "profit and loss budget vs. actual".

The standard report format recommended for use by local governments is a report by department or project/service and line item and includes the following information:

• the originally budgeted amount;
• activity for the month;
• the total amount year-to-date; and
• the difference between the year-to-date amount and the budgeted amount (balance remaining).

What should I do if I don't get a monthly financial report?

State law (AS 29.20.500) requires that the chief executive officer (the mayor, or the manager if a manager form of government is in place) provide monthly financial reports to the governing body. If these have not been provided on a monthly basis, find out the reason and work to correct the problem. Without a financial report, the local government cannot manage its assets or ensure that the residents are receiving the maximum benefit from their public resources. The financial report must also be available to the public.

What should I be looking for in a monthly financial report?

A monthly financial report will tell you whether or not you need to make changes and will serve as the indicator of the financial health of an organization. At a minimum the financial report should clearly relate to the approved budget. You can expect to see whether or not you are on track for receiving money identified in the budget and whether you are spending in accordance with the budget and at the rate you had expected.

It is not always easy to interpret a financial report; most elected officials in Alaska are not accountants, so the report needs to be as simple and user-friendly as possible, while still providing the important information. One easy thing to spot, if the report format is set up correctly, is the relationship between actual revenues and expenditures to what was projected in the budget. If there is a large difference between what is actually being received and spent and what was projected in the budget, it may mean that what was planned for in the budget is not going to happen. This may require adjustments to the budget and changes in the way the municipality is doing business.

A few indicators of problems that a monthly financial report will reveal are:

• reported actual revenues are not enough to meet expenditures;
• increasing debt because of insufficient revenues;
• uncollected payments for services;
• unpaid payroll taxes because of cash shortages;
• grant revenues being used to cover the operational costs of the government; and,
• large increases in the costs of certain services or departments over historic levels.

These are only a few of the things to look for in a financial report.

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How do I read and use the information in a monthly financial report?

To analyze financial reports you need to ask some questions and try to determine the answers from the financial report. These questions include:

• Are revenues being received as planned in the budget? If revenues are collected or received regularly, you should be able to see if the rate you are receiving is more or less than what was planned in the budget. For example, let's say it's the third month of the fiscal year. I.H.S. Health Clinic Lease payments are received each month. Since you are one-fourth through the fiscal year (three months, divided by twelve months in the year) your financial report should show one-fourth of the budgeted revenues for the clinic have been received. If it doesn't, you should ask questions of the administrator or manager. Another example might be State Revenue Sharing, which is received once a year, usually in July. This payment is typically one of the largest your community will receive for the year. If your financial report for July or August does not show that this money has been received, you need to ask questions of the administrator or manager.
• Are there enough liquid assets (cash and its equivalent) to pay the bills? Many organizations have trouble with cash flow. Even though the local government may have enough revenues to cover expenditures during the fiscal year, it may not have the cash available to make important purchases when it is needed. Therefore, the Council needs to have a report on bank balances and other liquid assets as well. For example, you know that heating fuel is available for delivery by barge only a few months of the year. To meet this expense, enough cash needs to be set aside and available to make the fuel purchase when needed. Obviously, the costs of operating government will be a lot higher if the purchase cannot be made when the barge is available, since a barge can deliver fuel much cheaper than flying fuel to a community in winter.
• Is more money being spent than was planned for in the budget? If the budgeted amounts are more than what was planned, the municipality is risking going broke as the year progresses. If general operating expenditures seem normal, you need to check if the monthly expenditure rate is really more than you planned for in the budget. As described above, with a little simple math you can calculate whether expenditures are being made at a greater rate than originally planned. You may also have large expenditures that are not made on a regular basis. An example of this type of expense is insurance. Insurance payments are often made once a year. You need to be aware of when this payment is due and when it shows up on the financial report to compare what was planned in the budget to what it actually costs. If there is a big difference you should be asking questions.
• Are there large Accounts Receivable? Accounts receivable is money owed to the municipality from service charges, such as water and sewer payments, fuel sales, etc. The municipality should be getting regular payments for services it provides. If the payments are not being received in a timely manner, there may not be as much money available as was projected in the budget. Some municipalities do not pay enough attention to billing and collecting the money owed. The result is an increasingly large accounts receivable. Again the income statement may not clearly show why revenues are not being received and you may have to ask for a report on accounts receivable. If you have municipal services that are supported through user fees, you need to be especially aware of the rate that payments are being collected.
• Are grants being properly managed? The financial report should include a section reporting grant activity. It should show the revenues received for the grant and the expenditures that were made from the grant funds. Some common problems include expenditures that are not an appropriate use of the grant funds. Grant revenues are restricted to the purposes identified in the grant agreement. If charges are made incorrectly to the grant, the municipality may have to reimburse the granting agency, or may lose the grant altogether. Another problem is not charging the grant for expenditures that are in fact appropriate. It often happens that expenditures that could be legitimately charged to a grant are not. This may be because the bookkeeper is unaware of what should be charged to the grant or it may be because the bookkeeping system is not operating properly. Either way the municipality is losing money when it does not charge the grant for eligible expenditures. An example that comes up frequently is the cost of audits. If grants contribute to the costs of your annual audit, most grants can be charged for the cost of that part of the audit. If the grant represents 50 percent of your revenue, then the grant can usually cover 50 percent of the cost of the audit. Review the grant portion of your financial reports carefully to check for these kinds of issues.

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Publications:

• A Plain English Guide to Sanitation Utility Accounting

Sample Documents:

• Sample Monthly Financial Report Form (Microsoft Excel)

Recommended web site search topics:

• Profit and loss
• Balance sheet
• Chief Financial Officers Council
• Governmental Accounting Standards Board (GASB)

Training:

DCRA's Rural Utility Business Advisor (RUBA) program offers financial management training on-site in local communities upon request and through regional workshops. Contact a DCRA Local Government Specialist and look at the training calendar for more information.

Alaska Statutes

• AS 29.20.280 Public records available for public inspection.
• AS 29.20.500(4) Monthly financial reports to governing body.
• AS 29.35.010 Reports from municipal departments.