Question

Included in the materials for this discussion is a budgetary comparison statement showing a government’s original adopted budget, and actual results on the budgetary basis of accounting ($ in thousands). Assume the amount originally budgeted for sales tax revenues was based on the expectation that taxable sales would increase by 6 % over the previous year.

• Review the provided budgetary comparison statement. Consider the adequacy of the budget provisions and whether they should have been revised. What does the statement tell you about the financial management of the government?
• Go to the GFOA website at www.gfoa.org. select Best Practices, then Financial Policies, then Fund Balance Guidelines for the General Fund. Consider this in your evaluation.

Answer these questions:

1. Describe at least 3 areas of concern you have about the adequacy of the government’s financial management as evidenced by the statement. (Note: I can identify 5. The lack of variances is not one of them—but you may want to consider those variances in identifying problems).
2. It is not very useful to report the original budget and the final budget (as shown in the statement) as only the final budget is used to compute variances. Do you agree or disagree with the statement and why?
3. A political official boasts that the year-end excess of revenues over expenditures was significantly greater than was budgeted. Are “favorable” budget variances necessarily a sign of efficient and effective governmental management? Explain.

Answer 1

"Favorable" budget variances are not necessarily indicative of effective governmental management. The goal of a government is neither to maximize revenues nor to minimize expenditures. An excess of actual over budgeted revenues may be evidence that taxes were higher than necessary. An excess of budgeted over actual expenditures may denote that the quantity or quality of the services that the government provided were less than anticipated.

ADEQUACY OF GOVERNMENT FINANCIAL MANAGEMENT

• Budget reliability
• Public access to fiscal information
• Public asset management
• Public debt management
• Predictability and control in budget execution
• Accounting and reporting