Extending the CORE® to YOUR Court Practice Module Fiscal Management

The Competency

Course Agenda The amount of information in this curriculum is extensive so the course will need to be broken down into a few components offered at different times or offered over several days. This component will be on budget management including budget development, justification, and presentation.

Learning Objectives Identify individual learning needs and objectives related to budget and fiscal management. List the basic differences between generally accepted accounting practices and governmental accounting practices as they pertain to adequate controls and audit compliance. Develop a plan to safeguard the court’s assets. Define key fund accounts and assess true costs of applying for and managing grant funds. Write a budget justification for a new program or budgetary need. Develop a plan for responding to potential budget cuts or for funding for a new project. Define relevant financial policies for the courts and their purpose. Develop a budget for changes needed in the court’s facility. Develop a plan of action for emergency situations involving the court’s fiscal operations and facilities.

Court Manager Responsibilities All areas of the court impact the court’s budget Court managers need to be competent in the area of fiscal management, budget development, and fiscal oversight Court managers need to ensure that the vision, mission and goals of the court are achieved and maintained Court managers need not be technically competent in every area of financial operations, but they must know how to address budget and financial questions, prepare for an audit, how to select and manage fiscal staff and how to read financial reports.

Assessment of Needs Activity: Introduce yourself, stating your role in the court Identify the most pressing need for education in the area of budget and fiscal management Round 2 Activity: How does your court plan? How does your court relate the budget process in the court with the plans? For this activity, participants will be asked to introduce themselves, state their role in their courts, and identify what their most pressing need for education is in the area of budget and fiscal management. Next, ask participants questions about how their court plans (e.g. future courthouse or infrastructure improvements, technology enhancements, new judgeships) and how they relate to the budget process in their court. The responses will be recorded on easel charts for review throughout the seminar.

What Do Court Managers Need to Know Module Practice Key accounting terms (listing of key terms included in curriculum) Funding sources court has and can access, including new sources of funding (fees, fines, restitution, and special assessments) The differences between private and public sector accounting Basics of the primary accounting functions such as procurement, accounts payable, accounts receivable, cash receipts, court collections, etc. How to manage the court’s fixed assets

What Do Court Managers Need to Know Module Practice 6. What fund accounting is and how it works 7. How to manage grant funds from the application phase to the completion phase 8. How to develop a comprehensive budget for the court (anticipating budget cuts or increases) 9. How to maintain the court’s budget 10. Key financial policies necessary 11. Financial reporting requirements 12. How to prepare for a financial audit

What Do Court Managers Need to Know Module Practice How to manage court facilities Maintenance schedule Americans with Disabilities Act requirements Active life of equipment Maintenance agreements Planning for future renovations How to plan for fiscal responsibilities during an emergency and what considerations must be part of the Continuity of Operations Plan

How Do You Use this Curriculum Module Practice This curriculum design may be broken down into several courses Recommend that budgeting encompass one whole course and facilities management be a completely separate course The faculty member presenting the curriculum should have a solid foundation in governmental accounting, auditing and budgeting. Faculty members may want to consider asking participants to bring to the course: Court’s mission, vision and strategic plan Court’s complete budget (inclusive of special programs) Budgeting forms used and formulas used for projecting expenses TARGET AUDIENCE for Course(s): High level court managers who oversee all funding for the court system or a majority of the court funding.

FISCAL MANAGEMENT What is Fiscal Management? Is it…. Purchasing and Paying Bills? Budgeting? Ensuring expenditures meet vision? Crisis management? Using tax-payer resources appropriately? Having a clean audit? Securing fixed assets and resources? How is fiscal management different for a court than other organizations? Funding sources Funder and supervisor of the court aren’t the same and may not have same priorities Accounting staff not court-based (or could be) Fund accounting

What’s the difference between generally accepted accounting practices and governmental accounting practices? Private Sector Public Sector Stakeholders Owners, shareholders Citizens, public officials Fiscal Goal Profits Best, cost-effective services for the public and fiscal accountability Spending Full Budget Try to save money wherever possible because surpluses are profit Need to spend full budget or money could be removed from the budget for the next year Source of Funds Business transactions, consumers, profits, private and public funders, bank loans, interest and other financial mechanisms Taxpayers and fees. Grant resources Financial Reporting Standards Basis Accurate reporting of business transactions Addressing accountability to the public and whether services provided improved, remained unchanged, or declined Information Necessary for Stakeholders Results in competitive marketplace, liquidation threats, equity Evaluation of service and cost to provide service. Ability to generate resources. Will change generate new ongoing costs and how will these new expenses impact other priorities Audits Not required by most private entities, mandatory for non-profit businesses Requirement to prove thoroughness and legality of our financial management

What’s the difference between generally accepted accounting practices and governmental accounting practices? Private Sector Public Sector Financial Reporting Income Statement, Balance Sheet, Profit and Loss Statement Statement of Net Position (Management’s Discussion and Analysis), Statement of Activities, Fund Financial Statements, Budgetary Reporting Budgets Internal planning tools Publically adopted and must demonstrate accountability Equipment and Property Called property, equipment, plant Called capital assets or fixed assets

Financial Management Principles Generally Accepted Accounting Principles (GAAP) – Rules, standards and principles regarding financial position Allows for consistency in reporting Dictates how you maintain your books Governmental Accounting Standards Board (GASB)- Governmental financial standards board. Establishes the standards for governmental accounting

Primary accounting functions of the court Procurement 1. Court manager must ensure that all goods and services are purchased efficiently and in compliance with regulatory requirements 2. Financial policies must specify what regulatory requirements must be complied with and the process for purchasing goods and services 3. Ethical considerations for procurement 4. Emergency procurement Accounts Payable 1. Financial policies of the court will dictate the approval authority of court manager 2. Processing should be efficient and following requirements 3. Documentation adequacy 4. Handling of emergency situations

Primary accounting functions of the court Accounts Receivable and Cash Receipts 1. Preparing invoices 2. Ensuring funds are received 3. Processing cash receipts 4. Monthly close 5. Emergency considerations Court Collections 1. Monitoring court collections 2. Handling outstanding debts 3. Dispensing of uncollectables (prescriptive period expiration) 4. Tax intercepts, garnishments, etc. When considering all of these items, court managers need to consider the emergency situations. Who will pay the bills if you cannot occupy the courthouse or are working remotely? How will payroll be processed? How will deposits be made? Even if there is a short-term outage, how are business operations going to be handled and what must be done before the court shuts down temporarily.

Fixed Assets Fixed Assets are the equipment, major supplies, furniture, etc. that a court utilizes. Fixed Asset Reporting: Annually Inventory Process Report Requirements What is the useful life of items? How will it be determined? Who is checking that items are still in the courthouse? How will you dispose of items when useful life completed? What are the requirements for disposal?

Fixed Assets Securing Fixed Assets How will you secure cash receipts? How will you secure technological resources? Securing in multiple ways How will you secure your general equipment? What processes are necessary to protect your fixed assets in the event of a disaster/emergency?

Fund Accounting---Managing those Resources A fund is a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and balances, and changes therein, which are segregated for specific activities following special regulations, restrictions and limitations. Fund Types General Fund- main operating fund Special Revenue Funds- specific revenue sources (grant funds and restricted revenue) Capital Project Funds- capital outlays including Fiduciary Funds Funds are way of segregating money to make it easier to cost out special aspects or programs.

Grants Management Grants are appropriation of funds disbursed by a grantor, often a government department or private foundation, to a recipient, often a governmental entity or non-profit entity. Key Considerations: Money can only be used for specific purposes; Require specialized budgets; Sometimes require in-kind or cash match; Special accounting may be necessary; May trigger a single audit; Specialized reporting required (data collection considerations); Reimbursement process might be delayed; and What happens when grant is exhausted

Sample Grants Policy and Checklist Prior to applying for a grant of any kind on behalf of the court or one of its programs, permission to apply must be obtained from court administration. To seek permission, complete the below information and submit it to court administration. If authorization to proceed is given, all aspect of the application process including the proposed budget must be submitted for review prior to forwarding the application to the grant agency. Name of Grant Agency:   Title of Grant Solicitation: Due Date of Proposal: Start Date of the Grant: Length of Grant: Maximum Amount of Funds: Matching Funding Required?  Yes  No  Cash  In Kind Amount/Percentage: Reporting Requirements?

Grants Checklist Description of Proposed Project:   Does the grant meet the needs of the court?  Yes  No Describe:  

Financial Policies Financial policies provide operational guidelines for all financial transactions entered into by the court. Ensure compliance with all applicable statutory requirements; Provide for adequate segregation of financial duties; Simplify and clarify all financial functions; Provide sufficient information for management and governmental body to make decisions; and Ensure high levels of fiscal accountability. Some courts do not have their own financial policies. They rely on the governing authorities to provide the policy. Other courts manage limited funds and have not considered financial policies. Some court manage all their fiscal resources and have their own financial policies.

Why Do I Need Financial Policies Financial Policies help courts: Institutionalize good financial management practices; Clarify strategic intent for financial management; Define boundaries for procurement, accounts payable, and accounts receivable; Promote long-term and strategic thinking; Provide for minimum fund balances; Manage risks to financial conditions; and Comply with established public management best practices.

Writing Good Policies Policies must exist in written form; Explicitly outlines and easy to understand Reviewed regularly to ensure tracks current practices and regulations; Court’s priorities shift over time Policies should say what they mean; Clear and correct language Policies should be easily accessible; Published in more than one format Provided to employees to review Policies should be concise; Differentiates between policies and procedures Policies should be comprehensive; Address all relevant issues

Financial Policy Management Adoption Enforcement Revision Adoption: The proposed financial policies and procedures are developed by the court manager and their designee. The proposed financial policies are adopted by a majority vote of the judges and accompanied by and adoption instrument to be signed. Enforcement: The court manager is responsible for the enforcement of the financial policies and must address any violations. Revision: Financial policies are reviewed annually to determine if amendments or inclusions are necessary. The court manager drafts the amendments and additions for presentation to the judges for adoption.

Financial Policy Development Activity: In your small group, brainstorm which financial policies would be important to protect the court and assist the fiscal management of the court. Discuss why each policy would be important to the court. Policy Why is it important?

Financial Policy Development Cycle Who is responsible for each step? Who ensures adherence to policies? Who will ensure policies are reviewed and revised? Financial Policy Adoption Policy Enforcement Policy Revision

Financial Reporting Financial Reporting is the aggregation of detailed data from the accounting system into a form suitable for decision making. It is the court manager’s responsibility to provide detailed financial reports that accurately reflect the fiscal health of the organization. The timing of the financial reports will be dictated by the court’s governing authority. Financial reports should be compiled at a minimum of quarterly and reflect a reconciled general ledger.

What Financial Reports Should I Have? The financial reports should include: Statements of actual revenue and expenses and budgeted revenue and expenses; Balance Sheet indicating all checking and reserve account balances, total accounts payable and accounts receivable, all other liabilities, all other assets, and the fund balance (net assets) for all funds; Special Revenue/Program Fund Reports detailing the actual special program fund expenditures and budgeted special program fund revenues.

Fiscal Audit How do you select an auditor? The annual audit is a tool used to ensure that financial procedures are in order and the court is optimally utilizing the resources provided by the taxpayers. An annual audit is a verification process of financial systems and reports The auditor will review processes and let the court manager know if internal control steps should be taken to protect the court against fraud or theft. How do you select an auditor? What’s the Court Manager’s Role during the audit process? The selected auditor should produce an engagement letter stating qualifications, objectives, management’s responsibilities, procedures, limitations, reporting package, and fees. Court manager is responsible for providing the auditor with basic financial statements and all accompanying information. Management must make all financial records available to auditors.

Single Audit In the United States, the Single Audit, also known as the OMB A-133 audit, is a rigorous, organization-wide audit or examination of an entity that expends $750,000 or more of Federal assistance (commonly known as Federal funds, Federal grants, or Federal awards) received for its operations. https://www.whitehouse.gov/omb/circulars/a133_compliance_supplement_2016 Can provide some guidance?

Types of Audit Opinions Name Definition Unqualified Opinion Also known as a clean opinion. Is an audit report that is issued when an auditor determines that each of the financial records provided by the court is free of any misrepresentations. In addition, no misrepresentations and the court’s financial records are maintained in accordance with policies and/or standards. Qualified Opinion Qualified opinion is issued when a court’s financial records have not been maintained in accordance with policies and/or standards, but no misrepresentations are identified. Adverse Opinion Adverse opinion is issued to a court when the financial records do not conform to policies and/or standards and the operations have been grossly misrepresented. Usually an indication of fraud. Disclaimer of Opinion Disclaimer of opinion is issued when an auditor is unable to complete an accurate audit report. This may occur for a variety of reasons, such as an absence of appropriate financial records.

Audit is completed. Report has been issued. Audit is Done Audit is completed. Report has been issued. What do I do next??? The court manager will be responsible for providing management’s views on current findings, conclusions, and recommendations, as well as the planned corrective actions. Management should be prepared to provide evidence that the court has a sound financial reporting system in place. At the close of the audit process, the court manager should evaluate the process and determine if the needs of the court were met. If the court manager is interested in contracting with a different auditing entity in the future, consideration must be given to the request for proposals process and timing. The audit engagement letter is typically due 90 days prior to the close of the fiscal year (timeframe varies from state to state).

Facilities Management Court managers have a duty to ensure the court’s facility needs are met. How do you ensure this is complete? Maintenance Schedule When do we plan to clean carpets, replace carpets, paint, replace air conditioner/heater, replace roof, etc. 2. Ensure ADA requirements are met 3. Determine Active Life of equipment/supplies and plan for replacement Have Adequate Maintenance Agreements to ensure equipment can be repaired and checked Planning for future renovations Planning for technology needs Facility Emergency Preparedness - Review Continuity of Operations Plan Court manager duties regarding facilities differ greatly by jurisdiction. Some court managers are responsible for the courthouse maintenance and renovation and other court managers have limited or no responsibility because the courthouse is a government building an maintained by the governing authority.

Extending the CORE® to YOUR Court Practice Module Budget Management

Learning Objectives Practice Module Practice 1. Write a budget justification for a new program or budgetary need. 2. Develop a plan for responding to potential budget cuts or for funding for a new project. 3. Develop a budget for changes needed in court facility. Develop a plan of action for emergency situations involving the court’s fiscal operations and facilities. Budgeting for court managers will depend on specific situations. Not all court managers are responsible for the budget and allocations for a court. Not all courts will have project or division managers in addition to the court manager.

Budgeting Process The budgetary process is similar to the legislative process. Court managers have various duties in the budget process (not everyone has the same responsibilities). Dependent on the funding sources, the Court may have various budgets with specialized requirements per the funding source. There may be state laws regarding public budgets that need to be adhered to. The budget process is an ideal time for Court personnel to be involved in the financial planning. Developing a budgetary calendar may be helpful and holding hearings to gather feedback. Budget Process: Proposed Budget, Original Budget, Adopted Budget, Amended Budget and the Final Budget

Budget Drafting The Budget is a tool and mechanism of fiscal control. Budgets are a common tool for comparing organizations, sharing fiscal information, and highlighting an organization’s purpose and role. The Budget should be a clear statement for projecting and recording how public monies will be used. What’s your role in the budget process? Who controls your budget? Does the Court control their own funds?

Budgeting Approaches There are numerous budgeting approaches. Three approaches most often used in court systems are: Zero-based budgeting – All fiscal needs must be re-justified each year. Program-based budgeting – Hybrid that uses previous years’ budgets as a baseline and justifies continuation, changes, and new funding based on demonstrated performance and outcomes Continuation (incremental) budgeting – All previously justified and approved funds are continued in the new budgeting period with adjustments for increased costs (inflation)

Types of Budgets There are many types of budgets. The most applicable types of budgets to courts are: Operational Budget – General budget which includes expenses for running the court. Includes personnel, supplies, equipment, etc. Project Budget – Budget specific to a certain area or project. Example: Drug Court Budget Capital Budget – Budget for expenditures resulting in the acquisition of, or in addition to, the court’s tangible assets such as buildings and land.

Budget Considerations Some Considerations for Budget Inclusion: General/Recurring Expenditures – What costs are going up? Estimate the costs Equipment Refreshment Plans – Do you replace computers every three years? What is getting replaced? Maintenance Schedule – Do you replace carpet or paint this year? What needs to be fixed? Capital Improvements – Are you renovating? Budget Cuts – Are we asked to cut funds from categories?

Budget and Fiscal Management Assessment of Needs How does your court plan for: Future courthouse improvements Technology enhancements New judgeships Infrastructure improvements Implementing a special program How can you improve this process?

Budget Template Insert a budget example here for discussion and review purposes

Budget Preparation The complete budget preparation process includes several tasks: Develop a calendar; Identify responsibilities and deadlines; Review process to ensure on schedule; Produce reports; Identify issues and problems; Assign responsibilities for problem solving; and Ensure requirements are met.

Revenue Projecting Revenue projection methods: Economic forecasts Case analysis Trend analysis Regression analysis Revenue estimates need to be updated regularly in order to adequately address budget implications. Typical Court Revenue Sources: General Fund Revenue – state or local funds Fines Filing Fees User Fees Grants

Typical Court Expenses: Operating Expenses Typical Court Expenses: Personnel Contracts – interpreters, repairs Equipment Travel/Training Telephone Office Supplies Security Utilities Furniture

Estimating Expenses Expense estimates should take into consideration increases in cost for inflation. Projecting the costs for the period helps to determine amount necessary. Comparison to the previous year should be completed. Personnel cost adjustments and benefit increases need to be addressed in the budget planning. The cost impact for adding additional services needs to be fully anticipated—additional space, personnel, equipment, etc.

Defending a Budget A normal part of the budget process is defending the budget to your funding authorities. When presenting a budget request, the court manager (presenter) should present a well-organized request with all essential information. A budget justification should include: Statement of Need Connection to the Mission Supportive Information – data and other information that demonstrates the need for funding by the court. Effective/efficient practices – how services produce savings Summary of funding needed Consequences of request denial

Managing Budget Cuts Budget cuts are inevitable. Court managers who have to deal with financial stress are limited in the options they may have to solve the dilemma. A plan for financial crisis should be considered long before the actual crisis. In order to manage funding/budget cuts, a court manager must: Know what the court has– financial, physical, and human resources available Know what the court needs as a baseline Know how to get help – other agencies to help with cuts

Budget Cut Funding Options Possible funding options: Direct Funding – requesting additional funding Indirect Funding – requesting assistance from another entity that benefits from the program Shared Funding – requesting financial assistance from all the agencies that are involved and benefit from the program Grant Funding – requesting additional funds through grants Communication is the Key

Budget Shortfalls Can the Court increase revenues to offset the cut? Can you add additional court costs? Can you charge user fees? Can the Court reduce expenditures? Can we cut office supplies? Can we cut personnel?

Reducing Expenditures Strategies for Reduction: Hiring Freeze Reduction in Overtime Postpone equipment replacement Reduce Travel/Training Reduction court hours of operation Close court facilities Outsource Stop providing a service Eliminate a program

Facility Management Scenarios The purpose of this activity is to encourage participants to identify some of the primary issues that can occur when there is a planned or unplanned change to the facility. Scenarios #1 – ADA Audit During a routine Americans with Disabilities Act (ADA) audit, the inspector found several ADA compliance issues. ADA issues are:   The door handles are not levers but rather knobs For security reasons several doors are locked and do not have panic bars on them The front door threshold is raised too high for a wheelchair to roll over The public restroom has a door to enter into the bathroom suite and a door to enter into the stall area. The clearance area is not wide enough for wheelchair accessibility.

Facility Management Scenario 2 Scenario #2 – Courthouse Annex Your county courthouse was built in 1922. Since that time, the county population and case filings have grown two-fold. The current courthouse is owned by the county with control of its use under the authority of the presiding judge and you as the court manager. However, because the county owns the courthouse, funding issues and major court changes need to be approved by the county board. This year the county agreed to add an addition to the original building which will add space for additional offices and two new courtrooms.   In your small group, discuss how to solve these problems by developing a plan that includes: Who should be involved: a) in the planning group; b) in the decision making group (if different)? What are the steps needed in the planning process? What are the steps in the implementation process? Please develop a short budget (costs can be estimated – the important point is to think through the budget items/categories). Facility management scenarios are activities that encourage participants to identify some of the primary issues that can occur when there is a planned or unplanned change to the facility. Many have budget implications that need to be considered in a thoughtful way.

Where Can I Get Help? Governmental Accounting Standards Board www.gasb.org Governmental Financial Officers Association www.gfoa.org

Budget and Fiscal Management & Other Competencies

Resources Core Website: nacmcore.org