Financial Reporting The Changing Environment and How to Respond Karin Smith, Heinfeld, Meech & Co. Alaska GFOA, November 16, 2015

Merriam-Webster’s Dictionary defines transparent as “free from pretense or deceit, easily detected or seen through, readily understood, characterized by visibility or accessibility of information especially concerning business practices.” What is Transparency?

Why do we need Transparency? Open and honest communication to stakeholders Clarity of financial picture of the Organization Public requests and inquiry Communicate how the Organization receives its funding sources and spends each dollar Build trust in your community

WhoWhatWhenWhyHow Effective Communication

WhoWhatWhenWhyHow Effective Communication

Who Is Your Audience? WHO. WHAT WHEN WHY HOW

 City Council Members  Employees  Community Members  Future Community Members  Business Leaders  Real Estate Agents  Elected Officials Who Is Your Audience? WHO. WHAT WHEN WHY HOW

 City Council Members  Employees  Community Members  Future Community Members  Business Leaders  Real Estate Agents  Elected Officials What Are Their Needs? WHO. WHAT WHEN WHY HOW

What Do You Communicate WHO. WHAT WHEN WHY HOW

 Financial Statements  Audit opinion  Audit Findings  Control deficiency  Significant deficiency  Material weakness What Do You Communicate WHO. WHAT WHEN WHY HOW

 The Good  Help Management address needs  Staffing shortages, training, technology issues  Identify problem areas  The Bad  Critical, technical language used in findings  Expectation of no audit findings  False evaluation of the effort of staff Are Audit Findings Bad? WHO. WHAT WHEN WHY HOW

 Terminology  Simple, Real World Examples  What People Can Relate To  Key Decision Points  Built In Assumptions  Who Is Deciding What Do You Communicate WHO. WHAT WHEN WHY HOW

 Statutory Requirements  Council Requirements  Community Expectations What Do You Communicate WHO. WHAT WHEN WHY HOW

When To Communicate WHO. WHAT WHEN WHY HOW

 When do you begin the communication process?  What is your timeline?  Statute requirements  Council requirements  Community expectations When To Communicate WHO. WHAT WHEN WHY HOW

Why Communicate? WHO. WHAT WHEN WHY HOW

 Why is the budget important to these audiences?  City Council Members  Employees  Community Members  Future Community Members  Business Leaders  Real Estate Agents  Elected Officials Why Communicate? WHO. WHAT WHEN WHY HOW

How to Communicate WHO. WHAT WHEN WHY HOW

 Effective Strategies  Identify what the big issues are  Cost drivers  Financial forecasting  What are the financial policies  Do you have approved policies?  Share them each year  Strategic plan  Does it need to be updated?  Education starts with basic terms  Open Data How to Communicate WHO. WHAT WHEN WHY HOW

Financial Communication Principles Transparent Easy to understand Concise Accurate Complete Timely Available Comparative

 Effective Strategies  Create, publish, and communicate a CAFR annually  Transmittal letter  Statistics – 10 years of trend data  Effective Strategies  Create, publish public financial reports How to Communicate WHO. WHAT WHEN WHY HOW

Popular Annual Financial Reports WHO. WHAT WHEN WHY HOW PopularAnnualFinancialReport The GFOA established the Popular Annual Financial Report (PAFR) program in 1991 Why is it called “Popular”? Definition: Suitable to common people; easy to comprehend Promotes the preparation of high quality financial reports Participants include state and local governments of various types and sizes

Popular Annual Financial Reports WHO. WHAT WHEN WHY HOW Presents condensed financial data in easily understandable manner Unaudited and presented on non- GAAP basis Information derived from CAFR Designed for the general public Do not need to be an accountant to understand!

Popular Annual Financial Reports WHO. WHAT WHEN WHY HOW Educate the community on the organization’s financial position Financial Position Report on sources of revenue in a community friendly, easy to understand manner Revenues Report on general fund expenditures and other funds wish to highlight Expenditures Educate community on primary and secondary tax rate calculations Tax Rates

Popular Annual Financial Reports WHO. WHAT WHEN WHY HOW Showcase accomplishments and celebrations Accomplishments Summarize most requested information Requested Information Can be used to comply with reporting requirements in some entities’ charters Local Requirements Inform the community of future initiatives prior to an election Future Initiatives

 Effective Strategies  Critical Items To Understand How to Communicate WHO. WHAT WHEN WHY HOW Statement of financial position (balance sheet) Statement of activities (income statement) Cash flow forecast Actual results compared to budget

 Effective Strategies  Graphs are often easier to understand than columns of numbers, and can provide a useful vehicle for sharing trending information  Use of ratios, which combine two or more pieces of financial data to provide a more comprehensive view  Use summarized information for income and expenses, rather than providing detailed line items How to Communicate WHO. WHAT WHEN WHY HOW

 Effective Strategies  The Council set the tone for all budget communications by adopting a “Three Rs” plan, focused on restoring the City’s financial stability, renewing trust, and refocusing the district on the education of its students. They publicly announced the plan, constantly demonstrated how they were implementing the plan, and reinforced how their key decision-making reflected their commitment to the plan. How to Communicate WHO. WHAT WHEN WHY HOW

 Effective Strategies  Creating targeted messages, delivered using a team approach. Work with the City Manager, Finance Director and Council Chair to develop a clear and concise presentation, which they co-present How to Communicate WHO. WHAT WHEN WHY HOW

 Effective Strategies  Build a year-round communications plan using every available tool. Include face-to- face meetings, open forums, print newsletters, newspaper columns, op-ed pieces, and electronic communications (web sites, , voic , cable TV). If it makes sense, offer to go on local radio talk shows. How to Communicate WHO. WHAT WHEN WHY HOW

 Effective Strategies  Consider adding a “Did You Know?” or “Just the Facts” link to your web site to specifically address budget issues. Post only clear, factual information. How to Communicate WHO. WHAT WHEN WHY HOW

 Effective Strategies  Website Strategies  d.gov/#/ d.gov/#/  y/index.html y/index.html How to Communicate WHO. WHAT WHEN WHY HOW

How to Communicate

 Effective Strategies  Social Media  Facebook page  Blogs How to Communicate WHO. WHAT WHEN WHY HOW

 Effective Strategies  Newsletter Strategies  Informational topics year round  How are cities funded  What are the restrictions of funds  Transportation funding  Understanding your property tax bill How to Communicate WHO. WHAT WHEN WHY HOW

 Effective Strategies  Election Pamphlets  Add FAQs to your pamphlet  Council pro statements How to Communicate WHO. WHAT WHEN WHY HOW

 Effective Strategies  Seek and respond to question and feedback from taxpayers. Don’t wait to be invited. Call and offer to present the budget program. Include time for Q & A and provide feedback cards with a contact e- mail, phone number and web site. How to Communicate WHO. WHAT WHEN WHY HOW

 Effective Strategies  Respond swiftly to correct misinformation. Correct any misinformation reported in the media before it is repeated in subsequent articles. Enlist your Key Communicators to squelch rumors. How to Communicate WHO. WHAT WHEN WHY HOW

 Effective Strategies  Explore local cable TV options. If your district is capable of producing good quality programs, consider a short series explaining the budget, the process and the benefits to students and the community. Make it engaging and brief. How to Communicate WHO. WHAT WHEN WHY HOW

 Effective Strategies Be honest Be forthright Be short Be concise Provide clarity Keep it simple Provide training Identify who is responsible for communicating information within your organization How to Communicate WHO. WHAT WHEN WHY HOW

No single financial reporting approach or format works for every organization. Take the time to consider the audience and their level of financial expertise when determining how to convey the information they need to fulfill their responsibilities. Closing

Karin M. Smith, MBA, SFO, CFE (602) x327