1. Office of State and Local Finance
Budgeting with a Twist
Common Errors in Budget Submission

2. INTRODUCTION

3. Who we are Sandra Thompson, CCTS, Director of State and Local Finance
Sheila Reed, CPA, Assistant Director for Local Finance
Lori Barnard, MBA, Sr. Financial Analyst
Steve Osborne, MBA, Sr. Financial Analyst
Ron Queen, MA, CPA, CGFM, Sr. Financial Analyst

4. What we do
Oversight of Local Government Financial Management Compliance
Budgets
Debt
Reports on Debt Obligation
Investments
Analyze government financial information, position and condition
Assist Local Governments with budgeting, borrowing and/or investing money

5. OSLF Statistics for FY 2016 We Review Budgets for:
342 Municipalities
95 Counties
180 Utility Districts
We Approved or Reported on:
366 Debt Issues
We Reviewed:
554 Reports on Debt Obligation

6. OSLF Budget Review, Approval or Reporting
Comptroller Office’s Authority to Set Budgetary Standards
The Comptroller’s Office has the authority to prescribe forms and procedures for the preparation of annual budgets. T.C.A. §
The annual budget shall be prepared in a form consistent with accepted governmental standards and as approved by the comptroller of the treasury or the comptroller's designee. T.C.A. § (a)
…the fiscal affairs of a local government to be maintained on a cash basis… in order that the current receipts of such local government shall be sufficient to meet current expenditures…

7. OSLF Budget Review, Approval, or Reporting
All local governments; including counties, metropolitan governments, municipalities, and utility districts; are required to file a budget meeting the standards of the Comptroller’s Office to OSLF for review pursuant to the requirements of T.C.A. §

8. OSLF Budget Review, Approval or Reporting
All counties, metropolitan governments, and municipalities with debt issued pursuant to Title 9 Chapter 21 of the Tennessee Code Annotated are required to submit a complete and proper budget meeting statutory requirements to OSLF to receive official budget approval in accordance with the requirements of T.C.A. §
All counties, metropolitan governments, municipalities and utility districts entering into a loan agreement with a public building authority pursuant to Title 12 Chapter 10 of the Tennessee Code Annotated; are required to submit to OSLF budget meeting statutory requirements to OSLF to receive budget approval in accordance with the requirements of T.C.A. § (c).

9. OSLF Budget Review, Approval, or Reporting
All utility districts with debt issued pursuant to Title 7 Chapter 82 Part 5 are required to submit a budget to OSLF for publication of a report on the adequacy of its budget in a paper of general circulation of a district’s service at the beginning of its fiscal year.

10. GOALS & OBJECTIVES

11. GOALS For Counties, Metropolitan Governments & Municipalities
Adopt a budget by June 30.
Submit a complete and proper budget package to OSLF within 15 calendar days of adoption.
Meet OSLF’s requirements and budgetary accounting standards in preparing, adopting, and submitting the local government’s budget.
Use the budget as part of the local government’s internal control process.

12. Objectives
File or submit for approval a complete and proper municipal or county budget that meets the statutory requirements.
Accomplish goals and control government finances with budgetary control accounts.

13. Today’s topics
Common Budget Errors in Filing and Submitting Budgets to OSLF
Controlling Expenditures and Monitoring Revenues

14. BUDGET OVERVIEW

15. Budget Cycle Preparation Legislative Consideration Execution Audit and
Evaluation

16. OSLF Approval in Budget Cycle
Preparation
Legislative Adoption
Execution
OSLF Approval

17. File or Submit a Complete and Proper Budget
Objective 1 :
File or Submit a Complete and Proper Budget
to OSLF

18. OSLF Budget Guidance
Where can I find OSLF’s requirements for budget filing, submission, or reporting?

19. What do you think are common errors in budget submission?

20. Which is a Common Error? Transfers not appropriated
“Use of fund balance” misclassified as a revenue
Numbers in appropriation act do not agree with those in the budgetary control accounts
Planned spending exceeds available cash plus projected cash receipts
Annual debt service payments misclassified or under appropriated

21. Common errors are: All of the above
Incomplete budget document submission
Waiting so long to adopt a budget the only way to balance is by cutting appropriations!

22. Compliance

23. When does a county, metropolitan government, or municipality need to file or submit its budget to OSLF?

24. What is the budget filing or submission due date?
Immediately upon adoption (15 calendar days after adoption)
November 30
Before the end of the fiscal year
I don’t have to because I have no debt or am not issuing any debt this year

25. The filing/submission date is:
Immediately upon adoption (15 calendar days after adoption)

26. Yes, Virginia, there is a Santa Claus
Yes, Virginia, there is a Santa Claus. Your government must adopt an appropriations act to legally spend money!

27. Budget Adoption
Various General Law statutes require local governments to adopt an appropriation act to authorize spending for the fiscal year.
All of the political subdivisions of Tennessee are required to appropriate money before they spend it.
Some local governments have the authority to operate pursuant to a continuation budget until the end of August if they fail to adopt a budget by June 30.

28. Budget Adoption
For counties and municipalities, charter provisions may be more strict than the General Laws and require adoption of the appropriation act by or before June 30 with no continuation budget authority.

29. Spending Cannot Exceed…
Appropriations
Tool monthly monitoring of budget-to-actual reports
Tool budgetary expenditure control accounts and purchasing procedures
Available Cash
Tool cash flow analysis

30. Budgetary Accounting

31. TRUE OR FALSE?
A budget is a legally adopted plan of financial operation for specific purposes and the proposed means of financing them. 
TRUE

32. TRUE OR FALSE?
The scope and method of state and local government budgetary practices are outside the scope of financial reporting standards.
TRUE

33. TRUE OR FALSE?
The annual budget is a legal compliance standard against which the operations of general, special revenue and similar funds are evaluated.
TRUE

34. TRUE OR FALSE?
Integration of budgetary accounts in fund ledgers is a useful procedural adaptation of the usual fund accounting equation and system to serve important interim managerial control purposes.
TRUE

35. TRUE OR FALSE?
The appropriated budget is the substance of the appropriations bills or ordinances enacted into law.
TRUE

36. Budgetary Accounting vs Reporting
Key Idea: Budgetary accounting is an activity apart from financial reporting.
Budgeting is an essential element of a government’s:
financial planning,
internal controls, and
evaluation process.
Budgeting is an important tool
For accountability to citizens and in making policy by elected officials.
Above all, the budget is a tool for management.

37. Basic Principles of Budgetary Accounting
Every governmental unit should adopt an annual budget.
The accounting system should provide the basis for appropriate budgetary control.
Common terminology and classification should be used consistently throughout the budget, the accounts, and the financial reports of each fund.
The scope and method of local government budgetary practices are established by law and thus are outside the scope of financial reporting standards.

38. Budgetary Basis of Accounting
The budgetary basis of accounting is the legally prescribed basis of accounting.

39. TRUE OR FALSE?
The cash-basis is the budgetary basis of accounting in Tennessee.
TRUE

40. Common Problems in Budgets
Presentation
Transfers and Interfund Tax Anticipation Notes
Misclassified Accounts
Debt Service
Other
Revenue and Fund Balance

41. Common Terminology and Classification - Presentation
Proper Budget Fund Presentation:
Fund Financial Statement format
Use the same funds as in the financial statements.
The Funds should use the cash basis of accounting.
Enterprise funds should have a cash basis budget
Water, Sewer, and Water and Sewer Funds should have a projected Statement of Changes in Net Position on the Accrual Basis.

42. Common Terminology and Classification - Transfers and Contributions
What is an interfund transfer?
Interfund transfers—flows of assets (such as cash or goods) without equivalent flows of assets in return and without a requirement for repayment.
Accounting Treatment
In governmental funds, transfers should be reported as other financing uses in the funds making transfers and as other financing sources in the funds receiving transfers.
In proprietary funds, transfers should be reported after non-operating revenues and expenses.
Example
PILOT, debt service, school monies

43. Transfers are treated as a source of revenue and as an expenditure for budgeting purposes:

44. Common Terminology and Classification - Transfers and Contributions
Transfers vs Interfund Services:
Hey, what if one fund pays another for goods or services? 
Interfund services—sales and purchases of goods and services between funds for a price.
Accounting Treatment
Interfund services provided and used should be reported as revenues in seller funds and expenditures or expenses in purchaser funds.

45. Common Terminology and Classification - Interfund Loans
What is an interfund loan?
Interfund loan - a reciprocal interfund activity where an amount is provided from one fund to another with a requirement for repayment.
Accounting Treatment
Interfund loans should be reported as interfund receivables in lender funds and interfund payables in borrower funds. This activity should not be reported as other financing sources or uses in the fund financial statements. An interfund loan for operations is not reported as a revenue or transfer in the budget.

46. TRUE OR FALSE?
An interfund transfer is not a loan.
TRUE

47. TRUE OR FALSE?
Interfund services are accounted for as revenues in the selling fund and expenditures or expenses in the purchaser fund.
TRUE

48. TRUE OR FALSE?
In the budget, an interfund transfer-in is not treated as a revenue.
FALSE

49. TRUE OR FALSE?
Interfund loans do not require an authorizing resolution by the governing body or approval of OSLF if cash is available in the lending fund.
FALSE

50. TRUE OR FALSE?
Payment-in-Lieu-of-Taxes is accounted for as an interfund service between two funds.
FALSE

51. Tennessee Requirements for Interfund Loans
Tax and Revenue Anticipation Note (TRAN)
A loan in anticipation of the collection of property tax or other revenue to manage cash flow needs until the actual receipt of cash.
Requires the governing body to authorize the loan by adopting an TRAN resolution and OSLF approving the TRAN.
Requires the requesting government to demonstrate need and the ability to repay the TRAN by June 30 with a fund cash flow.
Interfund TRANs require demonstration of the lending fund to make a loan without impeding operations with a fund cash flow.

52. Tennessee Requirements for Interfund Loans
Capital Outlay Notes (CONs)
A loan to finance capital projects (treated as loan proceeds)
In year of borrowing, lending fund must demonstrate ability to make loan without impeding its operations with a fund cash flow.
In subsequent years, include interfund CONs in debt schedule and repayment must be budgeted from borrowing fund to lending fund.

53. Common Terminology and Classification – Misclassification of Debt Service
Misclassification is a common error in budgets submitted to OSLF
Debt Service is not:
Capital Outlay
Equipment
Police Car
Fire Truck
Personal Service Contracts
Anything Else
Line items should be classified as debt service - preferably as principal and interest payments.
Debt service payments in enterprise fund budgets should also be clearly identified.
Use lenders’ payment schedules to determine amounts required for annual debt service.

54. Common Terminology and Classification – Misclassification Generally
Refer to Section 1800 of the GASB Codification
Ensure that the different accounts in your budget are properly classified.
If you need assistance, contact:
Your CTAS/MTAS Financial Consultant
Your auditor
Division of Local Government Audit or OSLF

55. Revenues and Fund Balances
For the budget, the cash receipts you expect to receive during the budget year are the revenues.
Use of Fund Balance is not a Revenue.
Revenues are not included in Expenditures or Expenses.
Fund Balance
We look for cash balances in the budget.
Fund balance information needs to be included in budget for informational and compliance purposes.

56. Objective 2 :
Accomplish goals and control government finances with budgetary control accounts.

57. Budgetary Control
Key Idea: Budgetary accounting includes the integration of budgetary control accounts to assist in controlling expenditures and enforcing revenue provisions.
Budgetary Account Integration is achieved by loading budgetary control accounts into the accounting system as part of the budget’s execution.
Monthly monitoring of budget-to-actual reports using the accounting system and cash flow analysis should be implemented as part of budget execution.

58. Summary Adopt a complete and proper budget by June 30.
Submit the budget package to OSLF within 15 days of adoption.
Follow the budgetary accounting and OSLF’s requirements in preparing, adopting, and submitting the local government’s budget.
Use the budget as part of the local government’s internal control process.

59. Any Questions?

60. OSLF Contact Information
Office of State and Local Finance
Sandi Thompson
Sheila Reed
Lori Barnard (A-F)
Steve Osborne (G-N)
Ron Queen (O-Z)