The City of Ladue has an important responsibility to its citizens to carefully account for public funds, to manage municipal finances wisely and to plan for the adequate funding of services and facilities required to serve the public. By adopting a set of fiscal policies, the City will be establishing the framework under which it will conduct its fiscal affairs, in a manner to adequately fund local government services. The fiscal policies of the City of Ladue have specific objectives designed to protect the fiscal health of the City. These objectives are:
- To maintain City Council policy-making ability so that important fiscal decisions are not driven by emergencies or financial problems.
- To provide City Council information so that policy decisions can be made timely and accurately.
- To provide sound financial principles to guide City Council and management in making decisions.
- To employ revenue policies which attempt to prevent undue reliance on a single source of revenue and which distributes the cost of municipal services fairly among all programs.
- To ensure legal compliance with the budget through systems of internal control.
- The City’s fiscal policies are separated into the following areas:
- Accounting, Auditing and Financial Reporting
- Operating and Expenditure
- Capital Improvement
- Debt Management
- Internal Control and Risk Management
- Fund Balance
B. ACCOUNTING, AUDITING, & FINANCIAL REPORTING POLICIES
- The City will maintain its accounting records in accordance with applicable state and federal laws and regulations. Budgetary reporting will be in accordance with the applicable state budget laws and regulations.
- The City will use generally accepted accounting principles (GAAP) in all external financial records and transactions. These principles will be monitored and updated as mandated by the Governmental Accounting Standards Board.
- An independent annual audit will be performed by a public accounting firm, which will issue an official opinion on the annual financial statements and a management letter detailing areas needing improvement, if any.
- Financial systems will be maintained to monitor revenues and expenditures/expenses monthly, with an analysis and adjustment of the Annual Budget at appropriate times.
- The Finance Department will monitor the financial systems with reports presented monthly to the Mayor and City Council.
- The Finance Committee will review the results of the annual independent audit and make appropriate recommendations to the Mayor and City Council based upon the findings.
C. REVENUE POLICIES
- The City will continually engage in efforts designed to both broaden and diversify its revenue base to prevent revenue shortfalls due to reliance on a single revenue source.
- All existing and potential revenue sources will be reviewed annually to ensure revenue trends are kept current.
- The City will seek to avoid using temporary revenues to fund ongoing services.
- Monthly reports comparing actual to budgeted revenues will be prepared by the Finance Department and presented to the Mayor and City Council.
- The City will establish all user charges and fees at a level related to the cost of providing the services, as well as the benefit of the service, to the user and the public. Increases in user charges and fees will be implemented in compliance with existing law.
- The Finance Committee will advise the Mayor and City Council on all matters of revenue and taxation, and upon the financial condition of the city.
D. OPERATING AND EXPENDITURE POLICIES
- When necessary, where appropriate and as required by circumstances, the City will institute expenditure controls in an attempt to ensure that current operating expenditures will not exceed current operating revenues.
- Monthly reports comparing actual to budgeted expenditures will be prepared and presented to the Mayor and the City Council.
- Program measurements will be part of the annual operating budget.
- The City will seek to maintain a competitive pay structure for its employees to carry out desired City services and needs.
- Planning and budgeting of expenditures will be based upon a priority setting process that is designed to narrow the range from a list of desirable expenditures to financially feasible expenditures. Expenditures will be justified based on the needs of the City.
- Each year, the Finance Department will update expenditure projections for the next three years. Projections will include estimated operating costs, capital outlays, debt service, and capital improvement program expenditures.
- As the City conducts its long-range financial planning; special emphasis will be placed on maintaining and improving the physical assets and services of the City, as needed.
- In an effort to reduce the cost of capital expenditures, Federal, State and other intergovernmental and private funding sources shall be applied for and used as available. A concerted effort in applying for matching grants is strongly encouraged.
- The Finance Committee will make recommendations to the Mayor and City Council on controlling and justifying expenses. The Committee will review the draft of the annual budget of the City and recommend, with or without alteration, its approval to the Mayor and Council.
E. CAPITAL IMPROVEMENT POLICIES
- Future operating costs associated with new capital improvements will be projected and included in the operating budget forecast, as required. The City is focused on making those expenditures that give it the ability to operate more efficiently and with a lower cost basis than before the expenditure, as justified.
- The City will determine and use the most prudent and fiscally responsible method for financing all new capital projects.
- Capital projects are those with expenditures for long-lived assets, typically greater than 5 years and those whose value is greater than $5,000.
- As the City conducts its long-range financial planning, special emphasis will be placed on maintaining and improving the physical assets of the City.
F. DEBT MANAGEMENT POLICIES
- The City will generally seek to limit long-term debt to only those capital improvements or projects that cannot be reasonably financed from current revenues or with prudent use of reserve funds. The maturity date for any debt should not typically exceed the reasonably expected useful life of the project to be financed. Except where determined by specific redevelopment projects, debt should be structured to provide for the retirement of a minimum of 60% of the amount of the outstanding principle within a ten-year period.
- The City’s policy is to plan and direct the use of debt so that debt service payments will be a predictable and manageable part of the operating budget.
- The City will not issue long-term debt, (i.e., in excess of 12 months), to finance current operations. The City will consider alternative funding sources before issuing long-term debt.
- Capital will be raised at the lowest reasonable cost through a fiscally conservative approach and under advantageous terms for the City in the credit markets.
G. INTERNAL CONTROL AND RISK MANAGEMENT POLICIES
- The City shall maintain an environment conducive to good internal control.
- Internal Control comprises the plan of organization and all the coordinated methods and measures adopted within the City to safeguard its assets, check the accuracy and reliability of its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies.
- The Finance Department is responsible for designing appropriate controls for the departments and the departments are responsible for implementation. Inherent in these responsibilities is the recognition that the cost of internal control should not exceed the benefits expected to be derived. Also, internal controls may become inadequate as conditions change, thus requiring review and modification.
- Segregation of Duties Procedures are implemented and designed to detect errors. Duties will be performed by persons other than those who are in a position to perpetrate them, when possible.
- Written procedures will be maintained by the Finance Director for all functions involving the handling of cash and securities. These procedures shall embrace sound internal control principles.
- The Finance Department shall issue internal control procedures based upon deficiencies that have been identified by City staff or the independent auditors. Finance shall ensure that a good faith effort is made to implement all independent auditor recommendations pertaining to internal control. The Finance Department will seek to periodically monitor internal control procedures and compliance with federal and state regulatory requirements pertaining to internal controls or financial reporting.
- Department heads are responsible to ensure that internal control procedures, including those issued by the Finance Department, are followed throughout the department.
G. FUND BALANCE POLICY
Fund Balance is defined as the excess of assets over liabilities in a governmental fund. The City desires to maintain the proper level of financial resources to guard its citizens against service disruption in the event of unexpected temporary revenue shortfalls or unpredicted one-time expenditures.
Fund Balance Classification - The governmental fund financial statements present fund balances based on classifications that comprise a hierarchy that is based primarily on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in the respective governmental funds can be spent.
- The City has established the following categories of fund balance:
- Nonspendable - Resources which cannot be spent because they are either a) not in spendable form or; b) legally or contractually required to be maintained intact.
- Restricted - Resources with constraints placed on the use of resources are either a) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or b) imposed by law through constitutional provisions or enabling legislation.
- Committed - Resources which are subject to limitations the government imposes upon itself at its highest level of decision making, and that remain binding unless removed in the same manner.
- Assigned - Resources neither restricted nor committed for which a government has a stated intended use as established by the City Council or an official to which the City Council has delegated the authority to assign amounts for specific purposes.
- Unassigned - Resources which cannot be properly classified in one of the other four categories. The General Fund is the only fund that reports a positive unassigned fund balance amount. Unassigned balances also include negative balances in the governmental funds reporting resources restricted for specific programs.
- The City would typically use restricted fund balances first, followed by committed resources and assigned resources, as appropriate opportunities arise, but reserves the right to selectively spend unassigned resources first.
- At a minimum, the City will maintain an unassigned fund balance in the General Fund equivalent to four months or 33% of projected annual expenditures. The City will work toward achieving an unassigned fund balance that is equivalent to six months or 50% of the current fiscal year’s projected annual expenditures.
- Fund balance levels have been established for the following:
- Provides adequate funding to cover approximately four months of operating expenditures.
- Provides stability and flexibility to respond to unexpected adversity and/or opportunities.
- Permits orderly budgetary adjustments in the event of unanticipated revenue shortfalls.
- Provides the liquidity necessary to accommodate the City’s uneven cash flow, which is inherent in its periodic revenue collection, including grant funds which are generally on a reimbursement basis.
- Provides the liquidity to respond to contingent liabilities.
- Fund planned capital projects, thereby avoiding debt.
- Assist in paying-down debt on outstanding obligations.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The governmental financial statements of the City are prepared using the modified accrual method of accounting which is in conformity with U.S. generally accepted accounting principles (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The City’s government-wide financial statements, its statements of net position and activities, are prepared in accordance with GASB Statement 34. The City's significant accounting policies are as follows:
A. FUND ACCOUNTING
The accounts of the City are organized on the basis of funds. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions of certain government functions or activities.
A fund is a separate accounting entity with a self-balancing set of accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance related legal and contractual provisions. The following is a comprehensive list of all of the City’s funds.
- Governmental funds are those funds through which most governmental functions of the City are financed. The acquisition, use, and balance of the City’s expendable financial resources and related liabilities are accounted for through governmental funds.
- The City reports the following governmental funds:
- The General Fund – The City’s primary operation fund, which accounts for all the financial resources and the legally authorized activities of the City except those required to be accounted for in other specialized funds.
- The Capital Improvement Fund – The City uses this fund to account for sales tax revenue designated for capital purchases.
- The Storm Water Fund – The City uses this fund to account for sales tax revenue designated for Storm Water projects.
- The Road and Bridge Fund – The City uses this fund to account for tax revenue designated for road improvements.
- The Public Safety Fund – The City uses this fund to account for tax revenue designated for law enforcement needs and other public safety needs.
- The City reports the following governmental funds:
- Fiduciary fund types are used to account for assets held by the City in a trustee capacity or as an agent or on behalf of others. Trust funds account for assets held by the City under the terms of a formal trust agreement.
- The City reports the following fiduciary funds:
- Pension Trust Funds – Pension Trust Funds are accounted for on a flow of economic resources measurement focus and use the accrual basis of accounting. The pension trust funds account for the assets of the Firemen’s and Policemen’s Pension Plan and the Non-Uniform Employee Retirement Plan.
- Escrow Fund – The City uses this fund to account for building permit escrows.
- The City reports the following fiduciary funds:
B. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available, if they are collected within 60 days of the end of the fiscal period.
Expenditures generally are recorded when a liability is incurred, as under accrual accounting, except when that expenditure benefits future periods, as in the case of prepaid expenditures and similar items.
Property, sales, intergovernmental and franchise taxes, some grants, and interest associated with the current fiscal period are all considered to be susceptible to accrual and have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the government. This includes licenses and permits, charges for services, fines and miscellaneous revenues.
On an annual basis, there is no material difference between revenues and expenditures reported using the economic resources measurement focus and GAAP.
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