Your Role In Financial Management
Decisions about what programs and services to offer is probably the most important thing a Council does. In order to make realistic and effective decisions, Council must know how much money it has to operate with and how much the programs and services cost to run. This requires a clear, effective and accurate budget.
Purpose of the Budget
- A policy document, stating community priorities and goals
- A financial plan, providing estimates of money to be received and spent
- An operations guide, describing activities, services and functions
- A communications device, providing an overview of significant budgetary issues and trends
- A resource planning guide setting a framework for future financial activities
Budgeting and GNWT Legislation
- Every Council must prepare a budget and provide a copy to the Minister of Municipal and Community Affairs before each fiscal year
- The budget must show estimates of all money to be spent and received
- Council cannot pass a deficit budget
- Any deficit at the end of a fiscal year must be eliminated by the end of the next fiscal year
- Council must appoint an auditor once a year to review the financial records and comment on management practices
- Identify community priorities
- Adopt a budget that assigns financial resources to meet local needs and priorities
- Sets goals, objectives and standards for service delivery (e.g. three water deliveries per week)
- Make bylaws, resolutions or policies that set fees for services such as garbage collection, water delivery and sewage collection
Councillors should look at the big picture, not the small details of finance. It is Administration’s job to provide financial information that Council uses to determine if revenues and expenditures are on target and to make decisions.
Money earned, including government grants, contribution and charges for municipal services.
- A significant portion of Non Tax-Based Community revenue is from the GNWT.
- The GNWT does not pay taxes on its property within a Tax-Based Community. Instead, it provides a “grant-in-lieu” of taxes. In Tax-Based Communities, between 20%-40% of their money is raised through property taxes.
Sources of Revenue
All municipal governments can raise revenues by:
- Selling licenses (e.g. Dog, ATV, Business) and permits;
- Assessing fines;
- Renting buildings or equipment;
- Earning interest on investments;
- Profiting from recreation canteen sales;
- Charging user fees for garbage pick-up and/or water delivery;
- Contracting with the GNWT for operating the airport or other programs and services or with the federal government for operating a post office, etc.; and
- Charging administration fees for programs transferred from the GNWT or federal government.
Revenues from local sources
- Why is this charge being made?
- Does Council have the authority to charge the fee?
- Is the amount realistic? Could we charge more or should we charge less?
- When considering fees or looking at new revenues or programs, Council should ask some important questions:
- Will the new revenues cover the cost of running the program? If not, where will the money come from? Is it reasonable to expect staff to suggest options for funding the new program?
- Will the new expenditure meet a community need? If not, is the new program/service really needed?
- Is the program suggestion in response to requests made by community members? If so, are they prepared to pay extra fees or other charges to pay for it?
- Are there other programs or services that could be cut or reduced to pay for it?
- If it’s new funding from a higher level of government, how long will it last? Are there obligations that come with the funding?
Costs including salaries and wages, operating costs, capital costs and grants to community groups. Decisions around what to expect are based on three main factors:
- Last year’s expenditures: Councillors can rely upon Administration to provide information about expenditures made during the previous year. Building this year’s budget from last year’s budget makes sense if last year’s expenditure figures were realistic.
- New programs or services: Communities can often raise new revenues by developing new services or taking on expanded responsibilities from the Territorial Government. While new services can result in a stronger community and better coordination and integration of services, it’s essential that you consider the cost of providing the service as part of your budget process.
- Priorities set by Council: Councillors make sure that local needs are identified and choices are made about which expenditures best meet local needs.S
With the transfer of responsibility for planning capital expenditures having shifted to all communities, it is critical that you understand the difference between operating and capital expenditures.
Operating or current expenditures are made for goods or services necessary for the day-to-day operations of the community. They’re used to pay salaries to Community Government workers, pay for electricity use at the community hall and similar expenses.
In contrast, capital expenditures result in the community acquiring an asset of fixed or permanent nature, like community hall, arena or water treatment plant. Expenditures which improve or extend the useful life of an existing asset are also considered capital expenditures.
Part of a Councillor’s job is to watch how well the budget is working. A Councillor should pay close attention to revenue and expenditures.
Administration should give Council monthly variance reports that show the year-to-date actual expenditures and revenues compared to the total budget. These reports should show revenue and expenditures for the preceding month. You should request Administration provide information on how the expenditures to date compare with the amounts they expect to have spent by that point in time and how they explain for any large differences.
How well are Council priorities and community needs being served by the expenditures? How does Council measure or decide how well the needs and priorities are being met? Did you think about how you were going to measure success when you decide set priorities? You might, for example, survey residents.
A community survey could ask, “What do you think of water delivery services?” “Are you getting good services?” “If not, what problems do you have?” “Is the service provided often enough?” “On time?” “Are the fees acceptable?”
There are two main types of community financial statements:
- Summarizing the whole year’s operations.
- These are the statements that are audited by an independent auditor.
- The audited financial statements must be submitted to the Minister within 120 days of the end of the fiscal year.
- Produced throughout the year (usually monthly).
- Used by Council and administration to compare year-to-date balances to budget.
- Used by Council to help make decisions.
The Role of the Auditor
- Must be appointed by Council.
- Council must advise the Minister the name of the auditor within 30 days of being selected.
The main role of the auditor
- To report the accuracy of the community’s financial statements.
- To see if the financial statements are prepared correctly – according to the Minister’s guidelines and proper accounting principles.
- To look for proper financial practices and internal controls (e.g. are there proper procedures in place for receiving money? For handling money? For depositing money?).
What opinions can the auditor form about the financial statements?
- “Unqualified audit” (everything in good order)
- “Qualified audit” (auditor finds a few problems)
- “Denied audit” (there are major problems)
Why is an auditor valuable to a community?
- An auditor can be valuable source of financial information and advice
- In the “management letter” the auditor will tell the community
- Where the financial problems are
- How to correct these problems
- An auditor provides outside consulting advice to the community
Funding from other levels of government often comes with the need to provide reports on how the money was spent. Failure to live up to these obligations can have important consequences for your Community Government: your community may not receive annual funding the following year; your community may not qualify for other program funding.