Reviewed Date: 12/06/2022
Municipal officials have the responsibility to ensure that municipal resources are being utilized in the most effective ways possible. No one likes to deal with red tape or jump through hoops to get things done but in order to maximize efficiency, controls must be implemented. Think about it, is the city or town receiving all the fines and fees it is entitled to from county court cases? How does anyone know if no comparison is done to see what should be collected? Are those rising fuel costs only because the price of fuel has skyrocketed? How do you know gas is not disappearing if a system is not in place to monitor usage by various departments? These are just a tiny sampling of questions that should be asked by those responsible for how a city operates. Internal control is all-encompassing and not simply limited to writing receipts and getting money into the checking account at the end of the day. It involves considering how every task is performed.
Control over the manner in which a government processes its transactions is the responsibility of management. This always includes the governing board, who generally has delegated this day-to-day oversight to the recorder, city manager, finance officer, or city administrator.
Two valuable resources for municipalities to use in structuring their financial and compliance practices are the Internal Control and Compliance Manual for Governmental Units and Other Organizations, published by the Comptroller's Office, and a book titled Government Accounting, Auditing, and Financial Reporting (GAAFR) more commonly called the Blue Book, published by the Government Finance Officers Association (GFOA). The latest version of the Blue Book is the 2020 edition, and the 2022 electronic version is available on the GFOA website. Finance staff of each city should use this publication as a reference book in recording and reporting financial transactions of the city.
The Internal Control and Compliance Manual for Governmental Units and Other Organizations states in part:
“A good internal control framework is essential to providing reasonable assurance that organizations are achieving their objectives. Such objectives include, but are not limited to, utilizing public resources in compliance with laws, regulations and budgetary limitations. An adequate control framework will provide information that helps detect errors and fraud, and provides reasonable assurance that financial reports are accurate. It will limit the opportunity for theft or unauthorized use of assets, including cash, inventory, and capital assets."
The updated manual places more responsibility on the governing bodies and management of municipalities for the design and implementation of the entity's internal control structure. The Internal Control and Compliance Manual for Governmental Units and Other Organizations now follows more closely the GAO Green Book and is based on the 17 principles outlined in that reference material. The principles are presented in the Internal Control and Compliance Manual for Governmental Units and Other Organizations and are recommended, but their use is not required. What is required by state and federal law is establishing and maintaining of a system of internal control and implementation of the 5 components: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring. This should be considered mandatory.
If basic procedures for financial and compliance practices have not been implemented by your government then you will most likely have audit findings. To improve controls, municipal officials should begin implementing the five components from the Internal Control and Compliance Manual for Governmental Units and Other Organizations and not wait on the audit. This manual should be used as the minimum standard overseeing operations. Municipal management should add other procedures to further strengthen the reliability of financial data as necessary. GFOA also has several “best practice” publications available that will be beneficial in determining controls to implement.