What is government accounting software? How can it help you with government accounting basics?
Government accounting software is specifically designed with the financial, accounting, and reporting needs of municipalities, counties, townships, special districts, and other local government entities in mind. Such software differs considerably from general business accounting software. Most government accounting software is set up to handle the unique needs and regulatory requirements of local governments, which often have complex budgeting, accounting, and reporting structures in place.
Think of it like this: many software companies release specialized editions of their basic business packages for various industries. A contractor or retailer might need a different accounting program to address the regulatory, accounting, and budgeting needs of their business. It's faster and easier to purchase software that has features specific to your industry built into it than to buy off-the-shelf software and try to make it handle the complexities of your industry. So, too, is it easier – and better – to purchase government accounting software to ensure that most of the accounting, budgeting, and reporting needs are taken into consideration right from the get-go.
If you are new to government accounting basics, the following information will help you with both short and long-term budgeting and forecasting. It includes common considerations as well as things people often forget to include in their budget and risk management scenarios. Lastly, we share information on long-term forecasting. Tying it all together is the use of government accounting software, which makes the entire process easier, more efficient, and transparent to stakeholders.
Government Accounting Basics: The Budgeting and Forecasting Process
Local governments typically go through several stages or steps in the budgeting and forecasting process. This includes budget preparation, revenue projection, expense allocation, capital planning, scenario analysis, an approval workflow, monitoring, and reporting.
Budget Preparation
In the budget preparation stage, your entity creates a comprehensive budget for the upcoming fiscal period. Departments and agencies within the local government submit their budget requests, which are then reviewed and consolidated into a master budget. Government accounting software allows for the allocation of funds to various departments, projects, and operational expenses based on priorities and available resources.
Revenue Projection
As you work on your budget and forecasting, take into consideration potential revenues (revenue projection). Include sources such as taxes, fees, grants, and aid from other governments such as state or federal aid. If you are using government accounting software, the software can draw from historical data to build your forecast. You can then layer over the software's projections with your own interpretation based on economic trends and any legislative changes that may impact the budget.
Expense Allocation
Now that you've built a budget forecast, it's time to allocate funds to different expenditure categories. This is another area in which government accounting software is a huge help. The software can allocate funds to categories, including personnel costs, infrastructure projects, debts, and other operational expenses. You can then review the suggestion allocation to ensure fiscal responsibilities and compliance with regulatory requirements, as well as any other considerations.
Capital Planning
Do you have capital improvement projects in the works? These long-term infrastructure projects, such as roads, budgets, schools, and utilities, may need special treatment. Prioritize and schedule funding around capital improvement projects based on fund availability and strategic priorities. Some local government accounting software may include features for asset management, project tracking, and lifecycle cost analysis.
Scenario Analysis
Scenario analysis and sensitivity testing are also part of the budgeting and forecasting cycle. The software makes it easier to create multiple scenarios based on different assumptions regarding revenues, expenses, and economic conditions. After running many different scenarios, you can evaluate their potential impact and adjust budget forecasts accordingly.
Approval Workflow
The approval workflow in your agency or government may include department heads or various stakeholders. Government accounting software enables you to route your forecasted budgets for approval to a predetermined set of stakeholders for approvals. The software can also track the status of budget approvals, ensuring transparency and accountability throughout the decision-making process.
Monitoring and Reporting
You should be monitoring and reporting on the budget throughout the fiscal year. If you use government accounting software, the system can monitor the budget performance against actual revenues and expenditures. Your accounting department or budget manager can then generate reports and dashboards to track variances, analyze trends, and identify areas that may need adjustment. Timely financial reporting is essential for accountability and compliance.
Risk Management and “What If” Scenario Testing
One of the trickiest areas of budget forecasting is taking into account risk and how it impacts budgets. You may sit down to create a budget forecast and think you’ve taken everything into consideration, but life has a tendency to throw us curveballs. Revenues from parks and recreation services grind to a halt during the summer’s busiest months because of a problem at the swimming pool: the pool has to close, thus immediately dropping revenues. Situations like this can immediately throw projects into disarray. How can you compensate for it?
This is another area where government accounting software can be a great help. Several features within the software make it easier to plan around and adjust for unexpected situations that impact budget forecasts.
For example, government accounting software includes data collection. Software is very good at looking at large amounts of data and extrapolating trends. Using the software, you may be able to predict factors affecting budgets from the trend data.
We've talked about scenario planning in the previous section, but it bears repeating. Creating multiple scenarios based on different economic conditions, possible problems, etc., enables you to predict the impact on budgets. In the parks and recreation example, you can easily program a what-if scenario with variables that include possible decreases in revenues from park service fees and how that may impact the overall budget. By running multiple scenarios, you've covered at least some of the more common ways in which the budget can be impacted.
Transparency also helps with risk mitigation. When everyone uses the same software platform to plan, manage, and view budgets, everyone has access to the same data. Managers can then convene and offer possible solutions, remedies, or corrections to address the risk and its impact on the budget. Because they have complete access to the data, they can make better decisions.
How to Secure Stakeholder Buy-In for Budgets
One way in which you can make the budgeting process go smoothly is to keep all stakeholders updated on the budget status. Involve all parties early and often in the budgeting process to ensure you’re gathering all stakeholder needs and concerns. This may include both internal stakeholders and external ones, such as the public, local groups and organizations, and others who benefit from having early information on the budget.
Not only will transparency and good communication help you prepare a budget, but they will also help stakeholders feel engaged and informed about the budget. By soliciting input from citizens, community groups, elected officials, and others, local governments can better align budget priorities with community needs and preferences. It enhances public trust and reduces people's resistance to change if changes are planned. It gives people a voice and ensures they are heard.
Big Picture Considerations During the Forecasting Process
You probably have a good grasp of the typical budgeting needs for your local government: personnel expenses, debt repayments, other operating expenses, and so on. And you have historical data to work with. But what about the big picture? Economic trends, legislation, election cycles, and even census factors such as population changes all impact budgets.
If your area relies heavily on specific industries such as oil, gas, or other natural resources, economic and political factors are extremely important. Legislation for or against mining permits can immediately impact the local economy. Election cycles can disrupt plans if an incumbent loses and the newly elected person has different policies that impact revenue generation and government spending. And census factors also impact budgets. If your area serves an aging population, this may increase expenses for healthcare and senior services, while a baby boom may require future planning for bigger schools.
When forecasting big-picture areas for consideration in local government financial management, analyze as many factors as you can think of that may influence revenues, expenditures, and overall fiscal health. Key industries, changing political dynamics, census reports, and the current financial landscape require careful planning and consideration to adapt to changes and mitigate risks.
Forecasting: Remembering All the Details
“It’s all in the details” is a good saying to remember when you’re involved in government budgets and forecasting. Depending on your local area, you may need to include details such as projecting welfare caseloads to estimate social services expenditures and forecasting local town revenues such as income tax, casino tax, and business tax by analyzing economic indicators, demographic shifts, and regulatory changes.
Additionally, forecasting expenses involves assessing operating and capital expenditures, debt service obligations, grant funding, and reserve funds to ensure financial stability. Identifying key revenue and expense drivers, conducting scenario analysis, and exploring various future scenarios are essential for accurate forecasting and informed decision-making.
So, what details should you include? Again, the answer depends on the communities which you serve. Casino revenues may be very important in some areas, while demographic shifts are of greater concern in others.
However, there are some details that are common to most places. These include:
• Weather-related risks: Incorporate historical weather data and forecasts into financial models to assess the potential impact of snow days or extreme weather events on government operations, service delivery, and revenue streams. Create 'what if' scenarios to simulate the financial implications of different levels of snowfall or weather-related disruptions on expenses (for example, overtime for snow removal, repair costs) and revenues (reduced tax revenue due to business closures).
• Equipment replacement: Everything from photocopiers to snowplows need to be placed at some point in time, and this can make a dent in the budget if it’s not accounted for during forecasting. Maintain an inventory of equipment and assets, including their useful life and replacement costs, within the accounting software. Create scenarios to simulate the financial impact of equipment failures, maintenance delays, or unexpected replacements on capital budgets and operational expenses.
• Grant expirations: Are any funding sources expiring soon? Do you need to consider this as part of risk assessment – the risk of a grant not being renewed? Develop contingency plans and explore alternative funding sources to mitigate the impact of grant expirations on programs and activities.
• Building maintenance and infrastructure: It’s important to conduct facility condition assessments to identify critical maintenance needs and prioritize infrastructure investments based on asset conditions, safety considerations, and budgetary constraints. Model different funding scenarios and their impact on addressing deferred maintenance, repair, or reconstruction needs for town buildings and infrastructure. Also, consider if any facilities need to be updated for code changes or accessibility issues.
The Benefits of Long-Term Forecasting
There’s a lot to consider when it comes to government budget forecasting. We’ve talked about many aspects of it, including what to include and consider, risk and what-if scenarios, items people typically forget to include in budgets, and more.
As you review your budgeting and forecasting, consider long-term forecasting. Long-term forecasting typically extends beyond the standard annual budget cycle and may project financial trends and scenarios over three or more years into the future. While the specific time horizon may vary depending on the entity's needs and planning requirements, a multi-year forecasting horizon allows for more comprehensive analysis and planning, enabling local governments to anticipate future challenges and opportunities and make strategic decisions accordingly.
Some areas of special consideration for long-term forecasting are strategic planning, risk management, resource allocation, debt management, and capital planning. These considerations must consider all that we’ve talked about in general for forecasting: economic trends, census data, and so on.
The big picture is always complex and ever-changing. Long-term plans can guide, but they must be updated when the situation changes. Fortunately, if you use government accounting software, you’ll have a great repository of information from which to make long-term forecasts.
Government Accounting Software Enables Better Forecasting
Government accounting software offers a comprehensive suite of tools and functionalities to streamline budgeting and forecasting for municipalities, counties, special districts, and other local government entities.
With built-in features for revenue projection, expense allocation, scenario analysis, and approval workflow management, this software enables efficient and accurate budget preparation and forecasting. By leveraging historical data, economic indicators, and demographic trends, government accounting software facilitates informed decision-making and strategic planning while ensuring compliance with regulatory requirements. Additionally, collaborative features allow for stakeholder engagement, transparency, and accountability throughout the budgeting process.
Overall, government accounting software serves as a powerful tool for optimizing financial management, enhancing fiscal transparency, and achieving long-term financial sustainability in local government operations. As part of learning government accounting basics, understanding the forecasting process and how software supports it is critical.
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