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The budget administration guidelines recommend sufficient fund balance to provide for: a) <br />Economic uncertainties, local disasters, and other financial hardships or downturns in the local or <br />national economy, b) contingencies for unforeseen operating or capital needs and c) cash flow <br />requirements. Further, the guidelines call for such designated fund balances to be at least 20% of <br />General Fund operating expenditures (budgeted expenditures for the following year). Consequently, <br />based on the General Fund's budgeted operating expenditures for 2013-14 the guideline requirement <br />is approximately $16 million. <br />Even during these difficult economic times, the unassigned fund balance reported in the <br />accompanying financial statements is a step toward meeting these guidelines. For example, the <br />2011-12 financial statements reflect Council designations that total $14.8 million. While these <br />designations do not fully meet the guideline amount of $16 million, the unassigned fund balance <br />does represent substantial progress. <br />City Budget & Budgetary Controls <br />The City Council is required to adopt a final budget through the passage of a resolution no later than <br />June 30, the close of the fiscal year, following a public hearing process conducted to obtain taxpayer <br />comments. This annual budget serves as the foundation for the City's financial planning and control. <br />The budget is prepared by fund, function (e.g., public safety) and department (e.g., police). The legal <br />level of budgetary control is at the fund level. The City Manager is authorized to transfer budgeted <br />amounts between departments and line items within any fund; however, any revisions which alter the <br />total expenditures of any fund must be approved by the City Council. Transfers between funds must <br />be approved by the City Council. At the end of the fiscal year, encumbered appropriations are <br />carried forward and become part of the following year's budget while appropriations that have not <br />been encumbered lapse, unless otherwise authorized by the City Council and the City Manager. <br />Accounting System <br />The City's accounting records for general government operations are maintained on a modified <br />accrual basis, with the revenues being recorded when measurable and available. Expenditures are <br />recorded when the services or goods are received and the liabilities incurred. Accounting records <br />for the City's proprietary activities are maintained on the full accrual basis, with revenues <br />recorded when earned and expenses when incurred. In maintaining the City's accounting system, <br />consideration is given to the adequacy of internal controls. Internal controls are designed to <br />provide reasonable assurance regarding the safeguarding of assets and to ensure the reliability of <br />financial records and maintaining accountability for assets. The concept of reasonable assurance <br />recognizes that the cost of control should not exceed the benefits likely to be derived. The <br />evaluation of costs and benefits requires continuing estimates and judgments by City <br />management. We believe that the City's system of internal accounting controls continues to <br />adequately safeguard assets and provide reasonable assurance that financial transactions are <br />properly recorded. <br />X <br />