Definition from Wikipedia: Modeling of an entitys future financial - PowerPoint PPT Presentation

 Definition from Wikipedia: › Modeling of an entity’s future financial liquidity over a specific timeframe  Tells the user these things about our cash : › How much is available now? › When will it be available in the future? › How much will be available in the future? › For how long will it be available? 2 2

 Guidelines available from GFOA and the American Institute of Certified Public Accountants (AICPA)  Best-practice forecasting models are: › Prepared in good faith using best information available at the time › Prepared by qualified personnel using appropriate accounting principles › Are consistent with the long-range plans of the entity › Assumptions are appropriate and include key factors that impact the entity 3

 Best-practice forecasting models have: › Adequate documentation of financial information › Understanding of process used to develop them › Regular reviews of variances; comparing with actual results › Adequate review with and approval at appropriate levels of authority 4

 For investing township funds  In developing a budget  For strategic or long-term planning  In capital improvement planning  To help determine if a levy is needed  If township has a levy, is it enough to last? 5 5

 Time, Staff and Software all needed to: › Gather information – both current and historical › Create a model – with timeframe to be used › Make assumptions – for increases/decreases › Input information – using which software › Compare and evaluate data – what does it tell us? 6 6

 Establish a base year  Assess past revenue and expenditure trends  Clearly specify underlying assumptions  Assess the reliability of data used in assumptions  Select a forecasting method  Monitor actual revenue and expenditure levels against forecast; explain variances  Update forecast based on changes; new data 7

 Most recently balanced bank reconciliation  Investment balances if separate  Historical analysis of cash receipts and disbursements  Analysis of current fiscal year’s budget › Current receipts › Current disbursements  Assumptions for the future 8 8

 Short-term: › Weekly – you provide daily estimates of cash position › Monthly – provide daily or weekly estimates  Mid-term: › Annual – provide monthly estimates  Long-term: › Multi-year – provide annual estimates 9 9

 Time and resources available for forecasting  Amount of funds available to forecast  Level of commitment of your entity and your staff to forecasting  Amount of accurate information available for forecasting 10 10

 What will inflation and the economy look like?  What is our revenue projected to be? Operating expenses?  How might collective bargaining affect our budget?  Do we plan to increase or decrease our contract spending?  Are we planning to add or reduce services?  What will our vehicle situation look like? 11 11

 Worst-case scenario -- Ohio’s economy drops, general revenue taxes drop by 30% - - Local Government Fund (LGF) revenues drop accordingly  Conservative scenario -- LGF Revenue will be flat for several years  Best-case scenario -- state notifies us that XYZ Company owes Ohio $2 billion in taxes that went to another state and they are getting it back -- we hit the jackpot! 12 12

 Daily Cash flow Worksheet › Enter all transactions on a daily basis › Takes very little time but gives you an immediate snapshot of your cash flow › Allows you to figure out if you have enough cash in your bank account  Do I have an upcoming payroll? Are OPERS or Police and Fire pension payments due soon?  Are there large A/P expenses coming up ? › Allows you to figure out if you need to sell or buy investments, transfer funds, etc. 13

 Try forecasting for the next 3, 5 or 10 years  If you have a levy › Try forecasting through the end of the current levy › Then go beyond it to see if it renewing at same level will provide sufficient income  Longer term forecasting helps administrators plan well into the future  UAN has forecasting tool available 14

Investment Income Fines and Fees Miscellaneous 0.26% 3.31% 0.70% Public Library Fund 37.56% Property Taxes 58.17% 15 15

 Becomes very difficult as Ohio Legislature: › Made drastic cuts in this biennium budget › Changed the funding formula › Phased out the Tangible Personal Property Tax distributions › Eliminated Inheritance Tax for 2013 › Overall, townships lost nearly $117 million in state revenue plus losses in Inheritance Tax › Is now tied again to Ohio’s General Revenue Fund tax revenue 16 16

 Forecasting your township’s cash flow is more important that ever  Recommend a multi-year forecast, 3 years minimum  Distribution information is available on Ohio Department of Taxation’s website http://tax.ohio.gov/channels/government/Ohio DepartmentofTaxation.stm  Office of Budget Management posts a monthly report on Ohio’s State Finances on their website: http://obm.ohio.gov 17

 Tax bills issued twice a year by County Treasurer to homeowners and businesses  Townships can request advances on tax dollars collected from the County Auditor ( ORC 321.34)  Check with your County Auditor settlement officer for your county’s procedure  State Homestead/Personal Property Reimbursements – sign up for Direct Deposit 18 18

 Fines/Fees › May be a good time to review your policies › Consider increasing meeting room rental fees, fees for services, others  Interest Income › What interest income??? › Rates are starting to move upward › It’s important to protect principal 19

Dues & Members/Other 0.32% Transfer to Capital Furniture & Fund Equipment 0.94% 0.74% Library Materials 16.36% Contracted Services 19.66% Salaries and Benefits 60.42% Supplies 1.56% 20

 Townships are service organizations – usually largest expenses are Salaries & Benefits › Recommend forecasting future changes in staffing and budget, include cost of benefits › Minimum wage increases, State of Ohio adjusted annually by rate of inflation of prior 12 months (Ohio Dept of Commerce) http://www.com.ohio.gov/laws/ 21 21

 Health insurance costs continue to rise  It is too soon to tell how the Affordable Care Act will affect us as employers  Layoffs imminent? Consider the cost of unemployment in your projections › Besides unemployment amounts, your township may be required to pay benefits awarded to a former employee who becomes laid off from their current job 22

 Controllable Expenses › Non-union salaries/benefits › Non essential equipment purchases › Non essential supplies  Uncontrollable Expenses › Union salaries/benefits › Debt Payments › Utilities 23

 Watch for the unusual  Be prepared › If you pay bi-weekly, you could have 27 pay dates instead of 26 next year › Cold, snowy weather means higher utility bills, snowplowing and salt › Be sure to plan, save financially for very large expenses down the road 24

 How does our position look compared to last year? Three years ago?  Can we spot any trends in our revenues or expenses?  How far off were our actuals from our estimates? What happened to cause this?  Do we need to figure reduce expenses? Or find new sources of funding – levy, pay to play, increase in fees, etc? 25 25

2013 Projected vs. Actual Revenue $400,000 $350,000 $300,000 $250,000 Projected $200,000 Actual $150,000 $100,000 $50,000 $- Mar May Jun Jul Sept Oct Jan Feb Apr Aug Nov Dec 26 26

 Being Conservative is Best › Estimate variable revenues like interest on investments low › Estimate variable expenses like utilities higher than what you may spend  This will help to provide “emergency” dollars if your revenue does come in lower and/or expenses are higher 27 27

 Projections are actually estimates of future operating results  There are times where you will be wrong! We really don’t have a crystal ball – so prepare for being wrong!  Projections can backfire on you › The “Chicken Little” Syndrome – don’t use projections as a scare tactic 28 28

 Forecasting is not an exact science! › It is both an art (best ‘guesstimates’) and a science (actual past figures)  Forecasting is not carved in stone › Once completed, it is not done forever › Things change, unexpected expenses happen › To be meaningful, it must be regularly updated  Practice makes perfect! The more you work on your forecast, the better you will become at forecasting! 29 29

 Contact me: › kroll@mcdl.org › 330-722-6235 x. 2903 30 30