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?

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 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

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 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

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 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?

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 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?

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 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

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 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

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 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

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 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

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 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?

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 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!

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 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.

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 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

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

 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

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 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

• n their website: http://obm.ohio.gov

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 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

• fficer for your county’s procedure

 State Homestead/Personal Property

Reimbursements – sign up for Direct Deposit

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 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

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

 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/

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 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

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 Controllable Expenses

› Non-union salaries/benefits › Non essential equipment purchases › Non essential supplies

 Uncontrollable Expenses

› Union salaries/benefits › Debt Payments › Utilities

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 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

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 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?

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$- $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

2013 Projected vs. Actual Revenue

Projected Actual

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 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

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 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

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 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

• n your forecast, the better you will

become at forecasting!

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 Contact me:

› kroll@mcdl.org › 330-722-6235 x. 2903

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