The United States’ constitution requires that the City of La Habra partakes an annual audit so as to comply with the law under the section of the Single Audit Act. The review encompasses the expenditure information and other funds of the City of La Habra. The government establishes and maintains an internal control structure design that ensures the state’s assets are shielded from frauds, misappropriation, losses. It is fundamental to note that the budgeting process involved in the financial budgeting employed by the government is significantly different from the budgeting model used by profit organizations. In this accord, this comprehensive analysis paper seeks to provide a succinct insight into the financial report of the City of La Habra, California.
The most prevalent distinction between government budgeting and business budgeting is the legal requirements. The governmental entity budgeting is a requirement of the government while business budgeting is not a legal obligation. Also, the government entity budgeting encapsulates stringent control of the few available resources. On the other hand, business budgeting exhibits a broad array of independence. In regard, the board tasked with the formulation of the city’s budget implemented tremendous budget control. The fundamentality of the control was to foster conformity to the legal provision governing annual financial statement analysis. The ficial analysis employs the General Acceptable Accounting Principle (GAAP) basis in conducting its financial review. The rationale for choosing this basis is the fact that GAAP basis reduces the likelihood of occurrence of frauds or misappropriation of funds by typically governing what is reported and how it is depicted in the accounting records.
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The actual numbers encapsulated in the financial reporting are based on GAAP basis rather than budgetary accounting basis. Reconciliations were omitted from the CAFR for a couple of reasons. The schedule was omitted because the service stated in the CAFR are billed centrally. However, the CAFR portrays tremendous debts and long-term liabilities accrued by the city.
The governmental entities indulge in encumbrance accounting for the goods that have been ordered but have not yet been received. This aspect is a fundamental encapsulate that facilitates budgetary control and fosters accountability. Moreover, encumbrance facilitates effective planning and monitoring of cash at the disposal of the governmental entity. In this accord, the entities are obliged to encumber contracts that have material implications for the budgets. However, costs such as salaries, wages, employee benefits and wages should note be encumbered. The process of recording the encumbrance transaction require the presentation of supportive documentation that acts as evidence of the transaction. In this accord, the documentation can be presented in the form of purchase orders, purchase requisitions, or field orders. The encumbered goods are recorded as commitments and are only changed to expenditure after receiving the goods and services.
Encumbrances that are still outstanding after the lapse of the financial years should not be budgeted for again. The rationale for this action is the fact that the encumbered goods are recorded as commitments hence funds in the elapsing financial year’s budget have already been committed to the acquisition of this goods and services. However, the fact that this funds will be carried forward to the next financial year obligate that the good should not be budgeted for again. Instead, the factors should be reported as reservation of cash on the financial statements. However, diversity in the types of appropriation infuses the difference in the decision regarding whether the goods should be encompassed in the next fiscal budget or not. For instance, capital appropriations lapse at the end of the biennial, unless when the legislation requires the appropriation. Therefore, the only diversity is the period. The bottom line is, the lapse time varies but the goods and services should not be budgeted for again.
In my opinion, the budgeting approach employed by the city leaders is shambolic due to the emanation of tremendous debts associated with the budget. Despite the fact that the city as a separate entity is debt free, the immense debts accumulated in different aspects of the city’ operations such as refunds on special tax bonds, certificates of participation, payment of claims, compensated absences, and other areas portray a massive mishap in the city’s budgeting. A total debt of $125 million excluding postponed refunding portrays that the city’s financial capability is on the lagging end and unless transformative measures are implemented the city’s economy is headed towards a detrimental end. Hence, the formulation of the next budget should take into account the debt accumulated in specific areas and promulgate strategies that can remedy this deficit.
The primary concern depicted by the city’s financial audit is the overwhelming debt accrual that puts the city’s financial strength in jeopardy. In this accord, it is vital that the city’s budgeting board induces certain changes to save the city’s crumbling financial returns. I, therefore, recommend that the budget should be altered so as attract increased investment opportunities in the area. For instance, taxation regulations should be adjusted appropriately to render the City of La Habra a conducive investment destination. The assurance of the most competitive rates of investments will facilitate the accrual of a large investment pool that would be integral in increasing the tax generated by the government and the diversification of the enterprise operations such as water, sewer, and housing. The increased investment opportunities will spearhead tremendous cash flow into the city thus increasing the revenue generated in the city.
