Introduction
A comprehensive annual financial report (CAFR) is detailed documentation of the financial and budgetary concerns of a public entity (Jordan, Yusuf, Berman & Gilchrist, 2017). Key parties in a public sector entity play a critical role in developing a CAFR and communicating it to the relevant parties. These professionals include the Chief Financial Officer, the Comptroller and the City Auditor. The report is of great significance not to only to policymakers bit also external parties including (but not limited to) the general public. It follows, therefore, that the top management and senior accounting officers adopt a useful model of data gathering and analysis model with full compliance with stipulated financial reporting standards. Financial information is critical to the core progress assessment as well as the implementation of effective policies in a not-for-profit organization. This paper will elucidate the significant concerns arising in CAFRs of two states and shed more light on the City of Columbus CAFR, the budgeting methods applied when developing it, and the sources of revenue financing the city’s activities in the fiscal year 2016.
The City of Columbus CAFR Vs. City of Chicago CAFR
Publication Method of the CAFR
The publication of the CAFR is usually an engaging task that involves a series of consultations, corrections and validation of financial data from various units in an administration Jordan, Yusuf, Berman & Gilchrist, 2017). The two cities employ a useful annual analysis of financial transactions, which have taken place in the fiscal year 2015/2016. The annual report encompasses changes affecting the cities’ financial position and cash flows and reports them by accounting principles generally accepted in the United States of America.
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Audit and Budget Information
While the two cities employ an external independent audit of the CAFRs before publishing them, the report also entails an in-depth projection of income and expenditure for the next financial year. The audit report for both cities entails a general opinion regarding its truthfulness and a fair depiction of the cities’ financial position.
Type of Audit Used
The City of Columbus employs an external independent audit firm called Plante & and Moran, PLLC, which is located in High Street, Columbus ( Comprehensive Annual Financial Report – City of Columbus, 2016 ). Similarly, the CAFR of the City of Chicago has been audited by an independent audit firm, Deloitte & Touche LLP ( Comprehensive Annual Financial Report – City of Chicago, 2016 ). Both audits give a subjective opinion regarding the report and address some recommendations to the cities’ executives.
Internal Audit Function
The CAFR of Columbus has been issued by the city’s chief auditor, Hugh J. Dorrian, which implies that the city has an internal audit function. Conversely, the City of Chicago does not have an internal audit function and relies primarily on an external independent audit ( Comprehensive Annual Financial Report – City of Chicago, 2016 ).
The City of Columbus CAFR Analysis
Introduction
The introductory section begins a letter of transmittal whose recipients are the citizens of the City of Columbus. Also, the section includes an award that the city won from Government Finance Officers Association (GFOA), which it is a member, in the category of financial reporting. The City of Columbus won the Certificate of Achievement for Excellence in Financial Reporting in the 2016 awards organized by GFOA. The introductory section also gives a list of key officials in the City. Lastly, the section highlights the city’s auditor’s staff.
Financial Section
This section is undeniably the most crucial part of the 2016 CAFR for the city of Columbus. The financial section highlights the independent auditor’s report by Plante & and Moran, PLLC, the city’s external auditor for the year ending 2016 ( Comprehensive Annual Financial Report – City of Columbus, 2016 ). Principal among the concerns addressed in the report is the auditor’s opinion regarding the correctness and internal controls of the city’s administration as well as the report-based recommendations. Also, the financial section outlines the management’s discussions and analysis of crucial financial elements of the CAFR such as budgeting and sources of revenue for the city’s diverse activities. Lastly, the section includes basic financial statements for the year ranging from the statements of income to the statement of financial position. These statements give an accurate depiction of the city’s ability to finance its various projects as well as its state of affairs (Jordan, Yusuf, Berman & Gilchrist, 2017).
Statistical Section
This part entails a comprehensive financial analysis of the city’s principal financial indicators including revenue, expenditure and profits. In effect, this section sheds more light on the financial statements by assessing their critical elements. The statistical section employs tables that conform to the guidelines stipulated by the Government Accounting Standards ( Comprehensive Annual Financial Report – City of Columbus, 2016 ).
Budgeting Methods Used
Methods
The city employs several approaches of budgeting and planning in deriving at projected expenditure and revenue amounts. An incremental approach forms the basis of the budgeting in the city. The method entails taking into account the projected and actual amounts accrued or earned in the previous year (Mattson & Taylor, 2017). Also, the city’s finance executives take into consideration activity-based budgeting, whereby some budgeted amounts are based on the various processes and procedures that either have occurred or are anticipated to happen. Such activities include community development practices and the city’s investments. Lastly, the city employs a value proposition budgeting, whereby the policymakers assess the viability of additional expenditure or revenue items in the financial statements as proposed by various stakeholders such as the general public and the city’s executives (Mattson & Taylor, 2017).
The basis of Accounting Used
There exist several accounting bases of accounting, which differ with the sector and organizational composition and objectives of an entity. The city adapts primarily a cash basis of accounting, which is generally fit for public sector entity. A cash basis holds that there are no provisions for accrued revenues and expenditures, and recognizes transactions only when payments have been made or cash received.
Source of Revenue
The city utilizes various sources of revenues to finance its activities. They are;
Property Taxes
Property tax is a form of a levy which the government directly imposes on the property and collected by the relevant authorities. The City of Columbus estimated an actual property tax amounting to $761,242 in the fiscal year ending December 31, 2017, which was levied on the city’s real and public utility property ( Comprehensive Annual Financial Report – City of Columbus, 2016 ). Since this tax is direct, it is appropriated with other direct taxes, and it constituted to 2.1 percent of the total direct tax.
Other Sources
Other sources of revenue include the general fund and other government funds. According to the statement f revenues, expenditures and changes in fund balances, the total revenues arising from the general fund was $813,044 for the year ending December 31, 2016. Other governmental funds totaled to $3,18,850 for the same year. As such, the general fund was the most significant source of finance which comprised of more than 60 percent of the total revenue for the city.
Differed Revenue
According to the notes provided to the statement above, the revenues that do not provide current financial resources are excluded from the revenue. However, differed revenues are reported in the next year’s current accruals ( Comprehensive Annual Financial Report – City of Columbus, 2016 ).
Taxes
The city has a policy regarding taxes which guides tax remittance and appropriation in relation the funds that finance its budget. Accordingly, Columbus’s income tax rate for the year ending 2016 marked an increase from the previous fiscal year, whereby the rate was raised to 2.5 percent from 2 percent.
References
Comprehensive Annual Financial Report – City of Chicago. (2016). Cityofchicago.org Retrieved 24 October 2018, from https://www.cityofchicago.org/content/dam/city/depts/fin/supp_info/CAFR/2016/CAFR_2016.pdf
Comprehensive Annual Financial Report – City of Columbus. (2016). Columbus.gov . Retrieved 24 October 2018, from https://www.columbus.gov/uploadedFiles/Columbus/Elected_Officials/City_Auditor/Reports/CAFR/2016_CAFR.pdf
Jordan, M. M., Yusuf, J. E., Berman, M., & Gilchrist, C. (2017). Popular Financial Reports as Fiscal Transparency Mechanisms: An Assessment Using the Fiscal Transparency Index for the Citizen User. International Journal of Public Administration , 40 (8), 625-636.
Mattson, A. J., & Taylor, S. R. (2017). U.S. Patent No. 9,799,086 . Washington, DC: U.S. Patent and Trademark Office.
