Frequently Asked Questions
One of the most important responsibilities of an elected official is to manage public resources. In order to do this well, an elected official needs accurate and timely financial information to make good, informed decisions for the community. A fundamental principle of government is that elected officials and government employees have a responsibility to fully explain how public resources are used. One way this is done is by accounting for and reporting on the use of money and other assets. State law (AS 29.20.500(4)) requires financial and other reports be provided to the governing body and, in keeping with the public interest policy, AS 29.20.380 assures that public records are made available for public inspection.
A monthly financial report is the tool needed to monitor the budget and compare the budget projections with what is really happening. It provides a reality check to verify the budget projections are accurate and the finances of the organization are secure. It is also a tool for assessing local programs and services and deciding if the governing body is meeting its goals.
Monthly Financial Reports can be as detailed as the governing body wishes. The important thing is that the information be presented in a manner that is easy to understand. If something about the report doesn't make sense, ask questions and expect a simple but complete explanation that everyone can understand. If the report continues to be confusing, consider using a format that is easier to read, but still provides the needed information. Elected officials aren't elected because they are financial experts; they are elected to be leaders. If you are unclear about an issue, chances are you are not alone and other members are unclear as well.
There is a sample monthly financial report form in Commerce's "Model Financial Record Keeping System Manual", Chapter 12, and the "Additional Resources" section below provides a sample monthly financial report form that should work for a typical rural Alaska community. Work with your administrator to decide exactly how much detail you want to see and what information you want brought to your attention. Detailed financial reports can become confusing and difficult to understand. On the other hand, generalized reports often leave out the details needed to identify potential financial problems. It is possible to personalize your organization's reports so they provide enough detail to keep the governing body well informed, but do not overwhelm the reader with too much detail that hasn't been summarized appropriately. Commerce staff can provide assistance with this.
What is a monthly financial report and why is it necessary?
A monthly financial report creates a snapshot of an organization's financial situation by reporting on its revenues and expenditures (money in and money out). One of the goals of a monthly financial report is to compare the monthly and year to date activity against the amounts budgeted to ensure the municipality is on track with its budget projections. If there are any areas where the organization may be overspending or under-receiving, this could require adjustments to the budget to ensure the organization can meet its goals.
What is included in a monthly financial report?
At a minimum, the council should see the month's income, expenses, current reconciled bank statement, and a current summary showing the monthly expenses compared to the approved budget for that fiscal year.
There are many types of financial reports. The most common type of financial report is a simple comparison of revenues and expenditures. (This type of report when used in business is often called a "profit and loss statement.")
Since the business of government is not to generate profit, the purpose of a report to a governing body is to keep it informed and ensure that the finances are adequate to provide the services and accomplish the goals identified for the fiscal year. A monthly financial report to a local government should, at a minimum, compare actual revenues and expenditures with the amounts budgeted.
The standard report format recommended for use by local governments is a report by department or project/service and line item and includes the following information:
What should I do if I don't get a monthly financial report?
State law (AS 29.20.500) requires that the chief executive officer (mayor or manager if manager form of government) provide monthly financial reports to the governing body. If these have not been provided on a monthly basis, find out the reason and work to correct the problem. Without a financial report the local government cannot manage its assets or ensure that the residents are receiving the maximum benefit from their public resources. The financial report must also be available to the public.
What should I be looking for in a monthly financial report?
A monthly financial report will tell you whether or not you need to make changes and will serve as the indicator of the financial health of an organization. At a minimum the financial report should clearly relate to the approved budget. You can expect to see whether or not you are on track for receiving money identified in the budget and whether you are spending in accordance with the budget and at the rate you had expected.
It is not always easy to interpret a financial report - most elected officials are not accountants, so the report needs to be as simple and user friendly as possible, while still providing the important information. One easy thing to spot, if the report format is set up correctly, is the relationship between actual revenues and expenditures to what was projected in the budget. If there is a large difference between what is actually being received and spent and what was projected in the budget, it may mean that what was planned for in the budget is not going to happen. This may require adjustments to the budget and changes in the way the municipality is doing business.
A few indicators of problems that a monthly financial report will reveal are:
These are only a few of the things to look for in a financial report.
How do I read and use the information in a monthly financial report?
To analyze financial reports you need to ask some questions and try to determine the answers from the financial report. These questions include:
The bottom line is that a financial report should provide the information needed to make decisions in an easily understood format. The purpose of financial reports is to show where the organization is and to monitor the projected revenues and expenditures to ensure the plan outlined in the budget is being followed. The importance of comparing revenues and expenditures to the budget has to do with the unique role the budget plays in government. The budget is adopted by the governing body and legally authorizes the expenditures of the government, whether federal, state, or local. Because it is illegal to spend money without an appropriation by the governing body, the budget is adopted as an Appropriations Ordinance.
The Alaska Department of Community and Economic Development, Division of Community and Regional Affairs provides training on-site in local communities and upon request and through regional workshops.
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