Why Policies Matter
Government agencies are subject to a variety of rules and regulations stemming from state law, local charter or code, and ordinances or resolutions adopted by the governing body. Financial policies provide a framework within which to ensure effective financial management and to provide continuity between administrations. As staff turnover occurs or elected officials change, the policy framework provides consistency and a roadmap to effective financial management. What if a new governing body wishes to spend into budget reserves? A well-constructed budget reserves policy will make this more challenging without public discussion. What if a new chief executive wishes to cut corners during procurements? A comprehensive procurement policy will prevent this from occurring without deliberate action of the governing body.  

Without a robust and current policy framework in place, there is an increased risk of critical tasks being overlooked, compliance failures with grant programs, state laws, or local charter or ordinance requirements, and/or misalignment of financial operations with the overall mission of the organization.  When things go wrong, the shortcomings of policy can become clear. The likelihood of this occurring is greatly diminished with proper attention to policy

Policy Framework and Hierarchy
A comprehensive policy library should be stratified into policies that are appropriate for approval by the governing body, policies of an administrative nature that are best updated without involving the governing body, and procedures outlining the execution of these policies rather than the content. The governing body should be asked to weigh in on the critical items that either merit their direction (e.g., when do they want to approve purchases or amendments to the budget) or for which staff would be uncomfortable making a decision (e.g., when to waive competitive bidding or when to write off a large receivable). The graphic below illustrates this hierarchy:

 

A good example is of policies and procedures governing fixed assets. The governing body may want to weigh in on the process for disposing of surplus assets or the appropriate replacement schedule for certain classes of assets. An administrative policy expanding on this direction might discuss specific dollar amounts that are appropriate for capitalization, further guidelines for determining assets appropriate for disposal, and approval guidelines for asset replacement. A related administrative procedure might discuss the actual processes for asset inventories and asset disposals, with appropriate forms or software instructions attached.  

The important thing to remember is that consistency matters. Determine what content is appropriate for each level in the hierarchy and strive for consistency across the different categories of policies and procedures to the extent practicable.  

Developing or Expanding a Policy Library
Whether you are starting a new policy library or reviewing your existing one to make sure that it is comprehensive, there are a few key steps to take during this process. First, ensure that the necessary categories of policy are included. Examples of these include budget administration, procurement, accounting operations, risk management, debt administration, investments, and other appropriate areas. The Government Finance Officers Association (GFOA) provides some helpful guidance in this area.  Peer jurisdictions and relevant consultants, such as your municipal advisor or investment advisor can also provide sample policies as a starting point.  There is no need to reinvent the wheel in your efforts but remember that every agency is different and so too should be the nuances of their policy choices.  

Once you know what lies ahead to complete your policy library, take measured steps to see it through to completion. Do not bite off too much initially – start with the critical policies and then fill in the gaps as time allows until you are satisfied with the content of your library. If your department staffing permits, consider delegating policy categories to staff for assistance that can then help with future updates.

Keeping Your Library Current
It is not enough to just have a solid policy library in place; you have to monitor and update it regularly. External requirements, policy goals of the governing body, and internal processes and practices change over time. Rather than trying to remember which policies and procedures are impacted by these changes, a regular schedule for updates can be helpful to initiate detailed review and identify any required revisions. This can be part of an overall strategy for cataloging and tracking policy updates. 

 

Consider:

With these practices in place, your policy library is much more likely to be meaningful, current, and comprehensive, and updates will be a regular part of your routine.  

Please join Scott and retired Finance Director and public finance adjunct professor David Cain for an upcoming CSMFO Webinar – Developing an Effective Financial Management Framework: How Fiscal Policies and Best Practices Can Ensure Your Success – on Thursday, August 15, 2024, at 10:00 AM to learn more about this important topic.

Scott Catlett is a Director in the Government Advisory Services Department at Eide Bailly LLP, where he assists state and local government clients throughout the United States with financial management and budgeting best practice implementation, complex accounting and financial reporting challenges, organizational assessments, and financial policy development. Prior to joining Eide Bailly, Scott worked directly for California cities for 17 years, after serving as a consultant to state and local governments earlier in his career. During his government service, Scott was the Assistant Finance Director for Riverside and the Finance Director for Yorba Linda and then Newport Beach.

Scott holds a bachelor’s degree in finance from Tulane University in New Orleans and a master’s degree in public administration from California State University, San Bernardino (CSUSB). Scott has taught graduate courses in public financial management and public budgeting at CSUSB since 2014 and is an instructor for the CSMFO Financial Management and Analysis core course.  He has been a volunteer leader for CSMFO for 15 years, serving successively as a Chapter Chair, Committee Chair, and elected statewide Board Member. In 2020, he was honored to be elected as the 2022 CSMFO President. He now serves as a Senior Advisor to the CSMFO Commercial Partner Committee.