HomeMy WebLinkAboutFCS-12-062 - Monthly Financial Information to Council and Quart
REPORT TO:Finance & Corporate Services Committee
DATE OF MEETING:
April 16, 2012
SUBMITTED BY: Dan Chapman, DCAO, Finance and Corporate Services,
ext. 2647
PREPARED BY:
Roger LeBrun, Manager of Accounting, ext. 2339 and
Ryan Hagey, Director of Financial Planning ext. 2353.
WARD(S) INVOLVED: All
DATE OF REPORT: March 29, 2012
REPORT NO.: FCS-12-062
SUBJECT:
Frequency of Financial Reporting
RECOMMENDATION:
THAT the current variance reporting cycle of three reports per year be affirmed, with reports as
of the end of April, August and December.
BACKGROUND:
During recent discussions on financial statements, Council has inquired as to the frequency of
variance financial statement presentations as well as investigating whether a more informal,
monthly set of financial statements was also possible.
Currently, staff present variance reports to Council three times per year, namely as of April,
August and December. This report will address the issues of amending the variance reporting
to a quarterly cycle (March, June, September, and December) as well as the possibility of
introducing monthly financial reports.
The issue of frequency of reporting was most recently addressed by Council in 2006 as part of
report FIN-06-020 which discussed the benefits and drawbacks of various reporting cycles,
namely, monthly, quarterly and three times per year. Through a review of relevant literature,
staff assessed best practices and consulted with other local municipalities to compare and
contrast approaches.
Generally speaking, research identified that either the audit committee or the board should
reviewquarterly financial reports and related financial documents, however based on rationale
provided in the report (and reiterated in this report), the presentation of three reports has proven
to be a sound approach for many municipalities. That approach has been supported by KPMG,
the City’s external auditors, and was re-affirmed by a motion of Council in 2006 that the current
practice of providing three financial statements for review be continued.
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REPORT:
Variance Reporting Cycle
Currently, City of Kitchener staff formally present operating results to Council three times per
year; as of the end of April, August and December. Staff also provide updated projections to
Council throughout the budget process.
The current reporting cycle aligns well with the seasonality of City operations as the April report
includes financial information about winter activities such as snow clearing, while the August
report includes financial information about spring and summer activities such as grass/turf
maintenance, sportsfield rentals, and summer camps. Adjusting the timing of these reports to a
quarterly schedule will actually decrease the benefit of the reports as the timing of the reports
will fall in the middle of a season and will require staff to project their costs for the rest of the
season instead of reporting on the activities for the full season. In addition, adjusting the timing
of the August report to September will clash with the budget development cycle.
Another consideration of preparing additional variance reports is resourcing. Each variance
report includes a significant amount of staff time to review, analyze, comment, and present the
findings to Council. Current staffing levels do not provide adequate resources to properly
prepare additional variance reports, while still addressing existing workplans.
Staff contacted four neighbouring municipalities regarding the frequency of their operating
variance reporting to Council. The current practices of these municipalities are provided below.
1. The City of Waterloo reports operating results three times per year. In April, staff
present final results from the prior year as well as hot spots from the beginning of the
current year. Results throughout the year are presented as at the end of August and
October.
2. The City of Cambridge reports operating results seven times per year. Reports to
Council begin at the end of April, and are provided on a monthly basis, with the
exception of the summer months when there are no Council meetings. The monthly
reports are information reports which are not presented to Council.
3. The City of Guelph reports operating results four times per year. Results are presented
to Council as of the end of March, May, August, and December.
4. The Region of Waterloo presents operating results at the same intervals currently used
at the City of Kitchener. Three reports are provided to Council each year, with results as
of the end of April, August, and December.
In summary, for the reasons cited above, staff supports the current format and timing of
variance reporting to Council, namely three reporting cycles per year.
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Monthly Reports
Certain members of Council have also expressed an interest in receiving monthly financial
statements out of the City’s financial system (SAP) with an understanding that there would be
no analysis, accruals or projections (unlike the variance reports). While it is possible to extract
monthly financial reports out of SAP, it is not recommended that this approach be implemented
for several reasons as listed below.
1) Currently, a significant amount of analysis is undertaken to prepare the City’s variance
reports. Finance staff analyze operating activity in detail and work closely with
departmental staff to assess and project variances. During this analysis, several
accruals and estimates which are not booked in SAP are taken into consideration in
order to be able to provide a more accurate picture of the “budget/actual” status, as well
as reasonable estimates for projected year-end balances. Without that analysis and
amended set of figures, the data is of limited value and more importantly, is subject to
misinterpretation. Some examples are as follows:
a. Table 1 below highlights the month by month summary of Schedule 1 results for
2011 (tax-based operating) which would have been a direct output from the
system with no further analysis. The far right column displays the surplus or
deficit compared to the year to date (YTD) budget, and demonstrates that it is not
an indicator of where the tax-based operating ended the year.
Table 1
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b. For the August 2011 set of financial statements, Gas Supply showed a YTD
surplus of $11.7M in SAP. After the appropriate review, analysis and accruals
were complete, adjustments were made to the report to account for timing
differences in revenues, expenditures and inventory that amounted to $11.8M,
resulting in a YTD deficit of approximately $117,000.
2) The General Revenue and General Expense section of Schedule 1 (tax-based
operating) is currently not available in SAP at that level of detail. Itemized categories
included in Schedule 1 such as Supplementary Taxes, Investment Income, Kitchener
Public Library, Centre in the Square, Gapping, etc. are not detailed in the monthly SAP
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reports as they are part of a category highlighted at a higher level. See Appendix 1 for
an example of Schedule 1 from SAP.
3) For each of the enterprise operating reports, SAP does not provide the same level of
detail by “program” as the variance reports. For each reporting cycle, staff manually
configures the data in order to create a report that is more representative of the business
operations to be more easily understood. For example, Golf Operations which is
reported on Schedule 3 of the variance reports details course operations (revenue and
expenses), canteen operations (revenue and expense) and other expenses such as
administration, transfers and debt charges.
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4) Large variances will result in situations where costs have not yet been invoiced to a 3
party (for example, costs in Operations that should be billed to the Region).
5) Several large adjustments occur late in the year once staff have had an opportunity to do
a full analysis, such as allowance for doubtful accounts, gapping review, fleet charges,
sick and vacation liability, supplementary taxes and write-offs, etc. Many of these items
have the potential to have a large impact on the bottom line.
6) Once Council approves the operating budget, there can be several weeks of additional
work required prior to the budget being able to be imported into SAP. It is not
uncommon for the budget to be uploaded in late March or into April. Prior to that point,
there would not be any “budget to actual” variances to report in SAP.
While basic system-generated reports could be produced more frequently (e.g., monthly) for
review by Council, the City is insufficiently resourced to be able to undertake the level of
analysis under this scenario that is currently undertaken for the interim statements. As a result,
the monthly statements would not have the same predictive value nor would staff necessarily be
in a position to comment as fully on issues of interest or concern.
In summary, the combination of frequent internal reviews of financial information combined with
the periodic review of robust interim statements by Council can be considered a sensible
approach and generally consistent with best practices literature in this area.
ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN:
This reporting falls within the Efficient and Effective Government plan foundation area of the
Strategic Plan.
It helps support the financial goal of ensuring openness and transparency of City finances.
FINANCIAL IMPLICATIONS:
N/A
ACKNOWLEDGED BY:
Dan Chapman, DCAO, Finance and Corporate Services
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