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HomeMy WebLinkAboutFIN-20-016 - Implementation of LTFP Recommended Actions – Financial PoliciesREPORT TO: Finance & Corporate Services Committee DATE OF MEETING: March 9, 2020 SUBMITTED BY: Jonathan Lautenbach, Chief Financial Officer, 519-741-2200 x 7334 PREPARED BY: Jonathan Lautenbach, Chief Financial Officer, 519-741-2200 x 7334 WARD (S) INVOLVED: All DATE OF REPORT:February 15, 2020 REPORT NO.: FIN-20-016 SUBJECT: Implementation of LTFP Recommended Actions – Financial Policies _________________________________________________________________________________________ RECOMMENDATION: That financial policyFIN-PLA-2021 “Budget ControlPolicy” be approved. BACKGROUND: In September Council endorsed the 2020-2029 Long-Term Financial Plan(LTFP). The plan included 22 recommended actionsthat are intended to be implemented / investigated further over thecurrentterm of Council. Fourof the22 recommended actionsincluded in the LTFP focused on the development of new financial policiesfor City including: Recommended Action 1.2Adopt aBudget Control Policy, identifying key financial accountabilities for General Managers, Directors, Managers, and Project Managers 4.1Adopt a Capital Financing and Debt Policy to clarify when debt, short-term financing, and internal borrowing should be consideredto finance capital works 5.1Adopt a User Fee and Revenue Diversification Policy to document the City’s philosophy related to user fees, grants, sponsorships, and alternative revenue 5.2Develop a Dividend Policy for the Gas Utility, Golf, and Parking Enterprise Recommended Action 1.2 is being brought forward at this time for Council’sconsideration. The City has always had strong controls in place related to the reporting ofvariances and overall budget control. As part of the development of the LTFP, staff had undertaken initial work to develop aBudget Control Policyintended toformalize the City’s current process while suggestingimprovements based on a review of municipal comparatorsand industry best practices. Thisdraftpolicy waspresented to Council at the August 27, 2019Strategic Session. Staff have made someminormodifications to the proposed policy based on feedback provided at that sessionand are now seeking Council approval. *** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. 6 - 1 REPORT: At the August 27, 2019Council Strategic Sessionrelated to LTFP, Council was provided with a summary of a draft Budget Control Policy.The policy documentscurrent practices related to operating budget controlsandalso proposesa new process related to the reporting for capital projects. A summary of the maincomponents included in the policy are highlighted below: FIN-PLA-2021–Budget Control Policy (New) PurposeSummary of Key Considerations, Additions, Changes The purpose of this policy is to Responsibilities and key accountabilities related to budgeting have been outlined in this policy establish guidelines and provide clarity regarding roles, Approval authority limits for Directors, GMs, andCFO are responsibilities, and key outlined in policy for both Operating and Capital accounts accountabilities, related to the financial management and Reportable operating account variances that require an budget control for operating and explanation increased from $50kto $100k capital accounts. This policy documents the process for the Operating Budget Variances to be reported based on June, September, and December results reporting of financial performance and results, including the New “Capital Status Report” will provide for regular variance reporting process for the reporting related to open capital projectsbased on June annual operating budget, and the and December results reporting of the status of capital projects. Many of the elements included in the policy reflect the City’s current practices related to budget control. Authority limitshave always existed internally related to approval of budgetary items and responsibilities/accountabilities reflect current expectations. Variance reporting for operating accounts are alreadyreported to Council three times a year and the proposed policy suggests a minor change in the overall timing toalign betterwith the City’s budgeting process. The new capital reporting process will provide additional transparency related to approved capital projects, supporting good project management and building on the City’s strong track record of delivering projects for the community. One change made to the originaldraft policyis revisedauthority limit related to potential project over-expenditures. Based on feedback received during the August Strategic Session, this has been revised in the policy to include a percentage related to the original project budget. The policy would provide authority for staff to approve over-expenditures provided that 6 - 2 they do not exceed 10% of the original project budget or $250,000. This threshold is consistent withauthority provided in other municipalities. The Budget Control policy is attached to this report (FIN-PLA-2021) and a summary of approval authority has been provided asappendix A. ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN: The recommendation of this report supports the achievement of the city's strategic vision through the delivery of core service. FINANCIAL IMPLICATIONS: The LTFP included anumber of financial strategies aimed at strengthening the City’s overall financial position, ensuringthat the City can continue to deliver expected programsand services for the communityboth now and in the future.The recommended financial policy supportsgood financial governance. COMMUNITY ENGAGEMENT: INFORM – This report has been posted to the City’s website with the agenda in advance of the council / committee meeting. ACKNOWLEDGED BY: Dan Chapman, Chief Administrative Officer, Office of the CAO 6 - 3 6 - 4 6 - 5 POLICY Policy No: FIN-PLA-2021 Approval Date: Click here to enter a Policy Title: BUDGET CONTROL POLICY date. Policy Type: COUNCIL Reviewed Date: Click here to enter text. Category: Finance Next Review Date: Click here to enter text. Sub-Category:Financial Planning Reviewed Date: Click here to enter text. Author: Chief Financial Officer Last Amended: Click here to enter a Dept/Div:Financial Services/Financial date. Planning Replaces:Click here to enter text. Repealed: Click here to enter a date. Replacedby: Click here to enter text. Related Policies, Procedures and/or Guidelines: N/A 1.POLICY PURPOSE: The City of Kitchener recognizes the importance of having proper budget controls in place to support accountability and transparency, and to assure the public that the financial affairs of the municipality are being managed diligently. Effective budget control of operating and capital accounts promotes fiscal responsibility and is an essential aspect of the delivery of programs, services, and projects for the community. The purpose of this policy is to establish guidelines and provide clarity regarding roles, responsibilities, and key accountabilities, related to the financial management and budget control for operating and capital accounts. This policy documents the process for the reporting of financial performance and results including the variance reporting process for the annual operating budget and the reporting of the status of capital projects. 2.DEFINITIONS: Account – an individual line item that has been provided with a budget allocation Capital Budget – means the annual Council approved plan for expenditures and financing sources to complete Capital Projects or one-time expenditures Capital Budget Transfer – means the transfer of an unexpended budget amount from one Capital Project to another 1 of 9 6 - 6 Policy No: FIN-PLA-2021 Policy Title: BUDGET CONTROL POLICY Capital Project – means an undertaking for which expenditures are incurred to acquire, improve, demolish or maintain land, buildings, structures, infrastructure, machinery and equipment, including installation of computer software, and any other project as defined from time to time to be capital and is the level at which Council approves funding in the capital budget Department – Means any department of the City as reflected in the current organizational structure Operating Budget – means the annual Council approved plan for expenditures, revenues, staffing levels and service levels for operations of the City taking place from stst January 1to December 31in a given year Operating Budget Transfer – means the transfer of an unexpended budget amount from one current budget program to another Program – means an organizational unit as defined in the Operating Budget that may encompass one or more related municipal services, usually a division of a department that is mandate driven and is the level at which Council approves funding in the operating budget 3.SCOPE: POLICY APPLIES TO THE FOLLOWING: All Employees All Full-Time EmployeesAllUnion ManagementC.U.P.E. 68 Civic Non UnionC.U.P.E. 68 Mechanics TemporaryC.U.P.E. 791 StudentI.B.E.W. 636 Part-Time EmployeesK.P.F.F.A. Specified Positions only: Other: CouncilLocal Boards & Advisory Committees Responsibilities Council Under section 224(d) and (d.1)of the Municipal Act 2001, Council is responsible for “ensuring that controllership policies, practices and procedures are in place to implement the decisions of Council” and “to ensure the accountability and transparency of the operations of the municipality, including the activities of the senior management of the municipality.” Council approves the spending plans as outlined in annual operating and capital budgets and is responsible for monitoring the performance against those plans throughout the year. 2 of 9 6 - 7 Policy No: FIN-PLA-2021 Policy Title: BUDGET CONTROL POLICY Chief Administrative Officer Under section 229(a) of the Municipal Act 2001, the Chief Administrative Officer is responsiblefor “exercising general control and management of the affairs of the municipality for the purpose of ensuring the efficient and effective operation of the municipality.” This includes monitoring financial performance of the organization throughout the year, holding those that have been delegated financial responsibility accountable for the development, monitoring, and management of their budgets, and advising Council at the appropriate time of any significant financial matters arising. Chief Financial Officer(Treasurer) Under section 286(1) of the Municipal Act 2001, the treasurer is responsible for “handling all of the financial affairs of the municipality on behalf of and in the manner directed by the council.” For the purpose of this policy this includes: Directing the development, maintenance and communication of all financial policies, procedures, or practices to support fiscal responsibility Ensuring departments have access to timely financial information to enable responsible decision making for the effective and efficient delivery of programs, services, and implementation of projects or initiatives Monitoring financial performance of the organization throughout the year, ensuring compliance with the reporting requirements as outlined in this policy Advising the CAO and Council in a timely manner of any significant financial matters arising. General Managers General Managers (department heads) are responsible for the efficient and effective delivery of programs, services, projects, and initiatives within their respective portfolios and operational areas of responsibility. For the purpose of this policy they are responsible to: Develop an annual operating andcapital budget for their area of responsibility in accordance with budget guidelines Ensure budgets established related to the delivery of service are accurate, realistic to be able to meet service levels identified to Council Make decisions regarding howservices are delivered within the limits of Council approved service levels and approved budgets Where appropriate, delegate responsibility for the departmental budgets (e.g. Directors, Managers, Supervisors) Hold those who have been delegated financial responsibility accountable for the development, monitoring and management of their budgets Monitor financial performance of department throughout the year and take appropriate corrective action to ensure the department remains in a balanced budget position Advise the CFO of any significant financial matters arising that may impact their ability to remain in a balanced budget position by fiscal year end 3 of 9 6 - 8 Policy No: FIN-PLA-2021 Policy Title: BUDGET CONTROL POLICY Directors Management staff within departments are responsible for the efficient and effective delivery of programs, services, projects, and initiatives within their respective portfolios and operational areas of responsibility. General Managers are ultimately responsible for the overall financial performance of their department, but Directors are responsible for the financial performance for their respective divisions and projects under their portfolio. Responsibilities related to this particular policy include: Developing an annual operating or capital budget for their respective area of responsibility Monitoring financial performance throughout the year Advising the Department Head in a timely manner of any significant financial matters that will impact their ability to deliver an expected program, service, project, or initiative Carry out all transactions in accordance with municipal policies and procedures (e.g. hiring, purchasing, contracts) Managers and Project Managers Management staff within departments are responsible for the efficient and effective delivery of programs, services, projects, and initiatives within their respective portfolios and operational areas of responsibility. Managers are responsible for the financial performance for their respective sections. This is also applicable to those staff that have been assigned, or as part of their role, or have responsibility for managing capital projects or initiatives. Responsibilities related to this particular policy include: Developing an annual operating or capital budget for their respective area of responsibility Monitoring financial performance throughout the year Advising the Director in a timely manner of any significant financial matters that will impact their ability to deliver an expected program, service, project, or initiative Carry out all transactions in accordance with municipal policiesand procedures (e.g. hiring, purchasing, contracts) 4.POLICY CONTENT: The controls outlined in this policy apply only to budgeted operating and capital accounts where over-expenditures may occur from time to time. Unbudgeted items related to new projects or initiatives require CouncilorCAO approval, based on the authorityprovided undermunicipal code 115.5.4 related to unbudgeted expenditures. 4 of 9 6 - 9 Policy No: FIN-PLA-2021 Policy Title: BUDGET CONTROL POLICY Operating Budget Financial Controls The approved budget represents the approved spending authorityfor a particular program or service and overall for the department.The following guidelines are intended to provide departments with some flexibility to ensure the efficient and effective delivery of services while providing proper level financial control and oversight related to the operating budget accounts: 1.A General Manager, together with their staff, has the responsibility to deliver programs or services based on the budgeted level of service approved by Council as part of the annual budget process. This includes working within the net total budget allocation that has been provided for their respective departments. 2.A Director may approve overspending of any particular account or budget line by making the necessary balancing decisionswithin a program or between programs within their portfolio/or area of responsibility, provided that: a.Total expenditures for the department do not exceed the net operating budget approved by Council b.Over-expenditures for a particular program do not exceed $100,000 c. Any transfers that are done to remain in a balanced budget position are not between tax supported, enterprise, or utility programs 3.A General Manager may approve overspending of any particular account or budget line by making the necessary balancing decisions between programs within their department, provided that: a.Total expenditures for the department do not exceed the net operating budget approved by Council b.Over-expenditures for a particular program do not exceed $100,000 c. Any transfers that are done to remain in a balanced budget position are not between tax supported, enterprise, or utility programs 4.A General Manager shall report to the CFO any anticipated over-expenditure in a Program that will result in them exceeding their net total budget for their department as soon as such over-expenditure is reasonably known. The CFO is authorized to approve in-year department budget adjustments provided that: a.The amount of over-expenditure is less than $100,000 b.It’s been determined that funding fromother programs are not available to offset the over-expenditure 5 of 9 6 - 10 Policy No: FIN-PLA-2021 Policy Title: BUDGET CONTROL POLICY c. The over-expenditure is reported to Council as part of the next operating budget variance report 5.Any expenditures that would result in total expenditures exceeding the funding available in aProgram by an amount greater than $100,000 requires Council approval. Council approval is deemed to have been provided for: a.Purchases that are made in accordance with the emergency provisions of the Purchasing By-law b.Costs to be incurred that in the opinion of the General Manager and CFO are unavoidable and required in order to ensure approved service levels are met (e.g. winter maintenance) Any costs incurred under the above provisions will be reported to Council as part of the next operating budget variance report. A separate report to Council is required for any other over-expenditures that fall outside of this process. 6.Operating Budget variances will be identified and reported to Council three times a year based on June, September, and December financial results. An explanation will be provided for variances of $100,000 or greater. Capital Budget Financial Controls The approved capital budget represents the approved spending authorityfor a particular capital project or initiative. The following guidelines are intended to provide some flexibility for the execution of projects while at the same time establish an appropriate level of financial controls for capital budget accounts: 1.A General Manager, together with their staff, has the responsibility to effectively implement and manage projects based on the approved scope, timeline, and budget as approved by Council as part of the annual budget process. 2.General Managersmay approve additional over-expenditures in a Capital Project that exceed the original project budgetwhere: a.The original scope of the project has not changed b.The amount of the over-expenditure does not exceed 10% of the original budget or $250,000 c.Funding is available to fund the over-expenditure through the reallocation of funding from other project(s) within the same program area d.The over-expenditure is reported to Council as part of the next Capital Status Report 6 of 9 6 - 11 Policy No: FIN-PLA-2021 Policy Title: BUDGET CONTROL POLICY 3.A General Manager shall notify the CFO of any anticipated over-expenditure in a Capital Project where it is determined that funding is not available through the reallocation from other projects(s) within the same program area. The CFO will work with the General Manager to determine other potential sources of funding. The CFO is authorized to approve additional funding for a Capital Project where: a.The original scope of the project has not changed b.The amount of the over-expenditure does not exceed 10% of the original budget or $250,000 c.Funding is available to be transferred from other department projects or there is sufficient funding available in anappropriate Capital Reserve Fund to fund the over-expenditure d.The over-expenditure is reported to Council as part of the next Capital Status Report 4.Any Capital Project for which anticipated expenditures will exceed the funding available by an amount greater than 10% of the original budget or $250,000 requires Council approval. Council approval will be requested through: a.A separate report to Council outlining the amount and reason for the anticipated over-expenditure or; b.A tender report that identifies the over-expenditure, justification for proceeding with the award, and identifies an appropriate source of funding to cover the anticipated budget shortfall or; c.The next regular Capital Status Report An exception to the above provisions is any purchase that is made in accordance with the emergency provisions of the purchasing by-law. 5.Project Closures a.A project is to be closed and any surplus funds returned to the original source of funding if any of the following criteria are met: Project completed at or under budget as determined by the General Manager Project completed over budget and recommended funding source for over-expenditure has been identified Project deleted or deferred in order to finance new project or to fund over expenditures in other projectsand reported to Council The project has not commenced within two years after budget approval and cannot be completed within a three year timeframe after commencement (no signed contractual agreement or POs issued) 7 of 9 6 - 12 Policy No: FIN-PLA-2021 Policy Title: BUDGET CONTROL POLICY There has been no account activity on the project for the last 18 months b.Exceptions to the above conditions: There is a need for funding to be rolled to future years, to be utilized in projects that have a similar scope and require additional funding (e.g. phase 1, phase 2) Project has not commenced within two years but an extension has been requested by the General Manager and approved by the CFO or their designate 6.Capital Status Updates to Council To accurately administer and report on the capital budget, Departments will be required to forward to Financial Planning, twice a year, an accurate status of each project owned or managed by their department. The status must include a description of the work in progress, the percentage of work complete, and a projected forecast for completion. A semi-annual Capital Status Report (based on June and December), will be prepared in each year to provide Council with an update on the status of Capital Projects. This report would: a.Provide the statusof each Capital Project b.Report any anticipated over expenditures in accordance with the provisions of this policy and related financing adjustment recommendations c.Report any anticipated over expenditures for which there is insufficient funding in the appropriate project and related financing adjustment recommendations d.Report any additional expenditures incurred after the project has been closed and related financing recommendations e.Report any proposed deletion or deferral of projects to either finance new projects or to fund over-expenditures in other projects f.Address material changes in scope or nature of capital projects, material changes in timing with related financing adjustment recommendations g.Report on any closures of capital projects 8 of 9 6 - 13 Policy No: FIN-PLA-2021 Policy Title: BUDGET CONTROL POLICY 5. HISTORY OF POLICY CHANGES Administrative Updates Formal Amendments 9 of 9 6 - 14