Standardized Chart of Accounts: Game Changer for Municipal Accounting

As a local government official, you are pulled in many directions. You wear many hats. You must know everything about your city or county inside and out. The public, the media, auditors, and the elected officials to which you report expect answers quickly when asked. You are stretched thin. You don’t have time to make changes to your internal processes because the extra time to do so will set you back significantly on all of your other duties.

Does this sound familiar?

It’s a story we hear all the time! Having worked with cities and counties for over two decades, we at gWorks recognize how valuable your time is and the demands that are placed on local government officials. However, there is one solution that can help you and your community save time and money while creating efficiencies that will significantly reduce the burdens you face in your day to day—a standardized Chart of Accounts.

The Basics

Local government fund accounting is different from traditional accounting. This is because government entities are different from businesses—they have legally binding budgets, engage in non-exchange transactions (e.g., tax assessment and collection) to cover the cost of public services, and operate complex entrepreneurial activities such as airports, water and sewer treatment systems, and hospitals. Councils, board members, and the public are likely more familiar with business financial information than they are with governmental accounting information; therefore, they might not use it as effectively in making public service decisions.

So how do you effectively and efficiently ensure those cities in which you serve can accurately analyze and process their financial data? The answer is simple—standardize and organize your financial information more efficiently by creating and following a standardized chart of accounts. This will allow you to streamline your financial reporting and significantly reduce time and stress on yourself. Additionally, it will make the city a better and more efficient steward of the public’s finances in which they are entrusted.

Accountability is the cornerstone of government financial reporting. If you are able create clear and concise financial reports you will be able to:

1. Deliver meaningful reports to interested internal and external parties
2. Help those internal and external parties visualize and understand the information without you having to explain everything
3. Easily track your various funds and manage them and their parent funds quickly and efficiently
4. Quickly provide financial reports to auditors and bond raters, saving your community a lot of money (thousands of dollars in auditing costs, possibly hundreds of thousands of dollars in interest on bonds)
5. Have confidence in your financial data and its integrity
6. Significantly reduce the amount of manual labor it takes to produce detailed reports
7. Give your residents the peace of mind knowing the public funds are being well managed
8. Save yourself time!

The Chart of Accounts

Great! You’re all about saving time and money! But what is this Chart of Accounts?

The chart of accounts (COA) is often considered—in particular, by non-accountants (read: “nearly all of us”)— obscure, and is often neglected by many public servants. Yet it is possibly the “backbone” of a well-functioning public financial management system.

A COA is a list of specific financial accounts with predefined numbers and titles that is used to record all the transactions within the city. Government accounting must track revenues and expenses specific to each fund. For example, a COA may contain hundreds of separate funds such as the general fund, a police operations fund, a library fund, an economic development fund, etc. These will be grouped together in categories such as General Government, Recreation, Public Safety, Capital Projects, and more. The primary purpose of this structure is to be able to reproduce reports that can give overall totals or specific breakdowns of revenues or expenses by fund.

As the backbone of a government’s accounting and reporting system, the COA serves as a key tool to meet its business requirements. A COA helps record and report financial information and keeps a chronological record of transactions and events measured in monetary terms and classified and summarized in a useful format based on the needs of the governmental entity. In layman's terms, a properly designed COA will help you record and classify your financial transactions in a way that will significantly help you track and report on your governmental entities budget execution.

Why is that so important you ask? I mean QuickBooks has a chart of accounts as well and you can easily set up an account and make your own COA. That’ll probably be good enough right?

Well….

Most accounting platforms that are not specifically designed for governmental entities do not allow you the ability to track money across multiple funds, easily facilitate the transfer of money from one fund to another, or make it easy to see which fund the revenues and expenses should be applied to. If you only have raw data or data that has been merged in a poorly designed COA for governmental fund accounting, straightforward tasks such as the preparation of standard reports or the auditing process can become burdensome, often require human and/or spreadsheet intervention, and the information may be convoluted and hard to understand. Eventually, the financial data and reports become even more difficult to retrieve and reconcile, leaving said reports to be unreliable. This can not only lead to issues for you personally, but can also lead to problems with auditors and bond raters.

Sound familiar? If so, you definitely need help with your COA!

So now you can see you know how important a standardized COA is to government financial management, accountability, and financial reporting frameworks. But what is it exactly that makes a “good” COA? Any COA that can hold up to necessary reporting and auditing standards that your governmental entity may face will meet these seven objectives:

1. Control - This includes budget appropriation control, in-year allotment/warrant control, fund control (e.g., the general revenue fund and other special funds), management control and other fiduciary controls.
2. Accountability - In a typical locality, the government is held accountable to the local council or board and the public at large. A COA needs to be able to track the transactions that are specific to each administrative entity within your governmental entity (e.g. Public Works, Parks, etc.) in order to provide the accountability of individual managers and to ensure the appropriate audit trails are created.
3. Budget management - This includes budget formulation, execution and reporting (in-year and end-year) and day-to-day monitoring of the budget.
4. Financial planning and management - This includes financial planning, cash management, and asset and liability management. From the perspective of COA design, it is important to know: 1) how the assets and liabilities should be categorized; and 2) at what aggregated level the cash and other liquid assets should be monitored.
5. Management information - This allows individual agencies to track information by using their own detailed accounts codes as long as these are linked to higher level codes which are used for consolidation of accounting/financial data across the whole reporting entity.
6. General purpose financial reporting - This includes the preparation of financial statements and reports in accordance with national and/or international accounting standards (GASB or GAAP). General purpose financial reports are prepared to provide their users (e.g., councils/boards, the public, and creditors/donors) with information about the financial reporting entity which is useful for making and evaluating decisions about the allocation and use of resources.
7. Statistical reporting - Statistical reports are generated to facilitate macroeconomic analysis and surveillance, as well as state, national, and international comparisons.

Conclusion

In conclusion, a standardized chart of accounts has the potential to truly enhance your budgeting, reporting, and auditing by bringing uniformity to and increasing the accuracy of your financial data. This can also help reduce audit costs and also automate processes that are otherwise done manually. Gaining control of the financial books will ease your administrative pain points on top of saving you thousands of hours of extra work over the years of your public service. The consistency will bring added confidence for you, the city’s elected officials, and the public.

No more worrying about whether you’ve tracked your budgets and funds correctly.

No more worrying about the auditors when they come calling.

No more toiling in front of the computer double entering all your transactions when you have a proper COA and the correct software.

Embrace the movement to a standardized COA and save your time and your entity's money. We at gWorks are here to tell you how you can make it happen, and ensure that you succeed.