Tracking Financial Data for Better Public Sector Budgeting

May 3, 2017 – Adam Stone

Given an uncertain economic recovery and future, the pillars of successful governance must include stability, collaboration, engagement, long-term strategic planning, and the ability to track and monitor multi-year financials and performance trends.

When I served as the Controller of Greenwood, Indiana, I was responsible for authoring the city’s annual budget and Comprehensive Annual Financial Report (CAFR). In undertaking our regular fiscal and operational analyses, we found that effective data tracking and measurement was crucial. In this post, I will focus on how data integrity, accurate data tracking mechanisms, and technology solutions that facilitate analysis must all work together to help make government finance and management teams successful over time.

Why Successfully Tracking Financial Data Matters

Successfully tracking financial data allows municipalities to identify early warning signals, make adjustments to prevent loss, find savings, and leverage key performance indicators.

Multi-year tracking is not new to strategic financial management. In fact, in some form or another, measuring and tracking financial data have always been core elements of accounting. Ensuring that all revenues and expenditures are classified correctly in the right period and are comparable is something any good finance professional seeks to do well. Tracking, then, is already a baseline function ripe for enhancement. As a profession, we can undertake innovative solutions to improve our ability to track our data. We can leverage technology to help save time preparing reports, which often leads to more time allocated to analysis. Better decisions follow deeper analysis.

Relevant and Reliable Data

For optimal performance and long-term solvency, having relevant and reliable data are essential to tracking financials over time.

When it comes to compliance and reporting, finance officers need their data to be accurate, timely, independently verifiable, and understood in the appropriate accounting framework. Whether we send our data to internal managers, departments, boards, commissions, or external auditors, it should conform to the way it is ultimately going to be reported. The information should be classified and reported consistently to ensure comparability – that makes it relevant. Financial information that is both relevant and reliable is the foundation of sound reporting.

Ensuring data is reliable requires keeping a close and timely eye on it. In general, month-end closes or monthly review checklists provide high-level overviews of revenues and expenses. They provide useful checks for whether those figures appear to be in line with estimates. Any anomalies are typically borne of misclassifications or improper journal entries, and those may jump out quickly. These high-level checks are the first line of defense in issuing clean reports and budgeting well. As months elapse, current figures should be consistent with what has proven reasonable in the past for that same period, and finance teams should take note of any spikes. In other words, the data should make sense and help the user gain insight into the financial condition and trajectory of the unit.

This need for consistency holds true for other common reporting periods. In a calendar-year fiscal period, for example, the monthly closes lead to the quarterly reports provided to city managers, mayors, councils, and others. With these quarterly reports then mid-year reports, tracking continues to show comparative changes at the same relative point in time. This comparability ensures these reports are accurate, which is critical to budgeting and long-term financial planning because they often serve as the basis for future projections. And once a municipality is six months into a fiscal year, typically finance officers use it to start making year-end and incoming year revenue and expense forecasts.

Non-Financial Operating Indicators

A layer below the quarterly reports exist department operating indicators – non-financial measures that can lead or lag financial results. In many cases, these are volume-based indicators such as consumption reports for utility use, gallons used or sold, etc. Other examples include parks and recreation usage, pool memberships sold, youth soccer registrations, and building or remodel permits issued, among others.

These indicators are the other side of the coin of financial reports, and as such, finance teams should track them similarly to achieve a full picture of programs’ health. These operating indicators can help predict future financial results or support the current results. For example, consider a park impact fee fund that receives 100 percent of its revenue from new-home construction based on a fixed fee per home. If the city’s management team observes a trend of a 20 percent drop in housing permits annually, that is meaningful information concerning the fund’s financial trajectory. The interconnectedness is evident in that a city cannot truly address the fiscal health of an operating business unit without taking into consideration the operational trend that is driving its entire program revenue source.

Technology’s Role in Effective Tracking

Technology enables decision-point action, helping finance officers detect areas where they need to be more focused. Effective public sector software solutions facilitate not only error detection, but also analysis and planning for corrective action – these are encapsulated among 21st-century government performance solutions that are transforming public administration.

If a system simply shows the numbers, then that’s only half of the equation. For those who handle thousands or even millions of rows of data, it can be incredibly difficult to find patterns within the volume. A useful technology solution can ingest data from multiple sources and allow staff to make it meaningful. It should make sharing data simple and foster collaboration among team members. Furthermore, the software should make it easy to see high-level trends and drill down into specific data points, offering various ways to engage with data – visually in charts, numerically in tabular sheets, and with flexible filtered views.

More and more, these software solutions exist in the cloud delivered as “software-as-a-service” (SaaS) because off-premise maintenance enables frequent upgrades at a lower cost. Public sector agencies that want to be more effective need to be proactive, and implementing a technology solution that enables the organization to find and utilize its resources will inevitably be more effective in its planning and resource allocation.

Furthermore, the best technology additions will help prevent costly mistakes. Take parcel valuation, for example. If during a tax assessment, a data input error results in a major retail property being undervalued, that can cost the entire tax district millions of dollars in lost tax revenue. If software could help spot the error, it would be more difficult to detect by looking through tax records manually parcel by parcel.

If used well, innovative technology can help cities and governments track financial and operational data in more powerful and intuitive ways so they can more easily take action to strengthen their communities. Tracking data is an essential pillar for successful governments. It can prevent costly mistakes and painful recovery. Just as important, it enables finance officers to find once-hidden resources and reallocate them to their community’s strategic priorities. In fact, time is one of the most valuable resources finance officers can reclaim. The right technology will help them reduce time preparing reports and manually processing data. Those time savings can be redirected toward the analysis that will help their teams deliver better outcomes.

To learn more about how technology can enhance public sector analysis and reporting, download a copy of our white paper, The Digital Transformation of Public Administration.

Adam Stone, CPA is a Subject Matter Expert on OpenGov’s Government Finance Team. He formerly served as the Controller of Greenwood, Indiana.

Category: Government Finance