The
Realities
of Building
an LCSA
Budget
and other Fun
Fiscal Topics
Introduction / Overview
1 Government Accounting
2 CA State Overview
3 Building a Budget
4 Internal Control
5 Fraud
6 Cash Handling
7 Cost Allocation
Government
Accounting
Why Account?
Method of recording transactions
System of keeping financial records
Way of performing internal audits
Aid in analyzing & managing resources
Preparation for calculating taxes due
Functional Financial Reports
Income Statement
Balance Sheet
(covers a period of time)
(snapshot at one point in time)
Revenue
Expense
Assets
Liabilities
Statement of Cash Flows
Basics of Accounting Timing
 Cash
 Accrual
 Modified Accrual
Accountability
 Paramount objective of financial
reporting for government
 Fiscal accountability
 Operational Accountability
Four Accounting Principles
•
•
•
•
Cost – money talks
Accrual – transactions can occur before money changes hands
Matching – costs and results put in the same time frame
Disclosure – be as comprehensive as possible
Four Accounting Assumptions
•
•
•
•
Business Entity – there are discrete units of accounting
Going Concern – business is expected to continue
Monetary Unit – things can be measured in local currency
Time Period – transactions need to be properly slotted
Four Accounting Constraints
•
•
•
•
Objectivity – measurable
Materiality – significant
Consistency – comparisons are valid
Prudence – don’t overstate!
Fiscal Accountability
“The responsibility of governments to
justify that their actions in the current
period have complied with public
decisions concerning the raising and
spending of public moneys in the short
term (usually one budgetary cycle or one
year)”
Operational Accountability
“Governments’ responsibility to report the
extent to which they have met their
operating objectives efficiently and
effectively, using all resources available
for that purpose, and whether they can
continue to met their objectives for the
foreseeable future”
Key Environmental
Characteristics
Different financial objectives for different activities
Covering cost (business-type activities)
Covering expenditures (governmental activities)
Fiscal accountability
Annual appropriated budget has force of law
More than just a financial plan
Users of Financial Information
Management
Not a “primary” user of external reports
Legislative and oversight bodies
Investors and creditors
Citizens
The Governmental
Environment
Financing
Federal – income tax
State – income tax/sales tax/vehicle fees
Local – property tax/sales tax/transfer
payments/user charges/fees/fines/permits
Fund Categories (3)
Governmental
Tax-supported activities
Proprietary
Business-type activities
Fiduciary
Resources held as trustee or agent for
outside parties and unavailable for programs
County Budget Book
County Comprehensive Annual
Financial Report
CA State
Overview
Have you ever wondered
how…
The child support program fits into state
government?
The state budget process works?
Child support program funding is spent in
California?
California child support compares to other
states?
Executive Branch
Headed by the Governor
and the elected
Constitutional Officers
Governor oversees all
agencies and departments
and many boards and
commissions that are not
overseen by the
Constitutional Officers.
Executive Branch (continued)
The portion of state government that the Governor oversees
is organized into agencies.
The “Governor’s Cabinet” is comprised of 12 Agency
Secretaries that are appointed by the Governor.
The Cabinet serves as the Governor’s chief policy advisory
body. Each implements the Governor’s policies throughout
the state.
More than 60 departments, boards, and commissions report
to the Agency Secretaries.
The Department of Child Support Services (DCSS) is part of
the California Health and Human Services Agency (CHHS).
CHHS
CHHS oversees 13 departments and other state entities,
including the DCSS.
CHHS programs provide a range of services including:
Health Care and Public Health
Social Services
Mental Health
Alcohol and Drug Treatment
Income Assistance
Child Support
More than 33,000 people work directly for CHHS and its
departments and regional facilities throughout the state.
Budget Process
Quick Facts
The state fiscal year runs from July 1 through June 30.
The federal fiscal year runs from Oct. 1 through Sept. 30.
Each budget cycle focuses on two fiscal years:
Current year – non-discretionary updates only
Budget year – future year budget proposal
Legal authority to spend money in any fiscal year is
provided by the annual State Budget Act.
Budget Responsibility
Development of the annual budget is a shared
responsibility.
At the lowest level, each department is responsible for
developing and submitting budget proposals and cost
estimates for the department and the program(s) it
oversees.
Agencies are responsible to communicate the
Governor’s priorities to the departments and to
approve or deny departmental requests based on
those priorities. Approved requests are forwarded to
the Department of Finance.
Responsibility – Department of
Finance (DOF)
Approved proposals and requests are published in the
Governor’s January proposal and May revision.
The Governor’s Budget proposal is released each year on
or about January 10.
The May Revision is released each year on or about May 15.
The DOF acts as the financial arm of the Governor’s office,
providing instruction and oversight for the budget process.
All budget proposals and requests are analyzed and either
approved or denied by the DOF.
Responsibility – Legislative
Analyst’s Office (LAO)
The LAO serves as the “eyes and ears” of the
Legislature.
Ensures legislative policy is implemented in a cost
efficient and effective manner
Reviews and analyzes budget proposals and the
state’s finances
Makes recommendations for legislative action
Responsibility – Legislature
The Legislature uses the
Governor’s budget
proposals as a starting
point for budget bill
discussions and
negotiations.
The Legislature
determines which
proposals will be included
in the final budget.
Responsibility – Governor
Once both houses of the Legislature agree and pass the
budget bill, it goes to the Governor for final approval or
veto.
The Governor may approve the budget bill “as is” or with
changes (line-item veto).
Once signed by the Governor, the
Budget Bill
becomes…
The Budget Act
California Revenues vs. Expenditures
1990-2014
$120,000.0
(in thousands)
$100,000.0
$80,000.0
$60,000.0
Revenue
Expenditures
$40,000.0
$20,000.0
$0.0
National Competition for Funding
DCSS Budget
State Operations
DCSS’ state operations budget includes funding for:
 CSE ($76 M)
 Judicial Council of California (JCC) contract ($55 M)
 State staff (salaries, benefits) and operating expenses &
equipment ($50 M)
 Office of State Publishing contract ($18 M)
 State Disbursement Unit SDU ($15 M)
 Locate, SLMS, Fair Hearing & Intercept contracts ($8 M)
 Federal costs including IRS intercept fees ($8 M)
Budget Development
The Budget Support Section is responsible for
Projecting costs
Submitting proposals
Requesting budget authority
for all aspects of the child support program.
Allocations to Counties
"Equity"
$1,400
$1,200
$1,000
$800
$600
Dollars Per Case
$400
$200
$-
0
10
20
Counties
30
40
50
60
County
Allocation
Alameda
Butte
Central Sierra
Colusa
Contra Costa
Del Norte
Eastern Sierra
El Dorado
Fresno
Glenn
Humboldt
Imperial
Kern
Kings
Lake
Lassen
Los Angeles
Madera
Marin
Mariposa
Mendocino
Merced
Monterey
Napa
Orange
Placer
Plumas
Riverside
Sacramento
San Bernardino
San Diego
San Francisco
San Joaquin
San Luis Obispo
San Mateo
Santa Barbara
Santa Clara
Santa Cruz/San Benito
Shasta
Sierra-Nevada
Siskiyou/Modoc
Solano
Sonoma
Stanislaus
Sutter
Tehama
Trinity
Tulare
Ventura
Yolo
Yuba
$ 25,768,079
$
8,773,650
$
4,940,779
$
682,320
$ 18,331,644
$
2,249,141
$
1,389,595
$
4,747,119
$ 21,582,116
$
790,733
$
5,151,250
$
3,379,746
$ 21,570,320
$
4,133,667
$
2,638,737
$
1,038,022
$ 142,439,904
$
2,842,396
$
3,645,241
$
702,443
$
3,027,196
$
9,376,887
$ 10,810,930
$
4,021,777
$ 53,577,509
$
6,030,975
$
840,066
$ 33,892,513
$ 31,873,986
$ 38,143,911
$ 45,234,076
$ 12,037,393
$ 14,489,029
$
4,439,121
$ 11,171,638
$
8,971,916
$ 35,538,529
$
8,362,558
$
7,318,853
$
4,051,547
$
2,850,267
$ 11,874,641
$ 14,025,304
$ 14,707,908
$
2,969,638
$
1,828,711
$
675,774
$ 15,563,451
$ 20,014,027
$
5,743,171
$
3,883,527
Cases
34,067
11,941
6,292
793
30,582
2,939
1,575
6,277
60,423
1,776
6,793
11,530
54,856
10,072
2,895
1,744
301,016
6,546
3,038
708
4,918
17,679
17,391
4,109
71,201
9,303
1,022
88,837
80,616
116,395
79,931
14,249
35,251
4,457
11,576
14,189
40,961
8,833
12,993
3,918
3,763
18,399
13,188
30,615
5,236
4,375
798
28,579
21,089
8,334
4,612
Total / averages
$ 714,143,731
1,332,680
FTEs
218
97
49
6
153
18
8
53
203
9
46
54
188
54
28
12
1,575
37
24
7
27
79
100
33
579
43
8
333
318
404
469
90
165
41
85
83
300
74
81
26
25
104
96
153
28
21
7
169
193
54
36
$ / Case
Cases/FTE
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
756
735
785
860
599
765
882
756
357
445
758
293
393
410
911
595
473
434
1,200
992
616
530
622
979
752
648
822
382
395
328
566
845
411
996
965
632
868
947
563
1,034
757
645
1,063
480
567
418
847
545
949
689
842
156
123
128
132
200
163
197
118
298
197
148
214
292
187
103
145
191
177
127
101
182
224
174
125
123
216
128
267
254
288
170
158
214
109
136
171
137
119
160
151
151
177
137
200
187
208
114
169
109
154
128
7,063 $
536
189
Diversity
Across
Counties
One Budget
Two Categories
For statewide tracking purposes, the
DCSS budget is divided into two main
categories:
1 State Operations
2 Local Assistance
Building a
Budget
Political Environment
Public attitude toward government
Opposed to increased taxes
Want more effective services at lower cost
Public salaries and pensions are too high
Local political environment
Term limits and pending elections
Influence of organized labor
Difficult decisions now and in the future
Budget Status of LCSAs
Fully funded by State with
(generally) no County General
Fund contribution, but
expected to participate in
countywide budget reduction
strategies.
County Budget Balancing
Strategies
Hiring freeze
Furloughs
Mid-year adjustments
Program reductions – Targets for FY
Labor negotiations – salaries & benefits
Revenue enhancement
Other steps?
Practical Considerations
What makes an LCSA budget
unique?
 Labor contracts negotiated by County, but
State/Federal funded
 Classification management/position control
 How to look at cuts/strategies
 Politics of the process
 No reserves
 Cash basis, no fund balance or carryover
Melding the State, County
and DCSS Budget Process
State
County
DCSS
Budget
Process
County Budget Timeline
Revenue forecasts – early winter
Budget instructions – first of the calendar year
Meeting with CAO – early spring
Budget hearings – June
New fiscal year begins July 1
Final budget - September
LCSA Budget Timeline
New fiscal year begins July 1
Year-end close for prior fiscal year – July/Aug
Adopt final budget for new fiscal year – Sept
1st Quarter CS 356 Claim – due Oct 15
CS 921 Budget Display - winter
LCSA Budget Timeline (continued)
Mid-year analysis due to CAO – January
2nd Quarter CS 356 Claim – due January 15
Program Plan/Budget narrative due to CAO – Feb
Preliminary Allocation Letter – Feb/Mar
LCSA Budget Timeline (continued)
LCSA Budget Development – in progress
Feb/Mar/Apr
3rd Quarter CS 356 Claim – due April 15
Year-end Analysis due to CAO – April
County Budget due (BY & BY +1) – April
LCSA Budget Timeline (continued)
EDP Budget Display – spring
Gear up for year-end closing (again…)
4th Quarter Claim – due July 15
Year-end close – July/August
And the cycle continues…
Don’t for get about Performance Measures
during the Fiscal Year!
Unique Aspects of LCSA
Budget
Revenue Sources – 66/34 split
Connection to State Budget
County target vs. State Budget process
Potential level of CAO scrutiny
Good & Bad
Possibly different COLA assumptions
Bottom line: A Balanced Budget!!!
Budgeting Tips
Own Your Budget
Be prepared – analysis and due diligence
Be proactive – take control of your budget problems
Propose solutions/recommendations
LCSA fiscal staff development
Develop your relationship with your CAO Budget Analyst
Budgeting Tips (continued)
Connect Budget and Performance
Be realistic about service impacts
Take credit for improvements and efficiencies
Quantify impacts and clearly communicate
them
Use your performance to establish credibility
Be creative
Relationship with CAO
Budget Analyst
Educate your analyst
department background & overview
Keep analyst informed and in the loop
email and cc:
Set expectations
Define roles
department advocate
Establish mutually beneficial relationship
Be Nice!
More Budget Strategies…
Annual Strategic Planning Process
Automation/Technology projects
One-time investments that yield long-term savings
Examples
Review service charges
Direct vs. indirect costs
Spend 100%!
Understand the components
Consider your lead time
EDP Recurring &
Non-Recurring Funding
Annual LCSA letter requesting budget data
Submit via EDP web form
M&O funding
Current need
Historical trend
Non-recurring funding
New non-recurring projects
LCSAs submit requests in January
Local Perspective - EDP
Things to watch
Local definitions of EDP vs. State definitions
Local charges usually more detailed
Timing issues
Staffing and overhead
Prior Approval Requirements
Administrative and EDP
Policy in CSS Letters 04-20 and 05-05
All automation products and services planned
for purchase using EDP or Administrative nonEDP funds
• including personal computers, servers,
printers, integrated voice response units,
imaging systems, new and existing
software, and web contracting services
Administrative and EDP
Claim Processes (CS 356)
Federal requirement to:
Report expenditures
Expenditure data used:
Reconcile funds advanced to LCSAs
To determine future funding
For various internal reports
Administrative and EDP
Claim Processes (CS 356)
Laws and Rules
OMB Circular A-133
OMB Circular A-87
CFR Part 45, Section 92.25(b)
Family Code 17714(b)
Administrative and EDP
Claim Processes
Submit quarterly claim 15 days after the end of
the quarter
Time certify vs. Time study
Time certify when staff are working 100% on
one activity or function
Time study when staff are spending time on two
or more activities or functions
In the mid-month of quarters one and four
(August and February)
Local Perspective - Claims
Quarterly process
Track expenses ongoing
Categorize EDP expenses by claim numbers
Remember cash basis accounting
Less detail than CS 921
Different detail than CS 921
Depreciation
Title 45 CFR, Section 95.705(a)
AT 94-5
LCSA Letter 05-24
CSS Letter 04-20
Approved to purchase
Recover costs over five years
Depreciation
Non-EDP Equipment
Purchase price over $25,000
Depreciate/claim over five years
Equipment cost $60,000 ($60,000/5)
Year 1 claim
$12,000
Year 2 claim
$12,000
Year 3 claim
$12,000
Year 4 claim
$12,000
Year 5 claim
$12,000
Depreciation
EDP Equipment
Purchase price over $5,000
Depreciate/claim over five years
Including EDP equipment purchased
with Admin (Non-EDP) funds
Example: Training room PCs
Local Perspective –
Depreciation
Understand the asset
County “float”
Disposition of Assets
For Policy: CSS Letter 04-20 and LCSA
Letter 05-19
Determine fair market value
Notify DCSS of disposal
Retain supporting documentation for
four years and four months
Consider recycling
Disposition of Assets
Under $5,000
LCSAs may transfer, sell, dispose
using county rules
Proceeds must be abated as
program income on administrative
expense claim
Disposition of Assets
Over $5,000
Transfer equipment
Sell equipment: Proceeds must be
abated
Dispose of equipment using county rules
Overhead/Indirect Costs
(aka A-87 or Countywide Cost Allocation Plan)
Claim State Controller’s Office approved
amount only
Should claim ¼ of the annual cost on
quarterly expense claim
Can split overhead costs with EDP
An exception to cash basis claiming rule
POC/MOU Requirements
Title 45 CFR 303.107 for fiscal portion
Agreements should include:
Budget estimates
Covered expenditures
Methods of determining costs
Procedures for billing IV-D agency
Local Perspective
Go through your county review process
County Counsel
Monitor for renewal
Timeframes can be different
When costs change – amend
Must go through your county process
Audits
Authority
OMB A-87 and A-133
CFR 302.10 and 302.14
CSS Letter 04-20
LCSA Letter 05-09
• History and process in this letter
Audits
Keep supporting documentation for
at least four years and four months
Two (of six) most common audit
findings
• Accrual vs. cash basis accounting
• Income or program income not
abated on Administrative Expense
Claim
Local Perspective
Get used to audits
Retain backup for required timeframe
Keep findings
Scope of work
Internal
Control
What are internal controls?
Internal controls should be applied to your personal life
as well as to business entities.
Personal internal controls are activities you should
perform in order to safeguard and protect your assets
(cash, investments, valuables, tax records, identity, etc.)
from potential loss.
Examples of personal control activities:
 Balance your checkbook
 Keep valuables in a secure, locked area
 Keep orderly files (tax returns, bank statements,
receipts, etc.)
 Shred documents containing personal, identifying
information if no longer needed
Authoritative Guidance
The American Institute of Certified Public
Accountants (AICPA) identified minimum
standards governing the formatting and contents
of external financial reports for the public and
private sector, referred to as generally accepted
accounting principles (GAAP). These practices
govern and dictate what aspects of our program
should be audited.
Authoritative Guidance
(continued)
SINGLE AUDIT – annual audit of government’s
federal award programs
Auditors must issue report on internal controls
over compliance and have strict reporting
requirements when compliance issues related
to internal control occur.
GFOA Code of Ethics
Finance officers must:
“…exercise prudence and integrity in the
management of funds in their custody and in all
financial transactions.”
“…not knowingly sign, subscribe to, or permit
the issuance of any statement or report which
contains any misstatement or which omits any
material fact.”
Relationship to Internal
Control
Prudence in the management of public funds
Requires adequate controls in place to protect
Avoidance of misstatements or the omission of
material facts
Requires sound framework of internal control to
provide a reasonable basis for assertions
How Achieved
• Management competence
• Staff competence
• Internal control documentation
• Periodic evaluation of internal control
• Corrective action plan following periodic
evaluation
Management’s Mission
and Objectives
All organizations have a purpose/mission
Key managerial objectives arising from
management’s mission:




Effectiveness
Efficiency
Compliance
Stewardship reporting
Elements of a Comprehensive
Framework of Internal Control
Favorable control environment
Continually assesses risk (risk assessment)
Establishes and maintains effective control related
policies and procedures
Effectively communicates information
Monitors the effectiveness of control-related policies and
procedures
Favorable Control
Environment
• Management is knowledgeable about
controls
• Management is committed to establishing
and maintaining controls
• Management communicates support to
staff at all levels
• Management provides needed resources
Management
Communication
• Code of conduct/official policies
• Communicated to staff at all levels
 In a practical way
 Reinforced periodically
• Communicated to managers at all levels
• Swift and appropriate disciplinary action
Risk Assessment
Management need to anticipate risks
External
Internal
Ongoing process
Key Risk Indicators
Change
Inherent risk characteristics
Change as an Indicator
of Risk
Operating environment
Personnel
Information systems and technology
Rapid growth
New programs and services
Structure
Categories of
Policies and Procedures
Authorization
Properly designed records
Security of assets and records
Segregation of incompatible duties
Periodic reconciliations
Periodic verifications
Analytical review
Segregation of Duties
An individual should not be able to
commit and conceal an irregularity
Separate incompatible duties
Authorization
Recordkeeping
Custody
Fraud
The Fraud Triangle
Three Elements
Rationalization
Opportunity
Justification:
Lack of:
“I need this…”
“I’ll pay it back…”
“My family needs this…”
Pressure
Supervision
Review
Management approval
System controls
Financial pressures
Personal vices
Unrealistic deadlines/expectations at work
Embezzlement Study
Apparent Motivation
• Financial problems
• Gambling problem/addiction
• Desire to live lavishly
• Substance abuse
• Support a personal business
4%
27%
60%
2%
7%
Embezzlement Study
Age of the perpetrator
Average age
43 years old
Gender of the perpetrator
36% male 64% female
Cash
Handling
Risk
“When money passes through
hands, sometimes it sticks”
Stephen Gauthier, GFOA
Cash carries a high risk of theft…
Temptation: most everyone desires money
Portable:
physically small and lightweight,
may be stolen discretely
Risk
Risk of Theft
2 basic categories of theft
Category 1 LARCENY
stealing cash which has already been recorded in
the books and records, such as cash in the safe,
cash in register, petty cash, deposits
Category 2 SKIMMING
stealing cash received directly, upon receipt,
before it is recorded ii the books and records
How to prevent/detect cash loss
 Surveillance cameras
 Reconcile cash deposits to daily sales reports
 Two employees should be present whenever cash is
counted
 Deposits are safely and securely delivered to the bank
 Armored car delivery
 Cash should be entered in the cash register
immediately when received
 Enter cash register transactions while customer is
present
 Issue receipts for all customer transactions
Segregation of Duties
Cash duties which should be performed separately:
Cash receipts/collections
Cash deposits
Reconciliation of cash
Physical Security
Limit access to safe and cash
drawers to authorized personnel.
Change safe combinations/keys
when employees terminate
or transfer.
Consider surveillance cameras.
Physical Security (continued)
Cash should not be left unattended at
any time.
Cashiers must store cash in a locked,
secure area with restricted access
while away on break/lunch.
Cash left overnight should be secured in
the safe until the next business day.
Cost
Allocation
Why a Cost Allocation Plan?
What is a Cost Allocation
Plan?
• CAP
• CoCAP
• A-87
• Filed by the county with the State
Controller’s Office (SCO) by Dec. 31
each year
• Desk-audited yearly, field audited
periodically by SCO
Cost Allocation Plan and User
Supplement
Rules
Office of Management and
Budget Circular A-87
Timing
Timeline of Cost Allocation Accounting
6/30
12/31
6/30
12/31
6/30
12/31
6/30
X
Costs occur CAP due to state
in Central Costs allocated
Departments to non-General
Fund program
Costs paid
by non-General
Fund programs
General Services
Expense: RENT
Allocation Basis
Square footage occupied
Potential Issues
Mixing old and new buildings
Unfinished basement vs. penthouse
Auditor
Expense: PAYROLL
Allocation Basis
Number of employees
Potential Issues
Seasonal swings in numbers
Number of pay codes processed
Number of deductions processed