Published: June 18, 2021
According to the Government Finance Officers Association (GFOA), it’s a best practice for governments to formally adopt financial policies. We couldn’t agree more. Financial policies create expectations for government operations, provide a foundation for making financial decisions and help ensure good financial management.
Here are the top 12 we consider essential:
- Budgeting and planning – Your budget process should be formalized in writing, with methods and roles and responsibilities for finance staff and department heads. In addition, long-term financial planning processes should describe how many years will be forecasted and how often the forecast will be reviewed and updated.
- Municipal Research Services Center (MRSC) Budget policies
- GFOA Long-term planning and forecasting policy template
2. Cash management and investing – These policies are crucial for delegating authority, planning for sufficient operating cash, establishing investment strategies, and ensuring monitoring controls over these high-risk assets.
3. Fund stabilization and cash reserves – Every organization needs some money stored away for emergencies, future projects or commitments, or general working capital to meet operating needs. This policy directs cash reserve levels and annual commitments to create or replenish them.
4. Cash receipting – This policy is important so cashiers, and managers that oversee them, understand their responsibilities and what they should and should not do. It should address physical security of cash receipts, as well as who can approve steps and actions related to cash receipting (such as a new receipting location or accepting credit cards), and many other items.
- State Auditor’s Office Cash receipting best practices guide
- GFOA Revenue control policy best practices
5. Capital asset management – A capital asset policy should provide the foundation for making important decisions about your assets, such as a long-term strategy for maintenance and repair. It should also cover various accounting aspects, such as setting a capitalization threshold, inventory requirements, disposition procedures, and asset replacement.
- MRSC Asset management policies
- GFOA Capital asset management best practices
- The Budgeting, Accounting, and Reporting System, contains requirements for a capital asset policy
6. Debt management – These policies establish the framework that guide how you will incur and manage debt, for example the types of debt instruments allowed, debt limits, the process to issue new debt including selection of service providers, and the management of current debt. These decisions can impact a government’s financial well-being for 20-30 years, so it’s important to have strategies in place.
7. Procurement – This policy provides much needed clarity on the requirements and processes for purchasing various goods and services. Many governments have statutory requirements establishing various dollar thresholds for procurement, and those that don’t should establish their own.
- MRSC’s Procurement policy guidelines
- State Auditor’s Office resource, includes guidance for establishing policies over change orders
8. Disbursement systems controls policy – This policy should cover the process and control system for each major disbursements process, like payroll and accounts payable. It should cover controls over transactions from initiation to payment, as well as the monitoring that should take place.
- Coming soon! We will be including policy development tips in our payroll and accounts payable best practices guides.
9. Expenditure authorization policies – These policies address specific types of expenditures that are allowed and the rules surrounding them. These include policies like compensation, travel, employee reimbursements, and others depending on the programs your government operates. For example, if you provide advanced travel funds or have an employee recognition program, then you should have policies in place before you process this type of expenditure.
10. Segregation of duties – Policy should spell out which duties should be segregated, and the additional oversight controls expected if or when key responsibilities can’t be divided among employees. This policy can be more general and describe the expected high-level authorization, recording, custody of assets, and reconciliation duties that should be separated. Or, it may be specific on what certain positions should not do.
- While we don’t have a specific resource to demonstrate what to include in a policy, you might find this resource helpful: State Auditor’s Office Segregation of Duties Guide
11. Conflict of interest/ethics – Officers and employees should not have a financial interest in any transaction they authorize or are involved with (in the course of their duties). Also, they should not unfairly benefit as a result of having their position. This policy should communicate expectations and give employees several ways to report concerns to the governing body. Washington state law provides the basis for these policies and is referred to in the following resources.
12. Document retention – This policy covers your government’s requirements and methods to manage documents from creation to disposal. Some financial records must be kept for a certain period due to state retention laws. As more records are stored in electronic formats, this policy is even more important to ensure the appropriate documents are identified, securely stored and retained for the proper timeframe.
How to find additional sample policies
MRSC maintains a sample document library, including for policies. You can find it here: https://mrsc.org/Home/Research-Tools/Sample-Documents.aspx.
Additional resources that might help you
Remember, we are here to help. If you have specific technical accounting questions, please submit them using our HelpDesk in the client portal.
We also have financial management specialists at the Center for Government Innovation available to talk through projects you might be working on that affect your internal control systems. Send us a message at Center@sao.wa.gov.