HomeMy WebLinkAbout1993-03-22 93-207 ORDERIptr(tluced For
sage Pays_ of
First Reading
Referral
ncin
Cate 3u21 -9-3'Y"
item No.93_20]
Item/Subject; Adopting.
Policy Regarding
Enterprise Cash Flow
Responsible Depams"Man a
Department
Commentary:
This action adopts the
Policy Regarding Enterprise
Cash Flow which
s presented to the Finance
Committee on
June 1, 1992andwhich
recommended adoption. -
During the audit process
is was noted that the
policy was not presented to the City Councll for formal adoption.
This action cures that
deficiency.
gHwd
Manager's Comments:
Ciry Mwayer
Avociated Information:
gutlym A royal:
'
Fina ce Dirrac
Legal Approval:
-
CirySWivucr
Iptr(tluced For
sage Pays_ of
First Reading
Referral
93-207 1
4em0 dto Councilor Soucy March 22, 1993
p CITY OF BANGOR
(TITLE.) (Drberf ............. ...._adopting Policy_ Regarding_ Enterprise Cash Flow
By Bu My Cassel of W My of Ba .
ORDERBDo .
TEAT
Whereas the City of Bangor enterprise funds periodically experience cash
short falls; and
Whereas the General Fund has acted as the lender Of funds to cash short
enterprise funds; and,
Whereas there is no policy statement which establishes the responsibility
of the General Fund, enterprise funds, or city administration for managing
cash advances and the operation of the enterprises funds,
Therefore, be It Ordered
that the Polio y Regarding Enterprise_ Cash_ Flow is hereby adopted as City
of Bangor policy, and incorporated into the Financial Procedures Manual.
INCITYCOUNCIL
March 22, 1993..
Pas
ITY Whax
93-20]
ORDER
Title,
Adopting Policy Regarding enterprise
... ...............................
Cash Fla
......................................
U Councilman
City of Bangor
Policy Regarding Enterprise Cash Flow
Purpose: The purpose of this policy is to establish a funding mechanism
for the cash flow needs of the city's various enterprise funds. The
Intention of this policy is that the General Fund finance the cash flow
needs of the enterprise funds. When the General Fund Is not able to
support those needs, other fonds will be looked to. The establishment of
this policy is not Intended to remove or weaken budgetary controls for the
operation of the enterprises funds.
Due to/Due From:
ID accordance with Generally Accepted Accounting Princlpale, cash advances
to any fund will be recorded as a liability to the receiving fund in its
"Due To Other Funds" account for the fund which provided the cash: and as
an asset for the advancing fund in its "Due From other Fund" account for
the fund which received the cash. This is an accounting transaction, and
as such is not subject to legislative or budgetary approval.
Advancing Fund:
The General Fund will be the primary advancing fund which would supply the
necessary cash for enterprise funds which are not able to carry their cash
flaw. The value of the cash advance will be the net cumulative amount of
cash advanced at year end. In the event that the General Fund is unable
to supply the cash needs of another fund, the cash advance will be
recorded against the next strongest fund able to carry the cash flow as.
determined by the .Finance Director.
Interest Costs:
The receiving fund will pay to the advancing fund interest on the advanced
cash from July 1 of the next fiscal at a rete of Interest equal to 1/2 the
tax delinquency Interest rate. The purpose of this payment Is to
compensate the advancing fund for Its foregone investments, and to
encourage the receiving fund to scrutinize its operations to bring about e
positive cash flow.
Risk:
According to Generally Accepted Accounting Principals, "Due From Other
Funds" are considered current assets for the advancing fund. Where a
receiving fund has demonstrated a continuing inability to fund its cash
flow, the risk to the advancing fund of not being repaid most be assessed
and appropriate consideration given to the effect on the advancing fund.
A reasonable practice is to set aside a reservation of fund equity in the
advancing food against the possible nonpayment. The evaluation of the
risk should consider both pact performance of the receiving food, the
93-207
value of the cash advanced, and any budgetary or structural changes in the
the receiving fund which would lessen the risk of nonpayment.
Funding Cash Advances which Can Nat be Repaid
-If It is determined that a receiving fund does not have the ability to
repay the cash advance, the General Fund is responsible for the loss
Incurred by the receiving fund. That loss maybe taken by a write-off of
the cash advanced against the reservation of fund balance, or the General
Fund providing a budgeted increase in the annual subsidy for the receiving
fund.
Cumulative cash advances will be affirmatively reviewed by the City
Council through the next budgetary process following the close of the
fiscal year, le: cash advanced through FY 1992 would be reviewed during
the FY 1994 budgetary process. The purposes of that review will be to
determine whether the cash advance will be paid by the normal activities
of the receiving fund during the budgetary year being reviewed.
If it is determined that the receiving fund is not able to carry its.
operations costs plus the cash advance repayment the General Fund will
either accept the loss against its fund balance or increases its subsidy
payment during that budgetary year to liquidate the liability.
Consideration to the decision of the City Council will include efforts and
improvements being made In the operation and management of the receiving
fund which will increase the activity and revenue to the receiving fund.
The annual appropriation resolve will provide recognition to the decision
of the City Council for carrying the cash advance and reserving General
Fund equity, or increasing the subsidy level to the receiving fund. The
City Council may liquidate cash advances which have accumulated through
June 30, 1992 over a three year period of time to mitigate the funding.
aspects of this policy without reserving General Fund fund balance. To
accomplish this stepped approach the FY1993 budget will look back to the
cash advanced through June 30, 1989; FY3994 budget will consider the June
30, 1990 balance and the F71995 will consider the June 30, 1991 balance.
Corrective Actions:
There should be an evaluationof the sourceof the cashadvances annually
to determine the cash flow weakness. Seasonal cash flow or lack of
revenues due to the fund's revenue structure should be addressed to
provide future positive cash flows. A receiving fund's cash short fall
should not be a matter of over expenditure patterns or recurrent revenue
short falls. In these cases corrective action through management and
budgetary reviews are required.
8/28/92