Balancing the County’s Budget Deficitson the Backs of Children
By Ray A. March
Jan. 28, 2002
Knoch Moves to Dissuade Commission
The following memo from Treasurer Cheryl Knoch to the Children and Families Commission discloses that she gave the commission three options on how to deal with the Prop. 10 funds. The memo is reprinted here in its entirety.
“I understand that the commission is considering removing their funds from the county treasury after it is received and placing it in a separate account. I feel it is my obligation to inform you, as commission members, of what implications and responsibilities this would place on your shoulders when you assume fiscal independence. These issues will need to be addressed prior to removing funds from the county treasury.
1. Establish a banking relationship; ensure that procedures are developed for performing regular bank reconciliations by personnel who are independent of the cash receipts and disbursements functions;
2. Establish an Investment Policy; ensure that procedures are developed for personnel who are authorized to approve transactions;
3. Establish an accounting system for reporting needs under generally accepted accounting principles to include subsidiary records for general ledger accounts;
4. Arrange for cash receipts transactions;
5. Develop a process for purchasing and cash disbursement transactions;
6. Arrange for payroll processing for the one employee that is currently being paid through the County’s payroll to include adequate procedures to ensure transactions are processed and recorded in the general ledge and that payroll taxes are reported and paid;
7. Ensure that the commission has a budget operations manual to address budgeting procedures and an accounting system to compare budget to actual revenues and expenditures to monitor compliance with the budget; and
8. Ensure that fixed assets and long-term debt, if any, are properly accounted for and tracked separately.
An adequate system of internal control must be in place before the commission can operate with fiscal independence. I must also stress to you that as commission members, you would be personally responsible for the funds if the commission were fiscally independent. If any fraudulent transaction were performed, the commission would be ultimately responsible. These are public funds, and they must be handled according to Government Code for safekeeping, investing, etc.
Modoc County, with our policies and procedures, maintain adequate internal control to ensure that all funds are accounted for. We are audited every year by independent auditors to this affect, and have not been written up for any “misuse” of funds or lack of internal control.
With that said, I would also like to present to you some options that your commission has for its fiscal responsibilities.
Option 1: Maintain a separate checking account under the County Treasury
The Superior Court and the County Office of Education has this relationship with us. A bank account would be set up with a separate account number that only the Children Are Priority commission would use for financial transactions. The commission could hire an individual or a business to pay the bills and provide the internal control of checking whether expenditures are in the budget and approved by the commission.
The individual or firm would then provide the County Treasurer with the file with a list of checks that were paid. We would download that file into our financial accounting system, so that when the checks were paid through the bank, the amounts would be verified as correct (this helps catch any fraudulent items).
At the end of the month, the Treasurer’s office would reconcile the banking account, and give that report and a copy of the actual bank statement to the commission. We perform all of these duties for you now; it is just handled in conjunction with the Auditor’s office. This option would allow you to pay your bills independently but maintain your banking under the “blanket” of the County Treasury.
Under this option, the County Treasurer maintains the responsibility of public funds, would perform the investments of any surplus funds (which would earn the commission higher interest), would maintain some of the internal controls of independent bank reconciliation and verifying amounts being paid through our financial system. We would handle the cash deposits (if there are any).
Option 2: Maintain your financial transactions with the Auditor’s office, or with the Modoc County Office of Education
Both the Auditor’s office and the Office of Education are currently under the “blanket” of the county treasury. They both have checks and balances in place and are audited on a yearly basis to verify that they are complying with generally accepted accounting principles. The Treasurer’s office would still be responsible for investing all surplus funds in the pool in longer-term investments that earn a better return, while still maintaining enough funds in short-term investments to meet Modoc County’s liquidity needs.
Option 3: Remove the funds as received by the county and maintain complete financial independence.
As I have stated above, you would need to establish all of the checks and balances of a financial system, be responsible for all the public funds, and establish and maintain an investment policy. According to a fiscal services survey performed by Carol Harbaugh, only 14 percent of the commissions in the state operate independently of the county.
I hope this explains my points and your options well enough for you to make an informed decision on this matter. If you still have questions that are left unanswered, I would appreciate the opportunity to make a presentation to your commission at a later date,“ Knoch concluded.
Next: Part 21
An analysis of Knoch’s three-option letter to the Children and Families Commission.