
32 minute read
NACo News
Let’s all celebrate County Government Month
National Association of Counties (NACo) President Valerie Brown is calling on all counties to begin planning today for National County Government Month (NCGM). Te theme for NCGM, to be celebrated throughout the month of April 2010, is “Healthy Counties.” “County governments are integral to America’s health system and provide many essential services for their residents,” said Brown, supervisor, Sonoma County, Calif. “I know counties are most proud of their healthcare services and healthy living programs. Tat’s why the theme for National County Government Month is Healthy Counties.”
Since 1991, NACo has encouraged counties to actively promote county government programs and services. Formerly National County Government Week, the designation was expanded to a full month to offer counties more opportunities to plan and participate. Counties aren’t expected to hold public awareness activities throughout the month, but can schedule activities any time during the month.
Brown urged county leaders to hold open houses or public tours of county facilities, visit local schools and business groups to discuss available county services, and highlight exceptional services and programs.
“By starting to plan today counties can make the most of the opportunity to promote effective local government efforts to serve and protect communities,” Brown said. “I am excited about this year’s Healthy Counties theme as I am making advocacy for national health reform that works for counties a hallmark of my year as NACo president.”
A booklet is available from NACo which will provide helpful information about how to plan successful NCGM celebrations. For more information, visit the National County Government Month Web page in the County Resource Center on the NACo Web site or contact Jim Philipps at 202/942-4220 or jphilipps@naco.org.
Seniors can win $2,000 for college
Tis spring, four high school seniors will earn $2,000 for college from the NACo/Nationwide Scholarship. Winning applicants will have written a short essay describing why it’s important for a public sector employee to start saving early for retirement. Tis is the fifth consecutive year that Nationwide and NACo have teamed up to encourage high-school seniors to think about retirement. Why spur students who haven’t even start-Get ready now. ed full-time work to think about retirement? Tree reasons – by applying for the scholarship the students:Be ready later.1. Must consider the financial impact of their decisions about college and their career and realize it is never too soon to start thinking about saving for retirement. 2. Begin to recognize the value perspective in turbulent financial times when often difficult decisions are required. 3. Identify specific actions that help prepare for a financially successful future. To be eligible, applicants must be graduating high school seniors who are legal U.S. residents – their parent or grandparent must be enrolled in and contributing to the NACo 457 Deferred Compensation Plan. In addition, the student must enroll in a full-time undergradu ate course of study no later than the Fall term of the 2010–2011 school year at an accredited two- or four-year college. In addition to these qualifications, applicants will also be asked to answer a question (in 500 words or fewer) on why it is important for a public sector employee to start early when saving for retirement. Te application and entry must be submit ted on line no later than January 31, 2010. For more information, go to www.naco.org/retirementscholarship or www.nrsforu.com/scholarship
Survey finds small counties struggling in face of slowdown
In mid-October, the National Association of Counties conducted a survey to look at the continuing impact of the economy on a sample of counties across the country. Te sample group was made up primarily of midsize to smaller counties. Media reports of the impact of the economy have largely focused on the counties with the largest populations, but the majority of the counties in the country are mid-size or smaller.
Tis survey reveals that the downturn is widespread and is impacting counties of all sizes from several directions. In addition, many of these counties are either not anticipating any revenue from the American Recovery and Reinvestment Act or are still waiting for it to arrive. Responses were received from 138 counties in 34 states. Te survey reveals:
County economies are not improving – Fifty six percent of counties report starting their fiscal years with up to $10 million projected shortfall.
Forty seven percent of counties say that the shortfall increased after the start of their fiscal year.
Ninety five percent of counties with additional shortfalls report up to $10 million in additional shortfalls. Revenues creating shortfalls include: n Property taxes – 52% n Reductions in state/federal funding – 50% n Sales taxes – 46% Counties are responding to the shortfalls by: n Delaying purchases and repairs – 60% n Salary/pay freeze for employees – 59% n Delaying capital investments – 54% n Hiring freeze – 49% n Using rainy day/reserve funds – 44%
falls into their next fiscal year funds from the ARRA munity Development Block Grants (50%) are the most anticipated funds from ARRA not received any as of the date of the survey.
Some of the comments NACo heard back from county officials included:
Stimulus payments should have gone to counties our size for infrastructure improvements. Overlaying our county roads with payment would have an economic benefit for the next 30 years. It would be money well spent rather than all these special earmarked funds for things that governmental entities do not really need.
State and Federal keep cutting and taking away from smaller counties. Small counties have no other revenues to depend or bring in income.
We did not have a shortfall but expect to see a significant drop following the re-evaluation of property values over the next three years. Also for rural counties $10 million is a high budget for county operations especially if you do not have jurisdiction over roads monies.
Rural America typically lags at least a year behind the economy of the nation.
ARRA funding was all decided before it got to the county level. It was not transparent. For the most part, funds were controlled at federal or state level, with an appearance that it would be put in the pockets of the needy. It did not.
State is ending up keeping most of the funds.
Our indigent budget has greatly increased.
“Send money!” another commenter simply pleaded.
– Jacqueline Byers NACo Director of Research
Recent headlines and the current economic climate highlight the importance of making sure personal and retirement investments are with a financially strong company.
As part of its oversight of its Deferred Compensation Program, NACo hires an independent consultant to evaluate several different program aspects. Tese include the creditworthiness of Nationwide Financial, the parent company to our program administrator, Nationwide Retirement Solutions, and the competitiveness of the fixed annuity investment option return to our program participants.
In their analysis of the creditworthiness of Nationwide, the consultants noted that while Nationwide continues as a strong organization even though in 2008 it was downgraded, due in part to the general economic conditions as well as some of those related specifically to the insurance industry. In some of the indicators against which Nationwide was evaluated, they continued very strong; in others, their position weakened from the prior year. NACo and the NACo Deferred Compensation Advisory Committee will continue to monitor Nationwide as economic conditions change in 2010.
Te NACo deferred compensation program, also known as a 457 program, is a voluntary investment program that gives county employees the opportunity to save regularly for their retirement on a pre-tax basis. One of the investment options available to participants is a fixed annuity that offers county employees the opportunity to earn an investment return at a fixed rate that is established quarterly by Nationwide. In addition, on an annual basis, Nationwide sets an investment rate minimum (or floor) for the year.
According to the study, the 2008 return on this investment option placed highest among its competitors. Te report was released at the November 4, 2009 meeting of NACo’s Deferred Compensation Advisory Committee, held in Monterey County, California. Tis study has been conducted every year since 1989, and the NACo program has always come out on top. “Our 29-year partnership with NRS continues to deliver a quality program that helps county employees save for a more comfortable retirement – this is more important than ever in today’s economy,” said Larry Naake, NACo executive director.
Te competitive interest rate test concluded that Nationwide met its contractual requirement to equal or exceed the top one-third of its competitors. Tis study reviewed the fixed annuity option offered by Nationwide and its nine largest competitors.
Te consultants’ analyses are only one feature of NACo’s deferred compensation program that distinguishes it from others. As a result of NACo’s Deferred Compensation Advisory Committee, the NACo program is the only one in the country that receives oversight and is advised by county participants. It also benefits from the oversight and endorsement of 41 state associations of counties, including the Association of Arkansas Counties. – Lisa Cole at NACo at 202/942-4270 or lcole@naco.org or NRS at 877/677-3678
Registration open for NACo’s 2010 Legislative Conference in D.C.
Registration is open for NACo’s Legislative Conference, to be held March 6–10 at the Marriott Wardman Park Hotel in Washington, D.C. Te conference’s theme and focus, “Finding Solutions for Tough Times” will provide you with tangible solutions to take home and apply in moving your county forward in this difficult economy. Te Opening Session keynote speaker is Joe Klein, columnist for TIME magazine. Te New York Times wrote that Klein — a veteran of eight presidential campaigns — “possesses one of the more musical ears in American politics, a gift for hearing what others miss.” Register online and save $25. – Kim Struble · 202.942.4288
Prescription discount card program: The tougher the times, bigger the savings
NACo has a tough times solution to help your residents with their tough times — and there’s no cost to your county or its residents! Included in your county’s NACo membership is an exclusive benefit program — the NACo Prescription Discount Card program — which has saved consumers in 1,260 counties across 47 states $231 million over the past five years. Te average saving is 24 percent per transaction. If your county is not making these money-saving discount cards available to your residents struggling to make ends meet, call NACo today and learn how easy it is to get started. – Andrew Goldschmidt · 202.942.4221
This year’s theme: Healthy Counties An excellent opportunity to highlight effective county programs and services and raise public awareness Highlight Your: ■ healthy programs in the Parks and Recreation Department ■ healthy eating and exercise programs provided by the
Public Health Department ■ health care services at your county hospital ■ books and programs on healthy lifestyles and tness in your libraries ■ miles of county roads maintained to keep a healthy sustainable community ■ sheriff, police and re departments that keep your community safe ■ get creative! For more information, visit www.naco.org/NCGM

House immigration bill would alter enforcement, broaden legalization
A group of more than 20 House Democrats led by Illinois Rep. Luis Gutierrez introduced the Comprehensive Immigration Reform for America’s Security and Prosperity Act (CIR ASAP, H.R. 4321) on December 15. Te bill is a blend of enforcement, legalization, and changes to the legal immigration system.
Some of the bill’s components include:
Legalization: Te Agjobs bill that establishes a program for agricultural workers; a path to earned legalization that provides conditional non-immigrant status to undocumented immigrants, their spouses and children.
Enforcement: Elimination of the 287g program; a southern border security task force that includes federal, state and local law enforcement officers; reimbursement for northern and southern state and local prosecutors for federally initiated drug cases; training and technical assistance for state and local law enforcement partners dealing with kidnapping, drug and weapons trafficking.
Grants to state and local governments: A cursory reading of the bill did not yield a state and local impact grant program, but there is a competitive grant program to form Councils for New Americans and provide integration services. Local governments are eligible grantees.
Tere is no Senate companion bill, but Senators Charles Schumer (D-N.Y.) and Lindsay Graham (R-S.C.) are working on a draft that they hope to introduce in January. Prospects for passage are dependent on many factors, including final passage of a health bill, a jobs bill and other legislative priorities.
NACo planned to hold a legislative briefing on the role of counties in immigration and the need for reform January 13. – Marilina Sanz 202/942-4260
Food stamp use rising; one in eight Americans rely on them for meals
It doesn’t matter if a county is rich or poor; food stamp usage is on the rise. In the United States, more than 36 million people rely on food stamps to buy their groceries.
To put that in perspective, this is about one in every eight Americans, and one in every four children. Additionally, in more than 800 counties, food stamps help feed one in three children. According to an analysis of local data collected by Te New York Times, there are 239 counties where at least a quarter of the population receives food stamps.
In the past two years, food stamp usage has increased in every part of the country; however some of the most surprising increases have come in many of the wealthiest counties. Since 2007, the 600 counties with the highest percentage of individuals benefiting from food stamps added an additional 1.3 million new recipients. Te same is true for the 600 counties where use has historically been the lowest. With equal increases across the board, it becomes evident that counties, which usually have had few residents qualifying for assistance, suddenly have seen a sharp increase in need.
Shannon County, S. D. has one of the highest percentages of food stamp recipients. In June 2009, 49 percent of the county’s residents relied on the program. Not surprisingly, according to recent U.S. Census data, the county has the fourth highest poverty rate in the nation. In contrast, Forsyth County, Ga. had the highest household income in the south in 2007, yet food stamp usage has surged by 160 percent since that time.
Despite the increase of those needing and using assistance to cover their basic needs, nationwide, food stamps only reach about two-thirds of those eligible. County food pantries help supplement this as well as fill some of the gap, but there is still a growing need. Right now all counties must adjust to the rising dependency on both food stamps and food pantries. – By Sarah Sunderman
Jobs bill includes transportation spending
Te House-passed jobs bill includes $37.3 billion for transportation spending. No match would be required. However, the Senate will not consider this legislation until early 2010. Te funding in the House bill would be spent this way: $27.5 billion Highways; $8.4 billion Transit; $800 million Amtrak; $500 million Airport Improvement Program; $100 million Maritime Administration (shipyard modernization).
Other transportation provisions included in the jobs bill but not directly related to the newly authorized spending would provide an extension of the surface transportation programs through Sept. 30, 2010; would transfer $19.5 billion from the general fund to the Highway Trust Fund to address solvency issues; and would remove the ban on the Highway Trust Fund earning interest on its balance that would help address the solvency issue. – Bob Fogel 202.942.4217
$2 billion for water and $715 billion for Corps
Several programs in the environment and energy realm were funded in the House-passed jobs bill. Water infrastructure projects received a portion of the funds to address the growing problem of aging water infrastructure.
Tis pot was split equally, $1 billion each, for the Clean Water State Revolving Fund (CWSRF) and the Drinking Water State Revolving Fund (DWSRF) and is slated to be used for sewer, water repairs and rehabilitation. Te language instructs states to use at least 50 percent of the funds for additional subsidies, such as loan forgiveness and grants, to struggling communities.
Te bill also states that 20 percent of the funds could be used for green infrastructure, water/energy efficiency improvements or other environmentally innovative activities, if applicable.
Te U.S. Army Corps of Engineers (Corps) was another winner in the bill receiving $715 million for Corps projects, such as construction, flood protection, environmental restoration, etc. Te projects funded must meet a specific set of criteria including: projects that can start quickly, create immediate employment, and located in a state with high unemployment. – Julie Ufner 202/942-4269
Streamlined Sales Tax: Counties look closer at Internet for revenue
After the dust clears from the holiday cybershopping season, counties may see less sales tax revenue than ever before, thanks to online retailers who don’t have to collect and remit sales tax in certain states.
Getting those retailers to start collecting the tax and how much to compensate them for their effort is the main obstacle facing states lobbying Congress to legislate a standard policy.
Estimates of how much money goes uncollected vary, but a recent University of Tennessee study placed it at nearly $3.1 billion in 2009. Organizers of a multi-state lobbying effort say approximately one-third of the uncollected taxes should go to counties.
A 1992 U.S. Supreme Court decision, Quill v. North Dakota, looms over the current debate. It required retailers that have a physical presence in a state to collect sales taxes from customers in that state. Te ruling left it up to customers in other states to pay their own sales taxes. In what has been a surprise to almost nobody, selfreported sales taxes have largely been lacking.
As retailers extend their national reach using the Internet, the decision gave them a leg up over “physical” stores, because online sellers are able to omit the sales tax from the total price.
“Tere is no such thing as a tax-exempt sale on the Internet — people aren’t paying taxes they owe,” said Scott Peterson, executive director of the Streamlined Sales Tax (SST) Governing Board. Peterson’s organization coordinates a multi-state effort to standardize tax laws and lobby Congress to make federal changes.
So far, 23 states – including Arkansas – have passed legislation that accomplishes many of these steps, including establishing uniform definitions and terminology, reducing the number of tax rates and standardizing tax return forms.
Some of those revisions involve policy changes, which has hung up several states’ full participation, Peterson said.
In September, the SST governing board considered a proposal for compensating vendors, similar to the requirements likely to be in the federal legislation. One proposal would use more than one-third of the tax revenue to compensate vendors. Several states worried that this might cost too much of the anticipated new revenue.
Any state with a large population of computer-savvy shoppers is losing out, said Ted Potrikus, executive vice president of the Retail Council of New York State. “Consumers can sample goods in a store and then buy them online, hurting the business and the local government that would have gleaned some tax from the sale.” – By Charlie Ban
Employees need to stick with retirement savings
In today’s market, many county employees are left feeling uneasy and insecure. An unpredictable market can be intimidating, especially when working hard to pay current bills and save money for retirement at the same time. But before reacting emotionally by moving investments to cash or discontinuing contributions, it’s smart for county employees to know why they may want to stick with their long-term strategy including their supplemental retirement savings such as a 457(b) deferred compensation plan, regardless of market conditions. Here are three reasons for employees to stick with it:
1. Retirement savings have tax benefits Employer sponsored retirement plans like a

Saving tastesgood.
These days, fnding money to pack away for your future isn’t easy. But it’s not as hard when you know where to look. That’s where Nationwide Retirement Solutions comes in. We’ve been helping public sector employees save smarter and better for over 30 years.
Food for thought
Simply pack your lunch a couple of times a week, and invest that savings toward retirement.
Lunch money saved per pay period $20 Pay periods per year x 26 Total lunch money saved per year $520 Savings over 30 years with infation $29,164(A) Invested over 30 years $92,015(B)

Call 1-877-677-3678 to put a Retirement Specialist from Nationwide on your side or visit NRSFORU.com to learn more about how to invest for your future with deferred compensation.
Investing involves risk, including possible loss of principal.
(A) Amount per pay adjusted for infation by 4% annually. (B) Assumes an average annual return of 8%. Also assumes savings are invested at the end of each month. Total balance of $92,015 does not refect deductions for federal or state taxes. Withdrawals are taxed as ordinary income.
This illustration is hypothetical and is not intended to serve as a projection of the investment results of any specifc investment.
Neither the accumulation or after-tax amount takes into consideration fees or expenses associated with any particular investment. Investment return is not guaranteed and will vary depending upon your investments and market experience.
©2008 Nationwide Retirement Solutions, Inc. All rights reserved. One Nationwide Blvd., Columbus, OH 43215. Nationwide, On Your Side and the Nationwide framemark are federally registered service marks of Nationwide Mutual Insurance Company. NRV-0426M1 (09/08) Retirement Specialists are registered representatives of Nationwide Investment Services Corporation, member FINRA. In MI only: Nationwide Investment Svcs. Corporation. 457(b) deferred compensation offer tax benefits that are not tied to the market. Contributions are pre-tax. That means that money goes into an account before the participant pays taxes. For example, if an employee pays around 25% in income taxes, then a contribution of $100 in a retirement account results in only a $75 reduction from their take-home pay and taxes are not due on the $100 or any gains until withdrawal, usually at retirement. So not only does $75 out of pocket put $100 in the account, the $25 that would have been taxes now has the potential to grow and compound over the years. Investing involves risk, including possible loss of principal.
Compounding is when money can earn more money over time. That same employee saving $75 out of their pocket every payday for 35 years, will have invested $91,000 (remember at 25% income tax, that only felt like $68,250). At an average annual return of 7%, the $91,000 would grow many times over to be worth more than four times the original investment – $372,338.*
Not all American workers today may be able to afford to invest the amount in this example right now. In real life, people often start smaller and increase regularly when they get a pay raise. Beginning to contribute is the most important step, but continuing to invest as much as possible throughout the working years is equally important, even when markets are volatile. The tax benefits are not affected by volatility.
2. Markets bounce back
There have been down markets before. Today, it’s easy for everyone’s emotions to reflect the market – they go up, they go down. And while past performance cannot guarantee future results– over the past 75 years, every down cycle has been followed by an up cycle. And while no one can definitively say when the market will upswing, most financial experts agree that the market will recover. And that’s something that no one wants to miss out on.
In mid-May, The Wall Street Journal reported that “Since bottoming out, the Dow has surged 26%. That means investors who sold at the bottom have missed out on one of the most powerful rallies in decades.” (The Wall Street Journal, May 18, 2009) Rather than “cutting losses” by selling at a low point, investors can think of a
President-elect Altemus out after losing election back home
NACo President-elect Teresa Altemus, who many Arkansas county officials met at the Association of Arkansas Counties annual conference last August in Springdale, lost her bid for a fifth term as Gloucester County, Va. supervisor Nov. 3. Her defeat opens a slot on NACo’s leadership team, which will be filled by election at NACo’s 2010 annual meeting in Washoe County (Reno), Nevada. Altemus’ supervisory term ended Dec. 31.
In the meantime, NACo First Vice President Glen Whitley will fill the president-elect vacancy and by convention, will move up to become NACo president at the 2010 Annual Conference. Arkansans met Whitley at the 2008 AAC annual conference in Little Rock.
NACo Second Vice President Lenny Eliason moved into the first vice president’s slot, effective Jan. 1.
NACo officers must be currently serving as elected county officials.
“Teresa has served NACo well over the past several years. We will miss her enthusiasm for the association and its members. Teresa was one of NACo’s biggest fans. We wish her well in the future,” said NACo President Valerie Brown. Altemus had been an active NACo member for more than 10 years. Most recently, she chaired the association’s Finance Committee and was the Executive Committee’s liaison to the Information Technology Committee, Conference Advisory Committee and Deferred Compensation Committee.
She served for seven years on the Human Services and Education Steering Committee, which she chaired from 2003 through 2006. Linn County, Iowa Supervisor Lu Barron, who served as a vice chair on the committee under Altemus, said she enjoyed working with her. “Teresa was always well-prepared. She was also not afraid to have the committee tackle tough policy issues. I respected her for her leadership.”
She also had been an active member of the Rural Action Caucus, Membership Committee, Audit Committee and the Homeland Security Task Force.
When first elected in 1993, she was the first woman and the youngest person to serve on the
Altemus
market downturn as an opportunity to “buy low”. When the market is down, investors who buy get more for their money when it rebounds. However, selling or waiting to invest until the market improves could mean an investor actually pays a higher price. Right now might actually be a good time to buy more while prices are potentially lower.
3. The right strategy is important
Even though planning for retirement is a long-term goal, many investors think shortterm, especially in times like these. There are strategies, such as asset allocation, that may help deal with a volatile market and reduce market risk without having to miss out on potential returns. Experts suggest that investors use different types of investments because even though all investments go up and down over time, they typically do not do so all at once. Investors can drive commitment to a long-term investment discipline by understanding their own comfort level with market risk, how long until they will actually retire, and when they will start spending their retirement assets. And in turn, this can help determine what asset allocation strategy to use. It’s important to remember though that asset allocation does not guarantee returns or insulate against potential losses in a declining market.
Stick with the strategy!
A good strategy is a good strategy, regardless of market conditions. Many county employees are in for the long-term and should not make investment decisions based on short-term drops or gains. It’s important to evaluate how an investment fits into an overall long-term financial strategy including current and future tax implications and adjust as needed. The message is clear: If you are not contributing to a supplemental retirement account, don’t wait. Get started and evaluate the tax benefit. If you are already participating, don’t stop contributing toward your future. Don’t get off track by pulling out of the market at a low point.
County employees participating in the NACo deferred compensation plan can talk with Nationwide representatives to discuss their specific situation and to find out which strategies may help reach long-term goals by calling 1-877-677-3678 or contacting your Arkansas Nationwide Retirement Specialist Fran Walker at 501-944-2287. Learning tools are also available at www.nrsforu.com.
County employees should know that finding creative solutions for employers has been a hallmark of Nationwide’s service to the public sector, and especially NACo. For more information on what Nationwide is doing to help participants succeed even during difficult economic conditions, contact Louie Watson, Vice-President of Strategic Relationships, by e-mail WatsonL2@ Nationwide.com or by phone 614-854-8895.
Nationwide Retirement Solutions (Nationwide) partners with the National Association of Counties (NACo) to provide counties and their employees with a competitive deferred compensation program. As part of this partnership, Nationwide pays a fee to NACo in exchange for NACo’s exclusive endorsement, marketing support, and program oversight of Nationwide products made available under the program. For more information, including fees paid, Nationwide encourages you to visit NRSforu.com.
* This illustration is a hypothetical compounding example that assumes bi-weekly deferrals of $100 (for 35 years) at a 7% annual effective rate of return. It illustrates the principle of time and compounding. It is not intended to predict or project the investment results of any specific investment. Investment returns are not guaranteed and will vary according to market experience. If fees, taxes and expenses were reflected, the hypothetical returns would be less. All withdrawals from a pre-tax retirement account are taxed as ordinary income in the year they are taken.
The Gold Standard for watching your money!ë
Creating robust internal financial controls means balancing risks and rewards
By Stephen W. Blann
CPA, CGFM / Rehmann Robson
The Control Environment
Te idea of financial controls in government is nothing new. As early as 1100 A.D., King Henry I of England had instituted the Court of the Exchequer (named after the checkered cloth on which accounts were handled) to oversee the government’s financial transactions and conduct twice-yearly audits of local Sheriff’s accounts. During these audits, revenue officials gave an accounting of their collections and were questioned on debts owed. Tus the government was looking after its own interests – essentially instituting an early form of financial controls.
Today, the thought of twice-a-year meetings to balance the books on a tablecloth is laughable. However, many governments still have a distressingly narrow view of what internal financial controls are. As such, they haven’t instituted the comprehensive programs needed in today’s complex world.
Too many government institutions think of internal controls only as the procedural steps of ‘who signs what where’ and which documents should be completed in triplicate. But when you perceive internal financial controls as a way to help your organization carry out its mission effectively and efficiently, you have a clearer picture of what’s needed to maintain a healthy financial department.
So how do you know what types of controls to implement? Too many controls and you end up with a maze of red tape; too few and you leave yourself open to fraudulent activity. It’s a fine line to walk, and each county needs to set its own exact limits. Here are guidelines that can help. The Gold Standard
Te gold standard of internal reporting is the 1992 Committee of Sponsoring Organizations (COSO, a trade organization for accountants, auditors and financial executives) Report, which outlined five elements critical to integrated internal financial controls:
As anyone who has ever changed jobs knows, each workplace has its own culture. Some are friendly and outgoing; others are more reserved. Some offices set casual dress codes; others require a jacket and tie. Tese differences can also apply to the tone set for the ‘control environment’.
Leaders of organizations generally create the tone and set the pace for the group. Te expectation that things will be done correctly, notated and filed as appropriate, needs to come from the leaders of the organization, and has to permeate down to each employee. Te Control Environment – that expectation from leaders that things will be done properly – is extremely important for setting the stage for internal financial controls. Set the tone for a good control environment by communicating these expectations in the employee handbook and through day-today interactions within the organization.
Information and Communication
Too often, information exchange and communication within organizations is done on an ad-hoc basis. Many things have been done in the same manner for years and years, but nothing has ever been formalized.
For example, one county may have a set of
written documentation procedures that their finance area is supposed to follow. But over the years, modifications to make the policy work better have been put into place, and the people who work in the office every day know when the written rules are to be followed, and when the modified policies should be applied. But if one of the department members resigns, or goes on an extended leave and needs to be replaced, how will the new employee know what procedures to follow? Documentation of information flow is critical to creating a robust financial controls policy. Having written confirmation of how communication is to be dispersed throughout the organization can make preventing and detecting risks a much easier task. Risk Assessment Risk assessment is central to creating internal financial controls. It’s the step where you let your imagination ask: what can go wrong? What could get in the way of completing our mission? Where in our process are there opportunities for a breakdown of communications or procedures? Tere is always a risk vs. rewards balanc“Obviously, the costs of the ining act. Don’t pay enough attention to the risks and your asking for trouble. If you’re ternal controls shouldn’t exceed too strict on the rules, efficiency can suffer. Tink about a small library collecting the rewards, or efficiency is com- 50 cent late fees for overdue books. To be promised... Risk assessment is all completely safe from risks, you could hire an armed security guard to watch over the about striking an appropriate fees collected. You would be enhancing the internal financial controls, but would balance.” be spending “big bucks” to get a minimal return. On the flip side, think about county finances and what could happen if there aren’t enough controls in place. It would certainly be less complicated if taxes, once collected, weren’t put into a bank account, but piled onto a central table for the general use of the government. Tink of the efficiencies – no checks to write, no payroll to process – just let anyone who need money from the county come and take it. Of course, under this approach, the risks would be huge: amount of money.
amount of money – but at the wrong time. times.
So for each area, it’s important to determine what the risk is, and what the cost is of mitigating that risk. Obviously, the costs of the internal controls shouldn’t exceed the rewards, or efficiency is compromised.
No system of internal controls can fully eliminate all risks and still maintain efficiency. After all, people are involved in the process, which by definition means an opportunity for mistakes. But within that framework, it’s up to each individual county to draw the line as to how much risk it is willing to take – always remembering that as a minimum there are state laws to follow that minimize risks. Risk assessment is all about striking an appropriate balance.
Monitoring
Okay, so you’ve set the tone, communicated the expectations to the organization, completed your risk assessment and implemented control activities. Can you then assume that everything is going according to plan? Of course not. Tat’s where monitoring comes in. Ensure that all the steps above have been completed, and procedures continue to be followed. Check the reports to discover any new potential risks, or find out where current procedures are allowing mistakes. Implementing internal controls without a monitoring component is like having smoke detectors in the house without any batteries in them.
“In my experience, the control most Each county is unique, and there is overlooked by county governments never going to be a one-size-fits-all solution. But with proper forethought – and is approval of journal entries.” by implementing the five steps recommended – your county can implement the critical financial controls it needs to ensure you’re on the right side of the risk vs. rewards line. Stephen Blann is a Principal in the Governmental Accounting and Auditing division of Rehmann Robson. He has helped local governments of all sizes with their internal audits and in implementing internal financial controls. Rehmann has grown to become one of the largest CPA, business consulting and financial firms in the Midwest with more than 600 associates in 13 offices. Rehmann is a member of Nexia International with resources in 100 countries worldwide. Its website is www.rehmann.com
Control Activities
When thinking of internal financial controls, most people latch onto the steps and written procedures that must be followed – what many refer to as red tape. But when it comes to proper internal financial controls, I think of it as red tape with a purpose. Tese are procedures that have been set up to guard against the risks discovered in the step above – not simply procedures for procedures’ sake. Especially when working with the public, it’s important to note that there is a solid, reasonable need for these control activities.
Most auditors have a lengthy list of critical controls they think should be in place, such as authorization of transactions; initiation of transactions; reporting and reconciling – but in my experience, the control most overlooked by county governments is approval of journal entries. While most governments have reasonably solid controls over accounts payable and payroll (it would be very difficult for dishonest employees to pay themselves without being detected), journal entries are another story. Tere are many reasons why employees might need to post manual corrections or additions to the general ledger, but we’ve found that the internal controls over these journal entries are often minimal at best – leaving it open for committing and concealing fraudulent activities. Not having controls over the journal entries is essentially like locking your front door, but leaving the back slider wide open.
Are Rising Inmate Medical Costs
Draining Your County’s Budget?
CRS has a proven track record of reducing inmate medical costs in Arkansas. In fact, we work with six Arkansas counties and have reduced inmate medical costs by a total of $428,454.43 in 2009.
Isn’t it time you put CRS to work for your county?
Isn’t it time to stop draining your County’s budget?
For more information on HOW YOUR COUNTY CAN START SAVING MONEY, please contact DJ Kreal at CRS at 615-376-6101 or djk@crisks.com.