June, 2010

Every American Should Be Aware Of The Existence Of Comprehensive Annual Financial Reports (CAFRS)

Introductory Comments

Americans are constantly being bombarded with newspaper, TV, radio and internet stories about "budget deficits" or "budget shortfalls" being faced by various local and state governments as a result of the worst financial and economic slide since the Depression of the 1930's. There is constant chatter about the need to resolve the problem of "budget deficits" or "budget shortfalls" by reducing services and/or raising taxes/fees.

Unfortunately, if the discussion focuses only on "budgets," Americans aren't being told the full story. In fact, the discussion should also include documents known as "Comprehensive Annual Financial Reports (CAFRS)."

What Is A Comprehensive Annual Financial Report (CAFR)?

A CAFR is a financial report on assets, liabilities, revenues and expenses prepared annually by all local and state governments in a standardized format that must conform to the Government Accounting Standard Board's (GASB) accounting and financial reporting standards. The CAFR describes what actually was spent as well as the status of assets and liabilities at the end of the fiscal year.

The CAFR does the following:

1. presents an all inclusive picture of a government's financial condition by pulling together the annual financial reports of all government agencies and universities;
   
   
2. provides data on all government funds including those held outside the government treasury;
   
   
3. presents information on an accrual rather than a cash basis of accounting - i.e. recognizes amounts owed but not paid by the government at the end of the fiscal year as well as amounts due to but not received by the government by the end of the fiscal year;
   
   
4. provides information on real property, other fixed assets, long-term obligations and investments held outside the government treasury;
   
   
5. provides statistical and economic data;
   
   
6. provides comprehensive financial and operating information which is used by rating agencies such as Standard and Poor's, Fitch's and Moody's Investor Services to ascertain the government's fiscal integrity and establish bond rates.
   
   

Differences Between Budgets And CAFRS

A government budget focuses on the planned spending, by category, to be done by the government to run its various departments and entities for a one year fiscal period along with the planned revenues, by category, received by the government to fund its spending. A budget has the following characteristics:

1. it is a planning and monitoring document;
   
   
2. it represents only a part of the total financial activities of the government.
   
   

The CAR, on the other hand, has the following characteristics:

1. it tells you what actually happened (as opposed to what was planned to happen) for the government entity in the latest fiscal year;
   
   
2. it provides a total (as opposed to a partial) picture of the government's financial condition at the end of the fiscal year.
   
   

Why Americans Must Focus On CAFRS And Not Just Budgets

Simply put, Americans cannot realistically endorse spending cuts and/or tax/fee increases to "balance the budget" for their local and/or state government unless they understand the "total financial picture" of their local and/or state government. An understanding of the "total financial picture" can only be achieved by obtaining and thoroughly reviewing the CAFR for the local and/or state government. There is a very good chance that what is revealed in the CAFR will call into question the necessity of reducing services and/or increasing taxes to "balance the budget."

Locating CAFRS

The following steps should be followed in attempting to locate a CAFR for a local or state government:

1. type in the name of the state or local government on your search engine (e.g. Google) on your computer;
   
   
2. locate the official website of the government;
   
   
3. if the government website has its own search engine, type in "Comprehensive Annual Financial Report" and scan the site for this document. If found, you can read the document on-line or print out all or selected pages to review at your leisure;
   
   
4. if (3) above doesn't work, try to locate the financial departments (e.g. Treasurer, Finance, Accounting, etc.) on the website of the local or state government. Usually the CAFR is found in a reporting section of the financial department;
   
   
5. if (4) above doesn't work, contact the financial department of the local or state government by letter or e-mail. I believe that most government employees will be willing to assist you in locating the CAFR.
   
   

Conclusions

Do NOT automatically accept that a local or state government must reduce services and/or raise taxes "to balance the budget." Locate and read the CAFR for the local and/or state government in question and then draw your own conclusions.

Remember, it was our own Calvin Coolidge (30th President of the United States) who said "Collecting more taxes than is absolutely necessary is legalized robbery."