Are you as prepared for a grand jury and/or a freedom-of-information request from a citizen or the press regarding your financial procedures, as you are for your next alarm?
I know financial transparency isn’t an exciting topic, but all firefighters must have at least a rudimentary understanding of its importance and how internal checks and balances work to ensure transparency. The consequences of not understanding or caring due to our own ignorance and professional apathy can create a negative impression among those we serve: our citizens and taxpayers.
Who Uses Isn’t Always Who Pays
It cannot be overstated that one of the hallmarks of a good fire department is the ability to respond to all types of incidents. From our citizens’ perspective, this is measured in two basic ways: 1) response times (how fast) and 2) outcomes (how well). A citizen is obviously not viewing and measuring your department based upon your Standard of Cover; they have an individual perspective. But our basic operations are highly visible, and we are almost always held in high public esteem for our performance.
It’s no different when it comes to financial transparency. This is very important to the majority of the citizens we serve. They expect us to live within our means, spending their taxpayer monies in the most efficient manner in alignment with internal financial policies and universal best practices.
Remember: Nearly 98% of your citizens are not utilizing emergency services annually, but are paying for them just the same. The vast majority doesn’t use them or thinks that they never will (denial). Most believe that we are a very expensive, albeit necessary service; they may also believe that they are subsidizing others’ use of the services we provide.
Furthermore, some of those who use our services are not our citizens; they’re tourists, homeless people or potential undocumented immigrants. They don’t vote in our community or pay taxes—taxpaying citizens are effectively subsidizing their use of our services as well. Additionally, some are “frequent flyers”—they may be citizens, but more than likely they’re not politically active. In both cases, they either don’t have a say or they aren’t interested in how the tax money is being spent, just the service they receive.
My point: Those who do vote may be those least likely to use our services and thus least likely to be an advocate for us. They are also often more astute and involved in governmental issues and watch how their tax dollars are being spent.
Creating a Defense
How do taxpayers receive assurance that their money is being well spent? Oftentimes it comes by way of a grand jury request. Grand juries typically focus on waste, governmental redundancy and/or cost, and the why and how the funds are spent.
This is true with information requests from the press as well—requests about expenses, firefighter wages (in particular overtime), and where money was spent (not necessarily how). However, reporters have much shorter timelines (deadlines) and care less about truly understanding the issue. A sensational headline will drive the story.
You may not be able to avoid public scrutiny regarding your budgetary process, but you can have a solid defense. The most universally accepted best financial practices are those from the Governmental Accounting Standards Board (GASB), whose vision and mission is:
- To enhance accountability and well-informed decision-making through excellence in public sector financial reporting.
- To establish and improve standards of state and local governmental accounting and financial reporting that will result in useful information for users of financial reports, and guide and educate the public, including issuers, auditors and users of those financial reports.
Optimally, your financial procedures should adhere to the following step-by-step procedures regarding separation of duties (assuming you have enough staff to do so):
- One person accepts payments (checks or cash);
- Another person makes deposits;
- A third person, who has the authority to do so, writes checks;
- Now, an altogether different person or persons signs the checks; and
- Finally, there is someone else who reviews this process (i.e., an independent auditor).
The above procedures are the foundation for internal checks and balances, especially if you have a billing division. Now let’s take a close look at expenditures and reimbursements, and the oversights to which governmental agencies and elective officials should adhere.
Financial transparency starts with your elected officials developing the annual budget. This is typically done during a series of regular budget workshops. The process usually starts in the early part of the calendar year for most cities, with an approval of the final budget prior to July 1. These sessions are open to the public and are very detail-oriented. In theory, elected officials review all projected revenues and forecasted expenditures, including line items. Essentially, these processes are designed to ensure budgetary alignment with the strategic plan and/or the needs of the community.
At or before the July meeting each year, the council approves the annual budget. The exceptions are those agencies that have two-year budgets. District, county or state agency budget cycles start later, around June, and conclude in September. But other than the start and ending dates, the process is the same.
Monthly Financial Statements
Once the new budget is in place, your finance administrator should prepare a monthly report for a review of monthly expenditures and reimbursements. The elected officials should approve these requests during their regular monthly meeting.
This monthly oversight ensures that stated programs are moving forward as outlined in the budget. Furthermore, this review is designed to ensure that misuse of funds does not occur. Each and every month, the elected body should review financial statements and approve expenditures and reimbursements. This too should be done in an open session, posted on the agency’s website, and sent to the press to ensure public access. It’s a vital checks-and-balances procedure, providing the necessary oversight the taxpayer expects.
Taxpayers have the right to know with certainty that their money is being managed and spent in accordance with the annual approved budget. An independent auditor is responsible for this process and works directly for the elected officials. The auditor reviews all financial practices and indicates inaccuracies if/when they exist. Optimally, the auditor gives the agency a clean financial bill of health.
The auditor’s report should be available to any citizen who requests it. It should also be posted on the agency’s website. When the auditor has completed the audit, the elected officials then have the responsibility to review and accept or reject the auditor’s report. When they vote to accept it, this closes out that year’s budget.
Answer the Question Not Asked
If you follow the above procedures, you will be in a perfectly defendable position with regard to overtime, credit card charges and/or major expenditures should the grand jury or press come knocking on your door. These requests, however, have to be reviewed and explained in the context of the predesigned approval process. The person asking for specific information doesn’t know this. If you only answer a question—how much you spend on OT—the headline could read, “Fire Department Exceeds OT Budget.” So, it is up to you to carefully explain your answers.
By providing background information, you will have a better chance of having a favorable headline and an accurate article. It’s also critical to remember that an expenditure request from the press will not show the reimbursement side of the ledger unless you point it out and provide it. You need to inform and educate them on how the budget works.
For example, you may have spent beyond your projected overtime, but this excess may be reimbursable due to large fires, mutual aid or the fact that there’s an equal amount of savings in your personnel account because you’re not fully staffed.
During my tenure as fire chief, my district received very positive audits. As a result several years ago, we applied for and received the prestigious Comprehensive Annual Financial Report (CAFR) Award for financial transparency from the Governmental Accounting Standards Board. An award of this caliber is a positive approach in demonstrating fiscal transparency to your citizens and is a source of tremendous pride for any agency.
I’ve found that most elected officials really do not understand their own budgetary processes. In lot of ways they are like firefighters—they have a burning desire to contribute, not realizing in their particular case, that their number one role and responsibility is fiduciary oversight. Conversely, our role as professional administrators involves 1) ensuring that the above processes are in place and adhered to, and 2) helping our elected officials, staff and citizens alike understand the complexity of the budget process.
In the end, our budgets enable us to exist. We all must operate within the pre-identified guidelines to ensure that we continue to maintain the public’s trust, especially in an atmosphere of intense public scrutiny. You can’t go wrong by following best practices—budget preparation, review of monthly financial statements, independent audits and year-end financial approvals—combined with political oversight.
In emergency operations, we view our operations as either being proactive or reactive. Finances are viewed as either transparent or opaque. All of your policies and procedures should be designed to be transparent—to create a positive public impression, support your mission statement and serve as a reminder of your daily commitment to your community.
The community is the reason for our existence, and to foster and sustain its trust, it is important to serve with honesty, integrity and transparency in all financial endeavors.