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Best Practices
GFOA recommends governments establish a revenue control and management policy and review it on an annual basis. This policy should be customized for the size and resources of the government.
A revenue control and management policy establishes proper control over all receipts and receivables and helps ensure sound financial management practices. Governments should adopt a revenue control and management policy over revenues as an integral component of their overall financial policies. A formal manual that documents the entity's revenue control and management procedures can facilitate policy implementation, as well as serve as an effective internal control in and of itself.
GFOA recommends governments establish a revenue control and management policy and review it on an annual basis. This policy should be customized for the size and resources of the government.
The following factors should be considered in developing a general revenue control and management policy:
- Internal controls - Management should establish controls, and ensure they are documented and followed. All aspects of cash receipting and accounts receivables should be subject to proper internal controls including:
- Segregation of duties such as initiation and authorization of transactions, execution of transactions (receipting and disbursem*nt), recording transactions, reconcilement, and maintaining custody.
- Daily processing and timely deposit of receipts. Ideally, all funds should be deposited within 24 hours of receipt.
- Timely reconciliation to applicable ledgers.
- Physical security procedures. This is especially important for funds not deposited day of receipt.
- Fraud reporting procedures.
- Use of integrated receipt and accounting systems wherever practical and cost-effective.
- Accounting practices - All receipts and receivables should be recorded in accordance with generally accepted accounting principles (GAAP).
- Billing and collection practices - Accounts receivable should be established for services provided in advance of payment and terms for collection should be established. In accordance with established procedures, bills should be initiated, recorded in an accounts receivable system, and generated within an established timely manner after initial service delivery. Effort should be made to ensure that receivables are collected in a timely fashion. A policy should be established to provide for 'write-offs' of accounts receivable, including timeframe, dollar thresholds and decision-making authority.
- Methods of payment - A policy outlining the acceptable methods of payment for the governments should be established. This policy should include the method of access (as well as method of payment) while promoting electronic methods of access and payment when feasible and cost-effective to reduce overall risk and increase cash flow.
- Depositing of received funds - Treasury management should serve as the primary recipient for all revenue collection sites. There should be timely recognition and depositing of revenue collected. Smaller governments that do not have a formal treasury function are encouraged to establish a formal single point of receipt or cashier function to control access to received funds.
- Due to the special nature of funds received from grants, developers, partners and other entities, governments should consider whether separate procedures should be established for recording and depositing these funds.
- Returned checks - Procedures for processing and collection of returned checks should be established, including the assessment of fees to offset the costs associated with the returned items.
- Accounts receivable management - All accounts receivable should be recorded in a manner that allows for aging analysis. After reviewing available collection options, governments should establish procedures that maximize collections. Collection agencies that are familiar with federal, state, and local notice requirements and regulations should be considered when their use proves cost-effective.
- Bad Debts - An allowance for doubtful accounts and a write-off policy should be established. Bad debt expense should be estimated based upon a documented method of calculation. An allowance for doubtful accounts should be recorded. Write-offs should be performed periodically to ensure that accounts receivable and allowance balances are not overstated. Efforts should be made to pursue the timely collection of delinquent accounts.
- Budgetary review responsibilities - Revenue collections and accounts receivable should be monitored in a timely manner. Both actual and budgeted or forecast revenues should be monitored. Any significant variance of actual from the forecast or budgeted revenues should be investigated thoroughly.
- Compliance - Governments should ensure their revenue control and management policy and procedures are in full compliance with any federal, state, local or other applicable laws or requirements.
References:
- Financial Policies, Shayne Kavanagh, GFOA, 2012.
- GFOA Best Practice, Adopting Financial Policies, 2001.
- An Elected Official's Guide to Internal Controls and Fraud Prevention, Stephen Gauthier,GFOA,1994.
- Revenue Collection Administration: A Guide for Smaller Governments, Ian J. Allan, GFOA, 1993.
- Board approval date: Wednesday, October 31, 2012
I am an expert in governmental financial management, particularly in the establishment and implementation of revenue control and management policies. My depth of knowledge is evidenced by my familiarity with the Government Finance Officers Association (GFOA) recommendations and best practices, which are widely regarded as authoritative in the field.
The GFOA emphasizes the importance of governments establishing a revenue control and management policy and regularly reviewing it, customizing it according to the size and resources of the government. This policy serves as a crucial component of overall financial policies and helps ensure sound financial management practices. To provide you with a comprehensive understanding of the concepts used in the provided article, let's delve into each key aspect:
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Internal Controls:
- Segregation of Duties: This involves separating responsibilities such as transaction initiation, authorization, execution, recording, reconcilement, and custody maintenance.
- Daily Processing and Timely Deposit: All funds ideally should be deposited within 24 hours of receipt to maintain control over cash flow.
- Timely Reconciliation: Regular reconciliation to applicable ledgers ensures accuracy and transparency.
- Physical Security Procedures: Particularly important for funds not deposited on the day of receipt to prevent potential fraud.
- Fraud Reporting Procedures: Establishing clear processes for reporting and addressing fraudulent activities.
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Accounting Practices:
- GAAP Compliance: All receipts and receivables should be recorded in accordance with generally accepted accounting principles to ensure financial accuracy and transparency.
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Billing and Collection Practices:
- Establishment of Accounts Receivable: For services provided in advance of payment.
- Timely Invoicing: Bills should be initiated, recorded, and generated promptly after the initial service delivery.
- Collection Policy: Efforts should be made to collect receivables in a timely manner, with provisions for write-offs.
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Methods of Payment:
- Policy Establishment: Governments should have a policy outlining acceptable methods of payment, encouraging electronic methods when feasible and cost-effective.
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Depositing of Received Funds:
- Treasury Management: Treasury should serve as the primary recipient for all revenue collection sites, ensuring timely recognition and depositing of revenue.
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Handling Special Funds:
- Procedures for Grants, Developers, and Partners: Considering separate procedures for recording and depositing funds received from special entities.
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Returned Checks:
- Processing Procedures: Establishing clear processes for processing and collecting returned checks, including assessing fees.
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Accounts Receivable Management:
- Aging Analysis: Recording accounts receivable in a manner that allows for aging analysis.
- Collection Strategies: Maximizing collections through effective procedures, including the consideration of collection agencies.
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Bad Debts:
- Allowance for Doubtful Accounts: Establishing a policy for doubtful accounts and periodic write-offs to maintain accurate records.
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Budgetary Review Responsibilities:
- Monitoring Revenues: Regular monitoring of both actual and budgeted revenues to investigate significant variances.
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Compliance:
- Legal Compliance: Ensuring that revenue control and management policies comply with federal, state, local, and other applicable laws and requirements.
These principles, based on GFOA recommendations, contribute to the establishment of a robust revenue control and management policy, ensuring fiscal responsibility and integrity in government financial operations.
