Current Expense Fund Transfers

Current Expense Fund Transfers

Special Study

Report No. 2001-06

Ron Perry, Principal Management Auditor
Bert Golla, Senior Financial Auditor
Harriet Richardson, Principal Management Auditor

TABLE OF CONTENTS

Introduction
Background
General Conclusions and Recommendations
Study Objectives
Study Scope
Major Findings:

Finding 2-1 - The CX transfer funds were properly authorized.
Finding 2-2 - The depth of justification and rationale for CX transfers varies from agency to agency.
Finding 2-3 - Other than budget instructions, there is no single set of guidelines or criteria used to justify and evaluate the need for CX transfer requests.

INTRODUCTION

This study of appropriated transfers from the county’s Current Expense (CX) Fund, i.e., CX transfers, was initiated at the request of the Metropolitan King County Council and included in the council-adopted 2001 Auditor’s Office work program. The study was prompted by concerns over the number of activities funded in this manner and the justification for them, particularly when sizeable shortfalls in the CX Fund revenues are expected in 2002 and subsequent years.

BACKGROUND

The county council, by its vote, may direct the county executive to transfer moneys from the CX Fund into another fund. The CX Fund is the county’s general fund and receives revenues from property and sales taxes.

GENERAL CONCLUSIONS AND RECOMMENDATIONS

As authorized under law, the Metropolitan King County Council approves each year the transfer of approximately $31 million from the county’s CX Fund to other funds.

We reviewed nearly every CX transfer from 1997 to 2001. While we found that the transfers were properly authorized, we noticed that the extent of justification for the transfers varied among agencies and departments. Other than the budget instructions from the Budget Office, there is no set of guidelines to advise what kind of information should be included to justify the expenses.

In addition, the audit staff observed:

The connection among the funding rationale, public policy, and agency mission was often not explained;
Historical data was minimal; and
The feasibility of alternative funding sources may not have been considered.

The study recommends the joint development by the executive and the council of a common set of guidelines or criteria for documenting the justification for future CX transfers. Budget instructions and forms for the development of the 2002 budget requests put a strong emphasis on linking performance measures to agency mission, goals, and business plans. We suggest that kind of information should also be included, as appropriate, as justification for proposed CX transfers.

STUDY OBJECTIVES

The purpose of this study was to evaluate the process and general justification supporting CX transfers. This study did not attempt to question or verify in detail each program component funded through the transfers.

STUDY SCOPE

The study scope was limited to the review of most of the CX transfer funds between 1997 and 2001.

MAJOR FINDINGS AND RECOMMENDATIONS

Finding 2-1. The CX transfer funds were properly authorized.

Our review found that the CX transfers we sampled were properly authorized by votes of the Metropolitan King County Council. In general, the transfers fell into one of the following types:

One-time only expenditures that met a need for one or two years;
Ongoing funding based on council-approved policies, such as programs for youth and capital improvement projects;
Ones in which funding was carried over to the ensuing year, and unspent balances were expended in a subsequent fiscal period (only allowed for capital projects); and
Technical adjustments.

CX transfers were authorized through the appropriation process, and budgeted amounts were generally expended. In two cases, however, agencies did not expend amounts budgeted as CX transfers.

Finding 2-2. The depth of justification and rationale for CX transfers varies from agency to agency.

We found that the justification materials provided by agencies receiving CX transfer funds varied in terms of detail and explanation, and in the type of budget form used to document the transfers.

More often than not, the budget forms identify the use of the CX transfers, but not necessarily the reasons for them. In other words, the documentation explains what was funded, but not necessarily why or for how long.

The budget preparation documents do not require agencies to relate the rationale for proposed CX transfers to their mission, goals, or business plans. Such information would be helpful in understanding how the CX funding will support mission-critical activities in an agency. An exception was the Department of Information and Administrative Services, which used its Strategic Information Technology Plan and its E-Commerce Business Plan to support its CX transfer request of $1.9 million.

In cases where funding is more consistent from year to year, the underlying policy may be assumed but not necessarily explained in budget documents, other than to say that the council has supported these types of programs over the years.

For individual CX transfers that continue for more than one or two years, only one prior year’s funding is documented on the budget forms. Thus, if historical funding trends exist, they are not evident.

In addition, our compilation of the CX transfers from 1997 to 2001 in this report may be the only existing source of expenditure data that shows on an aggregate and an individual fund basis where the money went over a long period of time. Historical budgeted amounts for the transfers are available in Essbase, the county’s budget development database.

It is unclear from reading the justification materials provided by agencies whether any other revenue sources were considered as alternatives to CX funding. We believe it would be helpful to those who review CX transfer requests to know whether any other revenue options such as grants, revenue matching, or fee or penalty increases were analyzed for availability or feasibility. In most cases, alternative sources may not be feasible, but knowing that such options were considered might give greater weight to a request.

KCC 4.08.250 requires that the Major Maintenance Reserve Fund be financed through five specific sources of revenue, but CX transfers have been used as the primary source of revenue for the fund. Two management letters previously issued by the Auditor’s Office identified the lack of compliance with the funding requirements. The executive has proposed changes (proposed ordinance 1999-0055.1) to the code regarding funding of the Major Maintenance Reserve Fund, but the council is still reviewing the revisions.

According to the budget instructions for 2002, agencies will submit performance measures for the first time as part of the operating budget process and identify:

The core business activity;
Department/division goals;
The performance measure;
The unit of measure (data); and
The target measure.

Having this type of information for most CX transfer requests would also be helpful in providing a fuller understanding of how activities funded with those CX moneys are critical to an agency’s mission, and how their performance can be assessed. In some cases, this information may not be appropriate, for example, when there are technical adjustments.

The budget instructions for 2002 appear to put a strong emphasis on performance measures, but not necessarily as a means for justifying CX transfers.

Finding 2-3. Other than budget instructions, there is no single set of guidelines or criteria used to justify and evaluate the need for CX transfer requests.

Despite efforts to improve accountability in the budget process, CX transfers appear not to be assessed with the same set of budget tools as agency requested budgets. The fact that transfer justifications presented to us by agencies differed so much indicates a lack of a consistent and rigorous set of guidelines. However, 2002 budget instructions prepared by the Budget Office advise agencies to make "realistic" recommendations for CX reductions and to look first in administrative and overhead costs. They also put an emphasis on linking requests to agency mission, goals, and business plans as well as performance measures. Therefore, it seems reasonable to expect the same rigor for most CX transfer requests.

The study recommends that the county executive and the county council should consider developing and using a shared set of consistent guidelines or criteria for requesting and approving CX transfer funds. The agreed-upon criteria should be used in the budget development, review, and approval process, as well as for preparing and evaluating supplemental requests.

The criteria or guidelines may include the following:

A statement of the policy basis for the funding;
An explanation of the funding history;
A determination of whether the activities to be funded are core or critical to an agency’s mission, goals, and business plan, and whether they demonstrate a public need;
An explanation of whether alternative sources of funding (e.g., grants, fees, penalties) are feasible; and
An assessment of how selected performance measures will give an indication of efficiency and effectiveness.

Exceptions to some of these criteria might include one-time only transfer requests and technical adjustments. Funding history and performance measures might not be appropriate for such requests.

Updated: 01/04/07

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