If budgets are financial plans, then CAFRs tell you what happened to the plan. So why don't more people pay attention to them?
Most state and local governments issue two important reports in a year: the budget and the Comprehensive Annual Financial Report. The budget, of course, gets a whole lot of attention. Governors and mayors create one version; their legislatures craft a variation on it, which the executive branch may attack as unsound or unfair. Meanwhile advocacy groups are either happy or angry, depending on how much money their cause is given, and the press covers the action as if it were a party filled with decimal points instead of balloons.
Then there's that other document, the CAFR (which rhymes with "laugh- ra"). These reports show precisely what happened to a government's finances over the course of a year. While a budget is more like a sophisticated financial plan, the CAFR tells you what actually happened to the plan. It is, in our view, the yin to the budget's yang; the warp to its woof; the Abbott to its Costello.
"There's a treasure trove of information in the CAFR," says Stephen Gauthier, director of technical services at the Government Finance Officers Association. For one thing, while budgets are free to talk about money that may or may not be real, CAFRs are limited to honest- to-goodness dollars and cents. It "warns you of what is going wrong," says Gauthier. "This isn't a promotional document. It's not just happy information."
Among the tidbits you can pick up in a CAFR are details about lawsuits, pension plans, economic conditions, debt, contracting decisions and trends.
Who should be reading the CAFRs? As far as we can see, pretty much anybody who is concerned about how a government is spending money. It would be nice if the average American looked forward to the arrival of the CAFR--as an informational holiday of sorts. But in a day when it's hard enough to get half the people to vote, that seems unlikely anytime soon. So, at minimum the audience should be legislators, executive branch officials and leaders of citizen advocacy groups.
But it's not. There are some rational reasons why CAFRs are overlooked. A lack of timeliness of the information is one. CAFRs come out about six months after the close of the fiscal year and "the decision makers, by then, are so far into the next year that the information is stagnant," says Keith Johnson, who heads up Idaho's Department of Administration. Johnson points to SEC requirements that reports from publicly traded companies need to be filed in 60 or 90 days. "Governments need to move in that direction," he says.
Another drawback is "the notion that you have to swallow the whole CAFR," says Dean Mead, project manager at the Governmental Accounting Standards Board. There's a tendency to think of the CAFR as a series of financial statements and long laborious footnotes. And, to be sure, anyone with a little instruction and a little time can get a great deal of worthwhile information out of the financial statements. But not everybody wants to get a little instruction and time is in short supply for everyone, most notably the people who should be reading the CAFR in the first place. There are however, some sections of the document that should be the "don't-miss list" for engaged citizens, advocates, legislators or councilmen.
Mead, and others, suggest that interested readers focus on the following areas:
- -The Management Discussion and Analysis, a text-based portion of the CAFR, exists to make the rest of the document more accessible.
- The budgetary comparison statement helps put the budget in perspective. It crosswalks the information for the budget right through to the year-end financial statements. When the changes are huge, it's time to start asking questions.
- The statistical section contains financial, economic and demographic information that goes back 10 years. Relatively new standards require a fair amount of uniformity and consistency in what's reported among various entities and that's made the data here quite useful. Knowledgeable users run to the statistics section.
- The schedule of pension funding progress, a supplementary schedule, shows how well a government's pension plans are funded and how that status has changed over time. Next to fund balances, that's the most widely used piece of information in the CAFR.
- The footnotes can include all kinds of valuable information. For some, reading the footnotes may elicit even more useful information than actually reading the report. Even if you aren't an accountant, you can still understand those notes.
Join the Discussion
After you comment, click Post. You can enter an anonymous Display Name or connect to a social profile.
LATEST FINANCE HEADLINES
States Where Government Aid Goes the Furthest4 hours ago
'Performance-Based Budgeting' Takes Off in States5 hours ago
How the Recession Beefed Up Sister City Relationships12 hours ago
Detroit Resumes Water Shut-Offs for Overdue Bills1 day ago
Ferguson Relies on Court Fines for Major Revenue Generator6 days ago
The Week in Public Finance: Rhyme Time, Slow Money and Water Works6 days ago