Purpose of Audit

The purpose of our audit was to review the County’s financial condition for the period January 1, 2010, to May 31, 2013.

Background

Montgomery County covers 400 square miles and has a population of approximately 50,000 residents. The County Board of Supervisors is the legislative body responsible for managing County operations. The 2013 budgeted appropriations in the general fund were approximately $80 million.

Key Finding

• The Board did not adopt realistic and structurally balanced budgets and instead consistently relied on appropriating fund balance, a non-recurring revenue, to finance recurring expenditures. Further, in two of the last three years, the County incurred operating deficits. As a result, the financial condition of the general fund has diminished in recent years. As of December 31, 2012 the County reported a total fund balance of $11.4 million in the general fund, a decline of 41 percent from the January 1, 2010 total fund balance of $19.2 million. We also found that the County’s cash-on-hand declined from twice its average monthly expenditures in 2010 to about $324,000 less than the average monthly expenditures in 2012, and the County’s contingency appropriation is not adequate for current financial conditions. The County’s declining financial condition is the result of poor budgeting and financial management practices and the Board’s failure to develop and use long-term financial plans.

Key Recommendations

• Establish written policies and procedures governing the budgeting process, which include the development of structurally balanced budgets and defining reasonable amounts of unexpended surplus funds that the County should maintain.
• Develop and adopt budgets that include realistic estimates for revenues and expenditures and the appropriation of fund balance only in amounts that are available and necessary.
• Develop a comprehensive multiyear financial plan to establish long-term objectives for funding long-term needs and reduce reliance on the appropriation of fund balance.
• Closely monitor the County’s use of unexpended surplus funds and ensure that action is taken, if necessary, to identify other funding sources that can be used if these moneys are no longer available to fund County operations.
• Regularly monitor cash flow and use cash flow information as a part of the budget process.