Not infrequently is it found difficult, if not impossible, to procure central accounting and to obtain co-ordination between the accounts of the chief fiscal officer and those of municipal departments. Usually that is caused by one or both of two conditions: (a) The governing lay may not require centralized control; and (b) departmental officers may not be in sym pathy or harmony with the plan and execute it with indifference. In such cases a campaign of education may be necessary in order to pro cure a change of condition.
Annual Budget.— The arrangement of cur rent accounts by the fiscal officer necessarily follows the budget classification. A properly constructed annual budget usually reflects more of the business side of a municipal government than any other single document. It should be the financial program. Appropriations for expenditures are in the nature of allowances or drawing accounts. Expenditure appropria tions should be correlated with the revenues intended to meet expenditures. From an ac counting point of view, the annual budget affords the most satisfactory method yet found for gaining centralized control over municipal expenditures. Generally speaking, a proper sys tem of municipal accounting can be obtained only when a well-arranged andproperly con structed budget has been adopted.
The reorganization of a city's accounts should be undertaken at the time of the prepa ration of the annual budget.
Revenue and Expenditure Accruals.—True stories concerning the operations of a munici pality cannot be told nor the effect of its fiscal activities accurately reflected unless the ac counts show accruals of revenues and of ex penditures as well as encumbrances of appro priations. The money actually received during a given period does not accurately measure revenue and the cash disbursed does not cor rectly state the cost of conducting the business of the corporation. The system should afford means of showing the financial condition of the municipality at all times. To accomplish this, there must be records which disclose not merely undisbursed balances of appropriations but, as well the obligations incurred upon contracts and open market orders. In short, it should show what is owing the municipality as well as what the municipality owes.
Grouping of Accounts.—To secure correct information relating to the financial condition of a municipality, it is essential that the accounts, reports and balance sheets provide for a proper presentation of the facts by grouping the ac counts; this for the reason that it is necessary to guard against the use of particular funds for purposes other than those intended. Otherwise,
there is danger of having applied capital, trust or sinking funds to the payment of expenses incurred for current administration, operation or maintenance.
The grouping of accounts is not an arbitrary classification of them. All obligations entered into by a municipal corporation and all trans actions recorded in its accounts pertain to some particular fund. Therefore, to assemble ac counts in independent balancing groups is in formal recognition of the fact that every ac count naturally falls within one of several groups.
Into just what groups the accounts of a given municipality should be divided depends entirely upon the character of its business and the nature of the funds held. The comptroller of the State of New York, in a uniform system formulated for cities of the third class (those having a population of 50,000 or less), allocates the accounts to the following groups: (1) cur rent accounts; (2) assessment accounts; (3) capital and sinking fund accounts; (4) trust accounts.
The current group includes those in which are recorded transactions relating to budget ex penditure appropriations and revenues appli cable to meet them, together with the financing done respecting those transactions. It is in tended primarily to keep the record of current operations separate and apart from all other transactions. The distinction between current operations and all others is regarded as im portant and one which should be maintained in order that the results of current activities may be reflected simply and intelligently.
The accounts forming this group are closed at the end of the year into a current surplus or deficit account, thereby indicating how the financial plan actually worked out. If there is an excess of revenue over expenditure, it will be shown by a credit balance in the current surplus account. If the expenditures on an accrual basis exceed revenue accruals, then a debit balance will result, reflecting what is in fact a current deficit.