Publisher's summary
Because the Board did not adopt realistic budgets, the sewer fund incurred operating deficits and a decline in its overall financial health. The Board overestimated revenues by $379,000 in fiscal years 2014-15 through 2018-19, resulting in net operating deficits in the sewer fund totaling $144,000. The Board also did not annually review contractual revenues, resulting in potential unrealized revenue totaling approximately $295,000. Finally, the Board did not document a basis for, or adequately monitor, shared service costs, resulting in possible sewer fund inequities. However, with rate increases in effect and the adoption of more realistic revenue estimates in 2018-19 and 2019-20, there has been marked improvement.
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Sewer Financial Operations
What Is Effective Financial Condition Management?
A board is responsible for providing oversight of sewer fund operations. This
includes adopting reasonably estimated budgets based on historical trends
and other known factors to ensure that recurring revenues finance recurring
expenditures and a reasonable fund balance1 is maintained as a cushion for
unforeseen expenditures and cash flow. To properly fund sewer operations,
the board needs to determine the annual cost of operations and repairs of the
sewage treatment facility and also perform an analysis of future repairs and
improvements. Based on that review, the board should revise the sewer user
rates as necessary to generate sufficient revenues to pay the total operation and
maintenance costs for the facilities and service lines.
Boards can also legally set aside, or reserve, a portion of fund balance to finance
future costs for specific purposes (e.g., repairs or vehicle replacements). Once
reserved, expenditures should be made in accordance with applicable laws
authorizing the reserves. A village with sound financial health can consistently
maintain sufficient cash flow to pay bills and other obligations when they become
due without relying on other resources, such as one-time revenues or fund
balance, which can indicate a deteriorating financial condition.
The general fund is the principal operating fund and includes all operations not
required to be recorded in a separate fund, such as water operations and sewer
operations which are accounted for in the water and sewer funds, respectively.
Sharing the cost of services between operating funds can be a cost-effective
way to provide like services to multiple funds. It is important to identify all costs
associated with a shared service and to use an allocation method that shares
the total cost equitably. Using a formula or several methods (e.g., service usage,
proportion of total personnel costs) can provide a reasonable basis to help ensure
costs and benefits are equally shared. These methods should be reviewed in a
timely manner and adjusted as needed based on actual experience.
The Board Did Not Effectively Manage Revenues
The Board overestimated revenues and adopted sewer fund budgets with
estimated revenues that exceeded actual revenues. For the cumulative five-
year period of 2014-15 through 2018-19, total actual revenues fell short of total
estimates by $379,000. Although 2018-19 was more reasonably estimated,
overall the Board’s budgeting practices can be improved.
1 Fund balance is the difference between revenues and expenditures accumulated over time.
2 Of f ic e of t he New York State Comptroller