On Monday, April 17, 2017, the Shelton City Commission approved an ordinance authorizing the City’s Finance Department to make the conversion to a Cash Basis system of accounting. The City has previously used the more complex Generally Accepted Accounting Principles (GAAP) system, which uses full accrual for water and sewer funds, and modified accrual for all other funds.
Under RCW 43.09.200, the Washington State Auditor’s Office allows local governments the option to choose either a GAAP or Cash method of accounting and reporting. Approximately 20% of local governments in the state – the largest and most complex – report financial information in accordance with GAAP. Under a GAAP system, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Alternatively, the Cash Basis system uses the same accounting processes for all funds, and all financial transactions are recorded when the cash flow occurs.
Over the past several months the Finance Department has been evaluating the efficiency of the City’s financial records and accounting systems, including comparing staff hours and budget impacts required for accounting and reporting under both the GAAP and Cash Basis accounting systems. Staff has also consulted with department heads responsible for making critical business decisions based on current financial information, representatives of the Washington State Auditor’s Office, finance colleagues from other Washington Cities of similar size and configuration, and professionals in the bond issuance arena. As a result, the Finance Department concluded that optimal fiscal accountability, oversight, and control can best be achieved by reporting on the Cash Basis accounting system.
Finance Director, Nola von Nuedegg has made several presentations to the City Commissions outlining the added benefits of making the conversion. The Cash Basis system will greatly simplify the annual reporting process, creating a much clearer picture of the City’s finances. This will enable department heads to make better business decisions, and exercise greater fiscal responsibility. Additionally, the staff time required for preparing the annual financial report will be significantly reduced resulting in several positive budgetary impacts. Currently, the City staff spends approximately 1000 hours preparing the annual finance report. Utilizing the new Cash Basis system, staff is anticipating that the report can be completed in only 200 hours.