Technology for small governments: Ohio's uniform accounting network.
Responding to financial crises and accounting deficiencies caused by manual bookkeeping procedures in small governments, the Ohio Auditor of State has made automated financial systems an affordable reality for the state's 2,012 village and townships.Editor's note: GFOA bestows the Louisville Award for Innovation in Government Finance only in recognition of exceptional accomplishments for the introduction of a new concept or technique with enduring value to the profession. This article describes the 2001 winning entry in the Management and Service Delivery category.
In 1996, the Ohio Auditor of State placed the village of West Millgrove under the control of a fiscal commission because of massive fund deficits. The village had received 14 citations in its previous audit, and record keeping was so poor that village officials could not verify their fund balance. Shortly after the appointment of the oversight commission, the village of 170 joined the Uniform Accounting Network. The village received only one citation in its next audit, and the Auditor of State dissolved the commission in 2000, confident that it had returned to fiscal stability.
The majority of Ohio's local governments are townships, villages, and other small entities that generally cannot afford to buy and maintain sophisticated financial systems. The Uniform Accounting Network is a unique state-local program designed to improve financial management through computerized accounting. Since 1990, the UAN has offered customized hardware, software, training, and support to help meet the unique needs of small local governments staffed primarily by parttime finance officers. Nearly two-thirds (1,478) of Ohio's townships, villages, and library systems now are utilizing the program, which has experienced 150 percent growth in the last six years alone.
Although the major features of the UAN are its accounting and payroll applications, the program also includes tax, budget, inventory, cemetery, word processing, spreadsheet, and database applications (Exhibit 1). These standardized applications offer a number of benefits to both the users and the state, the most important of which are improved financial control and more accurate, uniform, and comparable financial reporting. The program also reduces the clerical burden of record keeping, facilitates more efficient and timely audits, improves communication, and provides a mechanism by which the state can accumulate and report statewide financial and demographic data.
Rationale for Change
Financial management in America's townships, villages, and other small governments has come under increasing scrutiny and criticism. In an editorial lamenting poor accountability in some villages, The Cincinnati Enquirer noted that "some (area) small towns could make Third World regimes look good."' At a minimum, bookkeeping problems lead to increased audit costs. At worst, they can lead to fiscal crisis. Some states, most recently Indiana, have gone so far as to abolish or at least streamline the services offered by these small governments.
One of the most significant factors that has contributed to the record keeping difficulties of small governments has been a dependence on cumbersome manual accounting procedures. Finance officers in Ohio's 703 villages and 1,309 townships often spend countless hours manually performing accounting tasks. Needless to say, such methods dramatically increase the potential for human error. The long hours have undoubtedly contributed to the high turnover rates in these elected positions. According to the Ohio Municipal League, almost three-quarters of the village finance officers in Ohio today were not even elected to the office, having been appointed to fill a vacancy. (2) Even when a finance officer from a neighboring entity is willing to temporarily fill in for a sudden vacancy, the lack of uniformity in manual accounting hinders their efforts. Manual accounting also has led to inefficiencies for users of this information, such as state retirement systems that must key in payroll data.
Although standardized accounting technology has existed for decades, most of these small governments simply lack the resources to take advantage of them. Half of Ohio's townships, for example, have annual budgets of less than $250,000. As a result, even the most inexpensive accounting packages are often out of reach for such jurisdictions. Some small governments that have been able to purchase automated financial systems have not escaped financial problems. Most off-the-shelf financial systems allow users to override fiscal controls, enabling them to exceed available cash levels in a fund or to circumvent the purchase order process. As a result, the Auditor of State has placed several non-UAN villages on "fiscal watch" over the last several years for incurring large fund deficits because of inadequate controls. The UAN system incorporates controls that prevent or at least discourage these practices.
Development and Funding
The Uniform Accounting Network was originally established by the Ohio Legislature at the urging of the Ohio Auditor of State and the Ohio Township Association. The Auditor of State hired a consultant to help develop the original software package; however, office staff finished the initial package and has subsequently handled new releases, including complete rewrites in the late 1990s and in 2001. The Auditor of State dedicates a full-time staff of 16 to software design and development, ongoing software and technical support, and training. It also contracts with some 50 experienced users who provide on-site support for new clients. Although their commitments vary, these contracted individuals spend an average of 160 hours per year fulfilling their support duties.
The legislature originally established funding in the biennial state budget to partially pay for the UAN, with the balance to be provided by client fees assessed on a sliding scale. The rapid growth of the program in recent years has shifted funding responsibility away from the state and toward the users. The fiscal 2000 budget, for example, had local governments funding 57 percent of operating costs ($1.23 million) and the state funding 43 percent ($917,000). The fee schedule is based on the size of the client's budget, with monthly fees ranging from $28 for budgets under $50,000 to $303 for budgets greater than $10 million (Exhibit 2). User fees pay for hardware acquisition and replacement, software development, system installation, and all training and support costs. Local governments are responsible for operating costs such as electricity, paper, and diskettes.
Rather than scrap or salvage replaced systems, the Auditor of State offers them to client governments for $100. Although the financial software is removed, governments still can make use of the cemetery tracking, inventory, and general office administration applications. More than 90 percent of UAN clients now purchase the old systems, which are replaced triennially.
Program Benefits
The Uniform Accounting Network offers a number of significant benefits to Ohio local governments, the Auditor of State, and other state officials. The magnitude of the benefits described below makes the program feasible.
Improved Financial Control
The UAN virtually eliminates many of the record-keeping errors associated with manual accounting, since all transactions are processed as soon as they are entered into the system. All posting, reporting, and record-keeping requirements are performed automatically. The system also generates all source documents, including purchase orders, vouchers, receipts, and payroll-related reports. The software does not allow overrides of basic financial control features such as those prohibiting deficit spending. This feature provides an additional layer of fiscal control for finance officers.
Timely and Accurate Financial Reporting
The system allows governments to produce a variety of financial reports for both internal and external users. The increase in UAN clients is one likely explanation for the decreasing number of small governments requesting extensions to file their annual financial reports with the Auditor of State. The number of extensions has dropped from 24 in 1996 to only nine in 2000.
One small northwest Ohio village joined the UAN in 2000 shortly after a judge removed its finance officer for refusing to keep records. Village officials had no accurate information on their fund balance. Within a year, the new finance officer had used the UAN to produce the village's first annual financial report since 1993. The village also uses the system to generate a variety of financial reports used by council and village departments to track and plan finances. (3)
The UAN's system features are flexible enough to add value to users with annual budgets ranging from $50,000 to $20 million. For example, it can provide an accurate picture of revenue sources and uses for governments of all sizes. Although the system could easily be altered to accommodate larger governments, this action would defeat the original intent of the program, which is to provide affordable fiscal management technology to smaller local governments.
Reduced Clerical Burden
UAN users that had previously engaged in manual accounting often report a 50 percent reduction in clerical workload. In fact, many openly state that they would leave their positions if the system were not available. One finance officer in a township with a $2 million budget estimates that the UAN reduced his workload from 40-50 hours a week to 40-50 hours a month. (4)
The UAN not only reduces clerical time, but it also decreases the amount of technical knowledge a finance officer must possess to perform effectively in the position. Finance officers no longer need to know how to fill out various payroll forms for the IRS, pension systems, and other agencies because the system automatically performs the calculations. The system's uniformity also lessens the negative impact of temporary and emergency finance officer vacancies. Because the UAN standardizes accounting and payroll procedures, a finance officer from a neighboring UAN entity can easily assume these responsibilities on a temporary basis. In fact, UAN users commonly fill in for neighboring counterparts during vacations or hospitalizations.
Efficient, Cost-Effective Audits
The Auditor of State recently compared the audit costs of 925 townships, villages, and libraries, dividing them into UAN and non-UAN groups. Audit costs for the UAN townships, villages, and libraries were 20 percent, 8 percent, and 42 percent lower, respectively, than their non-UAN counterparts. In 2001, the Auditor of Stare launched a project to further streamline the audit process for UAN clients. Auditors now can access UAN client records from a central server to plan their work, reducing travel to client sites and saving governments the cost of printing the records themselves.
Accumulation and Reporting of Statewide Financial Indicators
The Uniform Accounting Network expedites the production of ratio analysis reports that the Auditor of State prepares to help local governments with financial planning. The ongoing series of reports benchmarks various financial practices and conditions among comparable governments. Unlike other governments whose data has to be manually entered from financial reports, the UAN central server allows the instant downloading of client information into various formulas.
Keys to Success
Ohio is not the only state that offers affordable financial systems to small political subdivisions. Around the same time Ohio launched the Uniform Accounting Network, Minnesota developed a similar program for its small municipalities. Minnesota's Small City and Town Accounting System is available to all townships and cities with populations less than 2,500. Like the UAN, Minnesota undertook the project with the cooperation of associations representing small local governments. The annual cost to program participants is $250, with the balance paid by a grant from the state's Intergovernmental Information Systems Advisory Council. (5)
The success of programs like the UAN and CTAS is not guaranteed. The litmus test is affordability. To realize the benefits identified in the preceding section, the smallest of governments must be able to afford the technology. Securing the resources to subsidize program costs--especially at the outset--and developing a fair fee schedule represent potential obstacles to the development of similar programs in other states. Ohio's sliding fee schedule based on budget size has proven to be an effective method for charging local government clients. And like Ohio, states may find that reliance on state funding decreases as the number of fee-paying clients increases.
Affordability is not the only determinant of program success; training and support are also critical to maximizing the usefulness of the system. In Ohio, all first-time UAN users take part in a hands-on two-day training seminar in a computer classroom environment. This classroom training can be repeated by jurisdictions when new finance officers are elected or appointed. The training lessons also are replicated in comprehensive videotapes, written procedures manuals, and handouts. The Auditor of State also sponsors one-day training sessions throughout the state to provide an opportunity for users to update their UAN skills and to discuss specific accounting and payroll topics as they relate to the software. The free sessions, attended by nearly 800 finance officers in 2001, are held biannually in at least five convenient locations.
In terms of ongoing support, the Auditor of State maintains both a toll-free help line and a Web site for users with questions and problems. The help line operates from 9 a.m. to 6 p.m. on weekdays and occasionally on Saturdays. In 2001, the state launched a UAN Web site to serve as a central warehouse for timely program information, including documentation on all software updates and training class schedules. Finance officers can submit questions online and access various reference materials to help them effectively operate the system. The Auditor of State's Office provides free Internet and e-mail access to UAN clients. Local officials have access to a toll-free, dial-in feature that allows them to avoid long-distance charges, as most clients are located in rural areas. Not only does this technology provide a valuable resource for program clients, but it also reduces the Auditor of State's mailing, printing, and diskette costs. In addition, universal Internet access provides a forum in which local governme nts can communicate with one another.
Finally, two additional considerations bear mentioning. The first is the need for an effective strategy for marketing the program to potential clients, especially finance officers not accustomed to using computers. This requires an intensive grass-roots educational effort, as well as assurances that governments converting to the system will receive high levels of support. The second consideration is the need to ensure that government clients actually use program resources. Although the vast majority of UAN clients actively use their systems, there are a few instances each year in which clients unduly delay implementation or revert to manual accounting. This can happen when a UAN finance officer is succeeded by an individual who is not interested in computerized accounting. Although the Auditor of State makes every effort to train and support finance officers in the use of the system, it does terminate contracts and recover systems after several months of neglect in order to ensure efficient equipment allocat ion.
Conclusion
Although small governments often are burdened by laborious manual accounting procedures that foster human error and undermine accountability, many of these jurisdictions simply cannot afford automated financial systems. For years, Ohio and other states have grappled with the financial management and reporting deficiencies that result from outdated accounting procedures in these governments. Some initiatives have even proposed abolishing them altogether. Ohio's Uniform Accounting Network represents a more politically viable alternative to improving accountability issues within small governments. By establishing a willing partnership between a central state agency and these small jurisdictions, financial management systems can become an affordable reality that can facilitate improvements in accounting and financial reporting for the smallest of governments.
Exhibit 1 UAN SYSTEM COMPONENTS Hardware: Computer Desktop computer Monitor High resolution, color graphics monitor Printer High speed, letter-quality printer Modem Tool for communication with other computers over telephone lines LS-120 Drive Tool for making backup copies of data and software CD-ROM Drive Tool used for UAN installs Surge Protector Prevents damage to computer from electrical spikes Software: Accounting Assists in accounting transactions, record keeping, and reporting. Generates the annual financial report with minimal input from the user. Payroll Assists in preparation of payroll checks and payroll processing for employees. Tax Budget Tracks prior-year budget information and simplifies the creation of the tax budget. Cemetery Tracking Assists in cemetery tracking responsibilities (not included in library packages). Inventory Assists in tracking of inventory items. Word Processing Assists in correspondence, minutes of meetings, or any other word processing requirements. The application features include a spell checker, thesaurus, print preview function, and others. Spreadsheet Assists in performing repetitive calculations or numerical comparisons. Database Assists in storing, retrieving, and reporting on any kind of data. Exhibit 2 UAN FEE SCHEDULE Budgeted Revenues * Monthly Fee $0 to $50,000 $28 $50,001 to $100,000 $33 $100,001 to $150,000 $39 $150,001 to $200,000 $44 $200,001 to $250,000 $50 $250,001 to $300,000 $55 $300,001 to $350,000 $66 $350,001 to $400,000 $77 $400,001 to $450,000 $88 $450,001 to $500,000 $99 $500,001 to $600,000 $110 $600,001 to $750,000 $138 $750,001 to $1,000,000 $165 $1,000,001 to $2,500,000 $193 $2,500,001 to $5,000,000 $220 $5,000,001 to $7,500,000 $248 $7,500,001 to $10,000,000 $275 $10,000,000 or more $303 * Budgeted revenues do not include trust, agency, enteprise, or internal service funds.
NOTES
(1.) "Public Funds Demand Accountability," The Cincinnati Enquirer, 4 January 2001, sec. 1A, p. 12.
(2.) John Mahoney, director, Ohio Municipal League, testimony before the Ohio House Local Government Committee on HB 245, May 30, 2001.
(3.) Larry Dunston, clerk-treasurer, Attica Village, interview by Tom Prendergast, Ohio Auditor of State's Office, May 2001.
(4.) Robert Rohrbach, clerk-treasurer, German Township, interview by Tom Prendergast, Ohio Auditor of State's Office, June 2001.
(5.) Minnesota Office of the State Auditor, Small City and Town Accounting System Training Manual.
JIM PETRO is serving his second term as Ohio Auditor of State. His prior public service experience includes eight years in the Ohio House of Representatives as ranking member of the House Ethics Committee and four years as a Cuyahoga County Commissioner.
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| Author: | Petro, Jim |
|---|---|
| Publication: | Government Finance Review |
| Article Type: | Brief Article |
| Geographic Code: | 1USA |
| Date: | Jun 1, 2002 |
| Words: | 2954 |
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