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The Government Finance Officers Association's recommended practices.

Over the years, the membership of the Government Finance Officers Association (GFOA) has approved a set of Recommended Practices to be followed by finance officers in their application of the various disciplines involved in public finance. These Recommended Practices represent official GFOA policy positions and affect the operations of state and local governments.

To enhance and promote the professional management of governmental financial resources, GFOA has prepared this summary of its Recommended Practices. The descriptions of the recommended practices are organized by subject matter, with the date of adoption noted parenthetically, under the headings of 1) accounting, auditing and financial reporting; 2) cash management; 3) tax-exempt financing and debt management; 4) budgeting and financial management; and 5) public employee pensions and benefits.

Accounting, Auditing and Financial Reporting

Audit Coverage of Individual Funds. Recommends governments give consideration to subjecting their individual fund financial statements to a full-scope audit similar to the audit required of Combined Statements-Overview. (1983)

Governmental Accounting, Auditing and Financial Reporting Practices. Recommends specific actions governmental entities should take, and laws state governments should enact, to insure that all governmental entities prepare comprehensive annual financial reports in conformity with generally accepted accounting principles and obtain independent annual financial and compliance audits conducted in accordance with generally accepted auditing standards. (1983)

Strengthening the Independent Financial and Compliance Audit. Specifies recommended steps governmental entities should take in selecting independent auditors of financial statements and certain additional standards such auditing firms should meet in order to improve the quality of audits of governmental units. (1986)

Popular Reporting. Encourages governments to supplement their comprehensive annual financial reports/component unit financial reports (CAFRs/CUFRs) with simpler, "popular" reports designed to assist those who need or desire a less detailed overview of a government's financial activities than the necessarily broad and detailed presentations contained in the CAFR/CUFR. (1991)

Cash Management

Governmental Relationships with Securities Dealers. Sets forth recommended practices for governmental investors to follow in selecting depositories and securities dealers for purposes of investment transactions. Recommended practices address method of selection, assurance of capital adequacy of securities dealers, acknowledgment from depositories and dealers of receipt of information about governmental investors, risk awareness by investors and unreasonable risk disclosure by securities dealers, and price and yield quotations prior to executing transactions. (1986)

Repurchase Agreements. Encourages public finance officers to develop policies and procedures to insure the safety of repurchase agreements and sets forth recommendations relating to selection of parties to such transactions and proper collateralization practices. Recommends general use of master repurchase agreements, subject to appropriate legal and technical review, and recommends that governments using the prototype agreement developed by the Public Securities Association should include appropriate supplemental provisions regarding delivery, substitution, margin maintenance, margin amounts, seller representations and governing law. (1986)

Use of Various Types of Mutual Funds by Public Cash Managers. Clarifies the GFOA's endorsement of the use of money market mutual funds by public cash managers through the association's model investment legislation for state and local governments by setting forth information that investors should seek through study of a fund's prospectus and statement of additional information. Specifies special care cash managers should use when investing in bond mutual funds. (1987)

Collateralization of Public Deposits. Recommends implementation by public entities of programs of prudent risk control in addition to the pledging of appropriate securities to guarantee the safety of public deposits. Includes examples of such programs. Recommends, in the absence of an effective statewide collateralization program, that local officials establish and implement collateralization procedures. (1987)

Regulation of U.S. Government Securities Dealers' Sales Practices. Encourages competitive bidding in all securities purchases and, absent competitive price bids, urges governmental unit investors to obtain written documentation of price markups prior to completing the transaction. (1988)

Federal Regulation of Investment Advisers. Urges governmental entities considering or retaining independent investment advisers to review carefully the credentials, procedures and controls of firms offering investment advisory services. Recommends precautionary measures that should be undertaken. (1992)

State Statutes Concerning Investment Practices. Encourages state legislatures to remove artificial restrictions upon the efficient investment of public funds by: 1) amending state statutes regulating local government investment authority to permit prudent investment of public funds in prime money market instruments and investment securities and 2) authorizing and encouraging the efficient, professional investment of public funds in statewide investment pools. Examples of prime money market instruments and investment securities are provided. In addition, recommends that states effectively promote investment pools through joint-powers statutes and other "intergovernmental agreement" legislation. (1992)

Collateralization of Public Deposits. Urges state and local government depositors to take all possible actions to comply with Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) requirements in order to ensure that their security interests in collateral pledged to secure deposits are enforceable against the receiver of a failed financial institution. Sets out what the FIRREA requirements are. (1993)

Tax-exempt Financing and Debt Management

Advance Refunding. States the association's belief that it is prudent policy that each political jurisdiction carefully consider and weigh the long-term effect of an advance refunding upon its own financial well-being and upon the whole field of public debt administration. States further its belief that an advance refunding in each political jurisdiction must be considered and decided on its own merits and that speculation by a political jurisdiction or a public agency in an existing money market is contrary to the best interest of the administration of local government debt. (1964)

Disclosure Guidelines. Advocates full disclosure by issuers of state and local government securities, calls attention to the association's Disclosure Guidelines for State and Local Government Securities, and recommends their use by each state and local government unit and by investors and dealers in state and local government securities. (1976)

Committee on Uniform Securities Identification Procedures (CUSIP). Urges bond issuers to review their practices so that, once issued, bonds and coupons are accounted for by interest rate or maturity date within each issue without regard to the purposes for which the bonds were issued. (1977)

Tax-exempt, Small-issue, Conduit Industrial Revenue Bonds. Expresses the association's opposition to the use of tax-exempt, small-issue, conduit industrial revenue bonds unless they are used in rural and urban areas of serious economic deprivation. Recommends to state and local governments that such bonds be issued in conjunction with an economic development strategy. Defines a conduit bond and specifies certain factors to be taken into account in definitions of serious economic deprivation. (1981)

Costs Associated with the Registration and Transfer of Various Registered-security Systems. Sets forth the prevailing practices regarding which market participant bears the costs associated with registration and transfer under various registered-security systems that will encourage the stability and orderly operation of the municipal securities market. (1983)

Improving Systems of Bond Registration. Encourages issuers of municipal securities to consider the alternatives to the issuance of certificates through the use of immobilized depositories and/or pure book-entry systems. (1983)

Investment of Proceeds of State and Local Government Tax-exempt Securities. Expresses the association's opposition to the issuance of tax-exempt securities by state or local governments for the sole or primary purpose of investing the proceeds in higher yielding obligations, whether taxable or tax-exempt, in order to make a profit from the investment. (1988)

Securitization of Leases. Sets forth actions a government lessee should undertake 1) to control the marketing of securities associated with its name, particularly the selling of leases as certificates of participation after they were originally structured as whole private placements and 2) to ensure appropriate disclosure has been made. (1993)

Budgeting and Financial Management

Risk Management. Encourages finance officers to identify and implement sound risk management policies and practices, including alternatives to unaffordable or unavailable commercial insurance coverage. (1986)

Extension of Federal Prompt Pay Requirements to State and Local Governments. Encourages state and local government efforts to improve government bill-paying performance and policy and sets forth some incentives state and local governments have to pay their bills on a timely basis. (1989)

Economic Development Incentives. Recommends that any jurisdiction's economic development incentives have specific goals and criteria which serve to define 1) the economic benefit that both the government and the entity expect to gain from the incentive, 2) the conditions under which the incentives are to be granted and 3) the actions to be taken should the actual benefits differ from the planned benefits. Also recommends that, for any specific economic development incentive, the economic benefit to the government, as well as the cost of the incentive, be measured and compared against the goals and criteria that have been previously established. (1990)

Service Efforts and Accomplishments. States that performance objectives and measurement are critical components and key tools for use in budget planning and decision making and program management. States that good budget practice 1) encompasses strategic, operational and financial planning that established performance objectives and 2) results in the measurement of service accomplishments. Also states that service efforts and accomplishments are one facet of effective use of performance objectives in planning and budgeting. Finally, states that performance objectives and measurement logically fall within the purview of budgetary practice rather than financial reporting. (1993)

Public Employee Pensions and Benefits

Retirement System Investment Policy. Sets forth three basic tests that investments of state and local government public employee retirement systems must meet in order to be prudent: creditworthiness, liquidity and market rate of return. (1993)

Future Updates

This summary of GFOA Recommended Practices will be updated annually to reflect new or changed recommended practices as determined each year at GFOA's annual business meeting. Comments and suggestions for additional areas of public finance that could be better served by the development of recommended practices are welcome. Such comments and suggestions should be sent to GFOA's Federal Liaison Center for consideration by the relevant GFOA Standing Committee.

RUTH WALLICK, consultant to the GFOA's Federal Liaison Center, prepared this compilation. The complete set of GFOA Recommended Practices, which includes references to GFOA publications that will assist in the implementation of recommended practices, is available from the GFOA's Federal Liaison Center, 1750 K Street, N. W., Suite 650, Washington, DC 20006 (202/429-2750; fax 202/429-2755).
COPYRIGHT 1993 Government Finance Officers Association
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Author:Wallick, Ruth
Publication:Government Finance Review
Date:Oct 1, 1993
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