FINANCE DEPARTMENT
Annual Report 2000

GOALS/PURPOSE

The primary purpose of the Finance Department is to carry out the various financial activities of the City of Morgantown, its many Departments, and affiliated agencies in compliance with various Federal, State, and City regulations and laws. These activities include revenue collection, procurement and disbursement processing, payroll, budgeting, investment management, fixed asset accounting, cash management, insurance and risk management, general accounting, and financial reporting. In fulfilling its various tasks, the Finance Department continually strives to operate in an efficient and professional manner that will enhance public confidence in City management, its employees, and its elected officials.

CURRENT PROGRAMS/SERVICES

The Finance Department is constantly striving to improve both the efficiency and the effectiveness with which it renders its service to its users -City management, City Departments and agencies, and, most importantly, the citizens of Morgantown. The following sections detail the operation of a few of the Department's main activities.

Revenue Accounting

As illustrated in the following charts, the major components of General Fund revenues are taxes and service fees. The largest sources of tax revenue are business & occupation (B&O) tax and property taxes, while the largest source of service fees is fire service fees.

Graph of General Fund - Revenue Sources

Graph of Tax Revenue Sources

Business & Occupation Tax Administration

B & O tax revenue made up approximately 51% of General Fund revenue in fiscal year 2000. Budgeted B & O tax for fiscal year 2001 is estimated to be 53% of total revenue. Of the budgeted amount of $6,660,000, $1,080,000 is expected in fiscal year 2001 from four major WVU construction projects currently underway. The total anticipated revenue from these projects is estimated to be $3,500,000. As of November 30, 2000, approximately $720,000 has been collected on these four projects and transferred to the Capital Escrow Fund.

The administration of this tax requires coordination with the various project managers, contractors, and subcontractors. Finance Department staff also utilizes internal records such as building permits, license applications, and fire service fee records to ensure that all taxpayers are informed of the tax, are receiving the necessary reporting forms, and are filing and paying the tax in a timely manner.

At June 30, 2000, there were approximately 2,934 active B&O tax accounts, including 1,139 rental accounts. Most businesses file and pay their B & O tax returns quarterly, but rental accounts have the option of filing annually. B & O revenue for the City of Morgantown has shown steady growth over the past several years as depicted in the following graph:

B & O Tax Revenue

The biggest growth in the past fiscal year was in contracting. As can been seen by the graph below depicting the growth in selected categories of B & O revenue over the base year of 1996, contracting B & O revenue has also been quite volatile. Other areas of growth have been in retail and service, but there have been declines in wholesale and manufacturing.

Growth in B & O Tax Revenue

B & O Tax Revenue Change across Cities

Fire Service Fee Administration

Fire service fees are assessed on all structures situated in the City of Morgantown. The current rate of assessment is 4.75 cents per square foot and 3 cents per square foot on all floors over three stories. Fire service fees are solely used to support the operations of the Fire Department and total approximately 71% of the Morgantown Fire Department's FY01 operating budget.

Fire service fees are billed by Finance Department staff annually at the beginning of July for the current fiscal year of July 1 through June 30. A discount of 5% is given on the portion of the fees received by August 15. For fiscal year FY01, 77% of the fire service fees billed on July 1, 2000, were collected by the discount date, with a discount of approximately $57,272 taken. The Finance Department staff has had much success in the timely collection of fire service fees, reporting an uncollected rate of 2.9% and 2.11% as of June 30, 2000, and 1999, respectively.

Procurement, Accounts Payable, and Disbursement Processing

The Finance Department maintains a purchase order system for all purchases by the various City Departments, the Airport, and Parking Authority. All requests to purchase must be submitted by the various Department heads to Finance, where the expenditure is reviewed and budget compliance is verified before approval is given. During the year ended June 30, 2000, approximately 2,129 purchase orders were processed by Finance Department staff. For all expenditures over $10,000, formal bids must be obtained following procedures established by the Finance Director.

The Finance Department staff issues approximately 3,200 accounts payable checks per year. Checks are run every two weeks to pay all invoices received during the previous two-week period, so that all invoices are paid in full within two weeks of receipt by the Finance Department. The following charts depict General Fund expenditures by functional classification and Department for the fiscal year ended June 30, 2000:

General Fund Expenditures

Expenditures By Function

In comparing the growth rate of general fund expenditures, the City of Morgantown again compares quite favorably to other West Virginia Cities, as depicted on the following graph:

Expenditures compared arcoss cities

Payroll

As indicated in the chart on page 4, personnel costs comprise 67% of the General Fund budget. Personnel costs include gross payroll, payroll taxes, health insurance, and retirement expense. Finance Department staff processes bi-weekly payroll disbursements, either in the form of checks or direct deposits, for approximately 199 full-time and 23 part-time employees. In addition, the Department also processes monthly payroll disbursements for approximately 172 retirees and surviving spouses of the Employee's, Policemen's, and Firemen's Pension Funds.

In addition to processing the various payrolls, Finance Department staff must keep track of accrued leave, determine pension payouts, prepare quarterly and annual payroll tax reports, compile reports for the actuarial valuations of the three pension funds, and assist in the administration of the various employee benefits.

RESOURCES

Finance Department Staff

The most valuable resource of the Finance Department is its dedicated and experienced staff. The staff consists of the Finance Director, Assistant Finance Director, and five accounting clerks. The five accounting clerks are each responsible for a particular functional area, i.e., licensing and B & O taxes, accounts payable, payroll, fire service fees, and cash receipts.

Computer System

The Finance Department utilizes an IBM AS/400, along with New World Systems (NWS) accounting software for general ledger, accounts payable and procurement, business licensing, revenue accounting and accounts receivable, fire service fees, and payroll. While each staff member is considered the "expert" in his or her area of responsibility, other Finance Department staff members are cross-trained to ensure that Department operations will continue to run smoothly regardless of personnel absences or changes.

During the past fiscal year, the Finance Department added two IBM PC's, one with connectivity to the AS/400. This brings the total number of PC's to four, with two of them connected to the AS/400. Having the PC's connected to the AS/400 has greatly facilitated the preparation of the annual financial report and the publication of the same, as stored data can now be downloaded to the PC's for use in software programs such as Microsoft Excel and Word.

The Finance Department was informed by NWS and IBM that the Department will need to upgrade the AS/400 from a CISC system to a RISC system, as IBM will be discontinuing support on the current system and NWS will be discontinuing maintenance on systems running CISC based software. With that in mind, the Finance Department staff is examining other software options, as well as evaluating NWS's recommended upgrades.

REVIEW OF THE PAST YEAR

The following graph depicts the rate of increase of the components of General Fund revenues, expenditures, B & O tax revenues, and public safety expenditure over the base year of 1996. As can be seen, the correlation between the growth in revenues and expenditures has been quite positive.

Revenues and Expenditures

Y2K Compliance

As with most other organizations, the Finance Department staff devoted much time and effort into ensuring that its critical systems would continue to operate without interruption or error on January 1, 2000, and beyond. As with most other organizations that made the necessary preparations, the year 2000, came in without any problems.

Insurance and Risk Management

In the prior fiscal year, the Finance Department took over the administration of the City's general liability and property insurance. During the fiscal year ended June 30, 2000, a total of 37 claims were submitted for processing.

Due to the State of West Virginia's discontinuance of its Underground Storage Tank Insurance Trust Fund, the City had to go elsewhere for this important coverage. After reviewing several proposals, the necessary coverage was obtained, however the cost was more than triple the previous cost of coverage provided through the State.

Training

The Finance Director attended the Government Finance Officers Association annual meeting in Chicago. The theme of the conference was "e-Volving in a Cyber World." Several seminars dealt with how governmental entities can prepare to do its "business" on the internet and how "e-commerce" may affect the revenue base of governmental entities, ie. sales and use tax issues, Nexus issues, etc.

Finance Department staff also attended training on the Governmental Accounting Standards Board's (GASB) New Governmental Financial Reporting Model - GASB Statement No. 34.

Details on this sweeping change in governmental financial reporting is provided in the next section.

The Finance Department also organized several in-house computer training classes in various Microsoft applications such as Windows, Word and Excel. These classes were open to other City Departments, and there was an average of 12 participants in each class. Several Finance Department staff members attended the classes and have been able to utilize many of the applications learned to computerize various reports, forms, and notices. The result has been greater efficiency and more professionalism in the final output of Finance Department documents.

Annual Audit

The City's audit for the fiscal year ended June 30, 1999, was completed in February, 2000, with the issuance of an unqualified opinion on the financial statements. The audit for the fiscal year ended June 30, 2000, was completed in November, 2000, again with the issuance of an unqualified opinion.

The Finance Department has been working diligently to improve its financial reporting systems.

This has resulted in a decrease in audit fees from $19,500 for the June 30, 1998, fiscal year to $17,000 for the year ended June 30, 2000. The Finance Department has also been able to reduce the cost of the annual publication of the City's financial report from $5,811 paid in the fiscal year ended June 30, 1998, to $2,568 paid in the current fiscal year.

Airport FBO Buyout

Finance Department staff has recently been involved in the buyout by the City of the FBO operations at the Municipal Airport. Staff has assisted in the preparation of projected financial statements prepared to assess the feasibility of the takeover, preparation of an operating budget, and setting up the necessary accounting and reporting systems for this new line of business.

FORECAST FOR THE COMING YEAR

The coming year promises to be filled with some important new challenges and opportunities for the Finance Department.

Implementation of GASB 34

The traditional financial reporting model for governments has emphasized fiscal accountability and focuses on compliance issues in the raising and spending of public funds in the short-term, usually for one budget year. The new financial reporting model adds the dimension of operational accountability, requiring a government to demonstrate the extent to which it has met its operating objectives, and whether it can continue to do so in the future. The City of Morgantown will be required to implement GASB 34 starting with the fiscal year ending June 30, 2003.

One of the more significant features of the new financial reporting model is the government-wide financial statement presented on a full accrual basis. Current reporting of governmental

activities is done on a modified accrual basis with a short-term focus based on near-term inflows

and outflows. However, the government-wide financial statements will provide a long-term prospective and will include fixed assets, related depreciation, and long-term debt. The government-wide financial statements are intended to present the governmental entity in a manner comparable to that of a consolidated, private sector business enterprise.

A major outcome of this new long-term focus is the requirement for infrastructure reporting. This involves capitalizing and depreciating infrastructure assets such as roads, bridges, sidewalks, etc. This is also a requirement for retroactive reporting, but this can be limited to infrastructure assets acquired after June 30, 1980.

While there are several other important changes mandated by GASB 34, the fixed asset and infrastructure reporting requirements will be the first areas that the Finance Department will be tackling. While the City, as is currently required, reports its general fixed assets in a separate account group, there is not at present a computerized fixed asset/depreciation system in place. This will be a major project for the Finance Department staff in the coming year.

Other Plans for the Coming Year

· Continue staff training and development initiatives.

· Develop written policies and procedures for each functional area.

· Remodel the Finance Department to maximize the use of its limited area, the goal being to provide staff members with work spaces that will allow them to perform their various duties in a more efficient, productive, and professional manner.

· Improve records management system to deal with records retention and storage issues.

· Explore opportunities to enhance service to taxpayers and citizens, utilizing various technological advances such as internet tax filing and acceptance of debit and/or credit cards.

SUMMARY

While much of the work of the Finance Department tends to be cyclical and repetitive in nature, there always seems to be steady stream of new issues and mandates that have to be dealt with by Finance Department staff. A goal of the Finance Department is to accept and meet these challenges as they arise, while constantly seeking opportunities to improve service. In addition, the Finance Department strives to continually assist City management and other City Departments in reaching their goals through proper financial management and fiscal responsibility.