City of Pharr, Texas
Financial and Accounting Management Policy Statements
The City of Pharr’s Finance Department has been entrusted with the responsibility of ensuring all City funds are being expended in the most efficient manner possible. The policies and procedure set forth in this manual have been developed with the goal of ensuring that expenses are recorded in a manner consistent with Generally Accepted Accounting Principles (GAAP).
All expenses recorded in the City’s financial system should also include enough detail, approvals, and account numbers to ensure that department expenses are being properly recorded. The approval process that is required on the policies accompanying this manual has been developed with enough internal controls in place to safeguard all city property.
CUSTODIAN OF FUNDS
Per City Charter, the City Manager shall be held responsible to the Board of Commissioners for the execution of the laws and the administration of the government of the City. Therefore, the City Manager is the official custodian of all City and grant funds, and by way of the Director of Finance authorizes the disbursement of City and grant funds consistent with accounting procedures of the American Institute of Certified Public Accountants and/or procedures set forth by the Government Finance Officers Association (GFOA).
OPERATING BUDGETARY POLICIES
Fiscal Year
The City’s fiscal year has been established as the period beginning October 1st and ending September 30th of the subsequent year.
Budget Preparation Guidance
The City budget will be prepared in accordance with State Law, City Charter, and standards established by both Governmental Accounting Standards Board and the Government Finance Officers Association (GFOA). The budget will be comprehensive in nature and address all revenue and expense related funds of the City.
GFOA Distinguished Budget Program
The City will submit its official budget each year to the GFOA with an application for the Distinguished Budget Program. This will be the 16th year that the city submits an official budget and participate in the program. We have received the budget award the fifteen fiscal years and we believe that this budget continues to meet the GFOA requirements.
Designated Budget Officer
The City of Pharr does not have a formal budget department. The primary responsibility for the budget process has been given to the City Manager and delegated to the Finance Director. The City Manager, designated as the City Budget Officer, is responsible for the development of the annual budget to be submitted to the City Commission for approval and adoption.
Funds Included in the Annual Budget
Annual appropriated budgets are adopted for all funds with revenue and expenditure activities. The budget shall include all of the City’s governmental; fiduciary, and proprietary funds.
The governmental funds consist of the general fund, the special revenue funds, the debt service fund, and the capital projects fund. There are currently no fiduciary funds. The proprietary funds consist of enterprise and internal service funds.
Basis of Accounting
Budgets are adopted on a basis consistent with generally accepted accounting principles. The legal basis of accounting for budgetary purposes within the governmental funds, consistent with generally accepted accounting principles, is the modified accrual basis. The proprietary and fiduciary funds are budgeted, using also modified-accrual basis of accounting. Proprietary Fund Financial statements, however, will be prepared under accrual accounting where transactions and events are recognized as revenues/gains or expenses/losses when they occur, regardless of the timing of related cash flows. Under the modified accrual basis, not only must the underlying revenue transaction have occurred but also the related cash flow must take place within a shortenough period to have an effect on current spendable resources. Therefore, revenues must be both measurable and available when and event or transaction is expected to draw upon current spendable resources. Transfers are recognized in the accounting period in which the interfund receivable and payable arises. This basis of accounting is the same basis used in the year-end audited financial statements.
The basis for any accounting system is a good chart of accounts. It is especially important for purchasing accounts because a good chart of accounts allows the records to show purchased goods and services accurately and in appropriate detail. Recording all transactions in a consistent manner, by properly assigning the correct account numbers, will allow the City to possibly identify and track trends pertaining to revenues or expenses which may help City operations run more efficiently.
Included in this policy is a basic chart of accounts for accounting.
Outlined below is a general setup for accounting codes.
The account and fund structure presented here is only offered as a guide.
Expense account numbers are typically setup in the following format: FF-DDDDD-AAAA-SS
FF = Fund Number, DDDDD = Department Number, AAAA = Account, SS = Sub Account Number
The first two digits represent the fund number. They are as follows:
01 – General Fund
02 – General Contingency Fund
20 – Hotel/Motel Fund
21 – Seized Assets Fund
22 – Parkland and Dedication Fee
24 – Paving and Drainage
25 – Special Revenue Fund
30 – Community Development Block Grant
32 – Grants
33 – COVID Relief Fund
35 – Series 2018
36 – Series 2019
37 – Series 2020
38 – Tax Notes
39 – Series 2017
40 – General CIP
50 – Debt Service
55 – City Garage
57 – Health Insurance Fund
60 – Utility Fund
61 – Utility CIP
62 – EMS
63 – Fiber Optic
70 – Pharr International Bridge
71 – Pharr International Bridge-CIP
75 – Tierra Del Sol Golf
81 – Greater Chamber of Commerce
84 – TIRZ No. 1
85 – TIRZ No. 2
86 – PEDC
88 – Pharr Housing Finance Corporation
89 – Jackson Place Apartments
95 – Payroll Fund
To begin an understanding of the City’s operations and its annual funding, a brief overview of the City’s fund structure is presented, it is as follows:
Fund Classification | Governmental | |||
Fund Type | GENERAL | SPECIAL REVENUE | DEBT SERVICE | CAPITAL PROJECTS |
City Funds | General | Seized Assets | Debt Service | General Capital Projects |
General Contingency Reserve | CDBG | Tax Notes 2017 | 2017 Series Capital Projects | |
Payroll | Hotel/Motel | Tax Notes 2017 | ||
General Escrow Special Revenue Fund | Parkland Dedication | 2018 Series Capital Projects | ||
Grants | 2020 Series Capital Projects | |||
Paving & Drainage | Utility Capital Projects | |||
Utility Capital Projects |
Fund Classification | Proprietary | |
Fund Type | ENTERPRISE | INTERNAL SERVICE |
City Funds | Utility | City Garage |
Fiber/Broadband* | Health Insurance Claims Funds* | |
Golf Course | ||
Bridge |
Component Units | |
BLENDED | DISCRETE |
TIRZ No.1 | Pharr Housing Finance Corporation (PHFC) |
TIRZ No.2 | Jackson Place Apartments |
Pharr Economic Development Corporation (PEDC) | |
Greater Chamber of Commerce |
General Fund Departments | |
510000 | Office of City Manager (OCM) |
511000 | Finance |
512000 | Police |
513000 | Purchasing |
514000 | Municipal Court |
515000 | Fire |
516000 | Office of Code Enforcement and Building |
517000 | Public Works |
518000 | Innovation & Technology |
519000 | Office of City Communications |
520000 | Municipal Library |
521000 | Grants Management |
522000 | Parks & Recreation |
523000 | Office of Strategic Excellence |
524000 | Legal |
525000 | Office of Public Safety Communications |
526000 | Human Resources |
527000 | Development Services |
528000 | Engineering |
530000 | Non-Departmental |
Budgetary Control
In developing and evaluating the City’s accounting system, consideration is given to the adequacy of internal controls. Internal accounting controls are designed to provide reasonable, but not absolute, assurance regarding: (1) the safeguarding of assets against loss and unauthorized use, and (2) the reliability of financial records for preparing financial statements and maintaining accountability of assets. The concept of reasonable assurance recognizes that (1) the cost of controls should not exceed the benefits likely to be derived, and (2) the evaluation of cost and benefits requires estimates and judgments by management.
All internal control evaluations occur within the above framework. The auditors believe that the City’s internal controls adequately safeguard assets and provide reasonable assurance of the proper recording of financial transactions. Key controls are evaluated continually.
Budgetary control is maintained through a monthly line-item review by all departments. A reminder is sent to all department managers on the need to analyze their monthly financial reports. Monthly reports are available for each department reflecting current and accumulated expenditures as well as the percent of budget expenditures compared to percent of current year. A member of the accounting team identifies possible future overruns and communicates that information to the department managers for correction.
Balance Budget
The Budget Officer is required to submit a balanced budget. A balanced budget is one in which total financial resources available, including prior year’s ending financial resources plus projected resources, are equal to or greater than the budgeted expenditures/expenses. Expenditures may not legally exceed budgeted appropriations at the fund level. During the year, supplementary appropriations may be necessary. When appropriate, The City will use funds from the Fund Balance to balance the budget. The City will avoid budgetary practices that raise the level of current expenditures/expenses to the point that future years’ operations are placed in jeopardy.
Budgeted Tax Rates
Prior to adopting the budget tax rate, including the levy, the City Commission shall hold a public hearing according to the dates established in the budget calendar. The City Commission shall provide for public notice of the date, time and location of the hearing.
Public Hearings, Accessibility of Budget to the Public
The City´s policy is to have at least one public hearing on the proposed budget at a duly advertised public meeting. The public meeting will be advertised at least one week prior to the budget being finally adopted. The Officer shall file the final proposed budget with the City Secretary, Library, and post it online soon after the City Commission adopts it. The budget shall be available for inspection by any taxpayer.
THE BUDGET PROCESS
Original Budget
The budget process for developing, adopting, and implementing the budget includes the following:
Annual budgets are legally adopted for all funds of the City that have revenue and expenditure related activities. The City Charter states that between sixty (60) and ninety (90) days prior to the end of the fiscal year, the City Manager is required to submit to the Board of Commissioners a proposed operating budget for the fiscal year commencing the following October 1. The operating budget includes the proposed expenditures/expenses and the proposed method to finance them.
At the inception of the budget process, a budget calendar is prepared, which presents in chronological order, specific events that take place during the process as well as the timing of each. The budget calendar for this year´s process immediately follows this discussion of policies and procedures.
Dates for public hearings, the purpose of which are to obtain taxpayer´s comments, are set by the Board of Commissioners at the time the budget is submitted to that body. The Board Commissioners may add to, subtract from or change appropriations, but may not change the form of the proposed budget. Any changes must be within the revenue and reserves estimated as available by the City Manager. Prior to September 25 of each year, the budget is legally enacted through the passage of an ordinance.
The appropriated budget is prepared by fund and department. The legal level of budgetary control (i.e., the level at which expenditures may not legally exceed appropriations) is the fund level.
During April and May of each year, department managers prepare departmental budget requests for which each is responsible. During the month of June, budget hearings are held with the department managers. Following the budget hearings with the department managers, the Budget Officer makes any changes to their requests, which he/she deems appropriate. The result is the Officer´s recommended budget. During the mid-to-latter part of July, the Officer presents his recommended budget to the City Commission in budget workshops. As a result of the City Commission´s comments during these workshops, changes are made to the Officer´s recommended budget. The budget reflecting these changes is the proposed budget.
Prior to September 1st of each year, the Officer is required to submit to the City Commission a proposed budget for the fiscal year beginning on the following October 1st. The target due date for submitting the proposed budget, resulting from budget workshop hearings, shall be no later than two to three weeks before the end of the fiscal year. The final budget, which is to be considered for adoption, shall be submitted no later than one week before the end of the fiscal year.
Prior to October 1st, the City Commission through the passage of an ordinance legally enacts the budget. The budget will be implemented on October 1st. The ordinance approving and adopting the budget appropriates spending limits at the fund level.
Revisions to the Adopted Budget
At any time during the fiscal year, the City Manager can reallocate any expenditures within a fund without the approval of the Board of Commissioners if total allocations stay as originally adopted. City Manager shall also have the authority to make FTE changes which shall be subject to ratification by City Commission through a Budget Amendment. Department Directors can also request reallocation of expenses with approval of City Manager through a Budget Adjustment Request Form provided by Finance Department; reallocations from personnel accounts, however, shall only be requested after pre-approval of both; City Manager and Human Resources.
Monitoring Compliance with the Budget
Reports comparing actual revenues and expenditures/expenses to budgeted amounts are prepared and carefully monitored monthly to determine whether estimated revenues are performing at/or above levels budgeted and to ascertain those expenditures/expenses are following legally adopted budget appropriations.
Duration of Budgeted Revenues and Appropriations
Budgeted revenues and appropriations lapse at the end of each fiscal year.
REVENUES POLICIES
Balance and Diversification in Revenue Sources
The revenue goals for the City of Pharr are diversified in nature to assist the city in meeting its mission of providing services to its citizens. Major sources of revenues consist of sales, property, gross receipts and utility taxes, charges for services and grants and contributions. Other revenue sources contributing to the City’s mission include assessments, fines and forfeitures, investment income, building permits, certificates of inspection and miscellaneous income.
User Fees
For services that benefit specific users, the City shall establish and collect fees to recover the costs of those services, excluding credit card usage and several recreation programs.
The City Commission shall determine the appropriate cost recovery level and establish the fees. Where feasible and desirable, the City shall seek to recover full direct and indirect costs. User fees shall be reviewed on a regular basis to calculate their full cost recovery levels, to compare them to the current fee structure, and to recommend adjustments where necessary.
Revenue Recognition
Governmental Funds – Modified Accrual
Governmental funds recognize revenue in the accounting period in which they become susceptible to accrual. Susceptible to accrual means that revenues are both measurable and available to finance expenditures of the fiscal period. Financial resources are available only to the extent that they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. The availability period used for revenue recognition is generally 60 days.
Revenue Sources
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A. Sales Taxes Revenue is recorded when the underlying exchange occurs. Cash is received after 2 months. Amounts collected in October after year-end are subject to accrual and are recognized as revenues in September. Derived tax revenues result from assessments imposed by the City on exchange transactions. Examples include taxes on food, liquor, groceries, cigarettes and retail sales of goods and services. The principal characteristics of these transactions are (1) the City imposes the provision of resources on the provider (the entity that acquires the income, goods, or services) and (2) the City’s assessment is on an exchange transaction, such as the exchange of motor fuel for the market price of the fuel. Periodically, enabling legislation may require a particular source of derived tax revenues to be used by the City for a specific purpose or purposes such as revenues resulting from a motor fuel tax being required to be used for road and street repairs. In contrast to time requirements, purpose restrictions do not affect the timing of recognition for any class of non-exchange transactions for the City. Rather, purpose restrictions report resulting net position or fund balance (as appropriate) as restricted until the resources are used for the specified purpose or for as long as the provider requires the resources to be maintained intact (for example, endowment principal).
- B. Ad Valorem Property taxes are recognized as revenues when they become measurable and available to finance expenditures of the current period. Taxes levied each year are recorded as revenue in that fiscal year at the time that cash is received. Property taxes attach as an enforceable lien on property as of January 1 based on the assessed value of the property. Taxes are levied in October and are due and payable on or before January 31. Taxes are typically remitted during the year for which they are levied. Delinquent taxes are determined to be taxes remaining uncollected at the end of the year for which the taxes were levied.