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HomeMy WebLinkAboutPR 22956: ADOPTION OF FINANCE POLICIES MANUAL // C:r rat c<r as (ill rthur 1 www.PortArthurTx.gov INTEROFFICE MEMORANDUM Date: 12/21/2022 To: The Honorable Mayor and City Council Through: Ron Burton, City Manager From: Kandy Daniel, Director of Finance RE: PR No. 22956 Adoption of Finance Policies Manual. Introduction: Financial management is essential for managing and protecting the financial resources and assets of the City. Effective financial management requires an adequate system of internal controls to ensure transparency and reliability of financial reporting. Reasonable and appropriate documentation that can be maintained over a long period of time provides consistency and supports good management. The approval and adoption of the Finance Policies Manual formally and practically demonstrates the City's commitment to sound fiscal management. Background: The COVID-19 pandemic left the Finance Department understaffed, causing some financial reporting to fall behind. Current accounting policies and procedures were outdated and ineffective, which caused further delay in the completion of the Annual Comprehensive Financial Report and Single Audit Report for FY2021. City Council approved Resolution number 22-047 on February 1, 2022 which authorized the City to participate in the Texas Water Development board's (TWDB) CFO To Go program for the purpose of providing consulting services for the City at no Cost. The TWDB contracted with Cohn Reznick Advisory Services to assist the City with an update of the Financial Policies. The proposed policy serves to formalize the finance and accounting policies for the City of Port Arthur. Budget Impact: None Recommendation: It is recommended that City Council approve the Finance Policy Manual as outlined above and attached. We recommend that the City Council approve it as presented. "Remember,we are here to serve the Citizens of Port Arthur" P.O.Box 1089 X Port Arthur,Texas 77641-1089 X 409.983.8101 X FAX 409.982.6743 P. R. No. 22956 12/22/22 KD RESOLUTION NO. A RESOLUTION ADOPTING THE CITY OF PORT ARTHUR FINANCE POLICIES MANUAL. WHEREAS,financial management is essential for managing and protecting the financial resources and assets of the City; and WHEREAS,reasonable and appropriate documentation that can be maintained over a long period of time provides consistency and supports good management; and WHEREAS, written, adopted financial policies formally and practically demonstrate the City's commitment to sound fiscal management; and, WHEREAS, Resolution Number 22-047 was approved on February 1, 2022 which authorized the City to participate in the Texas Water Development Board's (TWDB) CFO To Go program for the purpose of providing consulting services for the City at no Cost; and WHEREAS, the TWDB contracted with Cohn Reznick Advisory Services to assist the City with and update of the Financial Policies; and WHEREAS, Cohn Resnick along with City staff have updated the City of Port Arthur Finance Policies Manual that provides an overview of the finance and accounting policies applicable to the City of Port Arthur. NOW THEREFORE,BE IT RESOLVED BY CITY COUNCIL OF CITY OF PORT ARTHUR: THAT,the facts and opinions in the preamble are true and correct; and, THAT,the City Council approves the Finance Policies Manual as presented in Exhibit A to this resolution; and, THAT,a copy of the caption of this resolution be spread upon the minutes of City Council. READ,ADOPTED,AND APPROVED THIS day of January,2023 at a Regular Meeting of City Council of the City of Port Arthur, Texas,by the following vote: • AYES: Mayor Councilmembers: NOES: Thurman"Bill"Bartie Mayor ATTEST: Sherri Bellard City Secretary APPROVED AS TO FORM: Valecia Tizeno City Attorney APPROVED FOR ADMINISTRATION: Ron Burton City Manager -\_() Kandy Daniel Director of Finance EXHIBIT A City of ort rtjttr Texas Finance Policies Manual Page 1 1 55 Table of Contents Introduction 6 Revision History 7 GENERAL POLICIES 8 Organizational Structure 9 The Role of the City Council 9 The roles of the City Manager and staff 9 Finance Department Overview 10 Business Conduct 11 Practice of Ethical Behavior: 11 Compliance with Laws, Regulations and Organization Policies 11 General Ledger and Chart of Accounts 12 Control of Chart of Accounts 12 Classification of Net Assets 12 Fiscal Year 12 Journal Entries 12 POLICIES ASSOCIATED WITH REVENUES AND CASH RECEIPTS 13 Revenue Recognition Policy 14 Refunds 14 Billing/Invoicing Procedures 15 Cash Receipts 15 In-House Cash Receipts Processing 15 Endorsement of Checks 16 Reconciliation of Deposits 16 Accounts Receivable Management 17 Accounts Receivable Entry Policies 17 Accounts Receivable Write-Off Authorization Procedures 17 Reserve for Uncollectible Accounts 17 Credits and Other Adjustments to Accounts Receivable 17 Classification of Income and Net Assets 18 POLICIES ASSOCIATED WITH EXPENDITURES AND DISBURSEMENTS 19 Purchasing Policies and Procedures 20 Credit Card Policies and Procedures 21 2 I 55 r Cash Disbursements (Check Writing) Policies 22 Check Preparation 22 Check Signing 22 Mailing of Checks 23 Voided Checks and Stop Payments 23 Record-Keeping Associated with Vendors 23 Payroll and Related Policies 24 Classification of Workers as Independent Contractors or Employees 24 Payroll Administration 25 Changes in Payroll Data 25 Payroll Taxes 26 Preparation of Timesheets 26 Processing of Timesheets 26 Review of Payroll 26 Distribution of Payroll 27 POLICIES PERTAINING TO SPECIFIC ASSET AND LIABILITY ACCOUNTS 28 Cash and Cash Management 29 Bank Reconciliations 29 Cash Flow Management 29 Bank Access 29 Stale Checks 29 Wire Transfers 29 Investment Policies 30 Fixed Asset Management 31 Purpose 31 Policy 31 Objectives 31 Capitalization Policy (Accounting and Financial Reporting) 31 Control Policy - (Safeguarding) 32 Inventory 33 Purpose 33 Scope 33 Responsibility 33 3155 Inventory Categories 34 Governing Rules 34 Inventory Control Guidelines 34 Balance Sheet Inventory Requirements 34 Accrued Liabilities 37 Identification of Liabilities 37 Accrued Employee Leave 37 POLICIES ASSOCIATED WITH FINANCIAL AND TAX REPORTING 38 Financial Statements 39 Standard Financial Statements of the City of Port Arthur 39 Frequency of Preparation 39 Process of Preparing the Financial Statements 39 Government Returns 41 Filing of Returns 41 FINANCIAL MANAGEMENT POLICIES 42 Grants Management Policies 43 Guidance 44 Cost Principles 44 Grant Research / Seeking Grants 45 Grant Contract/ Requirements for Approval 46 Grant Application 46 Compliance with Grant Requirements 46 Maintenance and Monitoring of Grant Files 46 Grant Revenues / Expenditures / Communication with Finance 47 Matching Funds 47 Procurement 47 Close Out 48 Retention and Maintenance of Records 48 Roles and Responsibilities 49 Definitions 50 Budgeting 51 Annual Audit 52 Role of the Independent Auditor 52 4I55 Selecting an Auditor 52 Preparation for the Annual Audit 52 City Manager, City Council, Audit Committee and/or Finance Director Audit Responsibilities 53 Audit Findings 53 Record Retention 54 Insurance 55 5155 Introduction The following accounting manual is intended to provide an overview of the accounting policies and procedures applicable to the City of Port Arthur (City). Its purpose is to ensure that assets are safeguarded, financial statements are in conformity with generally accepted accounting principles (GAAP), and finances are managed with responsible stewardship. This manual is intended to formalize accounting policies and to document internal contro►s. The contents of this manual were approved as official policy of the City by the City Council and Finance Director. All employees from the City are bound by the policies herein, and any deviation from established policy is prohibited. 6 I 55 Revision History Policy Owner: Finance Director Council Version # Changes Made Resolution Number Adoption Date 1/9/2023 01 Complete Update 7I55 GENERAL POLICIES a ,, a 8 55 Organizational Structure The Role of the City Council The City of Port Arthur is governed by its City Council. The City Council is responsible for the oversight of the organization by: 1. Planning for the future 2. Establishing broad policies 3. Identifying and proactively dealing with emerging issues 4. Interpreting the City's mission to the public 5. Appointing the City Manager, City Attorney and City Secretary. The roles of the City Manager and staff The City Council is responsible for hiring and periodically evaluating the City Manager. The City Manager reports directly to the City Council and is responsible for the day-to-day oversight and management of the City. The City Manager is responsible for hiring and evaluating Department Directors for each of the City's departments except the City Attorney and City Secretary. Each Department Director reports to the City Manager. Within each Department, Department Directors are responsible for hiring, with approval from the City Manager, employees to work in that department. All employees within a department shall report directly to that Department's Director, who shall be responsible for managing and evaluating all employees within the department. The Finance Director shall be the chief accounting officer of the City and shall have charge of the administration of the financial affairs of the City, under the direction of the City Manager. The Department of Finance shall be under the direction of the City Finance Director. 9 I 55 Finance Department Overview The Finance Director is responsible for direction and oversight regarding the overall financial management of the City of Port Arthur. Responsibilities: The primary responsibilities of the Finance Department consist of: • General Ledger • Budgeting • Long-term Financial Planning • Annual Audit • Financial Statements Preparation • Cash and Investment Management • Fixed Asset Management • Grants Administration • Purchasing • Revenues • Cash Receipts/Disbursements • Accounts Payable • Payroll • Bank Reconciliation • Cash Reconciliation • Cash Flow Management • External Reporting of Financial Information • Compliance with Government Reporting Requirements • Compliance with Financial Covenants 10I55 Business Conduct Practice of Ethical Behavior: Unethical actions, or the appearance of unethical actions, are unacceptable under any conditions. The City's policies and reputation depend to a large extent on the following considerations. Each employee must apply her/his own sense of personal ethics, which should extend beyond compliance with applicable laws and regulations in business situations, to govern behavior where no existing regulation provides a guideline. It is each employee's responsibility to apply common sense in business decisions where specific rules do not provide all the answers. In determining compliance with this standard in specific situations, employees should ask themselves the following questions: 1. Is my action legal? 2. Is my action ethical? 3. Does my action comply with the City of Port Arthur policy? 4. Am I sure my action does not appear inappropriate? 5. Am I sure that I would not be embarrassed or compromised if my action became known to the Organization or publicly? 6. Am I sure that my actions meet my personal code of ethics and behavior? Each employee should be able to answer "yes" to all of these questions before taking action. Each Director, manager and supervisor is responsible for the ethical business behavior of her/his subordinates. Directors, Managers and supervisors must carefully weigh all courses of action suggested in ethical as well as economic terms and base their final decisions on the guidelines provided by this policy as well as their personal sense of right and wrong. Compliance with Laws, Regulations and Organization Policies The City does not tolerate the willful violation or circumvention of any Federal, State or Local law by an employee during the course of that person's employment; nor does the City tolerate the disregard or circumvention to their policies or engagement in unscrupulous dealings. Employees should not attempt to accomplish by indirect means, through agents or intermediaries, that which is directly forbidden. Implementation of the provisions of this policy is one of the standards by which the performance of all levels of employees will be measured. 11 55 General Ledger and Chart of Accounts The general ledger is defined as a group of accounts that supports the information shown in the major financial statements. The general ledger is used to accumulate all financial transactions of the City and is supported by subsidiary ledgers that provide details for certain accounts in the general ledger. The general ledger is the foundation for the accumulation of data and reports. Control of Chart of Accounts The City's chart of accounts is monitored and controlled by the Finance Director or designee. Any changes should be approved by the Finance Director or designee, who ensures that the chart of accounts is consistent with the organizational structure of the City of Port Arthur and meets the needs of each division and department. Classification of Net Assets In the Government-wide financial statements and proprietary fund financial statements, net assets are reported in three categories: net assets invested in capital assets, net of related debt; restricted net assets, and unrestricted net assets. Restricted net assets represent net assets restricted by parties outside of the City (such as creditors, grantors, contributors, laws, and regulations of other governments) and include unspent proceeds of bonds issued to acquire or construct capital assets. The City's other restricted net assets are temporarily restricted (ultimately expendable assets). All other net assets are considered unrestricted. Fiscal Year The City shall operate on a fiscal year that begins on October 1st and ends on September 30th. Any changes to the City's fiscal year must be ratified by majority vote of the City's Council of the City of Port Arthur. Journal Entries All general ledger entries that do not originate from a subsidiary ledger shall be supported by the corresponding documentation which shall include a reasonable explanation of each such entry. It is the policy of the City that all journal entries not originating from a subsidiary ledger shall be authorized by the Finance Director or designee. 12 55 POLICIES ASSOCIATED WITH REVENUES AND CASH RECEIPTS 13 I 55 Revenue Recognition Policy The City receives revenue from several types of transactions. Revenue is recognized depending on the type of fund the revenue pertains to. Revenues in the government-wide, proprietary, and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time the liabilities are incurred, regardless of when the related cash flows take place. Non-exchange transactions, in which the City gives (or receives) value without directly receiving (or giving) equal value in exchange, include property and sales taxes, grants, entitlements and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenues from sales tax are recognized when the underlying transactions take place. Revenues from grants, entitlements and donations are recognized in the fiscal year in which all eligible requirements have been satisfied. Revenues in the governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when susceptible to accrual (i.e., when they are "measurable and available"). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to pay liabilities of the current period. The City considers all revenues available if they are collected within 60 days after year- end. Expenditures are recorded when the related fund liability is incurred, except for debt service expenditures which are recognized when due, and certain compensated absences and claims and judgments which are recognized when the obligations are expected to be liquidated with expendable available financial resources. General capital assets acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term debt and capital leases are reported as other financing sources. Property taxes, transient occupancy taxes, and interest are susceptible to accrual. Sales taxes collected and held by the state at year-end on behalf of the City are also recognized as revenue. Other receipts and taxes become measurable and available when cash is received by the City and are recognized as revenue at that time. Entitlements and shared revenues are recorded at the time of receipt or earlier if the susceptible to accrual criteria are met. Expenditure-driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other grant requirements have been met. Refunds Utility deposits will be refunded in accordance with section 110-252 of the Code of the City of Port Arthur. 14I55 Billing/Invoicing Procedures Billing and collection procedures will be carried out in accordance with the guidelines established in the Port Arthur Code of Ordinances. All procedures developed will reference the applicable ordinances. The Water Department of the City of Port Arthur is responsible for the billing, customer service, and collection of the receivables related to water, sewer, and garbage services. Water connections and services billing are also governed by Port Arthur Code of Ordinances sections related to Water and Sewer (reference sections 110-61, 110-66, 110-70, 110-91 through 110- 100, 110-168, 110-198, 110-199, and any other related ordinances). Other charges are generally managed by the Accounts Receivable Clerk except specified large or commercial accounts. The Finance Director or designee will be charged with distributing responsibility for management of accounts. Select billings are directly managed by the related departments. Payments are directed to the central cashiers and the departments are responsible for maintaining the related accounts receivable listings and ensuring that the revenues are deposited to the appropriate funds. Cash Receipts Cash (including checks payable to the City) is the most liquid asset an organization has. Therefore, it is the objective of the City to establish and follow the strongest possible internal controls in this area. This will include separating the custodial and record-keeping functions of the cash collection. Those tasked with collecting and depositing the cash should not have record-keeping authority. In-House Cash Receipts Processing For funds that are received directly at the City of Port Arthur, cash receipts are centralized to ensure that cash received is appropriately directed, recorded, and deposited in a timely manner. Cash gathered at external departments is brought to the central cashiers daily. All cash deposits are entered or verified in the accounting system by the central cashiers. The individuals who enter, post, and prepare the daily list of cash receipts shall not be involved in the accounts receivable process. A deposit slip is prepared by the Senior Cashier from the cash and checks received and compared to the daily receipts listing for discrepancies. The daily cash report will be reviewed by a Staff Accountant. Deposits are prepared daily and taken to the bank by an individual other than the employee who prepared the daily cash receipts listing (armored service). 15I55 Endorsement of Checks It is the policy of the City that all checks received that are payable to the City shall immediately be restrictively endorsed by the customer service representative that prepares the daily receipts listing Reconciliation of Deposits On a monthly basis, a Staff Accountant who does not prepare the initial cash receipts listing, or bank deposit shall reconcile the listings of receipts to bank deposits reflected on the monthly bank statement. Any discrepancies shall be immediately investigated and reported to the Finance Director or designee. 16 I 55 Accounts Receivable Management On a monthly basis, a detailed accounts receivable report (showing aged, outstanding accounts by customer) is generated and forwarded to finance for review and reconciliation to the general ledger. All differences are immediately investigated and resolved. The Finance Director or designee reviews the accounts receivable report on a monthly basis. Accounts Receivable Entry Policies The posting of customer invoices to the accounts receivable subsidiary ledger shall be performed by individuals independent of the cash receipts function of the City. Posting of credit memos and other adjustments to customer accounts receivable shall also be performed by an individual independent of the cash receipts function of the City. Accounts Receivable Write-Off Authorization Procedures It is the policy of the City to ensure that all available means of collecting accounts receivable have been exhausted before write-off procedures are initiated. For utility payments, write-offs are initiated by the Water Department and approved by the Finance Director or designee. The Water Department maintains policies and procedures in line with the Port Arthur Code of Ordinances, including policies for late payments, delinquent accounts, and credits and adjustments. Once a write-off has been processed, the Water Department will maintain a master list of bad accounts. Customers listed on the write-off list will be extended future credit only if the back debt is paid. Reserve for Uncollectible Accounts It is the policy of the City to maintain a reserve for uncollectible accounts. At the end of each fiscal year, the allowance for doubtful accounts is adjusted based on the following factors: 1. An analysis of outstanding, aged accounts receivable 2. Historical collection and bad debt experience 3. Evaluations of specific accounts based on discussions with the Water Department. Year-end adjustments to the allowance for uncollectible accounts shall be performed only with authorization from the Finance Director or designee. Credits and Other Adjustments to Accounts Receivable From time to time, credits against accounts receivable from transactions other than payments and bad debts will occur. Examples of other credits include adjustments for billing errors. All credits shall be processed by an employee independent of the Cash Receipts function. In addition, the Finance Director or designee shall authorize all credits. 17 I 55 Classification of Income and Net Assets Certain assets of special revenue grant funds are classified as restricted assets because their use is restricted by grant agreements. Certain resources of the debt service fund and the Water and Wastewater funds are set aside for the repayment of bonds and certificates of obligation and are classified as restricted assets on the balance sheet because their use is limited by applicable bond covenants. Other restricted resources consist of funds limited as to use by donors. Restricted gifts, bequests and grants are reported as restricted funds until expenditures are made for the donor's intended purpose. 18I55 POLICIES ASSOCIATED WITH EXPENDITURES AND DISBURSEMENTS 19 I 55 Purchasing Policies and Procedures The City shall maintain a separate purchasing policy approved by City Council. The policy will be reviewed and revised, as necessary. It is the policy of the City to follow a practice of ethical, responsible, and reasonable procedures related to purchasing, agreements and contracts, and related forms of commitment. The purchasing policy describes the principles and procedures all staff shall adhere to in completing their designated responsibilities. 20I55 Credit Card Policies and Procedures The City provides certain employees with credit cards intended to enable and simplify certain purchasing transactions. Purchasing cards are managed by the Purchasing Department. Policies and procedures related to the use and management of credit cards are found in a separate Procurement Card Program manual. P age 21 155 Cash Disbursements (Check Writing) Policies Check Preparation It is the policy of the City to print vendor checks and expense reimbursement checks at least on a weekly basis. Checks shall be prepared by persons independent of those who initiate or approve expenditures, as well as those who are authorized check signers. All vendor and expense reimbursement checks shall be produced in accordance with the following guidelines: • Expenditures must be supported in conformity with the purchasing, accounts payable, and travel, expense and reimbursement policies described in this manual and related policies and procedures. • Timing of disbursements should generally be made to take advantage of all early- payment discounts offered by vendors. • Generally, all vendors shall be paid within 30 days of submitting a proper invoice upon delivery of the requested goods or services. • Total cash requirements associated with each check run are monitored in conjunction with available cash balance in bank by the Finance Director or designee prior to the release of any checks. • All supporting documentation must be attached prior to forwarding the payable for approval in the accounting system. Documentation must be accessible to be reviewed by the approvers prior to their approval. • Checks shall never be made payable to "bearer" or "cash". • Checks shall never be signed prior to being prepared. (No signed blank checks). • The City shall take appropriate actions to ensure that only the proper vendors are paid, including the transmission of a positive pay file to the bank prior to mailing checks. Check Signing It is the policy of the City of Port Arthur that each check shall be approved, and the checks have the signatures of two authorized check signers. Prior to approval, attached supporting documentation should be examined by the approvers of the expense to ensure accuracy prior to disbursement. Invoices should not be approved for payment if supporting documentation appears to be missing or there are any questions about a disbursement. 22 55 Mailing of Checks In general, checks should be mailed out by the Finance Department. Checks shall not be mailed by individuals who authorize expenditures. See Cash and Cash Management section for policies related to stale checks. Voided Checks and Stop Payments Checks may be voided due to processing errors by making proper adjustments in the accounting system and defacing the check by clearly marking it as "VOID". All voided checks are processed by an Accounts Payable Clerk with the bank if a positive pay file has already been sent. The Finance Director or designee approves voids in the accounting system. A journal entry is auto generated, and if the check was printed, it shall be retained to aid in preparation of bank reconciliations. Stop payment orders may be made for checks lost in the mail or other valid reasons. Stop payments are processed by the Accounts Payable Clerk with the bank. The Finance Director or designee approves voids in the accounting system. Record-Keeping Associated with Vendors The City shall obtain a completed Form W-9 from all vendors to whom payments are made. A record shall be maintained of all vendors to whom a Form 1099 is required to be issued at year-end. 23 55 Payroll and Related Policies Classification of Workers as Independent Contractors or Employees The classification of workers is determined by IRS policy. It is the policy of the City to consider all relevant facts and circumstances regarding the relationship between the City and the individual in making determinations about the classification of workers as independent contractors or employees. This determination is based on the degree of control and independence associated with the relationship between the City and the individual. Facts that provide evidence of the degree of control and independence fall into the following three categories: • Behavioral control • Financial control • The type of relationship of the parties Facts associated with each of these categories that will be considered by the City in making employee/contractor determinations shall include the following: • Behavioral control: • Instructions given by the City to the worker that indicate control over the worker (suggesting an employee relationship), such as: • When and where to work • What tools or equipment to use • What workers to hire or to assist with the work • Where to purchase supplies and services • What work must be performed by a specified individual • What order or sequence to follow • Training provided by the City to the worker (i.e., employees typically are trained by their employer, whereas contractors typically provide their own training) • Financial control: • The extent to which the worker has unreimbursed business expenses (i.e., employees are more likely to be fully reimbursed for their expenses than is a contractor) • The extent of the worker's investment in the facilities/assets used in performing services for the City (greater investment associated with contractors) • The extent to which the worker makes services available to the relevant market • How the City pays the worker (i.e., guaranteed regular wage for employees vs. flat fee paid to some contractors) • The extent to which the worker can realize a profit or loss. • Type of Relationship: • Written contracts describing the relationship that the City and the individual intend to create • Whether the City provides the worker with employee-type benefits, such as insurance, paid leave, etc. • The permanency of the relationship • The extent to which services performed by the worker are a key aspect of the regular business of the City 24I55 If an individual qualifies for independent contractor status, the individual will be sent a Form 1099 if total compensation paid to that individual for any calendar year, on the cash basis, is as required by the IRS (currently $600 or more). The amount reported on a Form 1099 is equal to the compensation paid to that person during a calendar year (on the cash basis). Excluded from "compensation" are reimbursements of business expenses that have been accounted for by the contractor by supplying receipts and business explanations. If an individual qualifies as an employee, a personnel file will be created for that individual and all documentation required by the City's personnel policies shall be obtained. The policies described in the remainder of this section shall apply to all workers classified as employees. Payroll Administration The City operates on a bi-weekly payroll. For all City employees, a personnel file is established and maintained, with current documentation, as described throughout this section and more fully described in City's Personnel Manual. The following forms, documents and information shall be obtained and included in the personnel files for all new employees: • City of Port Arthur Employment Application (and resume, if applicable • Applicant references • Interview questions and notes • Form W-4 Employee Federal Withholding Certificate • Form DE-4 State Withholding Certificate (if applicable) • Form 1-9 Employment Eligibility Verification • Copy of driver's license • Copy of Social Security card issued by the Social Security Administration • Starting date and scheduled hours • Job title and starting salary • Authorization for direct deposit of paycheck along with a voided check or deposit slip Changes in Payroll Data It is the policy of the City that all of the following changes in payroll data are to be authorized in writing: • New hires • Terminations • Changes in salaries and pay rates • Voluntary payroll deductions • Changes in income tax withholding status • Court-ordered payroll deductions Department heads submit new hires, terminations, and changes in salaries or pay rates to the Human Resources Director. After review these are forwarded to the City Manager for final approval. 25 155 Voluntary payroll deductions and changes in income tax withholding status shall be authorized in writing by the individual employee. Documentation of all changes in payroll data shall be maintained in each employee's personnel file. The personnel file should not be maintained by the Payroll Analyst. Payroll Taxes The Finance Department is responsible for ensuring that all required tax forms are properly completed and submitted, and that all required taxes are withheld and paid. It is the policy of the City to obtain an updated Form W-4 from each employee as requested. Withholding of federal income taxes shall be based on the most current Form W-4 prepared by each employee. Preparation of Timesheets Timesheets shall be prepared in accordance with the following guidelines: Each timesheet shall reflect all hours worked during the pay period. Exempt employees shall reflect only the compensated absences (exceptions) on the time sheet unless they are tracking hours for a grant. Compensated absences should be clearly identified as such. After preparation, timesheets shall be approved by department directors or his/her designee, prior to submission to the Finance Department. Corrections identified by an employee's supervisor/department director shall be authorized by the employee. In the event that the employee or supervisor is unavailable the director may authorize the correction, citing the reasons for the change and the variance in signatures. A City employee who is on leave, on travel, or is ill on the day that timesheets are due must still submit their timesheet or make accommodations to have it be submitted. Processing of Timesheets The Payroll Analyst reviews the timesheets and flags potential errors. The Payroll Analyst may not change or correct timesheets without authorization from the employee and their supervisor. Tampering with, altering, or falsifying time records, recording time on another employee's time record, or willfully violating any other timesheet policy or procedure is not allowed. Review of Payroll Upon production of all payroll reports and checks, the Finance Director or designee reviews payroll reports, taxes to be paid, and all other relevant information. This procedure shall be performed prior to the distribution of payroll to employees. 26 155 Distribution of Payroll Payroll payments shall be distributed by individuals who do not approve time sheets, are not responsible for hiring and firing, and do not control the preparation of payroll. Page 27I55 POLICIES PERTAINING TO SPECIFIC ASSET AND LIABILITY ACCOUNTS 28 I 55 Cash and Cash Management The City of Port Arthur maintains bank accounts addressing current needs. The policies addressing the management of these accounts are found in a separate Investment Policy, updated and approved annually. Bank Reconciliations A Staff Accountant tracks daily cash revenues and disbursements through daily cash reports from the central cashiers and current bank data. Bank statements are also reconciled on a monthly basis by a Staff Accountant. The bank reconciliation, including any adjusting journal entries resulting from preparing bank reconciliations are reviewed and approved by the Finance Director or designee on a monthly basis. Cash Reconciliation and copies of resulting journal entries are filed in the current year's accounting files. Cash Flow Management An authorized investment officer, as identified in the investment policy, monitors cash flow needs on a daily basis to eliminate idle funds and to ensure that payment obligations can be met. Cash transfers between accounts are performed on an as-needed basis in accordance with the guidelines set out in the Investment Policy. Bank Access Individuals who have the ability to make changes in the bank accounts are identified in the Investment Policy and updated at least annually. Stale Checks It is the policy of the City to write off checks that are more than 12 months old that have not cleared the bank. These checks are reported to the State Comptroller's Office following the Texas Unclaimed Property Law and in line with Texas Property Code (Texas Local Government Code, Title 6, Chapter 74). All stale checks written off in the same fiscal year as they were written shall be credited to the same expense or asset account debited when the check was written, or the expenditure incurred. For stale checks written off in fiscal years subsequent to the year in which the check was written, the credit shall be to the account used for stale dated checks. Reference: https://statutes.capitol.texas.qov/Docs/PR/htm/PR.74.htm Wire Transfers Authorized bank signatories as identified in the investment policy shall be the only City employees authorized to approve wire transfers from the City of Port Arthur bank accounts. Confirmations of all wire transfers are delivered to the Finance Director or designee. 29 55 Investment Policies See the City of Port Arthur "Investment Policy." This policy is updated and approved by the City Council annually. 30 55 Fixed Asset Management Purpose The purpose of this policy is to ensure adequate control and appropriate use of City fixed assets. The procedures are intended to define fixed assets and to establish guidelines for budgeting, financial reporting, logging, inventorying, transferring, depreciating, and disposing of fixed assets. Policy It is the policy of the City that fixed assets be used for appropriate City purposes and be properly accounted for. The Finance Department is responsible for ensuring fixed assets will be inventoried on a periodic basis and accounted for by fund and asset category. It is the responsibility of the Department Heads to ensure that proper budgeting and purchasing guidelines are followed and that fixed assets are adequately secured. Objectives The City's fixed asset policy has two (2) objectives: Accounting and Financial Reporting - To accurately account for and report fixed assets to the City Council, external reporting agencies, granting agencies, and the public. This includes appropriate acquisition and disposal procedures and insurance. Safeguarding —To protect its fixed assets from loss or theft. The Finance Department is responsible for, and has established, systems and procedures through which both objectives are met. The system and procedures are used to identify, process, control, track, and report City fixed assets. Capitalization Policy (Accounting and Financial Reporting) In general, all fixed assets, including land, buildings, machinery, and equipment, with an acquisition cost of$5,000 or more, will be subject to accounting and reporting (capitalization). All costs associated with the purchase or construction should be considered, including ancillary costs such as freight and transportation charges, site preparation expenditures, installation charges, professional fees, and legal costs directly attributable to asset acquisition. Specific capitalization requirements are described below. The capitalization threshold is applied to individual units of fixed assets. For example, ten desks purchased through a single purchase order each costing $1,000 will not qualify for capitalization even though the total cost of$10,000 exceeds the threshold of $5,000. The capitalization threshold will generally not be applied to components of fixed assets. For example, a tractor purchased with several attachments will not be evaluated individually 31 I 55 against the capitalization threshold. The entire equipment with components will be treated as a single fixed asset. Repair is an expense that keeps the property in good working condition. The cost of the repair does not add to the value or prolong the life of the asset. All repair expenditures are charged to the appropriate department fund. Software programs will be regarded as fixed assets subject to capitalization and the cost will be amortized over a useful life of five (5) years. Costs associated with software maintenance and customer support are considered expenditures and will not be capitalized. Improvements to existing fixed assets will be presumed to extend the useful life of the related fixed asset and, therefore, will be subject to capitalization only if the cost of the improvement itself meets the $5,000 threshold. Capital projects will be capitalized as "construction in progress" until completed. Costs to be capitalized include direct costs, such as labor, materials, and transportation, indirect costs such as engineering and construction management, and ancillary costs such as construction period interest. Additions and deletions to the fixed asset inventory records shall be made on a periodic basis. When fixed assets are sold or disposed of, the inventory of Fixed Assets should be relieved of the cost of the asset and the associated accumulated depreciation. Department Heads will need to give approval prior to transfer, auction or disposal of any fixed asset. All fixed asset changes must be reported to the Finance Department immediately and these changes should be tracked in the accounting system. Control Policy - (Safeguarding) The Finance Department is responsible for establishing and maintaining systems and procedures to properly track assets. However, Department Heads are responsible for protecting assets under their control from theft or loss. An asset may be required to be controlled and separately reported pursuant to grant conditions, operational needs, or other externally imposed requirements. For example, a grant program that has funded the acquisition of a fixed asset may impose a requirement that the fixed asset be tracked and identified as a grant funded asset. Property records must be maintained that include a description of the property, a serial number or other identification number, the source of funding for the property (including FAIN), who holds the title, the acquisition date, and the cost of the property. Depreciation Depreciation is computed from the date the fixed asset is placed in service until the end of its useful life. The City uses the straight-line depreciation method. Asset useful life will be determined based on asset type and will be assigned in the accounting system upon acquisition by the Finance Director or their designee. 32 55 Inventory The City will exercise due diligence to safeguard all inventory from waste, damage, theft, misappropriation, and unauthorized use. The City will make every effort to maintain optimal levels of inventory. The City has three main departments that manage inventory: Garage, Transit, and Water Utility. Inventory is generally valued using the FIFO inventory valuation method. Purpose • To prevent, deter and detect inventory waste, damage, theft, misappropriation, and unauthorized use. • To promote the safeguarding of inventory through physical security, movement and tracking, inventory level monitoring, and reconciliations. • To provide guidelines for the development of departmental inventory control procedures. • To emphasize segregation of duties and/or independent verification as a prime feature of departmental procedures for inventory control. Scope This policy applies to all City departments or whose governing body contains City representation; and whose financial transactions are accounted for within the City's financial systems. Excluded from this policy are: Agencies, boards, or commissions (ABCs) that process financial information within their own administrative structure, in which case the ABC is responsible for their own inventory control. Responsibility The Finance Director or designee, is responsible to: • Provide communication, training, and on-going support on the use of this policy. • Work with departments and ABCs as they develop procedures that facilitate compliance with this policy and make recommendations for improvement as necessary. • Review and approve proposed additions/deletions of inventory items from the balance sheet. Departmental Executive Directors and Heads of ABCs are responsible to: • Communicate and distribute this policy to all employees responsible for ordering and/or safeguarding of inventory. • Ensure departmental inventory control procedures are established and communicated to achieve compliance of this policy and reviewed at a minimum annually. The Finance Director or designee is responsible to: • Ensure that departments complete appropriate balance sheet documents to support year-end audit. • Investigate material inventory adjustments. 33 55 o Provide guidance and/or mitigating strategies in an effort to eliminate such occurrences. o In the event of suspected inventory misappropriation, liaise, as required, between Finance and the affected department. Financial Planning Administrators are responsible to: • Provide support for departments in the application of this policy and related departmental inventory procedures. • Perform budget variance reporting as prescribed and cost of goods sold analysis where and when applicable. • Provide support for departments with physical inventory counts and subsequent reporting as required. Inventory Categories Consumables: Items that are purchased repeatedly during the course of regular business. Typically, these goods "get used up" and/or discarded. Examples of consumables include, but are not limited to fuel, drill bits, nuts/bolts/washers, replacement parts. Durables: Items that yield utility over time rather than being completely consumed in one use and are typically characterized by longer periods between successive purchases. Examples of durables include, but are not limited to, drills, hammers, lawn mowers, chainsaws, shovels, generators, floor scrubbers, air compressors, appliances, screwdrivers. Finished Goods: Items/goods in which the manufacturing process is complete, but the item has not been sold or put into use. Scrap: Items that are removed from service or leftover from a manufacturing process. Examples include but are not limited to decommissioned signs and other equipment, steel pieces from sign manufacturing. Governing Rules Departmental inventory control procedures will be established with due consideration to the inventory control guidelines within this policy. Segregation of duties and/or independent verification will be a prime feature of departmental procedures for inventory control. Inventory Control Guidelines Balance Sheet Inventory Requirements Criteria to consider adding an inventory item to the balance sheet include but are not limited to: • The item(s) is/are of substantial value individually or collectively. • Durable items with a longer lifespan (e.g., greater than 1 year). • High risk of theft (e.g., limited physical security, ease of access, alternative or home use, ease of transport, etc.). 34 I 55 Inventory items that are on the balance sheet and subject to audit must be in compliance with the following: • A physical count, reconciled to the balance sheet, must be conducted at least once per year. • Shrinkage adjustments greater than 3% must be reported to the Finance Director or designee. • Maintenance of accurate and detailed records that support inventory balances. • Inventory held should be secured within a restricted area where possible. Department Heads should review and select from below inventory control best practices most applicable and appropriate for their departments. • All inventory o Cost/benefit analysis o Employee and physical location resources should be considered for each inventory type • Segregation of duties should be a key component of inventory control. Where practical, no individual should have the responsibility for both the purchasing of inventory and the following: o Storage and handling activities. o Assigning inventory. o Monitoring the return of inventory to storage. o Periodic physical count and reconciliation of inventory levels. • Where segregation of duties is not possible, additional management review and supervision must be considered to reduce the risk of loss or misuse. o Keep inventory in defined locations. o Secure inventory in a restricted area where possible. o Inventory should be located close to where it is needed or used most frequently. o Within an inventory storeroom, organize inventory by category. o Use labels for easy use and monitoring. o Perform physical counts and reconciliations of inventory on a periodic basis in addition to the annual count. Perform periodic risk reviews to assess physical security to reduce the risk of loss, theft, abuse, or damage. Accurate and detailed inventory records must be maintained. Records should include, but not be limited to: • A description of the property • Make and model • Serial number • Purchase date • Purchase price • Title holder • Manufacturer's warranty period (where applicable) • Usage history 35 155 • Repair history, • Current condition • Source of funding for the property Inventory should be stored in a location that should minimize loss due to damage. (i.e., ideal temperature/humidity levels) Regularly monitor inventory quantities and track the movement of inventory. Consideration should be given to an inventory replenishment method that best suits departmental needs. Examples include: • Just in time ordering: Overnight/fast delivery options for special job/odd items that are not regularly used and/or storage space is limited. • Bulk ordering: For items that are used regularly when adequate storage space is available. • Supplier management solutions: May be suitable when resources for ordering, tracking, monitoring, reporting, and storage are limited. Generally, the supplier provides their own cabinet and maintains stock of regularly used consumables, which is paid for as they are used. Reporting on stock is provided, and orders are not needed unless out-of-stock items are required. Deliberate waste or damage of City inventory is subject to disciplinary action up to and including dismissal. Theft, misappropriation, and unauthorized use of City inventory is subject to disciplinary action up to and including dismissal. Techniques to recognize such actions may include, but are not limited to: • Periodic and unannounced physical inventory counts. • Comparison of costs against budget as well as known, or normal, turnover. • Periodic review of cost of goods sold. • Managerial review and sign off of reported "obsolete, damaged, defective" or otherwise "unusable" items. • Investigation of reported "lost" or otherwise "missing" inventory. • Regular managerial overview of shipping/receiving documents against received items. 36 155 Accrued Liabilities Identification of Liabilities The Finance Department shall establish a list of commonly incurred expenses that may have to be accrued at the end of an accounting period. Accruals will be monitored in conjunction with cash flow to ensure sufficient funding to cover short-term and long-term expenses. Accruals will be monitored by the Finance Director or designee. Accrued Employee Leave The personnel policies establish policies related to employee leave. Unused leave is payable to an employee upon termination of employment. Accordingly, it shall be the policy of the City to record a liability for accrued leave to which employees are entitled. 37 I 55 POLICIES ASSOCIATED WITH FINANCIAL AND TAX REPORTING � _� 38155 Financial Statements Standard Financial Statements of the City of Port Arthur Preparing financial statements and communicating key financial information is a necessary and critical accounting function. Financial statements are management tools used in making decisions, in monitoring the achievement of financial objectives, and as a standard method for providing information to interested parties external to the City. The basic financial statements of the City shall include: 1. Statement of Financial Position - reflects assets, liabilities and net assets of the organization and classifies assets and liabilities as current or non-current/long-term. 2. Statement of Activities - presents revenues, expenses, and other changes in net assets of the organization, by category of net asset (unrestricted, temporarily restricted and permanently restricted). Frequency of Preparation The objective of the Finance Department is to prepare accurate financial statements in accordance with generally accepted accounting principles and distribute them in a timely and cost-effective manner. In meeting this responsibility, the following policies shall apply: State law requires that all general-purpose local governments publish within six months of the close of each fiscal year a complete set of financial statements presented in conformity with generally accepted accounting principles (GAAP) and audited in accordance with Generally Accepted Auditing Standards (GAAS) by licensed certified public accountants. Monthly closes are performed in order to generate accurate data used in the creation of budget-to-actual statements presented to the City Council each month. Process of Preparing the Financial Statements Journal Entries Journal entries are prepared daily by Staff Accountants based on daily transactions. When a transaction occurs, the journal entry should be posted by the next day. Each journal entry will provide specific dates, the relevant account name(s), total amount(s), and a brief description of the transaction. Staff Accountants will be assigned certain funds/cycles to monitor including cash, accounts payable, grants, and other accounts identified as high volume or high risk. At the end of each month, a peer review of key funds will be conducted between Staff Accountants prior to supervisory review. 39 I 55 Month End Close Accounting cutoffs help ensure that the City Council and the Finance Director have the best information about the timing of revenue and expenses possible. While running on a monthly cycle, the cutoff date should always be the last day of the month. All efforts should be made to record transactions before month end. This ensures that funds are allocated to the correct month and creates an accurate depiction of the financial standing for budgeting and forecasting and minimizes adjusting entries. While all accounts should be held to the end-of-month cutoff date, key accounts such as Accounts Receivable, Accounts Payable, Inventory, Revenue, etc. must be diligent in the cutoff procedures to avoid any misstatements. Month-end close should be complete within 10 working days of the end of the preceding month. Adjusting entries Routine adjusting entries are important to ensure income and expenses are reflected accurately. These entries will be prepared on a monthly basis and completed within 5 working days of the end of the preceding month. Trial Balance A trial balance is a report that lists the balances of all general ledger accounts at a certain point in time. The trial balance is usually prepared at the end of each fiscal year, but the City will create the trial balance at the end of the first quarter and update it every quarter until the end of the fiscal year. Annual Financial Statements A formal presentation of the City of Port Arthur annual financial statements shall be provided by the Independent Auditor to the City Council of the City at a regular scheduled council meeting. 40 I 55 Government Returns To legitimately conduct business, the City must be aware of its tax and information return filing obligations and comply with all such requirements of federal state and local jurisdictions. Filing requirements of City include, sales tax returns, information returns for retirement plans, annual reporting of compensation paid, and payroll tax withholding tax returns. Filing of Returns It is the policy of the City to become familiar with the obligations in each jurisdiction and to comply with all known filing requirements. The Finance Department shall be responsible for identifying all filing requirements and assuring that the City is in compliance with all such requirements. It is also the policy of the City to file complete and accurate returns with all authorities. The City shall make all efforts to avoid filing misleading, inaccurate or incomplete returns. Filings made by the City include, but are not limited to, the following returns: 1. W-2's and 1099's -Annual report of employee and non-employee compensation, based on calendar-year compensation, on the cash basis. These information returns are due to employees and independent contractors by January 31 and to the federal government by February 28. 2. W-3 Transmittal of wage and tax statement to the Social Security Administration used for the transmittal of total wages paid. 3. Form 941 -Quarterly payroll tax return filed with IRS to report wages paid to employees and federal payroll taxes. Form 941 is due by the end of the month following the end of each quarter, or 10 days later if all payroll tax deposits have been made in a timely manner during the quarter. Federal and all applicable State payroll tax returns are prepared by the City. 41I55 FINANCIAL MANAGEMENT POLICIES Pa , 42 I 55 Grants Management Policies Purpose To ensure the City obtains the maximum amount of grant funding for City services and programs, provided they are in alignment with the City's identified goals and objectives, thereby improving customer service levels to our citizens. To ensure grant-funded programs do not aggravate the City's fiscal position and are sustainable with existing staffing levels. To provide compliance with all regulations so no recoupment or other loss of revenue occurs following an audit. Specifically: • Provide procedures related to the requirements for applications and contracts for Federal/State grants; and • Ensure that City departments are accountable for proper grant documentation, administration, and activities. • Identify roles and responsibilities in managing grant programs. • Establish general concepts and framework for seeking and managing grant programs. • Establish criteria for evaluating the benefits and costs of grants programs. • Set forth the City's policy in complying with Single Audit Act requirements. Scope/Background This policy and procedure section applies to all grant-related activities of the City of Port Arthur. Policy The City will seek grant funding for activities that are determined to further City functions or that provide activities which are in the best interest of City residents. The City will examine the benefits of grant funding prior to application and decline funding determined not to meet the above criteria. Each department will be responsible for seeking grants, applying for grants, monitoring, and managing the grant and records in compliance with this policy and procedure. • Departments will aggressively pursue grant funding from federal, state, and other sources, consistent with identified City goals and objectives. • Unless previously approved by Council, we should avoid grants that fund "pilot" operating programs or short-term staffing enhancements to existing programs. Taking on these programs could ultimately aggravate the City's fiscal position should the desire for the program remain once the grant funding is no longer available. Departments should only seek grants when sufficient staff resources are available to effectively administer the program in compliance with grant requirements and successfully perform the grant work scope. • Indirect costs of administering grant programs will be recovered to the maximum extent feasible. • The program expenditures associated with the grant should not exceed the terms of the grant. • Questions related to possible grants or subventions should be presented to the City Manager and Finance Director. 43 I 55 Prior notice should be given for potential new grants to the Finance and Purchasing Departments for assistance in assessing of budget, cash flow, staffing, procurement requirements, reporting, and compliance requirements. Guidance Detailed guidance on grant requirements, performance, and reporting can be found within the Code of Federal Regulations (CFR). Texas Local Government Code (TLGC) also contains pertinent information about procurement and contracting. • 2 CFR, Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards • 2 CFR, Part 200, Subpart C - Pre-Federal Award Requirements and Contents of Federal Awards • 2 CFR, Part 200, Subpart D - Post Federal Award Requirements • § 200.318-327 - Procurement • § 200.318-327 - Performance and Financial Monitoring and Reporting • 2 CFR, Part 200, Subpart E - Cost Principles • § 200.403 — Factors affecting the allowability of costs • § 200.404 — Reasonable costs • § 200.413-414 — Direct costs and Indirect (F&A) costs • § 200.416-417 - Special Considerations for States, Locals Governments, and Indian Tribes • TLGC, Title 8, Subtitle A, Chapter 252 — Purchasing and Contracting Authority of Municipalities • TLGC, Title 8, Subtitle C, Chapter 271 — Purchasing and Contracting Authority of Municipalities, Counties, and Certain Other Local Governments References: - https://www.ecfr.gov/current/title-2/subtitle-A/chapter-1 l/part-200 - https://texas.public.law/statutes/tex. local qov't code title 8 Cost Principles Basic Guidelines: To be allowable under federal awards, costs must be (§ 200.400) • Necessary, and reasonable for proper and efficient performance of the organization and administration of Federal awards • Allocable by Federal awards under the above OMB (Office of Management and Budget) guidance, and conform to any limitations listed (see below for some examples) • Authorized under State or local laws or regulations • Consistent with policies, regulations, and procedures • Accorded consistent treatment with other costs incurred for the same purposes in similar circumstances 44I55 • Determined according to generally accepted accounting principles • Not be included as a cost or used to meet any cost sharing or matching requirements of any other Federal award in the current or prior period (except when Federal approval is provided) • The net of all applicable credits • Adequately documented Determining Reasonable Cost: (§ 200.404) • Costs must be considered ordinary (in the regular course of business) and necessary to achieve the federal award/outcomes • Market prices for comparable goods or services must be compared • Decisions must be considered prudent and take into consideration the City, its employees, the public, and the Federal Government • Requirements and restraints that may affect the cost must be considered such as local, state, and federal regulations; sound business practices; and arm's length bargaining • The approach must be appropriate and fitting with established practices Direct costs are those that can be identified specifically with a particular final cost objective. (§ 200.413) For example, • Compensation of employees that can be identified as specifically achieving the goals of the funding (not most related administrative costs —these are usually indirect) • Cost of materials acquired, consumed, or expended specifically for the purpose of the award • Equipment and other approved capital expenditures for the purpose of the award • Indirect costs (§ 200.414) are those included for a common or joint purpose benefiting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted. Indirect costs may have to be included in the grant application and separately approved in project budgets before they can be claimed Approvals of Federal Costs: • City of Port Arthur Council awards contracts that will be funded with federal dollars dependent on the cost sharing ratio and ability to benefit • Grant related expenditures must have a separate account number and all expenses must be coded to that account • Personnel time on grants must be separately noted on timesheets for tracking and reporting purposes • Grant related invoices must be noted for finance— all proper invoice procedures must be followed • Purchasing must be notified when procurements are related to grants to ensure appropriate regulations are followed Grant Research / Seeking Grants 45I55 Individual departments shall investigate sources of funding relevant to their respective departmental activities in compliance with the purpose and policy as stated in this document. The individual department shall be generally responsible for investigating funding sources and for monitoring and coordinating all grant applications and programs in conformance with citywide budgeting, staffing, goals, and program considerations. Grant renewals must go through the same evaluation process as new grants to ensure continued alignment with city goals and funding considerations. Grant Contract / Requirements for Approval Prior to acceptance of any funding or expenditure of funds on any grant activity, a written contract is required. A resolution and approval by the City Council is required before a grant award can be accepted by the City. Grant Application Timely grant application/submission to agencies is the responsibility of each department. If a grant requires matching City funds, in any amount, or if the grant application requires the approval of the City Council, the grant application must be submitted to the City Council for discussion and approval prior to submittal to the funding agency. Otherwise, the City Manager may sign the grant. Compliance with Grant Requirements The applicable City department is responsible with all aspects of grant requirements (terms), including monitoring to ensure the following: • Grant activities/projects are properly accomplished; • Grant accounting/recording is accurate; • Performance reports are complete and submitted per terms of the grant; and, • Requests for reimbursement (drawdown) are accurate and submitted on schedule (or as soon as possible after completion of related grant activities) • All financial grant reporting and drawdown requests must be approved by the Finance Director or designee prior to submission. Maintenance and Monitoring of Grant Files The official grant file including a copy of the signed contract and all documents associated with the grant, including but not limited to the contract and amendments, application, activity reports, request for reimbursement, fiscal reports, and other correspondence will be professionally maintained with an excellent standard of care, in accordance with any requirements set forth by the funding agency, if any, by the initiating department. 46 I 55 ti Grant Revenues / Expenditures / Communication with Finance The City Council must authorize acceptance of grant funds over $25,000.00, approve matching funds, and authorize the City Manager (or designee) to execute all necessary documents. The Finance Department, upon direction from the City Council, is responsible for preparing budget entries to increase estimated revenues and appropriating expenditures of the same amount to the proper accounts. All grant revenues will be deposited to revenue accounts specific to the grant. The Finance Department will create and maintain grant accounts specific to each grant and provide tracking of activity. For reimbursement-based, multi-year grants, both revenues and expenditures are budgeted in the year during which the grant is awarded, and then any remaining budget will be carried over. Reimbursements for grant activities performed in one fiscal year and not actually received until the next fiscal year will be accrued. The operating department and the Finance Department are responsible for ensuring that grant revenues are promptly deposited into the proper revenue accounts upon receipt. The department is responsible for monitoring and ensuring that grant revenues are recorded in the proper expenditure accounts. The operating department is responsible for monitoring grant revenues, expenditures, and budgetary compliance. The operating department shall inform the Finance Department promptly of any anticipated grant revenues, draw-down requirements, carry-overs, and provide tentative schedules for dates and amounts of cash- flow projections where appropriate. If the grant expenditures are funded by multiple sources, use the most restricted funding source first. Matching Funds Funds provided for match must be in addition to, and therefore, supplement funds that would otherwise be made available for the stated program purpose. Matching funds must be obligated by the end of the grant period. Procurement When goods or services must be procured in order to accomplish the goals of the grant program, City procurement policies and procedures must be followed. There are specific rules and regulations related to procurements using federal funds. City purchasing policy contains information about these. The Code of Federal Regulations (CFR) and Texas Local Government Code (TLGC) should also be consulted. Contracts related to federal grants also have specific guidelines and required language that must be included (§ 200.327). - 2 CFR § 200.318-327 — Procurement TLGC, Chapter 252 — Purchasing and Contracting Authority of Municipalities - TLGC, Chapter 271 — Purchasing and Contracting Authority of Municipalities, Counties, and Certain Other Local Governments 47 I 55 Close Out Official close out of a grant should occur when the awarding agency determines that the City (grantee) has completed all applicable administrative actions and work required under the grant. Grants should be closed out when the grant has expired (reached the end date) and all open administrative, compliance, legal and audit issues have been resolved. A federal awarding agency may choose to close out a grant administratively if the grantee fails to provide the required documents, is no longer a valid operating entity, is non-responsive or fails to cooperate. Within 90 days after the end date of the award or any approved extension (revised end date), the department grant administrator must submit the required close out documents (final progress/financial report) to the grantor (funding agency). Prior to submission of these documents, the department grant administrator should request final payment for reimbursement of expenditures made within the approved period in conjunction with the final financial status report. If any grant funds remain unexpended, the grant recipient (department) will review the grant requirements to determine their legal use. Reprogramming of grant funds for uses other than the original purpose of the grant requires the approval of the City Manager, City Council and/or granting agency. In some cases, it may be necessary to return the unused funds to the granting agency. The grant recipient (department) must promptly process a refund of any balances of unobligated cash that the grantor has advanced or paid and that is not authorized to be retained by the recipient for use in other projects. If award funds must be returned to the grantor at award closeout, the department grant administrator should work with the Finance Department to remit a check with a cover letter indicating the grant award number, and the unobligated balance. Retention and Maintenance of Records At a minimum, departments must retain all grant-related records for three (3) years from the date of submission of the final expenditure report for the grant. In accordance with the requirements as set forth in the Federal Office of Management and Budget (2 CFR § 200.334), all financial records, supporting documents, statistical records, and all records pertinent to the award shall be retained by the department for at least three (3) years from the date of submission of the final expenditure report. Retention is required for purposes of State/Federal examination and audit. Exceptions can include if litigation or audit is started before the expiration of the three-year period or if the city is notified in writing of an extension of the retention period. 48 55 Roles and Responsibilities • City Council o Approve/deny resolution requesting grant-matching funds. o Approve acceptance of grant funds. o Authorize the City Manager (or designee) to execute all necessary documents. o Direct Finance Department to increase revenues and appropriation of expenditures to proper general ledger accounts. • City Manager o Review grants prior to presentation to the City Council. o May review grant performance at close out for grants. • Finance Department o Provide funding analysis if requested by the department before grant applications are made. o Upon approval by City Council, and receipt of grant contract/award letter, increase revenues and appropriate expenditures to the proper accounts in the financial system. o Create unique grant account numbers within the financial system. o Monitor grant activity, at a minimum, quarterly; correct transaction errors. o Assist department grant administrator in preparation/submission of drawdowns, financial performance reports, close out, etc. o Prepare annual Single Audit report as part of the annual financial audit. o Review grant accounting at close out. • Department o Identify and seek grant funding to further City activities / services. o Evaluate grants for strategic alignment with City goals, benefits and costs, sufficiency on internal funding, and sufficiency of internal staffing to manage the grant. o Prepare grant application; seek assistance from Finance, Purchasing, Grant Manager, or other departments as needed. o If a grant application includes matching funds, request resolution approval from City Council prior to submitting grant application to the funding agency. o Acquire grant signature authorization(s). o Submit grant application to funding agency. o Submit grant information and award letter to Finance Division. o Acquire written contract/award letter from funding agency. o Upon awarding of grant, request resolution of approval from City Council. o Monitor and comply fully with grant requirements. o Communicate fiscal needs to Finance Division in a timely manner. o Maintain comprehensive files for each awarded grant. o Follow City procurement policies to accomplish goals of grant program/project. o Monitor revenue/expenditures monthly to ensure accuracy of financial transactions. o Prepare grant status reports for City management upon request. o Ensure timely close out of grant (within 90-days from end date of award). o Process the return unobligated funds (if applicable) to funding agency. o Retain records in accordance with this policy. 49 I 55 1. Definitions Entitlement Grant: A noncompetitive grant disbursed automatically on the basis of legally defined formula to all qualifying agencies. Grant: A contribution of cash or other assets from another governmental entity or foundation/organization (private or public) to be used or expended for a specific purpose, activity, or facility. Grant Drawdown: A request for drawing funds from a local, state, or federal grant for allowable costs incurred and already disbursed or to be disbursed within ten (10) days of the draw date. Operating Departments: Shall mean any department which shall be required to perform any part of the grant application or work scope upon successful award of the grant. Program: Shall mean any grant project, program or other identified use of grant funds that must be administered by the City after successful grant award. Subvention: An endowment or a subsidy; a grant of financial aid. 50I55 Budgeting Budgeting is an integral part of managing any organization in that it is concerned with the translation of organizational goals and objectives into financial and human resource terms. A budget should be designed and prepared to direct the most efficient and prudent use of the organization's financial and human resources. A budget is a management commitment of a plan for present and future organizational activities that will ensure survival. It provides an opportunity to examine the composition and viability of the organization's programs and activities simultaneously in light of the available resources. The budget is a plan that establishes the spending authority for the City's programs and projects during the twelve- month budget period. The City's Annual Budget serves as the foundation for the City of Port Arthur Financial Planning and Control. The budget policy for the City of Port Arthur is maintained in a separate policy and updated annually. There is also a separate five-year capital improvement plan. 51 I 55 Annual Audit Role of the Independent Auditor It is the policy of the City to arrange for an annual audit of the City's financial statements to be conducted by an independent accounting firm. The independent accounting firm selected by the City Council will be required to communicate directly with the City Manager, City Council and Finance Director upon the completion of their audit. Audited financial statements, including the auditor's opinion thereon, will be submitted and presented to the City Council for their review and approval, after the financial statements have been reviewed and approved by the Finance Director. How Often to Review the Selection of the Auditor The City shall review the selection of its independent auditor in the following circumstances: 1. Anytime there is dissatisfaction with the service of the current firm 2. When a fresh perspective and new ideas are desired 3. Every year to ensure competitive pricing and a high quality of service (this is not a requirement to change auditors every year; simply to re-evaluate the selection) 4. After 5 years a new Auditor will be selected Selecting an Auditor The selection of an accounting firm to conduct the annual audit is a task that should be taken very seriously. A written Request for Qualifications (RFQ) will be sent to prospective audit firms. All procurement guidelines should be followed as found in the Purchasing Policy. The Finance Director and Audit Committee will review the prospective audit proposals and make a recommendation to the City Manager. The City Manager will make a recommendation to the City Council for approval. Preparation for the Annual Audit The City shall be actively involved in planning for and assisting with the City's independent accounting firm to ensure a smooth and timely audit of its financial statements. In that regard, the Finance Department shall provide assistance to the independent auditors in the following areas: Planning - The Finance Director is responsible for delegating the assignments and responsibilities to finance staff in preparation for the audit. Assignments shall be based on the list of requested schedules and information provided by the independent accounting firm. Involvement -City staff will do as much work as possible in order to assist the auditors and, therefore, reduce the cost of the audit. 52 55 Interim Procedures -To facilitate the timely completion of the annual audit, the independent auditors may perform selected audit procedures prior to the City's year-end. By performing significant portions of audit work as of an interim date, the work required subsequent to year- end is reduced. City staff will do as much as possible in order to provide requested schedules and documents and to otherwise assist the auditors during any interim audit fieldwork that is performed. Throughout the audit process, it shall be the policy of the City to make every effort to provide schedules, documents and information requested by the auditors in a timely manner. City Manager, City Council, Audit Committee and/or Finance Director Audit Responsibilities The Audit responsibilities include, but shall not be limited to, the following: 1. Appointment of, and communication with, the City's independent auditors 2. Review and approval of the annual, audited financial statements 3. Discussion of internal control matters with the independent auditor 4. Responding to any reported instances of fraud involving City or its employees 5. Conducting an annual analysis of the City's financial statements 6. Making policy and other recommendations to the City Council regarding matters arising out of the audit Audit Findings Audit findings must be addressed in a timely manner. All department heads affected by an audit finding must be informed and implement the compensatory measures developed. City Council should be advised regarding progress on audit findings along with the regular financial reports until they are resolved. 53I55 Record Retention Policy It is declared to be the policy of the city to provide for efficient. economical and effective controls over the organization. maintenance, use and disposition of all city records through a comprehensive system of integrated procedures for the management of records from their creation to their ultimate disposition, consistent with the requirements of the Texas Local Government Records Act and accepted records management practice. (Code 1961. § 2-82) It is the policy of the City of Port Arthur to retain records as required by law and to destroy them when appropriate. Prior to destruction of a record under an approved records control schedule, authorization for the destruction must be obtained from the records management officer. The City Secretary is charged with the management of the City's records. The formal records retention policy of the City of Port Arthur is as prescribed by the Secretary of State Local Government Records Management Guidelines. Reference: www.tsl.texas.qov/slrm/pubs 54I55 Insurance It is fiscally prudent to have an active risk management program that includes a comprehensive insurance package. This will ensure the viability and continued operations of the City. It is the policy of the City to maintain adequate insurance for general liability, as well as coverage for land, buildings, building contents, vehicles, mobile equipment (such as construction vehicles), and portable equipment (such as radios and electronics deployed in the field). The City will also maintain coverage for crime and dishonesty, forgery, cybersecurity, and fraud. The Human Resources Director or their designee is responsible for securing and maintaining insurance coverage. Department directors are responsible for notifying Human Resources upon the receipt of assets that require insurance. Insurance carriers should be reevaluated at least every five years to ensure that the City is getting the best service and coverage at responsible rates. P 55 155