The end of September is always an interesting time for citizens concerned with government spending, particularly accountants. By the end of this week, all 50 states will have closed out Fiscal Year 2018, and the process can begin judging how taxpayer money was spent over the last 12 months.
At least, that’s the way it is supposed to work, assuming reporting rules and regulations are followed.
At the end of their respective fiscal years, state governments publish lengthy documents known as Comprehensive Annual Financial Reports (CAFRs), which grade performance like a private sector investor report. Is your state living within its means? Does it have enough assets to cover spending promises? What details are behind a state’s claim of a balanced budget? These answers can be found in the CAFR.
Most states end their fiscal years on June 30, but New York’s ends on March 31 and Texas finishes on August 31 while Alabama and Michigan set theirs to the end of September. However, even though the final two states will have soon closed the books for 2018, the public is going to have to keep waiting a while longer to judge the health of their statehouses. While most corporate financial reports are issued within 45 days of their respective fiscal year ends, the average at the state government level is currently a staggering 187 days later.
Slow financial reporting isn’t just a matter of missed deadlines and lackadaisical reporting, it also fundamentally undermines transparency and accountability for elected officials. The Government Accounting Standards Board (GASB) is an independent organization that promulgates financial reporting best practices for state and local governments. The GASB position on timeliness is not a controversial one — government reports should be released “soon enough after the events that the information reports on to affect a person’s decisions or conclusions.”
Still, studies have found that the timeliness constitutes the single most common complaint about the quality of government financial reports.
In an email survey conducted by the GASB, 89 percent of accounting professionals responded that government financial reports were “very useful” after 45 days. Not a single state released their last report within this time frame. Less than half of respondents said that reports were useful after three months, and just 9 percent said that reports were useful after six months.
Some states are so slow with their reports that it begs the question of why they even bother pretending to share useful data with taxpayers. Arizona’s last report was issued 341 days after the end of its fiscal year. Mississippi’s last report was issued after 295 days. New Mexico, worst of them all, issued its report after 342 days. These massive delays mean that when voters head to the polls this November, many won’t have information presenting an honest accounting of their state finances.
Regardless of the problems that have arisen with reporting the fiscal year findings and the evidence that time is a key component, many states have no legal requirement to release these reports in a timely manner, and the GASB has no authority to set one.
However, there are states that do release their reports on time, and even a few that are early. The Government Finance Officers Association awards the Certificate of Achievement for Excellence in Financial Reporting Program to states if they meet the several outstanding characteristics outlined by the GFOA — timeliness being one of them. To give a comparison, the Commonwealth of Kentucky has been awarded this certificate 30 times, and Alabama, sadly, none.
Even New York, which has historically had dismal state finances, is required by law to publish its report and findings four months after the fiscal year ends. That requirement is two months before the 180-day standard deadline. More states should take a page out of this book.
Timeliness must become a priority if state financial reports are to be meaningful. The public has a right to know what government is doing with tax dollars and state governments owe it to the public to be on time.
Sheila Weinberg, a certified public accountant, is the founder and chief executive officer of Chicago-based Truth in Accounting, a 501(c)(3) non-profit organization that researches government financial data and promotes transparency for a better-informed citizenry.
This article has been updated to correct the name of the organization that awards the Certificate of Achievement for Excellence in Financial Reporting Program.