The Budgetary Cycle - Expenditure & Variance Reports

Description:
Expenditure and Variance Reports are monthly or quarterly spreadsheets and summaries that give an up-to-date comparison between Revenue Forecast and funds received, and between appropriations and actual expenditures on a program by program basis (see Sample Expenditure and Variance Reports). The difference between budgeted numbers and actuals is called a variance. A summary report recaps the overall financial position of the First Nation as at specific dates in the fiscal year (generally monthly). Finally, these reports include projections of the year-end financial picture by considering the actuals-to-date and the anticipated revenues and expenditures to year-end.

Purpose:
Expenditure and Variance Reports provide information from which financial corrections can be made. These reports compare budgeted and actual revenues and budgeted and actual expenditures made in each program, as well as the difference (or variance) between them.

Where significant variances are identified, adjustments can be made. This may involve adjustments to program Appropriations or instructions to Program Directors to adjust expenditures in order to balance with their allocated resources. Routine adjustments will be recommended by the Financial Controller and approved by the Band Manager.

Expenditure and Variance Reports should be prepared for Band Council review as soon after the cut off date as possible. The reports can be prepared in spreadsheet and graphic formats (see Sample Expenditure and Variance Reports) and usually include an overview of significant variances and recommended actions for Band Council to take. Expenditure and Variance Reports normally include the following elements:

  • revenue: budgeted (see Revenue Forecast) and received (see Cash Management)
  • allocations to programs and agencies (see Appropriations and Program Work Plans)
  • budgeted and actual expenditures to date
  • variances for both revenues and expenditures for the current period and on a year-to-date basis
  • projected variances at year-end

Considerations:
Establishing the reporting dates for preparation of Expenditure and Variance Reports should be done and communicated to all staff well in advance of the fiscal year. Many First Nations wait until the end of the first quarter before presenting the first Expenditure and Variance Reports to Band Council and then monthly thereafter. The Financial Controller normally completes these reports monthly regardless of the timetable for Band Council consideration. Effective Cash Management and transaction reporting is the only way that the Expenditure and Revenue Reports will be accurate.

As well the Controller must ensure that the budgeted and actual numbers are reported on a consistent basis to permit a simple and fair presentation of funds committed. The controller must also have up-to-date information on items such as contracts entered into but not paid; because these are legal obligations which reduce financial flexibility in the long-term.

It is the ultimate responsibility of the Chief and Council to monitor all aspects of the financial health of the First Nation. In order to carry out this responsibility, the Band Manager and the Financial Controller must present regular reports in a format that is easy to understand, allowing the Band Council to make the required financial decisions. It is recommended that Expenditure and Variance Reports be presented to Band Council on a monthly basis.

It is also recommended that Expenditure and Variance Reports be formally accepted by Band Council during Council meetings and that any actions directed by Band Council as a result of these reports be recorded in the Council minutes. This will both provide clear direction and create the records needed for the audit. For their deliberations on the Expenditure and Variance Reports, the Band Manager and Financial Controller must be aware of and advise Band Council of any restrictions for reallocating funds and achieving minimum program standards. Where flexibility is permitted between programs, any transfers from one program to another should be approved by Chief and Council.

Process:

  1. Financial transactions are recorded on a regular basis using generally accepted accounting practices.

  2. Monthly Expenditure and Variance Reports are produced by the finance department (where program Directors will provide input on the causes of any budgetary variances, major commitments, and projections to year-end).

  3. The Financial Controller distributes the Expenditure and Variance Reports to Program Directors and the Band Manager.

  4. The Band Manager prepares a summary of the implications and required adjustments that come from the Expenditure and Variance Reports for Band Council's consideration.

  5. The Expenditure and Variance Reports are presented by the Financial Controller and the Band Manager at regular Band Council meetings. Recommendations for dealing with the variances noted in the reports are tabled for Band Council direction. It may be necessary to request a briefing from Program Directors to explain the why variances exist.

  6. Projected surpluses can be reallocated to other programs that require additional funds. Projected deficits may be addressed through program cutbacks, or by reallocation of additional funds (see Appropriations and Program Work Plans) to cover the deficit. Some of this money may be recovered through those programs with surplus budgets.

Timing:
It is recommended that Expenditure and Variance Reports be prepared monthly. At a minimum, they should be done on a quarterly basis. Required corrections can most easily be made early in the fiscal year and can only be made if the problems have been identified and made known to Band Council.

Expenditure and Variance Reports should be completed by the 15th of the month following the reporting period.

Sample:
An Expenditure and Variance Reports Template and an Expenditure and Variance Reports Sample have been included in the Fiscal Planning Calendar. Using the graphing functions of Microsoft Excel, the spreadsheet formats can be converted to graphs which are much more easily understood by non-financial staff and Band Council.