We noticed an article from the Carolina Journal about a discussion at a recent Local Government Commission meeting. Although the discussion centered on the travails of a specific town, it highlighted problems that are widespread and may be getting worse in the local government finance function across North Carolina. There are plenty of high-functioning finance departments around, but the trends are troubling.
It’s difficult to find people to serve as local government finance officers. One Town Manager we know said it’s the hardest local government job to fill because people won’t move to take it, and it requires technical skill. You’re left with finding someone already in your community with the interest and ability to do the job. That’s getting harder and harder to do, especially in rural communities.
Not many managers come to their jobs through finance (compared to something like planning, for example). We therefore have managers who don’t understand how to leverage or evaluate the department beyond the completion of routine tasks. Those mangers are in turn less likely to see finance officers as manager material, and so the trend rolls on.
The finance officer’s job is getting more time consuming and more complicated all the time. In the past several years changes in the accounting rules have made financial reporting substantially more complex. Borrowing money has become more frequent and more complicated – and the related continuing disclosure rules are also getting more burdensome. Continual changes in procurement and contracting rules lead to complications in finance.
The job is getting harder, but of course, finance staff is not being expanded (or given raises) commensurate with the additional work.
The job is getting harder, but training is not more available to most finance staff. Local governments too often view training and professional development as costs, not as necessary investments. A person who doesn’t get enough training not only doesn’t learn the job, but they may also miss out on building a network to call upon when there is a problem or a question to kick around.
In addition to the difficulty in recruiting new finance officers, there’s a lot of turnover among current finance officers. Given the problems outlined above, that turnover shouldn’t be a surprise. If you’re a competent finance officer willing to relocate, you will get an opportunity. If you’re not competent, or you’re competent but overwhelmed by the job, you’ll find something else to do. And every gap in staffing just makes the job harder for the next person.
Changes in accounting rules have made it harder for outside accountants to provide on-going advice. This arrangement, for all its benefits, makes it harder for the finance staff to have an outside “coach” helping out during the year. How many units have found themselves having to hire one accounting firm to close the books, and another one to do the audit? Pressure on auditing fees, and the related view that auditing is a commodity and not a differentiated service, reduces incentives for auditors to take a helpful, teaching attitude to help their clients create better and more timely financial statements.
We’re seeing a cohort of finance officers – those who were in place as the North Carolina urban-area economies took off in the 1980s and 1990s – reaching retirement. All the factors that contribute to declines in rural population and workforce readiness also lead to a declining base of available professionals in those areas. The jobs are not only harder to fill, but we’re losing institutional knowledge.
It would be unreasonable to expect any of these trends to reverse themselves without any outside influence.
Why should we care?
Poor performance in the finance function puts your local government at risk of theft or other malfeasance.
If you don’t have accurate, timely financial information, it’s tougher to make good decisions on a whole range of issues. Should we hire another maintenance person, or should we contract out for grass cutting? Do we need to budget an increase in utility rates because of the increase in chemical costs? Can we afford this development incentive?
If your books and records aren’t in good order, you may find it more difficult to qualify (or even apply) for some grant and loan programs. The LGC also restricts borrowing by units with late audits or unresolved audit issues.
And of course, there’s the potential newspaper factor. If you read about your audit, your fund balance, or your relationship with the LGC staff, it’s unlikely to be a positive story.
The nature of the finance function may make it easy for elected officials (and sometimes even managers) to not pay attention until something bad happens. But that’s no way to run a railroad or a local government.
What can we do about it?
We have to create an environment where governing boards value the finance function and understand how our current approaches are raising risk for the units. On this score, perhaps the annual League of Municipalities and County Commissioners’ conferences could conduct panels on the State and Future of the Finance Function. Elected officials need to understand what’s happening, and why they should care. This would be a good topic for the managers and HR professionals to address at a conference, as well.
Governing boards and managers need to create employment models that make local government service attractive to workers who are less interested in the 20-year trajectory than in what they can learn and do in the next 2 to 5 years. Workers today – and not just those new to the workforce, either – are looking to develop their skills in progressive, professional environments that will challenge them professionally and support them personally. Compensation and benefits are part of this, but so are opportunities for training and advancement, and the feeling of making a meaningful contribution.
Perhaps the State Treasurer’s office could publish guidelines and best practices for conducting the finance function. Maybe a matrix — if you have X number of employees and annual revenues of Y, then you should have Z positions in finance. This would create feedback beyond audit findings and give cities and counties something concrete to consider at budget time. Maybe a salary survey (especially one that can take cost of living into account) could be conducted, which could help local governments make their finance positions more appealing.
The program to provide training and assistance from the Treasurer’s office is a great idea and could be expanded. The program to provide training through the community colleges is also a great idea and could be expanded. Existing training opportunities need to be made more widely available – for example, offer video replay of finance conferences around the state, or even as video on demand (even continuing education for lawyers is ahead on this score).
What about circuit-riding finance officers? Either folks employed by the League and Association (and not by the State), or as a private enterprise? That way, a small town still has someone on staff to make deposits, pay the bills, and run payroll, but there’s a part time person who gets involved in closing the books, handling capital projects, and developing the budget, for example.
Problems with the finance function have been percolating for several years. This are multiple causes, and it will take time (and money) and a multi-faceted approach to help solve it. But we have to get started or it will just get worse.
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