Articles

Why Governments Need Fiscal Policies

US Capitol at night image

Creating fiscal policies doesn’t sound exciting; in fact, it sounds a lot like creating red tape. However, having well-thought-out fiscal policies in place can help governmental entities mitigate risk, increase fiscal soundness, and serve as good stewards of taxpayer funds.

It doesn’t sound logical, though. How could “more rules” create better government? Having the right policies in place helps clarify and define a government’s goals and strategies so that its stakeholders better understand the framework surrounding related initiatives.

How Policies Can Help

Here are some of the benefits governmental entities can expect from great policy development:

  • A foundation for fiscal soundness
    One of any government’s foremost responsibilities is to be a careful steward of public funds. Putting policies in place that reflect best practices, outline roles and responsibilities, and define overall goals for how the governmental unit’s finances are handled is a good start to staying on good financial footing. Fiscal policies also help create consistent processes in an environment where elected official turnover can cause shifts in direction and priorities over time.
  • An empowered staff
    Again, this is not intuitively logical. How would more policies give finance staff more freedom? Simple: Fiscal policies that clearly outline the limits of actions and decisions staff may handle can potentially remove bottlenecks and streamline processes. The guidelines may also help eliminate the need for involvement from higher-level officials, freeing up time they can use to focus on additional strategic needs.
  • Strategic direction for decision-making and actions
    While fiscal policy provides longer-term direction for the entity as it seeks to operate and achieve its goals, it also guides finance and accounting staff in their day-to-day decisions. While “strategic direction” or “strategic intent” may sound lofty, it can offer very real guidance to finance professionals. For example, if a governmental entity creates fiscal policies that focus on minimizing risk over maximizing potential revenues, that direction favors one type of investment decision over other, more risky ones.
  • Managed and mitigated risk
    Governments operate using others’ money, whether through charges or taxation. The responsibility to manage it responsibly is incumbent. Fiscal policies can clarify the types and amounts of risk a governmental unit is willing to sustain, while also outlining the preventive and management actions that can guard against unnecessary risk to the entity’s resources.
  • The removal of "red tape" when no longer relevant
    One complaint about fiscal policies is that they add complexity and red tape. That can absolutely be true! Fiscal policies should be created with a built-in expiration or review date, at which time they are evaluated to see if they are still relevant, needed, or can be improved. It’s easy to adopt policies as a knee-jerk reaction to a momentary issue, but over time, a “knee-jerk policy” can become short-sighted, out of date, or even harmful to the organization.

Take action

In a challenging environment where less government is often considered good government, finance professionals face ongoing challenges to balance their responsibilities to serve citizens and conserve resources. Fiscal policies can serve as useful tools to help do both well.

If you'd like further information, we encourage you to contact Mike Lowry using the information below.

 

Mike Lowry, CGFM

Senior Vice President
Assurance/Public Sector Team Leader

Mike Lowry specializes in governmental and not-for-profit clients. Prior to joining AGH, Mike’s experience included nearly 20 years of financial and technology leadership positions in hospitality management and software companies. He is a certified public accountant who has earned the designation of Certified Government Financial Manager from the Association of Government Accountants, and he is also a member of the American Institute of CPAs, the Kansas Society of Certified Public Accountants, and the Association of Government Accountants. He is a frequent presenter and member of the Kansas, Missouri, and Great Plains Financial Officers Association, and serves as a CAFR reviewer for the GFOA.