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County Government Finances in Tennessee
Many Tennessee counties have done well managing resources through the recent dif 
cult economic times, yet a number of county governments continue to struggle
nancially.County governments in Tennessee operate accounting, budgeting, and purchasing activities under the provision of generalstatute, private act, or two
nancial management acts, the most recent of which was enacted over 30 years ago. The
nancialhealth of counties is increasingly becoming linked to the
nancial health of the state. Thisreport focuses on the
nancial condition of county governments, the
nancial managementin Tennessee counties, the audit process, recent audit results, audit committees, andchallenges facing county governments in Tennessee. 
Financial Condition of County Governments
If county government was a business, it would be a big one. Even the smallest county inTennessee had total revenues of approximately $12.5 million for the
scal year ended June30, 2011. Total revenues for all Tennessee county governments totaled approximately $11.65 billion for the
scal year ending June 30, 2011. In contrast, total expenditures for thesame period were approximately $12.14 billion. Therefore, counties spent approximately $490 million more than they received in general and operating revenues.County governments have seen sluggish growth in revenues over the last
 ve years, asexpenditures have exceeded revenues in each year over this time period. The slow growthincludes years in which counties received federal money from the 2009 American Recovery and Reinvestment Act. This trend indicates that either debt was increasing during thesame time period, or fund balances were decreasing, or both.
Comptroller of the Treasury
Quarterly Fiscal Affairs Report 
 A county governmenis not the same asa private business.Public trust isinvolved. Countieshave the power totax. Taxpayers canlimit this power byexercising the privilegeof voting. Thesedifferences do not meancounties should not utilize sound business practices an
Volume 1, Number 3Updated August 2012
Volume 1, Number 4Updated November 2012Volume 1, Number 4Updated November 2012
Comptroller of the TreasuryQuarterly Fiscal Affairs Report Comptroller of the TreasuryQuarterly Fiscal Affairs Report 
$9.5$10.0$10.5$11.0$11.5$12.0$12.52007 2008 2009 2010 2011ExpendituresRevenues
County Expenditures and Revenues
       B       i       l       l       i     o     n     s
       B       i       l       l       i     o     n     s
County Long-TermDebt
Total county-related debt in Tennessee increased almost $1.41 billion from 2007 to 2011. This indicates that many county governments are deferring debt prinicipal payments and other obligations to future years. Audits conductedor reveiwed for the
scal year ended June 30, 2011, disclosed fund de
cits totaling $110.29 million in governmentalfunds in 14 counties. Audits also re
ected net asset de
cits totaling $83.24 million in enterprise and internal servicefunds in 14 counties.Tennessee counties have avoided the bankruptcy crisis seen elsewhere around the nation as a result of the economicdownturn. Although bankruptcies have been avoided to date, concerns remain. Along with the substantialincrease in long-term debt, liabilities continue to grow for other post-employment bene
ts, such as healthinsurance premiums, awarded to government employees after those employees leave public service. In addition,new accounting standards will require the recognition of signi
cant long-term pension costs. These costs, whichpreviously have not been recorded on the
nancial statements when they were incurred, will dramatically impactlarge and small governments alike.
Financial Management in Tennessee Counties
In 1957, the Tennessee State Legislature recognized the bene
t and importance of having a centralized system of accounting, budgeting, and purchasing in county governments by enacting the local option Fiscal Control Acts. As time passed, theLegislature again recognized the need for a more modern approach to centralizedaccounting, budgeting, and purchasing. In 1981, the General Assembly enactedthe local option Financial Management System of 1981. Now, 55 years after the
rst Act, and 31 years after the most recent focus on the importance of centralizedaccounting, budgeting, and purchasing, many county governments still are not centralized and do not have a
nancial management staff prepared to handle the complicated
nancial issues facing county governments.
Simply put, the complexissues that countygovernments face todaywere not issues in 1981or 1957.
The Governmental Accounting Standards Board (GASB), which establishes accounting standards for governments, didnot exist until 1984. The Single Audit Act, which provides a framework for accounting and auditing federal programs,did not exist until that same year. Many county governments lack the ability to implement GASB standards and toprepare complex
nancial statements and notes to
nancial statements. Lack of a quali
nancial management staff to implement these required changes is a signi
cant reason that many county governments are ill-equipped to deal withsuch complex issues.
The Audit Process
 Audits of county governments in Tennessee incorporate a complex maze of accountingprinciples and auditing standards combined with local, state, and federal laws andregulations. Financial and compliance audits are designed to provide reasonableassurance, in the form of an opinion, about whether an entity’s
nancial statementsare free of material misstatement, whether that misstatement was caused by error orfraud.
 Recent Audit Results
The Comptroller’s Of 
ce reported outstanding cash shortages of over $900,000 in 41 counties for the
scal yearended June 30, 2011. These shortages include the theft of over $200,000 from a rural west Tennessee county. In thisnon-centralized county, the County Mayor’s bookkeeper issued 191 vendor checks from the county’s general fund forpersonal use.Material audit adjustments are monetary adjustments proposed by auditors which were not detected by the county’sinternal controls and were so large that the county’s
nancial statements would have been materially misstated if theauditors had not found and proposed the adjustments. Material recurring
ndings may involve substantial weaknessesin internal controls or noncompliance with laws, rules, and regulations.
 Audit Committees
The Comptroller’s Of 
ce recommends as a best practice that all counties establish an audit committee. As of June 30,2011, only 21 counties had functioning audit committees. The repetitive nature of the Comptroller’s reported audit
ndings indicates that counties are either unwilling or unable to address these problems or de
ciencies. The purposeof an audit committee would be to facilitate the discussion about and correction of audit
ndings and to deal withemerging issues such as a reported fraud.
3For the
rst time inmemory, the audits of county governments havemet federal deadlines byensuring the completion of all 95 county audits.The vast majority of 
ndings and adverseopinions are reportedin counties that donot have a centralizedsystem of accounting,budgeting, andpurchasing.
0510152025301957 Acts 1981 Act Private Act No Centralization35 Material Audit Adjustments 26 Material Recurring Findings
MaterialAdjustments and Recurring Findings by FinancialManagement Model

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