The events of the past 18 months have certainly proven how important it is for businesses in the private sector to plan ahead.
While no one could have anticipated what has transpired, proactive planning has seen some companies maintain a strong position while others have struggled to survive.
But planning ahead for potential financial risks shouldn’t just be an activity for private sector entities.
Government agencies are also impacted by global events, which can have significant repercussions when it comes to funding their programs.
As an example, government agencies may fund programs from interest earned on large cash balances. In some cases, this interest is the only revenue opportunity to accumulate funds needed to support community initiatives.
Unfortunately for these funding models, interest rates have been at record lows for several years, leaving some government agencies faced with dwindling funds and no easy way to recoup losses or fund key programs.
Given our current economic environment, the trend in interest rates doesn’t look likely to change anytime soon, leaving the agencies experiencing this issue at a substantial loss.
To mitigate the risk of long-term possibilities becoming short-term emergencies, here are 3 steps your government agency can take to engage in proactive planning…
Step 1: Integrate strategic long-term forecasting into annual budget activities
Government agencies invest a lot of effort into annual budget planning. However, these plans typically don’t look beyond the next 12 to 24 months.
This means that risks that may have been identified many years in advance (with controls put in place) might not be noticed until it’s too late.
In addition to regular budget activities, dedicate time to developing a strategic long-term forecast.
You might also engage a third party to assist, as they can offer objective advice based on their understanding and experience in working with similar clients.
Developing a long-term forecast allows you to stress test key revenue streams, as well as other areas of your forecast, against external factors which could impact financial outcomes.
This could then allow for the implementation of risk mitigation strategies where potential vulnerabilities are identified.
Step 2: Understand who is required to approve changes to the funding model
When disaster strikes, time is of the essence.
Any delays caused by having to sift through regulations and paperwork will impact how quickly your agency can respond and start to recover from a difficult situation.
As part of your strategic long-term forecast, dedicate resources to mapping out key stakeholders that are to be consulted should the funding model require adjustment.
This simple step will place you in a better position to react quickly if any issues arise.
Step 3: Engage advisers early on
Whether you need support to develop a strategic forecast or have identified a financial risk that could have a significant impact on funding, consider bringing in advisers to assist.
The earlier you engage them, the more time they have to thoroughly assess the situation and develop valuable recommendations.
If your agency is facing an emergency, your adviser can assess all the options available to you and support you in implementing recovery measures.
These could include identifying additional revenue sources, cutting costs to minimise further losses, and the potential to defer payments.
How RSM can help
Adopting a proactive approach to forecasting and risk planning may be all that’s needed to circumvent a situation where an agency has to cut funding for key programs.
RSM’s team of expert accountants and advisers can partner with you to:
- develop robust long-term financial forecasts.
- examine potential risks to funding sources.
- determine effective mitigation strategies.
- uncover recovery opportunities in an emergency.
We’ll work closely with your stakeholders to gain a full understanding of the agency’s unique environment, before drawing on our experience to support you in mitigating risk and ensuring sustainability.
To speak with our team of specialists, contact your local RSM office.