Temporary Inter-fund Loans: a Quick Solution to a Township Cash Flow problem

The accounting firm of C.L. Coonrod & Company has agreed to provide financial guidance & solutions to us related to shortfalls and temporary cash-flow issues on a weekly basis for the next several weeks.  Contact information can be found at the end of this first installment.

Temporary Inter-fund Loans: a Quick Solution to a Township Cash Flow problem

Be prepared! Your township’s cash flow may be different in 2020 than in past years.

The Governor announced recently that taxpayers will not be penalized for making property tax payments later than the usual May 10 deadline. Now, the deadline to avoid penalty is July 10.

If taxpayers delay payments, then the County may not be able to send your township the full spring installment of property tax by the usual June 30 deadline.  We have seen estimates as high as 50% as the portion of the spring settlement that will be pushed past June 30.

The problem is temporary.  Counties are able to advance the money as it is collected. Hopefully your township will be made whole by sometime in August.

All or most of your township funds may have enough cash on hand to cover the delay.

Here is a possible solution if one fund runs short while the others have extra cash.

Your township can transact a temporary loan from one fund to another. If you keep all of the Township cash in one bank account, as most townships do, the bookkeeping for the loan can be as simple as allowing one fund’s ledger balance to become negative while the others remain positive.   However, each and every fund’s balance should be returned to a positive amount by the end of the year.

Technically, specific journal entries are needed to record the loan, and township board approval is required to authorize each interfund loan.  However, in the past, the Board of Accounts has not criticized townships for handling the loans informally and without board approval —  provided all fund balances are returned to a positive condition by the end of the year.

However, if you want to make the loan “by the book”, you should obtain board approval for each loan.  Refer your township attorney to Indiana Code 36-1-8-4(a) and to a State Board of Accounts memo entitled “Temporary Transfer of Funds” dated April 9, 2020.  The memo also provides an illustration of the formal journal entries for the loan.

C.L. Coonrod & Company
3850 Priority Way South Dr, Indianapolis, IN 46240
(317) 844-4450
coonrod@coonrodcpa.com