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Forensic Accounting, Forensic Techniques, and Fraud Detection Copyrighted 2001 D. Larry Crumbley, ... - page 335 / 352

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© D.L. Crumbley

Early Warning Signals of Possible Trouble for Municipal Entities

1.

Current year operating deficit

2.

Two consecutive years of Operating Fund deficit

3.

Current year operating deficit that is larger than the previous year’s deficit

4.

A General Fund deficit in the current year – balance sheet – current position

5.

A current General Fund deficit (two or more years in the last five)

6.

Short-term debt outstanding at the end of the fiscal year, greater than five percent of main Operating Fund Revenues

7.

A two-year trend of increasing short-term debt outstanding at fiscal year end

8.

Short-term interest and current year-end service greater than 20 percent of total revenues

9.

Property taxes greater than 90 percent of the tax limit

10.

Debt outstanding greater than 90 percent of the debt limit

11.

Total property tax collections less than 92 percent of total levy

12.

A trend of decreasing tax collections – two consecutive years in a three-year trend

13.

Declining market valuations – two consecutive years – three-year trend

14.

Expanding annual unfunded pension obligations

Source: H.C. Grossman and T.E. Wilson, “Assessing Financial Health,” Handbook of Governmental Accounting & Finance, Somerset, N.J.: John Wiley & Sons, 1992, pp. 38-1 to 38-13.

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