Question

Explain the legal significance of an appropriation and why auditors engaged for a financial and compliance audit need to know the meaning of the term.

The Board of Alderman of the Hayville approved the Appropriations budget for its General Fund for the year ending December 31 as shown below.

General Government $600,000

Public Safety 3,100,000

Public Works 1,400,000

Health and Welfare 800,000

Culture and Recreation 400,000

Contributions to Retirement Fund 700,000

Total General Fund Appropriations $7,000,000

1) Explain the legal significance of an appropriation and why auditors engaged for a financial and compliance audit need to know the meaning of the term.

2) It is illegal for a governmental unit to spend money for any purpose unless a valid appropriation for that purpose exists. Does this legal rule assure good financial management for each governmental unit? Why or why not?

3) Provide the entry in General Journal form to record the budget in all necessary General Ledger and Subsidiary Ledger accounts.

4) Illustrate a form of Appropriations, Expenditures, and Encumbrances subsidiary ledger account that would provide the information needed by a government finance director to make sure legal requirements concerning appropriations are complied with.