By April Weller, Senior Fiscal Consultant

Financial Policies That Work!

Financial policies are the foundation of sound, strategic financial management. They provide a clear framework for decision-making, promote consistency across operations, and help ensure long-term stability. Well-crafted policies foster a shared understanding of how financial resources are managed, support compliance with statutory requirements, and can strengthen an organization’s bond rating. By adopting clear, thoughtful financial policies, organizations not only reduce the risk of errors but also create a reliable guide for navigating both routine and unexpected financial situations.

Developing Financial Policies

Developing effective financial policies requires a collaborative and thoughtful process. Policies should be in written form and be understandable to their intended audience. Not sure where to begin? Here are the key steps to crafting an effective policy:

Identify the Issue: Define the problem the policy will address.

Conduct Policy Analysis: Identify policy options to address the issue and compare them to choose the most effective, efficient, and feasible option for your organization.

Draft Policy Language: Effective policies should include adoption and revision dates, definitions, clear and concise purpose and policy statements, statutory references, primary contacts, approving authority, and step-by-step procedures if needed. The policy should consider various scenarios and address any relevant challenges or risks associated with the identified issue.

Revise Draft Policy: Collaborate with stakeholders to fine-tune the policy based on their feedback. Receiving and incorporating feedback from stakeholders will aid in the adoption of the policy and advance buy-in when educating and training.

Adopt Policy: Finalize the policy through formal approval by the appropriate governing body.

Educate & Train: The work doesn’t end once the policy is adopted; it is important to educate and train staff on the new policy.  Policies should be made available to all stakeholders, be readily accessible, and published in more than one medium.

Evaluate: Things change over time, and so should your organization’s policies. As regulations evolve, new technologies emerge, or internal processes shift, it’s essential to revisit policies regularly to ensure they remain relevant and effective. Consider implementing a “Policy Inventory” – a simple tracking tool that helps your organization monitor which policies exist, when they were last reviewed, and when they’re due for an update.

Tips & Tricks for Policy Writing

Writing a strong financial policy isn’t just about getting the technical details right, it’s also about making sure the policy is clear, actionable, and easy to follow. Whether you’re drafting from scratch or refining an existing policy, here are some tips to help you communicate effectively:

• Use specific job titles instead of generic terms
• Provide clear timelines for actions
• Reference specific legal statutes
• Use numbers in a consistent and simple format
• Utilize charts, tables, and figures to enhance understanding

Helpful Guides & Resources

Creating or updating financial policies can be a daunting task—luckily, there are a lot of great resources available to help guide the process. When crafting a policy, it’s essential to stay aligned with both federal and state requirements. To help identify what legal requirements might impact a policy, consider the following resources to ensure your policy is compliant with applicable laws and regulations:

• The Office of the State Auditor (OSA)
• Your city attorney
• Outside experts or consultants

It’s worth noting that the financial policy you’re working on has likely been tackled many times before by your peers. You don’t have to start from scratch. If you’re looking for examples, templates, or best practice recommendations to help jump-start your policy process, consider reaching out to neighboring communities or tapping into professional networks. Organizations like the Government Finance Officers Association (GFOA), the League of Minnesota Cities (LMC), and the Association of Minnesota Counties offer a wealth of resources that can make your work both easier and more effective.

The following table presents an overview of core financial policy areas, aligning each with sources of relevant guidance or regulations, their intended purpose, and key policy components.

The Impact of Effective Financial Policies

Writing and maintaining financial policies can feel like an arduous task without an immediate, quantifiable result. It is important to remember that effective policies will have a lasting impact on your organization, and there are many reasons to adopt formal, written financial policies:

• Provide guidelines for long-term financial management
• Define processes and procedures
• Provide consistent direction for addressing recurring issues
• Develop a consensus for financial management of the organization
• Strengthen bond ratings
• Identify risks and how to properly manage them

Required Disclosures: Please Read

Ehlers is the joint marketing name of the following affiliated businesses (collectively, the “Affiliates”): Ehlers & Associates, Inc. (“EA”), a municipal advisor registered with the Municipal Securities Rulemaking Board (“MSRB”) and the Securities and Exchange Commission (“SEC”); Ehlers Investment Partners, LLC (“EIP”), an investment adviser registered with the SEC; and Bond Trust Services Corporation (“BTS”), holder of a limited banking charter issued by the State of Minnesota.

This communication does not constitute an offer or solicitation for the purchase or sale of any investment (including without limitation, any municipal financial product, municipal security, or other security) or agreement with respect to any investment strategy or program. This communication is offered without charge to clients, friends, and prospective clients of the Affiliates as a source of general information about the services Ehlers provides. This communication is neither advice nor a recommendation by any Affiliate to any person with respect to any municipal financial product, municipal security, or other security, as such terms are defined pursuant to Section 15B of the Exchange Act of 1934 and rules of the MSRB. This communication does not constitute investment advice by any Affiliate that purports to meet the objectives or needs of any person pursuant to the Investment Advisers Act of 1940 or applicable state law. In providing this information, The Affiliates are not acting as an advisor to you and do not owe you a fiduciary duty pursuant to Section 15B of the Securities Exchange Act of 1934. You should discuss the information contained herein with any and all internal or external advisors and experts you deem appropriate before acting on the information.