Five Tips for Writing a Stellar CAFR Transmittal Letter
When your state or local government presents your comprehensive annual financial report (CAFR), you’re required to include a letter of transmittal. Composing this letter is not technically complex, but it is often the section of the CAFR that receives the most comments from the Government Finance Officers Association (GFOA) Certificate of Excellence in Financial Reporting Program.
Here are five tips to help your government prepare a transmittal letter that both enhances decision-making usefulness for your CAFR readers and avoids comments from oversight bodies such as the GFOA.
1. Adhere to basic formatting
The letter of transmittal should always be included in the introductory section of the report, immediately following the table of contents, list of awards, list of principal officials, and organizational chart. It should introduce the user to the financial statements, of course, but also to your state or local government itself.
As this is an official communication of your government and serves to convey the financial report, the letter should be presented on your government’s stationery to reinforce that the letter and the included report are being conveyed directly from the government.
It should always be signed (at minimum) by the individual primarily charged with oversight of the financial reporting for your government, but it can also be signed by others such as the city or town manager, if deemed appropriate. It should clearly indicate that the financial report is the responsibility of management.
Be sure to acknowledge any awards you’ve received (such as the GFOA Award for Excellence in Financial Reporting), statements that were audited by an independent auditor, and those involved in the preparation of the financial statements.
Finally, since the letter is transmitting your government’s audited financial statements, it cannot be dated earlier than the audited statements (conveyed by the date of the independent auditor’s report) were completed.
2. Include your government profile
Your transmittal letter should introduce the reader to the government, providing background information such as:
- History, dating back to founding
- Population (comparative or current) and other size demographics
- Structure, including governance, management, and organization department and personnel figures
- Overview of services and functions, such as utilities, culture and recreation, public safety, etc.
Beyond basic profile information, your government must also specifically include a discussion of the current financial position, along with information on long-term financial planning and financial policies that had an impact on it.
3. Provide economic context
The letter of transmittal provides the opportunity for your government to give financial statement users context for the economic conditions you deal with. Employment figures, local GDP figures (if available), discussion of changes in tax revenues, and non-financial information (such as building permits issued or other usage statistics) can help readers understand the economic conditions you operate in and reach more informed conclusions about your government as they review your CAFR.
4. Outline major initiatives
Including an update on major initiatives and their expected impact on your government’s future financial position is an essential part of your transmittal letter. Information on major capital investments, new services, planned restructures, other critical developments, and their anticipated effect on your future financial position gives your financial statement users a forward-looking perspective and helps round out their understanding of your total report.
5. Refrain from duplicating information
Even when you meet all the requirements of a complete transmittal letter and provide enough information to give full economic context for understanding your CAFR, financial statement readers often seem to want you to provide information from the management discussion and analysis or other sections of the CAFR. Resist the temptation to include this type of duplicate content. Your transmittal letter should simply give a brief overview of those items and point to the relevant information within the CAFR.
The letter of transmittal is an important but often overlooked way for your government to give greater meaning and comprehensibility to readers of your CAFR. Give it the attention it is due, and you’ll better meet the requirements of oversight bodies while delivering a tool that enhances the decision-making usability of your government’s financial results.