Managing with debt

Introduction

Don Ford was hired as the city manager after a lot of rumors about the financial misrepresentation and discrepancies that occurred under last management. People questioned the decrease in reserves of the city by $13 million and capital replacement of funds over last 6 years. After becoming the city manager, Don realized quickly that things are not fine, and the city may be facing bankruptcy in the coming days as there were only 3 months remaining to the end of the current fiscal year. He found out two major problems that occurred during previous management. Since the sanitation department was about to be privatized, the management did not include its expenses in the current fiscal year budget. Moreover, the salary paid to the red and blue team created under the environmental affair commission was not shown in the current budget and were adjusted from the reserve fund of the city. He found out that the previous management was involved in financial misrepresentation. They also took use of their power and worked for their benefits. They overestimated revenues and perks for their own benefits. All these steps were bound to have negative repercussions on the financial health of the city. Citizens of the city also started realizing that there is something wrong, and it should be eradicated.

Don also realized that individuals in previous management were also very cautious of the fact that may be fired if they raise this issue. Hence this issue was never solved by the management.

Solution

Revenue Side

In order to control the expense side of the city, it is important to control extra expenditures made by the employees or management which do not have any link with the management or running the affairs of the city. One method to achieve that is to raise taxes on travelling abroad and with in different states of the country. The management can also increase the taxes on gifts that would suppress activities that involve giving gifts to friends and other individuals from city funds because taxes on Gift creates double taxation and it will definitely discourage such activities. All the other taxes must remain the same as the city's tax rates are one of the highest (Balanoff & Pinto, 1999).

Don had taken a very good step of appointing an independent external auditor who checked the current affairs of the city and discrepancies that occurred during previous management. It is a long-term measure, and it must be continued. In order to maintain the financial health of the company, it was important for management to properly use the city funds. It must only be used for the purpose it was made for not for any other thing. The management and the auditor must thoroughly monitor these funds in order to protect the revenue side and the funds of the city.

Expenditure Side

It is not feasible for the city management to cut down the staff of the city as it would create more problems for city management. The taxes ...