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Identify the reasons for municipal financial crisis and explain the impact of effective monitoring system in reducing the risk of financial crisis.
Explanation of Solution
Financial crisis: The financial crisis refers to the situation where there is a rapid fall in the value of the assets due to a panic in the financial institution, crash of the stock market, and so on.
Financial Trend Monitoring System (FTMS): The Financial Trend Monitoring System was developed by ICMA to monitor the financial performance and the financial condition of the local government. The Financial Trend Monitoring System is a systematic method of tacking the financial performance of the government, which highlight various factors that helps in prioritizing long term plans and services.
The reasons for municipal financial crisis are:
The lack of management to change the management rules according to the environmental factors is the main reason for the municipal financial crisis. The factors like natural disaster, declining economy, unsupportive political decisions, and all will not have a great impact on the economy if sound practices are being followed. The impact of the financial crisis can be reduced with a sound
The effective monitoring system identifies the unfavorable financial trends and assist the management in taking preventive measures for avoiding the fiscal stress and financial distress. The FTMS can help the management to make sound decisions and improve the governmental conditions.
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