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Lane County
DECEMBER8,2016
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FINANCE & AUDIT COMMITTEE DECEMBER 8, 2016
LANE COUNTYDear finance & audit committee members:
Thank you again for your continued engagement of Moss Adams. We are pleased tomeet with you to discuss the results of our audit of Lane County, Oregon’s financialstatements, federal program compliance, and state compliance for the year ended June30, 2016.
The accompanying report, intended solely for the use of the finance & audit committee,presents important information regarding the County‘s financial statements that webelieve will be of interest to you.
We conducted our audit with the objectivity and independence you expect. We receivedthe full support and assistance of the County’s personnel. We are pleased to serve andbe associated with the County, and we look forward to our continued relationship.
Sincerely,
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AGENDA
• Engagement Team• Nature of Services Provided• Auditor Opinions/Reports• Significant Audit Areas• Communication with Those Charged with Governance• Results of Tax Levy Engagement• Accounting Update
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ENGAGEMENT TEAM
• Kevin Mullerleile, CPA, Senior Managero [email protected] (541) 225‐6022
• Jim Lanzarotta, CPA, Partnero [email protected] (541) 225‐6070
• Amanda Moore, CPA, Partnero [email protected] (541) 732‐3865
• Meagan Rammell, CPA, Senioro [email protected] (541)225‐6086
• Brad Jones, Senioro [email protected] (541) 225‐6030
• Billy Brice, Staffo [email protected] (541) 225‐6044
• Kevin Walters, Staffo [email protected] (541) 225‐6080
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NATURE OF SERVICES PROVIDED
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NATURE OF SERVICES PROVIDED
Audit the County’s financial statements (with reliance on other auditor for HACSA) in accordance with GAAS and GAGAS
Compliance testing/reporting under Oregon Minimum Audit Standards
Assistance with, and technical review of, the CAFR for compliance with GAAP as well as GFOA Certificate of Excellence requirements
Single Audit of federal grant programs under Uniform Guidance
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NATURE OF SERVICES PROVIDED
Examination for Local Option Levy
Reporting ‐ Overall audit plan, audit results, communicating internal controls findings and noncompliance
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Consulting Projects
(1) Observed Finance Director interviews(2) Quantified loss of Sheriff’s Office theft
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AUDITOR OPINIONS & REPORTS
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AUDITOR REPORT ON THE FINANCIAL STATEMENT
Unmodified Opinion• Financial statements are presented fairly and in accordance with US GAAP
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OTHER AUDITOR REPORTSGAGASReporton InternalControlOverFinancialReportingandonCompliance and OtherMatters
Report on Compliance with Requirements that could have a Direct and Material Effect on the Major Federal Programs and on Internal Control Over Compliance in accordance with the Uniform Guidance for Federal Awards (2 CFR Part 200)
• No control findings
• No compliance findings
• No financial reporting findings
• No compliance findings
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OTHER AUDITOR REPORTS
ReportonComplianceandOtherMatters basedonanauditoffinancialstatementsinaccordancewithOregonMinimumStandards
• No compliance findings
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SIGNIFICANT AUDIT AREAS
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Audit Area Procedures Results
Cash and Investments
ConfirmationsInvestment valuation testing Oregon legal compliance testing
Balances properly supported and reported –Recommendations provided to Sheriff’s Office following theft
Revenue and Receivables
Review of contractsSubsequent receiptsDetail testing
Revenue/receivable materially correct
Capital Assets Review of County’s valuationsTesting additionsAnalytical tests of depreciationReview of GASB 51 intangibleassets policies & procedures
Capital assets materiallycorrect
Accounts Payable
Subsequent disbursementsTrace to supporting docsControl testingTesting approvals and coding
Accounts payable materially correct
SIGNIFICANT AUDIT AREAS
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Audit Area Procedures Results
Accrued Liabilities, including PERS & OPEB
Review of managementanalysis, testing of assumptions
Management adequately supported estimates and consistently applied, reported balances agreed with underlying support
Long Term Debt Testing of payments and interest
Debt transactions were supported by underlying agreements, in compliance with applicable laws
Net PositionFund Balance
Review of board minutes, testing management’s support
Net position/fund balance classifications adequately supported
Grants Testing of the SEFA,Uniform Guidance procedures
SEFA materially correct, no compliance issues identified
SIGNIFICANT AUDIT AREAS
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Audit Area Procedures Results
Oregon Minimum Standards
Specific testing of certain ORS requirements affecting the County
County found to be in compliance
Financial Close and Reporting
Completing disclosure checklists, testing year‐end close, CAFR
County met its delivery timelines and CAFR only required minor changes following our review
Fraud Fraud inquiries with personnelTesting of journal entries
Additional work was conducted at Sheriff’s Office following theft
SIGNIFICANT AUDIT AREAS
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COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE
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COMMUNICATION WITH GOVERNING BODY
PlannedScopeandTimingoftheAudit
Itistheauditor’sresponsibilitytodeterminetheoverallauditstrategyandtheauditplan,includingthenature,timingandextentofproceduresnecessarytoobtainsufficientappropriateauditevidenceandtocommunicatewiththosechargedwithgovernanceanoverviewoftheplannedscopeandtimingoftheaudit.
• TheplannedscopeandtimingoftheauditwascommunicatedtotheCounty‘sfinance&auditcommitteeattheauditentrancemeetingonAugust18,2016.
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COMMUNICATION WITH GOVERNING BODY
SignificantAccountingPoliciesandUnusualTransactions
Theauditorshoulddeterminethatthefinance&auditcommitteeisinformedabouttheinitialselectionofandchangesinsignificantaccountingpoliciesortheirapplication.Theauditorshouldalsodeterminethatthefinance&auditcommitteeisinformedaboutthemethodsusedtoaccountforsignificantunusualtransactionsandtheeffectofsignificantaccountingpoliciesincontroversialoremergingareasforwhichthereisalackofauthoritativeguidanceorconsensus.
• Managementhastheresponsibilityforselectionanduseofappropriateaccountingpolicies.ThesignificantaccountingpoliciesusedbytheCountyaredescribedinthefootnotestothefinancialstatements.Throughoutthecourseofanaudit,wereviewchanges,ifany,tosignificantaccountingpoliciesortheirapplication,andtheinitialselectionandimplementationofnewpolicies.TherewerenochangestosignificantaccountingpoliciesfortheyearendedJune30,2016.
• Webelievemanagementhasselectedandappliedsignificantaccountingpoliciesappropriatelyandconsistentwiththoseoftheprioryear.
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COMMUNICATION WITH GOVERNING BODY
ManagementJudgmentsandAccountingEstimates
Thefinance&auditcommitteeshouldbeinformedabouttheprocessusedbymanagementinformulatingparticularlysensitiveaccountingestimatesandaboutthebasisfortheauditor’sconclusionsregardingthereasonablenessofthoseestimates.
• Management’sjudgmentsandaccountingestimatesarebasedonknowledgeandexperienceaboutpastandcurrenteventsandassumptionsaboutfutureevents.Weapplyauditprocedurestomanagement’sestimatestoascertainwhethertheestimatesarereasonableunderthecircumstancesanddonotmateriallymisstatethefinancialstatements.
• Significantmanagementestimatesimpactingthefinancialstatementsincludethefollowing:Usefullivesofcapitalassets,allowancesfordoubtfulaccounts,andestimatedliabilitiesforclaimsandjudgments,OPEB,andPERS.
• Wedeemedthemtobereasonable.
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COMMUNICATION WITH GOVERNING BODY
ManagementJudgmentsandAccountingEstimates(Continued)
Ourviewsaboutqualitativeaspectsoftheentity’ssignificantaccountingpractices,includingaccountingpolicies,accountingestimates,andfinancialstatementdisclosures
• Thedisclosuresinthefinancialstatementsareclearandconsistent.Certainfinancialstatementdisclosuresareparticularlysensitivebecauseoftheirsignificancetofinancialstatementusers.Themostsensitiveestimatesaffectingthefinancialstatementdisclosuresarepensionsandotherpostemploymentbenefitobligations.
• Wedeemedthemtobereasonable.
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COMMUNICATION WITH GOVERNING BODY
DifficultiesEncounteredinPerformingtheAudit
Thefinance&auditcommitteeshouldbeinformedofanysignificantdifficultiesencounteredindealingwithmanagementrelatedtotheperformanceoftheaudit.
• Wearepleasedtoreportthattherewerenodifficultiesencounteredduringtheaudit
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COMMUNICATION WITH GOVERNING BODY
SignificantAuditAdjustmentsandUnadjustedDifferencesConsideredbyManagementtobeImmaterial
Thefinance&auditcommitteeshouldbeinformedofallsignificantauditadjustmentsarisingfromtheaudit.ConsiderationshouldbegiventowhetheranadjustmentisindicativeofasignificantdeficiencyoramaterialweaknessintheCounty’sinternalcontroloverfinancialreporting,orinitsprocessforreportinginterimfinancialinformation,thatcouldcausefuturefinancialstatementstobemateriallymisstated.
Thefinance&auditcommitteeshouldalsobeinformedofuncorrectedmisstatementsaggregatedbyusduringthecurrentengagementandpertainingtothelatestperiodpresentedthatweredeterminedbymanagementtobeimmaterial,bothindividuallyandintheaggregate,tothefinancialstatementstakenasawhole.
PassedAdjustments‐ County
• None
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COMMUNICATION WITH GOVERNING BODY
PotentialEffectontheFinancialStatementsofAnySignificantRisksandExposures
Thefinance&auditcommitteeshouldbeadequatelyinformedofthemajorrisksandexposuresfacingtheCounty.
DisagreementsWithManagement
Disagreementswithmanagement,whetherornotsatisfactorilyresolved,aboutmattersthatindividuallyorintheaggregatecouldbesignificanttotheCounty’sfinancialstatements,ortheauditor’sreport.
• TheCountyissubjecttopotentiallegalproceedingsandclaimsthatariseintheordinarycourseofbusiness.
• Wearepleasedtoreportthattherewerenodisagreementswithmanagement.
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COMMUNICATION WITH GOVERNING BODY
DeficienciesinInternalControl
Anymaterialweaknessesandsignificantdeficienciesinthedesignoroperationofinternalcontrolthatcametotheauditor’sattentionduringtheauditmustbereportedtothefinance&auditcommittee.
FINANCIALSTATEMENTS
• MaterialweaknessNonenoted
• SignificantdeficiencyNonenoted
FEDERALAWARDS
• Materialweakness(noncompliance)Nonenoted
• Significantdeficiency(noncompliance)Nonenoted
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COMMUNICATION WITH GOVERNING BODY
Representationsrequestedofmanagement
Werequestedcertainrepresentationsfrommanagementthatareincludedinthemanagementrepresentationletter.
• Wewillreceivetherepresentationletterfrommanagementpriortoissuingourreports.
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COMMUNICATION WITH GOVERNING BODY
Management’sconsultationwithotheraccountants
Insomecases,managementmaydecidetoconsultaboutauditingandaccountingmatters.IfmanagementhasconsultedwithotheraccountantsaboutanauditingandaccountingmatterthatinvolvesapplicationofanaccountingprincipletotheCounty’sfinancialstatementsoradeterminationofthetypeofauditor'sopinionthatmaybeexpressedonthosestatements,ourprofessionalstandardsrequiretheconsultingaccountanttocheckwithustodeterminethattheconsultanthasalltherelevantfacts.
• Wearenotawareofanysignificantaccountingorauditingmattersforwhichmanagementconsultedwithotheraccountants.
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COMMUNICATION WITH GOVERNING BODY
OtherMaterialWrittenCommunications
ReporttotheFinance&AuditCommitteesignificantwrittencommunicationsbetweentheauditorandclientmanagement.
MaterialUncertaintiesRelatedtoEventsandConditions(specificallygoingconcernissues)
Anydoubtregardingtheentity’sabilitytocontinue,asagoingconcern,shouldbecommunicatedtotheauditcommittee.
• Otherthantheauditcontract,managementrepresentationletterandcommunicationofthosechargedwithgovernance,therehavebeennoothersignificantcommunications.
• Nosuchmatterscametoourattention.
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COMMUNICATION WITH GOVERNING BODY
FraudandIllegalActs
Fraudinvolvingseniormanagementandfraud(whethercausedbyseniormanagementorotheremployees)thatcausesamaterialmisstatementofthefinancialstatementsshouldbecommunicated.Wearealsorequiredtocommunicateanyillegalactsinvolvingseniormanagementthatcometoourattention,unlessclearlyinconsequential.
• Wehavenotbecomeawareofanyinstancesoffraudorillegalacts,exceptfortheSheriff’sOfficetheft,whichtheCountyhasinvestigatedandprosecuted.
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RESULTS OF TAX LEVY ENGAGEMENT
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RESULTS OF TAX LEVY ENGAGEMENT
• CLEAN OPINION
o Local Option Levy Tax Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance
o County’s Assertions in the Jail and Youth Services Operating Report
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RESULTS OF TAX LEVY ENGAGEMENT
• Continued use of special revenue fund
• Methodologies in place to allocate shared expenses for levy funded programs
Local Option Levy Tax Fund created
• Budget and financial reporting systems include Dept ID coding for community corrections
• General Fund reported current year Sheriff’s Office expenditures
Continued appropriation of General Fund dollars for jail
service funding
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RESULTS OF TAX LEVY ENGAGEMENT
• Tax levy funds spent on adult jail beds
• Observed 256 adult jail beds in operation
• Counts are performed regularly
At least 255 local adult jail beds were operated during
FYE 2016
• Tax levy funds spent on critical youth services
• Observed 16 detention and 16 treatment beds in operation
• Counts are performed regularly
At least 16 youth detention beds and 16 youth treatment beds were operated during
FYE 2016
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RESULTS OF TAX LEVY ENGAGEMENT
• County’s budget followed prescribed tax levy allocation
• Sampled journal entries for proper allocation of tax levy funds
Tax levy allocated 91% to jail operations and 9% to critical
youth services
• County implemented controls over the financial closing and reporting of the fund
• Audit procedures did not identify audit adjustments
Local Option Levy Fund received an unmodified opinion in the FYE 2016 financial statement audit.
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ACCOUNTING UPDATE
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NEW STANDARDS
• GASBStatementNo.74,FinancialReportingforPostemploymentBenefitPlansOtherthanPensionPlans
• GASBStatementNo.75,AccountingandFinancialReportingforPostemploymentBenefitsOtherThanPensions
• GASBStatementNo.77,TaxAbatementDisclosures
• GASBStatementNo.78,PensionsProvidedthroughCertainMultiple‐EmployerDefinedBenefitPensionPlans
• GASBStatementNo.80, BlendingRequirementsforCertainComponentUnits—anamendmentofGASBStatementNo.14
• GASBStatementNo.81,IrrevocableSplit‐InterestAgreements
• GASBStatementNo.82,PensionIssues—anamendmentofGASBStatementsNo.67,No.68,andNo.73
• GASBStatementNo.83,Certain AssetRetirementObligations
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WHAT HAS THE GASB BEEN UP TO?
• FiduciaryActivities– Todevelopguidanceregardingtheapplicationoffiduciaryresponsibilitycriteriaindecidingwhetherandhowgovernmentsshouldreportfiduciaryactivitiesintheirexternalfinancialreports
• Leases – Reexamineissuesrelatedtoleaseaccounting,determinationofwhetherleasesmeetthedefinitionofassetsorliabilities
• DebtExtinguishment– Lookstoupdatecertaindebtextinguishmentreporting
• Omnibus201X– IntendstoimproveconsistencyinaccountingandfinancialreportingbyaddressingpracticeissuesthathavebeenidentifiedduringimplementationandapplicationofcertainGASBstandards(blendingcomponentunits,goodwill,fairvaluemeasurementandapplication,andpostemploymentbenefits(pensionandotherpostemploymentbenefits))
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ACKNOWLEDGEMENTSThankstoJeanneSun,RobertTintle,GregRikhoff,ChristineMoody,andotherfinancestaff,andotherCountydepartmentsforassistance.