Perfecting Governmental Financial Reports - · PDF filePerfecting Governmental Financial Reports ... • Cash associated with restricted fund balance should be ... oDisclosure and

Perfecting Governmental Financial Reports

BETH A. WOOD, CPA SHARON G. EDMUNDSON, CPA

MAY 8, 2014

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Why Does Audit Quality Matter?

• Public funds - accountability

• Sources of funds – oversight by Federal

and State governments

• Professional responsibility

• Improving our professional oversight may

prevent or reduce oversight from other

groups

2

Why Does Audit Quality Matter?

• Decision Makers/Users of Financial

Information

oDecisions Based on Financial

Information

oAudit Quality Critical

3

Reporting Issues Identified in 2013 Audits

Opinion

• Make sure the financial opinion units match the financial statements, particularly on special revenue funds

• Be sure report has been updated for SASs 118-120

• Date of opinions – close to end of field work

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Opinion

• Example Language –Most Up-to-Date Audit Guide

• Not Including Entity as Component Unit

• Reporting Audit Conducted in Accordance with Government Auditing Standards (Yellow Book) but no Report on Internal Control & Compliance

• Not Updating Report Language from Prior Year

5


Statement of Net Assets/Fund Balance Sheets

• Cash associated with restricted fund balance should be

classified as restricted cash, including Powell Bill funds

• Payables to be liquidated with restricted cash should be

shown as such

• Restricted assets on fund statements should also be

presented as restricted on government wide statements

and vice-versa

• Be sure to include Restricted by State Statute on

government-wide statements

6


Statement of Net Assets/Fund Balance Sheet

• Use of reserved, unreserved, & designated are

no longer appropriate references

• Invested in capital assets net of debt figure on

government-wide statements should be correctly

calculated

• Grants funds should be booked as receivable at

year end if all the requirements have been met

• Make sure to book and disclose intergovernmental

debt

7


Statement of Net Assets/Fund Balance Sheet

• Correctly implementing the various

classifications of fund balance under GASB 54

continues to be a challenge

• Include either on face of statement as assigned

fund balance or in the notes (or both) the

amount of fund balance being appropriated in

the coming year’s budget

o Key piece of information in evaluating fiscal

health of unit

•Inconsistency in Receivables/Payables Between

Primary Government and Component Unit 8


Statement of Revenues and Expenditures/Expenses

• Still seeing a number of units incorrectly accounting for

cost reimbursements as transfers – DON’T DO IT!

o Costs paid by one fund may be properly allocated to

another on a reasonable basis of allocation

o Should be accounted for as expenditure or expense

in the fund to which it is being allocated, and as a

reduction of expenditure or expense in the fund

where item originated

o Accounting for as transfers gives faulty appearance

that one fund is arbitrarily supporting another

o Potential for legislation that will outlaw transfers from

enterprise funds and possibly cost allocations 9


Budgetary statement/schedules

o When reclassifying debt for reporting purposes

remember to reclassify budget along with it

o Remember to show reconciliation between budgetary

statements and statements of revenues and

expenditures if there are differences

o Show budget overages at legal level of control; don’t

write up findings for budget overages that exist only

at line item level when legal level of control is function

o Make sure budget balances on reports unless

ordinance with amendments is out of balance

o Watch mathematical signs on budget presentation

10


Proper Classification of Special Revenue Funds

o One or more specific restricted or committed revenues should be the foundation for a special revenue fund

o Other resources may supplement but not supplant

o Disclosure should be made regarding “…which revenues and other resources are reported in each of these funds.”

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Cash Flow Statements

• Cash flow from operations should be just that

• Cash flow in or out as a result of a transfer is a

non-operating activity, as is cash from interfund

borrowings

• Properly consolidate any capital projects into

cash flow statement

• Be sure to include reconciliation

• Be sure to include statement if proprietary funds

are present

12


AGENCY AND FIDUCIARY FUNDS

• Remember to include if applicable

• Be consistent with notes on OPEB and

LEO

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Notes

• Should disclose significant encumbrances by major

fund and non-major funds in the aggregate

• Debt notes should be thorough and include an

ending balance for each issuance

• Long-term debt chart should tie to the government-

wide financial statements

• Proper note disclosures on advance refunded debt

after the year of the advance refunding occurs

should be included

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Notes

• Notes should include on-behalf disclosures for Fire and EMS employees if applicable

• Provide adequate disclosure on assigned fund balances

o Note disclosures should identify “…the body or official authorized to assign amounts to a specific purpose…” and describe “…the policy established by the governing body pursuant to which that authorization is given…”

o CAFR reviewers are noting significant deficiencies in both requirements

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Notes

• Not Including Investment Risk Disclosures

• Including Risk Disclosures When Not Applicable

• Note Disclosures That Do Not Match Statements

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RSI

• OPEB

oFailure to get actuarial study completed

in a timely manner

oDisclosure and RSI required even if all

unit has is implicit rate subsidy

o Inconsistency between notes, RSI and

funds

• LEOSSA

o Inconsistency between notes and RSI 17


Supplemental Schedules

• Consolidation of enterprise capital project fund into the

full accrual financial statements accurately, including

presentation of an accurate reconciliation to full accrual

• Don’t include funding and capital outlay in operating

budget to actual AND in capital project fund

• Use a capital project fund to account for a capital project

(required if debt funded); included in operating fund

distorts results of operations

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CAFR Specific Supplemental Schedules

• Incorrect Amounts Reported in the Schedule of Direct/Overlapping Debt

o There should be consistency between debt capacity schedules and the basic financial statements

oAmounts should include discounts, premiums, and other adjustments

oDeep-discount debt should agree with accreted amounts reported in the basic financial statements

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Findings and Communications with Management

• Management responses to findings in compliance

reports and statutory/stewardship issues in the notes are

either not present at all or are weak – encourage clients

to provide meaningful responses

• Properly reporting findings – serious deficiencies in

internal controls belong in compliance reports, not in a

management letter; reports that are late in being

completed because the government’s records were not

ready for audit or were incomplete should include a

finding related to the state of the records

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• Have someone proof the statements. Make sure they tie to one another, the notes, and the MD&A.

• Spending restricted cash on something other than what is allowed by source of cash is a finding/stewardship issue

• Units that amend the budget after over-spending it are not effectively pre-auditing; this should be a finding/statutory violation

• Similarly, units that respond to findings of over-expenditures with “management will more closely monitor the budget to actual reports for overspent items” do not understand the pre-audit process

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• Units that enter into debt agreements that should have

had LGC approval but did not get such approval should

have a finding/statutory violation

• Units that habitually miss the deadlines for submitting

audits, AFIRs, 203s and INV-91s should have a finding

• Consider including in management letter a

recommendation that the unit provide timely and

accurate interim financial reports to the board on a

regular basis if they do not do so

22


MD&A

•Should contain data relevant to the unit and its

financial situation

o Template is only a starting point

o Should include analysis of changes in each area:

oGovernmental activities

oBusiness-type activities

o Individual major funds

oSignificant changes in capital assets and long

term debt

23


MD&A

• If there are issues or challenges affecting the

unit these should be discussed in the MD&A

o Significant environmental or economic events

should be discussed

• Typically lacking in any real analysis or reasons

for change

• Should explain the “why” behind the financial

condition of unit, good or bad

24


MD&A

•Wording in MD&A Not Same Terms or Titles in Statements or Notes

• Not Presenting All Required Information in MD&A Condensed Statements

•Not Including Future Conditions, Events, Outlook w/ Significant Impact

• Rounded Amounts in MD&A = Related Notes or Statement Amounts

• Comparative Data in MD&A, Prior Year Column Not Noting When Amounts Restated

25


Compliance Reporting

• Financial Assistance Not Properly Reported in

Capital Project Funds

• Revenue Sources Should Be Identified by Program

Name/Source

• Especially Important When Capital Project Funds

Used to Report Multiple Projects/Multiple Revenue

Sources

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Compliance Reporting

• Loan and Loan Guarantees Should Be Audited

as Major Program

•Most Commonly Overlooked

• Drinking Water State Revolving Fund

• Clean Water State Revolving Fund

•Not Using Language From Most Up-To-Date

Guide

27


Schedule of Expenditures of Federal & State

Awards

• Schedule Omitted

• Schedule Does Not Include State Awards

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OVERALL ISSUES WITH AUDIT QUALITY

• Make sure statements tie to each other, to

MD&A and to notes and supplemental

schedules

• Make sure unit agrees with report before

you submit to SLGFD for review

• Proof the report!

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CONTRACTING ISSUES

• If scope of audit changes, auditor should stop work and

inform elected body before proceeding

o Auditors’ responsibility to notify board that work scope

must be expanded, compensation for extra work

o Unit’s responsibility to have an audit performed

according to GAAS and applicable compliance

standards

o Notify SLGFD staff if issues arise

• Interim work

o Encourage interim billing as means to even out cash

flow

o No interim bills before contract date

o Bills should be indicative of progress of audit 30

• New Pension Standards (GASB 67/68)

• 67 is for plan, effective June 30, 2014

• 68 is for employee participants, effective June 30,

2015

• OMB Omni Standard (Super Circular)

• Effective for audits for fiscal years ending

December 31, 2015 and later

• New OPEB Standards

• ED out now

• Expect standard in a year and implementation

following in 2 to 3 years

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Coming Attractions

Beth Wood, CPA

[email protected]

(919) 807-7500

Sharon Edmundson, CPA

[email protected]

(919) 807-2381

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mailto:[email protected]



Documents

Perfecting Governmental Financial Reports - · PDF filePerfecting Governmental Financial Reports ... • Cash associated with restricted fund balance should be ... oDisclosure and