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AGA AGA PresentationPresentation

Maine Department of Audit Maine Department of Audit

Neria R. Douglass, JD, CIA, State AuditorNeria R. Douglass, JD, CIA, State AuditorApril 10, 2007April 10, 2007

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Thank youThank you

• As government accountants, you are responsible for the financial integrity of state government, an essential element of good government. You provide fiscal responsibility to all of us as citizens.

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Mutual RespectMutual Respect

• The Maine Department of Audit reviews all of state government in a variety of roles and generally reports exceptions alone. I am working to find ways to report the good news too, the many transactions you process day after day, year after year.

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Independence of AuditIndependence of Audit

• Independent, non-partisan agency • Responsible to the Legislature as external auditors• Statutory power to audit (5 MRSA 241 et seq.)

– all accounts of state government– except Governor’s expense account– including judiciary– any entity receiving state grants– review and study expenditures of the dedicated funds of

independent boards and commissions

• May serve Legislature, its committees, or Governor investigating State's finances, or as directed

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Audit StaffAudit Staff

• Institutional knowledge: systems/financial history

• Entire staff 310 years service

• Audit work saves costs if additional federal funds may be claimed

• Our work prevents future questioned costs

• Audit Bureau– 28 Auditors

• 1 Municipal Outreach – 1 Business Manager– 1 Administrative Assistant

• Unorganized Territory– Fiscal Administrator– 1 Clerk

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Audit Staff CertificationsAudit Staff Certifications• 8 Certified Public Accountants (CPA)

• 8 Certified Internal Auditors (CIA)

• 3 Certified Information Systems Auditors (CISA)

• 1 Certified Fraud Examiner (CFE)

• 1 Doctor of Jurisprudence (JD)

• 5 Masters of Business Administration (MBA)

• 2 other advanced degrees--Masters in Accounting

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Continuing Professional Continuing Professional EducationEducation

• Government Auditing Standards (GAS) require auditors to have 80 hours Continuing Professional Education (CPE) every 2 years

• At least 24 of 80 hours must be related to government auditing

• At least 20 of 80 hours must be completed in each year • Peer review by other state auditors every 3 years

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Our WorkOur Work• Financial statement audit for Comprehensive Annual

Financial Report (CAFR)

• Single Audit– Tests of compliance on financials– Report on internal financial control– Program compliance – Internal control over compliance

• Other audits, agreed upon procedures

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Our Work ContinuedOur Work Continued• We use audit standards with special meaning:

– Generally Accepted Government Audit Standards (GAGAS) in the United States of America = Government Auditing Standards (GAS) (Yellow Book)

– Office of Management & Budget (OMB) Circular A-133 Audits of States, Local Governments and Non-Profit Organizations

– We audit the evidence supporting the amounts and disclosures in the financial statements on a test basis.

– Our compliance work is test based. We also perform analytical review and utilize data-mining techniques.

– Our findings are exceptions to these standards because of quantity or quality

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Financial Statement Audit Comprehensive Financial Statement Audit Comprehensive Annual Financial Report (CAFR)Annual Financial Report (CAFR)

– $6.1 Billion Revenues FY 2005– $5.9 Billion Expenses FY 2005– Business-type activities

• $406 Million revenues• $353 Million expenses

– $3.5 Billion Capital Assets– Each major fund

• General Fund, Highway Fund, Federal Funds• Special Revenue Funds, governmental funds

– Presentation of Component Unit finances– More: internal funds, bonds

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Financial AuditFinancial Audit• Assignments

• Over 35 financial statement audit assignments include:

• Cash (and cash equivalents)• Component Units• Tax revenues and receivables• Leases• Interfund Transactions

• Test Account Balances/Activity

• Generally Accepted Accounting Principles “GAAP” presentation

• We test – day to day activity in MFASIS – Controller adjusting entries in

CAFR 2000– accounts rolling up to financial

statements• We propose audit adjustments for

items that do not meet GAAP criteria• The controller’s work plus our audit

adjustments roll up into fairly presented financial statements

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Single AuditSingle Audit

• Financial Report Compliance • Report on Internal Control over Financial

Reporting• Compliance with Program Requirements• Report on Internal Control over Compliance with

Requirements

• http://www.maine.gov/audit/reports.htm

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Single AuditSingle Audit• Audit examines the State’s financial statements, internal

control systems and compliance with laws and regulations.

• Each federal program has a separate opinion.

• Medicaid is audited every year. We will report on 25 to 28 individual federal programs or program clusters each year.

• Department of Audit work qualifies the state to receive over $2.7 Billion (FY 2007) in federal assistance for specific grants and programs. Audited programs comprise 91% of that amount.

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GuidanceGuidance(partial listing)(partial listing)

• Code of Federal Regulations

• Catalog of Federal Domestic Assistance

• Federal Office of Management and Budget circulars (A-87, A-133)

• Additional or supplemental program specific requirements

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PlanningPlanning• Federal programs assigned to staff based on expertise,

complexity of the programs, rotation of audit staff

• Upon receipt of assignment, staff researches the federal program to determine its objectives and how met

• Determine which of the 14 compliance areas apply

• Review significant contracts

• Review accounting transactions (journal vouchers, payment vouchers, cash receipts and external interface payments)

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Risk AssessmentRisk Assessment

• A-133 formula establishes which Federal programs are audited

• Type A programs – over certain dollar threshold

• Type B programs - remainder

• Assessment of risk of non-compliance

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ToolsTools

• Accounting system data warehouse (MFASIS)

• Specialized audit software for data mining and sample selection

• Federal Payment Management System

• Treasury’s cash receipt system

• Division of Purchases scanned contracts

• Journal vouchers and payment vouchers

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TestingTesting

• Each relevant compliance area is tested using appropriate methods

• Internal controls are reviewed to ensure they are sufficient and to ensure that they are actually working

• SAS 99 requires inquiry about fraud below management level

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14 Compliance Areas14 Compliance Areas

• allowed or unallowed activities funded• allowable costs or cost principles followed• Cash Management Act compliance met• Davis-Bacon Act requirements followed• eligibility for participation properly determined• property or equipment used for authorized

purposes• State matching, level of effort, and earmarking

proper

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14 Compliance Areas, 14 Compliance Areas, ContinuedContinued

• period of availability of federal funds not exceeded

• procurement and debarment rules followed• program income in compliance• real property acquisition/relocation

assistance requirements met• reporting proper, timely and as required• subrecipients monitored on pass-through

funds• special tests and provisions unique to certain

programs are met

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Eligibility TestingEligibility Testing

If the program has eligibility requirements:

• Understand the criteria

• Determine if eligibility is calculated manually or electronically

• If electronically, evaluate computer system

• Apply the criteria to a sample of the population to confirm eligibility

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Federal Cash ManagementFederal Cash Management

• Requirement - Minimize time between draw down of federal funds and the expenditure of the federal funds

• Largest federal programs have to comply with the federal Treasury State agreement negotiated annually

• General set of rules for the remainder of programs to draw down funds

• Compliance area is often misunderstood

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Tests on ReportingTests on Reporting

• Quarterly expenditure reports• Detail test report – verify number/formulas• Some of the reporting requirements are

quite complex – multiple worksheets are needed to support the quarterly report

• Inconsistencies from quarter to quarter• Found under-reported expenditures • Found over-reported expenditures

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Tests on Sub-recipient Tests on Sub-recipient MonitoringMonitoring

• Did the contractors spend the federal money in accordance with program regulations?

• Reviews by agency staff to ensure that funds were spent as intended

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ResultsResults

• Test results show issues – we write findings and develop questioned costs

• Findings contain our recommendations for improvement

• Agency has responsibility to take corrective action

• Several of our findings have led to further reviews by the federal Inspector Generals, Federal Office of Audit Resolution, OPEGA

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FindingsFindings

• During the course of our audit we find areas that need improvement

• This results in an audit finding• Some are resolved as a verbal comment• Some are reported out in the management letter• Serious deficiencies are included in the report as

reportable conditions and in the most serious cases, material weaknesses

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2005 Programs Audited2005 Programs Audited

• Food Stamps; State Matching for Food Stamps;• Workforce Investment Act Adult Program; WIA Youth Activities; WIA

Dislocated Workers;• Special Education Grants; Special Education Preschool Grants;• Child Care and Development Block Grant; Child Care Matching;• Women, Infants and Children grant• Child and Adult Care Food Program• National Guard Military Operations Maintenance Projects• Readiness, Sustainment Maintenance Center (Loring Rebuild)• Community Development Block Grants/State’s Programs\

Unemployment Insurance• Trade Adjustment Assistance-Workers• Highway Planning and Construction

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2005 Programs Audited, Continued2005 Programs Audited, Continued

• Performance Partnership Grants• Title I Grants to Local Educational Agencies• Rehabilitation Services - Voc Rehab Grants• Twenty-First Century Community Learning Centers• Improving Teacher Quality State Grants• Immunization Grants• Temporary Assistance for Needy Families• Child Support Enforcement• Foster Care - Title IV-E• Adoption Assistance• Social Services Block Grant• Homeland Security Grant Program.

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Agreed-upon ProceduresAgreed-upon Procedures

Baxter State Park Authority

Resulted in changes to procedures in the areas of –

• cash deposits to banks • accounting for cash receipts • access to computer systems • inventory control

Capital Riverfront Improvement District

Performed tests relating to – • bank account reconciliations• authorized check signers• cash transfers

• State and Local Government Committee Report

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Agreed-upon ProceduresAgreed-upon Procedures

Migrant Education Program• In response to a joint request from the U.S. Department of Education, and

the Maine Department of Education we performed tests on procedures used to re-determine eligibility for the Maine Migrant Education Program.

Maine Science and Technology Foundation• Performed analyses that showed substantial unused cash in the Maine

Science and Technology Foundation

Workers’ Compensation Board• For several years we have annually performed tests of compensation rates

included on weekly benefit compensation tables

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Other Recent Audit ProceduresOther Recent Audit Procedures

• Automated Client Eligibility System (ACES)

• Purchasing card transactions (45,000)

• State-wide petty cash and cash accounts

• Accounts at Department of Agriculture

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Municipal Outreach ProgramMunicipal Outreach Program• Request from Joint Standing Committee on State and Local

Government to address municipal excise tax fraud

• Developed educational program strengthen internal controls over cash

• Performed on-site observations of approximately 300 municipalities in the State and

- issued reports with recommendations for improvements- tested and reported on compliance of selected State statutes - tested excise tax collections & reporting, found one fraud

• Legislature requests: – analyzed municipal financial reports re U.S. Census info LD900– helped establish uniform chart of accounts for government entities

LD1713, LD 214

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Preparing for AuditPreparing for Audit

• The Department of Audit assures that government is accountable and that taxes paid by the citizens of the State of Maine are spent legally, recorded properly, and reported fairly.

• Keep good records

• Remember 14 compliance requirements

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CONCLUSIONCONCLUSION

Taking care of our citizen’s tax payments, both state and federal, is important

work. Let’s continue working together to do the best job possible.