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SPEAKERS
Lessons Learned from Financial Reporting and Compliance, including Pensions!
Rob Churchman, CPA Rchurchman@cbh.com
mailto:sday@cbh.com
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Rob Churchman, CPA
Partner
Audit & Assurance Practice
804.673.5733
rchurchman@cbh.com
Meet the Speaker
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Learning Objectives
Identify common deficiencies in financial reporting
Enumerate the implementation challenges of the
new pension standards
Recognize frequent federal A-133 and
Virginia compliance issues
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Who sets the rules?
GASB is the standard setting
body
GFOA provides a checklist a
award program
Who are the users and what is the purpose?
Citizenry
Legislative and regulatory
bodies
Investors and creditors
Bond rating agencies
Financial Reporting
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http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRw&url=http://abfm.org/?p%3D25014&ei=t3IdVZeUIYHrggTFm4O4Bw&bvm=bv.89744112,d.eXY&psig=AFQjCNFMeuAOTWH-YjgfihvapNC4jjXQhg&ust=1428079663115551http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRw&url=http://www.trophyclub.org/departments/finance/comprehensive-annual-financial-report.html&ei=SXAdVaHsJYS4ggSe8oGADQ&bvm=bv.89744112,d.eXY&psig=AFQjCNHni39G5AXWhymR-aV5oNxfaUMo_g&ust=1428079034539453
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Comprehensive Annual Financial Reporting (CAFR)
Introductory Section
Transmittal Letter
Organizational Diagram
Principal Officials
Financial Section
Auditor’s Report
MD&A
Basic F/S
Notes to Basic F/S
RSI
Supplemental Info.
Statistical Section
Financial Trends
Revenue Capacity
Debt Capacity
Demographic an Economic Info.
Operating Information
Section
Compliance Section
Auditor Report on IC over Fin.
Reporting and on Compliance in
Accordance with GAS
Auditor Report on Compliance
Required by A-133
SEFA and Notes to SEFA
Schedule of Findings and
Questioned Costs
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Incorrect date
Subjective
Redundant information
Omissions
Transmittal Letter
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Quantifying the $ and % variances without explaining
Why did it happen?
Timing is not an explanation by
itself; be sure to dive into more
meaningful details
Lack of two/three year comparative data
Amounts do not agree to financial statements
Restatements of Net Position must be presented
Insufficient details on the issuance of new debt
Management’s Discussion & Analysis
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Government-wide Statements
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Miscalculation of Net Investment in Capital Assets
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Include
Debt spent on capital
expenditures
Special assessment
debt, if capital related
Deferred inflows and
outflows from refunding of
capital related debt
Retainage payable from capital related
debt
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Other Government-wide Issues
Failure to reclassify deferred inflows of resources for unavailable revenue
Reporting unearned revenues (liabilities) as deferred inflows
Failure to report a deferred outflow/inflow of resources in connection with refunded debt
When multiple pension trust funds exist, not reporting as one combined fund type and presenting combining information as Other Supplementary Information
Net Position vs. Net Assets
Net Investment in Capital Assets vs. Invested in Capital Assets, Net of Related Debt
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Governmental Funds
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Major Funds
Not reporting a major fund when it meets the criteria for major fund status
Not clearly identifying which funds are major
Not updating the major fund determination analysis before issuance, and also yearly, to ensure status hasn’t changed
Not including deferred inflows and deferred outflows when calculating major funds
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Function vs. Purpose
i.e. “Public Safety” is a Function whereas “Animal Shelter” is a purpose
Negative Assigned Fund Balance
Can only be positive
Cannot have positive Assigned Fund Balance and have negative Unassigned Fund Balance
Only the General Fund can have positive Unassigned Fund Balance
Outdated Terminology
Reserved, Unreserved, Designated & Undesignated
Improper Order; Must Be:
Non-spendable
Restricted
Committed
Assigned
Unassigned
Encumbrances should not be separately listed
GASB 54 Fund Balance
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Governmental Fund Reporting Issues
Deferred Inflows
Deferred Outflows
Misuse of Special
Revenue Funds
Budget Comparisons
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Enterprise Funds
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Reporting
Report Governmental debt if:
Proceeds are used by the enterprise fund
Repayment is to be made by the enterprise fund
Capital contributions are reported as nonoperating revenues on the Statement of Revenues, Expenses and Changes in Net Position
Should be shown below the nonpoperating section
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Component Units
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Determination
Appoint majority of the board plus financial benefits/burden OR ability to impose will
If did not appoint board then, financial benefit/burden AND fiscal dependency
Blend if…
Same governing body AND
• Financial benefit/burden OR
• PG operationally runs the C/U OR
• Almost exclusively for the benefit of the PG OR
• Almost all debt of C/U is repayable by the PG
Component Unit Considerations
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Footnote Disclosures
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Component Units
Describe criteria used for inclusions
Express the criteria for blending
Specify which fiscal dependency criteria was met
Special Revenue Funds
Disclose the purpose and identify the specific revenue source(s)
Fund Balance
Describe the specific formal action taken by the government’s highest decision making body to commit funds
Identify the highest decision level making body gives authority to assign resources
Revenue stabilization arrangements
Authority for establishing
Minimum balance
Conditions for spending
Conditions for replenishing
Disclosures
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Disclosures (cont.)
Deposits and investment policies must be adopted by the governing body to count (GASB 40)
Provide specific website location (URL) when referencing separate reports of component units and/or other plans, etc.
Revenue Bonds:
Identify specific revenues and amounts pledged
General purpose for the debt and term of the commitment
Proportion of pledged revenue to total revenues
Comparison of pledged revenues recognized during the period to the P&I requirements for the debt directly or indirectly collateralized by those revenues
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Disclosures (cont.)
For long-term debt, the terms by which interest rates change for variable rate debt should be disclosed
Must disclose which funds liquidate each long-term obligation other than debt including:
Compensated absences
Claims and judgments
Terminations benefits
Pension and OPEB
Unamortized gain/loss on refunding is a deferred inflow/outflow and should not be displayed with the long-term debt roll forward
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Disclosures (cont.)
Notes should disclose the purpose of interfund balances
Notes should describe the principal purposes of the entity’s interfund transfers
If the entity elects to disclose transfers by individual fund, it is recommended that the disclosure be formatted in a way that allows readers to trace the individual fund data to the corresponding column in the basic financial statements (e.g., by the use of headings or subtotals
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Other Reporting Issues
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RSI
Not disclosing the budgetary basis in the notes to the RSI
Not presenting all required years (e.g., 10 years)
Not reporting the legal level of budgetary control
Other Supplementary Information
Budgetary comparisons for non-major governmental funds that have legally adopted annual budgets
Not reporting at the legal level of budgetary control
Internal Consistency Transmittal, MD&A, financial
statements, footnotes, RSI, OSI and Statistical amounts do not agree
Statistical Section
Debt Capacity schedules should not include premiums/discounts
Debt Service as a Percentage of Noncapital Expenditures should use the capital outlay amount from the modified accrual/accrual reconciliation
Include all governmental activities’ debt for the direct debt in the direct and overlapping debt statistical table
Other Reporting Issues
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Retirement
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Pension Fund
Avoid netting pension related deferred inflows
and outflows together, except those related to
investment gains and losses
Changes in the Net Pension
Liability should be reflected in Unrestricted Net Position
Net Pension Obligations for underfunded ADCs are no longer; rather
incorporate into the NPL, but shown in RSI
Include full plan disclosures in PG CAFR if the Plan does not issue separate
F/S
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Other Pension Issues
Pension-related expense should be reported as an operating expense in the Proprietary Fund statements
Avoid the allocation of a proportionate share of a NPL to a non-employer government making on-behalf payments unless ALL the special funding criteria are met
If in a special-funding situation in a cost sharing plan, allocate a proportionate share of the NPL, deferrals and pension expense to the non-ER government
Allocate to proprietary funds if those funds will be used to liquidate the liability
Make sure to use the correct year as the basis of allocating the liability to funds and component units
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Compliance
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Lack of formal documentation of internal control policies
Internal control policies have not been updated for the new
COSO framework
(recommended)
Lack of segregation of duties between preparation of grant
reports, review and submission
(often performed by the same
individual)
Federal A-133 Common Issues
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Federal Compliance Issues (cont.)
Allowable activities/costs
Lack of documentation of proper review and approval
Eligibility
Missing case files
Re-determinations are not done timely
Matching and level of effort
Lack of support documenting the control process
Procurement and suspension and debarment
Lack of support to document review of the debarred list
Incomplete or lack of documentation for legitimate departures from policy
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Schedule of Expenditures of Federal Awards
Missing or incorrect CFDA #
Name of the federal agency or
pass-through entity
Missing identifying #
assigned by the pass-through
entity
Notes did not describe:
• Significant accounting policies used to prepare the schedule
• Nature of sub-recipient relationships
• Totals by cluster and by program (if not on SEFA)
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Specifications for CCTs and ABCs
Sheriff internal control procedures
VRS agreed upon procedures
Comparative transmittal report
Virginia State Compliance
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APA’s Specifications Requirements
Property Taxes Intergovernmental
Revenues Intergovernmental
Agreements Jail / Sheriff Reporting
Budget and Appropriations
Cash and Investments
Conflicts of Interest
Debt Provisions Retirement
Systems
Procurement Unclaimed Property
Economic Development
Opportunity Fund Education CSA
Highway Maintenance
Funds Social Services Cable Television
Stormwater Management
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Intergovernmental Agreements
List of the population not maintained
Sheriff
Untimely deposits
Lack of support for receipts
Improper segregation of duties
Budget
Overages at the legal level of budgetary control
Conflicts of Interest Forms
Semi-annual filing requirement began in FY2015
New members should file immediately
Untimely filings
Incomplete forms and/or missing attachments
Checking the incorrect box on the forms
Common State Compliance Issues
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VIEW
Lack of support for expenditure
Child Welfare Trust Accounts
No subledger to identify each child’s balance
Not properly titled
Special Welfare and Dedicated SSI Accounts
Not properly segregated from other funds
SNAP EBT
Lack of support to document proper segregation of duties
LASER Reconciliations
Information Systems Security Controls
Local Security Officer
System Access
Acceptable Use Policy
Annual Security Training
Email Security
Terminate Users
Continuity of Operations
Common State Compliance Issues – Social Services
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VRS Reporting Common Issues
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• Employer not confirming the contribution Snapshot by the 10th of the following month
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• Employer not timely submitting the contribution payments to VRS after confirming the Snapshot
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• Employer not reconciling myVRS Navigator to Payroll system prior to confirming the Snapshot
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• Gender and/or dates of birth do not agree to supporting documentation
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Common Issues with the Comparative Report Transmittal Forms
Form 50
• Revenues and Expenditures do not reconcile to CAFR
• Adjustment to remove the transfer to the School Board C/U is missing
• Adjustment for the transfer to School Board C/U is materially different on the Revenue and Expenditure forms
Forms 110, 120 and 610
• Joint activities aren’t included on Forms 50 and 100
• Failure to include these forms with the Transmittal Form submission
Form 300
• Activities reported are not in the 13 specific enterprise activities allowed and should be reported as General Government on Form 100
Form 500
• Returned in FY2015!
• Net pension liability has been omitted
• Does not include the School’s debt
• Does not reconcile to LTD footnote in the CAFR
Other
• Variance explanations are overlooked and/or vague
• Errors on the Edit tab are not corrected and/or explained
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Improving Together
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How Can We Do Better?
Best Practices
Tone at the Top
Training and CPE
Start Early
Utilize All Resources
and Research
Confer with Peers
Use Checklists
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Rob Churchman, CPA
Partner
Audit & Assurance Practice
804.673.5733
rchurchman@cbh.com
What Questions Do You Have?
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