SPEAKERS

Lessons Learned from Financial Reporting and Compliance, including Pensions!

Rob Churchman, CPA Rchurchman@cbh.com

mailto:sday@cbh.com

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

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

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

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

Government-wide Statements

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

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

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

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

Component Units

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

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

Other Reporting Issues

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

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

Compliance

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

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

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

3

• Employer not reconciling myVRS Navigator to Payroll system prior to confirming the Snapshot

4

• 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

Improving Together

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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