Presentation to the Audit Committee. October 28, 2014

Transcription

1 Presentation to the Audit Committee October 28, 2014

2 2014 Plan Overview Engagement Objectives Raffa Client Service Team Key Components of Services Audit Approach Overview Risk Assessment Audit Approach Overview Audit Effort Audit Timeline Key Dates Consideration of Fraud in the Financial Statement Audit OMB On the Horizon FASB On the Horizon Executive Session

3 Engagement Objectives Independent Audit of the Consolidated Financial Statements of the National Council for Behavioral Health and its Subsidiary National Service Systems, Inc. (NSS) (collectively referred to as the Council) in accordance with Generally Accepted Auditing Standards Reports and Compliance Testing as Required Under OMB Circular A-133 Independent Feedback to management and the Board through our Management Letter Matters Required to be Communicated with Those Charged With Governance Preparation and Technical Advice related to the Council s and NSS s Tax Returns 2

4 Raffa Client Service Team THE COUNCIL S Board of Directors THE COUNCIL S Audit Committee KATHY RAFFA Concurring Partner KIMBERLY ROBERTSON PANNELL Audit Partner BOB BLOOM Senior Audit Manager FRANK SMITH Tax Partner Professional Staff 3

5 Key Components of Services Risk-based audit approach Evaluation of accounting for complex transactions Assistance with implementing new accounting standards Best practices Access to firm resources Information Technology Services Systems infrastructure Microsoft Dynamics SL Human Resources Employee Benefits and Insurance Investments and Wealth Management Placement Services Employee Benefits Plans 4

6 Audit Approach Overview Risk Assessment Understand the entity and its environment, including its internal controls Assessment of risk that the financial statements are materially misstated Linkage of identified risks to audit procedures Understanding the Entity Industry and other external factors Nature of the entity Objectives and related business risks Measurement and review of financial performance Committee of Sponsoring Organizations (COSO) internal control components Assessment of Risk Inherent risk the risk that an account is materially misstated without consideration of internal controls. Control risk the risk that a client s internal controls fail to detect or prevent a material misstatement from occurring. Detection risk the likelihood that a material misstatement will not be detected by the auditor s testing. Audit risk is a factor of all three components 5

7 Audit Approach Overview Risk Assessment Substantive Tests (Focus on high risk, significant areas) Reporting AUDIT AREA Cycles: Cash Disbursements, Expenses and Payables; Cash Receipts, Revenue and Receivables; Payroll; Investments; Financial Closing; Grant Compliance; and Estimates Cash and Cash Equivalents Accounts Receivables Investments Accounts Payable and Accrued Expenses Deferred Revenue Net Assets Revenue Grants and contracts Revenue Consulting Services, Registration Fees and Membership Dues Expenses Financial Statements and Accounting estimates Tax Returns NATURE OF PROCEDURE Confirm understanding of control environment, test sample of transactions, perform control testing over cash disbursements and payroll, test compliance and controls over federal awards Confirm, test reconciliations Assess collectability and reasonableness of allowance, test subsequent receipts Confirm activity and balances, test investment income, test valuation and disclosures Validate and perform search for unrecorded liabilities Analytics-membership dues trend analysis Test donor restrictions, release from restrictions and disclosures Review agreements, related expenditures and validate revenue recognition Verify proper revenue recognition and timing; analytics Vouch documentation; analytical procedures Analytics: fluctuations and trends Assess reasonableness and proper financial statement disclosures Ensure compliance 6

8 Audit Effort Partners/ Managers 35% Staff Accountants 30% Our approach emphasizes a significant investment of time by senior members of the engagement team to ensure an effective and efficient audit. Senior 35% 50% 40% 30% 20% 10% 0% 30% Risk Assessment & Systems Testing 35% 35% Substantiation of Account Balances Financial Statements & Analytical Reviews Our approach is to first identify risk and test controls. Our audit approach uses, as its foundation, a risk-based assessment of the opportunities for a material financial statement error or irregularity to occur and remain undetected. 7

9 Audit Timeline Key Dates TASK DATE Letter of Engagement June 17, 2014 Discussion with Audit Committee regarding Audit Plan October 28, 2014 Preliminary Fieldwork Meet with management Plan for the year-end audit Update our understanding of key business cycles and perform walk throughs of key processes to confirm understanding - Identify critical risk areas - Develop audit strategy and approach - Identify tax matters which may need additional planning November 3-5, 2014 Year-End Audit Fieldwork December 1, 2014 Draft Financial Statements to Management Draft Tax Return to Management Meet with Audit Committee Final Financial Statements Issued Final Tax Return to Management Approximately 3 weeks after year-end fieldwork is complete Within 2-3 weeks of issuance of financial statement drafts TBD TBD TBD 8

10 Consideration of Fraud in the Financial Statement Audit Required communications with the audit committee prior to fieldwork Specific inquiries with management and employees outside of the finance department during our audit fieldwork Additional audit test work to meet the requirements of the standard Element of unpredictability in the standard audit procedures performed from year to year 9

11 OMB On the Horizon OMB Final Rule - grant reform rules issued on December 26, 2013 Effective for fiscal years beginning on or after December 26, (For National Council fiscal year ending September 2016) Changes include the following: Non-federal entities that expend $750,000 or more of federal awards require a federal audit (prior threshold was $500,000) Type A/B major program threshold increased to $750,000 ($300,000 previously) Percentage of coverage required to be tested for a low-risk auditee changed to 20% (25% previously) Questioned costs reporting threshold changed to $25,000 ($10,000 previously) Changes to report titles and language The understanding is that fewer types of compliance requirements will need to be considered for a major program. However, the compliance requirements are not yet known. 10

12 FASB On the Horizon FASB Not-for-Profit Advisory Committee (FAC) formed, and studying: Financial Reporting Model reexamine net asset classes, improve reporting of financial performance, and reexamine NPO-specific footnotes Disclosure Overload FAC goal is to reduce disclosure while making disclosures more comparable and effective Leases Revised exposure issued May 2013, not expected to be effective until 2017 FASB-IASB convergence 11

13 FASB On the Horizon Recommended by FASB s NPO Advisory Committee, part of improving financial reporting: Revisit net asset classifications Improve liquidity portrayal More clearly communicate NFP performance Enhance relevance and clarity of NFP specific disclosures Provide framework for commentary and analysis on operations / financial health (implement management discussion and analysis) 12

14 Executive Session Items for discussion Have there been any whistleblower complaints during the year? Does the Committee have any knowledge of fraud or suspected fraud at the Council? What does the Committee view as the greatest fraud risks at the Council? Standards require us to make specific inquiries with management and employees outside of the finance department during our audit fieldwork and have an element of unpredictability in the standard audit procedures performed from year to year. Other matters and concerns from Audit Committee Specific questions or comments on the audit approach 13

15 Thank You Helping Great Organizations Thrive