Checklist for reviewing financial statement reporting for school districts

Transcription

1 Checklist for reviewing financial statement reporting for school districts Purpose Disclaimer Instructions Legend

2 Control procedures performed during review of financial statements, notes and required schedules Item Yes/No Reviewer notes Journal Entries * 1. Is the purpose of the year-end adjusting journal entries clearly articulated in the documentation? The documentation for the purpose of the journal entry should be clearly stated without requiring additional verbal explanation by the preparer. Staff turnover can occur at any time, and this information might be lost if not well documented. * 2. Is supporting documentation attached to the year-end adjusting journal entries, and do amounts in journal entries agree with supporting documentation? Year-end journal entry postings are often significant and are at greater risk of lacking the proper support. Support may be retained separate from the journal entry, but this can make it difficult for reviewers to evaluate the entry and places the documentation at risk of being misplaced or lost. The documentation must be accessible during an audit. * 3. Are year-end adjusting journal entries performed promptly after the fiscal year end date? At year-end, the timely recording of adjusting journal entries allows for a more efficient closing and more timely reporting to the governing body. 4. If year-end adjusting journal entries are correcting more than an occasional accounting error, has the District worked to identify and correct the cause of the errors? For example, frequent corrections of errors can indicate that additional training or resources are needed for accounting staff or some other underlying issue that should be addressed.

3 5. Have all year-end adjusting journal entries been completed, such as accruals, updates to fund balance classifications, and other items? A best practice is to use an annual checklist to ensure all year-end entries are completed, as well as a checklist for all year-end closing steps for financial reporting purposes. * 6. Are all year-end adjusting journal entries reviewed by someone other than the preparer? It is a best practice to review journal entry postings to ensure they are accurate, supported and entered correctly into the general ledger system. Because the financial statements are based on the general ledger information, any errors in an entry can lead to misstatements in the financial statements. County Treasurer Reconciliation Process 7. Did the District reconcile to the County Treasurer statements each month, including the last month of the fiscal year? Reconciliations should be reviewed by another knowledgeable staff member to ensure they are completed promptly and accurately. 8. Are the reconciliations adequately documented with support for the reconciling items? 9. Did the District reconcile revenues to all County Treasurer receipts and expenditures to warrants or checks issued as part of its reconciliation process? Some districts reconcile deposit activity, but do not perform a direct comparison for all receipts to reported revenues. Reconciling revenues and expenditures provides additional assurance that financial statement information is accurate and complete. It also can facilitate a more efficient financial statement audit.

4 10. Did the District sweep all cash balances into the County Treasurer account at year-end? If there is any balance remaining in any bank account at year-end, the District should ensure this cash is also reconciled to the general ledger along with County Treasurer amounts. Financial statements and note disclosures 11. Are all manual adjustments to the financial statements (F-196) reviewed and supported? All adjustments should be reflected in the general ledger, which would then agree directly to the financial statements. 12. Did the District review and correct for any items on the F-196 Edit Report? Explanations should be documented for edits or errors that need further explanation, such as those that do not represent errors or for which the District considers the possibility of an error to be trivial or remote. 13. Does the beginning fund balance on the current year F-196 agree to the ending fund balance in the prior year statements? If not, the District should make presentation changes to ensure these agree, such as recording any corrections of prior year errors as a prior-period adjustment rather than affecting beginning equity. 14. Do statements and/or notes reflect any new accounting standards or changes to the Accounting Manual for Public School Districts in the State of Washington (Accounting Manual)? Significant changes to the Accounting Manual are communicated by OSPI through bulletins. 15. In reading the financial statements, are the expected results of operations (revenues and expenditures) consistent with actual results? A best practice is to develop expectations using knowledge of significant financial transactions, prior-year amounts or budget figures and compare to actual results to evaluate if fluctuations or differences meet expectations. Significant errors in the financial statements often can be detected in this manner.

5 16. [modified accrual] Do balance sheet account balances reflect proper accruals and updates from the prior year? Red flags might be line items that: Have no amounts reported when there is reason to suspect otherwise Remain unchanged from the prior year (an indicator the general ledger was not updated) Do not reflect the expected amount of activity (for example, accounts payable balances are usually higher with significant construction activity around year-end) Line items with reverse signs such as a negative asset One review method that can initiate good questions is to compare current statements to prior-year reports and to statements of a comparable school district. 17. [cash-basis] Did the District refrain from accruing revenues or expenditures that are required only of modified accrual districts? A reviewer can quickly double-check by looking at the F-196 balance sheet report. If there are assets or liabilities (accruals) other than cash reported, additional follow up may be needed. If the entries to record these items affected the operating statement, there could be an error. 18. [modified accrual] If the District had any large capital projects outstanding at year-end, have all aspects of the accounting for these been addressed? Specifically, did the District record retainage payable, accrue contractor billings for work done through the fiscal year-end (August 31) and ensure note disclosures reflect remaining financial commitments?

6 19. If applicable, is the District s bond refunding disclosed and properly reported at year-end? Bond refunding should be reported on the operating statement as both a source and a use of financing. There are also disclosure requirements. We commonly see errors with journal entries to record bond refunding. Staff should consult the Accounting Manual for direction before recording non-recurring entries. Chapter 7 provides example journal entries. OSPI also provides a worksheet for use in recording a bond refunding. 20. [modified accrual] Are the fund balance classifications accurate and reasonable? The Accounting Manual provides specific guidance for how to classify fund balance. This manual adjustment is a common area of concern in financial statement audits. OSPI provides an optional tool for calculating fund balances. 21. Have there been any other unusual or significant activities during the year? If so, has the District considered the effect on reporting or disclosure? 22. Are the note disclosures clearly expressed (understandable) and complete, and do they make sense in light of District activities for the year? As required by the Accounting Manual, note disclosures should be expressed as clearly and simply as possible and include explanations as needed to ensure users can understand them.

7 23. Are the District s notes presented in accordance with the current template found in the Administrative Budgeting and Financial Reporting (ABFR) Handbook? Did the District evaluate whether any additional disclosures are needed? The ABFR notes template is updated annually, so districts should ensure they are using the new template rather than updating prior year notes files. In addition, example notes presented in the ABFR Handbook are considered the minimum requirement for disclosure, as applicable. Under the Accounting Manual, additional disclosures not specifically shown as examples may also be required to achieve fair presentation for unique facts and circumstances. 24. Do the notes contain irrelevant, obsolete, trivial or superfluous information that the District should remove? 25. Do amounts disclosed in the notes agree with the financial statements or other accounting records? A best practice is for the financial statements preparer to maintain a binder with supporting information behind each note disclosure to facilitate internal reviews and audits. 26. Is there any significant litigation that should be reported or disclosed? Chapter 3 of the Accounting Manual has a section on the reporting requirements of claims and judgments. Open claims not yet settled may be subject to reporting or disclosure. This potentially includes claims received after the end of the fiscal year. 27. Has the District evaluated for possible subsequent events? If any subsequent events have occurred after year-end, are they disclosed in the notes? For example, subsequent events may include: initiation or settlement of significant litigation, issuance or refunding of debt, significant losses, an unresolved strike, significant impairments to the District s ability to provide services or continue operations, changes to the reporting entity or boundaries, or major changes in the scope of the District s programs or services that are anticipated to have a significant effect on future statements.

8 28. Has a finance committee or other qualified personnel reviewed the entire annual report to ensure the required components are included and submitted to OSPI within the established timeframes? 29. Has the District reviewed the annual financial statement report with its governing body and sought its approval? Presentation to the governing body or other means of allowing the Board of Directors the opportunity to review or accept the financial statements and notes allows the governing body to carry out its role of overseeing financial reporting. Schedule of Long-Term Liabilities 30. Does the schedule reflect all new debt issuances or other obligations? 31. Are the pension liabilities reported and properly supported by underlying calculations? OSPI offers districts an optional tool that performs these calculations. The information should be updated each year. 32. Are the items reported on the schedule consistent with your understanding of the District s obligations? 33. Does the schedule properly reflect the issuance and redemption of debt, including any bond refunding? 34. Were the ending liabilities reported reconciled to supporting records such as amortization schedules, the County Treasurer reports or system reports? Schedule 16: Schedule of Expenditures of Federal Awards (SEFA) 35. Are the federal grants and other programs reported on the SEFA consistent with your understanding of the District s federal programs and the level of activity (expenditures) that occurred during the year? Follow up on any unexpected or missing programs, or expenditure variances.

9 36. Has the District evaluated whether new award agreements with state agencies are actually federal funds? All federal funds, including pass-through awards from state agencies, should be reported on the SEFA. A review of the agreement or approved application will indicate whether the funds are from a federal program. Specifically, the agreement will reference a CFDA number, compliance with the Uniform Guidance 2 CFR 200, and should refer to audit requirements. If in doubt, contact your awarding agency directly. 37. Has the District reported any non-cash federal awards on the SEFA? School districts regularly receive food commodities from the federal government, but potentially could receive other noncash awards such as equipment. Non-cash awards can also be received indirectly from a pass-through entity. 38. Has the information reported on the SEFA been reconciled to grantor reports (such as from OSPI) or underlying accounting records? 39. Has the SEFA been properly formatted to include the correct CFDA titles and numbers in accordance with federal requirements? Follow requirements and use the template in the ABFR Handbook, Chapter XI, and check the program on We suggest comparing your schedule to the example in the Handbook. 40. If the District has a cluster, is each program of the cluster identified separately (cluster name and list of programs in the cluster) and the cluster totaled (see above for requirements)? Under 2 CFR (b)(1),(3), for clusters of programs, the entity is required to provide the official cluster name, list the individual programs within the cluster and provide a total for the cluster. 41. Was the SEFA prepared on the same accounting basis as the financial statements? The basis must be the same.

10 42. Did the District receive any federal loans? If so, did you carefully evaluate guidance to ensure it properly reports them on the SEFA? Loans have unique reporting requirements, which often include reporting the balance outstanding from prior years activity. Districts should reference the ABFR Handbook, Chapter XI, for details. 43. Has the District included all required note disclosures to the SEFA in accordance with the ABFR Handbook s guidance? There are two required note disclosures: 1) accounting basis; and 2) whether the District did or did not use the de minimis indirect cost method. All other notes are recommendations if situations apply to your District (such as loans, non-cash awards, etc.) 44. Do total expenditures on the SEFA equal or exceed $750,000? If yes, a single audit is required. Contact your local audit team to schedule your single audit if you do not regularly receive one each year. 45. Are total expenditures on the SEFA less than but almost $750,000? If yes, there is a risk that a reporting error (understating the SEFA) could cause the District to miss a required single audit. Consider double-checking the expenditures to ensure there are no missing programs and expenditures are complete.

11 Appendix: Definitions ABFR Handbook. Administrative Budgeting and Financial Reporting Handbook as published annually by Office of Superintendent of Public Instruction (OSPI). Accounting Manual for Public School Districts in the State of Washington (Accounting Manual). This manual specifies financial reporting requirements for school districts and designates the F-196 report as the minimum required financial statement report from districts to Office of Superintendent of Public Instruction (OSPI). The F-196 is considered a regulatory-basis presentation. For audit purposes, districts may prepare financial statements under generally accepted accounting principles (GAAP) or use the F-196 statements, which may be either a modified accrual presentation or, for districts with enrollment of less than 1,000 FTE, a cash basis presentation. The Accounting Manual is prepared by the State Auditor s Office and OSPI, with input from an advisory committee comprising district financial professionals from around the state. Catalog of Federal Domestic Assistance (CFDA). The CFDA is a comprehensive list and description of all types of federal assistance. Nearly every federal program is assigned a five-digit CFDA number. CFDA numbers must be included on the Schedule of Expenditures of Federal Awards. Cash basis. The accounting basis under which revenues are recorded when received in cash and expenditures are recorded when cash is disbursed. School Districts are provided this option in the Accounting Manual if they have enrollment of less than 1,000 FTE. F-196. District s annual financial statement prescribed by OSPI. F-196 Edit Report. The Financial Edit Report is the last section of the F-196. It contains the results of more than 200 automated edit checks of the F-196. There are 3 types of checks: (1) errors, which must be corrected; (2) warnings, which must be either corrected or explained; and (3) informational messages that might indicate a potential issue. General ledger. A system to track, manage and summarize the District s financial transactions. The general ledger contains a self-balancing group of accounts consisting of assets, liabilities, budgetary, fund balance, revenue, and expenditure accounts. Almost all districts use a common software package from the Washington School Information Processing Cooperative (WSIPC) to meet their general ledger/financial system needs. This system is designed solely for Washington schools and has built-in compliance with the Accounting Manual, is intended for tight integration with OSPI and Educational Service Districts (ESD), and has extensive edit checks and reporting functionality specific to Washington laws and regulations. Journal entry. The record of a financial transaction in its appropriate book of accounts. Also, the act of recording a transaction in the books of accounts. Journal entries are transactions, such as cash receipting and disbursements (check/warrant issuance), that directly posted to the government s general ledger without going through standard accounting functions.

12 Modified accrual basis. The accounting basis with a current resource measurement focus that is used for governmental funds, the primary fund type for school districts in Washington. The focus is on reporting the revenues or resources that are available to finance the current expenditures of the period. The difference is fund balance, or resources available in the near term. Revenues are reported if they are measurable and available, and expenditures are reported when the liability is incurred (goods are received or services were provided). Schedule of Expenditures of Federal Awards (SEFA). Schedule 16 is commonly referred to as the SEFA. The SEFA is a listing of all federal award expenditures and other federal program activity (such as the receipt of non-cash awards). The Accounting Manual requires all Districts to prepare the schedule, regardless of the amount of expenditures. Federal Uniform Guidance requires the entity to receive a single audit when expenditures are at least $750,000. The SEFA is the basis for several audit decisions during a federal single audit, and therefore is considered a significant schedule. In addition, the SEFA gives grantor agencies assurance that their funding is being covered under the single audit. Uniform Guidance. Current guidance issued under 2 CFR 200 for federal award administration, which supersedes the OMB Circulars. It applies to new awards and funding increments issued by the federal agency on or after December 26, The complete regulation can be found at