PREPARING YOUR ACCOUNTING RECORDS FOR AUDIT

Transcription

1 Tony Abeyta PREPARING YOUR ACCOUNTING RECORDS FOR AUDIT Presented by: James Montoya

2 INTRODUCTION James Montoya, CPA Principal 20 years providing audit and consulting services Have provided audit or accounting services to over 120 entities, primarily tribal governments and related entities Work with a team of accounting specialists that specialize in providing audit preparation accounting services Have served as the board Treasurer for three organizations and as a board member on another 2

3 TRIBAL GOVERNMENT AUDIT EXPERIENCE (2016 AUDITED FEDERAL EXPENDITURES BY AUDIT FIRM) Total: $7B in Native American Federal Award Expenditures $890 $576 $559 $530 $442 $384 $341 $269 $260 $187 REDW KPMP Stauffer BKD Moss Adams BDO RSM CLA Joseph Eve Bluebird Millions $890 $576 $559 $530 $442 $384 $341 $269 $260 $187 * Source: 2016 Federal Audit Clearinghouse Data (as of 11/20/17) 4

4 SESSION TOPICS Overview of types of financial statements Provide target timelines for issuing the financial statements Describe goals for issuing reports timely, receiving unmodified opinions and minimizing audit findings Techniques to effectively prepare for your audits Software tools to manage month-end close processes Common areas that require additional attention Q&A

5 OBJECTIVES OF PREPARING FOR AN ANNUAL FINANCIAL AUDIT Ensure Adequate Accounting Records Are Maintained Provide Auditors with Information Needed for a Timely and Efficient Audit Minimize Audit Findings and Internal Control Deficiencies Minimize the Disruption to Daily Responsibilities Understand Internal Control Processes Needing Improvement Effectively Communicate Results to Governing Body

6 COMMON TYPES OF TRIBAL GOVERNMENT FINANCIAL STATEMENT REPORTS 1. Audited Financial Statements of Individual Funds, Component Units and Special-purpose Governments Examples include enterprise funds, housing authorities, tribal schools, etc. 2. Departmental Financial Statements All governmental funds to satisfy the Single Audit requirements 3. Primary Government All funds of a Tribe, including governmental and enterprise funds and blended component units, but does not include discrete component units 4. Reporting Entity All funds of the Tribe and discrete component units

7 SAMPLE DEPARTMENT OF GOVERNMENTAL SERVICES FINANCIAL STATEMENTS F/S typically include: General Fund Grant Funds Indirect Cost Fund (internal service fund)

8 SAMPLE PRIMARY GOVERNMENT FINANCIAL STATEMENTS F/S typically include all: Gov t. Funds Proprietary Funds Internal Service Funds Blended Component Units

9 SAMPLE REPORTING ENTITY FINANCIAL STATEMENTS F/S typically include all: Gov t. Funds Proprietary Funds Internal Service Funds Blended Component Units Discrete Component Units

10 SAMPLE TARGET REPORT ISSUANCE TIMELINE FISCAL YEAREND Due Date Due Date NEXT FISCAL YEAREND Time to prepare yearend G/L reconciliations and schedules needed for the audit (PBCs) ISSUE ENTERPRISE & COMPONENT UNIT F/S SUBMIT INDIRECT COST PROPOSAL SINGLE AUDIT REPORT DUE DATE 31 Dec 31 Jan 29 Feb 31 Mar 30 Apr 31 May 30 Jun 31 Jul 31 Aug 30 Sep 31 Oct 30 Nov 31 Dec ISSUE DEPT, PRIMARY GOVT & REPORTING ENTITY F/S

11 INDIRECT COST PROPOSAL DUE DATES

12 2016 SINGLE AUDIT REPORT ISSUANCE DATES TRIBAL ENTITIES (# OF MONTHS AFTER YEAREND) 60% 50% 55% 40% 30% 20% 10% 0% 11% 3-5 Months (59 reports) 27% 6-8 Months (143 reports) 9 Months (293 reports) * Source: 2016 Federal Audit Clearinghouse Data 7% More than 9 Months (37 reports)

13 COMMON REPORT ISSUANCE TIMELINE FISCAL YEAREND Time dedicated to preparing yearend G/L reconciliations and schedules needed for the audit (PBCs) ISSUE ENTERPRISE & SOME COMPONENT UNIT F/S Due Date Due Date ISSUE DEPT F/S (SINGLE AUDIT DUE DATE) ISSUE PRIMARY GOVT & REPORTING ENTITY F/S NEXT FISCAL YEAREND 31 Dec 31 Jan 29 Feb 31 Mar 30 Apr 31 May 30 Jun 31 Jul 31 Aug 30 Sep 31 Oct 30 Nov 31 Dec INDIRECT COST PROPOSAL DUE DATE Many indirect cost proposals are being submitted late and during this timeframe

14 TYPES OF FINANCIAL STATEMENT AUDIT OPINIONS AND 2016 SINGLE AUDIT REPORT F/S OPINIONS TRIBAL ENTITIES 100% 80% 60% 40% 20% 0% 91% Unmodified (482 reports) 9% Unmodified ( clean ) opinion Modified opinions Qualified opinion Disclaimer of opinion Adverse opinion Note: 210 reports (40%) issued F/S findings (i.e. internal control deficiencies) Modified (50 reports) * Source: 2016 Federal Audit Clearinghouse Data

15 QUESTIONS TO ASK Are you prepared for your audit? How confident are you with the accounting records? What still needs to be done and who s going to do it?

16 KEY TECHNIQUES: UNDERSTAND THE FINANCIAL ACTIVITIES Become familiar with the financial activities and potential internal control deficiencies by reviewing the following: Prior Year Audited Financial Statements Internal Audit Reports Prior Year Findings & Management Letter Comments Detailed Trial Balances Monthly Internal Financial Statements Status of Current Year Account Reconciliations

17 UNDERSTANDING THE FINANCIAL ACTIVITIES IS KEY TO MAINTAINING ACCURATE ACCOUNTING RECORDS Accounting errors often result from not monitoring the completion of monthly account reconciliations All significant balance sheet accounts need to be accurately reconciled on a monthly basis and at year-end How do you know if all significant accounts are reconciled and correct?

18 RECOMMENDATIONS TO ENSURE ACCOUNT RECONCILIATIONS ARE APPROPRIATELY COMPLETED FOR THE AUDIT Develop an account reconciliation checklist that includes the following information to track progress: Checklists in Excel should at a minimum include: Account number and description Individuals designated to complete and review reconciliations Anticipated and actual completion dates Comments or issues related to account balance or schedule Monthly close systems also include: Type of reconciliation required (e.g., bank reconciliation, capital asset listings, aged accounts payable listings, etc.) Account balances per trial balance as compared to support Dashboards showing status of reconciliations

19 PROCESS FOR RECONCILING ACCOUNT BALANCES Determine which G/L accounts need to be reconciled on a monthly basis Understand the basis of accounting applicable to each account Complete the appropriate schedule or report to support the account balance Ensure an independent review is completed for the reconciliation

20 KEYS ACTIVITIES TO ENSURE ACCOUNT RECONCILIATIONS ARE APPROPRIATELY COMPLETED FOR THE AUDIT Compare account balances to the prior year and prior month and ensure significant fluctuations are expected and supported Reconciliations and support should be maintained in an organized manner, the main options include: 1. Network folders 2. Maintain hard copies 3. Saving within a document management system 4. Uploading to accounting system, if functionality exists 5. Online web-based monthly close systems

21 PROVIDING SUPPORTING SCHEDULES TO AUDITORS Maintain electronic copies of supporting schedules and provide them to the auditors in an organized format, an example is as follows:

22 SAMPLE EXCEL TRIAL BALANCE CHECKLIST

23 WEB-BASED MONTHLY CLOSE SOFTWARE* * Not affiliated with REDW

24 WEB-BASED MONTHLY CLOSE SOFTWARE COMPARE SUPPORT TO TB

25 WEB-BASED MONTHLY CLOSE SOFTWARE FILE STORAGE

26 COMMON FINANCIAL STATEMENT BALANCE SHEET AREAS TRIBAL GOVERNMENTS AND RELATED ENTITIES Assets Liabilities Net Position Cash Investments Inventories Accounts Receivables Grant Receivables Due from other funds Due from Related Parties Capital assets Accounts Payable Accrued Liabilities Due to other funds Due to Related Parties Unearned Grant Revenues Long-term Liabilities Net Investment in Capital Assets Restricted Unrestricted

27 COMMON CONTRIBUTORS TO INACCURATE ACCOUNTING RECORDS AND FINDINGS Employee turnover in key accounting positions Incomplete and outdated written policies and procedures Lack of reviews and consideration of: Significant accounting estimates Unexpected changes in balances from the prior month and the prior year Unanticipated budget versus actual variances Vacant positions resulting in inadequate segregation of duties

28 GRANT COMPLIANCE REQUIREMENTS A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles C. Cash Management D. Davis-Bacon Act (Removed Under Uniform Guidance) E. Eligibility F. Equipment and Real Property Management G. Matching, Level of Effort, Earmarking H. Period of Performance I. Procurement and Suspension and Debarment J. Program Income K. Real Property Acquisition/Relocati on Assistance (Removed Under Uniform Guidance) L. Reporting M. Subrecipient Monitoring N. Special Tests and Provisions * Whitehouse.gov website contains Compliance Supplements providing information related to specific grant requirements

29 CONSIDERATIONS FOR MAINTAINING EFFECTIVE AND CONSISTENT ACCOUNTING FUNCTIONS Maintain current accounting policies and procedures Ensure key accounting positions are filled and ensure personnel clearly understand their responsibilities Train and cross train team members in key accounting functions If the account reconciliations get behind, consider contracting with external accounting consultants to get current, if necessary Keep accounting records organized and current

30 QUESTIONS?

31 CONTACTS REDW Audit Preparation and Accounting Services Team James Montoya, Principal (505) Hae-Sun Chung, Accounting Specialist Supervisor (505) Rochelle Alcon, Senior Manager (505) Valerie Livingston, Accounting Specialist (505) Karina Mikkelson, Accounting Specialist Supervisor Willis Kuwanvama, Accounting Specialist (505) (505)