2016 VGFOA Fall Conference APA Update APA Local Government Update

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1 2016 VGFOA Fall Conference APA Update APA Local Government Update October 27, 2016 Rachel Reamy, Audit Manager Auditor of Public Accounts

2 Overview of Topics 2016 Comparative Report Transmittal process Quality Control Reviews over Locality audits Other Governmental Entities Cardinal, Commonwealth s New Accounting System Updates to Audit Specifications and UFRM Locality Fiscal Stress Monitoring Reminder on GASB 68 financial reporting Impact of Upcoming OPEB Implementation for GASB Statements 74 and 75 Page 2

3 Comparative Report Transmittal Process 2016 Transmittal Preparation training APA hosted training on September 29 in Richmond, VA Also have provided web-based training materials for locality/auditors review or refresher on preparing the transmittal forms Page 3

4 Comparative Report Transmittal Process Code of Virginia November 30 deadline For FY2016 reporting APA will start to adhere to this requirement more firmly Submit only the Final Audited Financial Report with the Comparative Report transmittal form by 11/30 APA will no longer accept draft financial statements APA reports to JLARC each year in early January those localities who are late in submitting either the audited CAFR and/or transmittal data Page 4

5 Comparative Reporting vs. Financial Statement Reporting Based on UFRM versus GAAP/GASB standards Comparative Reporting Structure: General Government Capital Projects Debt Service Enterprise Page 5

6 Comparative Reporting vs. Financial Statement Reporting Specifically defined Enterprise activities: - Water - Transportation - Sewer - Harbors - Electricity - Hospitals - Steam Plants - Nursing Homes - Gas - Coliseums - Airports - Communication Page 6

7 Comparative Reporting vs. Financial Statement Reporting Debt Service & Capital Projects New Construction vs. Maintenance of Streets, Roads Internal Service activities Data Processing, Automotive/Motor Pool, Central Purchasing/Store, Print Shop, Risk Management Joint Activities Payments on Behalf of Local Governments Page 7

8 Comparative Report Transmittal Reminders Form 50 Revenues & Expenditures should reconcile to Locality s CAFR, and other separately issued financial statements (School Board, other CU s) Accounting Differences/Adjustments Adjustment to remove transfers to the School Board component unit-generally should be the same for both revenues and expenditures During 2016 review process may ask for additional explanation on certain material adjustments Page 8

9 Comparative Report Transmittal Reminders Form 110 Joint Activities Send ahead to APA for website posting Or submit copy with completed transmittal Form 500 Summary of Outstanding Debt New Pension Liability from GASB 68 implementation Include ALL outstanding debt for Locality s General Government, Enterprise Activities, and School Board/ other Component Units (UFRM 4.11) Inclusion of Bond premiums Page 9

10 Comparative Report Transmittal Reminders Include activity of all discretely presented Component Units Report amounts related to the Education function in appropriate forms, regardless of financial reporting requirements Analysis tab: need adequate explanations for variances Local Review tab: add explanations for possible errors/flags Page 10

11 APA Quality Control Review Periodic quality control reviews of CPA firms auditing VA localities Chapter 4 of the Specifications for Audits of Counties, Cities & Towns describes this process Copy of the final review report is sent to the audit firm, applicable locality, the Board of Accountancy, and VSCPA Page 11

12 Quality Control Review Common Findings Nonperformance of APA audit specifications, includes Circuit Clerk audits (Chapter 6) Noncompliance with GASB standards for financial statement presentation Improvements needed in audit documentation Risk Assessment Group Audit Independence (non-audit services) Noncompliance with federal requirements for Single Audits Page 12

13 Single Audit Quality Control Review 2 nd year performing analysis of data submitted to the federal audit clearinghouse for 143 localities FY15 Single Audits Identified only a few localities with potential issues Potential deficiencies noted Misidentifying high risk Type A programs Incorrect reporting Untimely submission of data collection form Page 13

14 Single Audit Quality Control Review Communicate the results of our analysis to auditors and localities During the QCR process, where applicable correspondence to CPA firms for applicable localities not in current year s QCR cycle Use results of Single Audit analysis as a potential risk factor when determining the next cycle of QCR selections Page 14

15 Increased Focus on Single Audit Compliance Important to ensure Single Audit compliance now as we audit under new Uniform Guidance (Part 200) requirements ALL FY16 audits are applying new UG audit requirements Auditors may continue to test some awards subject to the old OMB circulars and some awards under new UG regulations as we transition for several years. Page 15

16 Increased Focus on Single Audit Compliance New UG requires performance of a federal study of Single Audit quality once every six years beginning in timing of federal review may result in selecting Single Audits that will be implementing new UG requirements for the first time (i.e.: FY16 audits) Everyone should be preparing now for this study! Page 16

17 Other Governmental Entities Authorities, Boards, Commissions and other Political Subdivisions Audit and Oversight Provisions APA Audit Specifications Requirement submit audit report to APA 90 days after FYE Contact Information update APA s records Local Government Survey- ABC s that are locality s component units In process of posting audited financial reports to APA Local Government website Page 17

18 Commonwealth Accounting System CARS Old system (now decommissioned) Cardinal New system All State agencies transitioned February 1, 2016 Official system as of July 1, 2016 (FY 2017) APA State Disbursements Reports Exploring new data/report capabilities to make more efficient, user friendly for localities 2016 Cardinal Accrual Report Page 18

19 Updates to UFRM Compliance with Code of Virginia submit only final audited financial reports by November 30 Locality s due diligence with audit contract Review CPA firm s most recent published AICPA peer review results Request from the APA a copy of the firm s latest quality control review report Remember inclusion of specific requirements and auditor responsibilities in contract language Page 19

20 Updates to Audit SPECS Clarified when localities/auditors should notify APA and others about fraud/illegal acts (SPECs 2-9, 5-9, 7-7) Clarified when firms issue written Management letter must send copy to APA (SPECS 2-9) Statement of Economic Interest, Code of Virginia effective January 1, 2016 civil penalty for not filing form (SPECS 3-5) Page 20

21 Updates to 2016 Audit SPECS Code of Virginia , Local Government employee convicted of felony in connection with employment must forfeit entitled pension benefits Attorney General July 31, 2015 advisory opinion Employer must initiate the forfeiture process Previously included this with requirement to report fraud and illegal acts Revised to include this as a separate paragraph and clarify auditor requirement in SPECS 2-9 Page 21

22 Efficiencies with APA Audit SPECS Upcoming project working with CPA firms and state agencies in early 2017 to review audit requirements in SPECS Auditor s best practices for audit evidence related to compliance requirements Auditor s approach to sampling, use of judgment and application of materiality thresholds State agencies expectations Overall goal to improve efficiencies in meeting objectives Page 22

23 Locality Fiscal Stress Monitoring and Oversight APA currently working with General Assembly subcommittee to determine best approach in expanding our locality oversight to address fiscal stress indicators and monitoring practices No current legislation giving APA or State authority to act if a locality is fiscally stressed Page 23

24 Locality Fiscal Stress Monitoring and Oversight APA contacted other state audit offices regarding their fiscal monitoring practices APA reviewed recent 2013 report from the PEW Charitable Trusts: The State Role in Local Government Financial Distress Report examines various state s monitoring and intervention practices, identifies challenges, and elaborates on key policy guidelines on intervention programs Report available at Research & Analysis/The State Role In Local Government Financial Distress Page 24

25 Fiscal Stress Monitoring Approaches to Consider APA to build off localities information already reported annually with audited CAFR and Comparative report data Possibly adding transmittal form to summarize data needed for fiscal ratios APA create a dashboard as part of Commonwealth Data Point Show calculated fiscal stress ratios for all localities Highlight key indicators by locality and to benchmark to other Commonwealth localities Page 25

26 Fiscal Stress Monitoring Approaches to Consider APA include information about locality s material weaknesses and significant deficiencies identified during audits in the APA dashboard APA prepare annual report for General Assembly to identify localities with ratios that may indicate potential fiscal stress Page 26

27 Reminder on GASB 68 Financial Reporting Information available for Local Government s financial statements Audited Schedules GASB 68 Report Template Journal Entries Template Disclosures Page 27

28 GASB 68 Resources Local Government > New Pension Standards Implementation Guide for GASB Statement 68 APA s Opinions and GASB 68 Schedules Financial Reporting section VRS Guidelines and Resources All inclusive GASB 68 report Financial Reporting section Plan schedules, sample journal entries, note disclosures, analysis of pension liability Page 28

29 Preparing for Upcoming OPEB Implementation GASB Statement 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans Applicable to VRS and other independent OPEB s financial statements Effective FY 2017 GASB Statement 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions Applicable to Local Government s financial statements Effective FY 2018 Page 29

30 Preparing for Upcoming OPEB Implementation OPEB standards closely mirror GASB 67/68 pension accounting Funding and accounting are separated Liability discount rate will be based on a projection of how long dedicated assets (plus future contributions) will cover current plan members future benefit payments Unfunded OPEB liability will now be reported on face of the financial statements Expanded note disclosures and RSI Page 30

31 Preparing for Upcoming OPEB Implementation Local Governments may participate in following Commonwealth sponsored OPEBs Other Postemployment Retiree Health Insurance Credit (RHIC) Other Employment Group Life (GLI) 4 Single Employer Plans- Social Service Employees, Registrars, Constitutional Officers, and State 1 Cost sharing Plan- Teachers Approximately 90 Multi- Agent Plans- Political Subdivisions Cost Sharing plan includes Teachers, Localities and State Page 31

32 Preparing for Upcoming OPEB Implementation Local Governments may participate in following Commonwealth sponsored OPEBs Other Postemployment Line of Duty Death and Disability (LODA) Cost Sharing plan includes Local Governments and State Virginia Local Disability Program (VLDP) Cost Sharing plan includes Teachers and Political Subdivisions, treated separately for allocation purposes Page 32

Preparing for Upcoming OPEB Implementation Audit process

sponsored OPEBs APA audit assurance provided will be

opinions for OPEB plans VRS to publish OPEB schedules and

in future for VRS to contract for service organization

33 Preparing for Upcoming OPEB Implementation Audit process and financial reporting information for Commonwealth sponsored OPEBs APA audit assurance provided will be similar to audit work for GASB 68 APA to issue multiple opinions for OPEB plans VRS to publish OPEB schedules and templates for journal entries, disclosures/rsi Potential in future for VRS to contract for service organization controls (SOC-1 Type 2) report instead of opining at the employer level Page 33

34 Preparing for Upcoming OPEB Implementation APA opinions for Commonwealth sponsored OPEB plans Opinions over allocation of Net OPEB Liability Cost sharing plans under GLI and RHIC Certain single employer plans with multiple employer participants for RHIC Separate opinions for allocation of the statement of changes in fiduciary net position for each of the RHIC agent plans Page 34

35 Preparing for Upcoming OPEB Implementation Non-Commonwealth sponsored OPEB plans Local Governments participate in other OPEB plans I.E.: VACo/VML Pooled OPEB Trust APA will not be involved in providing audit assurance or financial reporting information for non-commonwealth OPEBs Have discussions now with OPEB s Plan Administer and the Plan s auditors Audit assurance/opinions that will be provided? Timing and how financial reporting information will be provided for local government financial statements? Page 35

APA Local Government Contact Information Auditor of Public Accounts 804.225.3350 localgovernment@apa.virginia.

36 APA Local Government Contact Information Auditor of Public Accounts APA website, Local Government page Government.aspx Page 36

37 Questions Page 37

2016 APA Update 2016 APA Local Government Update

2016 APA Update 2016 APA Local Government Update August 31, 2016 Rachel Reamy, Audit Manager Auditor of Public Accounts Topics Cardinal- Commonwealth s Accounting System Comparative Report Other Governmental