THE AUDITORS AUDITORS OF MICHIGAN SCHOOLS

Transcription

1 THE AUDITORS AUDITORS OF MICHIGAN SCHOOLS Kim Lindsay, CPA Jamie Essenmacher, CPA Jennifer Watkins, CPA Bruce Dunn, CPA 1

2 GASB 75 OPEB Reporting Kim Lindsay, CPA knopf.com

3 Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (Statement 75) Effective Date: Fiscal years beginning after June 15, Earlier application is encouraged. This means June for schools 3

4 Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (Statement 75) Decision-usefulness and accountability will be enhanced through new note disclosures and required supplementary information, as follows: More disclosures of assumptions will allow for better informed assessments of the reasonableness of OPEB measurements Explanations of how and why the OPEB liability changed from year to year Summary OPEB liability information, including ratios, will offer an indication of the extent to which the total OPEB liability is covered by resources held by the OPEB plan, if any Employers that provide benefits through OPEB plans that are administered through trusts that meet the specified criteria, the contribution schedules will provide measures to evaluate decisions related to contributions 4

5 Statement 75, Cont. The consistency, comparability, and transparency of the information reported by employers and governmental non-employer contributing entities about OPEB transactions will be improved by requiring: The use of a discount rate that considers the availability of the OPEB plan's fiduciary net position associated with the OPEB of current active and inactive employees and the investment horizon of those resources, rather than utilizing only the long-term expected rate of return regardless of whether the OPEB plan's fiduciary net position is projected to be sufficient to make projected benefit payments and is expected to be invested using a strategy to achieve that return A single method of attributing the actuarial present value of projected benefit payments to periods of employee service, rather than allowing a choice among six methods with additional variations Immediate recognition in OPEB expense, rather than a choice of recognition periods, of the effects of changes of benefit terms Recognition of OPEB expense that incorporates deferred outflows of resources and deferred inflows of resources related to OPEB over a defined, closed period, rather than a choice between an open or closed period 5

6 Statement 75, What does it mean? The June 2018 audit report will look significantly different than the June 2017 audit report June 2017 ending net position will need to be restated A significant liability will be recorded on the statement of net position Additional footnote disclosure will be required Additional RSI schedules will be required Additional auditing will be required by your auditor Additional information will be needed to be provided to the auditor 6

7 Statement 75, what you need to do? Retire Hire someone else to deal with this Become familiar with this standard Discuss this with your auditor during this audit season Review your internal processes to be able to breakdown the health care portion similar to the defined benefit portion you did for GASB 68 Begin to communicate with your board and your community Remind stakeholders this does not change the fund level accounting Attend seminars on this topic Look for guidance from ORS, MDE and MSBO 7

8 Questions??? Kim Lindsay, CPA knopf.com 8

9 Section 147c Accounting and Reporting Issues Kim Lindsay, CPA knopf.com

10 UAAL (Section147c) Accounting Make sure your 147c total from your August 2017 State Aid status has been fully accounted for: Will need to record a receivable for the July & August amounts to be received from state aid Will need to record a payable (Due to Other Governmental Units) for the July & August amounts to be remitted to ORS make sure June was paid in June Monthly review your balance sheet account and adjust it to -0- by making the appropriate entry to your retirement expense accounts Failure to adjust may have harmful implications to your budget and your health!! 10

11 UAAL (Section147c) Accounting Consider separate 147c pension expenditure accounts Could be helpful when it comes to discussing and presenting your budget to your Board One of the current versions of the budget discusses changes to this state aid categorical 11

12 UAAL (Section147c) Accounting 147c Information affects the reporting of items related to pension on your Government-Wide financial statements and your pension disclosures Bulletin 1022 Section II (E.) Issues 4-3 and 4-4 discuss these matters Recommendation from 1022 Committee is that Section 147 ( c ) monies should be considered contributions to MPSERS Annually, ORS determines how these payments are allocated between OPEB and Pension. For the audit period ending June 30, 2017 the allocation % is 72.88% DB per ORS. 12

13 UAAL (Section147c) Accounting What is the impact? The 72.88% DB portion of the 147 ( c) payments should be disclosed in the pension footnotes as contributions to the plan The remaining amount are part of the OPEB contribution and would be disclosed in the health care portion of your footnotes For deferred inflows and outflows amounts paid after the measurement date ( payments and later) the 72.88% would be part of your deferred inflows and outflows on your Government-wide statement of net assets 13

14 UAAL (Section147c) Accounting Guidance in the MDE Audit Risk Alert provides this information as well: Certain auditors who have clients who do not record this as a deferred inflow should properly document their conclusion as to why this is not recorded as a deferred inflow. 14

15 Questions??? Kim Lindsay, CPA knopf.com 15

16 What s new? Audit Manual Update PRESENTED TO MSBO CPA & Business Manager Workshop PRESENTED BY Jennifer Watkins, CPA Partner Leader of Education Services Group 16 16

17 Audit Manual Changes DISCLAIMER: Audit Manual was not released at time presentation was prepared! Audit Submission Audits are required by the State School Aid Act to be submitted to MDE by November 1, each year. (For 2017, this is a Wednesday.) Late audits will result in the withholding of subsequent State Aid payments until the next payment after the audit is submitted. There is NO grace period. 17

18 Audit Manual Changes Corrective action plans Include the audit finding reference numbers Provide the name(s) of the contact person(s) responsible for corrective action, the corrective action planned, and the anticipated completion date. Agree/Disagree? Must be in a document separate from the auditor s findings (signed, letterhead) Review prior year CAPs, ensure progress & corrections have been made according to the appropriate timeline 18

19 Audit Manual Changes PAL Report Entitlement includes: Processed Brown Box DOD Produce Pilot Entitlement does not include: Bonus Commodities 19

20 Audit Manual Changes Subrecipient schedules Uniform Guidance now requires that a column be added to the SEFA to report cash transferred to subrecipients. MDE requires that a Subrecipient Schedule also be prepared in the SEFA. MDE uses this schedule to verify that all funds passed through the ISD or another district are also included on the SEFA. 20

21 Audit Manual Changes Uniform Budgeting and Accounting Act (PA 621) Compliance with the Uniform Budgeting & Accounting Act is required by law MDE has instituted a zero tolerance for violations of the UB&AA. This means that any variance in total revenues, expenditures, or other financing sources/uses that results in a reduction in the budgeted ending fund balance will generate a letter of follow-up by MDE. 21

22 Audit Manual Changes Other changes for Audit Manual and 1022 Accounting Manual FID Changes Deferred inflows/outflows of resources SFA program Bad Debt Policy Indirect costs Allowable costs all must meet federal purchasing guidelines Time & effort reporting 22

23 Miscellaneous Items 23

24 Miscellaneous Items Deficit Fund Balance Notify MDE immediately Deficit elimination plan Reporting fraud and abuse Orally notify MDE immediately Follow-up with written report to MDE and auditor Budget revisions update web site 24

25 Miscellaneous Items Food Service Transfers Maximum allowed indirect costs (Multiply (expenditures less food costs, capital outlay and portion of contracts greater than $25,000) by the approved indirect cost rate and compare to the indirect costs or transfers.) MDE Monitoring of LEAs On Site reviews of all LEA s within a 5-year cycle Common findings and issues with Certifications per February 7, 2013 presentation by Office of Field Services 25

26 Resources 26

27 Resources Web-based taxable value system Public Access No password required Direct link to source of data Grant Auditors Report Michigan Department of Education Michigan School Auditing Manual Michigan School Accounting Manual Pupil Accounting Manual Grant Auditors Report State Aid Financial Status Reports 27

28 Resources U.S. Office of Management and Budget OMB Circular A-133 most recent compliance supplement Federal Audit Clearinghouse On-line submission of Data Collection Form Catalog of Domestic Assistance Obtain CFDA numbers and general description of federal programs Michigan School Business Officials 28

29 The information provided is a general summary and is being distributed with the understanding that Yeo & Yeo, P.C. is not rendering tax, accounting, legal or other professional services advice or opinions on specific facts or matters and, accordingly, assumes no liability in connection with its use. The information is not intended to be used as a basis for any decision or action that may affect your business, organization or situation. Consult a qualified professional advisor before making any such decisions. Copyright 2017 Yeo & Yeo, P.C. 29

30 Do We Got It Yet? GASB 68 Year 3! PRESENTED TO MSBO CPA & Business Manager Workshop PRESENTED BY Jennifer Watkins, CPA Partner Leader of Education Services Group 30 30

31 Do We Got It Yet? GASB 68 Year 3! It has been getting better 10/14 the 1 st year...yikes 31

32 Do We Got It Yet? GASB 68 Year 3! GASB 68: Accounting and Financial Reporting for Pension Plans Effective FYE 6/30/15 (issued 6/12) Amends GASB 27 Requires governments participating in public employee pension plans to recognize their portion of the long-term unfunded obligation for the pension benefits as a liability Deferred inflows/outflows Added footnote information Required supplementary information 2 schedules 32

33 Do We Got It Yet? GASB 68 Year 3! GASB 71: Pension Transition for Contributions Made Subsequent to the Measurement Date Amends GASB 68 Issues 11/13 Effective FYE 6/30/15 (same as GASB 68) District s will report a deferred outflow for contributions made after the measurement date of the liability and the end of the district fiscal 33

34 Do We Got It Yet? GASB 68 Year 3! GASB 68/71: Pension Plan Reporting How did it go? 3rd year expectations MPSERS will provide information sooner Auditors will still need to test census data the districts provided to the plan Auditors will need to audit the numerator for agreement with ORS 34

35 Do We Got It Yet? GASB 68 Year 3! GASB 68: Accounting and Financial Reporting for Pension Plans Implementation Guidance Committee (MDE) Section 2 (Requirements_ Part E.16 Great Info Utilize Auditors Business Managers 35

36 Do We Got It Yet? GASB 68 Year 3! GASB 68: Accounting and Financial Reporting for Pension Plans How to Handle UAAL/147C? New rate for next year % Prior rate 69.45% Statutorily required contribution Portion that relates to pension component 36

37 Do We Got It Yet? GASB 68 Year 3! GASB 68: Accounting and Financial Reporting for Pension Plans Auditor Responsibility Census testing Preparation Notes/JE (non-attest) Auditee Responsibility Ensure ORS information is accurate Populate RSI schedules and Notes (SKE & Independence come into play) Communicate to management, oversight, & public 37

38 Do We Got It Yet? GASB 68 Year 3! Year 3 Should be Easier!.. Still need info from ORS though Anticipated mid- July Good timing New staffing at ORS 38

39 Do We Got It Yet? GASB 68 Year 3! What can you do this year to help 75? Track for both GASB 68 and for GASB 75 Most of you already are. But may not be aware or sharing it with the auditors 39

40 Do We Got It Yet? GASB 68 Year 3! First Pensions (GASB 67 & 68) Now Postemployment Benefit Plans Other Than Pension Plans (OPEB) (GASB 74 & 75) GASB 74 effective June 30, 2017 Additional disclosures and additional required supplementary information schedules GASB 75 effective June 30, 2018 Recognize liabilities, deferred outflows and inflows of resources and expenses District Wide Only 40

41 The information provided is a general summary and is being distributed with the understanding that Yeo & Yeo, P.C. is not rendering tax, accounting, legal or other professional services advice or opinions on specific facts or matters and, accordingly, assumes no liability in connection with its use. The information is not intended to be used as a basis for any decision or action that may affect your business, organization or situation. Consult a qualified professional advisor before making any such decisions. Copyright 2017 Yeo & Yeo, P.C. 41

42 Thank you for attending! Jennifer Watkins, CPA (800) OFFICES THROUGHOUT MICHIGAN YEOANDYEO.COM 42

43 {READY GASB 77 FOR DEPARTURE?} MSBO BUSINESS MANAGER SUBHEAD COPY HERE, UP TO TWO WORKSHOP LINES JUNE 8,

44 Overview of GASB 77 GASB 77 will require footnote disclosures for tax abatements that are: Initiated by a local unit of government; and Initiated by other governments but will impact a local unit Public Schools in Michigan fit here Focus disclosures on the amount of tax revenue NOT COLLECTED as a result of tax abatement programs EFFECTIVE DATE: This will be effective with the June 30, 2017 school financial reports and later (years beginning after Dec. 15, 2015) 44

45 GASB 77 Based on the aforementioned considerations, the Board defined a tax abatement (for financial reporting purposes) as resulting from an agreement between one or more governments and an individual or entity in which (a) one or more governments promise to forgo tax revenues to which they are otherwise entitled and (b) the individual or entity promises to take a specific action after the agreement has been entered into that contributes to economic development ise benefits the governments or the citizens of those governments. The scope of this Statement is limited to transactions that meet this definition. ( B15) 45

46 GASB 77 What is excluded? Tax exemptions Governments exempt certain individuals, entities or activities from taxation The State gives a tax credit to senior citizens for property taxes Tax deductions Governments allow individuals or entities to deduct certain items from their tax liabilities or from an amount that is being taxed Income tax deductions for charitable giving or programs allowing homeowners to deduct a portion of the cost of installing energyefficient features from the amount of income tax they owe Other tax expenditure programs General tax reductions given to classes of properties without individual agreements with those taxpayers to perform (like an exemption to a class of taxpayers; or a tax-free zone) 46

47 GASB 77 All of the following must be present for GASB 77 to apply: Promise by government to reduce taxes Resulting from an agreement with an individual or entity Individual or entity promises specific action That specific action occurs after the agreement has been entered into Specific action contributes to economic development or otherwise benefits the government or citizens 47

48 Example 1 50% tax reduction for an entire class of properties (e.g., industrial facilities) Agreement with each individual organization The business being granted the abatement agrees to certain conditions (improvement of a building or acquisition of personal property, etc.) Their taxes are then reduced for up to X years (they re removed from traditional property tax rolls and added to a special, discounted tax roll) Conclusion: This is a tax abatement 48

49 Example 2 Tax programs to create jobs or incentivize organizations to stay in a state or region In general, these are contracts with individual businesses promising future tax credits in exchange for performing certain actions (retaining jobs; staying in the state or region; etc.) Conclusion: This is a tax abatement 49

50 Example 3 A state-wide exemption from taxes of certain classes of property The taxpayer has not entered into any specific agreement to perform (to purchase eligible property); instead, this is just a general tax reduction Example homestead property tax exemption Conclusion: Not a tax abatement 50

51 Example 4 Tax laws that reduce taxes Renaissance/rehabilitation Zones Yes, taxes are reduced But there are no agreements in place with individual taxpayers to reduce their taxes in exchange for their performance Conclusion: Not a tax abatement 51

52 GASB 77 Potential Issues If a governmental unit receives a reduction in revenue due to an abatement, but is made whole by another entity directly related to this reduction, does GASB 77 still apply since there is no net revenue impact? Short answer, YES. (Per recent GASB Q&A) The Q&A states that the fact that the government can recover tax revenue is not relevant to determining whether the agreement meets the definition of an abatement or not The fact the State makes up for the revenue loss has NO IMPACT on the need to disclose 52

53 GASB 77 Potential Issues Determining whether the agreements meet the definition of a tax abatement outlined in GASB 77 Gathering information from other taxing units (HUGE for K12) Special authorities could be voluminous amount of tax abatements depending upon number of taxing entities Ensuring completeness of footnote disclosure 53

54 GASB 77 Possible Abatements IFT Likely, but will need to pay close attention to whether the agreement was entered into before or after the taxpayer fulfilled their promise Brownfield Redevelopment Likely, as long as the developer is the one being reimbursed for remediation efforts TIFA or DDA No, generally there are no specific agreements here and overall taxes are not reduced New Personal Property Tax Act Likely, however obtaining information from the municipality is not likely given lack of information filed by taxpayer 54

55 GASB 77 What to disclose? For abatements entered into by the other governments (K12): Brief description, including names of governments entering into the abatements, and the specific taxes being abated Total amount of taxes reduced in current year If reimbursed for lost revenue, from another entity, also disclose the amount received or receivable, from who, and under what authority. NOTE: Tax abatements can be disclosed individually or aggregated by type 55

56 GASB 77 Sample Disclosures Note X Tax Abatements The District receives reduced property tax revenues as a result of Industrial Facilities Tax exemptions and Brownfield Redevelopment Agreements granted by the City of Example. Industrial facility exemptions are intended to promote construction of new industrial facilities, or to rehabilitate historical facilities; Brownfield redevelopment agreements are intended to reimburse taxpayers that remediate environmental contamination on their properties For the fiscal year ended June 30, 2017, the District s property tax revenues were reduced by $2,726,000 under these programs There are no significant abatements made by the District 56

57 GASB 77 Key Reminders & Other Thoughts Once the applicable tax abatement programs are identified, client must then gather data for footnote disclosure Remember revenue loss can be more than just non-homestead property tax Consider debt, recreational, and sinking fund mills Enhancement, vocational education, special education, The taxing units will provide the District with values District will need to calculate the tax Possible some counties could provide taxable value data Keep materiality in mind! - What if you are unsuccessful at obtaining data needed for disclosure? Standardized communication - letter/template (ask your auditors) Most, if not all firms, have provided templates or guidance to applicable entities. Financial Statement Impact - New GASB 77 footnote & adoption of new accounting pronouncement footnote 57

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59 Effective Audit Tips Communication is the key! Question: Have you met with your auditor? If you have not, it might be a good time to giver them a call. Discussion Items: Significant changes for the year Interim, year-end, and board meeting dates Challenges or hiccups you experienced from the prior year If there were and adjustments or finding how have you corrected them What can be done at interim (testing standpoint) to help make year-end more efficient Any accounting/auditing standards that will impact the current or future audit? 59

60 Effective Audit Tips The calm before the storm.. Providing a trial balance before the first day of fieldwork Understanding the source documents that are being requested on the PBC list Provide workpapers from the PBC list in advance of fieldwork Reviewing FS footnotes and determining if there is additional information you will need to provide not included on the PBC list Provide and sign any attorney/cash/investment confirmations requested Are you still on target to be ready for your scheduled time? 60

61 Effective Audit Tips Fieldwork Checking in periodically (questions, open items) Any concerns or adjustments identified? Any changes to the single audit testing plan? Are they still on target to meet the scheduled deadlines established? Reviewing draft financial statements or fund level statements? 61

62 Effective Audit Tips Post-Fieldwork How is the wrap-up process coming (review/changes/open items)? Ownership of the financial statements and taking responsibility for the report information (i.e. final issuance of reports) If a board meeting presentation exist, is it ready for review? Collaborative effort between the District and the auditor! 62

63 {READY THANK YOU. FOR DEPARTURE?} SUBHEAD COPY HERE, UP TO TWO LINES 63

64 Peer Review is Changing Bruce Dunn, CPA 64

65 Peer Review is Changing What used to be a minor issue is now something that could make your engagement non-conforming A school district subject to single audit now requires 5 separate checklists to be completed. Engagement checklist GAS checklist Single audit part A Single audit part B GASB statement 68 checklist

66 Common Peer Review Single audit deficiencies 2017 Failure to identify the correct major programs to test Incorrect risk assessment of programs Lack of documentation in the work papers Failure to adequately test administrative controls over compliance Failure to test all key controls documented Failure to issue correct reports Failure to document independence, ske and threats to independence such as financial statement preparation No SKE no independence Failure to have adequate CPE for the engagement team Failure to have a peer review Testing administrative controls over the SEFA Not listing pass-through amounts on the SEFA Failure to include all elements in the finding for yellow book and UG findings Failure to identify if an internal control, compliance or both type of deficiency Incorrect and untimely submission of the Data Collection Form Failure to have the client include a corrective action plan preferably on their letterhead Failure to document planning and review by the individual responsible for signing the report

67 Peer review oversight of peer review team captains is ongoing Not documented then not performed One of the above areas not documented could result in a nonconforming engagement Obtain all 5 peer review checklists and become familiar with them particularly the GASB 68 checklist and part A checklist.

68 Procurement Policy deferral period ending Many districts elected to take advantage of the option to defer the adoption of the required procurement standards under the Uniform Guidance. Non-federal entities were given the option to defer the adoption of the procurement standards for up to two years. For our June 30 year-end clients, this deferral period was set to end on June 30, 2017 and would be required to implement the changes to their procurement policies and procedures as of July 1, 2017 for the school year. On May 17, 2017, OMB issued an additional grace period of one year for non-federal entities to implement the changes to their procurement policies and procedures to be in accordance with procurement standards in 2 CFR through of the Uniform Guidance. The OMB has stated that this will be the final extension they will be issuing, therefore, all districts will be required to implement these changes prior to the start of the school year. If you have any questions regarding the changes to the procurement standards under the Uniform Guidance please do not hesitate to let us know.

69 Types of Procurement Micro Purchases Now $3,500 Aggregate - $2,000 if it is for Construction and subject to Davis-Bacon Act. There does not need to be quotations. Equitable distribution among qualified vendors Small Purchases Simple and informal procurement methods Not more than the simplified acquisition threshold - currently $150,000 Price and rate quotations must be obtained from adequate number of qualified sources. Sealed Bids Above simplified threshold greater than $150,000 Preferred for construction projects Must be publicly advertised Application of State or District thresholds Lower of State/District threshold or Federal threshold would apply Excerpt from AICPA Uniform Guidance For Federal Awards Presentation, 9/25/14

70 Types of Procurement (continued) Competitive Proposals Above simplified threshold currently $150,000 More than one source for proposal Usually used for fixed fee or cost reimbursement A written method of evaluation and selection. Award must go to most advantageous proposal Sole Source Must meet at least one of the criteria Single source availability Public emergency Written request has been made and approved by federal or PTE Competition is determined to be inadequate Excerpt from AICPA Uniform Guidance For Federal Awards Presentation, 9/25/14

71 Important COFAR FAQ on Effective Date and Grace Period for Procurement FAQ states, for compliance with the new procurement standards only, the federal government is providing a grace period of one full fiscal year after the effective date of the Uniform Guidance for Federal Awards. The FAQ goes on to provide information on certain documentation that the non-federal entity will have to provide in this regard and how it will affect the single audit in its first year. A June Year End electing the two year grace period needs to implement the new standards beginning 7/1/17. (ie. June 30, 2018 Fiscal Year End) Excerpt from AICPA Uniform Guidance For Federal Awards Presentation, 9/25/14

72 Practical Considerations UPDATE procurement policies and procedures Consider regular procurement if more restrictive Reduce federal capital outlay expenditures when other expenditures are allowed such as salaries and benefits

73 Questions?????

74 THANK YOU FOR ATTENDING Kim Lindsay, CPA Jamie Essenmacher, CPA Jennifer Watkins, CPA Bruce Dunn, CPA 74