MSBO Finance Pre-Conference 2018 Accounting and Auditing Update. Presented by Donna Hanson and Eric Formberg

Transcription

1 MSBO Finance Pre-Conference 2018 Accounting and Auditing Update Presented by Donna Hanson and Eric Formberg

2 Accounting and Auditing Update Topics GASB 75 implementation year is here! GASBs on the horizon MPSERS contribution calc change accounting implications 3% refund recap and reflection Other accounting items and reminders

3 A&A Update - GASB 75 GASB 75 Other Post Employment Benefits (OPEB) Overview Effective for 6/30/18 school financial reports MPSERS provides the plan for Michigan school districts Net OPEB liability allocated to each participating government Allocation based on Statutory Required Contribution to the OPEB plan Structure similar to GASB 68 but not the same! ORS creating a separate section of web site for GASB 75, similar to 68 OAG expected to issue mid-july 2018 Timing of information to be provided Preliminary net OPEB liability distributed in February Annual reporting at same time as GASB 68 information

4 A&A Update GASB 75 GASB 75 Other Post Employment Benefits (OPEB) basic formula Participating employers will now record the NET OPEB liability on the full accrual statements TOTAL OPEB liability OPEB Plan Net Position NET OPEB liability These amounts will be measured as of the measurement date Cost-sharing employers record their proportionate share of the net OPEB liability 4

5 A&A Update GASB 75 GASB 75 Other Post Employment Benefits (OPEB) cost-sharing employers (MPSERS) Participating Employer should recognize proportionate shares of collective net OPEB liability, OPEB expense, and deferred outflows/inflows of resources related to OPEB How is proportionate share determined? Consistent with the manner in which contributions to the OPEB plan are determined (essentially the statutory required contribution) ORS presumes it will result in reasonable allocation Multiply collective net OPEB liability and proportion % to determine employer s proportionate share Statewide liability approx. $8.9 billion For 6/30/18 District will have a beginning of year and end of year liability (similar to what happened with year 1 of GASB 68), prior period adjustment Employer s contributions subsequent to measurement date (since plan year different than the fiscal year end) deferred outflow (similar to GASB 68) 5

6 A&A Update - GASB 75 GASB 75 Other Post Employment Benefits (OPEB) Implementation details OPEB includes a DC plan and a DB plan Obligation is focused on DB plan Note, DC participants have a small DB benefit UAAL effective 11/1/17 the UAAL (147c1) amount is 100% pension Reporting OAG report, likely 1 report with 2 sections pension and OPEB Deferrals, similar to GASB 68 District financial report will have 2 sets of disclosures for 68 and 75. Some elements may be combined Unrestricted net position becomes a bigger negative amount Net Position deficit likely grows No change in fund level expense recognition

7 A&A Update - GASB 75 GASB 75 Audit Guidance - AICPA Audit and Accounting Guide, State and Local Governments (2017 version) New chapter addressing OPEB for plans & employers Part 1: Plan Accounting, Financial Reporting, and Auditing Considerations for Defined Benefit OPEB Plans Administered Through a Qualifying Trust Part 2: Single and Agent Employers Administered Through a Qualifying Trust Part 3: Cost-Sharing Employers Administered Through a Qualifying Trust MPSERS Reporting Unit OPEB audit scope addressed here Part 4: Employer Accounting for OPEB Not Administered Through a Qualifying Trust

8 A&A Update - GASB 75 GASB 75 Other Post Employment Benefits (OPEB) To do s Watch for more information regarding timing of information and content Capture district level contribution information and participant wage information Ensure census information on employee elections is available 9/30/17 obligation uses 9/30/16 participant data Discuss audit test requirements with auditor Census, contributions, reportable compensation, plan and district deferrals, prior period adjustment, integration with 68 tests Use ORS Net OPEB liability information provided in February to prepare Board and community as needed

9 A&A Update - GASB 84 GASB 84 - Fiduciary activities Effective for 6/30/20 School District financial reports Key implications Student activities, scholarship funds, booster clubs Current treatment (generally) Student activities fiduciary, agency fund Scholarships fiduciary, private purpose trust fund Boosters excluded from SD financial statements Key issue control Control: A government controls the assets if it: Holds the assets; or Has the ability to direct the use, exchange, or employment of the present service capacity. (Legal restrictions do not negate control of the present service capacity)

10 A&A Update - GASB 84 GASB 84 - Fiduciary activities Q - What will new treatment be? A - It depends! The standard provides principles vs rules and GASB did not make a specific statement re impact on K12 (see attached) Need to follow the flowchart and apply the definitions (see attached) Note, some of the definitions may not be easy to interpret Action Item 1022 committee plans to address the issue with possible statewide guidance. Note the question regarding who manages the resource will be key. Potential outcome Student activities - becomes a governmental fund Scholarships - reported as a fiduciary activity, custodial fund Boosters stays out of statements, unless the SD is involved in resource management Note the actual outcome requires assessment of facts! Hopeful the 1022 committee may be able to identify some common conclusions

11 GASB 84 Decision Flowchart Key q Key q

12 GASB 84 - Basis for conclusions paragraph B21. Some respondents also requested that the Board specifically require that student activity resources be reported as fiduciary funds. The Board believes that some of those activities are part of the government s provision of goods or services. The Board noted that the administration of those activities may vary across governments, with some governments assessing fees to pay for certain activities and other governments using other resources available to pay for certain activities. As a result, the Board concluded that a specific requirement addressing all student activity resources is not appropriate.

13 A&A Update - GASB 87 GASB 87 Leases Effective 6/30/2021 for School District financial statements All leases (> 12 mos.) go on the government wide statement of net position and enterprise fund balance sheet Similar to how fixed assets are recorded on governmental fund financial statements currently Lessees will report a Lease payable and a Right to use Lease asset (unless effectively a purchase, with transfer of ownership) Most Districts currently report leases as operating Governmental fund and government wide statements expense as paid, No balance sheet amounts

14 A&A Update - GASB 88 (NEW) Issued March Hot off the press! Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements Disclosure only Direct borrowings = bank term loans, lines of credit Expanded disclosures to define and distinguish debt from other long-term liabilities Amount of unused lines of credit Assets pledged as collateral Debt agreement terms of default/termination events Acceleration clauses Effective June 30, 2019

15 A&A Update - SAS 133 Auditor Involvement with Exempt Offering Documents Effective for offerings initially distributed after June 15, 2018 Impacts District issuance of exempt offerings (bond issues) Revises and expands auditor response and procedures to be performed when asked to be involved with exempt offering Certain triggers create auditor involvement Districts can still choose to not involve the auditor by avoiding the triggers

16 A&A Update - MPSERS and COE Employer contributions - will now be calculated annually based on a calculation of: COE BASE X Flat Rate of 20.96% Establishing the COE BASE = 2017 payroll X % COE change from 2017 to When Districts books close at June 30 th you will be able to calc COE BASE Each year the COE BASE will be adjusted up or down depending on change in COE COE Defined What is included/excluded? Stay tuned House Bill 5355 in process June 30, no accounting impact June 30, 2019 and beyond - Does the rate change? No Does the contribution change? Yes (the COE base will change annually up or down) Federal Program Implications YES potentially ORS is working on a template to assist Districts to estimate Key issue budgeting, should the "adjustment" be built into the "budget"?

17 A&A Update Return of 3% contributions Accounting reminders Year end reporting Other issues and straggling difficulties

18 A&A Update Return of 3% Return of 3% Supreme Court deemed 3% under PA75 unconstitutional 3% withheld from July 2010 until September 4, 2012 Total amount withheld - approx. $550,000,000 Total interest earned on 3% - approx. $4,000,000 Districts received data and the cash (refund + interest) from ORS detailing the employees and amounts to be refunded Likely Districts have established their plan and approach

19 A&A Update Return of 3% Return of PA75 3% contributions accounting reminder Cash received in January (original contributions + interest) Cash Receipt Accounting = Impacts balance sheet ONLY Debit - cash Credit - liability account Payment to the employees/retirees: Refund Accounting = Impacts balance sheet ONLY Credit - cash Debit - liability account

20 A&A Update Return of 3% Return of PA75 3% contributions accounting reminders Balances left in liability account as of today reflect cash still to be refunded Active employees and retirees mostly repaid as of today Inactive and deceased come could take longer Liability balance will remain until refunded or sent to Michigan escheats (unclaimed property) If original contribution was NOT subject to FICA, then employer portion of FICA is an expense to the District in 2018 District decision where to charge expense No formal 1022 committee guidance Districts to determine what best for them Practical approach recommended (to avoid spreading to all schools) Impacts: Budget Cashflow Concern = Current Operating Expenditures (COE) 2018 is base year for MPSERS calc

21 A&A Update - Return of 3% Return of PA75 3% contributions year end reporting (4 scenarios) Recommendation: Review W-2 reports prior to year end to ensure payroll system is capturing data properly for year end W-2 reporting 1. If District originally excluded for Fed & MI & excluded for FICA Report return of wages on Form W-2 = Fed & MI taxable and FICA taxable 2. If District originally excluded for Fed & MI & included for FICA Report return of wages on Form W-2 = Fed & MI taxable, FICA non-taxable 3. If District originally included for Fed & MI & excluded for FICA Report return of wages on Form W-2 = Fed & MI non-taxable, FICA taxable 4. If District originally included for Fed & MI wages, & included for FICA 3% was FULLY taxed in year incurred No inclusion W-2 or 1099 = No IRS reporting required Can run through payroll but not subject to any tax OR possible option to cut an AP check.

22 A&A Update Return of 3% Interest Range per individual refundee is from 9 cents to $167 Year end reporting of Interest Position = District is flowing through these funds ONLY Not the District s interest to report Overall - Due to individual amounts falling well below 1099 threshold, lack of required reporting in the first place Verify interest is not being captured in year end W-2 reporting Reminders for refundees = Interest income: Is interest - income taxable? - YES Is interest FICA taxable? NO Is interest subject to retirement NO (interest is not wages) How does a refundee know to pick up this interest on their 2018 tax return ORS provided FAQ on this topic Districts can determine if and how they communicate Can advise to consult tax advisor

23 A&A Update - Return of 3% Deceased employees No withholding required 1099 MISC would be issued to payee Michigan Law dictates order of heirs Surviving spouse, then children, then parents, then siblings, then is gets complex and you may need counsel Locating the inactive or deceased If last known address provided by ORS not valid Best practice search! White pages / Google search Make phone calls Send letters Attorney may have resources Document efforts If all efforts fail turn check over to Michigan Escheats (unclaimed property) after a year Proof of identity upon claiming check District decision Many questions/unique situations/many District level decisions! Work with advisors, document approach!

24 A&A Update Return of 3% Other questions/issues/items: Treatment of contributions after 9/4/2012 (through Feb 1, 2013) Other issues Districts dealt with Withholdings/supplemental pay rules, W-4s, contributions to retirement plans, garnishments, alimony, child support, out of state refundees Protective claims filed with IRS (now a mute point) Committee work ongoing on IRS determination letter for FICA paid on contributions under PA300 Check out the FAQ s on ORS site:

25 A&A Update - Potpourri 147 Alphabet soup Procurement policy adoption under Uniform Guidance Uniform Guidance sample procedures GASB 77 what worked best? GASB 68

26 A&A Update 147a(2) MPSERS normal cost offset Additional resource to help pay for impact reduced rate of return assumption Rate change increases out of pocket district contribution Not tied to a pension/opeb contribution rate Treatment similar to 147a(1) additional revenue

27 A&A Update 147c(2) MPSERS one time deposit Result of change in amortization Not tied to a contribution rate Resource is returned to State (similar to 147c (1)) Amount to be expensed when remitted to ORS, accrued at 6/30/18 Since not tied to a pension/opeb rate, is NOT federal grants chargeable Impact on COE yes (likely unable to exclude)

28 A&A Update 147e Reimbursement for additional costs - PA92 Funds to support first year new reform costs (PA92) For reimbursement for additional defined contribution costs for choosing new plan (4% contributions + 3% matching) For reimbursement for the more costly hybrid option for new hires (3.13%) Payments to be made in quarterly installments Anticipating payments to begin April (now) Covering period Oct, 2017 through March, 2017 April 1 st through June 30 th All amounts will be reconciled/paid out and included in August state aid. Accounting Revenue or reduction of expense? Likely (hoping) similar to 147c(1) and simply revenue Discussed at 1022 committee MDE working on formal guidance

29 A&A Update Uniform Guidance Procurement policy adoption under Uniform Guidance Remember, policy was required to be adopted 7/1/17 OMB issued a delay notice allowing a new adoption date of 7/1/18 Many Districts adopted by 7/1/17 If adopted, did you follow the policy? This will be tested this year in single audit For districts who delayed Did you finalize the adoption? If yes are you currently following? If waiting until 7/1/18, are you ready to move forward? Auditors will be testing in accordance with the policies in place as of June 30, 2018

30 A&A Update Uniform Guidance Uniform Guidance model procedures Model procedures for UG project completed, on MSBO website Goal - help district determine if grants management procedures and controls are sufficient under UG Now What? Obtain and review Key q s: Are model processes included the SD does not currently have? Does the SD have grants processes that are not included? If yes, are they needed? Are there good ideas the SD should build into current processes? Are the SD s processes sufficiently documented? NOTE the model processes must be tailored as part of the district adoption

31 A&A Update GASB 77 GASB 77 Tax abatements ask required annually! Obtain info: Annual letter asking for info from taxing units Is taxing unit able to provide info now automatically County-wide reporting available? Evaluate data and ensure it makes sense Information should be available now don t wait!

32 A&A Update GASB 68 GASB 68 Balances as of 9/30/17 for 6/30/18 reporting Contributions from 10/1/17 to 6/30/18 identified for: Out of pocket pension, out of pocket OPEB, DC plan, and UAAL allocation ORS and OAG processes will not significantly change Census information should still be maintained Data should be available mid July OAG will be sending confirmations again, need 100% response rate

33 A&A Update Update to Government Auditing Standards Exposure Draft issued, final expected in 2018, possible effective date 6/30/19 Several changes expected New Auditor CPE requirements this MAY be deleted from the final version! Independence requirements updated Asks auditor to report on identified waste Impact to School Districts More investment by the auditor Review of some services to ensure independence Potential unreasonable requirement to assess non-financial statement matters

34 A&A Update Grants Management MDE School Audit Manual On MSBO website. Great resource. Available shortly. Advise reviewing! ESSA Building level activities - accounting Food Service: Indirect costs, ensure amounts are computed correctly and correctly charged to the fund fixed asset procurement, was preapproval and building level purchase preapproval caps considered for assets acquired Federal Compliance Supplement Used by auditors to test federal grants skinny update expected in May, only significant changes added

35 A&A Update SURPRISE!