5/17/2016 GASB UPDATE. Tara Fenner, CPA, CMFO. How we really feel about GASB!

Transcription

1 GASB UPDATE Tara Fenner, CPA, CMFO How we really feel about GASB! 1

2 No worries! We are here to help! GASB 68 & 71: PENSIONS We Made It! Now What? 2

3 Review GASB 68, Accounting and Financial Reporting for Pensions an amendment of GASB 27 Requirement to record the net pension liability for the total estimated benefit obligations and the impact to equity to record the plan transactions as if they had always been booked GASB 71, Pension Transition for Contributions Made Subsequent to the Measurement Date an amendment of GASB 68 Requirement to record a deferred outflow of resources for any contributions made subsequent to the measurement date (most commonly, the prior year end) Implementation Issues Timeliness and accuracy of actuarial reports Complications with intricacies of multiple plan types Significant amount of new disclosures and RSI Deficiencies noted during census data testing Situations / questions not addressed in the guidance 3

4 June 30, 2016 Impact on Pensions Census Data Testing Actuary reports and auditor opinions - obtained for the new measurement date (most likely ) Entries will be needed to record the plan s activity as of the new measurement date Implement applicable portions of GASB 73 Determine whether or not to early implement GASB 78 and 82 Expect more changes as the state completes review of FY15 audit reports GASB 73, Pensions Not Within the Scope of GASB 68 Assets should NOT be considered plan assets - but similar notes and RSI required for such situations Also amends GASB 67 and 68 to clarify: Investment-related factors affecting trends is required in notes to RSI Reporting for separately financed specific liabilities of individual employers and nonemployer contributing entities (NCE s) Timing of employer revenue recognition for support of NCE s NOT in a special funding situation 4

5 GASB 73, Effective Dates Portions of this guidance related to plans and participants that do fall under GASB 68: periods beginning after June 15, 2015 (FY 2016) Effective for plans not under GASB 68: periods beginning after June 15, 2015 (FY 2016) Effective for employers with plans not under GASB 68: periods beginning after June 15, 2016 (FY 2017) GASB 78, Pensions Provided through Certain Multiple- Employer Defined Benefit Pension Plans Effective: periods beginning after December 15, 2015 Amends the scope of GASB 68 to exclude pensions provided through a cost-sharing multiple-employer DB plan, if certain criteria are met Provides guidance for recognition and measurement, footnotes, and RSI 5

6 GASB 82, Pension Issues an Amendment of GASB 67, 68, and 73 Changes the definition of covered payroll for RSI payroll on which contributions to the pension plan are based Provides guidance for employer-paid member contributions Addresses deviations in actuary reports GASB 82, Effective Dates Effective: periods beginning after June 15, 2016 (FY 2017) payroll definition employer-paid member contributions retroactive application - explanation for not restating prior periods Effective: first reporting period when the measurement date is on or after June 15, 2017 selection of assumptions prospective application 6

7 NEXT CHALLENGE: GASB 74 & 75 Other Postemployment Benefit Plans (OPEB) What are Other Post Employment Benefit (OPEB) Plans? Plans that provide benefits other than pensions to retired employees Common plan types include: Health care Life insurance Disability Legal and other services 7

8 GASB 74 & 75: Plan Arrangements Requirements are different depending on the plan arrangement Single Employer Plans: OPEB provided to employees of one employer Agent Multiple-Employer Plans: assets are pooled for investment, but separate accounts are maintained for each employer to pay benefits to only its employees Cost-sharing Multiple-Employer Plans: assets are used to pay the pooled benefit obligations of more than one employer GASB 74, Financial Reporting for Postemployment Benefit Plans Other than Pension Plans Effective: periods beginning after June 15, 2016 FY

9 GASB 74: Scope OPEB Plans (DB and DC) administered through trusts with the following: Contributions from employers and earnings thereon are irrevocable OPEB plan assets are dedicated to providing OPEB to plan members OPEB plan assets are legally protected from creditors of employers, NCE, OPEB plan administrator, and plan members if a DB plan GASB 74: Defined Benefit OPEB Plans Financial Statements and Notes Financial Statements Required: Statement of Fiduciary Net Position Statement of Changes in Fiduciary Net Position Notes to the financial statements must disclose: Types of OPEB provided, classes of plan members covered, composition of the OPEB plan s board Plan investment policies, concentrations > 5% of fiduciary net position, annual money-weighted rate of return Contributions, reserves, and allocated insurance contracts 9

10 GASB 74: Defined Benefit OPEB Plans Additional Disclosures Additional disclosure requirements for single-employer and cost-sharing Components of the net OPEB liability and related ratios Significant assumptions / inputs used to measure the total OPEB liability Information about the sensitivity of the measure of the net OPEB liability to changes in the discount rate and healthcare cost trend rate GASB 74: Defined Benefit OPEB Plans RSI Required Supplementary Information must include: 10 year schedule for rate of return Must explain factors that affect trends in the amounts reported in RSI Changes of benefit terms Changes in the size or composition of the covered population The use of different assumptions 10

11 GASB 74: Defined Benefit OPEB Plans Additional RSI Single-employer and cost-sharing must also provide 10 years of: Sources of changes in net OPEB liability Components of the net OPEB liability and related ratios If actuarially determined contribution is calculated, 10 years of Actuarially determined contribution Actual contributions and related ratios Significant methods and assumptions GASB 74: Defined Benefit OPEB Plans OPEB Liability Total OPEB Liability - OPEB Plan s Fiduciary Net Position = Net OPEB Liability Total OPEB Liability is determined through actuarial valuation Must be calculated at least every 2 years Cannot be more than 24 months prior to the OPEB plan s fiscal year end Projected benefits must be based on claims costs benefit terms outlined in the written plan document 11

12 GASB 74: Defined Benefit Plans Not Administered through Trusts Assets should NOT be considered plan assets, but must be reported as assets of the employer The government holding those OPEB assets must report them in an agency fund Assets in excess of liabilities and expenses should be reported as liabilities to the participating employer The benefit payments reported by the agency fund must exclude amounts that pertain to the employer GASB 74: Defined Contribution OPEB Plans Notes to the financial statements must disclose: Classes of plan members covered Number of plan members Participating employers and NCE, if any Authority under which the OPEB plan is established or may be amended 12

13 GASB 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions Effective: periods beginning after June 15, 2017 (FY 2018) Scope: all OPEB provided to state and local government employees GASB 75: Measurement of OPEB Liability Total OPEB Liability - OPEB Plan s Fiduciary Net Position = Net OPEB Liability Total OPEB Liability is determined through actuarial valuation Must be calculated at least every 2 years No more than 30 months + 1 day prior to the employer s most recent FYE Projected benefits must be based on claims costs benefit terms outlined in the written plan document 13

14 GASB 75: Single and Agent Employers - Financials Net OPEB Liability: measured between PY and CY Several items expensed immediately Differences in expected and actual experience: expensed over average remaining service lives of all participants Differences in projected and actual earnings: expensed over 5 years Deferred Outflows: Changes in the liability not expensed and employer contributions subsequent to the measurement date GASB 75: Single and Agent Employers - Disclosures Types of benefits provided and classes of covered employees Sources of changes in net OPEB liability for the current year Significant assumptions and other inputs used and any changes The date of the actuarial valuation Benefit terms Basis for determining employer contributions, and Any allocated insurance contracts purchased 14

15 GASB 75: Single and Agent Employers - RSI Must present as of the measurement date, for 10 years Sources of changes in the net OPEB liability Components of the net OPEB liability and related ratios Fiduciary net position as a % of total OPEB liability Net OPEB liability as a % of covered-employee payroll If actuarially determined contribution is calculated, 10 years of Actuarially determined contribution Actual contributions and related ratios Significant methods and assumptions GASB 75: Cost-Sharing Employers - Financials Same guidelines as single and agent employer plans Except: Employer s proportionate share used to record net OPEB liability, expenses, deferred outflows/inflows 15

16 GASB 75: Cost- Sharing Employers Notes and RSI Disclosure is required Descriptive information about the plan, discount rate and assumptions, and how contributions are determined RSI presented for 10 years Net OPEB liability and certain related ratios Information about required contributions, actual contributions to the OPEB plan, and related ratios GASB 75: Defined Benefit OPEB Not Administered Through Trusts Insured Benefits premiums paid during active service, insurance company pays the OPEB obligations Recognize OPEB expense equal to the premiums paid Disclose benefits provided OPEB Other than Insured Benefits - similar to requirements for those administered through trusts Measurement of OPEB liabilities, expense, deferred outflows/inflows Similar note disclosures and RSI Modifications to reflect the absence of OPEB plan assets 16

17 GASB 75: Defined Contribution OPEB Plans OPEB expense: contributions/credits to the employee accounts, net of forfeited amounts Record change in liability for the difference between the expense and the amount actually provided to the plan Note disclosures include plan description, benefit terms, contribution rates and determination, amounts attributed to employee service, and forfeitures How to Prepare for GASB 74 & 75 Evaluate your OPEB plans Determine actuarial reports/measurement dates Track contributions made to each of the plans Census testing Gain understanding of the requirements 17

18 GASB 72, Fair Value Measurement and Application Effective: periods beginning after June 15, 2015 (FY 2016) Measure fair value using one of three valuation techniques These are MANAGEMENT decisions Disclosure required for amount, leveling, technique by asset type Three levels of the input hierarchy Level 1 quoted prices in active markets Level 2 other observable inputs Level 3 unobservable inputs (appraisals, assumptions, etc. ) 18

19 GASB 76, The Hierarchy of GAAP for State and Local Governments Effective: periods beginning after June 15, 2015 (FY 2016) Authoritative Guidance GASB Statements GASB Technical Bulletins, implementation guides, AICPA literature approved by GASB Nonauthoritative Guidance GASB concept statements, guidance issued by the FASB, FASAB, IASB, AICPA literature not cleared by GASB GASB 79, Certain External Investment Pools and Pool Participants Effective: periods beginning after June 15, 2015, EXCEPT for provisions on portfolio quality, custodial credit risk and shadow pricing. Measurement of all investments at amortized cost if criteria is met for: How the pool transacts with participants Portfolio maturity, quality, diversification, and liquidity requirements Shadow price calculations and requirements If criteria is not met: the pool and its participants continue to measure at fair value 19

20 GASB 77, Tax Abatement Disclosures Effective: periods beginning after December 15, 2015 The gov t forgoes tax revenue for an action taken by another entity that will benefit the gov t or its citizens Disclosures will be required for the reporting government s agreements along with those of other governments that have an impact Description of the agreements, amount of taxes abated, etc. Provide users transparency regarding tax abatement agreements 20

21 GASB 80, Blending Requirements for Certain Component Units Effective: periods beginning after June 15, 2016 (FY 2017) Amends the blending requirements of GASB No. 14 Includes additional criteria for not-for-profit component units in which the government is the sole corporate member GASB 81, Irrevocable Split-Interest Agreements Effective: periods beginning after December 15, 2016 Retroactive application Charitable lead trusts, charitable remainder trusts, and life-interests in real estate where the government shares beneficiary rights Recognize assets, liabilities, and deferred inflow of resources at inception Recognize revenue when resources become applicable to the period 21

22 Resources GASB website at Statement Details and Summaries Implementation Guides Effective for periods beginning after June 15, Effective for periods beginning after June 15, 2016 Questions? If questions arise, please feel free to contact me Tara Fenner, CPA, CMFO Audit Manager Blackburn, Childers & Steagall (423)

23 Navigating the OMB Circular What did it do? Where are we after a year? Became effective December 26, 2014 for any new awards or modifications to existing awards Provide Uniform Administrative Requirements Cost Principles Audit Requirements 1

24 Uniform Administrative Requirements For all federal awards grants, cooperative agreements, loan agreements and any other agreements for federal assistance Provides the same guidance for not for profits, governmental entities, and colleges and universities (and for profit entities required to follow OMB) Superseded A 122; A 87; A 21; A 110; A 102; A 89; A 133 & A 50 Six Parts Subpart A Acronyms and Definitions Subpart B General Provisions Subpart C Pre Federal Award Requirements and Contents of Federal Awards Subpart D Post Federal Award Requirements Subpart E Cost Principles Subpart F Audit Requirements And 11 appendices which deal with various issues addressed in the subparts 2

25 Key Changes in Administrative Guidance Financial Management System MUST include identification, in the accounts, of all federal awards received and expended Information must include the CFDA number, the year covered, the award agency and any pass through entities (information that has been shown on the SEFA Schedule of Expenditures of Federal Awards) Written procedures to implement cash management requirements are required to obtain any grant advances (if not, only the reimbursement method will be allowed) Subpart C Pre Award Requirements Federal awarding agency MUST provide public notice of federal assistance programs in the Catalogue of Federal Domestic Assistance (CFDA) MUST announce competitive funding opportunities Use RFPs and standard applications MUST evaluate applicants 3

26 Allowable v. Unallowable ALLOWABLE Reasonable; Necessary Conforms with Policies Treated Consistently In accordance with GAAP Not used for cost share or match or match requirement UNALLOWABLE Fundraising; Advertising; Public Relations; Lobbying Entertainment, except program related Salaries above established caps Primary Objective Eliminate duplicate and conflicting guidance Focus on performance over compliance for accountability Encourage efficient use of information technology and shared services Provide consistent and transparent treatment of costs Limit allowable costs to make best use of federal resources Encourage non federal entities to have family friendly policies Strengthen oversight Target audit requirements on risk of waste, fraud and abuse 4

27 Applies to Federal agencies that make federal awards to non federal entities and to the non federal entities that receive federal funds. Federal agencies had to implement their policies and procedures to be effective 12/26/14. May be a recipient a pass through entity or a sub recipient Best Practice Tip: Understand Who Follows What! AUDITEES Old awards=old cost principles and administrative requirements New awards and incremental funding=subpart D and E of the Uniform Guidance Also, certain sections of Subpart F Subawards subrecipients AUDITORS For performing the audit, follow Subpart F of the Uniform Guidance For purposes of testing compliance, auditors test against the criteria that the auditee is required to follow NOTE: this does not mean that separate samples have to be selected, but the testing will have to be appropriate to the award 5

28 Single Audit Status of Final Agency Adoption as of 4/18/16 Agency State U S Agency for International Development (USAID) Energy Commerce Environmental Protection Agency (EPA) National Aeronautics & Space Administration (NASA) Archives Homeland Security (FEMA) Institute of Museum & Library Services (IMLS) Agriculture Federal Register Notice Date 6/2/15 9/17/15 9/24/15 7/28/15 10/9/15 9/11/15 8/25/15 10/2/15 9/21/15 2/16/16 Single Audit Status of Final Agency Adoption as of 4/18/16 (continued) Agency National Endowment for Humanities (NEH) Office of National Drug Control Policy (ONDCP) Housing and Urban Development (HUD) National Science Foundation (NSF) Corporation for National & Community Service (CNCS) Social Security Administration Veteran s Affairs (VA) Education Department of Transportation Health and Human Services Federal Register Notice Date 9/26/15 9/23/15 12/7/15 11/27/15 11/17/15 11/10/15 12/1/15 11/2/15 12/17/15 1/20/16 6

29 BEST PRACTICE TIP: Understand Whether Agency Differences will Affect Major Program Work Auditee Needs to determine federal agency differences and how the difference relate to their compliance Auditor After determining major programs to test, auditors should determine whether any agency differences will affect audit procedures FOR EXAMPLE: HUD does not permit certain costs that would otherwise be allowable under the UG Changes to Organization Wide Policies For entities with June 30 year end, July 1, 2015 was the first full fiscal year that the new Circular was to be followed; several new policies may have been required (and will be checked during your audit): Cost sharing and matching issues, including in kind contributions Payroll Issues Procurement Policies Indirect Cost Rates and Indirect Cost Rate Proposals Conflict of Interest Policy 7

30 Documentation of Compensation for Personal Services Circular provides more flexibility in documenting staff time no longer SPECIFICALLY requires personal activity reports. However, documentation IS required but the circular does not say exactly how to do that. Time records will meet the requirement and at this time probably best to continue to use these Goal is to allow alternate methods of accounting for salaries and wages based on achievement of performance outcomes, but again, no clear guidance yet on how to document this Procurement Procedures and Thresholds GOOD NEWS! One year grace period for compliance has been extended to two years. (for years with a 6/30 year end=fy 7/1/17 6/30/18) Need to compare existing procurement policies and procedures to the Circular and make any necessary changes Procurement procedures should address: 1. Budget Revisions 2. Small purchases 3. Sealed bids 8

31 Procurement Changes More structured Purchases above $3,000 must include varying levels of documentation (below can be considered small purchases) Purchases between $3,000 $150,000, require a lower level of competition ( simple and informal ) can be solicited informally and do not require price analysis. RECOMMEND: have some graduated requirements in this range. Purchases over $150,000 Require bids or negotiated purchases. RECOMMEND: use a small purchase face sheet, or purchase order CAUTION: Entities MUST use same requirements for federal and non federal procurement. Indirect Costs Federally recognized indirect cost rate that has been negotiated with the federal government, or Indirect cost rate that is 10% of modified total direct costs (MTDC) considered a de minimis indirect rate, or Can request a lower negotiated rate If an entity has NEVER had an indirect rate, they may choose the 10% de minimis rate indefinitely. For entities that have a negotiated rate, they can request a one time extension of their rate for up to 4 yrs. ADMINISTRATIVE COSTS does NOT equal INDIRECT COSTS 9

32 Pass Through Entity Requirements Every sub award MUST be clearly identified. The oversight entity is required to have 1. Single Audit 2. Provide pass through entity information and verify their compliance 3. The pass through entity must establish an indirect cost rate 4. The pass through entity must have performed risk assessments and adhere to the audit compliance 5. Difference in a subrecipient and a contractor (vendor) 6. Must perform on site monitoring Audit Requirements AUDIT THRESHOLD raised from $500,000 to $750,000 (for Single Audit) Increased focus on internal controls Effective for years beginning after 12/26/14. (so for 6/30 year ends, the first year is FYE 6/30/16) 10

33 Low Risk Auditee Status Key changesto be considered low risk auditee, in each of two preceding periods, must have: unmodified opinion(s) on financial statements in accordance with GAAP or basis of accounting required by state law, AND No auditor reporting of going concern Schedule of Expenditures of Federal Awards (SEFA) Face of SEFA must now include all federal awards expended including: 1. Noncash Assistance 2. Loan Programs and Loan Guarantee Programs 3. Amounts Passed Through to Subrecipients for each program Footnotes to SEFA include: 1. Year end loan balances 2. Significant accounting policies 3. Whether or not the entity used 10% de minimis indirect cost rate 11

34 Major Program Determination and Risk Assessment STEP 1 STEP 2 STEP 3 STEP 4 Identify Type A Programs $750,000 Identify Low Risk Type A Programs Must have been audited as a major program in at least 1 of the 2 most recent audit periods, AND must not have had a Modified opinion, material weakness in IC over Compliance or known or likely questioned costs, exceeding 5% of total program costs. Identify High Risk Type B Programs Risk assessment of Type B programs is not required if there are no low risk Type A programs Determine Major Programs to Audit Identifying Low Risk Type A Programs NOTE: An entity with strong internal controls and few audit findings will likely have fewer high risk Type A programs No longer consider inherent risk or complexity Professional judgment still allowed in pass through entity oversight results of audit follow up changes in personnel or systems Note that there are also changes in determining a large loan program ; which is a Type A program or evaluating other loan programs 12

35 Identifying High Risk Type B Programs Perform risk assessments on Type B programs until high risk Type B programs have been identified up to at least ¼ of the number of low risk programs CAUTION: If you assess risk and find more high risk Type B programs than you need, you will HAVE TO audit them. Careful planning is needed. Criteria: Current & prior audit experience Oversight exercised by Federal agencies and pass throughs Inherent risk of the Federal program (nature & complexity, phase of program in life cycle at Federal level, phase of program at the entity level, and the size of the award) Determine Major Programs to Audit All Type A except those identified as low risk All Type B identified as high risk (remember you do not have to assess all of them, but all that are assessed as high risk, must be audited) Such additional programs necessary to comply with percentage of coverage needed: If low risk auditee; minimum=20% of federal awards expended If not low risk; minimum=40% of federal awards expended 13

36 BEST PRACTICE TIP Have the auditee prepare an inventory of UG and pre UG awards at the beginning of the audit Use the compliance supplement Appendix III for contact information Questions regarding the applicable criteria should go to agency single audit coordinators NOTE: the 2016 Compliance Supplement is expected to be released in July Internal Control Auditee Responsibility Non federal entity MUST establish and maintain effective internal control over the federal awardproviding reasonable assurance that the nonfederal entity is managing the award in compliance with federal statutes, regulations and the terms and conditions of the award. IC should be in compliance with guidance in the GAO Green Book (but no requirement to use) 14

37 Auditee Navigate by Having policies and procedures ready and keep all guidance in one location for: 1. Cash Management 2. Allowability of costs 3. Policy for and proper recording of in kind contributions and other matching 4. Document whether you followed the new procurement policies in the first year or used the one year grace period and start now. 5. Develop (or update) the Procurement Policy, addressing budget amendments, treatment of small purchases and handling sealed bids. 6. Conflict of Interest Policy Auditee Navigate by (continued) Performance reporting will now include: 1. reporting on accomplishments 2. comparing accomplishments to objectives 3. explain where goals were not met Establish and Maintain effective IC 15

38 Auditee Navigate by (continued) Monitor sub recipients, including ON SITE VISITS Adopt an indirect cost plan, if you don t already have one. If you do, consider whether requesting an approved time frame for it makes sense. Evaluate your payroll record keeping Disclose any violations of federal criminal law Update program manuals, employee handbooks or other materials to reflect compliance with the SUPER circular Auditor Navigate by Effective date of UG and transition to UG will affect testing (old vs. new) Internal control changes may introduce challenges (Part 6, IC, OMB Compliance Supplement historically had more guidance) Effect of agency differences in UG implementation IC over compliance testing identify UG awards, understand changes in IC over compliance due to Procurement, Subrecipient monitoring, Allowable Costs Compliance Testing may take time for old funds to run out; subrecipient issues, no separate samples needed for old vs. new but testing will change 16

39 Auditor Navigate by (continued) No UG changes needed in the Yellow Book report No significant changes to single audit reporting reference to OMB Circular A 133 changed to Uniform Guidance UG finding elements will now include whether sampling was statistically valid May have more testing (type B, transitional issues) Consider how sample test is documented when there are old and new awards. What Auditors MUST Get Right PLAN 1. Yellow Book Independence Evaluation and Documentation 2. Engagement Team Selection 3. Acceptance & Continuation of Single Audit Engagements AUDIT PROCESS 1. Major Program Determination, % of Coverage, SEFA 2. IC over compliance & Compliance testing (including sampling) 3. Documentation, Documentation, Documentation REPORT 1. Correct Reporting 2. Correct Reporting of Audit Findings in Both SA report & DCF 17

40 Resources GAO Yellow Book Web Page GAO Green Book Web Page UG codified in Title 2 of CFR, Subtitle A, Chapter II, Part 200 OMB Federal Financial Management Web Site Access Compliance Supplement and various other UG related documentshttp:// Federal Audit Clearinghouse State of TN Comptroller of the Treasury Contact Information: Karen McMurray, CPA, CFE, CICA, CGMA karen@bcscpa.com