Finance and Audit Committee 2012 Audit Planning Meeting June 4, 2012
Audit Planning Agenda UT Audit Team Reporting and Responsibilities Audit Approach Audit Issues Timing and Key Dates Letter of Auditor Responsibilities and Peer Review Report 1
UT Audit and Tax Team Robb Rose Audit Partner 419.842.6188 Robb.Rose@plantemoran.com Bob Dery Audit Partner 248-223-3223 Bob.Dery@plantemoran.com Jennifer Kujawski Manager - Audit & A-133 419.842-6202 Jennifer.Kujawski@plantemoran.com Suzy Walch In Charge - Audit & A-133 419.842-6211 Suzy.Walch@plantemoran.com 2
Reporting and Responsibilities Plante Moran Reports Opining on FY 2012 Financial Statements and Federal programs Procedures related to compliance with NCAA Bylaws Opining on FY 2012 CAFR Agreed upon procedures for Ohio Department of Mental Health program and compliance with the actual uniform cost report guidelines. Plante Moran Responsibilities To express an opinion on the University s financial statements To express an opinion on the major federal programs of the University To provide reasonable, not absolute, assurance of detecting material misstatement To gain an understanding of internal controls, policies and procedures to design an effective audit Plante Moran has issued the following Letters for 2012: Planning Stage Engagement letter for financial statement and federal program audits Letter on Auditor Responsibilities with required attachments 3
Reporting and Responsibilities (continued) Plante Moran will issue the following Reports and Letters (continued): At Completion of work: An opinion on the financial statements of the University A SAS 114 Letter Report on the Conduct of the Audit OMB Circular A-133 reports and schedules Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control over Compliance in accordance with OMB Circular A-133 A Schedule of Findings and Questioned Costs A Management Recommendation Letter with management responses, if applicable A report on Agreed Upon Procedures related to Intercollegiate Athletics in Accordance with NCAA Bylaws 4
Financial Statement Audit Audit Approach General Controls Review and Paperless System testing (i.e., registration and tuition) Risk Based Approach More time will be spent on those areas considered higher risk Documentation and testing of key accounting processes and internal controls by major cycles Purchasing, expenditures and accounts payable, payroll and related year end liabilities, Revenue, receipts and accounts receivable, investments and related income, Financial reporting OMB Circular A-133 reports Audit is performed in compliance with federal regulations and includes compliance and internal control categories as defined by OMB For 2012, Student Financial Aid and R&D program will be tested Other programs will also be tested if federal expenditures exceed approximately $1.5 million at June 30, 2012 and they have never been tested before And/OR If federal expenditures are over $500,000 and ARRA funding is equal to or greater than 20% of the cluster, the program is considered a high risk based on federal guidelines 5
Audit Approach (continued) NCAA Agreed Upon Procedures Suggested procedures for line items determined by NCAA Higher risk items will be tested based on discussions with management and knowledge of programs and related revenues and expenses Suggested items to test in 2012: Revenues ticket sales, contributions, sponsorships, NCCA/Conference distributions, guarantees Expenses coaching salaries, team travel, student aid, booster activity Plante Moran has been advised: The University is in compliance with all regulatory, governmental and grant requirements There have been no material acts of fraud or embezzlement There have been no significant acts of fraud related to federal programs The University is not aware of any accounting entries made which are not in the normal course of business The University is not aware of any illegal or improper acts 6
Audit Approach (continued) Materiality - Plante & Moran determines materiality by the users of the statements Identified users State and Federal Governmental agencies, bond rating agencies, donors, and the Board of Trustees Factors used Total Assets, Total Net Assets, and Total Revenues Communications with the Finance and Audit Committee: Required fraud inquiries during planning process All services provided by Plante Moran to UT Independence, in compliance with GAO requirements Passed adjustments schedules Changes in report presentation Leveraging the work of the University s Internal Audit Department: A133 student financial aid eligibility testing A133 research and development allowability testing IT review/assessment (in conjunction with Plante & Moran IT team) NCAA agreed upon procedures Review of all key internal audit reports during the year Timing of audit work will ensure that financial statements will be presented to the Board at the October 2012 meeting 7
Inherent Risk AREA Tuition and fees and student accounts receivable INHERENT RISK ASSESMENT* (HIGH, MODERATE, LOW) Moderate/High AUDIT APPROACH Process and control systems testing; cutoff testing; tie out to reasonableness computation Hospital accounts receivable, net revenue estimation, third party settlements Allowances on student receivables Moderate/High Moderate/High Process and control systems testing; cutoff testing; revenue reasonableness computation, analytical review of settlement calculation and retrospective review Analytical procedures; review the methodology; consider historical experience and trends Federal grants Moderate/High A-133 Audit focus on Student Financial Aid and Research and Development State grants Moderate Review grant awards; vouch receipts; test disbursements Private gifts, grants and contracts and pledges receivable Moderate Process and controls systems testing; testing of detailed listings; vouch; consider confirming significant amounts Auxiliary activities Low Process and controls systems testing; tie out to reasonableness computation; analytical review 8
AREA Expenditures and accounts payable Net assets (including endowment funds) Property and equipment and related depreciation Cash/Investments related earnings and Inherent Risk (continued) INHERENT RISK ASSESMENT* (HIGH, MODERATE, LOW) Moderate Moderate Low Moderate/High AUDIT APPROACH Process and controls system testing; tie out specific amounts (e.g. depreciation and interest); analytical procedures, including comparisons to prior year and budgeted amounts, search for unrecorded liabilities Test carry-forward balances; verify donor intentions on new gifts; review documents and supporting schedules; test corpus balances to supporting documentation Test carry-forward of prior year balances; vouch additions; limited depreciation testing for consistency and appropriateness; testing of disposals Process and controls systems testing; confirmations; fair market value testing; alternative procedures for those investments without a fair market value Long-term debt obligations Low Confirmations; review documents and supporting schedules 9
AREA INHERENT RISK ASSESMENT* (HIGH, MODERATE, LOW) AUDIT APPROACH Long-term debt obligations Low Confirmations; review documents and supporting schedules Malpractice liability recognition Accrued payroll and related liabilities, compensation expenses and related benefits Moderate/High Low Process and controls systems testing; analytical procedures on the loss run calculation and review of actuary calculation Process and controls systems testing; analytical procedures based on increase in pay rates and/or FTE s; examine and test schedules or other support Other liabilities Low Examine and test supporting schedules Prepaid expenses and other assets Inherent Risk (continued) Low Examine and test supporting schedules *Inherent risk is affected by such things as materiality, the nature of transactions, the complexity of accounting for the transactions and the level of estimating involved. 10
Timing and Key Dates Opening Conference with Executive Management April 13, 2012 Detailed audit plan and list of prepared by University schedules provided April 13 Audit scope presentation to Finance & Audit Committee June 4 Preliminary fieldwork begins June 18 A-133 audit fieldwork begins June 18 Progress conference TBD Year-end field work conference TBD University finalizes accounting records TBD Year-end Fieldwork begins Health Science Campus August 27 Year-end fieldwork begins Main Campus August 27 University provides draft audit reports September 14 Closing meeting with management & final draft of financial statements September 28 Submission of Draft Management Letter to Administrative Staff, if applicable September 30 Mailing of final statements to Finance and Audit Committee October 1 11
Timing and Key Dates (continued) Presentation of audited statements (including A133 report) and management letter to Audit Committee October 8 Review of draft A-133 report in detail with administrative staff October 10 Delivery of printed audited statements for the University to the Auditor of State October 15 Final A-133 report to be issued to the University October 15 Health Science Campus Agreed Upon Procedure NCAA Agreed Upon Procedure Mid September Mid October 12
Letter on Auditor Responsibilities and Peer Review Report Under the Government Accounting Office (GAO) requirements, if a federal expenditure audit is being performed annually, prior to commencement of audit work, the Audit Committee and/or Board of Trustees are required to receive from the audit firm the following documents: Letter on Auditor Responsibilities Peer Review Report (this is performed every three years) 13
Appendix - Definitions Control Deficiency A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A deficiency in design exists when (a) a control necessary to meet the control objective is missing or (b) an existing control is not properly designed so that even if the control operates as designed, the control objective is not always met. A deficiency in operation exists when a properly designed control does not operate as designed or when the person performing the control does not possess the necessary authority or qualifications to perform the control effectively. Control deficiencies may involve one or more of the five interrelated components of internal control. Significant Deficiency A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity's financial statements that is more than inconsequential will not be prevented or detected. No significant deficiencies were identified by the audit team during the 2011 audit. Material Weakness A material weakness in internal control is a significant deficiency for which the design or operation of one or more internal control components does not reduce to a relatively low level the risk that errors or fraud in amounts that could be material in relation to the financial statements may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. No material weaknesses were identified during the 2011 audit. Fraud The term fraud includes misstatements arising from fraudulent financial reporting and misstatements arising from misappropriation of assets. Misstatements arising from fraudulent financial reporting are intentional misstatements, or omissions of amounts or disclosures in financial statements intended to deceive financial statement users. Misstatements arising from misappropriation of assets involve the theft of assets where the effect of the theft causes the financial statements not to be presented in conformity with GAAP. The University is responsible for the design and implementation of programs and controls to prevent and detect fraud. GAAP Generally Accepted Accounting Principles. Used by almost all entities in the USA to prepare periodic financial statements. 14
Appendix - Definitions Allowance An estimate determined by management based on past history of write off of student and contribution s receivable of the amount of student and contribution receivables at June 30 that are not expected to be received. A-133 Audit The U.S. Office of Management and Budget (OMB) Circular A-133 which sets forth standards for obtaining consistency and uniformity among Federal agencies for the audit of States, local governments, and non-profit organizations expending Federal awards. This is also known as Single Audit and is focused on programs funded with federal dollars. At the University, this primarily consists of student financial aid and research and development grants. 990T Corporate income tax form for exempt organization unrelated income. This primarily relates to income earned on limited partnerships that is considered taxable by the IRS (real estate and natural resources), and non-educational use of institutional property. Non-Exchange Transaction Revenues received by the University that are deemed not related to the University providing a service. They consist primarily of gifts, investment income, federal pell grant revenue and state operating appropriations. State appropriations are subject to annual approval by state legislature and are reported based on the state operating budget that funds the appropriation to the University. 15
Appendix - Definitions GAAS Generally Accepted Auditing Standards. The standards that govern the conduct of independent audits of non-public companies, as determined by the Auditing Standards Board (ASB) of the AICPA. GAGAS Generally Accepted Governmental Auditing Standards. Informally known as Yellow Book, these standards guide all audits of governmental units. GASB Governmental Accounting Standards Board is the governing accounting body that issues reporting pronouncements. The University prepares their financial statements in accordance with these pronouncements and guidance. Unqualified Opinion A signed representation by an auditor as to the reliability and fairness of a set of financial statements. The opinion could be qualified, unqualified, except for or adverse. At the University of Toledo, the opinion is unqualified which is the best opinion to have from an auditor. Auditor Opinion Date The date the audit is completed and the auditor can provide their opinion. This is defined as the date the audit fieldwork and reviews are completed and the date management has reviewed the financial statements and provided a signed representation letter to the auditors. Material Misstatement To present accidental or intentional untrue financial statement information that influences a company s value and such Significant Adjustments A material error in financial reporting discovered by the auditor during performance of their audit fieldwork which was large enough that it was required to be booked to the financial statements and disclosed to the audit committee or board. Passed Adjustments A summary of proposed account adjustments not recorded by management and reviewed by auditors and determined, individually or in the aggregate, not to have a significant effect on the financial reporting process and therefore they are not recorded in the financial statements. 16
Thank You! We look forward to continue serving. Higher Education Group Robb Rose, Partner 419.842.6188 Robb.Rose@plantemoran.com Bob Dery, Partner 248.223.3223 Bob.Dery@plantemoran.com Jenny Kujawski, Manager 419.842.6202 Jennifer.Kujawski@plantemoran.com plantemoran.com