Are You Audit Ready?

1. Are You Audit Ready? Presented by Donna Collins Milestone Professional Services

2. Are you Audit Ready? • Things that make this process difficult • Limited staff • Budget cuts - fewer people • Availability of personnel to assist with audit prep • Limited technical ability • Within key Finance positions • May be in support areas that impact audit

3. Are you Audit Ready? • Things that make this process difficult • Demanding nature of the process within relatively tight timeframe • Auditors generally want to start ASAP • Council/Commission expectations • GFOA certificate program deadline • Filing due within 9 months versus 12

4. Are you Audit Ready? • Things that make this process difficult • Information outside of the control of the Finance Department • Valuations (pension, OPEB) • Landfill closure (engineer reports, FDEP compliance) • Interpretation and expectation differences • Auditor/Government understanding of technical standards • Governing body expectations

5. Are you Audit Ready? • Things that make this process difficult • Coordination with other departments • Information for accruals • Project status for construction projects • Grant information from operations

6. Are you Audit Ready? • Keys to smoother audit season • UNDERSTANDING OF THE OBJECTIVES • PLANNING MEETING • COORDINATION • FOLLOW THROUGH • COMMUNICATION • PATIENCE

7. Are you Audit Ready?Our focus for today • The process within the government • Understanding the auditor’s perspective

8. Process within the Government • Coordinate with outside organizations • Coordinate with internal departments • Update documentation • Perform closing procedures • Perform year-end account analysis and propose necessary journal entries

9. Process within the Government • Prepare for a single audit (if applicable) • Prepare auditor requested items • Prepare financial statements • Complete a GAAP disclosure checklist • Prepare Annual Financial Report

10. Coordinate with Outside Organizations • Identify the items needed from others • OPEB Valuation • Pension Valuations • Self-Insurance Certification • Swap Effectiveness Calculation (GASB 53) • Make sure authority to contract has been given at the appropriate level.

11. Coordinate with Outside Organizations • Communicate deadlines clearly and make sure they are incorporated into the contract. • Know the key contact personnel for follow up or questions. • Coordinate with auditors regarding timing of audit and due dates for financial statements.

12. Coordinate with Internal Departments - General • Many items needed to prepare for the audit are provided by other departments within the government. • Make a list of these items that is complete. • Add requested by dates and make sure they will meet your needs and be reasonable for the department that must provide the items.

13. Coordinate with Internal Departments • Plan to Plan • Have a meeting with all key players. • If you need something from a department, include them in the meeting. • Do this timely. Early August is not too early. • Be organized and prepared. Set up system that works for your department.

14. Coordinate with Internal Departments • Send email or memo to all participants of planning meeting that: • Summarizes what was discussed and who is responsible (responsibility chart) • Requires acknowledgement of receipt • Allows for their input if something missing

15. Coordinate with Internal Departments • Communicate with Departments • Payable cut-off and system lock out dates • Inventory dates and count procedures • Final Budget adjustment needed • Make sure to include key support personnel in the communication • Financial personnel • Operational personnel • Administrative assistants

16. Coordinate with Internal Departments • Communicate needs with Departments • Schedules and assistance that will be needed from that department • audit or year-end close schedules or reports • identification of CIP projects completed • access to files for auditors • footnote information

17. Coordinate with Internal Departments • Don’t forget to coordinate with the Information Technology Department • Reports needed • Internal Control document updates • P.O. roll over procedures • Input of new budget • Actual roll over of old year

18. Coordinate with Internal Departments • Document your plan including all significant tasks, responsible individual and due date • Matrix • Checklist • Narrative

20. Coordinate with Internal Departments Communication should be: Early Complete Effective

21. Coordinate with Internal Departments • Follow up is generally necessary • Finance deadlines don’t necessarily correlate with internal department processes. • Reminders of the dates items are needed and the impact they have on the audit flow may be helpful. • Make sure to communicate with support personnel. They often can facilitate your request.

22. Coordinate with Internal Departments • Be patient, but ask early

23. Update Documentation • Internal Control Narratives • Existing procedures • New processes or controls • Key personnel changes • Make sure that documentation agrees with actual process being followed by staff

24. Update Documentation • Information Technology flowcharts • New software and impact on internal processes • Upgrades to software • Changes in key personnel or information flow • Additional physical safeguards put in place • Risk assessment of any new technology purchased and controls in place

25. Update Documentation • Significant contracts and agreements • New major grants • Risk assessment for the government • Identify potential risks and controls that address the concern • Evaluate fraud risk specifically • Consideration of new technical standards and a plan for implementation

26. Perform Closing Procedures • Make sure duties are outlined on planning document created earlier in this process. • Remember that certain reports may only be run on 9/30 due to system limitations • A/R and A/P detail • Deposit detail • Purchase orders carried forward • Sick/Vacation (Accrued Leave Report)

27. Cash and Investments • Timing – can be done early in the year-end process • Bank Reconciliation is key – get this done timely, fill in deposit footnote piece • Pooled cash equity - reconcile to equity in each fund

28. Cash and Investments • Investments – reconcile to trustee statements (best if done monthly) to ensure all transactions are properly recorded including interest • Footnotes for investments can be prepared once 9/30 transactions recorded (effective duration by investment type, concentration of asset by type, etc.)

29. Payroll • Many general ledger software packages can handle accrual automatically. • Find out if your software has this option • Test the accrual in “train mode” if possible • Propose accrual (and reversing entry) as part of processing the last payroll of the year.

30. Payroll • Prepare the reconciliation for the auditors at the time the 941 is filed • Run leave reports (vacation and sick) after the last payroll for the year. Compensated absence schedules, footnote and accruals can be done shortly after the last payroll run.

31. Perform Year-end Account Analysis • Include all major funds and accounts with high risk. Begin at TB level but also review G/L detail where necessary. • Make sure all “negative” account balances are reclassified (negative assets moved to liability, etc.) • Document results of analysis

32. Account AnalysisGeneral Suggestion • Consider monthly reconciliation for all balance sheet accounts (Black book). • Document findings during monthly budget to actual comparisons for use in year end fluctuation analysis work. • Book the reversing entry when you book an accrual.

33. Account Analysis -Receivables • For State Revenues/Receivables: • Prepare FLAIR reconciliation • Book accruals • Reverse prior year accrual • Add amounts to Due from Other Government audit workpaper (and footnote, if applicable)

34. FLAIR Reconciliation

35. Account Analysis -Receivables • For other revenues/receivables: • Agree subledger to general ledger • Print detail report of subledger balances. (Report can be spooled for later printing or review. ) • If clean up is needed, propose the entry then and rerun report or prepare a reconciliation to the G/L.

36. Account Analysis -Receivables • Grants – when submitting reimbursement request, add any accruals to Due from Other Governments schedule (prepared for auditors and footnote, if applicable) • Look for 12 months of receipts for routine payments • Revenue recognition policy affects accruals

37. Account Analysis - Receivables • For significant interlocal agreements, check revenue against contract to see if receivable needs to be accrued. Do this when recording the last receipt prior to 9/30. • Don’t forget to reverse prior year accruals. • Prepare reversing entry for 10/1 at the time you prepare the 9/30 accrual.

38. Account Analysis - Revenue • Perform analytics that compare current year to prior year and current year to budget. Make sure explanations make sense in connection with other known trends. (This will be useful in MD&A.)

39. Account Analysis - Debt • Can be done early • When you make last payment for the year, update the debt progression schedule for the audit and footnotes. • Be diligent in keeping a file for all new debt issues and lease arrangements. When you obtain or run amortization schedules, add to audit file and footnote schedules.

40. Account Analysis - Debt • For proprietary debt, ensure that ending balance per progression agrees to general ledger • Premiums and deferred amounts can be amortized and then added to debt progression shortly after year-end. • Make sure ending balances agree to G/L

41. Account Analysis - Expenditure Accruals • Consider performing a Search for Unrecorded Liabilities • Set scope below auditor’s scope • Perform for at least 3 months across all funds • Document reasons for not accruing transactions

42. Account Analysis - Expenditure Accruals • Look at major contracts for retainage and necessary accruals and go ahead and draft commitment footnote. • Perform analytics that compare current year to prior year and current year to budget. Make sure explanations make sense in connection with other known trends. (This will be useful in MD&A.)

43. Account Analysis - Accounts Payable • Run detail at 9/30 at your cut off date and keep this report for auditors to use for tie in for their Search for Unrecorded Liabilities • Make sure this detail agrees to TB for each fund.

44. Account Analysis - Capital Assets • Reconcile capital outlay monthly • Consider monthly review of all R&M and Small Tools accounts • Document reasons for not-capitalizing any 6000 account. • Prepare a reconciliation for all 6000 accounts to asset additions

45. Capital Asset Reconciliation • Sample City

46. Account Analysis - Capital Assets • Identification of CIP completed can begin before year end. • Can be time consuming. • Make requests early. • Don’t forget about intangible assets.

47. Account Analysis – Fund Balance • Prepare progression of fund balance amounts (by fund) • Ensure classifications from prior year are still accurate. • Identify new description needed within nonspendable, restricted, committed or assigned categories • Update footnote

48. Prepare for a Single Audit • Centralized vs. decentralized accounting for grants will impact this area. • Decentralized grant management will require earlier coordination/communication with each department that has a grant for the fiscal year.

49. Prepare for a Single Audit • Practical suggestions include: • Make sure you have a separate folder for each significant grant that includes: • the grant agreement • the relevant compliance supplement (that the auditors will use to determine testing required) • Council/Commission acceptance of the grant • CFDA or CSFA number

50. Prepare for a Single Audit • Practical suggestions include: • Make sure you have a separate folder for each significant grant that includes: • all reports submitted to the agency • Financial and operational • Reconcile financial reports to the g/l • Attach receipt documentation to request so that date of receipt is easily identified • Support for all accruals/deferrals • Documentation of FFATA reporting performed