Program Issues, Contract Requirements or Payments Contact Tina Bumgarner Tina.Bumgarner@dhhs.nc.gov (828) 397-3901

1. Foster Care Cost Report Training Program Issues, Contract Requirements or Payments Contact Tina Bumgarner Tina.Bumgarner@dhhs.nc.gov (828) 397-3901 Cost Report Questions Contact Mike Thompson Mike.Thompson@dhhs.nc.gov (919) 855-3684

2. Agenda • Requirements & Process Overview • The Cost Report • The Audit • Reconcile the Cost Report to the Audit • Additional Documentation • Best Practices

3. Requirements& Process • Submit the following to the Office of the Controller no later than March 15, 2014: • Financial Audit (from a licensed, independent CPA or CPA firm) • Completed & Reconciled Cost Report • Documentation of Child Care days • Supplemental Schedules/Reports (if necessary) • Completed rate review worksheet included with the cost report • Agencies must qualify through the Division of Social Services • Cost Report reviewed by Office of the Controller

4. Cost Report Basics • Complete the report: no strawberry fields • Residential facility info on Schedule A-1 should match DSS/DHSR published detail. • Cost report is based on the audit • Total expenses on Schedule C must match audit • Each expense on the cost report should match the corresponding expense type and program in the audit • Child care days must be separated by service

5. Cost Report Basics • Schedule C Anatomy: P-R-O-A-N • Identify unallowable expenses; move to not-allowable section P-R-O-A N

6. What Foster Care Funding Covers • Foster Care Maintenance Payment Payment to cover the cost of, and the cost of providing: • Clothing • Food • Shelter • Daily Supervision • School supplies • Personal Incidentals • Liability Insurance • Travel to the child’s home for visitation • Includes reasonable administration and operation for institutional care

7. Non-Allowable Costs • Medical and social services treatment • Educational expenses other than basic school supplies • Expenses not directly related to providing room, board, supervision and necessary administration, such as swimming pools, gymnasiums, chapels/churches, housing other than the residential facilities occupied by the children in care. • Gifts • Food served at banquets, or training • Recreation other than the occasional expense allowed in Personal Incidentals

8. Recreation is NOT an allowable item of expense, except where it clearly substitutes for daily supervision – CWPM 8.3B.1 (1)d. A child’s personal incidentals can include the reasonable and occasional cost of such items as tickets or other admission fees for sporting, entertainment or cultural events or dues for clubs. – CWPM 8.3B.1 (2)

9. Cost Report Basics • Schedule C Anatomy: P-R-O-A-N • Identify unallowable expenses: move to not allowable section • Separate treatment from non-treatment • Separate Admin and Fund Raising Expenses from program costs

10. The Audit: What is it … really? • Audit - the systematic inspection of accounting records involving analyses, tests & confirmations.1 • Auditor – NCAC requires the auditor to be a Certified Public Accountant or Public Accounting Firm as defined by NCGS 93 • Audit program – procedures followed by the auditor in performing the audit. 1 • Financial Statements – Balance Sheet, Income Statement, Statement of Cash Flows, Supporting Schedules, Notes • Auditor’s Report - includes a statement of the work done and an opinion of the financial statements. 1 • A CPA who does not conduct an examination in accordance with GAAS can be held in violation of the AICPA's Code of Professional Ethics and face legal action by affected parties.

11. The Audit: What is GAAS? General Standards Standards of Field Work • adequately plan the work and properly supervise any assistants • obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing, and extent of further audit procedures must use due professional care • obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion • adequate technical training and proficiency to perform the audit • maintain independence in mental attitude in all matters related to the audit • must use due professional care

12. The Audit: What is GAAS? Standards of Reporting • must state in the auditor's report whether the financial statements are in accordance with generally accepted accounting principles (GAAP). • must identify in the auditor's report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period • must either express an opinion regarding the financial statements, taken as a whole, or state that such an opinion cannot be expressed in the auditors report. • Qualified Opinion: When the auditor cannot express an overall opinion, the auditor should state the reasons therefore in the auditor's report. • In all cases where the auditor's name is associated with the financial statements, the auditor should clearly indicate the character of the auditor's work, if any, and the degree of responsibility the auditor is taking

13. Audit Requirements • Revenues must be broken out by fund type. • Expenditures must show a separation between administrative costs and program costs. • Administrative costs must also distinguish between management and fund-raising costs. • Program costs should be identified by type-of-service as well as by type-of-expense. • NCAC 70 will be changed to require audits to identify expense category

14. Audit Examples • Little program & expense detail • Reconciliation required • Supplemental schedule(s) needed Little Detail Detail Some Detail • Program & expense detail • Reconciliation required • Excellent program & expense detail • No reconciliation necessary

15. Reconcile the Cost Report ? Cost Report Audit

16. Audit 4035 Reconcile the Cost Report Direct Daily Supervision Wages Salaries & Wages Social Worker Wages AP/QP Staff Wages Schedule C can be traced directly back to one expense item on the audit Expense items on Schedule C …

17. Audit 4035 Reconcile the Cost Report Indirect Health Supplies Personal Incidentals Rec. Allowances Schedule C BreakDown consist of multiple expense items from the audit Expense items on Schedule C …

18. Best Practices • Answer the review questions … thoughtfully • Adjust audit to identify expenses by type and by program • Track days-of-care by program and home (residential) • Use a different accounts to distinguish room & board from other compensation for Treatment Foster Parents(TFPs) • Residential Facilities: Have utility company breakdown utility bill by building.

19. Questions