Auditor General Update Florida Department of Education Charter School Conference

1. Auditor General Update Florida Department of Education Charter School Conference November 20, 2013

2. Topics for Discussion • Auditor General Responsibilities • Laws and Rules Update • Review of Charter School and District School Board Audit Reports • Significant Financial Trends and Findings Identified in Audit Reports • Resources 2

3. Auditor General Responsibilities • Provide Technical Advice and Education • Rules of the Auditor General • Guidelines • Audit Report Reviews • Significant Financial Trends and Findings • Joint Legislative Audit Committee Notifications

4. Technical Assistance/Education Who do we assist? • Local government officials • CPAs • State Agencies • Nonprofit/For-profit organizations • Charter Schools and Charter Technical Career Centers • District School Boards • Legislators and staff • Reporters • Concerned Citizens

5. Technical Assistance/Education How do we assist? • Respond to Technical Inquiries • Presentations at Conferences • Auditor General Web site • Audit reports filed pursuant to Section 218.39, F.S. • Rules of the Auditor General • Guidelines • Sample Management Letters

6. Rules of the Auditor General • Chapter 10.800 – Audits of District School Boards • Chapter 10.850 - Audits of Charter Schools and Similar Entities, Florida Virtual School, and Virtual Instruction Program Providers

7. Guidelines Charter School and District School Board Audit Report Reviews Financial Emergency Auditor Selection

8. Joint Legislative Auditing Committee Notifications • Notification of Failure to File Audit Reports • Notification of Failure to Provide Items Omitted from Audit Reports • Notification of Entities Meeting One or More Conditions Specified in Section 218.503(1), F.S. • Notification of Entitles That Have Failed to Take Full Corrective Action in Response to a Recommendation That Was Included in the Two Preceding Audit Reports

9. Joint Legislative Auditing Committee Notifications Notification of Failure to File Audit Reports (Section 11.45(7)(b), F.S.) • For the 2011-12 fiscal year, we notified the JLAC of 15 charter schools that did not file the required audit report. • 13 of the 15 charter schools closed during or subsequent to the 2011-12 fiscal year.

10. 15 charter schools did not file required audit report. 2011 – 8 charter schools 2010 – 10 charter schools 2009 – 16 charter schools 2008 – 8 charter schools Joint Legislative Auditing Committee Notifications

11. Joint Legislative Auditing Committee Notifications Notification of Failure to Provide Items Omitted from Audit Reports (Section 11.45(7)(b), F.S.) • We sent letters to 22 charter schools requesting items missing from the audit reports. • For the 2011-12 fiscal year, we notified the JLAC of 4 charter schools that did not provide the omitted items.

12. Joint Legislative Auditing Committee Notifications Notification of Entities Meeting One or More Conditions Specified in Section 218.503(1), F.S. (Section 11.45(7)(e), F.S.) • For the 2011-12 fiscal year, we notified the JLAC of one audit report for which the auditor indicated that the charter school met one or more of the financial conditions specified in Section 218.503(1), F.S.

13. Joint Legislative Auditing Committee Notifications Notification of Entities That Have Failed to Take Full Corrective Action in Response to a Recommendation That Was Included in the Two Preceding Audit Reports (Section 218.39(8), F.S.) • For the 2011-12 fiscal year, we notified the JLAC of 31 charter schools (38 findings) that failed to take full corrective action in response to a recommendation that was included in the two preceding audit reports.

14. Audit findings contained in reports, schedules, and management letters must include reference numbers. • New language: “If an audit finding in the preceding financial audit report is uncorrected, the auditor must determine whether the finding was also included in the second preceding fiscal year financial audit report. Uncorrected findings in the current fiscal year audit report must cite the finding reference numbers used in the preceding and, as applicable, the second preceding fiscal year financial audit reports.” 14 AG Chapter 10.800 and 10.850 Rule Changes

15. Section 1002.33, F.S. • Upon initial notification of nonrenewal, closure, or termination of its charter, a charter school may not expend more than $10,000 per expenditure without prior written approval from the sponsor unless such expenditure was included within the annual budget submitted to the sponsor pursuant to the charter contract, is for reasonable attorney fees and costs during the pendency of any appeal, or is for reasonable fees and costs to conduct an independent audit. Section 1002.33(9)(g)6.(o)1., F.S. 15 2013 Legislation

16. Section 1002.33, F.S. • An independent audit shall be completed within 30 days after notice of nonrenewal, closure, or termination to account for all public funds and assets. Section 1002.33(9)(g)6.(o)2., F.S. • A provision in a charter contract that contains an acceleration clause requiring the expenditure of funds based upon closure or upon notification of nonrenewal or termination is void and unenforceable. Section 1002.33(9)(g)6.(o)3., F.S. • A charter school may not enter into a contract with an employee that exceeds the term of the school’s charter contract with its sponsor. Section 1002.33(9)(g)6.(o)4., F.S. 16 2013 Legislation

17. Section 1002.33, F.S. • Each charter school shall maintain a Web site that enables the public to obtain information regarding the school; the school’s academic performance; the names of the governing board members; the programs at the school; any management companies, service providers, or education management corporations associated with the school; the school’s annual budget and its annual independent fiscal audit; the school’s grade pursuant to Section 1008.34, F.S.; and, on a quarterly basis, the minutes of governing board meetings. Section 1002.33(9)(g)6.(p), F.S. 17 2013 Legislation

18. Sections 473.3065 and 473.3125, F.S. • Amends Section 473.3065, F.S., increasing annual frequency of scholarships provided by the Board of Accountancy (BOA) to twice per year and increases annual maximum from $100,000 to $200,000. • Creates Section 473.3125, F.S., requiring CPA firms to be enrolled in a peer review program as a condition of licensure as of January 1, 2015. BOA to adopt rules for the minimum standards for peer review programs. 2013 Legislation

19. Review of Charter School/DSB financial audit reports in consultation with the Board of Accountancy – issue report on review results annually 19

20. Delivery date must be included on the submittal checklist. • Electronic copy of the audit report must be provided. • Management must respond to all findings included in the audit report package, including those in the report on compliance and internal control, management letter, and including prior year audit findings. • All findings must have reference numbers. • Auditors must identify those findings that are being reported for the 3rd consecutive audit. 20 Reminders

21. 2011-12 Fiscal Year District School Board and Charter School Audit Report Reviews Report No. 2013-187

22. 2011-12 FY Report Review Results Section11.45, F.S., requires that we perform desk reviews of audit reports received pursuant to Section 218.39, F.S. Wereview: • All reports for general compliance • Samples of reports for more comprehensive compliance, Federal Single Audit requirements, Pension and OPEB requirements

23. 2011-12 FY Report Review Results Section 11.45, F.S., requires us to request any significant items omitted from audit reports submitted. • Charter schools and district school boards have 45 days to respond • Notification to Legislative Auditing Committee for entities that fail to provide missing items requested

24. One of the common requests was for managements response/rebuttal to any audit findings (includes management letter comments). • 7 out of 22 letters sent were for this item that was missing from the original audit report submission. 2011-12 FY Report Review Results

25. Audit Report Submittal • 27 charter schools submitted the audit report after the 45-day deadline (but before the 9-month deadline) 2011-12 FY Report Review Results

26. 2011-12 FY Report Review Results Audit Report Submittal 4 charter school and 8 district school board audit reports received after the 9-month deadline: • Improvement over the last 5 years: 2011 – 13 charter schools; 4 DSBs 2010 – 10 charter schools; 5 DSBs 2009 – 21 charter schools 2008 – 31 charter schools; 8 DSBs

27. Licensing of Auditors Section 218.39, F.S., requires charter schools and rotational district school boards to provide for an annual financial audit to be conducted by an independent CPA. Section 473.322, F.S., requires that auditors practicing public accountancy in Florida be licensed by the Board of Accountancy. 2 audits were performed by firms that did not have the appropriate licensure as of the date of the auditor’s report. 2011-12 FY Report Review Results

28. 2011-12 FY Report Review Results Auditor’s Report on Financial Statements • The opinion on the audited financial statements did not identify either all or some of the individual opinion units upon which the auditor was opining. • (AAG-SLV. Paragraphs 14.12 and .16) • 133 (27 percent) of 499 applicable charter school audit reports

29. 2011-12 FY Report Review Results Auditor’s Report on Financial Statements • Did not address the auditor’s responsibility for supplementary information presented. • (AAG-SLV, Paragraphs 14.50-.51, .61-.66, 4.93) • 29 (44 percent) of 66 applicable charter school audit reports

30. 2011-12 FY Report Review Results Auditor’s Report on Internal Control Over Financial Reporting and Compliance • Statement that other additional matters, not considered to be material weakness or significant deficiencies, or immaterial instances of noncompliance, were communicated to management in a separate management letter not included. • (AAG-SLA 4.28o, 4.37; GAS 5.16, .20) • 48 (48 percent) of 99 applicable charter school audit reports • 3 (23 percent) of 13 applicable district school board audit reports

31. 2011-12 FY Report Review Results Notes to Financial Statements Did not disclose a general description of the principal purposes of interfund transfers. • (GASB Codification, Section 2300.121b) • 65 (42 percent) of the 154 applicable charter school audit reports

32. Comprehensive Reviews • The ending fund balance or net assets shown in the preceding year’s financial statements differed by a material amount from the beginning fund balances or net assets shown in the current year’s financial statements and the material difference was not disclosed. • 4 (9 percent) of 46 applicable charter school audit reports • 3 (15 percent) of 20 applicable district school board audit reports. 2011-12 FY Report Review Results

33. Comprehensive Reviews • Financial statements not mathematically correct (not rounding errors). • 4 (8 percent) of 50 applicable charter school • 6 (30 percent) of 20 applicable district school boards 2011-12 FY Report Review Results

34. Comprehensive Reviews The notes to the financial statements did not disclose significant violations of law for material overexpenditures at the legal level of control identified in the budgetary comparison schedules or the actions taken to address these significant violations of law. (GASB Codification, Sections 2300.106h and 1200.112) • All 15 applicable charter school audit reports. 2011-12 FY Report Review Results

35. Comprehensive Reviews • The notes to the financial statements did not disclose the policy regarding whether to first apply restricted or unrestricted resources when an expense is incurred for which both restricted or unrestricted net assets are available. • (GASB Codification, Section 2300.106a(12)) • 6 (33 percent) of 18 applicable charter school audit reports 2011-12 FY Report Review Results

36. Pension Plans Notes to the financial statements for defined contribution plans did not disclose the name of the plan, identification of the entity that administers the plan, and identification of the plan as a defined contribution plan. (GASB Codification, Section P20.124a) • 11 (48 percent) of 23 applicable charter school audit reports • 1 (5 percent) of 20 applicable district school board audit reports 2011-12 FY Report Review Results

37. OPEB Disclosures • The authority under which the obligation of plan members, employers, and any other parties to contribute is established and may be amended were not disclosed. • (GASB Codification, Section Po50.126c(1)) • 6 (30 percent) of the 20 applicable district school board audit reports. 2011-12 FY Report Review Results

38. OPEB Disclosures • Factors that significantly affect the identification of trends in the amounts reported (e.g. changes in benefit provisions, the size or composition of the population covered by the plan, the actuarial methods and assumptions used, etc.) were not disclosed. • (GASB Codification, Section P50.124b) • 14 (70 percent) of the 20 applicable district school board audit reports. 2011-12 FY Report Review Results

39. Federal Awards • Schedule of expenditures of Federal awards did not include total amounts expended for each Federal program for which multiple awards with the same Catalog of Federal Domestic Assistance number were reported. • 1 (50 percent) of 2 applicable charter school audit reports • 3 (75 percent) of 4 applicable district school board audit reports 2011-12 FY Report Review Results

40. 2011-12 FY Report Review Results

41. 2011-12 Fiscal Year Significant Financial Trends and Findings Report Report No. 2014-002

42. 2011-12 FY Financial Trends / Findings Results 42

43. 2011-12 FY Financial Trends / Findings Results 43 Charter schools meeting one or more of the conditions specified in s. 218.503(1), F.S.: • Failure to pay short-term loans or make long-term debt payments due to a lack of funds • Failure to pay uncontested claims within 90 days due to a lack of funds • Failure to timely transfer withholding taxes or employee/employer contributions for social security or pension, retirement, or benefit plans due to a lack of funds • Failure to pay wages, salaries or retirement benefits due to a lack of funds

44. 2009-10 FY Financial Trends / Findings Results 44 Deteriorating Financial Condition Deteriorating financial condition means a circumstance determined as of the fiscal year end that significantly impairs a charter school’s ability to generate enough revenue to meet its expenditures without causing a condition described in Section 218.503(1), F.S., to occur. Auditor noted deteriorating financial condition for 10 charter schools.

45. 2011-12 FY Financial Trends / Findings Results

46. 2009-10 FY Financial Trends / Findings Results 58 (12 percent) of the 499 charter schools reported a deficit unassigned/assigned fund balance or unrestricted net assets for the general fund or other unrestricted fund at June 30, 2012. In comparison, only 25 (6 percent) of the 445 charter schools in operation during the 2010-11 fiscal year reported a deficit at June 30, 2011.

47. 2011-12 FY Financial Trends / Findings Results The audit reports for four charter schools included a statement by the respective CPAs regarding the ability of the charter school to continue operations on an ongoing basis.

48. 2011-12 FY Financial Trends / Findings Results The audit reports for 145 charter schools included 273 audit findings addressing weaknesses in internal control, instances of noncompliance with applicable laws or rules, or additional matters that should be addressed by management. These included 25 audit reports that included findings that were considered by the CPAs to be material weaknesses in internal control.

49. 2011-12 FY Financial Trends / Findings Results Of the 273 findings reviewed, 159 (58 percent) did not include one or more of the elements required by Chapter 10.850, Rules of the Auditor General. • Criteria (what requires it?) • Condition (what happened?) • Cause (why did it happen?) • Effect (what was the outcome?) • Recommendation (how should it be fixed?)