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2017 APA Local Government Update _____________________________________

2017 APA Local Government Update _____________________________________ VGFOA Fall Conference, October 19, 2017 Rachel Reamy, Local Government Audit Manager Auditor of Public Accounts. Overview of Topics. 2017 Comparative Report Reminders Quality Control Reviews over Locality audits

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2017 APA Local Government Update _____________________________________

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  1. 2017 APA Local Government Update _____________________________________ VGFOA Fall Conference, October 19, 2017 Rachel Reamy, Local Government Audit Manager Auditor of Public Accounts

  2. Overview of Topics • 2017 Comparative Report Reminders • Quality Control Reviews over Locality audits • Recent Updates to UFRM and Audit Specifications, New Legislation Requirements • Impact of Upcoming OPEB Implementation for GASB Statements 74 and 75 • Locality Fiscal Distress Analysis and Monitoring WWW.APA.VIRGINIA.GOV

  3. 2017 Comparative Report Transmittal Reminders • 2017 locality transmittal forms available www.apa.virginia.gov> Local Government page> Comparative Report Transmittal files> Transmittal files • November 30 Code mandated deadline for submission of final, audited CAFR and transmittal form to the APA WWW.APA.VIRGINIA.GOV

  4. 2017 Comparative Report Transmittal Reminders • Important reminders on transmittal process and reporting requirements, refer to the following documents on APA’s website: • 2017 Transmittal Forms Update • Reporting Requirements and Distribution • Please submit copy of 2017 Joint Activity form as soon as form is prepared • Provide completed forms on APA website as we receive www.apa.virginia.gov> Local Government page> Comparative Report Transmittal files> Joint Activity Forms WWW.APA.VIRGINIA.GOV

  5. APA Annual Quality Control Review • Periodic quality control reviews of CPA firms auditing VA localities • Chapter 4 of the Specifications for Audits of Counties, Cities & Towns describes this process • Copy of the final review report is sent to the audit firm, applicable locality, the Board of Accountancy, and VSCPA • Reports located on APA’s website www.apa.virginia.gov> Local Government page> Quality Control Review Reports WWW.APA.VIRGINIA.GOV

  6. Quality Control Review Common Findings • 2017 review of 6 FY2016 audits at 5 CPA firms • 3 Pass reports • 2 Pass with Deficiencies reports • 1 report issuance pending • Improve audit workpaper documentation of testwork and conclusions • Improve testwork and documentation to comply with Uniform Guidance for Single Audit WWW.APA.VIRGINIA.GOV

  7. Increased Focus on Single Audit Compliance • New UG requires performance of a federal study of Single Audit quality once every six years beginning in 2018 • Recent AICPA Peer Review of Single Audits to enhance oversight in preparation for 2018 review • Reviewed random sample of 87 single audits • 48% of engagements found to be “non-conforming” • Largest issues related to deficiency in auditor’s testwork on internal control over compliance WWW.APA.VIRGINIA.GOV

  8. Updates to Uniform Financial Reporting Manual (UFRM) • 2017 legislation (Chapter 484) amended Locality reporting requirements, Code of Virginia§15.2-2510 • Locality’s submission to the APA should include a notarized statement • Submit along with audited CAFR on 11/30 or as soon as the results of the audit have been presented to the local governing body • Template notarized statement provided for locality’s reference www.apa.virginia.gov> Local Government page> Annual Guidelines, Manuals, and Other Procedural Documents WWW.APA.VIRGINIA.GOV

  9. Updates to UFRM/Audit Specifications • Local Stormwater Utility program reporting requirement (only for applicable localities) • Reporting is specific only to requirements under Code §15.2-2114, refer to further guidance in UFRM at Chapter 2-4 (p. 2-6) • Item 2D of Chapter 836, 2017 VA Acts of Assembly, requires locality to submit report to the APA by October 1 each year, effective with FY17 reporting • Coordinated with DEQ to retain same report format • Stormwater Utility Report template provided at www.apa.virginia.gov> Local Government page> Annual Guidelines, Manuals, and Other Procedural Documents WWW.APA.VIRGINIA.GOV

  10. Updates to Audit Specifications • 2017 legislation changes related to auditor communication of other internal control deficiencies or financial matters (i.e.: management letter) must be made in writing (SPECS 2-9) • Provide copy of management letter to the APA • Management letters are now published on APA’s website • Please redact any sensitive information (FOIA exempt) included in letter before sending to APA • APA noted sensitive information in several FY16 management letters related to Information Systems control deficiencies WWW.APA.VIRGINIA.GOV

  11. Updates to Audit Specifications • Updates to Retirement Systems for GASBS 74 OPEB implementation (SPECS 3-7) • Required audit procedures focused on VRS administered OPEBs for Group Life Insurance (GLI) and Line of Duty Act (LODA) • Census data elements • Employer reporting requirements and access to myVRSNavigator • Auditor attestation report to APA only for LODA, communicate any deficiencies noted for GLI WWW.APA.VIRGINIA.GOV

  12. Preparing for Upcoming OPEB Implementation • GASB Statement 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans • Applicable to VRS and other independent OPEB’s financial statements • Effective FY2017 • GASB Statement 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions • Applicable to Local Government’s financial statements • Effective FY2018 WWW.APA.VIRGINIA.GOV

  13. Preparing for Upcoming OPEB Implementation • OPEB standards closely mirror GASB 67/68 pension accounting • Funding and accounting are separated • Liability discount rate will be based on a projection of how long dedicated assets (plus future contributions) will cover current plan members’ future benefit payments • Unfunded OPEB liability will now be reported on face of the financial statements • Expanded note disclosures and RSI WWW.APA.VIRGINIA.GOV

  14. Commonwealth Sponsored OPEBs WWW.APA.VIRGINIA.GOV

  15. Commonwealth Sponsored OPEBs • VRS and DHRM now administrating LODA • “Non Participating” Employers • Provide Line of Duty benefits but NOT through the VRS administrated trust • Keep in mind locality must determine its own liability for GASB 75 reporting • Purchase of insurance to fully fund the statutory required benefits, likely considered “insured plans” in GASB 75, para. 11 WWW.APA.VIRGINIA.GOV

  16. APA Audit Process and VRS Reporting for Commonwealth Sponsored OPEBs WWW.APA.VIRGINIA.GOV

  17. Other Commonwealth Sponsored OPEB • Pre-Medicare Retiree option of The Local Choice (TLC) Health Benefits Program • Administered by the Department of Human Resource Management (DHRM) • APA’s DHRM audit team currently planning for GASB 75 impact • DHRM involvement for actuarial calculation of liability for employers unknown at this time • Sources of information available to determine liability and related disclosures for localities’ FY18 financial statements WWW.APA.VIRGINIA.GOV

  18. Preparing for Non-Commonwealth OPEBs • Local Governments participate in their own or other, external OPEB plans • APA will not be involved in providing audit assurance or financial reporting information for non-Commonwealth OPEBs • Ensure you are planning for/discussing with OPEB’s Plan Administer and the Plan’s auditors • Audit assurance/opinions provided? • Timing and method of communicating financial reporting information for locality financial statements? WWW.APA.VIRGINIA.GOV

  19. Locality Fiscal Stress Monitoring and Oversight • Started back in September 2016, APA worked with the General Assembly to review current locality requirements and determine how best to expand locality oversight to address fiscal stress indicators and implement a monitoring process • New locality fiscal stress analysis and monitoring language created in 2017 budget session • Requirements at Chapter 836 of 2017 Acts of Assembly,§4-8.03 WWW.APA.VIRGINIA.GOV

  20. APA New Requirements – Chapter 836, §4-8.03 Identifying Potential Fiscal Distress • APA to establish workgroup to develop criteria for a preliminary determination to identify potential fiscal distress • Workgroup members: • Secretary of Finance • Staff Directors for HAC and SFC • Governor’s Deputy Chief of Staff • Commission on Local Government • Virginia Association of Counties • Virginia Municipal League WWW.APA.VIRGINIA.GOV

  21. APA New Requirements – Chapter 836, §4-8.03 Identifying Potential Fiscal Distress • APA to establish a prioritized early warning system • APA to notify localities where we make a preliminary determination of fiscal distress • Based on request of local governing body or CEO, APA may conduct a review and request additional information to determine extent of fiscal stress • Based on results of review, APA shall notify the Governor and chairs of the money committees if APA is of the opinion that state assistance, oversight or targeted intervention is needed WWW.APA.VIRGINIA.GOV

  22. New Requirements – Chapter 836, §4-8.03 State Assistance, Oversight or Intervention • After receipt of notification by APA indicating fiscal distress in a particular locality, Governor and Chairmen of HAC and SFC will create a plan for either assistance, oversight, or state intervention prior to any expenditure of funds from the cash reserve. • Plan to specify the purpose of intervention • Further assess, help stabilize, or remediate the situation • Estimated duration, and anticipated resource needs (dollars and personnel) WWW.APA.VIRGINIA.GOV

  23. APA New Procedures beginning FY2017 Financial Ratio Model • APA used model to calculate 10 ratios using audited data from the localities’ FY14-FY16 CAFRs • The model ranks each locality’s performance by ratio and converts into percentile rankings • The model uses an average of the percentile rankings to determine an overall Financial Assessment Model (FAM) percentage or “score” • FAM score calculates based on comparison of all localities’ ratio results to each other for each FY • APA used the FAM score to evaluate and make a preliminary determination for need to follow-up with a locality WWW.APA.VIRGINIA.GOV

  24. Ratios Used – from Governmental Activities and Business Type Activities Funds in Gov’t Wide Statements • Compare unrestricted reserves net of current liabilities to normal revenues - ability to make up revenue shortfalls • Compare unrestricted reserves to current liabilities - ability to pay current liabilities without need for additional revenue • Compare unrestricted reserves to total liabilities -ability to pay total liabilities without need for additional revenue • Compare revenues plus unrestricted reserves to expenses plus liabilities – ability to meet future obligations • Compare unrestricted net position to total expenses – ability to fund expenses in event of revenue shortfall • Compare total assets to total liabilities – measures the degree to which the assets are being financed with debt WWW.APA.VIRGINIA.GOV

  25. Ratios Used – from General Fund Balance Sheet and Income Statement • Compare liquid assets to total liabilities – ability to pay liabilities without needing additional revenues • Compare total expenditures to total liabilities – measure how well locality is paying its general fund bills • Compare assigned and unassigned fund balances to total expenditures – measures ability to fund expenditures from reserves in event of a revenue shortfall • Compare total fund balance to total revenues – measures sufficiency of reserves relative to revenue WWW.APA.VIRGINIA.GOV

  26. Financial Ratio Model Evaluation Scale • APA used the FY16 FAM score result to determine need for additional follow-up with a locality • APA set a threshold/cutoff point to perform follow up review - for 2016, set at less than or equal to 16% • APA also selected localities based on trends or other qualitative factors • Identified 6 localities based on current FAM score and 2 localities due to delinquent CAFR filings for further follow-up WWW.APA.VIRGINIA.GOV

  27. Notification to Locality • For localities that have a FAM score that causes concern, notification letter sent to Governing body and Management • Described FAM calculation process and the cause for concern • Described APA’s follow up process using the questionnaire and locality’s option to participate • Sent notification letters to all other localities to update on the new process and notify they did not fall below our threshold • Option to use ratio calculations and questionnaire for self-assessment WWW.APA.VIRGINIA.GOV

  28. APA Follow-up Questionnaire to Locality • To identify other qualitative, policy and/or management type factors potentially impacting the Locality’s ratio results in the model • Budget process • Debt and Borrowing • Expenses and Payables • Revenue and Receivables • Other Areas • Vacancies in key positions? • New systems or technology issues? • Results of annual audit WWW.APA.VIRGINIA.GOV

  29. APA Current Follow-up Process • Review completed questionnaire responses for “follow-up” localities that choose to respond • Meeting with locality officials to discuss responses • Make a determination of whether there is a need to report to the Governor and Chairs of the money committees that a locality may need assistance • Finalize with report to General Assembly summarizing follow-up at all localities and APA’s considerations and plans to refine the model for next year WWW.APA.VIRGINIA.GOV

  30. APA Future Actions Refine Criteria and Early Warning System/Model • Refine criteria for next year as APA considers feedback from localities and workgroup members • Consider adjustments for other unique factors impacting ratio calculations • Incorporate Commission on Local Government fiscal stress rankings on locality revenue capacity/effort • Incorporate more qualitative and environmental criteria along side the financial ratio calculations • Evaluate “scoring” process and how model defines a locality that meets APA’s initial determination of potential distress for further review WWW.APA.VIRGINIA.GOV

  31. APA Local Government Contact Information • Rachel Reamy, Local Government Audit Manager • 804.225.3350, ext. 360 • rachel.reamy@apa.virginia.gov • Please use general Email for reporting requirement submissions • localgovernment@apa.virginia.gov • APA website, Local Government page http://www.apa.state.va.us/Local Government.aspx WWW.APA.VIRGINIA.GOV

  32. Questions WWW.APA.VIRGINIA.GOV

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