2011 FOCUS APA Update.ppt - University of Virginia Financial Aid – Cash Management ... Codification of Pre November 30, ... “material inconsistencies ...

2011 Fall FocusAPA Update

Andy Powell, CPA, MBA

Introductiont oduct o

• Introduction

AgendaIntroduction

• Changes on the Team• Strategic Planning (I2A)• Audit Schedule and Assignments• What we are Finding

Ob ti C bilit• Observations on Comparability• New and Upcoming Standards• What do you want to know?• What do you want to know?

Changes on the TeamC a ges o t e ea

Higher Education Team

New Higher Education Team

Resumed concerted recruiting efforts for Fall

RecruitingResumed concerted recruiting efforts for Fall and Spring graduates this year.

Looking to add 15-20 staff to replace previously lost staff through attrition.

Looking for two to three specifically for specifically for Higher Education Programs.

• Improve the Efficiency and Effectiveness of

FOCUS going forwardImprove the Efficiency and Effectiveness of HE Audits to accomplish some primary Goals– Faster Financial Statement Audits

i– Broader Coverage with Automated Control Tests– Broaden Experience of Auditors at a Faster Pace– Increase Degree of Continuous Auditingg g

We want your input!We want your input!

Strategic Planning (I2A)St ateg c a g ( )

• Take place in Insight to Action (I2A) Strategic Planning

pDecember

• Will examine the way • Will examine the way we organize, schedule and complete HE auditsp

• Will examine ways to retain experience on retain experience on engagements – staff cycles

• Includes Stakeholder considerations – both

Strategic Planning Includes Stakeholder considerations both internal and external

• Promote a plan with buy-in

I i t i li ti f dit • Increase consistency in application of audit tests between engagements

• Improve timing of engagements to smooth work plan p

Audit Schedule & Assignmentsud t Sc edu e & ss g e ts

FY 2011 Fall/Winter Audits – Complete or Wrapping Up

Engagement Project ManagerUniversity of Virginia & Medical Center Joe SteppVirginia Tech Karen HeldermanVirginia Tech Karen HeldermanVirginia Commonwealth Andy PowellOld Dominion Andy PowellRadford Andy Powell

FY 2011 Winter/Spring Audits

Engagement Project ManagerChristopher Newport George StrudgeonCommunity College System Andy PowellGeorge Mason Andy PowellJames Madison Andy PowellyLongwood Andy PowellMary Washington DeAnn ComptonNorfolk State George StrudgeonNorfolk State George StrudgeonVA Military Institute Jennifer SchreckVirginia State Jennifer SchreckWilliam and Mary Laurie Hicks

What we are FindingW at we a e d g

• Report loan disbursements to Direct Loan

Student Financial Aid – ComplianceReport loan disbursements to Direct Loan Servicing System (DLSS) through Common Origination Disbursement system timely.

• Reconcile Institution loan records to DLSS to l t f DLSS densure completeness of DLSS records.

Student Financial Aid – Return of Title IV

Return appropriate amount of Title IV funds and return them timely (you have 45 days from the determination of non-eligibility – both f l d i f l ithd l) formal and informal withdrawal)

-34 CFR 668.172(c)

• Disburse federal funds shortly after receipt

Student Financial Aid – Cash ManagementDisburse federal funds shortly after receipt and do not let federal funds accumulate in State/Local bank accounts

• Return proceeds to Federal Government or lender for unclaimed checks older than 240 d 34 CFR 668 164 (h) days - 34 CFR 668.164 (h)

Student Financial Aid – Maintain Audit

• Maintain an audit trail for control activities

TrailMaintain an audit trail for control activities such as reconciliations between financial system and G5 federal reporting system

• Maintain an audit trail for compliance ti iti h i ifi ti f activities such as income verification for

eligibility determinations

• Use Database password controls and

Information SecurityUse Database password controls and audit/monitoring functions– Note that upgrades to Oracle Database

f fsoftware generally reset many of the controls established in the prior implementation

– Change management plan should anticipate g g p pthis

• Maintain audit evidence that security t i i i id d t ll awareness training is provided to all

employees (e.g. attendance roster)

Information Security – Configuration

• Updated Configurations for

SettingsUpdated Configurations for– Firewalls– Virtual Private Networks

Ro ters– Routers– Servers– Databases– Operating Systems

• Purchase cards are widely used

Purchase CardsPurchase cards are widely used

• History tells us that supervisory review alone is not sufficient control

S f f t l it i i • Some form of central monitoring is instrumental in ensuring compliance

Strengthening Employee Separation

• Ensure all assets are collected from

Procedures and MonitoringEnsure all assets are collected from separated employees and access to relevant systems is deactivated or deleted timely

• Human Resources generally exercises ti dseparation procedures

• Asset and system owners have a responsibility for periodic monitoring in the responsibility for periodic monitoring in the event something is missed in the separation processp

• IF the University has a policy for overtime or

Part Time and Overtime AuthorizationIF the University has a policy for overtime or part-time hours exceeding a pre-determined limit: – We look for controls in place to monitor

enforcement of that policy

Decentralized

Monitor Application Controls

Monitoring and Review is Necessary for Departmental InsightDepartmental Insight,

BUT… BUT…

Some level of centralized oversight helps ensure departments fulfill their review.

Deposit Security for Departmental

• Deposit cash and checks timely after

CollectionsDeposit cash and checks timely after receipt.

• Particularly a risk with departmental collections

Security Controls for Historical Artifacts & Works of Art

Ensure inventory control and physical security of historical valuables – similar to capital or controllable equipment assets

Allowance for Doubtful Accounts

Allowances should be realistic – Examine

Methodology and Write-OffsAllowances should be realistic Examine aging of accounts receivable

What is the likelihood of collection?

W it ff li i h ld b d t d d Write-off policies should be documented and followed.

Observations on ComparabilityObse vat o s o Co pa ab ty

Statement of Revenues Expenses and Statement of Revenues Expenses and

Build America BondsStatement of Revenues Expenses and Statement of Revenues Expenses and Changes in Net AssetsChanges in Net Assets

Build America Bond Interest Expense should be reported at Gross Not Netted Against the I t t S b id f th F d l G tInterest Subsidy from the Federal Govt.

Footnote presentation should be consistent Footnote presentation should be consistent but the subsidy may be reflected in a separate column.p

Statement of Net AssetsStatement of Net Assets

Build America BondsStatement of Net AssetsStatement of Net Assets

Receivables related to the subsidy may be combined with other receivables.

I t t P bl f th b d h ld l Interest Payable for these bonds should also be accrued like any other future interest payable and may be combined with other payable and may be combined with other accrued interest expense.

Equipment Trust Fund Presentation

Capital AppropriationsEquipment Trust Fund Presentation

• Is it State Appropriations?

• Is it Capital Appropriations?

• Is it Capital Grants and Gifts?

New and Upcoming StandardsNew a d Upco g Sta da ds

Standards SummaryStandard Effective for…GASB 62 FY 2013GASB 62 FY 2013GASB 63 FY 2013GASB 64 FY 2013GASB Pension ED unknownSAS 118 FY 2012SAS 119 FY 2012SAS 120 FY 2012SAS 121 FY 2013SAS 122 124 FY 2013SAS 122-124 FY 2013SSAE 16 FY 2011GAGAS (Yellow book) R i i

FY 2013Revision

GASB 62 C difi ti f P GASB 62: Codification of Pre November 30, 1989 FASB and AICPA

Eff ti f i d

Standards

Effective for periods beginning after December 15 2011December 15, 2011.

No longer have to refer to FASB for uncovered

GASB 62: ChangesNo longer have to refer to FASB for uncovered items such as:Capitalization of Interest Cost

i i Special and Extraordinary Items Prior-Period Adjustments LeasesContingencies Accounting Changes and Error CorrectionsComparative Financial StatementsComparative Financial Statements Revenue Recognition for Exchange Transactions And more…

No longer have to refer to FASB for uncovered

GASB 62: ChangesNo longer have to refer to FASB for uncovered items such as:Capitalization of Interest Cost

i i Special and Extraordinary Items Prior-Period Adjustments LeasesContingencies Accounting Changes and Error CorrectionsAccounting Changes and Error CorrectionsComparative Financial StatementsComparative Financial Statements Revenue Recognition for Exchange Transactions And more…

GASB 62: Accounting Changes and Error

• Change in Accounting Principle – Maybe

CorrectionChange in Accounting Principle Maybe Restatement

• Change in Accounting Estimate – No Restatement

• Correction of an Error – Definitely RestatementRestatement

• Changes in Accounting Principles must be

GASB 62: Change in Accounting Principleg g p

Justified

• Nature and Justification must be disclosedNature and Justification must be disclosed• Prior period Statements presented as-is• Cumulative effect of the change should be

reported as an adjustment to Beginning Net reported as an adjustment to Beginning Net Assets

f i ff i• If the cumulative effect cannot be determined then no Beginning Net Asset Adjustment needed – but disclosure requiredq

GASB 63: Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position,

• Deferred Outflows –

Deferred In/Out Flow of ResourcesDeferred Outflows – Decrease in FV of derivatives

• Deferred Inflows –i f i i– Increase in FV of derivatives

– Deferred service concession arrangement receiptsg p

Statement of Net PositionStatement of Net Position

GASB 63Statement of Net PositionStatement of Net PositionTotal AssetsTotal deferred outflows of resourcesTotal liabilitiesTotal deferred inflows of resourcesT t l t itiTotal net position

Net investment in capital assetsRestricted (expendable and nonexpendable)( p p )Unrestricted

Statement of Revenues Expenses and Statement of Revenues Expenses and Statement of Revenues Expenses and Statement of Revenues Expenses and Changes in Changes in Fund Net Fund Net PositionPosition

Everything remains the same except the Bottom Line

GASB 64: Derivative Instruments: A li i f H d A i Application of Hedge Accounting Termination Provisions

Exposure Draft: Financial Reporting for P i Pl d f GASB Pension Plans: an amendment of GASB Statement No. 25

Public Hearings earlier in October

SAS 118: Other Information in D t C t i i A dit d Documents Containing Audited Financial Statements

Effective for Fiscal Year 2012 Audits (Periods beginning on/after December 15 (Periods beginning on/after December 15, 2010)

• Auditors have responsibility to read reports

SAS 118: Auditor’s ResponsibilityAuditors have responsibility to read reports containing audited financial statements for “material inconsistencies”

SAS 118: Discovery of “Material

• Discovery prior to report release date that

Inconsistencies” (prior to release)Discovery prior to report release date that requires revision which management refuses to make:

– Communicate to those charged with GovernanceAND

EITHER– Modify the opinion to include explanatory paragraph

OR– Withhold auditor’s report

OR– Withdraw from Engagement (not likely)g g ( y)

SAS 118: Discovery of “Material

• If Material Inconsistencies are discovered

Inconsistencies” (after release)If Material Inconsistencies are discovered after release of audited financial statements:

• Implore management to make necessary revisionsIf t f i t • If management refuses; communicate concerns to Governing body and take further appropriate action which could further appropriate action which could include issuing a revised opinion

• First: Discuss with management concerns

SAS 118: Discovery of Misstatement of FactFirst: Discuss with management concerns

• Second: Request management consult with a qualified third party, such as legal counsel, and consider advise from third party

• Third: Inform Governing body

SAS 119: Supplementary Information in pp yRelation to the Financial Statements as a Whole

When auditor is engaged to consider

a Whole

supplemental information not required (Not MD&A) and not part of basic financial t t tstatements

Generally not Applicable to Higher Education Audits

SAS 120: Required Supplementary Information

Auditor’s Opinion does not Cover Required Supplementary Information, however auditor h th f ll i ibilitihas the following responsibilities:

SAS 120: Inquire of management about SAS 120: Inquire of management about methods of preparing information

• Information measured and presented in paccordance with prescribed guidelines

• Methods of measurement or presentation changed from prior years

• Any significant assumptions/interpretations underlying measurements or presentationunderlying measurements or presentation

SAS 120: Compare Information for

• Management’s responses to inquiries

Consistency with…Management s responses to inquiries

• The basic financial statements• Other knowledge obtained during the audit

of financial statements

SAS 120: Obtain Written Management

• That they acknowledge responsibility for RSI

Representations…That they acknowledge responsibility for RSI

• Whether RSI is measured and presented in accordance with prescribed guidelines

• Whether methods of measurement/presentation changed from

i i dprior period• About any significant assumptions or

interpretations underlying interpretations underlying measurement/presentation of RSI

• SAS 121: Interim Financial Information -

SAS 121-124S SGenerally not Applicable to Higher Education Engagements

• SAS 122: Clarification and Recodification • SAS 122: Clarification and Recodification –No significant changes

• SAS 123: Omnibus Statement on Auditing gStandards-2011

• SAS 124: Financial Statements Prepared in Accordance with a Financial Reporting Accordance with a Financial Reporting Framework Generally Accepted in Another Country

• Comprehensive Restructuring of Audit

SAS 122-124: Clarity StandardsComprehensive Restructuring of Audit Standards including a number of re-written standards

• Changes the layout/format of all existing standards and future standards

• No substantive changes to requirements for

SAS 122-124 ChangesNo substantive changes to requirements for– Audit Documentation– Auditor’s Communication With Those Charged With Governance– Risk Assessment Standards

E t l C fi ti– External Confirmations– Analytical Procedures– Audit Sampling– Auditing Accounting Estimates– Written Representations– Subsequent Events– Consideration of Omitted Procedures After the Report Release Date

• The 10 Generally Accepted Auditing Standards • The 10 Generally Accepted Auditing Standards (GAAS) are no longer authoritative but are considered a framework

• Affects our reliance on Component Unit

Group Audit Standard ChangesAffects our reliance on Component Unit Audits

• We must gain an understanding of component units operations

• All misstatements discovered by the CU A dit t b i t d t Auditors must be communicated to us

• We can either include Component Unit Findings in the Business Unit Report or Findings in the Business Unit Report or reference the CU report

• Opinion Letter will have some changes and

Audit Report ChangesOpinion Letter will have some changes and be slightly reorganized– No reference to auditor or management

i i i i i iresponsibility in the introduction paragraph– New Section: “Management’s Responsibility for

the Financial Statements”– New Section: “Auditor’s Responsibility”– Opinion Paragraph will be preceded with

heading: “Opinion”heading: Opinion– If it’s a modified opinion: an additional heading is

required (e.g. – “Basis for Qualified Opinion”)

SSAE 16: Service Organization Control

Replaces SAS 70 Reporting on Outsourced

ReportingReplaces SAS 70 Reporting on Outsourced Services

Two types:Two types:Type I (SOC1)T II (SOC2)Type II (SOC2)

Relevant to those Relying on Campus Partners or other outsourced service providersp

SOC I vs. SOC II

Report Contents Type I Type IIIndependent service auditor’s report (opinion) ( p )Service organization’s description of its system and controls

Information provided by p yindependent service auditor; includes description of service auditor’s tests of operating effectiveness and results

effectiveness and resultsOther information provided by the service organization

• Changes to more closely

Revised GAGAS (Yellow-book)Changes to more closely align with AICPA Auditing Standards

• Most changes provide for i d dit j d tincreased auditor judgment

• Independence Determination• Independence Determination

Questions?

A d P ll CPA MBAAndy Powell, CPA, [email protected]