Transcript State Auditor's Office PowerPoint Template 2013

Washington State Association of County Auditors
Finance Conference
April 8, 2015
Kelly Collins, CPA
Director of Local Audit
Tina Watkins, CPA
Program Manager
Wa s h i n gto n S tate A u d i to r ’s O ff i c e
2014 Snapshot: Local Government Audits
Local governments
audited annually:
2014 2013
1,391 1,314
Management
letters issued:
2014
236
2013
263
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Audit Reports Issued by Government Type
Government Type
School Districts
City/Town
Fire Protection District
Water/Sewer District
Port/Airport District
County
Diking/Drainage District
Cemetery District
Public Utility District (PUD)
Hospital District
Housing Authority
Irrigation and Reclamation District
Transportation Authority
Emergency Management Service
Insurance Pool/Risk Management
Public Development Authority
Conservation District
Public Facilities District
Reports
2014 2013
444
423
238
153
94
91
83
75
63
60
54
51
46
32
32
30
28
26
404
402
226
143
83
93
36
48
65
49
62
56
43
24
36
37
44
23
Reports
2014 2013
Government Type
Library District
Park and Recreation District
Regional Planning Council
Educational Service District (ESD)
Miscellaneous
Health District
Transportation Benefit Districts
Mosquito/Pest/Weed District
Economic/Industrial Development
Area Agency on Aging
Local/Regional Trauma Care Councils
Regional Support/Community Network
Air Pollution District
Government Association
Flood Control District
Stadium Authority
Water Conservancy Board
TV Reception District
Grand Total
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20
20
19
18
18
18
15
13
10
8
7
6
6
5
2
2
1
31
38
14
19
18
18
6
14
6
9
0
6
5
9
10
4
13
1
2,237
2,095
3
Number of Exceptions by Category
Area of Issue
Accounting/Financial Reporting
Grants (Federal)
Cash Receipting
Disbursements/Expenditures
Procurement/Bid/Prevailing Wage
Safeguarding of Assets/Property
Payroll/Personnel
Miscellaneous
Open Public Meeting/Record
Billings/Receivables
Apportionment (Transportation)
Contracts/Agreements
Financial Condition
Restricted Funds
ASB (Legal Compliance)
Apportionment (Staff Mix)
Apportionment (Enrollment)
Interfund Transactions/Balances
Exceptions
2014 2013
796
435
360
249
191
184
179
133
104
100
95
91
87
55
53
45
35
34
741
481
313
283
213
208
161
171
130
110
1
123
95
88
53
18
37
47
Area of Issue
Gift of Public Funds
IT Controls
Insurance/Risk Management
Investments/Deposits
Conflict of Interest/Ethics
Grants (State/Local)
Misappropriation
Surplus Property
Taxes/Assessments
Budget Compliance
Donations/Fundraising
Misuse/Abuse
Debt/Covenants
Danger to Public Health/Safety
Police/Jail (Legal Compliance)
Authority
Courts (Legal Compliance)
Note: *Exceptions include all findings, management letters and exit items.
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Exceptions
2014 2013
Grand Total
21
19
17
17
14
14
12
9
9
8
6
5
0
0
0
0
0
21
31
12
11
15
18
12
8
16
14
9
4
9
1
1
0
0
3,377
3,455
4
2014 Highlights
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Lack of internal controls in key financial systems.
Local governments continue to struggle to comply with federal grant
requirements.
Declining financial conditions – rising costs and constrained
revenues.
56 investigations of misappropriation amounting to $682,000.
Largest cases – cash receipts, fuel and the personal use of credit
cards.
New SAO resources and tools on our Local Government Performance
Center webpages.
To view the reports and findings or subscribe to our service go to: www.sao.wa.gov
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Current Areas of Audit Focus
County Treasurer Investing Activities
 The County Treasurer is responsible for investment of County funds
as well as funds of numerous special purpose districts.
 We are currently focusing on reviewing any potential risks
associated with investment practices and the effectiveness of
monitoring controls (oversight).
Financial Condition
 While counties have historically experienced relatively stable
finances, many local governments, including counties, have faced a
daunting economic environment. We have developed the FIT Tool
to help local governments assess their financial condition.
 Our audit staff will perform analytical procedures to assess if the
government is showing indicators of declining financial condition.
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Frequently Reported: Lack of Internal Controls in Reporting
It is the responsibility of management to design and follow
internal controls that provide reasonable assurance regarding
the reliability of financial reporting.
 Lack of knowledge and/or training
 Insufficient time or available resources for:
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Preparation

Review
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Research
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Frequently Reported: Cash Receipting Internal Controls
 Internal control structure for cash receipting locations

Counties have multiple systems and locations where cash is
received

Strong controls need to be in place at each location
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Effective Internal Controls
 Safeguard public resources
 Protect employees
 Assist in fraud prevention
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Designing Internal Controls
 It is management’s responsibility to:
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design effective internal controls
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ensure internal controls are operating as designed
 When designing/establishing internal controls break
the system into segments and for each consider:
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Will I be able to identify a loss?
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Will I identify the entire loss?
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Will I be able to identify who is responsible?
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Cash Receipting
Examples of Cash Receipting/revenue Frauds
 Check for cash substitution (unanticipated receipts)
 Lapping funds
 Skimming funds
 Voids/adjustments
 Short or missing deposits
 Two sets of receipts
 “Negative” cash receipts
 “Borrowing” funds
 Funds that disappear from safe or in transit between
locations
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Study
Cash receipting
January 1, 2005 – January 4, 2011
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Case Study
How was it detected?
A County employee was comparing Probation Services
transmittal information to the amount recorded by the
Treasurer’s Office.
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Case Study
What did we find?
Misappropriation totaled at least $62,150
Amount Category (Misappropriation and Questionable)
$51,816
Fees not deposited (M)
$10,334
Checks substituted for cash removed from the deposit (M)
$30,772
Unsupported voids and cash shortages (Q)
$734,894 Adjustments to customer accounts (Q)
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Case Study
How was the fraud concealed?
 One employee was responsible for both collecting
and reconciling daily cash receipts as well as making
bank deposits
 Bank deposits were not made within 24 hours as
required by state law (RCW 43.09.240)
 Destruction of records
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Case Study
Lessons Learned:
 Trusted employee, with complete access to key
systems, including cash-receipting, bank deposits
and account adjustments.
 No one independently monitored cash/check
composition or adjustments.
 No one reconciled the system transactions,
manual receipts or collection agency payments
with the bank deposits.
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Case Study
What happened to the employee?
Found guilty by a jury verdict of nine counts of seconddegree theft and one count of misappropriation of
accounts by a public officer.
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Case Study
Were there any red flags?
 Trusted employee with complete
access and very little monitoring
 Modes did not agree
 Lack of supporting records
 High volume of voids/adjustments
 Deposits not made timely
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The Association of Certified Fraud Examiners
Fraud Triangle
RATIONALIZATION
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Local Governments:
Promoting Transparency and Accountability
A third or more of local governments did not
report as required
In both 2011 and 2012, more than 700 of
1,956 local governments did not file their
reports as required for each year.
Due to increased outreach by the Auditor’s
Office in 2013, about 100 more local
governments filed their required annual
reports.
However, in 2013, 611 local governments still
did not report as required. The highest
percentage of these are fire protection,
water/sewer and diking/drainage districts.
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Missed deadlines and failure to file
Some local governments have missed the deadline or failed to file for
three consecutive years
Almost three hundred local governments have, for three years in a
row, not filed annual reports as required. The largest percentage of
these are fire, diking/drainage, and water/sewer districts.
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More than $2.2 million that remains unaudited
Local governments may encounter a range of consequences including:
 Denial of grant funding: Local governments have been denied emergency
federal funding due to not filing annual reports as required.
 Poor bond ratings: An absence of up-to-date financial data can lead to poor
bond ratings.
 Legislature: The lack of financial data inhibits the Legislature’s ability to
assess the needs of different governments for funding.
 Trouble arranging credit and loans: It can become much harder for a local
government to obtain loans, lines of credit, and credit cards if banks or
lenders cannot access annual report information.
 Constituent dissatisfaction: Local government elected and appointed
officials may face criticism from taxpayers and the media for this lack of
transparency and accountability.
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Why do local governments fail to file these reports?
The most commonly faced obstacles to filing reports arise from
the very nature of local governments: tight budgets, part-time
staff or volunteers, and inadequate oversight by elected or
appointed officials.
Problems include:
Lack of resources
Lack of experience
Inadequate oversight
Inadequate technology
Lack of trained financial
personnel
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The State Auditor’s Office reaches out
The Auditor’s office provides resources
to local governments
Since taking office in 2013, State Auditor Troy
Kelley prioritized promoting transparency in
local government and increasing accountability
for the use of public resources.
We contact local governments throughout the
year to ensure annual reports are filed on time.
However, in 2014, Auditor Kelley dedicated
additional resources for outreach to local
governments, including trainings, workshops,
improved processes for online annual financial
report filing, and improved website navigation
to necessary documents, templates, and
manuals.
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Local Government
Performance Center
Need to eliminate waste,
improve program results and
save money? Our Local
Government Performance
Center (LGPC) can help,
thanks to their expertise in
Lean processes and
productivity.
For more information about
the LGPC visit us online at:
http://www.sao.wa.gov/
local/Pages/LGPC.aspx
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Emerging Issue: Change to the Open Public Meeting Act
During the 2014 legislative session, the Legislature added regular meeting agenda posting requirements to
Chapter 42.30 RCW. The new section requires public agencies subject to the OPMA to "make the agenda of
each regular meeting available online no later than 24 hours in advance of the published start time of the
meeting." Entities that have no web site or those that employ less than 10 full-time equivalent employees are
not subject to this new requirement. The effective date of this new section of RCW 42.30 was June 12, 2014.
Open Government Training Act, Effective July 1, 2014
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Every member of a governing body of a public agency must complete training requirements on the Open
Public Meetings Act.
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Every local elected official and every local government Public Records Officer must receive records training
concerning the Public Records Act and Records Management and Retention laws
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Training must be completed within 90 days of assuming office, assuming their duties or taking the oath of
office.
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In addition, every member of a governing body and the Public Records Officer must complete “refresher”
training at intervals of no more than four years as long as they remain in office.
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Training resources are available on our website at: http://www.sao.wa.gov/generalinfo/Pages/OpenGovernment.aspx
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Additional information and on-line training is available at the Office of the Attorney General’s website at
http://www.atg.wa.gov/OpenGovernmentTraining.aspx
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Emerging Issue: New GASB Pension Standards
GASB Statement No. 67, Financial Reporting for Pension Plans (Replaces Statement No. 25)
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Effective for the year ended December 31, 2014
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Standards for financial reporting of pension plans that issue their own reports, as well as, for plans
that are reported as fiduciary funds by a government
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Fiduciary fund financial statements remain unchanged from prior standards
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BARS manual will be updated to include guidance and suggested disclosures
GASB Statement No. 68, Accounting and Financial Reporting for Pensions (Replaces Statement No. 27)
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Effective for the year ended December 31, 2015
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Establishes standards of financial reporting for governments that provide pension benefits including
those provided through the State’s plans
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Net pension liability moves from a note disclosure to being reporting in the financial statements
(Schedule 9 for cash basis reporters)
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Department of Retirement Systems is working to provide member employers in the State’s plans
with the information they will need
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BARS manual will be updated to include guidance and suggested disclosures
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Emerging Issue: Grant Reform
 Significant changes have been made to grant administrative
requirements, cost principles and audit requirements. The
effective date is December 26, 2014. (audits of 2015 calendar
year)
 Single audit threshold increases to $750,000
 New requirements apply to new awards and additional
funding to existing awards made after December 26, 2014
(contract your grantor for additional information)
 Resources: https://cfo.gov/COFAR/ 3 free you tube videos
and PowerPoint presentations
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Accounting for Law Libraries
Reporting inconsistencies have been noted related to law
libraries.
 We have determined they are not separate legal entity
therefore, their financial activity should be included as a part
of the County’s financial reports.
 If a law library has a separate MCAG number they may have
been receiving a separate audit. Our Local Government
Support Team has contacted representatives of the law
libraries and notified them of the changes in their reporting
requirements.
 There is no statutory requirement to account for the Law
Libraries in a separate fund so it is the County’s decision to
use either a general or special revenue fund to account for
this activity.
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The next big thing?
What is our prediction for largest scheme
type in 2015???
Procurement and credit cards
Preview of lessons learned
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How to avoid credit/purchase card fraud?
Develop a written policy
 Allowable uses
 Prohibited uses
 No personal use
 Responsibilities
 What happens if policy is not followed
 Have everyone with card responsibilities sign off on
policy
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Records
 Require original, itemized receipts
 Think about who will be responsible for retaining them
 Where are they stored?
Banking controls
 Consider setting a monthly limit
 Consider limiting allowable vendors
 Ask if supervisors/AP can have read-only access into
credit card account
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Review—Who is responsible for what?
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Employee
Supervisor knowledgeable of activities
Accounts payable
Documentation of review
Step back analysis
 Who actually needs a card?
 Is the volume of transactions necessary and reasonable?
 Does the credit card holder ask for personal
reimbursements?
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Upcoming Training
 April 7 BARS GAAP Basis in Lynnwood
 April 14 BARS Cash Basis in Okanogan
 May 18 District and Municipal Court Management Association
Spring Conference, Audit Information Panel
 June 18 BARS GAAP Basis in Spokane
 July 16th Ethics for CPAs in Lynnwood
 August 6 BARS GAAP Basis in Vancouver
 October 1 BARS Cash Basis in Pasco
 October 7 BARS GAAP Basis in Ellensburg
 October 15 BARS Cash Basis in Olympia
 To be scheduled, at least four classes: Federal Grant Requirements
and Management
See www.WFOA.org for BARS and Grant Management classes
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Questions?
?
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Contacts
State Auditor Troy Kelley
(360) 902-0360
[email protected]
Kelly Collins, CPA
Director of Local Audit
(360) 902-0091
[email protected]
Tina Watkins, CPA
Program Manager
(360) 260-6408 Ext. 106
[email protected]
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