Transcript An External Auditor’s Perspective on Key Components to a

©2014 CliftonLarsonAllen LLP
©2014 CliftonLarsonAllen LLP
An External Auditor’s
Perspective on Key
Components to a Smooth
Audit
Sarah A. Utsch, CPA – manager at CliftonLarsonAllen LLP
Kristen A. Houle, CPA – senior at CliftonLarsonAllen LLP
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At the end of this session, you will be able to:
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Learn about opportunities where fraud can occur within your department and
hear ways to help prevent and detect such instances
Understand some procedures to assist in preparing for the annual audit including
some tools to summarize and review your data
Understand the key changes coming up relating to federal single audit
requirements and have resources available to review your specific program
changes
Understand the tools provided to assist in preparing your section of the Schedule
of Expenditures of Federal Awards (SEFA) for your Auditors
Be aware of key findings relating to federal awards and have some ideas on how
to avoid them
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Objectives
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Fraud in Local Governments Compared to Other
Industries
Source – 2012 Report to the Nation on Occupational Fraud and Abuse
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Source – 2012 Report to the Nation on Occupational Fraud and Abuse
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Anti-Fraud Measures – How it was Detected
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Factors that Contribute to/Allow Fraud
Primarily internal control weaknesses:
Source – 2012 Report to the Nation on Occupational Fraud and Abuse
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Newsworthy Story
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Evaluate invoice review and payment approval process
Restricted system access to add/modify vendors
Anonymous tip hotline
Financial analytical review analysis (periodic budget to actual
and prior period to current period comparisons)
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Takeaways from Story
Health and Human Services Medical Assistance Estate
Recovery Scam
- One person filed all documents and received
notification of estate recoveries
- She opened an account at the bank in the County’s
name for those funds to be deposited and only she
knew about the account
- It was discovered when the auditors confirmed all
accounts held at that bank with the County’s federal
ID number
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Newsworthy Story
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Fictitious Vendors
Skimming
Kiting
Estate Recovery Scam
Reimbursement Claims for Ineligible Expenditures
Employee Expense Reimbursements
Misuse of Credit Cards and Gift Cards
Misuse/Theft of Petty Cash
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Other Likely Scenarios
• Skimming – taking a
little cash off the top of
daily receipts/deposits
– Social Welfare/Money
Management accounts
– Front Desk collections
– Immunization clinics
• Kiting – taking
advantage of nonexistent funds then
replacing it with the
next receipt. It’s like
“robbing Peter to pay
Paul”
– Social Welfare account
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Skimming and Kiting
• Ensure proper training in grant reporting
requirements by staff preparing reports and
reviewing
• Ensure review of IFS detail of expenditures prior to
submitting the reports
• Reconcile grant funds received back to reports filed
to ensure the program’s revenues and
expenditures make sense with the funding sources
• Ask questions of the funding agencies!
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Reimbursement for Ineligible Expenditures
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Employee Expense Reimbursements
• Employee Expense Reimbursements
– Must have receipts for all purchases being reimbursed
– Mileage should be recalculated by a reviewer
– Ensure County duties are being performed with mileage
being requested
– Have a standard form to be filed and signed by employee
as well as direct supervisor
– Written policy of allowable items to be reimbursed for
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• Have statements sent to a centralized location, not to
the employee directly
• Have all employees turn in receipts to that central
person who will reconcile the statements to eligible
receipts
– When not provided with a detailed receipt, provide a
declaration form to be signed by the employee stating they
weren’t provided with a detailed receipt
• If gas cards, require employees to log the clients they
are serving and turn that in to be reviewed
• If gas cards, have odometer readings turned in at timing
of each statement (if used for county vehicles)
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Misuse of Credit Cards/Gas Cards
• Have a detailed credit card policy, approved by your
Board, that dictates authorized users, authorized
purchases and spending limits
• Check into the limits on each credit card to ensure they
do not have outrageous limits
• Further guidance on items to include in a credit card
policy and general statute information can be found on
the Minnesota State Auditor’s website under
Auditing/Statements of Position/Internal Controls
http://www.osa.state.mn.us/other/Statements/creditcardusepolicies_0703_statement.pdf
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Misuse of Credit Cards/Gas Cards
(Continued)
• The giving of gift cards to clients is not allowed with local
county dollars. It could be allowed under grants if the grant
specifically allows for purchase of gift cards as an eligible
expenditure.
• These are as good as cash so good internal controls is KEY!
• Ensure a centralized log is kept of cards purchased and who
they were issued to as well as under what program.
• A check from the County’s account should be used to make
the purchase, supported by a receipt. Do not use petty cash
to make this purchase!
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Misuse of Gift Cards
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Misuse/Theft of Petty Cash
• Define proper use of petty cash
– Petty cash is DIFFERENT than change fund. Change fund always has the
same amount in it and is used solely to make change.
• Require initials/documentation on use of petty cash and
require receipts
• Ensure reconciliation performed on regular basis (daily or
weekly) by someone other than custodian
• Ensure County Board approval on use and amount held in
either petty cash or change fund
• Additional information on State Auditor’s website under
Auditing/Statements of Position/Internal Controls
http://www.osa.state.mn.us/Other/statements/pettyCashFunds_0807_statement.pdf
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• Written policies are a necessity to provide
guidelines and expectations to County personnel on
proper procedures
• Documentation of reviews and reconciliation is key
to prove the review is occurring
• Helpful resources in developing policies are the
State Auditor’s website and your neighboring
counties!
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Summary of Fraud Prevention
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Switching Gears!
Time to talk about preparing for your annual audit!
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• Lack of supporting documentation and approval for
social welfare and other department checking
account disbursements
• No monthly bank reconciliation performed for
departmental checking accounts
• Lack of timely deposits to bank or County
Auditor/Treasurer
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Top Findings Relating to Financial
Information
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Top Findings Relating to Financial
Information (Continued)
• Carry forward balances in asset and liability
accounts that should zero out at year-end
• No listing of receipts received after 60 day cut-off
period
• Errors in account coding for grant revenues
(comingling state and federal grants into same IFS
accounts)
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• All checks made on behalf of clients need to have supporting
documentation and client worker approval
– Annual email or signature on amounts for personal needs, etc are
sufficient
• Signer on checking account should not be same person that
approves/initiates payments
• There should be a monthly bank reconciliation performed by
someone other than the check signer and it should balance
to the total of client balances.
– The reconciliation needs to be signed by preparer and reviewer in
order to document it occurred.
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Social Welfare
• Segregation of duties on these outside checking accounts
are key!
• To prepare for your external auditor:
– Summarize each month’s activity in the bank accounts in excel file
Beginning
Balance
January
February
March
April
May
June
July
August
September
October
November
December
15,193
9,620
11,402
9,665
8,645
15,532
8,672
17,115
24,177
14,131
9,995
17,057
Additions
Deletions
15,728
17,521
17,967
15,567
24,055
8,689
23,295
22,468
9,436
21,981
21,420
15,115
213,242
21,301
15,739
19,704
16,587
17,168
15,549
14,852
15,406
19,482
26,117
14,358
16,158
212,421
Reconciling
items
Book Balance
12/31/13
Ending
Balance
9,620
11,402
9,665
8,645
15,532
8,672
17,115
24,177
14,131
9,995
17,057
16,014
(1,320)
14,694
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Social Welfare (Continued)
• Cash and checks collected over the counter and in
the mail should be deposited with the bank in a
timely manner (daily is recommended)
• Some counties have a county-wide policy on their
depositing policy which sets a threshold for when
deposits must be made (example: daily if over
$1,000)
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Timely Deposits
• Examples include:
– MMIS holding accounts
– Refund liability accounts
• To prepare for your external auditor:
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Print Account Activity report for 1000 and 2000 object codes and
review for unusual items and miscoding.
Ensure the year-end balance represents an amount owed to or from
someone.
Provide necessary entries to zero out MMIS holding account to
auditor
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Asset and Liability Carry forward Balances
• It is important to match up revenues to expenditures in the
same calendar year
• DHS and other agencies do not always get reimbursement to
the Counties before the cut-off period to use accrual codes
• It’s necessary to capture those receipts so you or the auditor
can make the necessary entries
Options include:
• Use of report code and print a “Transaction Listing by Report Code”
• Summarize within a spreadsheet
•
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Revenues Received after Cut-off
• The annual financial statements require reporting
of federal grants and state grants separately
– They also require reporting separate BY grant and
funding agency
• Ensuring that these grants are separated into their
own accounts is key for proper reporting!
•
IFS users should be using 5300 object codes for state grants and
5400 object codes for federal grants
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Miscoding of Grant Revenues
REIMBURSEMENT FOR SERVICES
STATE
Minnesota Department of
Human Services
678,182
STATE GRANTS
MINNESOTA DEPARTMENT OF
Human Services
Natural Resources
Peace Officers (POST)
Public Safety
Pollution Control Agency
Veteran's Affairs
Water and Soil Resources
Total State Grants
377,624
106,973
21,445
27,975
9,798
64,366
608,181
FEDERAL GRANTS
FEDERAL DEPARTMENT OF
Agriculture
Commerce
Interior
Justice
Transportation
Health and Human Services
Homeland Security
Total Federal Grants
Total State and Federal Grants
90,208
57,452
532
8,442
658,596
729,277
44,220
1,588,727
• Note how there is
Reimbursement for
Services, State Grants,
and Federal Grants all
relating to Department
of Human Services
• When revenues aren’t
clearly separated by
account it is difficult to
prepare this schedule
2,196,908
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Example Intergovernmental Revenue Report
Federal Grantor
Pass Through Agency
Grant Program Title
Federal
CFDA
Number
Expenditures
U.S. Department of Health and Human Services
Passed Through XYZ County
Temporary Assistance for Needy Families (Part of TANF Cluster)
93.558
$
36,701
Passed Through Minnesota Department of Human Services
Promoting Safe and Stable Families
93.556
4,155
Temporary Assistance for Needy Families (Part of TANF Cluster)
93.558
28,792
Title IV-D Child Support
93.563
194,945
Refugee and Energy Assistance Grant
93.566
241
Child Care and Development Block Grant (Part of Child Care Cluster)
93.575
3,032
Child Welfare Services State Grants
93.645
2,077
Foster Care Title IV-E
93.658
70,437
Social Services Block Grant Title XX
93.667
87,853
Chafee Foster Care Independent Living
93.674
1,190
State Children's Insurance Program
93.767
43
Medical Assistance
93.778
377,912
Total Department of Health and Human Services
• This is just for
federal grants
– Note how each
grant needs to be
identified
separately
– Also note that this
reports
EXPENDITURES!
807,378
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Example Schedule of Expd of Federal Awards
• Reconcile MMIS Confirmation reports to IFS
revenue accounts
• Summarize each revenue account and where it
should be reported in both the IGR Schedule and
SEFA
• Review activity in the grant revenue accounts prior
to auditor arrival to ensure proper account coding
of all receipts
• Don’t forget to take into account timing of receipts
(accruals)!
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So – What Can You Do To Help?
• We’ll show you a nice spreadsheet used by one of
our counties to assist in preparing her audit
schedules!
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Template to Assist you
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Single Audit Time!
All you care to know and more!
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• The OMB (Office of Management and Budget) has
set requirements that all entities that receive over
$500,000 in federal funding are required to have a
federal single audit.
– Threshold to increase to $750,000 for 2015.
• When a County receives over $500,000 in TOTAL
federal awards then the external auditor is required
to select specific federal programs to test for
compliance and controls.
– Selection of programs is based on set of criteria including
risk, complexity, and dollar value compared to total grant
dollars.
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What is Single Audit?
• Once the programs to be tested are identified
(termed “major programs”) the auditors must test
both compliance and controls over that program.
• Compliance tests are driven by a “compliance
supplement” which is available on the following
website:
http://www.whitehouse.gov/sites/default/files/omb/assets/OMB/circulars/
a133_compliance/2013/hhs.pdf
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Audit Requirements for Major Programs
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Compliance Requirements
• Compliance & Control areas typical for Human
Service grant programs include:
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Activities Allowed and Unallowed
Cash Management and Reporting
Procurement, Suspension, Debarment
Eligibility
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Common Compliance & Control Findings
Activities Allowed and Unallowed
– Random Moment Studies (RMS) listing not up to date for
employees working on the programs
– Expenditures charged to the grant do not have
supporting documentation readily available.
Cash Management and Reporting
– Ensure there is someone reviewing the reports and
support for all expenditures for which reimbursement is
being requested
◊ This includes electronic reports!
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Common Compliance & Control Findings
Procurement, Suspension, Debarment
– Federal requirements state that Counties must ensure
that vendors that they enter into a contract with are not
suspended or debarred from doing business with
government agencies.
– Counties should check the website “sam.gov” and print
the screen showing that the vendor they are contracting
with is not on the list
– In addition, there is “self certification” language that
should be included in the contract signed by the vendor
stating that they are not suspended or debarred.
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Common Compliance & Control Findings
Eligibility
– CLA very often sees a lack of controls overall with too
much reliance on the system. We recommend a
documented case file review by a supervisor on a regular
basis (maybe 5 per quarter)
– Missing documentation is the source of several findings,
these items include:
◊ Lack of documentation of citizenship
◊ No application on file or lack of annual renewal application
◊ Lack of proof of income verification (pay stubs, etc)
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• Ensure casefiles are organized and have all required
documentation.
– If casefile is electronic, ensure documents are readable
and organized.
• Have available all reports with supporting
documentation attached.
• Have a knowledgeable staff available for the
Auditor’s to ask questions when onsite.
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Helpful Hints to Prepare for Federal
Program Audit
QUESTIONS?
Contact Information:
Sarah A. Utsch, CPA
Manager, St. Cloud office
Phone: 320-203.5536
[email protected]
Kristen A. Houle, CPA
Senior, St. Cloud office
Phone: 320-203.5539
[email protected]
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Thank You for Your Time and Participation!