Are You Audit Ready? Presented by Donna Collins Milestone Professional Services

Are You Audit Ready?Are You Audit Ready?

Presented by

Donna Collins

Milestone Professional Services

Are you Audit Ready?Are you Audit Ready?

• Things that make this process difficult– Limited staff

• Budget cuts - fewer people• Availability of personnel to assist with audit prep

– Limited technical ability• Within key Finance positions• May be in support areas that impact audit


• Things that make this process difficult– Demanding nature of the process within

relatively tight timeframe• Auditors generally want to start ASAP• Council/Commission expectations• GFOA certificate program deadline• Filing due within 9 months versus 12


• Things that make this process difficult– Information outside of the control of the

Finance Department• Valuations (pension, OPEB)• Landfill closure (engineer reports, FDEP

compliance)

– Interpretation and expectation differences• Auditor/Government understanding of technical

standards• Governing body expectations


• Things that make this process difficult– Coordination with other departments

• Information for accruals• Project status for construction projects• Grant information from operations


• Keys to smoother audit season– UNDERSTANDING OF THE OBJECTIVES– PLANNING MEETING– COORDINATION– FOLLOW THROUGH– COMMUNICATION– PATIENCE

Are you Audit Ready?Our focus for today

Are you Audit Ready?Our focus for today

• The process within the government

• Understanding the auditor’s perspective

Process within the GovernmentProcess within the Government

• Coordinate with outside organizations• Coordinate with internal departments• Update documentation• Perform closing procedures• Perform year-end account analysis and

propose necessary journal entries

Process within the GovernmentProcess within the Government

• Prepare for a single audit (if applicable)• Prepare auditor requested items• Prepare financial statements• Complete a GAAP disclosure checklist• Prepare Annual Financial Report

Coordinate with Outside Organizations


• Identify the items needed from others– OPEB Valuation– Pension Valuations– Self-Insurance Certification– Swap Effectiveness Calculation (GASB 53)

• Make sure authority to contract has been given at the appropriate level.



• Communicate deadlines clearly and make sure they are incorporated into the contract.

• Know the key contact personnel for follow up or questions.

• Coordinate with auditors regarding timing of audit and due dates for financial statements.

Coordinate with Internal Departments - General

Coordinate with Internal Departments - General

• Many items needed to prepare for the audit are provided by other departments within the government.

• Make a list of these items that is complete.• Add requested by dates and make sure

they will meet your needs and be reasonable for the department that must provide the items.

Coordinate with Internal Departments


• Plan to Plan– Have a meeting with all key players.– If you need something from a department,

include them in the meeting.– Do this timely. Early August is not too early.– Be organized and prepared. Set up system

that works for your department.



• Send email or memo to all participants of planning meeting that:– Summarizes what was discussed and who is

responsible (responsibility chart)– Requires acknowledgement of receipt– Allows for their input if something missing



• Communicate with Departments– Payable cut-off and system lock out dates– Inventory dates and count procedures– Final Budget adjustment needed– Make sure to include key support personnel in

the communication• Financial personnel• Operational personnel• Administrative assistants



• Communicate needs with Departments– Schedules and assistance that will be needed

from that department • audit or year-end close schedules or reports• identification of CIP projects completed• access to files for auditors• footnote information



• Don’t forget to coordinate with the Information Technology Department– Reports needed– Internal Control document updates– P.O. roll over procedures– Input of new budget– Actual roll over of old year



• Document your plan including all significant tasks, responsible individual and due date– Matrix– Checklist– Narrative

CLOSING BOOKS TO DO LIST

9/30/2005

CATEGORY: DESCRIPTION: GASB 34 NAME DATE DUE:

General Send memo to departments to count inventory at 9/30 9/15/2005

General Send memo to depts for end of yr grant reimb requests 9/15/2005

General Send memo last check run 9/15/2005

General Send memo to all Finance Directors re:year-end 9/15/2005

General Announce last check run at Senior Staff 9/28/2005

Debt Run additional contingent liability for GASB 34 Conversion 9/29/2005

Debt Run contingent liability report for Sheriff , Board (include hire dates) 9/29/2005

Debt create excel f ile 9/29/2005

General Run final check run before end of year. 9/29/2005

Fixed Assets Review all PW contracts for cutoff 9/30/2005

Fixed Assets Meet w ith PW(cutoff, status on Infrastructure and GGB) 9/30/2005

General Remind accounts payable of old year/new year proc. 9/30/2005

General Run the 600 overnight-Fiscal Year Roll. 9/30/2005

General Run the 610: Post Pending Budget. 9/30/2005

General Run WTB and check cash balances. 9/30/2005

General Hold out journal entry numbers 9/30/2005

Inventory Call about postage inventory 9/30/2005

Cash & Investmts Prepare confirmations 10/3/2005

General Run list of O/S encumbrances for payables 10/7/2005

General to review . Send to depts to verify. 10/7/2005

General verify return by depts. 10/7/2005

General Send memo to depts for canceling P.O.'s. 10/7/2005

General See if IDA had income. 10/7/2005

General Run preliminary report of grant revenue and expense 10/7/2005

Payroll Accrue payroll. 10/7/2005

Accounts Payable Compare carryforw ard P.O. list to rebudget list 10/14/2005

Cash & Investmts Summary of investments by fund and 10/14/2005

Cash & Investmts type for footnote disclosure. 10/14/2005

Cash & Investmts Schedule of interest income compared to 10/14/2005

Cash & Investmts average investment balance. 10/14/2005

Cash & Investmts Mark Investments to Market 10/14/2005



Communication should be:

Early

Complete

Effective



• Follow up is generally necessary– Finance deadlines don’t necessarily correlate

with internal department processes.– Reminders of the dates items are needed and

the impact they have on the audit flow may be helpful.

– Make sure to communicate with support personnel. They often can facilitate your request.



•Be patient, but ask early

Update DocumentationUpdate Documentation

• Internal Control Narratives– Existing procedures– New processes or controls– Key personnel changes– Make sure that documentation agrees with

actual process being followed by staff


• Information Technology flowcharts– New software and impact on internal

processes– Upgrades to software– Changes in key personnel or information flow– Additional physical safeguards put in place– Risk assessment of any new technology

purchased and controls in place


• Significant contracts and agreements• New major grants• Risk assessment for the government

– Identify potential risks and controls that address the concern

– Evaluate fraud risk specifically• Consideration of new technical standards

and a plan for implementation

Perform Closing ProceduresPerform Closing Procedures

• Make sure duties are outlined on planning document created earlier in this process.

• Remember that certain reports may only be run on 9/30 due to system limitations– A/R and A/P detail– Deposit detail– Purchase orders carried forward– Sick/Vacation (Accrued Leave Report)

Cash and InvestmentsCash and Investments

• Timing – can be done early in the year-end process

• Bank Reconciliation is key – get this done timely, fill in deposit footnote piece

• Pooled cash equity - reconcile to equity in each fund

Cash and InvestmentsCash and Investments

• Investments – reconcile to trustee statements (best if done monthly) to ensure all transactions are properly recorded including interest

• Footnotes for investments can be prepared once 9/30 transactions recorded (effective duration by investment type, concentration of asset by type, etc.)

PayrollPayroll

• Many general ledger software packages can handle accrual automatically. – Find out if your software has this option– Test the accrual in “train mode” if possible

• Propose accrual (and reversing entry) as part of processing the last payroll of the year.

PayrollPayroll

• Prepare the reconciliation for the auditors at the time the 941 is filed

• Run leave reports (vacation and sick) after the last payroll for the year. Compensated absence schedules, footnote and accruals can be done shortly after the last payroll run.

Perform Year-end Account Analysis

Perform Year-end Account Analysis

• Include all major funds and accounts with high risk. Begin at TB level but also review G/L detail where necessary.

• Make sure all “negative” account balances are reclassified (negative assets moved to liability, etc.)

• Document results of analysis

Account AnalysisGeneral SuggestionAccount Analysis

General Suggestion• Consider monthly reconciliation for all

balance sheet accounts (Black book).• Document findings during monthly budget

to actual comparisons for use in year end fluctuation analysis work.

• Book the reversing entry when you book an accrual.

Account Analysis -ReceivablesAccount Analysis -Receivables

• For State Revenues/Receivables:– Prepare FLAIR reconciliation – Book accruals– Reverse prior year accrual– Add amounts to Due from Other Government

audit workpaper (and footnote, if applicable)

FLAIR ReconciliationFLAIR ReconciliationCITY OF SAMPLE

AMOUNTS RECEIVED FROM STATE OF FLORIDA

SEPTEMBER 30-xx

LOCAL COMM REV MOBILE ALCO 1/2 CENT FIRE GAS TAX RADON FDOT

OPTION SERV TAX SHARE HOME BEV SALE TX SUPP REFUND GAS MOWING

3124100 3150000 3351200 3351400 3351500 3351900 3352300 3354100 3354200 3439101

OCT 299,379.73 46,438.65 100,471.22 50,839.69 63.50 0.00 95,221.67 0.00 0.00 6,345.00

NOV 301,466.66 45,598.88 103,259.97 50,839.69 206.24 739.75 95,506.32 1,080.00 4,235.81 0.00 0.00

DEC 494,327.32 41,512.55 305,174.34 50,839.69 3,010.62 0.00 87,445.12 0.00 0.00 6,345.00

JAN 300,001.87 45,271.64 100,142.46 50,839.69 2,141.11 0.00 97,150.11 4,427.31 29.55

FEB 302,272.24 43,023.11 101,619.55 50,839.69 473.50 369.87 104,866.52 1,080.00 0.00 0.00

MAR 298,799.94 44,629.81 105,677.39 50,839.69 907.25 0.00 90,351.98 0.00 -141.43 0.00 6,535.25

APR 292,586.13 42,888.96 105,284.30 50,839.69 40.75 93,503.27 0.00 29.16

MAY 341,137.98 50,199.73 107,550.60 50,839.69 106.00 10,557.23 100,361.73 1,080.00 3,905.32 0.00 16,537.68

JUN 300,570.54 44,975.09 106,960.79 44,278.21 250.12 0.00 97,571.08 0.00 0.00 0.00 6,535.25

JUY 323,038.90 48,441.96 104,570.84 44,866.51 169.25 0.00 95,013.77 -8.12 29,984.69

AUG 302,333.92 46,650.77 105,741.75 44,866.51 231.62 2,958.98 95,845.34 1,080.00 4,958.95 0.00 0.00

SEP 296,598.17 45,847.33 106,970.78 44,866.51 77.25 0.00 98,836.30 0.00 0.00

Total 3,852,513.40 545,478.48 1,453,423.99 585,595.26 7,677.21 14,625.83 1,151,673.21 4,320.00 17,385.96 50.59 72,282.87

BOY Accrual -317,779.27 -52,621.72 -96,910.50 -59,843.84 -87.12 -108,316.09

EOY Accrual 286,020.46 43,829.93 107,517.24 44,866.51 0.00 89,806.78

TOTAL 3,820,754.59 536,686.69 1,464,030.73 570,617.93 7,590.09 14,625.83 1,133,163.90 4,320.00 17,385.96 50.59 72,282.87

Per G/L 3,820,754.59 536,686.69 1,464,030.73 570,617.93 7,590.09 14,625.83 1,133,163.90 4,320.00 17,385.96 50.59 72,282.87

DIF 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00


• For other revenues/receivables:– Agree subledger to general ledger – Print detail report of subledger balances.

(Report can be spooled for later printing or review. )

– If clean up is needed, propose the entry then and rerun report or prepare a reconciliation to the G/L.


• Grants – when submitting reimbursement request, add any accruals to Due from Other Governments schedule (prepared for auditors and footnote, if applicable)

• Look for 12 months of receipts for routine payments

• Revenue recognition policy affects accruals

Account Analysis - ReceivablesAccount Analysis - Receivables

• For significant interlocal agreements, check revenue against contract to see if receivable needs to be accrued. Do this when recording the last receipt prior to 9/30.

• Don’t forget to reverse prior year accruals.• Prepare reversing entry for 10/1 at the

time you prepare the 9/30 accrual.

Account Analysis - RevenueAccount Analysis - Revenue

• Perform analytics that compare current year to prior year and current year to budget. Make sure explanations make sense in connection with other known trends. (This will be useful in MD&A.)

Account Analysis - DebtAccount Analysis - Debt

• Can be done early• When you make last payment for the year,

update the debt progression schedule for the audit and footnotes.

• Be diligent in keeping a file for all new debt issues and lease arrangements. When you obtain or run amortization schedules, add to audit file and footnote schedules.

Account Analysis - DebtAccount Analysis - Debt

• For proprietary debt, ensure that ending balance per progression agrees to general ledger

• Premiums and deferred amounts can be amortized and then added to debt progression shortly after year-end.

• Make sure ending balances agree to G/L

Account Analysis - Expenditure Accruals


• Consider performing a Search for Unrecorded Liabilities– Set scope below auditor’s scope– Perform for at least 3 months across all funds– Document reasons for not accruing

transactions



• Look at major contracts for retainage and necessary accruals and go ahead and draft commitment footnote.

• Perform analytics that compare current year to prior year and current year to budget. Make sure explanations make sense in connection with other known trends. (This will be useful in MD&A.)

Account Analysis - Accounts Payable

Account Analysis - Accounts Payable

• Run detail at 9/30 at your cut off date and keep this report for auditors to use for tie in for their Search for Unrecorded Liabilities

• Make sure this detail agrees to TB for each fund.

Account Analysis - Capital Assets


• Reconcile capital outlay monthly• Consider monthly review of all R&M and

Small Tools accounts• Document reasons for not-capitalizing any

6000 account.• Prepare a reconciliation for all 6000

accounts to asset additions

Capital Asset ReconciliationCapital Asset Reconciliation

• Sample City

Sample CityCapital outlay reconciliation9/30/xx

In Capital Outlay In Capital Assetsper TB acct per progression

341-41-530.64.01 Capital Outlay 521,237.43 521,237.43 CIP on capital asset progression and Capital Projects Additions wp001-21-520.64.01 Capital Outlay 25,512.00 25,512.00 Equipment on capital asset progression

352-41-530.64.01 Capital Outlay 14,605.50 This addl expense for 2011 not capitalized due to litigation on Pedwayproject. JE to move out of 6400 acct not deemed necessary.

622-21-520.64.01 Capital Outlay 1,000.00 Purchase of 3 riffl es. Below capitalization threshold. JE to actually move562,354.93 to another expenditure account not deemed necessary.

341-41-530.31.00 Professional Services 30,128.00 On CIP workpaper but no JE to move to 6400 acct. (We generallyleave items like this in the original g/l acct but add to CIP

576,877.43

Items not capitalized. See notes above.



• Identification of CIP completed can begin before year end. – Can be time consuming.– Make requests early.

• Don’t forget about intangible assets.

Account Analysis – Fund Balance

Account Analysis – Fund Balance

• Prepare progression of fund balance amounts (by fund)

• Ensure classifications from prior year are still accurate.

• Identify new description needed within nonspendable, restricted, committed or assigned categories

• Update footnote

Prepare for a Single AuditPrepare for a Single Audit

• Centralized vs. decentralized accounting for grants will impact this area.

• Decentralized grant management will require earlier coordination/communication with each department that has a grant for the fiscal year.


• Practical suggestions include:– Make sure you have a separate folder for

each significant grant that includes:• the grant agreement • the relevant compliance supplement (that the

auditors will use to determine testing required)• Council/Commission acceptance of the grant• CFDA or CSFA number



each significant grant that includes:• all reports submitted to the agency

– Financial and operational– Reconcile financial reports to the g/l– Attach receipt documentation to request so that date of

receipt is easily identified– Support for all accruals/deferrals– Documentation of FFATA reporting performed



each significant grant that includes:• Monitoring documentation for subrecipients

– Copy of entity’s financial statements and audit reports– Documentation of intended use of the funds received– Documentation that funds were used for purpose that

pass through grant was awarded

Prepare Auditor Requested ItemsPrepare Auditor Requested Items

• Generally the auditors will provide a list of requested schedules during their interim field work. If they do not provide a “client assistance list”, request this document.

• Review the list and ask questions on any items that may not be clear.


• Remember that the auditors are looking for the information requested. It may be readily available in another format utilized internally by the government. Ask if this will be acceptable. It can save time and effort.


• Audit Preparation – Schedules and requested items– Detail account schedules to be prepared

• Cash transfers schedule• Investment detail with market values• Detail of Receivables• Due to/from Other Governments• Schedule of Due to/from other funds• Fund Balance analysis


• Audit Preparation – Schedules and requested items– Footnote progressions to be updated

• Debt progression (including compensated absences, OPEB)

• Capital Asset progression• OPEB and Pensions• Self insured funds


• Audit Preparation – Schedules and requested items– Gather general documentation for new

transactions/processes• New debt (bonds and notes) and leases• New accounting standards and implementation• Documentation of new software programs, IT

Prepare Financial StatementsPrepare Financial Statements

– Prepare Fund level statements• Can be done by staff• Make sure review process occurs

– New accounts and funds properly grouped– Numbers input accurately– Excel formulas correct and no hidden rows/columns– Review may need to be done by Finance Director

• Begin as soon as TB closed


– Schedules for conversion amounts to be updated. Make sure to coordinate with footnote preparation and auditor requested schedule preparation to gain efficiencies.

– Examples include:• Debt – bonds and notes• Other long term liabilities• Capital Assets


– Schedules for conversion amounts to be updated. More examples:• Accrued interest• Pensions (NPO) and OPEB• Deferred revenue/Unearned revenue• Inventory balances


– Top Level Statements to be completed• Utilize conversion schedules• Incorporate each item into Statement of Net Assets

and Statement of Activities concurrently• Complete reconciliation statements as you address

each conversion item.• Make sure statements agree. Be careful of $1

differences


– Footnotes need to be done• Make sure to coordinate efforts with other parts of

the audit preparation process.• Agree to Financial statement draft and correct

rounding differences in the footnotes as prepared.• Examples include: SSAP, Cash and Investments,

Debt, Capital Assets, Interfund transactions, Pensions, Commitments, Fund Balance composition, etc.


• Management Discussion and Analysis should be updated– Make sure amounts articulate with amounts in

the financials– Analysis should be informative and not old

“canned” topical discussions


– Statistical Section data to be gathered (if you prepare a CAFR)• Begin process early• Make sure first four tables agree with final CAFR • Review Auditor General desk review results to

ensure common errors have not been made.• Don’t forget appropriate footnotes for each table.

Complete GAAP Disclosure Checklist


• Purpose: ensure correct application of standards and completeness of document

• Several sources to obtain a current checklist– GFOA– PPC from auditors– AICPA– Other



• Make sure to complete all sections• Utilize technical references if you are

unsure of standard application to your entity

Prepare Annual Financial ReportPrepare Annual Financial Report

• Annual Financial Report due to Department of Financial Services 45 days after delivery of audit but no later than 9 months after fiscal year.

• Must be complete prior to audit release so that auditors can compare to financial statements.

Auditor’s PerspectiveInterim and PlanningAuditor’s PerspectiveInterim and Planning

• Procedures Include:– Review of internal control documentation

• Updated for current year• Includes all major areas• Proper segregation of duties or compensating

controls if segregation not possible


• Procedures Include:– Gathering of agreements and contracts

• Properly executed• Approved in accordance with purchasing policy• Compliance elements are included (grants)


• Procedures Include:– Testing of controls and transactions

• Control testing is often dual purpose – financial statement and compliance

• Are controls documented in narratives provided by client being followed in actual practice

• Are transactions properly authorized


• Procedures Include:– Review of preliminary Schedule of Federal

and State Assistance• Complies with Rules of Department of Financial

Services as to format• Also complies with requirements of Auditor

General• Includes CFDA and CSFA numbers

Auditor’s PerspectiveYear-end


• Procedures include:– Review of trial balance

• Ensure risk areas from planning are still accurate• Identify balances that require audit procedures

– Audit of schedules provided by client• Accurate, complete and agree to TB• Analysis consistent with other data already

gathered



• Cash Audit Schedules– Agree to trial balance– Include all cash accounts and properly

identifies restricted cash and the nature of the restriction

– Proper cut off (includes timely bank reconciliation)

– Footnote information has been included



• Accounts Payable Schedules– Includes all accruals– Subsidiary agrees to general ledger– Clean cut off– Identification of retainage amounts– Amounts Due to Other Governments have

been properly identified



• Accounts Receivable Schedules– Includes all accounts and agrees to trial

balance– All accruals are made with proper cut off– Needed allowances are recorded– In governmental funds, balance will be

received in next year– Footnote information available and agrees to

schedules



• Capital Asset Schedules– Beginning balance agree to prior year audited

numbers– Intangible assets have been properly

identified– Depreciation has been correctly calculated

and the change in A/D makes sense– Reconciliation to capital outlay has been done– Capitalize interest has been recorded



• Debt Schedules– Beginning balance agree to prior year– New debt issuances have been properly

recorded– Covenants are identified, tested and have

been met– Outstanding amounts agree to confirmations



• Revenue Schedules– Relationships between years make sense

based on council actions– All major revenues have been accrued and

cut off is clean– Grants have been evaluated for revenue

accruals/deferrals



• Expense/Expenditure Schedules– Relationships between years make sense

based on council actions– All major items have been accrued and cut off

is clean– Budget to actual relationships also make

sense given events during the fiscal year.



• Procedures include:– Review of financial statements

• Statements articulate• Footnotes agree to the face of the statements• Amounts agree to audited trial balance and

groupings are accurate• All required disclosures are included• GAAP followed• MD&A and Statistical Sections are consistent with

CAFR taken as a whole

Are You Audit Ready?Suggested ResourcesAre You Audit Ready?Suggested Resources

• Governmental Accounting, Auditing, and Financial Reporting by Stephen Gauthier

• Elected Official Guides (GFOA)– Audit Committees– Internal Control and Fraud

• Small Government Resource Manual (FGFOA)

Are You Audit Ready?Suggested ResourcesAre You Audit Ready?Suggested Resources

• AICPA Audit Guides– Audit Sampling– Analytical Procedures– Auditing and Accounting– Government Auditing Standards and Circular

A-133 Audits– State and Local Governments

Questions?Questions?

Documents

Are You Audit Ready? Presented by Donna Collins Milestone Professional Services