1. Washington State Auditor’s Office Community and Technical Colleges BAR Meeting May 12, 2016 Presenters: Sarah Mahugh, MBA, CPA, Program Manager Erika Davies, Community and Technical College Specialist

2. Washington State Auditor’s Office 1.State Auditor’s Office Stewardship Awards 2.Foundations 3.Financial Statement Audit tips 4.New uniform guidance on Federal Grants 2 Topics for discussion

3. Washington State Auditor’s Office 3  What is the State Auditor’s Office Stewardship Award? Newly created award, presented to governments who are going above and beyond. Recognizing outstanding accomplishment, open conversations in a professional and productive manner, and extra time spent preparing the financial statements. State Auditor’s Office Stewardship Awards

4. Washington State Auditor’s Office  Recent issues with Foundations:  CPA firm compilation or review rather than a GAAP audit  Cash Basis Audit (which is non-GAAP) 4 Foundations

5. Washington State Auditor’s Office  If a GAAP audit of the foundation is not performed, we recommend an analysis over whether or not the statements should be included:  Consider how significant the foundation is to the College’s assets/liabilities/revenues/expenses as a quantitative threshold, but also consider qualitative considerations (GASB 39 criteria adding language to GASB 14 as para 40a). 5 Foundations (cont.)

6. Washington State Auditor’s Office  Foundation determination table for audit: 6 Foundations (cont.) QuestionYes – it is significantNo – not significant Is the foundation significant to the CC’s financial statements as a whole? It must be reported. Request removal of that information from the FS. If the numbers are presented, refer to the Yes column for treatment. Is an audit finding issued if the numbers aren’t GAAP? Yes, along with a modified opinion or disclaimer on the foundation. No, because there are no foundation FS included.

7. Washington State Auditor’s Office  Be Safe!  Always request a GAAP audit of your foundation statements to include them with your financials. OR  Perform your own independent analysis to provide the auditor with documentation for why the foundation is not significant and remove them from the statements entirely. 7 Foundations (cont.)

8. Washington State Auditor’s Office  What is an audit finding?  Significant issue – merits attention of management and governing body (SAS 115).  These issues are discussed at the exit conference and included in the audit report.  There are two types of audit findings  Significant Deficiency (less severe)  Material Weakness 8 Foundations (cont.)

9. Washington State Auditor’s Office  Audit Recommendations Table: 9 Foundations (cont.) Financial Audit considerations Decisions about the materiality of misstatements and the significance of internal control deficiencies will be made at the opinion unit level. Use the following chart as guidance: See AU-C 260.09-10 and.A5-A14 for source professional standards.

10. Washington State Auditor’s Office 10  How can we all get a Stewardship award or at least fewer audit recommendations?  Carefully review the financial statements before providing them to the auditor’s for audit. Statements are ultimately the College’s responsibility, and once the statements are provided to the auditor, they are considered the final “ready for audit” version (under SAS 115), which means that the auditors are able to identify recommendations in the statements and report them back to you.  Tip #1  Use the GFOA checklist http://www.gfoa.org/coahttp://www.gfoa.org/coa Financial Statement Audit Tips

11. Washington State Auditor’s Office 11  Tip #1 (cont.)  Use the GFOA checklist http://www.gfoa.org/coahttp://www.gfoa.org/coa  For example, the checklist item below is typically reviewed on every audit.  By using the checklist before the audit, you’ll catch things yourself that an auditor would typically look for).  The checklist also references the applicable GASB (in this case 34 for your reference as well). Financial Statement Audit Tips

12. Washington State Auditor’s Office 12 Financial Statement Audit Tips  Tip #2  Research the SAAM manual http://www.ofm.wa.gov/policy/http://www.ofm.wa.gov/policy/  During our typical audit, we will look at the SAAM manual and determine if the SAAM was followed for capitalizing assets and depreciation policies.  Specifically SAAM 30 for Capital Assets  All assets meeting the state’s capitalization policy must be carried on the property records of an Agency (SAAM 30.40.10).  Review the SAAM manual on when to capitalize assets (do all your assets meet this criteria)?  Review the SAAM manual on depreciation and lives (do all your assets meet this criteria)?

13. Washington State Auditor’s Office 13 Financial Statement Audit Tips  Tip #3  Work with the State Board http://www.sbctc.edu/colleges-staff/programs- services/accounting-business/http://www.sbctc.edu/colleges-staff/programs- services/accounting-business/  Use GASB’s website. Submit a technical inquiry http://www.gasb.org/http://www.gasb.org/

14. Washington State Auditor’s Office 14  Tip #4  The State Board developed the SMART system template with formulas in each tab of the template that calculate the financial statement balances based on a download of the College’s general ledger from AFRS. Colleges should verify the general ledger data is accurate in the SMART template. Contact the State Board with any questions about the template.  Remember DO NOT adjust amounts or formulas in the worksheet, except in the College Pre-Audit Adjustments, Audit Adjustments or Unbooked Adjustments columns in Statement A – Criteria and Statement C – Criteria. Be prepared to provide the auditor with documentation for each adjustment.  Our Office has identified instances in which the data tabs or “SMART Amount” column formulas were manually adjusted by the Colleges, which resulted in misstatements on the financial statements. Financial Statement Audit Tips

15. Washington State Auditor’s Office 15 Financial Statement Audit Tips  Tip #5  Beginning Balances. Tie the beginning balances of Net Position to the GL and Prior Year Audited Financial Statements.  The auditors will do this during the audit.

16. Washington State Auditor’s Office 16 Financial Statement Audit Tips  Tip #6  Statement of Cash Flows. Tie your statement of cash flows to the Statement of Revenues, Expenses and Changes in Net Position and to the Statement of Net Position. Auditors will double check that the following agree:  Cash and Cash equivalents at the end of the year  Operating Loss  Depreciation Expense  Additionally, now that most Colleges have a second set of financial statements, you can double check your cash flow reconciliation of Net Cash used by operating activities easily by comparing your balances from the prior year to the current year. See next slide.

17. Washington State Auditor’s Office 17 Financial Statement Audit Tips  Tip #6  Statement of Cash Flows. Example audit work paper below from Smiles College in Sun Valley, Florida.

18. Washington State Auditor’s Office 18 Financial Statement Audit Tips What do we want?  What is our end goal?  Awesome financial statements and students graduating from accredited Colleges in Washington State

19. Washington State Auditor’s Office  Why did the reform happen?  Performance > Accountability  Eliminate duplicate, conflicting guidance  Promote consistent, transparent treatment of costs  Standardize business processes  Encourage family-friendly policies  Strengthen grant oversight  Limit allowable costs—want best use of federal money  Focus audits on higher risks (waste, fraud, abuse) 19 New Uniform Guidance on Federal Grants

20. Washington State Auditor’s Office  Consolidating the Circulars 20 New Uniform Guidance on Federal Grants A-21 A-87 A-110 A-122 A-89 A-102 A-133 A-50 Uniform Guidance (2 CFR 200) Reduce administrative burden Reducing risk through better performance and accountability.

21. Washington State Auditor’s Office Important Dates to Remember  Guidance issued – 12/26/2013  Federal grantors had one year to make rules  Effective date of changes- 12/26/2014 Based on date of federal award (not pass-through award)  Audit changes apply based on entity’s fiscal year (FY beginning after 12/26/2014) 21 New Uniform Guidance on Federal Grants

22. Washington State Auditor’s Office  Activities Allowed  Cost Principles  Cash Management  Eligibility  Equipment and Real Property  Matching / Level of Effort / Earmarking 22 New Uniform Guidance on Federal Grants  Period of Performance  Procurement / Suspension and Debarment  Program Income  Reporting  Subrecipient Monitoring  Special Tests  Davis-Bacon Act *moved  Real Property Acq. *removed List of 12 Compliance Areas

23. Washington State Auditor’s Office  Areas with No Significant Changes  Eligibility  Matching  Level of Effort  Earmarking  Suspension and Debarment  Program Income  Reporting  Special Tests  Davis Bacon (moved to a special test) 23 New Uniform Guidance on Federal Grants

24. Washington State Auditor’s Office  Significant Change #1: Threshold Changes  Type A Threshold  Audit Coverage Threshold 24 New Uniform Guidance on Federal Grants

25. Washington State Auditor’s Office  Significant Change #2: Written Policy Requirements  UG added the requirement that entities have written policies and procedures over several compliance requirements. Two examples as follows:  Cash Management/Cash Advances  Minimize time between receipt of funds and disbursement (disburse funds as soon as possible), limit requests to immediate needs, tracks interest earned on advances and remit if earn more than $500/year  Procurement  Outlines procedures to comply with Federal rules and establishes standards covering conflicts of interest for employees engaged in the selection, award, and administration of the contracts. 25 New Uniform Guidance on Federal Grants

26. Washington State Auditor’s Office  Significant Change #3: Allowable Costs-Prior Written Approval  Items used for matching  Program income  Fringe benefits  Equipment and capital costs  Entertainment costs  Travel costs (including dependent care)  Conference costs (doesn’t include dependent care)  Pre-award costs  Participant support costs – stipends, subsistence, travel…  Revision of program plans  Prior approval can be documented in the grant agreement or some other written document including an amendment to the grant or a letter/e-mail from the grantor 26 New Uniform Guidance on Federal Grants

27. Washington State Auditor’s Office  Significant Change #4: Allowable Costs-Time and Effort Requirements  Emphasis on internal controls, rather than templates (examples removed from guidance)  Section 2 CFR 200.430 (i) describes requirements: 27 New Uniform Guidance on Federal Grants

28. Washington State Auditor’s Office  Significant Change #5: Allowable Costs- De Minimis Indirect Cost Rate  Use if entity has never had a negotiated rate  Once an entity has a negotiated rate, they can’t go back to a de minimis rate  Must use consistently for all federal awards  The rate is taken as 10% of the modified total direct costs (MTDC). 28 New Uniform Guidance on Federal Grants Includes  direct salaries/wages  fringe benefits  materials and supplies  services  travel  up to the first $25,000 of each subaward Excludes  equipment  capital expenditures  charges for patient care  rental costs  participant support costs  portion of each subaward and subcontract in excess of $25,000

29. Washington State Auditor’s Office  Grant Reform Resources  OMB Grant Reform http://www.whitehouse.gov/omb/grants_reform http://www.whitehouse.gov/omb/grants_reform  2 CFR 200- Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards http://www.ecfr.gov/cgi-bin/text- idx?SID=704835d27377ef5213a51c149de40cab&node=2:1.1.2. 2.1&rgn=div5 http://www.ecfr.gov/cgi-bin/text- idx?SID=704835d27377ef5213a51c149de40cab&node=2:1.1.2. 2.1&rgn=div5  U.S. Chief Financial Officers Council, Council on Financial Assistance Reform (COFAR) Frequently Asked Questions https://cfo.gov/wp-content/uploads/2015/09/9.9.15- Frequently-Asked-Questions.pdf https://cfo.gov/wp-content/uploads/2015/09/9.9.15- Frequently-Asked-Questions.pdf 29 New Uniform Guidance on Federal Grants

30. Washington State Auditor’s Office 30 Conclusion  It’s going to take time to accumulate the knowledge necessary to perform full GAAP/GASB statements and we know this because it is new to everybody  Thank you for your time today!!!

31. Washington State Auditor’s Office 31 State Auditor’s office contacts Sarah Mahugh, MBA, CPA Program Manager Team Financial Audit (360) 725-5417 Sarah.Mahugh@sao.wa.gov Erika Davies Higher Education Specialist Team Everett (425) 257-2137 Erika.Davies@sao.wa.gov