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State and Local Government Finance Division Deposits, Investments, Auditing, and Reporting Update February 11, 2014 Becky Dzingeleski February 11, 2014.

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Presentation on theme: "State and Local Government Finance Division Deposits, Investments, Auditing, and Reporting Update February 11, 2014 Becky Dzingeleski February 11, 2014."— Presentation transcript:

1 State and Local Government Finance Division Deposits, Investments, Auditing, and Reporting Update February 11, 2014 Becky Dzingeleski February 11, 2014 Becky Dzingeleski

2 AGENDA Announcements / Reminders Audit Review Process Audit Report issues in FYE 2013 Audit Contracts / Invoices Breaking News … Deposits and Investments Communication

3 Announcements / Reminders Fiscal Management Staff changes – o Bonaventure Ezewuzie, CPA joined the fiscal department as a staff accountant October o 7 Years experience as a compliance auditor for the NC State Treasurer o One open staff accountant position in Fiscal to be filled soon.

4 Announcements / Reminders Debt Management – One open Position: Deputy Director Debt Staff changes (2013) o Phil Anderson – Involved in entire local government application process for installment purchase contracts, revolving state loans for water & sewer projects, etc. and the refinancing of existing debt. – Replaced Markisha o Jenny Johanns – Administrative Staff: Debt payment notices – Replaced Tina

5 Announcements / Reminders 2014 Treasurer’s Conference  Save the dates o Winston-Salem – Thursday, May 15, 2014 o New Bern – Friday, May 16, 2014  Keynote speaker - Dave Bean, CPA - Government Accounting Standards Board – Topics will include  GASB 67 - Financial Reporting for Pension Plans  GASB 68 - Accounting and Financial Reporting for Pensions for Employer Participants

6 Audit Review Process Successful 2013 process for submission of audit reports, contracts, and invoice approval. No expected changes for approval processes regarding Audit Contract, Audit report submission or invoice for 2014 Positive response from auditors and units.  Turnaround was faster in  LGC Staff availability was improved  still issues due to Princeville demands. o Congratulations on getting 984 or almost 85% of the audits in before December 15 th o As of 2/7/14 we have received 1,089 FYE 2013 audits o We are still missing – 32 municipalities & 7 counties

7 Audit Review Process Unit Data Input workbook –2013 o Clarified the way we asked the questions  Feedback always appreciated o Additional questions were added in 2013  May be additional questions in 2014 o Restricted Stabilization by State Statute - RSS tab  Calculations for RSS and FBA

8 Audit Review Process 2013 was the 2 nd full year of NEW SLGF audit review process o Additions / changes in Unit Data input workbook to enable us to get better data and to better assess fiscal health. o We have easier access to prior year’s financials, unit letters and responses and five year’s worth of trial balances o Intention is the trend information will be helpful for units experiencing difficulties o Going forward we will continue to enhance our ability to expedite a comprehensive and thorough fiscal analysis

9 Audit Presentation Changes in 2013 GASB 63 went into effect for June 30, 2013 GASB 65 goes into effect 6/30/2014 LGC required implementation of GASB 65 with GASB 63 in 2013 Audit reports Presentation Issues in 2013 audit reports:  Vague deferred inflows note –large amounts of deferred inflows as “other” or “miscellaneous  Give thought to why a certain transaction is unearned, from there the classification should be straightforward.

10 Audit Presentation Changes in 2013 Exchange transaction vs. Imposed non-exchange transaction From GASBS 65, ¶9: Imposed Nonexchange Revenue Transactions - “Deferred inflows of resources should be reported when resources associated with imposed nonexchange revenue transactions are received or reported as a receivable before (a) the period for which property taxes are levied or (b) the period when resources are required to be used or when use is first permitted for all other imposed nonexchange revenues in which the enabling legislation includes time requirements.” Privilege license is exchange transaction: show as a liability, not Deferred Inflows Grants that have been prepaid but for which the substantive or contractual requirements have not been met are liabilities, not deferred inflows

11 Audit Review Process – Debt Approval Units requesting November or December LGC debt approval must already have submitted to our office o Completed set of financial statements including signed opinion and MD&A o Compliance opinions can come subsequently o Detailed response to Unit Letter (if applicable) o We must know any Compliance findings that affect the financials Our office must have time to review audit report, write Unit letter (if necessary) and review unit’s detailed response to our letter. We do not need the final bound CAFR for mass publication

12 Audit Report Issues Cost Allocation vs. Transfers – Memo https://www.nctreasurer.com/slg/Memos/ pdf https://www.nctreasurer.com/slg/Memos/ pdf o Cost allocations should be treated as reimbursements to reduce the cost of operations – it is not revenue but a contra account. o Transfers are gifts of financial resources or equipment; they will be treated as revenue/other financing source to the receiving fund. Management Representation Letter o Signing this is accepting responsibility for what is in the Audit report o Unit needs to review the prepared statements and be in agreement with the presentation before report is sent to SLGFD o Management Rep letter should be signed before the Audit report comes to the SLGFD

13 2013 Audit Report Issues Other Post Employment Benefits (OPEB) Use of Alternative Method for determining OPEB liability (Pg. 35-I-126 thru 129: City of Dogwood Illustrated financial statements) does require supplementary information (RSI) following the notes to the financial statements Firefighters & Rescue Squad Workers’ Pension Fund If significant salaries are paid to these individuals, there must be a note in the Audit report (Pg.35-I-67) including On-Behalf Payments for Fringe Benefits and Salaries (Pg. 35-I-82) https://www.nctreasurer.com/slg/GASB%20Documents/CityofDogwoodIllus trativeFinancialStatements.pdf

14 2014 Audit Contract changes Parent Government – Component and DPCU o DPCU (TDA) – Public Authority with separate board o Memo https://www.nctreasurer.com/slg/Memos/ pdf https://www.nctreasurer.com/slg/Memos/ pdf o Signatures of both o Parent Government Board Chairman / Mayor o Board Chairman of TDA o 2013 Group Audit Standards o If entity is component of another government under the group audit standards - the entity’s auditor will make a good faith effort to comply with the requests of the group auditor. E-Verify  Sept new language was added: Paragraph # 22 of the LGC-205 (Rev and 2014)

15 Audit Contracts – Peer Reviews  Auditors with peer reviews other than “pass” must contact the LGC before contracting – see Item # 5 on contract. o Pass with Deficiency(ies) o Addendums required for each audit contract o Fail o If pre-issuance review is required by NC CPA Board or by SLGFD it must accompany the audit report when sent to the LGC. Pre-issuance review must be completed before audit is sent to the LGC for our review – see Item # 12 on contract.

16 Audit Contracts / Invoices Submit all audit contracts through the Leapfile portal o Include addresses for parties to receive contract approval in portal message box o Contract approval is by  currently Tashara Ware is contract reviewer Send Invoices via – o Approved stamped invoice sent to auditor by  currently Steven Holmberg sends approved invoices Until 2014 audit contract form is available o Use of 2013 form is fine until o When the 2014 form is published - please use the most current form

17 Breaking News… Illustrated Financial Statements FYE 2014 o Change in Tax Schedule due to DMV Tax & Tag changes o Clarifying o Cleaning up o No NEW GASB’s implemented in NC Local Government Illustrated financial statements for FYE 2014 o Stay tuned for FYE 2015 o GASB 68

18 Breaking News … Other Post Employment Benefits (OPEB) o State task force looking at OPEB issue  Help Units determine their true liability  Strategies to meet that liability and potentially mitigate it DMV Tax Collection System – HB 1779 o Effective September 1, 2013 o In fiscal year will have 16 months of revenue; one time occurrence

19 Breaking News … GASB 68 – Financial Report for Pensions : The Department of State Treasurer has started a workgroup between Financial Operations, the Controllers Office, Retirement, the State’s Actuary, and the State Auditor to plan for the implementation of GASB 68. o The objective is to have the data you and your auditors need to meet your requirements under the standard o If you are a member of LGERS, you must record your share of the unfunded liability per the standard o Effective years ending 6/30/2015 o More to come starting with Spring GFOA in March then at Treasurer’s Conference in May

20 Statutory Change for FYE 2015 North Carolina Eastern Municipal Power Agency members pter_159B/GS_159B-39.html § 159B-39. (Effective July 1, 2014) Permitted uses of revenue from electric power rates. Amount the Electric Fund is allowed to transfer out is statutorily limited.

21 Federal Single Audit requirements Effective date will be for years ending June 30, 2016 US OMB has announced changes to Federal Single Audit requirements for local governments and public authorities that receive Federal Financial Assistance.  The amount to determine if a Federal Single Audit is required will be $750,000 of expenditures.  Among the other changes: minimum threshold to determine major programs will be $750,000  Total amount of financial assistance that is required to be audited reduced to forty percent (40%) and twenty (20%) for low-risk auditees.

22 State Single Audit requirements Possible similar changes to State Single Audit requirements  State requirements changes to be determined by our office working with State agencies, local governments, Office of State Auditor, and others  Previous changes to State Single audit requirements were in 2003 when OMB changed the federal requirements

23 Deposits and Investments LGC-203 Reports  Were due January 25 th  Currently 68% - approx. 800 of 1182 have been received  Late letters to go out the 4 th week of February  First letter goes to finance officer  Subsequent letters go up the Organizations chain  Not required for NC Charter Schools  ABC - LGC-203 report forms are accessed at the NC ABC Commission Website:

24 LGC-203 Report  LGC-203EZ - Units that have Deposits in Pooling Method Banks, Investments in NC Cash Management Cash or Trust Portfolio, Finistar, CDARs and have No other investments  Standard LGC-203 – Schools, PHA’s & everyone who cannot use the EZ form https://www.nctreasurer.com/slg/Pages/Deposit-and-Investment- Information.aspxhttps://www.nctreasurer.com/slg/Pages/Deposit-and-Investment- Information.aspx - Forms & Instructions  Supplementary Schedules created by your office required with the Standard LGC-203 Form o Description/detail for each of the investment categories. Example: Custodian, Type-Name of Investment, purchase amount, market value*, purchase date, maturity date, Commercial paper* and any other special features of the investment

25 Deposit & Investment Reporting Issues Finistar or CDARs Investments o Please send statement/ page as of December 31, 2013 that includes the list of banks where funds are deposited DPCU - Discretely Presented Component Units that are a public authority under the Local Government Budget and Fiscal Control Act are required to file a Separate LGC 203 from the Parent Government o Please do not combine the DPCU cash & investments in the LGC203 report for the parent government Messages left in s to are NOT seen by Review Staff. Automated

26 Deposit & Investment Reporting Issues  Use LGC-203 form modified for the current reporting period  Status of banks can change due to mergers  Pooling vs. Dedicated  Collateralization - “Dedicated Method” is complicated. Examine agreements – Refer to the collateralization booklet online - https://www.nctreasurer.com/fod/Resources/Collateralization.pdf https://www.nctreasurer.com/fod/Resources/Collateralization.pdf  Custody is tricky – examine custodial agreements  Signers on accounts do not automatically make them official custodians in the eyes of FDIC

27 Deposits and Investment Issues 10 Units with Violations as of June 30, 2013 o Insufficient collateralization for accounts in non- pooling banks as of report date. o REMIC Investments – No authority for moneys of units of local governments to be invested in them AG Opinion o Brokered CD Investments issued in out of state banks - violation of §159-30(b) or (b1) Must be handled as a Deposit, not an investment Corporate CD’s are not eligible in North Carolina Has to be the Unit depositing the money into the bank, not the Broker

28 Deposits and Investment Bond Question §159-30(c)(3) Obligations of the State of North Carolina. §159-30(c)(4) Bonds and notes of any North Carolina local government or public authority, subject to such restrictions as the secretary may impose. o Certificates of Participation – Bond-like but are not Bonds so not allowable o LOBs – must evaluate the offering, might be allowable o UNC Bonds – only if GO Bonds o Health agency bonds o Medical Care Commission is a State Agency but is Not an obligation of the State – not allowable investment If the product is something you truly want, we can help evaluate if it is within the N.C. Local Government legal boundaries

29 Deposits and Investment Issues Custody and Proper Safekeeping of Investments o New AG Opinion speaks only to investments held by a bank and that it is no less secure on the commercial side than the trust side if: o There is a legally binding safekeeping agreement o Which holds the assets separate and apart from the assets of the bank o And can readily be identified and accounted for as belonging to the local government o The AG opinion says that these are standard federal banking regulations to which all banks must comply

30 Deposits and Investment Issues Make sure deposit accounts are identified as public funds, as required by Administrative Code chapter (a) An account not labeled as public funds is not secured by pledged collateral even if the account is with a “pooling method” bank In the event of a bank failure, funds in that account in excess of FDIC limit would face possible loss o INV 91 pursuant to 20 NCAC 7 - allows DST Financial Operations to match local government deposit accounts to information provided by their depositories. o necessary to ensure that local government funds are sufficiently collateralized in the pool. o annual reporting requirement - due July 25 NC credit unions are not eligible depositories – some local governments were not aware of this

31 Deposits and Investment Issues Markets appear to be volatile and the Banking industry continues to be unstable due to real estate, global markets and changes in the Fed o Be prudent in your banking relationships and in your investments o Units of Government should have a Governing Board Approved “Official Investment Policy” o No time to gamble for a few extra dollars o If you don’t understand something – ask questions of the vendor until you do understand.

32 LGC Communication Process “ LGC_News” Listserv o Used to distribute new memos, publications, items of general interest and announcements o Critical with electronic communication/processing o You and your finance staff as well as your Unit’s auditor should be members of the LGC_News listserve.

33 To register for the LGC_News listserve And stay Informed Distribution software has changed; let us know if you are no longer receiving s Please provide us with your business card today or send an to Tashara Ware if you wish to be registered. Provide name, title/position and address of each person to be LGC Communication Process REMINDER

34 How to contact us Website Phone o (voice) o (fax) o Becky Dzingeleski o Cash & investment and form questions o Tashara Ware o “Has my report been received” questions o Sara Shippee o All other questions

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