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Handouts and presentations are available online at www.iowaleague.org. Overseeing the Oversight Law Bryan Broekemier & Alex Goswami Hayes & Associates,

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Presentation on theme: "Handouts and presentations are available online at www.iowaleague.org. Overseeing the Oversight Law Bryan Broekemier & Alex Goswami Hayes & Associates,"— Presentation transcript:

1 Handouts and presentations are available online at Overseeing the Oversight Law Bryan Broekemier & Alex Goswami Hayes & Associates, L.L.C. - CPA & Consultants

2 Presentation Summary 1. Past legislation and the need for change 2. Overview of new legislation 3. Applicability to your City 4. Budgeting for the new law 5. Audit vs. Examination (AUP) 6. AUP process & what to expect 7. Why is this important 8. Resources available to you 9. Questions

3 Iowa Auditor of State Mary Mosiman, CPA Appointed May 13, 2013 The Auditor of State has responsibility for audits of counties, cities, school districts and other governmental subdivisions. Required to provide guidelines to CPA firms performing such audits. All audits must be filed with the Auditor of State and are a matter of public record open to inspection.

4 Past Legislation Past requirements based on a Cities' population PopulationAudit Requirement Greater than 2,000Annual Audit Between 700 and 2,000Audit once every four years Less than 700Only audited by citizen petition Regardless of population, Cities were subject to the requirements of the Single Audit Act Amendments of 1996, and the Office of Management and Budget Circular A-133.

5 Need for Change! When Comparing a six-year period ending in 2011 with the previous six-year period, reported frauds in cities with populations less than 700, increased more the 350%. What is Fraud? GAAS Definition (AU-C Section ): An intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception that results in a misstatement in financial statements that are the subject of an audit. Auditors are primarily concerned with fraud that causes a material misstatement in the financial statements.

6 ACFE 2014 Global Fraud Study It was clear that changes to the existing oversight system were needed as the old oversight system was not working!

7 Overview of the Iowa Municipal Oversight Law Challenge was how to improve oversight, but ensure solution was economical for small cities. Passed during the 2012 Legislative Session, and implemented several changes in regard to requirements for audits or examinations of Iowa cities. New legislation took effect on July 1, 2013

8 Overview - Continued The Iowa Auditor of State (AOS) has developed a City annual examination agreed upon procedures engagement request for proposal (RFP) document. This RFP or equivalent written document must be used to engage independent auditors wishing to perform City annual examinations pursuant to Chapter 11.6 of the Code of Iowa. Exception for cities subject to the periodic examination requirements: Cities not required to have an audit or annual examination will pay a periodic examination fee each year to AOS to cover the costs of a periodic examination.

9 New Legislation’s Applicability to your City New requirements based on a Cities' population PopulationAudit Requirement Greater than 2,000Annual Audit Between 1 and 2,000Annual or periodic examinations Note: All cities will continue to be required to have a Single Audit performed in any year the city expends $500,000 or more in Federal awards. (This threshold will increase to $750,000 for non-federal entities with FY’s beginning on or after December 26, 2014)

10 Applicability to your City - Continued For cities with populations less than 2,000, the frequency of the required examination is determined by their budgeted expenditures. Cities over 2,000 population, with $1 million or more in budgeted expenditures in two consecutive year, are required to have an annual examination. Cities under 2,000 population, with less than $1 million of budgeted expenditures, will be subject to a periodic examination to be performed at least once every eight years.

11 Applicability to your City - Continued While unlikely to be frequently elected, cities may elect to have an audit instead of an examination.

12 Budgeting for the New Law What costs to budget for under new Oversight Law PopulationBudget Requirements Greater than 2,000Cost of your annual audit Between 1 and 2,000Cost of annual examination or periodic examination fee Period Examination fees range from $100 to $1,200 depending on the respective City’s budgeted expenditures. Cities required to have an annual examination should budget for not only the private CPA firms or AOS examination fees, but also for the travel expenses incurred to perform the examination, and the Statutory filing fee payable to AOS.

13 Timeline for Annual Examinations January - March 2014Include the estimated annual examination costs in your fiscal year 2015 budget By September 1, 2014Contract for annual examination service by hiring AOS or, through RFP, a CPA firm July 1, March 31, 2015 Fiscal year 2014 annual examination should be performed and filed with AOS Two copies of the annual examination report, invoice, and news release to: Office of Auditor of State, State Capital Building, Room 111, 1007 East Grand Avenue, Des Monies, IA, by March 31 (9 months after yearend)

14 Audit vs. Examination Iowa Code section 11.1(1)(b) defines "Examination" as "procedures that are less in scope than an audit but which are directed toward reviewing financial activities and compliance with legal requirements.” An examination is also less costly than an audit. Rather than focusing on auditing the financial statements of a City, the examination is designed to focus on the financial processes of a City.

15 Are these included? If a City has separate Boards/Departments with separate accounts, such as the Library or Fire Department these separate Boards/Departments should be included in the scope of City’s examination as per Chapter of the Code of Iowa. Auditors should exercise professional judgment in determining the scope of procedures and extent of testing required when including separate Boards/Departments in City examinations. Auditors are not required to evaluate or include potential component units in the scope of City examinations. Both municipal utilities included in the City’s accounting and reporting structure and separate municipal utilities are subject to the audit or examination requirements.

16 Examination Process What is Involved Planning phase: Assisting the auditor in obtaining necessary planning documentation Auditor will perform a review of internal controls and performed limited substantive and analytical testing procedures This will require documentation and question responses from city personnel Wrap up phase: Attend an exit conference (City Clerk, City Administrator, possibly Major and Council member(s)) Acknowledgement and responses to AUP findings Sign a written representation letter

17 Planning Phase Required action: Review and sign engagement letter Complete an Internal control checklist – An example can be found at H&A recommends this is completed asap and used to self evaluate your own internal controls Attend Entrance Conference Required documentation to provide to your audit firm: Prior year’s reports, findings, action plans Organizational chart, chart of accounts, and accounting manual Support for leases, contracts, and commitments Listing of Officials and their terms City Council minutes Current year financial statements or reports Support for surety bond coverage

18 Cash & Investments Minimum documentation needed: Petty cash logs Monthly Clerk’s reports Monthly bank statements and reconciliations for all accounts Unclaimed property logs and proof of submittal to State Evidence of depository resolution Copy of the written investment policy that is compliant with Section 12B.10(5) of the Code of Iowa Schedule of investment transactions

19 Long-term Debt Minimum documentation needed: Support for long-term debt transactions entered into during the year Review of fund accounting and debt service fund activity Proof of authorization for any issuances during the year Support for any bonds or notes sold during the year Evidence that debt proceeds were properly recorded and deposited

20 Tax Increment Financing Minimum documentation needed: Annual TIF report Evidence that tax increment financing (TIF) collections were properly recorded in a separate Special Revenue Fund (TIF fund) as required by Chapter of the Code of Iowa Proof that the TIF collections in the TIF fund were disbursed or transferred to pay TIF obligations that qualify for Form 2 and 3’s for the certification and reconciliation processes submitted to the Iowa Department of Management Urban renewal report due December 1 st of the fiscal year under examination

21 Fund Balance Minimum documentation needed: Listing and explanation as to the purpose and funding sources of all funds maintained by the City Listing of all manual journal entries Annual financial report (AFR) or Comprehensive Annual Financial Report (CAFR) Listing of all fund transfers Approved City budget

22 Receipts Minimum documentation needed: Listing of property tax transactions Complete confirmation templates so auditor can confirm revenue received from state sources Monthly and/or year-end list of delinquent accounts Monthly reconciliations of billings and collections General ledger for entire fiscal year (all accounts) Support for a random sample of sales tax revenues Deposit tickets should be available upon request

23 Disbursements (including payroll) Minimum documentation needed: Schedule of all related party transactions with City officials or employees The disbursement journal Support for all cancelled checks Support for a sample of checks selected at random by the auditor Credit card statements and related supporting documents Evidence of sales tax refunds Payroll records and State and Federal filing forms

24 Wrap up Phase Required action: Attend Exit conference Review AUP report Provide corrective action plans and response to findings Sign representation letter Maintain copies of documentation for review during the next examination

25 Why is this important? While conducting the annual and periodic examinations, as well as audits, CPA firms and AOS will identify changes cities can make to their operations to help increase accountability and compliance and reduce the opportunity for fraud. The value it brings to your City, beyond legal compliance Improved financial accountability Improved financial processes Reduced risk of fraud or errors due to control recommendations Additional confidence for citizens and city councils in their city’s management and appropriate use of tax revenues

26 Resources available to assist you AOS Website 15.pdf FAQ Responses A private CPA firm H&A would be happy to assist you with questions or concerns and can be reached at AOS Office: or

27 Conclusion The new oversight law represents a good opportunity to strengthen oversight of small cities. All cities want to do right by their citizens New oversight law provides unprecedented, affordable access to the expertise needed to help ensure cities are operating effectively With advanced planning, cities can ensure smooth transition to the new requirements

28 Hayes & Associates, L.L.C. 10th largest accounting firm in Omaha 4th largest diversity-owned business in Nebraska Recipient of numerous awards, including recognition by the Omaha Chamber of Commerce and the United States Congress

29 Questions


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