Presentation on theme: "1 Faster CAFRs NSAA/NASC Joint Middle Management Conference April 10-12, 2006 Indianapolis, Indiana Presented by: Herb Maguire Commonwealth of Pennsylvania."— Presentation transcript:
1 Faster CAFRs NSAA/NASC Joint Middle Management Conference April 10-12, 2006 Indianapolis, Indiana Presented by: Herb Maguire Commonwealth of Pennsylvania Buff Carlson Ernst & Young, LLP
2 Faster CAFRs Where we were: –02 CAFR issued by 12/31/02 –03 CAFR issued by 5/31/04 GASB 34 Implementation SAP implementation –04 CAFR issued by 3/31/05 SAP implementation –CERTIFICATE OF ACHIEVEMENT ALL 3 YEARS!
3 Faster CAFRs Where we are: –05 CAFR issued by 12/31/05
4 Faster CAFRs Where were going: CAFR issued by 12/15/06 (5.5 mos.) CAFR issued by 11/30/07 (5.0 mos.) CAFR issued by 11/15/08 (4.5 mos.) CAFR issued by 10/31/09 (4.0 mos.)
5 Faster CAFRs What are others doing? Private Industry 75 days, 30 days for quarterly SEC reports Federal Government – 90 Days States – Michigan 90 days IT CAN BE DONE!!
6 Faster CAFRs The Solution: Expedite the CAFR production and Audit Process Improve coordination and communication with the Auditors
7 Faster CAFRs Whos Opining on What?!? Lets look at the Report of the Independent Auditors
8 Faster CAFRs …..present fairly, in all material respects….the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information..….… Focus is on OPINION UNITS
9 Faster CAFRs Whos Opining on What?!? Component Units Seven Major Funds: General Fund Motor License Fund Tobacco Settlement Fund Unemployment Compensation Fund State Workers Insurance Fund State Lottery Fund Tuition Payment Fund Aggregate Remaining Funds (ARFs)
10 Faster CAFRs Analysis of Opinion Units General Fund consists of 57 agencies. Six other Major Funds contain limited numbers of appropriations. ARFs consist of 122 funds
11 Faster CAFRs
12 Faster CAFRs TOP DOWN APPROACH!!!
13 Faster CAFRs FOCUS ON OPINION UNITS NEED 100% COVERAGE – NO!!!!!! GET EARLY AUDITOR BUY-IN TO APPROACH, INCLUDING UNDERSTANDING OF MATERIALITY
14 Faster CAFRs THE TOP DOWN APPROACH Whats Material and Whats Not!! –ARFs – 114 Different Funds –General Fund – 57 Agencies Which of these are significant?
15 Faster CAFRs Look at 57 agencies in General Fund Compare –Assets –Liabilities –Fund Balance –Revenues –Expenditures Use June 30, 2004 audited numbers
16 Faster CAFRs Calculate a 95% coverage:
17 Faster CAFRs General Fund Results: 17 agencies comprised at least 95% of General Fund assets (99%), liabilities (97%), fund balance (99%), revenue (98%) and expenditures (95%) and were considered significant The remaining 40 agencies were considered insignificant.
18 Faster CAFRs For the 114 ARFs: 22 funds made up at least 95% of total assets (98%), liabilities (97%), fund balance (98%), revenues (97%) and expenditures (96%), and were considered significant. The remaining 92 funds were considered insignificant.
19 Faster CAFRs Focus on: The six major funds The 17 significant agencies in the General Fund, and The 22 significant funds in the ARF. A total of 45 key areas.
20 Faster CAFRs For the 45 Key Areas: Perform rigorous review and audit. Focus on balance sheet accruals and on accuracy of revenues and expenditures. Prepare and review audit packages for each key area. Use Comptroller sign-off. Provide training on preparing each type of audit package – special revenue, enterprise, internal service, agency, etc.
21 Faster CAFRs For each insignificant agency/fund: Post with any statewide journal entries which include payroll accruals, non-payroll accruals, federal receivables, investment/security lending adjustment, workers comp accrual, etc Perform and document variance analyses.
22 Faster CAFRs Variance Analysis Approach: Establish thresholds for variants. Develop guidance on performing variance analyses. Train staff on the performance and documentation of variance analyses. Do year-over-year comparisons along with differences (in $$ and %). An SAP report. Use SAPs drilldown capability to quickly research large variances.
23 Faster CAFRs General Fund threshold: Assets - $10.5B Liabilities - $7.5B Fund Balance – $3.0B Revenues - $38.8B Expenditures - $38.2B Use a % difference of +/- 25% OR Use a $$ variance of >$100M
24 Faster CAFRs ARF Threshold determination: Blended component units make up a majority of ARF values. Their audited numbers represent: Assets – 90% Liabilities – 64% Fund Balance – 94% Revenues – 68% Expenditures – 46% So, threshold can be higher.
25 Faster CAFRs ARF Threshold Determination: % Difference of +/- 50% OR $$ Difference of >$60M Auditors reserved the right to perform analytical procedures using lower thresholds and to further explore any exceptions.
26 Faster CAFRs Variance Analyses: Developed procedures on how to conduct and document variance analyses. Trained staff on the performance and documentation of variance analyses. Reviewed select variance analyses to confirm reasonableness before giving to auditors.
27 Faster CAFRs Use of Estimates for Liabilities Plotted liability categories for each key area and then analyzed the basis for each liability.
28 Faster CAFRs Liability categories: –Accounts Payable –Invoices Payable –Accrued Payable – Goods Receipt –Due to Other Funds –Due to Political Subdivisions –Due to Other Governments –Due to Fiduciary Funds –Due to Component Units –Payroll Payable –Deferred Revenue –Security Lending –Tax Refund Payable –Advance from Other Funds
29 Faster CAFRs Category - General FundTotalDPW Accounts Payable and Accrued Liabilities 2,7452,040 Invoices Payable Accounts payable Good Receipt 219 Due to Other Funds 6621 Due to Political Subdivisions Due to other Governments 163 Due to Fiduciary Funds 41 Due to Component Units 10 Payroll Payable 10 Deferred Revenue 1,5189 Security Lending 1,3190 Tax Refund Payable 5650 Advances from Other Funds 1000
30 Faster CAFRs What we found: Of DPWs $2.721B total liabilities: – $1.706B (63%) was supported by an actuarial valuation! –$.358B (13%) was estimable.
31 Faster CAFRs Estimating Liabilities Developed a white paper on Using Estimates Met with each Comptroller to discuss our approach and identify those liabilities that could be estimated Developed preliminary estimates for review and refinement Presented approach to auditors for their information and acknowledgement
32 Faster CAFRs Approach to Estimating Liabilities: –Availability of historical data: 3-5 years of liabilities 3-5 years of expenditures –Trend analysis of data - % change from month to month, qtr to qtr and year to year. –Recent program activities: Legislation Regulation Funding or process changes Agency knowledge of program
33 Faster CAFRs Approach to Estimating Liabilities (contd) Established a Comfort Level for each liability estimate. For General Fund: #1025%#840% #928%#5 7% A lookback in September tested the accuracy of each estimate. Of 24 estimates made, only 3 had significant variances.
34 Faster CAFRs Use of Entity Wide Entries: Ensured consistency in approach Leveraged SAP to extract support for entries such as: –Accrued payroll –Accounts payable accruals –Accounts receivable accruals –Federal receivables accruals –Internal activity eliminations –Due to/due from accruals –Compensated absences accruals –Workers compensation accrual –And others.
35 Faster CAFRs Summary Top Down Approach Use of Estimates Better Variance Analyses Entity-Wide entries
36 Faster CAFRs
37 Faster CAFRs HOW DID WE DO IT IN 2005? Two-way communication with Auditors – Weekly teleconferences and monthly meetings, focusing on each major fund and key audit issues Reached out to Component Units early in the process and got their buy-in Met with material business areas at an interim date, conveying expectations and discussing potential real and and potential issues
38 Faster CAFRs HOW DID WE DO IT IN 2005? Maximized interim testing Maximized use of Internal Audit (SAS 65 considerations) Timely receipt and review of Specialist Reports SAS 70s (18 reports were needed) Dont forget User Control Consideration issues! Actuarial Reports (9 reports were needed) CAFR Sheriffs Project Management Teamwork
39 Faster CAFRs What will enable us to get faster? A year-round effort. Discuss/Critique audit issues/problems/delays with relevant personnel immediately after audit and agree on resolution process Detailed analysis of audit adjustments with plan to eliminate
40 Faster CAFRs What will enable us to get faster? Prompt analysis and correction of Reportable Conditions and Management Letter Comments An effective control environment to maximize testing prior to year end Continued refinement and expansion of estimates Interim GAAP Reporting TRAINING,TRAINING, TRAINING!!!!! COMMUNICATION!
41 Faster CAFRs Obstacles to a faster CAFR System updates – degree of customization – forced migration New GASB pronouncements. Also impact on component units, not just primary government! Ineffective estimates Change of auditors, or current auditor personnel
42 Faster CAFRs Obstacles to a faster CAFR Personnel turnover – the graying of the American work force New Major Funds Dependence on others – specialists, component units PLAN!! PLAN! PLAN!! then EXECUTE