1. ©2014 CliftonLarsonAllen LLP CLAconnect.com ©2014 CliftonLarsonAllen LLP See CLA PowerPoint User Guide for instructions to insert an image or change the icon on the business card. Find it at the bottom of the myCLA / Firm Resources / Materials / Templates page. See CLA PowerPoint User Guide for instructions to insert an image or change the icon on the business card. Find it at the bottom of the myCLA / Firm Resources / Materials / Templates page. An External Auditor’s Perspective on Key Components to a Smooth Audit Sarah A. Utsch, CPA – manager at CliftonLarsonAllen LLP Kristen A. Houle, CPA – senior at CliftonLarsonAllen LLP

2. ©2014 CliftonLarsonAllen LLP CLAconnect.com To remove the hand and business card graphic: 1.Go to View / Slide Master 2.Go to page three 3.Delete the image 4.Select Close Master View To remove the hand and business card graphic: 1.Go to View / Slide Master 2.Go to page three 3.Delete the image 4.Select Close Master View At the end of this session, you will be able to: -Learn about opportunities where fraud can occur within your department and hear ways to help prevent and detect such instances -Understand some procedures to assist in preparing for the annual audit including some tools to summarize and review your data -Understand the key changes coming up relating to federal single audit requirements and have resources available to review your specific program changes -Understand the tools provided to assist in preparing your section of the Schedule of Expenditures of Federal Awards (SEFA) for your Auditors -Be aware of key findings relating to federal awards and have some ideas on how to avoid them Objectives

3. ©2014 CliftonLarsonAllen LLP CLAconnect.com Fraud in Local Governments Compared to Other Industries Source – 2012 Report to the Nation on Occupational Fraud and Abuse

4. ©2014 CliftonLarsonAllen LLP CLAconnect.com Anti-Fraud Measures – How it was Detected Source – 2012 Report to the Nation on Occupational Fraud and Abuse

5. ©2014 CliftonLarsonAllen LLP CLAconnect.com Factors that Contribute to/Allow Fraud Source – 2012 Report to the Nation on Occupational Fraud and Abuse Primarily internal control weaknesses:

6. ©2014 CliftonLarsonAllen LLP CLAconnect.com Newsworthy Story

7. ©2014 CliftonLarsonAllen LLP CLAconnect.com To remove the hand and business card graphic: 1.Go to View / Slide Master 2.Go to page three 3.Delete the image 4.Select Close Master View To remove the hand and business card graphic: 1.Go to View / Slide Master 2.Go to page three 3.Delete the image 4.Select Close Master View Takeaways from Story Evaluate invoice review and payment approval process Restricted system access to add/modify vendors Anonymous tip hotline Financial analytical review analysis (periodic budget to actual and prior period to current period comparisons)

8. ©2014 CliftonLarsonAllen LLP CLAconnect.com Newsworthy Story Health and Human Services Medical Assistance Estate Recovery Scam -One person filed all documents and received notification of estate recoveries -She opened an account at the bank in the County’s name for those funds to be deposited and only she knew about the account -It was discovered when the auditors confirmed all accounts held at that bank with the County’s federal ID number

9. ©2014 CliftonLarsonAllen LLP CLAconnect.com Other Likely Scenarios Fictitious Vendors Skimming Kiting Estate Recovery Scam Reimbursement Claims for Ineligible Expenditures Employee Expense Reimbursements Misuse of Credit Cards and Gift Cards Misuse/Theft of Petty Cash

10. ©2014 CliftonLarsonAllen LLP CLAconnect.com Skimming and Kiting Skimming – taking a little cash off the top of daily receipts/deposits –Social Welfare/Money Management accounts –Front Desk collections –Immunization clinics Kiting – taking advantage of non- existent funds then replacing it with the next receipt. It’s like “robbing Peter to pay Paul” –Social Welfare account

11. ©2014 CliftonLarsonAllen LLP CLAconnect.com Reimbursement for Ineligible Expenditures Ensure proper training in grant reporting requirements by staff preparing reports and reviewing Ensure review of IFS detail of expenditures prior to submitting the reports Reconcile grant funds received back to reports filed to ensure the program’s revenues and expenditures make sense with the funding sources Ask questions of the funding agencies!

12. ©2014 CliftonLarsonAllen LLP CLAconnect.com Employee Expense Reimbursements –Must have receipts for all purchases being reimbursed –Mileage should be recalculated by a reviewer –Ensure County duties are being performed with mileage being requested –Have a standard form to be filed and signed by employee as well as direct supervisor –Written policy of allowable items to be reimbursed for

13. ©2014 CliftonLarsonAllen LLP CLAconnect.com Misuse of Credit Cards/Gas Cards Have statements sent to a centralized location, not to the employee directly Have all employees turn in receipts to that central person who will reconcile the statements to eligible receipts –When not provided with a detailed receipt, provide a declaration form to be signed by the employee stating they weren’t provided with a detailed receipt If gas cards, require employees to log the clients they are serving and turn that in to be reviewed If gas cards, have odometer readings turned in at timing of each statement (if used for county vehicles)

14. ©2014 CliftonLarsonAllen LLP CLAconnect.com Misuse of Credit Cards/Gas Cards (Continued) Have a detailed credit card policy, approved by your Board, that dictates authorized users, authorized purchases and spending limits Check into the limits on each credit card to ensure they do not have outrageous limits Further guidance on items to include in a credit card policy and general statute information can be found on the Minnesota State Auditor’s website under Auditing/Statements of Position/Internal Controls http://www.osa.state.mn.us/other/Statements/creditcardusepolicies_0703_statement.pdf

15. ©2014 CliftonLarsonAllen LLP CLAconnect.com Misuse of Gift Cards The giving of gift cards to clients is not allowed with local county dollars. It could be allowed under grants if the grant specifically allows for purchase of gift cards as an eligible expenditure. These are as good as cash so good internal controls is KEY! Ensure a centralized log is kept of cards purchased and who they were issued to as well as under what program. A check from the County’s account should be used to make the purchase, supported by a receipt. Do not use petty cash to make this purchase!

16. ©2014 CliftonLarsonAllen LLP CLAconnect.com Misuse/Theft of Petty Cash Define proper use of petty cash –Petty cash is DIFFERENT than change fund. Change fund always has the same amount in it and is used solely to make change. Require initials/documentation on use of petty cash and require receipts Ensure reconciliation performed on regular basis (daily or weekly) by someone other than custodian Ensure County Board approval on use and amount held in either petty cash or change fund Additional information on State Auditor’s website under Auditing/Statements of Position/Internal Controls http://www.osa.state.mn.us/Other/statements/pettyCashFunds_0807_statement.pdf

17. ©2014 CliftonLarsonAllen LLP CLAconnect.com Summary of Fraud Prevention Written policies are a necessity to provide guidelines and expectations to County personnel on proper procedures Documentation of reviews and reconciliation is key to prove the review is occurring Helpful resources in developing policies are the State Auditor’s website and your neighboring counties!

18. ©2014 CliftonLarsonAllen LLP CLAconnect.com Switching Gears! Time to talk about preparing for your annual audit!

19. ©2014 CliftonLarsonAllen LLP CLAconnect.com Top Findings Relating to Financial Information Lack of supporting documentation and approval for social welfare and other department checking account disbursements No monthly bank reconciliation performed for departmental checking accounts Lack of timely deposits to bank or County Auditor/Treasurer

20. ©2014 CliftonLarsonAllen LLP CLAconnect.com Top Findings Relating to Financial Information (Continued) Carry forward balances in asset and liability accounts that should zero out at year-end No listing of receipts received after 60 day cut-off period Errors in account coding for grant revenues (comingling state and federal grants into same IFS accounts)

21. ©2014 CliftonLarsonAllen LLP CLAconnect.com All checks made on behalf of clients need to have supporting documentation and client worker approval –Annual email or signature on amounts for personal needs, etc are sufficient Signer on checking account should not be same person that approves/initiates payments There should be a monthly bank reconciliation performed by someone other than the check signer and it should balance to the total of client balances. –The reconciliation needs to be signed by preparer and reviewer in order to document it occurred. Social Welfare

22. ©2014 CliftonLarsonAllen LLP CLAconnect.com Segregation of duties on these outside checking accounts are key! To prepare for your external auditor: –Summarize each month’s activity in the bank accounts in excel file Social Welfare (Continued) BeginningEnding BalanceAdditionsDeletionsBalance January 15,193 15,728 21,301 9,620 February 9,620 17,521 15,739 11,402 March 11,402 17,967 19,704 9,665 April 9,665 15,567 16,587 8,645 May 8,645 24,055 17,168 15,532 June 15,532 8,689 15,549 8,672 July 8,672 23,295 14,852 17,115 August 17,115 22,468 15,406 24,177 September 24,177 9,436 19,482 14,131 October 14,131 21,981 26,117 9,995 November 9,995 21,420 14,358 17,057 December 17,057 15,115 16,158 16,014 213,242 212,421 Reconciling items (1,320) Book Balance 12/31/13 14,694

23. ©2014 CliftonLarsonAllen LLP CLAconnect.com Cash and checks collected over the counter and in the mail should be deposited with the bank in a timely manner (daily is recommended) Some counties have a county-wide policy on their depositing policy which sets a threshold for when deposits must be made (example: daily if over $1,000) Timely Deposits

24. ©2014 CliftonLarsonAllen LLP CLAconnect.com Examples include: –MMIS holding accounts –Refund liability accounts To prepare for your external auditor: Print Account Activity report for 1000 and 2000 object codes and review for unusual items and miscoding. Ensure the year-end balance represents an amount owed to or from someone. Provide necessary entries to zero out MMIS holding account to auditor Asset and Liability Carry forward Balances

25. ©2014 CliftonLarsonAllen LLP CLAconnect.com It is important to match up revenues to expenditures in the same calendar year DHS and other agencies do not always get reimbursement to the Counties before the cut-off period to use accrual codes It’s necessary to capture those receipts so you or the auditor can make the necessary entries Options include: Use of report code and print a “Transaction Listing by Report Code” Summarize within a spreadsheet Revenues Received after Cut-off

26. ©2014 CliftonLarsonAllen LLP CLAconnect.com The annual financial statements require reporting of federal grants and state grants separately –They also require reporting separate BY grant and funding agency Ensuring that these grants are separated into their own accounts is key for proper reporting! IFS users should be using 5300 object codes for state grants and 5400 object codes for federal grants Miscoding of Grant Revenues

27. ©2014 CliftonLarsonAllen LLP CLAconnect.com Example Intergovernmental Revenue Report REIMBURSEMENT FOR SERVICES STATE Minnesota Department of Human Services 678,182 STATE GRANTS MINNESOTA DEPARTMENT OF Human Services 377,624 Natural Resources 106,973 Peace Officers (POST) - Public Safety 21,445 Pollution Control Agency 27,975 Veteran's Affairs 9,798 Water and Soil Resources 64,366 Total State Grants 608,181 FEDERAL GRANTS FEDERAL DEPARTMENT OF Agriculture 90,208 Commerce 57,452 Interior 532 Justice 8,442 Transportation 658,596 Health and Human Services 729,277 Homeland Security 44,220 Total Federal Grants 1,588,727 Total State and Federal Grants 2,196,908 Note how there is Reimbursement for Services, State Grants, and Federal Grants all relating to Department of Human Services When revenues aren’t clearly separated by account it is difficult to prepare this schedule

28. ©2014 CliftonLarsonAllen LLP CLAconnect.com Federal GrantorFederal Pass Through AgencyCFDA Grant Program TitleNumberExpenditures U.S. Department of Health and Human Services Passed Through XYZ County Temporary Assistance for Needy Families (Part of TANF Cluster)93.558 $ 36,701 Passed Through Minnesota Department of Human Services Promoting Safe and Stable Families93.556 4,155 Temporary Assistance for Needy Families (Part of TANF Cluster)93.558 28,792 Title IV-D Child Support93.563 194,945 Refugee and Energy Assistance Grant93.566 241 Child Care and Development Block Grant (Part of Child Care Cluster)93.575 3,032 Child Welfare Services State Grants93.645 2,077 Foster Care Title IV-E93.658 70,437 Social Services Block Grant Title XX93.667 87,853 Chafee Foster Care Independent Living93.674 1,190 State Children's Insurance Program93.767 43 Medical Assistance93.778 377,912 Total Department of Health and Human Services 807,378 Example Schedule of Expd of Federal Awards This is just for federal grants –Note how each grant needs to be identified separately –Also note that this reports EXPENDITURES!

29. ©2014 CliftonLarsonAllen LLP CLAconnect.com Reconcile MMIS Confirmation reports to IFS revenue accounts Summarize each revenue account and where it should be reported in both the IGR Schedule and SEFA Review activity in the grant revenue accounts prior to auditor arrival to ensure proper account coding of all receipts Don’t forget to take into account timing of receipts (accruals)! So – What Can You Do To Help?

30. ©2014 CliftonLarsonAllen LLP CLAconnect.com We’ll show you a nice spreadsheet used by one of our counties to assist in preparing her audit schedules! Template to Assist you

31. ©2014 CliftonLarsonAllen LLP CLAconnect.com See myCLA user guide for instructions to insert an image or change the icon on the business card. Single Audit Time! All you care to know and more!

32. ©2014 CliftonLarsonAllen LLP CLAconnect.com The OMB (Office of Management and Budget) has set requirements that all entities that receive over $500,000 in federal funding are required to have a federal single audit. –Threshold to increase to $750,000 for 2015. When a County receives over $500,000 in TOTAL federal awards then the external auditor is required to select specific federal programs to test for compliance and controls. –Selection of programs is based on set of criteria including risk, complexity, and dollar value compared to total grant dollars. What is Single Audit?

33. ©2014 CliftonLarsonAllen LLP CLAconnect.com Once the programs to be tested are identified (termed “major programs”) the auditors must test both compliance and controls over that program. Compliance tests are driven by a “compliance supplement” which is available on the following website: http://www.whitehouse.gov/sites/default/files/omb/assets/OMB/circulars/ a133_compliance/2013/hhs.pdf Audit Requirements for Major Programs

34. ©2014 CliftonLarsonAllen LLP CLAconnect.com Compliance & Control areas typical for Human Service grant programs include: –Activities Allowed and Unallowed –Cash Management and Reporting –Procurement, Suspension, Debarment –Eligibility Compliance Requirements

35. ©2014 CliftonLarsonAllen LLP CLAconnect.com Activities Allowed and Unallowed –Random Moment Studies (RMS) listing not up to date for employees working on the programs –Expenditures charged to the grant do not have supporting documentation readily available. Cash Management and Reporting –Ensure there is someone reviewing the reports and support for all expenditures for which reimbursement is being requested ◊ This includes electronic reports! Common Compliance & Control Findings

36. ©2014 CliftonLarsonAllen LLP CLAconnect.com Procurement, Suspension, Debarment –Federal requirements state that Counties must ensure that vendors that they enter into a contract with are not suspended or debarred from doing business with government agencies. –Counties should check the website “sam.gov” and print the screen showing that the vendor they are contracting with is not on the list –In addition, there is “self certification” language that should be included in the contract signed by the vendor stating that they are not suspended or debarred. Common Compliance & Control Findings

37. ©2014 CliftonLarsonAllen LLP CLAconnect.com Eligibility –CLA very often sees a lack of controls overall with too much reliance on the system. We recommend a documented case file review by a supervisor on a regular basis (maybe 5 per quarter) –Missing documentation is the source of several findings, these items include: ◊ Lack of documentation of citizenship ◊ No application on file or lack of annual renewal application ◊ Lack of proof of income verification (pay stubs, etc) Common Compliance & Control Findings

38. ©2014 CliftonLarsonAllen LLP CLAconnect.com Ensure casefiles are organized and have all required documentation. –If casefile is electronic, ensure documents are readable and organized. Have available all reports with supporting documentation attached. Have a knowledgeable staff available for the Auditor’s to ask questions when onsite. Helpful Hints to Prepare for Federal Program Audit

39. ©2014 CliftonLarsonAllen LLP CLAconnect.com To remove the hand and business card graphic: 1.Go to View / Slide Master 2.Go to page three 3.Delete the image 4.Select Close Master View To remove the hand and business card graphic: 1.Go to View / Slide Master 2.Go to page three 3.Delete the image 4.Select Close Master View QUESTIONS? Contact Information: Sarah A. Utsch, CPA Manager, St. Cloud office Phone: 320-203.5536 Sarah.utsch@claconnect.com Kristen A. Houle, CPA Senior, St. Cloud office Phone: 320-203.5539 Kristen.houle@claconnect.com Thank You for Your Time and Participation!