Financial Statements PilotBAR Academy

October 17, 2013

Pierce College Fort Steilacoom

Today’s Key Topics

This overview will not answer all your questions

Accreditation Standard

Additional Benefits of Financial Statements

Accreditation Cycle/Pilot Group

Proposed Financial Statement/Audit Cycle

Estimated Audit Costs

What does a Financial Statement Look Like

Preparing for Audit

Audit Results

Accreditation Standard

Accreditation standards were changed in 2010 and now require:

For each year of operation, the institution undergoes an external financial audit, in a reasonable timeframe, by professionally qualified personnel in accordance with generally accepted auditing standards. Results from the audit, including findings and management letter recommendations, are considered in a timely, appropriate, and comprehensive manner by the administration and governing board.

What Changed?

Previous Eligibility Requirement The institution’s financial records are externally audited

annually by an independent certified public accountant or on a regular schedule by a state audit agency. The audit must include an unqualified opinion on the financial statement.

Previous Standards and Guide for Self Study If public institutions are, by law, audited by a state agency,

an independent audit is not required except for any funds not subject to governmental audit.

Other Environmental Factors

Federal oversight of accrediting bodies NWCCU is scheduled for review in Fall 2013

Recent articles/issues – Feds being more stringent in their oversight

Timing of state accountability audits No longer performed with an entity focus nor on a regular

schedule

Types of Auditsand Related Auditing Standards

Financial Statement (GAAS, GAGAS = GAO Yellow Book)

Single Audit/Federal Program Reviews (OMB Circular A-133)

Accountability and Compliance (GAO Yellow Book)

Performance (GAO Yellow Book)

Internal Audits (Institute of Internal Auditor’s International Professional Practices Framework)

Subrecipient Monitoring (OMB Circular A-133)

Other internal, system-wide or state-wide processes may not be performed in accordance with a set of standards

GASB 35

Of the 63 pages in GASB 35:

One paragraph/sentence that reads in its entirety: This Statement supersedes footnote 3 of Statement 34,

thereby including public colleges and universities in the scope of that standard.

Effective Date and Transition

Basis for Conclusions

Illustrations

As a result, we’ll speak in terms of GASB 34

Additional Benefits of Audited Financial Statements

Assure governing boards and the administration concerning the financial health of the college

Compare financial measures with other colleges – in Washington or nationally

Provide an audited financial statement to prospective grantors and banks

Make information available to interested members of the public and legislative decision-makers

Accreditation Cycle (Handout)

7 colleges received letters Two in February 2013 and 5 in July 2013

“The college does not meet the Commission’s criteria for accreditation”

Must be “addressed and resolved within the proscribed two-year period”

9 more to receive letters in February 2014

4 in July 2014

10 in February 2015

3 thereafter

Pilot Group Includes:

The 7 colleges that received letters to date

Plus one technical college

Includes BAC members and key BAR members for the 8 pilot colleges

Includes BAR chair and a ctcLink representative

SBCTC staff

Proposed Financial Statement and Audit Cycle (Handout)

Each year’s books must be audited

Two years may be audited at one time

Proposing two groups of 15 districts

Priority given based on accreditation cycle

Will complete two full audit cycles using FMS (Pilot and Group One)

In third year, Tacoma will serve as “mini-pilot” and prepare statements using ctcLink

Financial Statement and Audit Costs Pilot group staff time to date

Staff time for SBCTC to compile preliminary statements

Staff time for colleges to complete financial statement package

Audit cost (SAO charges $89 per hour, plus travel) A 300 hour audit would be $26,700 plus travel costs

Auditors may need more time for first audit(s)?

Willing to incur additional auditor travel cost during pilot to gain consistency and experience

Staff time to monitor audit progress, answer questions, and make adjustments

Pilot group will monitor time spent, to inform other colleges

Colleges that choose to publish or print a “fancy” package will have additional graphics and printing costs

What does a Financial Statement Look Like?

Pass around copies Fancy (CWU, EWU, TESC, UW, WSU)

Plain (WWU)

Links to community college statements http://

www.slcc.edu/accounts-payable/docs/2012%20Annual%20Report.pdf

http://www.fvcc.edu/wp-content/uploads/2012/02/Audit-Report.pdf

http://www.nic.edu/about/annualFinancialReport.pdf

General Approach

SBCTC uses available data (e.g., SMART/IPEDS, disclosure statements) to provide preliminary general financial statements, notes and management discussion and analysis

SBCTC/pilot group provides checklist or instructions

Colleges follow checklist/instructions to verify, adjust, fill in gaps

SBCTC/pilot group will contract with SAO for audits: cost, consistency, legal requirements

Don’t expect perfection in first attempt

What are the General Financial Statements?

Statement of Net Position Aka “Balance Sheet”

Statement of Revenues, Expenses and Changes in Net Position Aka “Income Statement” or “Profit and Loss Statement”

Statement of Cash Flows

Report as a Government engaged in Business Type Activities Enterprise-wide financial statements, not presented by fund

or fund type

Example See spreadsheet (will review in detail with work group)

Formatted general financial statements

Criteria sheet shows rolled up G/Ls used for each line of the general financial statements

Data sheet shows G/Ls by fund that make up the rolled up balance

Includes almost all elements of the Statement of Net Position and Statement of Revenue, Expense and Changes in Net Position but may be missing some elements of the Statement of Cash Flows (SBCTC does not have org code level structure or balances)

Criteria sheet allows colleges to track any adjustments they make to the data provided by SBCTC – whether prior to the audit, or as a result of the audit.

What are the Notes to the Financial Statements?

Describe significant accounting policies

Describes, in narrative form, amounts reported in the general statements

Are an integral part of the Financial Statements

In some cases, include additional detail related to amounts presented on the face of the financial statements

SBCTC will provide a template with suggested language for the colleges’ notes, including options for things colleges may be doing differently

SBCTC will provide a preliminary version of any additional detail, based on information collected through the state CAFR disclosure process

No coincidence that disclosure statements include the information needed, since the state’s CAFR is also prepared in accordance with GASB 34

What is ‘Management’s Discussion and Analysis?

Intended to allow differences and not be cookie-cutter …general rather than specific, to encourage financial

managers to effectively report only the most relevant information and avoid “boilerplate” discussion

Eight proscribed areas

Includes condensed financial information, analysis of overall financial position, description of significant capital asset and long-term debt activity, etc.

SBCTC can develop some pieces, but colleges will have significant pieces to fill in.

Preparing for audit

Take advantage of any verification and monitoring that happens at SBCTC or OFM level Where possible, any audit work that can be done once at

SBCTC saves having to do it at multiple colleges

Colleges collect documentation that is readily available and supports specific balances

Filling in gaps and trouble spots

Auditors may choose to review some automated system process at SBCTC-IT

Examples

May be verified centrally: Cash balances (tested for FY13 CAFR)

Investments if limited to LGIP

Compensated absences

Due To/Due from other agencies

Colleges may have ready access to: Student Loan receivables

Endowments held by college (not Foundation)

Foundation financial statements if audited

Examples - What colleges will need to verify, research or estimate

Analyze your infrastructure SBCTC to provide a tool

Look for cut off issues

Track any adjustments you make so you can provide them to the auditor

Actively manage your receivables

Non-LGIP Investments

Any unbooked inventories? Document inventory count procedures for inventories over $25,000 including Bookstore

Any unbooked deferred compensation (executives)?

Analyze your component units and whether they need to be included: Foundations, LLCs,

Net assets (aka “equity”) - restrictions

Adjustments and Presentation

Questions we want to make sure we answer What is presented to the auditor and in what format?

How are adjustments made and communicated among pilot colleges?

Once audited, how is final financial statement report package complied and published?

Financial Audit Results

Opinion on Financial Statements Unqualified

Qualified

Disclaimer

Adverse

Auditor required to indicate if going concern

Opinion on Internal Controls Related to Financial Statements Material Weakness

Significant Weakness

May include a management letter

Possible Qualifications

Pilot will prepare a single years’ financial statements. Notes and/or MD&A require some comparisons to prior year, which will be unaudited

Infrastructure – GASB allows use of estimates upon initial adoption (to be completed by 2007)