presented by: eric vreeke, cpa - bkd | cpa firm
TRANSCRIPT
PowerPoint PresentationPresented by: Eric Vreeke, CPA
Our goals for today
• Gigabit speeds
4
5
• Regulated & nonregulated
• Optical Network Terminal (ONT) • Battery backup • Electrical • Fiber strand • Ethernet into house
8
• Modems • Routers
Work Orders • Should be used with multiple transactions on a
single project • Aggregates all project costs • Recorded in plant under construction account
2003 • If work is done completely by a third party &
construction is completed prior to receiving invoice, will not need work order
• Should use a work order in virtually all other situations
11
12
Work Orders - Invoices
• Record when received, not when paid • Individual invoices accumulated in work order
do not fall under capitalization thresholds • Not just costs to construct fixed assets
included in work order • Engineering • Legal
13
Work Orders – Labor & Overheads • Accurate timekeeping by outside plant
personnel essential • Maintain hours worked by individual work order • Have approval process
• Benefits & overheads • Health insurance • Retirement payments • Payroll taxes • Vehicles & work equipment
14
Work Orders – Capitalized Interest • Allowance for Funds Used During Construction
(AFUDC) • Applies only to companies with debt • Typically only recorded on larger projects • Cannot exceed interest expense during year • Use current composite rate
15
16
12/31/2017 2,000,000.00 01/31/2018 1,900,000.00 Current Running Month Capitalized 02/28/2018 1,800,000.00 Month Month Workorder Int Rate Interest 03/31/2018 1,700,000.00 Expenditures Balance 04/30/2018 1,600,000.00 05/31/2018 2,600,000.00 Jan-18 125,000 0.004119 $515 06/30/2018 2,475,000.00 Feb-18 25,075 150,075 0.004119 $618 07/31/2018 2,350,000.00 Mar-18 14,000 164,075 0.004119 $676 08/31/2018 2,225,000.00 Apr-18 20,000 184,075 0.004119 $758 09/30/2018 2,100,000.00 May-18 30,000 214,075 0.004119 $882 10/31/2018 1,975,000.00 Jun-18 50,000 264,075 0.004119 $1,088 11/30/2018 1,850,000.00 Jul-18 10,000 274,075 0.004119 $1,129 12/31/2018 1,725,000.00 Aug-18 50,000 324,075 0.004119 $1,335
Sep-18 30,000 354,075 0.004119 $1,458 Average Bal 2,023,077 Oct-18 20,000 374,075 0.004119 $1,541
Nov-18 Dec-18
Total $10,000
2018 Workorder closes: Entry Detail: 2232.000 30,000 2232.000 3,000 2423.000 50,000 2423.000 5,000 2424.000 20,000 2424.000 2,000
7340.000 $10,000
Composite Rate
12/31/18
from WO detail
2018 Workorder closes:
Work Orders – Materials & Supplies • Materials & supplies (account 1220) – tangible
assets used in construction or repair of plant • Fiber reels, optical network terminal (ONT), etc. • Includes direct costs – shipping, sales & use taxes, etc. • Charges & discounts not directly assignable to each unit
should be equitably apportioned to each item • Can have both regulated & nonregulated materials in separate
accounts
17
Work Orders – Materials & Supplies • Recording usage
• New construction recorded in TPUC account 2003 & assigned to work order
• Capitalized & depreciated when work order placed in service • General repairs recorded to expense account
• Count regularly • Review for obsolescence occasionally
• Example – 100% fiber network with copper still in materials & supplies
• Training of plant personnel is critical
18
Materials & Supplies - Valuation
• First in, first out (FIFO) • Meant to approximate the physical flow of goods
• Specific identification • Effective for small quantities of expensive items
• Last in, first out • Assumption that items purchased last are used first
• Average cost • New calculation each time there is a new purchase
19
Average Cost Example
Purchases Utilized Balance
Month Feet Cost per foot Total Feet Cost per foot Total Feet Cost per foot Total
January 25,000 $ 0.50 $ 12,500 25,000 $ 0.50 $ 12,500
February 50,000 $ 0.40 $ 20,000 75,000 $ 0.43 $ 32,500
March 10,000 $ 0.43 4,333 65,000 $ 0.43 $ 28,167
April 35,000 $ 0.60 $ 21,000 100,000 $ 0.49 $ 49,167
May 25,000 $ 0.49 12,292 75,000 $ 0.49 $ 36,875
20
Work Orders - Closing • Close to plant in service • Timeliness is imperative • Accounting packages typically have modules
that assist • Still need to identify plant accounts • Direct items are assigned
• Fiber • Electronics • Switching
21
Continuing Property Records (CPRs) • Provides detailed support of plant amounts,
both regulated & nonregulated • Required for everyone
• Will be requested during USAC, FCC, NECA reviews
• Updated annually at a minimum • Allows for accurate retirements • Overheads allocated to identifiable units
22
Depreciation
• Regulated assets • Assets not depreciated based on specific units, but
rather on accumulation of the units (mass asset depreciation)
• Depreciation rate set for entire account balance
23
• Non-rate regulated states • Set by management/board of directors with input
from contracts, engineers & consultants, if necessary
• Rate regulated states • Set by state regulatory authority
24
• Estimated lives of assets • Nonregulated plant
- Generally should be keeping track of specific units & depreciated based on that
- Frequently, nonregulated plant is depreciated in same manner as regulated plant
25
Retirements
• 47 CFR 32.100(c) (regulated plant) • At the time of retirement of depreciable operating
telecommunications plant, the accumulated depreciation account shall be charged with the original cost of the property retired plus the cost of removal & credited with the salvage value & insurance proceeds received.
• Non-regulated plant • Frequently treated the same as regulated. If detailed CPRs
are available, the specific accumulated depreciation amount & gain/loss can be determined
26
• Should review depreciation rates annually • Careful for over depreciation! • Average month for depreciation calculation • Changes in useful lives of assets
• New technology making other plant obsolete • Replacement sooner than originally planned
27
Best Practices - Retirements
• When to know to record retirements • Replacement of existing plant • FTTH construction oftentimes replaces existing copper
plant • Selling assets • Trading assets (vehicles) • Damage to plant • Annual review of CPRs
• Benefits • Property tax savings • Income tax benefit, if retired early
28
Best Practices - Workorders
• Option 1 - Phases of Construction • #2019-01 FTTH Phase 1 – City 1 & City 2 • #2019-02 FTTH Phase 2 – City 3 • #2019-03 FTTH Phase 3 – City 4, 5 & 6
29
Best Practices - Workorders
• Option 2 Phases & Types of Construction • #2019-01 FTTH Phase 1 – Fiber • #2019-02 FTTH Phase 1 – Switch • #2019-03 FTTH Phase 1 – Circuit • #2019-04 FTTH Phase 1 – CPE
30
Summary
• Reasons to accurately track & document plant costs (historical cost & depreciation)
• IRS • NECA • USAC • FCC • State regulatory authority
31
32
33
• Webinars, seminars & articles • Many are CPE-eligible • PDMs – Populate bullets with most relevant
webinars, articles, videos, etc.
bkd.com | @bkdllp
The information contained in these slides is presented by professionals for your information only & is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered.
Thank You!
Our goals for today
• Comparisons to total assets, liabilities & net income
• Does it affect loan covenants? • Are there incentives tied to these?
• Who can approve transactions? • Who has control over the assets? • Who has recordkeeping responsibilities? • Who reviews the transactions?
Small companies are particularly more vulnerable given overlap of control functions
Segregation of Duties
• Access to cash • Recording journal entries & customer credits • Bank reconciliations
Cash Disbursements
Risks
• Approval • Board or CEO approval for checks over certain
dollar amount • Invoices should accompany any check requests • Invoices included as checks are signed • Signed check registers with control totals • Signature stamps (if used) maintained in secure
location • Background checks on new vendors
Check Policy - Sample
46
• Control • Separate the person mailing the checks from the
person requesting the checks • ACH & wire transfer should be limited • Blank checks should be secured • Prohibition of signing blank checks
• Document bank controls • Recurring & non-recurring
• Identify who can change controls at bank • Require authorization form for non-recurring
transactions similar to normal check signing procedures
• Bank reconciliation reviewer should sample approvals monthly
ACH Transactions
• Require purchase order using check approval process
• Independent review of delivery address • Match of purchase receipt with physical
delivery • Independent review of credit card statements
Online Purchases
• Recordkeeping & Review • Bank reconciliations including outstanding check list • Budget to actual • Check registers with control totals • Consider software package with locked-down report
capabilities
• Recordkeeping & review • Perpetual inventory systems • Periodic physical inventory by multiple people
Overstated Construction Bids
• Recordkeeping & review • Budget to actual
Expense Reimbursements
• Approval • Policy on allowable expenses • Require receipts • Documentation
• Time and place • Amount • Business purpose or expected benefit • Relationship to business
Financial Statement Fraud
• Higher risk when compensation or benefits are tied to financial results
• Loan compliance can be an incentive
57
• Design • Will it mitigate the risks?
• Operating • Will it be consistently applied? • Are there exceptions to whom it is applied?
Effectiveness
• Achievable goals • Code of conduct policy • Conflict of interest policy • Whistleblower policy
• Positive workplace environment • Development of employees • Training • Defining what fraud includes such as kickbacks &
conflicts of interest
• Disclosures of relationships that could give appearance of lack of independence
• How does the organization police itself
Conflict of Interest Policy
• Encourages staff volunteers to come forward with credible information on illegal practices or violations of adopted policies of the organization, specifies that the organization will protect the individual from retaliation, &identifies those staff or board members or outside parties to whom such information can be reported
• Proven to be most effective deterrent
Whistleblower Policy
• Oversight • Communication • Reporting
Reconciliation of Accounts
Board Comparisons
• Develop budgets & compare to actual • Customer revenues • Bad debt write-offs • Interest income • Payroll • Maintenance • Executive • Statistics such as cost of services to related revenues
• Use software automatic reports whenever possible
Board Comparisons
Revenues 50,000 48,000 2,000 4.2%
Payroll 5,800 4,800 1,000 20.8% Benefits 2,000 1,900 100 5.3% Cost of services 6,000 6,000 - 0.0% Repairs and maintenance 2,100 1,500 600 40.0% Depreciation 10,000 10,000 - 0.0% Other 5,000 5,000 - 0.0%
30,900 29,200 1,700 5.8%
Net Income 19,100 18,800 300 1.6%
Customers 40 30 Employees 6 6
Rev/Customer 1,250 1,600 Payroll/Employee 967 800 Maintenace to revenues 4.2% 3.1%
Sheet1
• Passwords • Backups • Specific User Access • QuickBooks month close feature
• Cash • Stealing cash funds processed or on hand • Failing to record & stealing cash receipts • Under-ringing sales & stealing cash receipts • Altering bank deposits e.g., in “less cash” schemes
Examples of Misappropriation
stealing cash • Writing off receivables as bad debts & stealing the
cash received on the accounts written off • Collusion between buyer & seller to process
refunds for goods not returned
Examples of Misappropriation
• Inventory • Stealing assets • Selling assets & keeping the proceeds for personal
use • Setting up fictitious customers & shipping assets to
them • Diverting shipments to wrong addresses
Examples of Misappropriation
• Accounts Payable • Using organization checks to pay personal bills • Setting up fictitious suppliers & buying goods from
them • Collusion between employee buyer & seller in
which buyer receives a kickback for paying inflated prices, buying unneeded goods or accepting inferior quality
Examples of Misappropriation
payroll records & taking their paychecks • Manipulating payroll records to divert wages, payroll
taxes or paychecks • Overstating hours worked • Working unauthorized overtime • Cashing unused payroll checks • Perpetrator writing payroll checks to self • Embezzling payroll withholdings • Keeping terminated employees on the payroll & taking
their checks
• Equity • Diverting equity proceeds to personal use • Underpaying dividends to certain investors &
diverting the difference to personal use • Selling shares of stock more than once
Examples of Misappropriation
74
• Webinars, seminars & articles • Many are CPE-eligible • PDMs – Populate bullets with most relevant
webinars, articles, videos, etc.
76
bkd.com | @bkdllp
The information contained in these slides is presented by professionals for your information only & is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered.
Thank You!
Accounting Standards Updates • Issued by the FASB (Financial Accounting
Standards Board) to communicate changes to the FASB Codification
• Codification is the sole source for authoritative GAAP other than SEC specific rules
• ASU explains • What has changed • Why the change was made along with background
information • When the changes will be effective & the transition
method
80
• Why? • To enhance the reporting model for financial
instruments to provide users of financial statements with more decision-useful information
• When? • Public – Fiscal years beginning after 12/15/17 • Others – Fiscal years beginning after 12/15/18
81
82
• Requires equity investments to be measured at fair value with changes recognized in net income
• Does not apply to the following investments o Equity method investments o Consolidated subsidiaries o Derivative investments o Federal Home Loan Bank (FHLB) & Federal Reserve
Bank (FRB) stock
without readily determinable fair values • Alternative available for investments without readily
available fair values to determine fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions
83
investments without readily determinable fair values
• Qualitative assessment to identify potential impairment
• Fair value measurement required when qualitative indicators of impairment are present
84
• Cumulative-effect adjustment to beginning retained earnings (modified retrospective application) as of beginning of fiscal year of adoption except for o Amendments related to equity securities without readily
determinable fair values should be applied prospectively o Use of the exit price notion when measuring fair value for
disclosure purposes should be applied prospectively
85
• Partnerships accounted for by cost method • Stock investments without readily determinable fair
values • Available-for-sale equity securities
cost & net periodic postretirement benefit cost to be more transparent
• When? • Public – Fiscal years beginning after 12/15/17 • Others – Fiscal years beginning after 12/15/18
87
88
• Requires companies to present the service cost component of net benefit cost in the income statement line items where compensation costs are reported
• Companies to present all other components of net benefit cost outside operating income
Accounting for Prepayment Option – NTCA R&S Plan • To curtail rising surcharge costs in R&S plans,
NTCA offered companies the ability to make a prepayment
• Prepayment was the estimated amount of Company’s share of its plan contribution surcharge over several years
• Prepayment funds are held in an account as part of the overall plan assets by NTCA
• Investment earnings & losses are allocated to Company’s account based on prepayment amount
89
ASC 835-20 Capitalization of Interest (AFUDC) • Subtopic establishes standards of financial
accounting & reporting for capitalizing interest cost as a part of the historical cost of acquiring certain assets
• Historical cost includes necessary costs incurred to bring the asset to the condition & location necessary for its intended use
• If an asset requires a period of time to bring it to the necessary condition, the interest cost incurred during that period as a result is a part of the historical cost
92
Allowance for Funds Used During Construction (AFUDC) • Provides for financing costs to be added to the
overall construction of telecommunications plant
• Charged to work order & credited to a 73XX account (nonoperating)
• GAAP, Part 32 & IRS • IRS rules differ
93
AFUDC • Calculation
• Monthly activity * effective monthly interest rate * months when project began to closing date
• Interest rate o Rate at which current draw-downs are used to finance
construction o Weighted average of outstanding debt for the period
94
• Prepare reconciliations of key balance sheet accounts & provide to auditor
• Perform monthly/quarterly • Provide auditor with remote desktop/VPN access to
accounting system if source documents are kept electronically
• Document all journal entries • Keep source documents (electronic or paper) • Ask questions to your auditor throughout the year
• Account coding • Accounting for unusual/new transactions
• Set up a planning meeting with your auditor in advance • Ask for a PBC listing • Establish deadlines
Key Financial Indicators • Basic financial statements provided to
management • Balance Sheet • Income Statement • Statement of Cash Flows
• Key financial indicators • Set of measures that help a company determine if it
is reaching its performance & operational goals • Common-size approach allows for easier
comparisons against a benchmark
• Used as an indicator of a company’s performance
• Provides an understanding about a business’s ability to generate cash flow
98
99
TIER • Times Interest Earned Ratio • Measures the proportionate amount of income
that can be used to cover interest expenses • Shows the ability of a company to meet the
interest portion of debt service costs
100
101
DSCR • Debt Service Coverage Ratio • Measures the cash flow available to pay
current debt obligations
ROR on Net Plant
• Rate of Return on Net Plant • Measures operating performance – shows how
well plant is utilized
105
• Net worth • Shows how reliant a company is on external
financing
106
• Common guideline is 1.5 or 2.0:1.0
108
109
110
• Webinars, seminars & articles • Many are CPE-eligible
BKD Thoughtware®
1401 50th Street, Suite 350 West Des Moines, Iowa 50266-5935
515.223.0159 Office 515.221.4621 Direct 515.681.6664 Mobile
[email protected]
112
bkd.com | @bkdllp
The information contained in these slides is presented by professionals for your information only & is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered.
Thank You!
Components of a Network
ASU 2016-01 – What Has Changed?
ASU 2016-01
ASU 2016-01
ASU 2016-01
ASU 2016-01
ASU 2017-07 – What Has Changed?
Accounting for Prepayment Option – NTCA R&S Plan
Quarterly Statement
Allowance for Funds Used During Construction (AFUDC)
AFUDC
AFUDC
Equity to Total Assets
Our goals for today
• Gigabit speeds
4
5
• Regulated & nonregulated
• Optical Network Terminal (ONT) • Battery backup • Electrical • Fiber strand • Ethernet into house
8
• Modems • Routers
Work Orders • Should be used with multiple transactions on a
single project • Aggregates all project costs • Recorded in plant under construction account
2003 • If work is done completely by a third party &
construction is completed prior to receiving invoice, will not need work order
• Should use a work order in virtually all other situations
11
12
Work Orders - Invoices
• Record when received, not when paid • Individual invoices accumulated in work order
do not fall under capitalization thresholds • Not just costs to construct fixed assets
included in work order • Engineering • Legal
13
Work Orders – Labor & Overheads • Accurate timekeeping by outside plant
personnel essential • Maintain hours worked by individual work order • Have approval process
• Benefits & overheads • Health insurance • Retirement payments • Payroll taxes • Vehicles & work equipment
14
Work Orders – Capitalized Interest • Allowance for Funds Used During Construction
(AFUDC) • Applies only to companies with debt • Typically only recorded on larger projects • Cannot exceed interest expense during year • Use current composite rate
15
16
12/31/2017 2,000,000.00 01/31/2018 1,900,000.00 Current Running Month Capitalized 02/28/2018 1,800,000.00 Month Month Workorder Int Rate Interest 03/31/2018 1,700,000.00 Expenditures Balance 04/30/2018 1,600,000.00 05/31/2018 2,600,000.00 Jan-18 125,000 0.004119 $515 06/30/2018 2,475,000.00 Feb-18 25,075 150,075 0.004119 $618 07/31/2018 2,350,000.00 Mar-18 14,000 164,075 0.004119 $676 08/31/2018 2,225,000.00 Apr-18 20,000 184,075 0.004119 $758 09/30/2018 2,100,000.00 May-18 30,000 214,075 0.004119 $882 10/31/2018 1,975,000.00 Jun-18 50,000 264,075 0.004119 $1,088 11/30/2018 1,850,000.00 Jul-18 10,000 274,075 0.004119 $1,129 12/31/2018 1,725,000.00 Aug-18 50,000 324,075 0.004119 $1,335
Sep-18 30,000 354,075 0.004119 $1,458 Average Bal 2,023,077 Oct-18 20,000 374,075 0.004119 $1,541
Nov-18 Dec-18
Total $10,000
2018 Workorder closes: Entry Detail: 2232.000 30,000 2232.000 3,000 2423.000 50,000 2423.000 5,000 2424.000 20,000 2424.000 2,000
7340.000 $10,000
Composite Rate
12/31/18
from WO detail
2018 Workorder closes:
Work Orders – Materials & Supplies • Materials & supplies (account 1220) – tangible
assets used in construction or repair of plant • Fiber reels, optical network terminal (ONT), etc. • Includes direct costs – shipping, sales & use taxes, etc. • Charges & discounts not directly assignable to each unit
should be equitably apportioned to each item • Can have both regulated & nonregulated materials in separate
accounts
17
Work Orders – Materials & Supplies • Recording usage
• New construction recorded in TPUC account 2003 & assigned to work order
• Capitalized & depreciated when work order placed in service • General repairs recorded to expense account
• Count regularly • Review for obsolescence occasionally
• Example – 100% fiber network with copper still in materials & supplies
• Training of plant personnel is critical
18
Materials & Supplies - Valuation
• First in, first out (FIFO) • Meant to approximate the physical flow of goods
• Specific identification • Effective for small quantities of expensive items
• Last in, first out • Assumption that items purchased last are used first
• Average cost • New calculation each time there is a new purchase
19
Average Cost Example
Purchases Utilized Balance
Month Feet Cost per foot Total Feet Cost per foot Total Feet Cost per foot Total
January 25,000 $ 0.50 $ 12,500 25,000 $ 0.50 $ 12,500
February 50,000 $ 0.40 $ 20,000 75,000 $ 0.43 $ 32,500
March 10,000 $ 0.43 4,333 65,000 $ 0.43 $ 28,167
April 35,000 $ 0.60 $ 21,000 100,000 $ 0.49 $ 49,167
May 25,000 $ 0.49 12,292 75,000 $ 0.49 $ 36,875
20
Work Orders - Closing • Close to plant in service • Timeliness is imperative • Accounting packages typically have modules
that assist • Still need to identify plant accounts • Direct items are assigned
• Fiber • Electronics • Switching
21
Continuing Property Records (CPRs) • Provides detailed support of plant amounts,
both regulated & nonregulated • Required for everyone
• Will be requested during USAC, FCC, NECA reviews
• Updated annually at a minimum • Allows for accurate retirements • Overheads allocated to identifiable units
22
Depreciation
• Regulated assets • Assets not depreciated based on specific units, but
rather on accumulation of the units (mass asset depreciation)
• Depreciation rate set for entire account balance
23
• Non-rate regulated states • Set by management/board of directors with input
from contracts, engineers & consultants, if necessary
• Rate regulated states • Set by state regulatory authority
24
• Estimated lives of assets • Nonregulated plant
- Generally should be keeping track of specific units & depreciated based on that
- Frequently, nonregulated plant is depreciated in same manner as regulated plant
25
Retirements
• 47 CFR 32.100(c) (regulated plant) • At the time of retirement of depreciable operating
telecommunications plant, the accumulated depreciation account shall be charged with the original cost of the property retired plus the cost of removal & credited with the salvage value & insurance proceeds received.
• Non-regulated plant • Frequently treated the same as regulated. If detailed CPRs
are available, the specific accumulated depreciation amount & gain/loss can be determined
26
• Should review depreciation rates annually • Careful for over depreciation! • Average month for depreciation calculation • Changes in useful lives of assets
• New technology making other plant obsolete • Replacement sooner than originally planned
27
Best Practices - Retirements
• When to know to record retirements • Replacement of existing plant • FTTH construction oftentimes replaces existing copper
plant • Selling assets • Trading assets (vehicles) • Damage to plant • Annual review of CPRs
• Benefits • Property tax savings • Income tax benefit, if retired early
28
Best Practices - Workorders
• Option 1 - Phases of Construction • #2019-01 FTTH Phase 1 – City 1 & City 2 • #2019-02 FTTH Phase 2 – City 3 • #2019-03 FTTH Phase 3 – City 4, 5 & 6
29
Best Practices - Workorders
• Option 2 Phases & Types of Construction • #2019-01 FTTH Phase 1 – Fiber • #2019-02 FTTH Phase 1 – Switch • #2019-03 FTTH Phase 1 – Circuit • #2019-04 FTTH Phase 1 – CPE
30
Summary
• Reasons to accurately track & document plant costs (historical cost & depreciation)
• IRS • NECA • USAC • FCC • State regulatory authority
31
32
33
• Webinars, seminars & articles • Many are CPE-eligible • PDMs – Populate bullets with most relevant
webinars, articles, videos, etc.
bkd.com | @bkdllp
The information contained in these slides is presented by professionals for your information only & is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered.
Thank You!
Our goals for today
• Comparisons to total assets, liabilities & net income
• Does it affect loan covenants? • Are there incentives tied to these?
• Who can approve transactions? • Who has control over the assets? • Who has recordkeeping responsibilities? • Who reviews the transactions?
Small companies are particularly more vulnerable given overlap of control functions
Segregation of Duties
• Access to cash • Recording journal entries & customer credits • Bank reconciliations
Cash Disbursements
Risks
• Approval • Board or CEO approval for checks over certain
dollar amount • Invoices should accompany any check requests • Invoices included as checks are signed • Signed check registers with control totals • Signature stamps (if used) maintained in secure
location • Background checks on new vendors
Check Policy - Sample
46
• Control • Separate the person mailing the checks from the
person requesting the checks • ACH & wire transfer should be limited • Blank checks should be secured • Prohibition of signing blank checks
• Document bank controls • Recurring & non-recurring
• Identify who can change controls at bank • Require authorization form for non-recurring
transactions similar to normal check signing procedures
• Bank reconciliation reviewer should sample approvals monthly
ACH Transactions
• Require purchase order using check approval process
• Independent review of delivery address • Match of purchase receipt with physical
delivery • Independent review of credit card statements
Online Purchases
• Recordkeeping & Review • Bank reconciliations including outstanding check list • Budget to actual • Check registers with control totals • Consider software package with locked-down report
capabilities
• Recordkeeping & review • Perpetual inventory systems • Periodic physical inventory by multiple people
Overstated Construction Bids
• Recordkeeping & review • Budget to actual
Expense Reimbursements
• Approval • Policy on allowable expenses • Require receipts • Documentation
• Time and place • Amount • Business purpose or expected benefit • Relationship to business
Financial Statement Fraud
• Higher risk when compensation or benefits are tied to financial results
• Loan compliance can be an incentive
57
• Design • Will it mitigate the risks?
• Operating • Will it be consistently applied? • Are there exceptions to whom it is applied?
Effectiveness
• Achievable goals • Code of conduct policy • Conflict of interest policy • Whistleblower policy
• Positive workplace environment • Development of employees • Training • Defining what fraud includes such as kickbacks &
conflicts of interest
• Disclosures of relationships that could give appearance of lack of independence
• How does the organization police itself
Conflict of Interest Policy
• Encourages staff volunteers to come forward with credible information on illegal practices or violations of adopted policies of the organization, specifies that the organization will protect the individual from retaliation, &identifies those staff or board members or outside parties to whom such information can be reported
• Proven to be most effective deterrent
Whistleblower Policy
• Oversight • Communication • Reporting
Reconciliation of Accounts
Board Comparisons
• Develop budgets & compare to actual • Customer revenues • Bad debt write-offs • Interest income • Payroll • Maintenance • Executive • Statistics such as cost of services to related revenues
• Use software automatic reports whenever possible
Board Comparisons
Revenues 50,000 48,000 2,000 4.2%
Payroll 5,800 4,800 1,000 20.8% Benefits 2,000 1,900 100 5.3% Cost of services 6,000 6,000 - 0.0% Repairs and maintenance 2,100 1,500 600 40.0% Depreciation 10,000 10,000 - 0.0% Other 5,000 5,000 - 0.0%
30,900 29,200 1,700 5.8%
Net Income 19,100 18,800 300 1.6%
Customers 40 30 Employees 6 6
Rev/Customer 1,250 1,600 Payroll/Employee 967 800 Maintenace to revenues 4.2% 3.1%
Sheet1
• Passwords • Backups • Specific User Access • QuickBooks month close feature
• Cash • Stealing cash funds processed or on hand • Failing to record & stealing cash receipts • Under-ringing sales & stealing cash receipts • Altering bank deposits e.g., in “less cash” schemes
Examples of Misappropriation
stealing cash • Writing off receivables as bad debts & stealing the
cash received on the accounts written off • Collusion between buyer & seller to process
refunds for goods not returned
Examples of Misappropriation
• Inventory • Stealing assets • Selling assets & keeping the proceeds for personal
use • Setting up fictitious customers & shipping assets to
them • Diverting shipments to wrong addresses
Examples of Misappropriation
• Accounts Payable • Using organization checks to pay personal bills • Setting up fictitious suppliers & buying goods from
them • Collusion between employee buyer & seller in
which buyer receives a kickback for paying inflated prices, buying unneeded goods or accepting inferior quality
Examples of Misappropriation
payroll records & taking their paychecks • Manipulating payroll records to divert wages, payroll
taxes or paychecks • Overstating hours worked • Working unauthorized overtime • Cashing unused payroll checks • Perpetrator writing payroll checks to self • Embezzling payroll withholdings • Keeping terminated employees on the payroll & taking
their checks
• Equity • Diverting equity proceeds to personal use • Underpaying dividends to certain investors &
diverting the difference to personal use • Selling shares of stock more than once
Examples of Misappropriation
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• Webinars, seminars & articles • Many are CPE-eligible • PDMs – Populate bullets with most relevant
webinars, articles, videos, etc.
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The information contained in these slides is presented by professionals for your information only & is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered.
Thank You!
Accounting Standards Updates • Issued by the FASB (Financial Accounting
Standards Board) to communicate changes to the FASB Codification
• Codification is the sole source for authoritative GAAP other than SEC specific rules
• ASU explains • What has changed • Why the change was made along with background
information • When the changes will be effective & the transition
method
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• Why? • To enhance the reporting model for financial
instruments to provide users of financial statements with more decision-useful information
• When? • Public – Fiscal years beginning after 12/15/17 • Others – Fiscal years beginning after 12/15/18
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• Requires equity investments to be measured at fair value with changes recognized in net income
• Does not apply to the following investments o Equity method investments o Consolidated subsidiaries o Derivative investments o Federal Home Loan Bank (FHLB) & Federal Reserve
Bank (FRB) stock
without readily determinable fair values • Alternative available for investments without readily
available fair values to determine fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions
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investments without readily determinable fair values
• Qualitative assessment to identify potential impairment
• Fair value measurement required when qualitative indicators of impairment are present
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• Cumulative-effect adjustment to beginning retained earnings (modified retrospective application) as of beginning of fiscal year of adoption except for o Amendments related to equity securities without readily
determinable fair values should be applied prospectively o Use of the exit price notion when measuring fair value for
disclosure purposes should be applied prospectively
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• Partnerships accounted for by cost method • Stock investments without readily determinable fair
values • Available-for-sale equity securities
cost & net periodic postretirement benefit cost to be more transparent
• When? • Public – Fiscal years beginning after 12/15/17 • Others – Fiscal years beginning after 12/15/18
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• Requires companies to present the service cost component of net benefit cost in the income statement line items where compensation costs are reported
• Companies to present all other components of net benefit cost outside operating income
Accounting for Prepayment Option – NTCA R&S Plan • To curtail rising surcharge costs in R&S plans,
NTCA offered companies the ability to make a prepayment
• Prepayment was the estimated amount of Company’s share of its plan contribution surcharge over several years
• Prepayment funds are held in an account as part of the overall plan assets by NTCA
• Investment earnings & losses are allocated to Company’s account based on prepayment amount
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ASC 835-20 Capitalization of Interest (AFUDC) • Subtopic establishes standards of financial
accounting & reporting for capitalizing interest cost as a part of the historical cost of acquiring certain assets
• Historical cost includes necessary costs incurred to bring the asset to the condition & location necessary for its intended use
• If an asset requires a period of time to bring it to the necessary condition, the interest cost incurred during that period as a result is a part of the historical cost
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Allowance for Funds Used During Construction (AFUDC) • Provides for financing costs to be added to the
overall construction of telecommunications plant
• Charged to work order & credited to a 73XX account (nonoperating)
• GAAP, Part 32 & IRS • IRS rules differ
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AFUDC • Calculation
• Monthly activity * effective monthly interest rate * months when project began to closing date
• Interest rate o Rate at which current draw-downs are used to finance
construction o Weighted average of outstanding debt for the period
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• Prepare reconciliations of key balance sheet accounts & provide to auditor
• Perform monthly/quarterly • Provide auditor with remote desktop/VPN access to
accounting system if source documents are kept electronically
• Document all journal entries • Keep source documents (electronic or paper) • Ask questions to your auditor throughout the year
• Account coding • Accounting for unusual/new transactions
• Set up a planning meeting with your auditor in advance • Ask for a PBC listing • Establish deadlines
Key Financial Indicators • Basic financial statements provided to
management • Balance Sheet • Income Statement • Statement of Cash Flows
• Key financial indicators • Set of measures that help a company determine if it
is reaching its performance & operational goals • Common-size approach allows for easier
comparisons against a benchmark
• Used as an indicator of a company’s performance
• Provides an understanding about a business’s ability to generate cash flow
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TIER • Times Interest Earned Ratio • Measures the proportionate amount of income
that can be used to cover interest expenses • Shows the ability of a company to meet the
interest portion of debt service costs
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DSCR • Debt Service Coverage Ratio • Measures the cash flow available to pay
current debt obligations
ROR on Net Plant
• Rate of Return on Net Plant • Measures operating performance – shows how
well plant is utilized
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• Net worth • Shows how reliant a company is on external
financing
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• Common guideline is 1.5 or 2.0:1.0
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• Webinars, seminars & articles • Many are CPE-eligible
BKD Thoughtware®
1401 50th Street, Suite 350 West Des Moines, Iowa 50266-5935
515.223.0159 Office 515.221.4621 Direct 515.681.6664 Mobile
[email protected]
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The information contained in these slides is presented by professionals for your information only & is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered.
Thank You!
Components of a Network
ASU 2016-01 – What Has Changed?
ASU 2016-01
ASU 2016-01
ASU 2016-01
ASU 2016-01
ASU 2017-07 – What Has Changed?
Accounting for Prepayment Option – NTCA R&S Plan
Quarterly Statement
Allowance for Funds Used During Construction (AFUDC)
AFUDC
AFUDC
Equity to Total Assets