VOL. 2016 – NO. 1 Summary Page i Self-Study Steps/CPE Requirements iii Government Specialist: Accounting – Governmental 1-1 Auditing – Governmental 2–1 Not-for-Profit Specialist: Accounting 3–1 Management Advisory Services 4–1 Evaluation Form/Index/Group VOL. 2016 – NO. 1 Attendance Form A–1

THE GOVERNMENT SPECIALIST THE NOT-FOR-PROFIT SPECIALIST

1. GASB’s New Initiatives: 3. The Ongoing Evolution of The More Things Change Not-for-Profit GAAP Field of Study: Accounting – Governmental Field of Study: Accounting Leasing is an important activity for Approximately twenty years ago, the FASB governmental, as well as commercial, issued standards related to the presentation organizations. As the FASB issues its requirements for financial statements of not- guidance on lease accounting for profit- for-profit organizations. In recent years, the making entities, it is time to appraise a similar Board has taken on a project of updating proposal from the Governmental Accounting and improving the information in those Standards Board on how governmental statements. Allen Fetterman, who lectures entities should account for leases. In our extensively for Loscalzo Associates on not- opening segment, Warren Ruppel, a partner in for-profit accounting, explains how the the firm of Marks Paneth LLP, evaluates how notion of Generally Accepted Accounting the GASB is handling current guidance on Principles for not-for-profit organizations is financial reporting and pension liabilities as evolving. well as lease accounting.

2. Accelerating Change: 4. New Tech Trends to Know and The 2015 Inspector General Survey Understand Field of Study: Auditing - Governmental Field of Study: Management Advisory Services One of the most significant post-Watergate As we’re all well aware, technology touches reforms was the passage of the Inspector virtually every aspect of our lives today. General Act, which has put 72 I.G.s in place Because of our ever-increasing dependence at federal departments and agencies over the on technology, and the fact that it changes at past four decades. On our next segment, such a rapid pace, it is critical that Jeffrey Green, a partner in the firm of accountants and financial managers look Kearney & Co. and a contributor to the latest ahead to see what’s on tap from an IT AGA survey of the inspector general perspective. Technologist Benjamin Woo community, provides information on identifies the new and emerging IT trends cross-cutting issues - and identifies emerging that not-for-profit leaders need to trends - that have an impact on government understand, and shows how these advances auditors as well as inspectors general. in technology are likely to impact your organization in the coming months and years.

CPA Report is SmartPros (A Kaplan Company) a product of government/not-for-profit summary page government/not-for-profit www.smartpros.com

online steps for completing self-study CPE Requirements The eLP requires Adobe FlashPlayer8orhigher(formerlyMacromediaPlayer)–afreedownloadifyoudon’t alreadyhave SELF-STUDY SUBSCRIBERNOTICE: Self-Study Format Reporting. group liveandself-studyparticipationasdefinedintheStatementforStandardsCPE When properlyadministered,theCPA Reporteducationalprogrammeetstherequirementsfor CPA ReportGovernment/Not-for-Profit Self-StudyPECon April 26,2016. Please note: This issueofCPA Reportisscheduledtobeavailableonthe should contacttheir stateboardregarding specificCPErequirements. have finalauthorityontheacceptanceofindividualcoursesfor CPEcredit. CPAs Note: CPErequirements varyfrom statetostate.Stateboardsofaccountancy accepted mediadeliveryplatformsandiscorporatefirewallfriendly. environment andahigherlevelofusercompatibilityastheeLP isbasedontoday’s mostwidely your students?Inbrief,abetterself-studylearningexperience–moreintuitive delivered viaSmartPros’ enhancede-LearningPlayer(eLP). What doesthismeantoyouand The onlinecomponentsof The Government/Not-for-Profit Specialistself-studyprogramare the following: When takingaCPAR segmentonaself-studybasis,anindividualearnsCPEcreditbydoing Step 1: How to Create andAccessYourStep 1: Account . Clickon“NewUser?”tocreate anaccount.* We 2. Visit 1. follow thesesteps: To accesstheSelf-StudyProfessionalEducationCentertotakequizzesandcheckcredits, Viewing thevideo(approximately 1. . You are loggedinto Your3. Account. Steps forUsingtheSelf-StudyProfessional EducationCenter username. recommend touseyour emailaddress asyour 30-35 minutes). l * Tip: username andpasswordclickon“ Self-Study ProfessionalEducationCenter, enteryour If youhavealreadycreatedanaccountattheCPAR credits andmore. quizzes, trackexternalCPE view yourCPEcredits,take From Your Account, you can Add thispagetoyourFavoritesforeasyaccess. http://education.smartpros.com/cparss LOGON .CompletingtheRequiredReading 2. .” (approximately 25-30minutes). iii it.

GOVT/NFP/VOL. 2016 – NO. 1 Step 2: How to Take a Quiz iv

1. Click on “Video Quiz Catalog” on the left-hand side of Your Account in the Self-Study Professional Education Center. Note: You must already be logged in for this link to be available to you. See Step 1 if you are not already logged in.

2. Enter your firm code. Your firm code is on your CPAR mailing label, and may also be provided by your CPE administrator.

3. Select the Subject Area for the course you’re taking. (Refer to the Subscriber Guide or Summary Page.) 4. Click on the course for which you would like to receive self-study credit.

5. Click “enroll in course” on the course description page.

6. You will now be at Your Account. The course you just selected will launch automatically, and it will also be available in the Enrolled Courses section of My Courses.

7. To proceed, watch the video (offline), then online follow these steps in order and take the Final Examination: 1. Mid-Review Questions 5. Other Resources 2. Final Review Questions 6. Discussion Issues online steps for completing self-study 3. Required Reading 7. Final Exam 4. Required Reading Questions online steps for completing self-study Step 4: How to CheckandTrackStep 4: CPECredits How toView andPrintaCourseCertificate Step 3: n n certificates from Your Account. view andprintcompletion scored 70%orbetter, youcan completed, andyouhave Once anonlinequizis NASBA throughitswebsite:www.learningmarket.org courses forCPEcredit.Complaints regardingQASprogramsponsorsmaybesubmitted to education. Stateboardsofaccountancy havefinalauthorityontheacceptanceofindividual (NASBA) asaQuality Assurance Service(QAS)sponsor ofcontinuingprofessional SmartPros Ltd.isregistered withtheNational Association ofStateBoards Accountancy To trackCPEcredits earnedfrom externalsources (other thanCPAR Video):2. From Your Account intheSelf-StudyProfessional EducationCenter .Credit HoursReport 1. [email protected] If youneedmore informationor haveanyquestions, pleasecontactCustomer Serviceat external course. Use theExternalCourseJournal.Click“Addcourseto journal”tobegintrackingan reporting. print yourreportforCPE “submit.” Fromhere,youcan start andenddateclick Hours Report”tab.Selectyour tab. Clickonthe“Credit Click onthe“MyCourses” Click “View forPrint” of completion. like toviewthecertificate course forwhichyouwould next tothetitleof click on“View Certificate” section of Your Account, In theCompletedCourses or 914-517-1177. . v

GOVT/NFP/VOL. 2016 – NO. 1 vi

Group Live Format

1. Select instructors who have the 4. (Individuals) View the video segment appropriate education and/or experience (30 minutes). both to teach the segment subject and 5. (Individuals) Discuss the segment conduct the subsequent group materials as they relate to his/her own discussion. work and/or organization (25 minutes). 2. Have each instructor review the video 6. (Individuals) Evaluate the instructor segment and the written materials in the using the criteria listed on the Subscribers Guide prior to the Evaluation Form. presentation of the segment. 7. Check with your State Board of 3. Make sure that each instructor certifies Accountancy for specific details, the attendance at his/her discussion including group live sponsorship group by signing and dating the Group registration requirements. Live Attendance Form.

How to Implement CPA Report

The following information will help you plan and implement CPA Report (CPAR) within your firm: 1. Each quarter, you may receive by email 3. Select the topic(s) you wish to cover in a CPA Report Summary Page in advance your session when the CPAR Summary of the video segment notifying you of Page or the actual program arrives. the upcoming Continuing Professional 4. It is best for a firm to have its CPE Education topics that will be covered. classes on a regular and consistent basis, 2. The CPAR video and Subscribers Guide so it is easy for the staff to remember is expected to arrive the month when scheduling clients. following the end of the quarter. If you 5. You may wish to provide each group do not have a standard day and time live attendee a “Certificate of each quarter designated as CPE day, Completion” noting the hours earned issue a memo with the date of your and the topic areas. upcoming seminar. (If attendance is not required, please provide plenty of 6. Always check with your State Board of advance notice for optimum Accountancy for specific details, participation). including group live sponsorship registration requirements.

Note: CPE requirements vary from state to state. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. CPAs should contact their state board regarding specific CPE requirements. group livegroup live group live group

If you need more information or have any questions, please contact Customer Service at [email protected] or 914-517-1177. government specialist 1. Accounting – Accounting 1. Governmental

GOVT/NFP/VOL. 2016 – NO. 1

accoutning – governmental 1. GASB’s NewInitiatives: The More ThingsChange Overview: Segment Preparation: Advance Prerequisites: Course Objectives: Learning Transcript: Video (Self-Study): Reading Required Accreditation: Recommended Course Level: Expiration Date: Field ofStudy: Running Time: lease accounting. guidance onfinancialreportingandpensionliabilitiesaswell Marks PanethLLP, evaluateshowtheGASBishandlingcurrent our openingsegment, Board onhowgovernmentalentitiesshouldaccountforleases.In a similarproposalfromtheGovernmental Accounting Standards lease accountingforprofit-makingentities,itistimetoappraise commercial, organizations. As theFASB issuesitsguidanceon Leasing isanimportantactivityforgovernmental,aswell 2 hoursself-study 1 hourgrouplive Update introductory courseingovernmentaccounting Work experienceingovernmentaccountingorauditing,an Upon successfulcompletionofthissegment,youshouldbeableto: None See page1–19. See page1–12. For additionalinfo,goto:www.aicpa.org Public Accountants Reprinted withpermissionofthe American InstituteofCertified Panel (SLGEP) Excerpted fromanarticlebytheStateandLocalGovernment Expert Employers “Effect ofEmployer-Paid MemberContributionson Plans& For additionalinfo,goto:www.gasb.org Reprinted withpermissionfrom“GASBOutlook” Board Prepared bythestaff oftheGovernmental Accounting Standards “What You NeedtoKnow:Leases” For additionalinfo,goto:www.gasb.org By David A. Vaudt, CPA, GASBChair “Response totheCPA JournalRegardingGASB-Related Articles” Accounting –Governmental June 9,2018 35 minutes l l l l exposure draftonpensionissues. Recognize howGASBaddressedpractitionerconcernsinits of thefinancialreportingmodel; Identify themajorissuesaddressedinGASB’s reexamination GASB’s role; Identify concernsraisedinarecentCPA Journalarticleon lease accountingproposal; Recognize thenewrequirementscontainedwithinGASB’s Warren Ruppel , apartnerinthefirmof 1–1

GOVT/NFP/VOL. 2016 – NO. 1 Outline 1–2 I. Latest Standard Releases

A. IFRS 16 and New FASB Standards B. Proposed GASB Single Approach 1. IASB issued IFRS 16 last month. 1. Different from FASB's private 2. FASB says lease accounting sector approach standards will be issued by end of 2. GASB said we're just going to treat Q1 2016 all leases pretty much the same 3. FASB and IASB standards require a. Major difference between companies to report results of lease proposed GASB standard and deals on balance sheets and income FASB statements 3. Probably will not see too many a. Rather than in footnotes to more modifications financial statements "The big concept with these standards is your obligation under a lease is pretty much the same as it is under a loan." - Warren Ruppel

II. Leases in the Financial Statements A. FASB vs. GASB Treatment B. Deferred Inflows and Outflows 1. Felt GASB standards made a more 1. Deferred inflows and deferred sense than FASB standards outflows 2. The only thing you straight-lined a. Think of them as soft assets was for a major free rent period or 2. In the conceptual framework that's buildout of allowances etc. really not what they are a. Would be amortized over the 3. In the exposure draft liabilities will lease be recorded as liabilities 3. Under proposed standards the 4. Might think of a right to use asset recorded liability will be the present as a deferred outflow value of the lease payments a. Recorded as an asset a. Offset by right to use asset 5. Only time a deferred inflow of resources will be used a. When a lessor records the receivable bill for present value of lease payments it’s going to receive b. Offsetting credit is going to be deferred inflow of resources i. Recognized over the life of the lease or the asset C. Reporting by Lessor and Lessee 1. Reporting in financial statements done by the landlord/lessor and the tenant/lessee 2. Lessee will record a right to use asset a. As well as the liability for the outline outline outline outline outline lease payments 3. Lessor will record the receivable for the lease payments at present value outline outline outline outline outline Outline (continued) I.Article: DebateaboutFuture ofGASB III. I Leases intheFinancialStatements-Continued II. .GAAP Alternatives forGovernment B. SECReplacementofGASB A. .RelatedPartyLeases D. .GASBhasreallyimproved the 4. Usedto betoomanybodiesinthe 3. Similarbodyforstateandlocal 2. PrivateCompanyCouncil 1. SECindirectlydoesitbytheir 4. SECcan'tdirectlysupervisethat 3. ProposedthatSECtakeover 2. RecentarticleandeditorialinCPA 1. .Exposuredraftsaysifyouhave 1. .Short-termleaseslessthanayear 3. Assumingtheleasetermismore 2. financial reporting model Difficult tofigureout whatthe a. 70s Don'twanttoomanydifferent a. governments wouldn'tmakesense private companies established GAAP “alternatives”for Intermsofdisclosures a. control overtheunderwriters Notlegalforthemtodothat a. About$3.5trillionof b. Thewaytheyoversee a. accounting forgovernments Suggestingreplacementof a. Journal .Havetodotheaccounting a. Can'ttreatitasashort-termor a. long-term leasetoarelatedparty are exemptfromtheserequirements than ayear around theproposedstandard month-to-month leasetoget standards were government accounting bodies now government debtoutstanding accounting forpubliccompanies standards withGAAP government accounting .SpecificCritiquesfrom Article C. .ImplementationConsiderations E. .Sayprivatesectorisrequiredto 5. Complainthatthere'slong-term 4. GASBjustremodeledthewhole 3. It’s nottheaccounting 2. Premiseofthearticle 1. .Leasetermhasbecomemore 1. .Keepinmindwe'retalkingabout 4. Internationalstandardshavegone 3. Don'tthinktherewillbemuch 2. .Reallythe samestandardinthe b. Articlesays“Ingovernments, a. continue toexistinperpetuity recertify thattheentitywill Dohavefundfinancial b. Butnotcashflowinformation a. information HasgonefurtherthanFASB a. pension accountingapproach Theyspendandcommitto a. Governmentfinancialreporting a. .SoftwareorIT hardware b. Vehicle leases,copier a. FASB isgoingthatway a. It'salittlemorestraightforward a. Doyouconsidertermination b. Doyouconsiderrenewal a. important all leases that way controversy orcriticism telephone leases,etc. than theFASB standard clauses? periods? private sectorandingovernment it's onlyayear.” Notcashbasisbutmodified i. statements Requiringcostsharing i. spending somuchmoney business forces governmentstogooutof accrual -closertocash their liabilityonbooks employers torecordasliceof 1–3

GOVT/NFP/VOL. 2016 – NO. 1 1–4

Outline (continued)

IV.Reexamining the Government Financial Reporting Model A. GASB Statement 34 D. Other Issues Being Addressed 1. Issued in 1999, GASB Statement 34 1. Government wide financial set the contents of today’s financial statements don't have a cash flow statements in place today by: statement requirement a. Ushering in important a. Will probably take a look at that innovations to general purpose 2. Will probably consider format of external financial reporting the statement of activities b. Making it possible to more fully a. Not sure people find that very assess a government’s overall useful financial health 3. MD&A (Management Discussion & 2. Stakeholders, including Analysis) Governmental Accounting Standards Advisory Council a. GASB pioneered making it required supplemental a. Ranked reexamination of the information in thefinancial financial reporting model as a statements “top priority” agenda item b. Bringing more qualitative B. Revisiting Modified Accrual Basis information into the MD&A 1. GASB looking at the modified E. Finalization of Deliberations accrual basis of accounting 1. Examination could take another 2. Probably going to move to change half-dozen years that 2. GASB going to do a preliminary a. To something called near term reviews document and get financial resources comments measurement focus a. Schedule for voting on a ballot C. Impact on Timeliness of Financial draft of a final statement is for Statements May 2021 1. Time it takes governments to issue 3. GASB financial reporting model financial statements task force includes a number of a. Based upon whatever legal or active and retired auditors from contractual requirements they government and private practice have a. Need both perspectives 2. Don't think it's really the reporting model itself 3. Whatever the local situations are for the government reporting entities a. Will drive the timelines of the outline outline outline outline outline financial statements outline outline outline outline outline Outline (continued) V.77 Statement GASB .ExternalInvestmentPools A. .Externalinvestmentpool- 1. .Has participantsthatareoutside c. Short-terminvestmentssimilar b. For theirlocalgovernments a. up afund investment fundwherethestatesets state of thereportingentity to amoneymarketfund within thestatetoparticipatein .SECRule2(a)(7) B. .Without theGASBissuing 3. Thereasontherequirementsunder 2. SEC’s Rule2(a)(7)-essentiallythe 1. .Governmentscancontinuewiththat 4. .Would bereportedat fairvalue b. .Theseinvestments wouldno a. standard Kind ofmodeledonmutual a. that rulearechangedorgoingaway reason forthenewstandard that arespecifiedinthestandard accounting iftheymeetthecriteria longer bereportedatcost Allowedthingstobe carried ii. Whereone-dollarvalueper i. funds .WhichtheGASBdidn'twant i. at amortizedcost share wasthedriver 1–5

GOVT/NFP/VOL. 2016 – NO. 1 1–6

Outline (continued)

VI. Pension Standard A. GASB Exposure Draft "Pension C. Required Supplementary Information Issues" 1. Employee may have payroll or 1. Guidance in statements 67 and 68 salary that's not earning them brings both good news and bad pension benefits news 2. Old standards would have the entire a. Easier to compare health of salary presented in the schedule pension funds among 3. New requirement would be that it's governments just the covered payroll b. Made many governments’ long- D. Deviation from Standard of Practice term finances appear in worse shapethan their current balance 1. GASB standards require that the amounts calculated by actuaries are 2. GASB recently issued an exposure calculated in accordance with the draft, “Pension Issues,” to address: actuarial standards a. Presentation of payroll-related 2. If the actuary has a deviation from measures in required the acceptable standards supplementary information a. The amounts that they calculate b. Deviations from the guidance in will not be considered GAAP an Actuarial Standard of c. Accounting for payments made E. Employer Payments on Behalf of by an employer to satisfy plan Employees member contribution 1. Sometimes employer makes requirements contributions on behalf of an B. Outgrowth of Standards 67 and 68 employee 1. 67 and 68 were the foundation for 2. Question as to whether those the OPEB standards contributions should be considered employer contributions 2. One applied to pension benefits; one applied to post retirement a. Or should they be considered benefits other than pensions employee contributions 3. Catches up some of the pension 3. Exposure draft says they should be standards to some of what evolved treated as employee contributions as part of the OPEB standard 4. Important for a cost-sharing "With these proposed changes we multiemployer plan will be in good sync in terms of the a. Where unfunded liability is accounting requirements for these allocated among all participating types of benefits." employers - Warren Ruppel outline outline outline outline outline discussion questions discussion questions ru ieOption Group Live Discussion Questions Instructions forSegment .GASB’s1. NewInitiatives:TheMore ThingsChange For additionalinformationconcerningCPErequirements,seepageviofthisguide. l l .WhatconcernsaboutGASB’s role 4. WhatareMr. Ruppel’s observations 3. 2. What istheimpactoflease Whatarethenewrequirements 1. The More Things Change.” The Segment 1.“GASB’s New Initiatives: Show GovernmentSpecialist: accounting.” and pensionliabilitiesaswelllease current guidanceonfinancialreporting evaluates howtheGASBishandling “In thissegment, Warren Ruppel words similartothefollowing: introduce thisvideosegmentwith As theDiscussionLeader, youshould If so,why?not,whynot? article? Doyouagreewiththeauthor? were raisedinarecentCPA Journal feel abouttheexposuredraft? on theexposuredraft?Howdoyou organization (clients)? accounting proposalonour accounting proposal? contained withinGASB’s lease l l .WhatarekeyelementsofGASB’s 7. Whatarethemajorimplicationsof 6. Whyisreexaminingthefinancial 5. 1–19 ofthisguide. transcript ofthisvideostartsonpage evaluation formonpage A–1. After thediscussion,complete and 1–11. objective questionsareonpages1–10 on pages1–8and1– 9. Additional answers toourdiscussionquestionsare developed togeneratediscussion. The questions providedoronesyouhave After playingthevideo,use draft? Ruppel’s observationsontheexposure pension issues? What areMr. and financialreportingguidanceon exposure draftproposingaccounting Investments? Governments MeasureandReport GASB No.77:HowStateandLocal are themajorissuesbeingaddressed? reporting modelatoppriority? What 1–7

GOVT/NFP/VOL. 2016 – NO. 1 1–8

Suggested Answers to Discussion Questions

1. GASB’s New Initiatives: The More Things Change

1. What are the new requirements 4. What concerns about GASB’s role were contained within GASB’s lease raised in a recent CPA Journal article? accounting proposal? Do you agree with the author? If so, l GASB Exposure Draft on Leases: why? If not, why not? Lessee l Concerns Raised in CPA Journal v Liabilities: Record as liabilities Article Related to GASB’s v v Right to Use Asset: Record as Pension accounting approach asset v Presentation of long-term l GASB Exposure Draft on Leases: information Lessor v Period of certification v Present value of lease payments: l Based on participant’s opinion Record receivable v Payments: Record deferred inflow of resources over life of 5. Why is reexamining the financial asset reporting model a top priority? What are the major issues being addressed? l Reexamining the Financial 2. What is the impact of the lease Reporting Model is a Top Priority accounting proposal on our Because It’s organization (clients)? v Pervasive l Based on your organization (clients) v Significant as a standard v Got areas that could use 3. What are Mr. Ruppel’s observations on improvement the exposure draft? How do you feel l GASB Conceptual Framework about the exposure draft? v Modified Accrual Basis of l Ruppel’s Observations on the Accounting to be changed to Exposure Draft Near Term Financial Resources v There may be some minor tweaks Measurement Focus v Otherwise likely to finalized as is l Reexamination of the Financial Reporting Model: Other Issues v Calendar year 2018 implementation likely v Cash flow statements v So now is a good time to start v Statement of activities looking at it v MD&A (Management Discussion v Rules apply to all leases & Analysis) l Based on participant’s opinion suggested answers to discussion questions suggested answers to discussion questions Answers toDiscussionQuestions(continued) .Whatarethemajorimplicationsof 6. Investments? Governments MeasureandReport GASB No.77:HowStateandLocal l v v Investments Pools MeasureandReport Govenments ExternalInvestment GASB No.77:HowStateandLocal of thepool governments thatweremembers Impacts participating pools atamortizedcost continuing toaccountforthese Establishes requirementsfor .WhatarekeyelementsofGASB’s 7. observations ontheexposuredraft? pension issues? What areMr. Ruppel’s and financialreportingguidanceon exposure draftproposingaccounting l l v Guidance onPensionIssues Accounting andFinancialReporting GASB ExposureDraftProposing v v Exposure Draft Ruppel’s Observationon theGASB v v the coveredpayroll Supplementary Information:Just Schedules ofRequired items inthepensionstandards This representsaneffort tofix acceptance quickly withsmoothtrackto Final statementshouldcomeout contributions considered employee employee: Contributions by anemployeronbehalfof Accounting forpaymentsmade standards: NotconsideredGAAP that deviatefromacceptable Amounts calculatedbyactuaries 1–9

GOVT/NFP/VOL. 2016 – NO. 1 Objective Questions 1–10

1. GASB’s New Initiatives: The More Things Change

You may want to use these objective questions to test knowledge and/or to generate further discussion; these questions are only for Group Live purposes. Most of these questions are based on the video segment, a few may be based on the self-study required reading that starts on page 1–12. 1. The major difference between the 4. The CPA Journal editorial emphasized proposed GASB standard and FASB’s that more ______need to be part lease standard is: of the governmental standard setting a) different treatment of short-term process. leases. a) auditors b) the right to use asset is recorded as a b) academics deferred outflow under GASB’s c) state CPA societies proposal. d) government accountants c) GASB plans to take the single approach in terms of leases. d) the GASB standard will be applicable 5. In terms of improving the governmental to lessors only. financial reporting model, Warren Ruppel notes that: a) the primary goal is to reduce the time 2. What does Warren Ruppel want viewers it takes to issue government to understand about GASB’s lease financials. proposal? b) changes will be focused only on the a) Governments will need to examine cash flow statement. renewal periods in order to determine the appropriate lease term. c) GASB will require the reporting of an operating measure. b) Governments will still need to differentiate between operating and d) GASB plans to move towards the capital leases. near term financial resources measurement focus. c) Related party leases will not be subject to the new guidance. d) Conceptual changes to the proposal 6. What was the impetus for GASB are likely to be made. Statement 77? a) Clarification was needed on pension guidance. 3. With respect to the CPA Journal article suggesting that the SEC take over b) Changes were made to the SEC’s accounting for governments, Warren Rule 2(a)(7). Ruppel notes that: c) Improvements were needed to the a) it is advisable because it would allow MD&A for government financials. the SEC to oversee government d) none of the above deficits. b) he would not be a proponent of such a change. c) FASB should set up a mechanism similar to the PCC for government entities. d) the SEC and FASB would do a better job of highlighting financial distress for troubled governments. objective questions objective questions objective questions objective questions Objective Questions(continued) . Whichofthefollowingwouldapplyto 9. AccordingtoDavid Vaudt, GASB 8. Whichofthefollowingdoes 7. )Leaseaccountingwouldapply only d) A deferred outflowofresources c) Interestexpensewouldnot need to b) A deferred inflowofresources a) GASB’s proposedleasestandard? areonlyunderstoodbyseasoned d) aredevelopedthroughalengthy c) causeconfusionbecauseof b) donothighlightfiscaldistress. a) statements: alloftheabove d) employercontributionsonbehalfof c) emphasizingthatactuarial b) clarifyingthat‘coveredpayroll’ a) pension exposuredraftfocuson? to thelessee. would berecognizedbythelessee. be recognizedbythelessee. would berecognizedbythelessor. financial statementreaders. process. standards. differences withpublicsector employee contributions an employeeshouldbeconsidered considered GAAP acceptable standardswillnotbe calculations thatdeviatefrom documentation required supplementary payroll’ shouldbereferencedinthe instead of‘coveredemployee 10. Which ofthefollowingtopicsisNOT 10. )changes toacceptableactuarial d) c) employer’s presentationofnet the effect ofemployer-paid member b) a) audit evidenceforintra-entity regarding pensionissues? addressed intherequiredreading methods position employers contributions onplansand allocations 1–11

GOVT/NFP/VOL. 2016 – NO. 1 1–12

Self-Study Option

Instructions for Segment

When taking a CPAR segment on a self-study basis, an individual earns CPE credit by doing the following: 1. Viewing the video (approximately 30- 3. Completing the online steps 35 minutes). The transcript of this (approximately 35-45 minutes). Please video starts on page 1–19 of this guide. see pages iii to v at the beginning of this guide for instructions on 2. Completing the Required Reading completing these steps. (approximately 25-30 minutes). The Required Reading for this segment starts below.

Required Reading (Self-Study)

RESPONSE TO THE CPA JOURNAL REGARDING GASB- RELATED ARTICLES

By David A. Vaudt, CPA, GASB Chair Naughton and Holger Spamann, June For additional info, go to: www.gasb.org 2015, p.16)—suggests that the time has come to replace those standards with In June 2015, the CPA Journal – a public company accounting rules, an publication of the New York State Society accounting regime not intended for of CPAs – published two articles critical of governments or developed with their the GASB that call for, among other unique circumstances in mind. In the same things, replacement of the Board’s issue, Editor-in-Chief Richard Kravitz calls standards with those set by the Financial for CPAs to insert themselves into this Accounting Standards Board. My matter in order to ensure trust in our response, which was published in the government institutions (Accounting for November 2015 issue of the CPA Journal, State and Municipal Government, p. 8). is presented here in its entirety. CPAs—and, in fact, all state and local The standards issued by the Governmental government stakeholders—should become Accounting Standards Board (GASB) more involved in the standard-setting during the past 30 years have given users process. of governmental financial statements unprecedented insight into how U.S. state We wholeheartedly agree that CPAs—and, and local governments use the money in fact, all state and local government entrusted to them. stakeholders—should become more required readingrequired reading required involved in the standard-setting process. A recent article—“Deficiencies in We also agree that high-quality financial Accounting and Financial Reporting of reporting is essential to fostering trust in State and Municipal Governments” (James our government institutions. We disagree required reading required reading financial statements intheyearsleadingup in “sanitaryoperations.”Moreover, the financial reportreflectsasignificant deficit Alabama’s 2006comprehensiveannual exists. Forexample,Jefferson County, identify situationswheresevere fiscalstress knowledgeable financialstatementusercan and localgovernmentstandards,a business. However, based oncurrentstate because governmentsrarelygooutof looks beyondthegoingconcernliterature— that GASBiscurrentlyresearching fiscal stressshouldbeexplored—atopic agree thattheneedtohighlightsevere in currentgovernmentalstandards. We Spamann citeallegedreportingdeficiencies standards-setting structure,Naughtonand support ofacallforchangeinthe examples presentedinthearticles.In about theroleofGASBstandardsin I’d alsoliketoclearupmisconceptions other users. that informationtocitizens,investors,and it morecostlyorcomplexthanthevalueof unintended consequencesthatmightrender information theyneedwhileavoidingany financial statementuserswiththe done toensurethatastandardwillprovide of astandardpriortoitsissuance. This is have carefullyevaluatedpotentialoutcomes lengthy, GASB’s processensuresthatwe throughout thecountry. While often its stateandlocalgovernmentstakeholders and considerabroadrangeofviewsfrom an independentprocessdesignedtohear standards—GASB setsstandardsthrough to setpubliccompanyaccounting Like FASB—which theSEChasdesignated governments. specifically forU.S.stateandlocal 1984 itcreatedtheGASBtosetGAAP oversees bothFASB andGASB—whenin independent, not-for-profit organization that Accounting Foundation(FAF)—the than threedecadesagobytheFinancial investors. This factwasrecognizedmore taxpayers ratherthantodeliverreturns that theyaredesignedtoprovideservices important ways—nottheleastofwhichis than publiccompaniesinanumberof Governments arefundamentallydifferent standards willachievetheseresults. that adoptingpubliccompanyaccounting results imaginedbytheauthors. course—and wouldnotbringaboutthe preparers, andauditorsisnotanadvisable government financialstatementusers, years ofinputfromstateandlocal have beendevelopedwithmorethan30 their stakeholders.Replacingstandardsthat and enhancegovernments’ accountabilityto statement usersreachinformeddecisions citizens, investors,andotherfinancial standards yieldinformationthathelps improvement, webelievethatGASB While there’s alwaysroom for article andKravitz’s editorial. case notedintheHolgerandSpamann’s clarifications couldbepresentedforeach sector accountingstandards.Similar would havebeenthesameunderprivate assets (notedasareportingdeficiency) to pointoutthatthevaluationofthose company accountingrules.Itisimportant sale toargue infavorofadoptingpublic Kravitz citestheChicagoparkingmeter their stakeholders. and enhancegovernments’ accountabilityto statement usersreachinformeddecisions helps citizens,investors,andotherfinancial GASB standardsyieldinformationthat deficits. significant, growingannualandcumulative to the2011 bankruptcyclearlyreflected 1–13

GOVT/NFP/VOL. 2016 – NO. 1 1–14

WHAT YOU NEED TO KNOW: LEASES

Prepared by the staff of the Governmental • Enhance comparability between Accounting Standards Board governments by using a single Reprinted with permission from “GASB classification for leases, and Outlook” For additional info, go to: www.gasb.org • Provide financial statement preparers and auditors with guidance that is more Leasing is an important activity for many consistent and less complex. state and local governments. It can be a financing option for obtaining access to Key Provisions certain necessary items—including vehicles, heavy equipment, and buildings. The Exposure Draft would apply to contracts that convey the right to use an The GASB issued an Exposure Draft for underlying asset for a period. The lease public comment that proposes to more term would be based on the period during closely align the accounting and financial which a lessee has a right, including reporting of lease transactions with their certain options, to use an underlying asset. economic substance. The Board is proposing a new accounting The GASB issued an Exposure Draft for model for both lessees and lessors that public comment on February 8, 2016, that would eliminate the current and often proposes to more closely align the complex distinction between operating and accounting and financial reporting of lease capital leases. transactions with their economic substance. The Exposure Draft, Leases, is The Board is proposing a new accounting based on the foundational principle that model for both lessees and lessors that leases are financings of the right to use an would eliminate the current and often underlying asset. complex distinction between operating and capital leases. However, short term leases The Leases project was undertaken would be recognized as outflows of because the current leasing guidance resources or inflows of resources, predates the GASB and does not take into respectively, based on the payment consideration the GASB’s conceptual provisions of the contract. A short-term framework, including definitions of assets lease would be defined as a lease that, at and liabilities. As noted in the letter from the beginning of the lease, has a maximum the Chairman’s desk, the Board’s possible term under the contract of 12 deliberations leading to this proposal were months or less. informed by private-sector requirements that recently have been reexamined by the Lessee governments would report the Financial Accounting Standards Board following about leases (except short-term (FASB) and the International Accounting leases) in their financial statements: Standards Board (IASB). • An intangible lease asset that Intended Benefits represents the government’s right to use the underlying asset The Board’s proposals would: • A corresponding lease liability • Provide financial statement users with better information to assess the • Amortization expense related to the obligations and costs related to a lease asset, and required readingrequired reading required government’s leasing activities and the impact of those activities on the • Interest expense related to the lease financial statements liability. required reading required reading A receivablefortherighttoreceive • statements: following aboutleasesintheirfinancial Government lessorswouldreportthe information that isneededformaking appropriately andtoresultin the guidance continuestofunction guidance andconsiderswhether that The GASBperiodicallyreexamines its Reportingnon-leasecomponents • Sale-leasebackandlease-leaseback • Leaseterminationsandmodifications • Draft include: Other issuesaddressedintheExposure payments. that alessorwillnotreceiveitslease disclosures forlessorsalsofocusontherisk timing ofleasepayments.Proposed for lesseesaddressthenature,amount,and Proposed notestothefinancialstatements available, overtheleaseterm. deferred inflowsofresourcesasrevenue,if receivables andrecognizetherelated obligation debt.Lessorswouldreport consistent withtheprinciplesforgeneral Lessees wouldreportleasepayments about leasesinthegovernmentalfunds. existing guidanceforreportinginformation The ExposureDraftcarriesforwardthe Interestrevenuerelatedtothe • Leaserevenuesystematicallyoverthe • A correspondingdeferredinflowof • Accounting forLeases? Improvements to Why IsGASBProposing payments service agreements. embedded inleasecontracts,suchas transactions, and receivable. term ofthelease,and resources Standards Board(IASB). (FASB) andtheInternational Accounting the Financial Accounting StandardsBoard those standardshavebeenreexaminedby primarily onprivate-sectorstandardsand The currentleasesstandardsarebased liabilities. including definitionsofassetsand the GASB’s conceptualframework, GASB anddonottakeintoconsideration the currentleasesstandardspredate The Leasesprojectwasundertakenbecause accountability. decisions andassessinggovernment Providefinancialstatementuserswith • Statement, would: Draft, ifultimatelyreflectedinafinal The Board’s proposals in theExposure timing ofleasepayments.Proposed for lesseesaddressthenature, amount,and Proposed notestothefinancial statements available, overtheleaseterm. deferred inflowsofresourcesasrevenue,if receivables andrecognizetherelated obligation debt.Lessorswouldreport consistent withtheprinciplesforgeneral Lessees wouldreportleasepayments Providepreparersandauditorswith • Enhancecomparabilitybetween • on LeasesYield? Issuance ofNewStandards What BenefitsWould the activities onthefinancialstatements activities andtheimpactofthose and extentofagovernment’s leasing better informationtoassessthenature leases. guidance tofollowwhenreporting more consistentandlesscomplex and term” leaseslasting12monthsorless), exceptions (mostnotablyfor“short- classification forleases,withlimited governments byusingasingle 1–15

GOVT/NFP/VOL. 2016 – NO. 1 1–16

disclosures for lessors focus on the risk that GASB also will be conducting a public a lessor will not receive its lease payments. hearing in San Francisco on June 29, 2016. What’s Ahead? Information about how to provide comment to the GASB or notify the Board of your As always, sharing your views with the intention to participate in the public hearing Board is a critical element of this project. can be found at the front of the Exposure The deadline for submitting comments on Draft. the Exposure Draft is May 31, 2016. The

EFFECT OF EMPLOYER-PAID MEMBER CONTRIBUTIONS ON PLANS & EMPLOYERS

Excerpted from an article by the State and • Audit evidence on intra-entity Local Government Expert Panel (SLGEP) allocations. Reprinted with permission of the American Institute of Certified Public Accountants The following sections reflect the For additional info, go to: www.aicpa.org discussions of the AICPA’s State and Local Government Expert Panel (SLGEP) on Introduction and Purpose these pension-related inquiries and are intended to build awareness and assist With the implementation of Governmental auditors in recognizing and addressing Accounting Standards Board (GASB) these issues. Statement No. 68, Accounting and Financial Reporting for Pensions, the November 2015 Update AICPA has received a number of inquiries. This article includes a summary of the Readers of the article below should be more significant issues that have been aware of recent Governmental Accounting raised and provides related discussion for Standards Board (GASB) developments on plan auditors and employer auditors to employer-paid member contributions. Upon consider. issuance of the article, GASB received a number of inquiries which provided them Issues addressed in this article include: with more information on the depth of the issue. As a result, the GASB began • Accounting for a change in proportion addressing the treatment of employer-paid and audit evidence on beginning net member contributions as part of a GASB pension liability in the initial year of project that was already underway titled, implementation for employers Pension Benefit Issues. participating in cost-sharing plans (cost- sharing employers); At its October 26, 2015, meeting, the GASB discussed potential changes in • Effect of employer-paid member accounting for employer-paid member contributions on plans and employers; contributions and formed the following tentative conclusions: • Additional illustrative schedule of pension amounts by employer for cost- • Contributions should be classified sharing plans; by pension plans in a manner consistent required readingrequired reading required with the designation as an employee or • Employer’s presentation of net position; employer contribution pursuant to the pension plan terms. • Allocation of pension amounts to funds and departments; and required reading required reading opening balance). as ofthebeginningyear (i.e.,the 2013) todeterminethenetpension liability the endofprioryear(e.g., June30, allocation percentagefrom the planasof 2014). Thus, theemployer requiresits period (e.g.,fortheyearendedJune30, proportion fortheinitialmeasurement the employershouldreportachangein paragraph 54ofGASBStatementNo.68, implementation. Inaccordancewith pension liabilityintheyearof proportionate shareofthecollectivenet calculating achangeintheemployer’s provisions ofGASBStatementNo.68for There isnoexclusioninthetransition Sufficient appropriateevidenceshould • Cost-sharingemployersshouldreport • implementing GASBStatementNo.68: reminded thatintheinitialyearof Auditors ofcost-sharingemployersare paid membercontributions. plan andemployeraccountingofemployer- GASB projecttodeterminetheeffects on meantime, readersshouldfollowthis standard scheduledforMarch2016.Inthe issued onDecember7,2015,withafinal An exposuredrafton“PensionIssues”was Expenseforamountspaidbythe requirements shouldbeincludedinsalaries. employer tosatisfyemployeecontribution • Implementation Year Proportion inthe Accounting foraChangein Pension Liability Evidence onBeginningNet Proportion andAudit Accounting foraChangein period. the beginningofmeasurement the collectivenetpensionliabilityasof the employer’s proportionateshareof be obtainedbytheemployerauditoron proportion); and collective pensionamounts(changesin changes intheproportionateshareof financial statements. would beimmaterialtotheemployers’ allocation thatoccurredduringtheyear auditor concurs)thatanychangesinthe employer determines(andthe beginning andendoftheyearif the sameallocationpercentagesfor may beappropriateforemployerstouse beginning balances.Insomesituations,it not atransitionadjustmentaffecting represents activityduringtheyearandis However, thechangeinproportion beginning oftheperiodimplementation. related topensions,asapplicable,atthe resources anddeferredinflowsof amounts ofalldeferredoutflows that itmaynotbepracticaltodeterminethe guidance inparagraph137acknowledges 137 ofGASBStatementNo.68. The with thetransitionprovisionsinparagraph proportion intheyearofimplementation resources resultingfromthechangein outflows ofresourcesordeferredinflows have confusedtherecordingofdeferred GAQC, itappearsthatsomeemployers Based ontheinquiriesreceivedby to similarschedules previously pension liability. This wouldbeinaddition employer allocationsandon thetotalnet assurance andreportonthe scheduleof auditor isengagedtoobtain reasonable end (e.g.,June30,2013)for whichtheplan pension liabilityasoftheplan’s prioryear employer allocationsandascheduleofnet plans prepareanadditionalscheduleof of implementation,itisrecommendedthat employer’s netpensionliabilityintheyear evidence ontheopeningbalanceof employer auditor’s needtoobtainthis pension liability. To accommodate the employers, forthefirsttime,toreportnet Statement No.68requirescost-sharing current period’s financialstatements.GASB misstatements thatmateriallyaffect the whether theopeningbalancescontain sufficient appropriateauditevidenceabout Engagements, requirestheauditortoobtain Opening Balances-Initial Audit The guidancein AU-C section 508, Implementation Year Liability inthe Beginning NetPension Audit Evidenceon 1–17

GOVT/NFP/VOL. 2016 – NO. 1 1–18

recommended by the AICPA that the plan Employer’s Presentation of prepares as of its current year end (e.g., June Net Position 30, 2014) and that the plan auditor is engaged to opine on. Said another way, the cost- Employer auditors are reminded that sharing plan solutions communicated in unrestricted net position should not be Appendix B, Governmental Employer disaggregated to present separate components Participation in Cost-Sharing Multiple- on the face of the statement of net position. Employer Plans: Issues Related to Upon adoption of GASB Statement No. 68, Information for Employer Reporting, of many governments will report a negative Chapter 13 of the 2015 AICPA Audit and unrestricted net position based on the Accounting Guide, State and Local recognition of a relatively large net pension Governments (SLG Guide), would be applied liability. Given the related effect on many for the year prior to implementation, as well governments’ net position, there have been as the actual year of implementation. questions about whether a government may display a separate pension component of Unlike the current year schedule of pension unrestricted net position (deficit) on the face amounts described in Appendix B of the SLG of the financial statements. Because the Guide, the recommended schedule of net unrestricted net position is a residual balance pension liability as of the plan’s prior year- that results from the cumulative inflows and end does not need to include deferred outflows since the inception of the outflows of resources, deferred inflows of organization, a deficit unrestricted net resources, and pension expense. This is position cannot be attributed to any one because paragraph 137 of GASB Statement individual liability or expense and thus, be No. 68 does not require employers to reported in the aggregate. However, Q&A determine these amounts prior to the year of 7.23.10 of the GASB’s Comprehensive implementation. In lieu of preparing a Implementation Guide provides guidance that separate schedule of net pension liability for a government may disclose additional details the prior year, the plan may add an additional of unrestricted net position in the notes to the column to the current year schedule of financial statements or in MD&A. pension amounts that includes the net pension liability as of the end of the prior year for Allocation of Pension which the plan auditor is engaged to opine. Amounts to Funds and Without the plan addressing the opening Departments balances as described above, it is unlikely that the employer auditor could meet the Although net pension liabilities will not be requirements of AU-C section 508. Some recorded in governmental funds, employer have asserted that the recommended approach auditors are reminded that pension amounts is not necessary as the plan auditor has, in should be allocated to proprietary and essence, substantiated the beginning net fiduciary funds based on the amounts that the pension liability because they have audited funds are expected to pay, either directly or the current year schedule of pension amounts, indirectly (e.g., through a fringe rate which includes ending net pension liability reimbursement), in future periods. The and the changes in net pension liability guidance on this issue resides in paragraph 42 (NPL) for the year (i.e., Ending NPL + of National Council on Governmental Decreases in NPL – Increases in NPL = Accounting (NCGA) Statement 1, Beginning NPL). However, because the Governmental Accounting and Financial increases and decreases in net pension Reporting Principles, as amended, which liability are based on the measurement of net requires that long-term liabilities that are pension liability at the beginning and end of “directly related to, and expected to be paid the year, additional evidence that supports the from” those funds be reported in the beginning net pension liability and its statement of net position or statement of required readingrequired reading required allocation to the employers is necessary. fiduciary net position, respectively. Note that NCGA Statement 1 is considered in the GASB’s hierarchy of generally accepted accounting principles (GAAP) as Category A level GAAP and thus must by applied by the government. video transcript video transcript Video Transcript .GASB’s1. NewInitiatives:TheMore ThingsChange UPL Well, itdid,Mike.It’s probablyoneofmyfewaccuratepredictions RUPPEL: A fewyearsago, Warren, youtoldmethatGASB’s projectonleasing Oh,itisgreattobehere,Mike. Thank you. QUINLAN: RUPPEL: With the answertothatquestion–andmanyothersisourregular QUINLAN: Well, whenitcomestoaccountingforleases,lookslikethestandard SURRAN: credit foritanyway. sector standard.So,thatwas kindofaneasypredictionbutI'lltake distinguish itasagovernment accountingstandardversusaprivate whatever changestothestandard thattheyfeltwouldbenecessaryto FASB project toseewheretheyweregoingcomeoutandthen make but, yeah,madealotofsense fortheGASBtokindofstaybehind be anincrediblyaccurateprediction,didn’t it? standard ofleaseaccountingwasreadyforissuance. That turnedoutto activities waslikelytostay“onthebackburner”until FASB’s Governments. Thanks forjoiningusagainthisquarter, Warren. of MarksPaneth,aswelltheauthor Wiley’s GAAP for expert commentatorinthisarea: Warren Ruppel,apartnerinthefirm government preparersandauditors? data. Butwilltherebeincreasedcomplexityforstateandlocal Yes, userswouldliketoseegreater transparencyandusefulnessof that leasesarefinancingsoftheright-to-useanunderlyingasset. governments toreportleases. The proposalisbasedontheprinciple issued aproposaltoestablishsingleapproachforstateandlocal And justrecently, theGovernmental Accounting StandardsBoard accounting forleases? So, thequestionthat’s being askedis:whatwillGASBdoon statements. income statements,ratherthaninthefootnotestotheirfinancial to reporttheresultsoftheirleasedealsonbalancesheetsand So far, standardsfromFASB andtheIASBwouldrequire companies an organization’s leasingactivities. financial statementstohaveacompleteandunderstandablepictureof Because oftheprevalenceleasing,itisimportantforusers airplanes, trucks,ships,andconstructionequipment. ownership. Manyorganizations leaseassetssuchasrealestate, financing, andreducinganorganization’s exposuretotherisksofasset governmental. Itisameansofgainingaccesstoassets,obtaining organization –whetheritisprofit-making,not-for-profit or Of course,leasingisanimportantactivityforalmostevery 2016. would beissuedinthenextmonth-byendoffirstquarter same time,theFASB hasconfirmedthatitsleaseaccountingstandards Standards Boardhasissueditsguidance–IFRS16lastmonth. At the Launching anewerainleaseaccounting,theInternational Accounting setters are“one-down,”“one-on-schedule,”and“oneto-go.” 1–19

GOVT/NFP/VOL. 2016 – NO. 1 1–20

QUINLAN: Currently, we’ve got criteria that identify whether a lease should be in the “operating” or the “capital” category. So, what happens in the proposed “single approach”? RUPPEL: Well, the single approach that the GASB is proposing in its exposure draft really is a little bit different from the private sector approach that the FASB standard has come out with. Right now on both sides, we have capital leases and operating leases. The FASB standard still maintains some of their complexion of operating and capital lease, whereas the GASB kind of got away from that and said we're just going to treat all leases pretty much the same. So, the single approach is really kind of a major difference between the proposed GASB standard and the FASB. QUINLAN: So, I guess the question is: to what extent is the guidance now finalized by FASB appropriate for governments? Or will it need extensive modifications? RUPPEL: Well, I think that the single approach will be the most significant modification. I don't think you're going to see too many more modifications after that. The big concept with these standards is your obligation under a lease is pretty much the same as it is under a loan. So, the leases are really ways to finance use of an asset. So, right now, under current standards, the liability that you incur under a lease is not recorded on your books whereas a loan it would be. So, both of these standards really force you to record that liability on your books. QUINLAN: Let me give you a “for instance.” I think, in the FASB world, there is a straight-lining of rent expense. How would that work in the governmental sector? RUPPEL: Well, in the governmental sector now I always felt the GASB standards made a little more sense than the FASB standards because the only thing you straight-lined was when you had a major free rent period or buildout allowances etc. that would be amortized over the lease. In FASB world you would straight-line everything including normal operating increases year to year. So, I never really conceptually liked the FASB approach. I liked the GASB approach better. It kind of becomes moot under the proposed standards because the liability that's recorded is going to be the present value of the lease payments and that's going to be offset by right to use asset and the straight lining concept is kind of built into that calculation at the same time. QUINLAN: Let me ask you a basic question, Warren. Is there a possibility that leases won’t even meet the definitions of “assets” and “liabilities” from GASB’s conceptual framework that you told me about a few years ago? RUPPEL: Well, it's a little surprising because when you think about deferred inflows and deferred outflows, you kind of think of them as soft assets but if you read the conceptual framework, that's really not what they are. So, it looks in the exposure draft that the liabilities will be recorded as liabilities. The right to use asset which one might think would be a deferred outflow, that's really recorded as an asset. So, that's a little bit surprising. The only time a deferred inflow of resources is going to come into play is when a lessor video transcript video transcript records the receivable bill for the present value of the lease payments it’s going to receive. Their offsetting credit is going to be deferred inflow of resources and they're going to recognize that over the life of the lease or the life of the asset. QUINLAN: Another basic question about the reporting in financial statements: would it be done by the landlord/lessor, by the tenant/lessee, or by both? video transcript video transcript UPL Well, Idon'tthinkit'sgoingtohave muchcontroversyorcriticism RUPPEL: Sinceyourcrystalballwassoclearonthissubjectthelasttime, Warren, QUINLAN: Well, Mike,we'vetalkedconceptuallyhowthestandardworks. A lotof WhathaveIoverlooked? What otheritemsarelikelytobesignificant? RUPPEL: QUINLAN: Yes itdoes,Mike.It'snotextensiveguidancebutwhattheexposuredraft RUPPEL: Mytownhasabuildingthat’s nolongerusedformunicipalpurposes.In QUINLAN: Well, Mike,it’s goingtobedonebyboth.So,it'skindoftheaccounting RUPPEL: terms ordisclosures oretc.? Yeah maybe there’ll beroomforchanges change. Canthey tweaksomeofthefactors thatareconsideredforlease and nowthegovernment'sgoing thatway. So,Ithinkthat'snotgoingto international standardshave gonethatway, theFASB isgoingthatway go alongwithrecordingthe liabilityinarighttouseasset.Imean,the I thinkconceptuallythereis nowaythattheGASBisnotgoingtokindof because itisalittlebitmore straightforwardthantheFASB standard and engender somecontroversyandcriticism? let measkyou:Isthisprojectnowonthefast-track? And isitlikelyto the variousleaseagreementsthattheyhave. standard andreallyunderstandinghowtoapplythosetypes ofconceptsto governments andtheauditorsrequirethemtohavetime toimplementthe So, divingintoallthosedetailsisreallywhat'sgoingto cause renewal periodaspartoftheleaseterms. and ifit'sreasonablycertainthatitwillberenewed,then youconsiderthe they haveaconceptofreasonablycertainthatit’s goingtoberenewed consider whicharelaidoutintheexposuredraft?Quicklyforarenewal termination clauses? What's theconcept? What factorsdoyouneedto statements. So,doyouconsiderrenewalperiods?Do important becauseyou'reactuallyrecognizingamountsinthefinancial consider intermsofwhatistheleaseterm.Nowitbecomesmore the devilisindetailssotospeakwherethere'sthingsyouneed specifically saysyoucan'tdothat. standards wouldn’t apply.” You can'tdothat.GASB’s proposedstandard term 11 monthsandweknow we'regoingtorenewitsothatthese “Okay, we'regoingtohaveafive-yearleasebutwe’remake the So, becauseyouhavearelatedparty, youcan'tdothewinkandsay term leaseslessthanayearareexemptfromtheserequirements. you'd havetodotheaccountingthatwe'vebeentalkingabout.Short- need totreatitasaleaseandassumingthattermismorethanyear, So, they'rebasicallysayingifyouhavealeasewithrelatedparty, you or amonth-to-monthleasetokindofgetaroundtheproposedstandard. term lease,theexposuredraftsaysyoucan'ttreatitasashort-termlease says isifyouhavealeasetorelatedparty, let’s sayit’s reallyalong- proposal includeguidanceonissuessuchasrelatedpartyleases? building isusedbyaso-called“relatedparty”:thetownlibrary. Doesthe building isusedbyanot-for-profit day-carecenter, andpartofthe fact, it’s leasedoutandgeneratesrentalincomeforthetown.Partof kind offitsinnicelywithwhatthatcreditsideentrywouldbe. used overaperiodoftime.So,inthatsensethedeferredinflowconcept They areinflowsthatgoingtobereceivedoveraperiodoftimeand If youthinkaboutit,itkindofmakessensewhatadeferredinflowis. will recordthereceivableforleasepayments,again,atpresentvalue. asset aswelltheliabilityforleasepaymentsandthenlessor can bethemirrorimagealmost.So,lesseewillrecordarighttouse 1–21

GOVT/NFP/VOL. 2016 – NO. 1 1–22

there but I think pretty much conceptually this exposure draft is going to go through the way it is and we're looking at like a calendar year 2018 implementation schedule. So, you have a little bit of time but not all that much time to do all the research on the various leases that you have, get their lease terms, do calculations, etc. So, we've known about this, this has been coming for a long time. Until you actually knew what the standards were, most governments probably haven't really started to think about implementation. But now, even though it's still an exposure draft, it is definitely the time to start looking at this. Mike, one thing to keep in mind: we think about leases and we think about buildings or large assets but we're talking about all leases. So, if they are vehicle leases, if there's copier leases, if there's this telephone leases, etc. or software or IT hardware, all these leases need to be considered. So, it's a pretty comprehensive undertaking that government's going to have to endeavor on. QUINLAN: Speaking of controversy and criticism, let me raise another issue with you, Warren, that concerns the GASB’s relationship with the FASB. There was a recent article and editorial in The CPA Journal, suggesting that the time has come to replace government accounting standards with the public company accounting standards, known as U.S. GAAP. This isn’t the first time that we’ve heard this suggestion, is it? RUPPEL: No, it’s not, Mike, and I think if you look at the article, at the end really what the authors proposed are that the SEC take over the accounting for governments similar to how they oversee accounting for public companies. And that old argument has always been made because I think it's $3.5 trillion of debt that's outstanding by governments and it's a lot of money and the SEC can't directly supervise that, it's not legal for them to do that right now. They do it indirectly by their control over the underwriters essentially in terms of disclosures but they have no direct responsibility. Mike, you may know that the SEC, in something that is called the Municipal Securities Rulemaking Board that's overseen by the SEC, and they monitor the activities of underwriters etc. and the one way they can kind of influence government accounting is by the disclosures. There's been charges brought by this board that in some instances the disclosure documents that governments published weren't adequate to really enable the user to assess the financial condition of the government. So, they opened up a safe harbor period and said “Okay, if you've had problems in the past, we're going to give you a period time to come clean and correct them and, you know, disclose deficiencies in reporting. We're not going to penalize you.” Once that period ends, then they're going to look to really beef up the enforcement of that. So, it has government debt issuers a little bit nervous on that but it's really not addressing the accounting per se. It's really addressing the overall disclosure that's included in the official statements that are issued when the government issues debt. QUINLAN: On the one hand, governments are fundamentally different than public video transcript video transcript companies in a number of important ways. But on the other hand, there is now a mechanism – through the so-called Private Company Council – to establish GAAP “alternatives” for private companies. Would it make sense to just establish a similar body to develop alternatives to U.S. GAAP for state and local governments? video transcript video transcript UNA:TheCPA Journaleditorial urges accountants tobecomemoreinvolvedin QUINLAN: Well, thepremiseofarticleisthatsomehowgovernmentfinancial RUPPEL: Thatmakes sense, Warren. Butwhat abouttheexamplescitedby QUINLAN: Well, Iguessit'sanoption,Mike,butitwouldbesomethingthatreally RUPPEL: a laudable“call toaction,”isn’t it? standard setting processinparticular. Inthiselectionyear, that’s certainly the standardsettingprocess ingeneral,andfindingwaystoimprovethe bad aswhatthearticleportrayed ittobe. improvements tothereporting model? Absolutely butIdon'tthinkit'sas there's someinaccuraciesand there'ssomeexaggerations.Couldtherebe It's reallythesamestandardinprivatesectorand government.So, case, andthearticlesays“Well, ingovernments,it'sonlyayear.” recertifying thattheentitywillcontinuetoexistinperpetuity, that'snotthe aren't true. There's astatementthatintheprivatesectorauditoris information isthereandsomeofthethingsthatarecovered justreally well, itdoesn'tgiveyouanylong-terminformation.So, Ithinkthe And thensometimestheylookatthemodifiedcashstatements andsay, are notcashbasisbutmodifiedaccrualisclosertocash. but onthegovernmentsideyoudohavefundfinancial statementsthat long-term informationthat'sprovidedandit'snotcash flow information And alsoifyoulookatthearticle,sometimestheycomplainthatthere's world. So,Idon'treallyunderstandthat. don’t dothatintheFASB world. It’s alittlemoreseverethantheFASB sharing employerstorecordasliceoftheirliabilityonbooks. You accounting approachandhasgonefurtherthantheFASB byrequiringcost pension accountingwhereGASBhasjustremodeledthewhole heartache. Ithinkifyoulookattheexamplesinarticle,theytalkabout and committospendtoomuchmoneythatcausesthemfinancial aside, it’s nottheaccounting. It'sthefactthattheyspendtoomuchmoney way gooutofbusinessatalotlowerratethanpubliccompaniesbutthat reporting iswhatforcesgovernmentstogooutofbusinesswhichbythe statements? adequate jobofhighlightingseverefiscalstressforusersthose article andtheeditorial?Dogovernmentfinancialstatementsdoan article. practice inthefield.Idon'tseealldeficienciesthatwerenoted talking aboutbeingsonegative.Idon'treallyseethatbypeople little bitsurprisedthatthekindoftonearticlewe'vebeen improvements ingovernmentfinancialreportingwhichiswhyIwasa reporting modelbutforthemostparttheyreallymadealotofgood outflows ofresourcesandyoucouldcomplainaboutotheraspectsthe complained aboutafewthingslikethedeferredinflowsand governments report,theywerereallynotthatgood.So,theGASB,I financial statements,therewasquitealotofflexibilityinwhat If yougobacktomid-1970sorwhateverandlookatasetofgovernment GASB hasreallyimprovedthefinancialreportingmodel. figure outwhatgovernmentaccountingstandardswereandIthinkthe standards inthebackgroundandyouknowitwasverydifficult toreally Government FinanceOfficers Association, the AICPA, youhadFASB GASB anditwasveryconfusing. There weredifferent bodies,the kind ofhavethesensewhataccountingrulemakingwaspriorto probably shouldn’t admititbutI'vebeendoingthis longerthanthatandI wouldn't beinfavorofbecausetheGASBwascreated1984andI 1–23

GOVT/NFP/VOL. 2016 – NO. 1 1–24

RUPPEL: Absolutely. I mean, I do think the GASB listens to the comment letters that it gets. It may not change conceptually from what they're doing but a lot of times comment letters point out problems that governments would have in implementation or it may be inconsistencies or things that the GASB hasn't thought about. So, I think there's a great place for folks to participate in, not just the auditors. I know a lot of the large firms issue comment letters, a lot of the state CPA societies issue comment letters, academics issue comment letters but it's important for them to hear from governments themselves also as to how the standards impact them and what practical issues that should be taken into consideration in writing the standards. So, the more the merrier basically is my advice in terms of folks commenting on proposed GASB standards because even though they may change them, they may bring some tweaks that are helpful to people in applying them. QUINLAN: Thanks, Warren. We’ll return to your commentary in a minute. SURRAN: The Governmental Accounting Standards Board is now considering how to improve the governmental financial reporting model: the blueprint of state and local government financial statements. Issued in 1999, GASB Statement 34 set the contents of today’s financial statements in place today by: One, ushering in important innovations to general purpose external financial reporting; and Two, making it possible to more fully assess a government’s overall financial health. Once Statement 34 was implemented, the users of financial statements had access to a comprehensive, big-picture view of a government’s financial health, along with information that would allow them to better assess how much it costs each year to provide services. QUINLAN: In the same way that our viewers viewed lease accounting as a long-range project of GASB that’s been moved to the front burner, Warren, let me ask you about another of the Board’s agenda items: how to improve the governmental financial reporting model. I’m curious: why have stakeholders, including the Governmental Accounting Standards Advisory Council, ranked reexamination of the financial reporting model as a “top priority” agenda item? RUPPEL: Well, Mike I think it's a high priority for a few reasons. One is that it's pervasive. So, it's the face of the government financial statements. It's a very significant output from the GASB in terms of a standard and believe it or not it was issued in 1999. So, it's over 15 years old and this process will take a while to get through. So, it's been out there for a while and I think it's important to look at it. And there are certain areas that I think people realize kind of could use some improvement and I think they're anxious to get those improvements video transcript video transcript done. QUINLAN: On several occasions, you’ve explained to me what the “modified accrual basis of accounting” actually means. Is this an opportunity for GASB to assess how that modified accrual basis is actually used by governments and whether it’s understood by users? video transcript video transcript UPL Well, thereareanumberofareas.It'sbecomelittlebitobviousthatit Remindme, Warren,RUPPEL: what otherissuesarelikelytobeaddressedaspartof QUINLAN: Well, Iwouldliketosayyesthat,Mike,butingoodconsciencecan't. RUPPEL: Onpreviousprograms,we’vediscussedthetimeliness–orlackof QUINLAN: Well, Mike,Ithinkyoukindofreallyhitthenailonheadinterms RUPPEL: considering requiring MD&A fornonprofits. They lookedatthe When theFASB waslookingatnonprofitaccounting,theywere information intotheMD&A. not justthattheywentupand down.So,bringingmorequalitative requirements intermsofreally discussingwhythingswentupanddown, of theindividualstatements arebutalittlemoreguidanceand financial statements.Maybewedon'tneedtoexplainwhat thepurposes And someoftheboilerplatewasrequiredbyGASB toexplainthe become very, veryrote,it’s become veryboilerplate. information inthefinancialstatementswhichIthinkis goodbutit's that GASBhasalittlebitpioneered,ismakingitrequired supplemental And MD&A (ManagementDiscussion& Analysis), MD&A issomething something thatthey'lltakealookat. Whether agovernmentreportsanoperatingmeasureor not,Ithink,is take alookatthat.I'mnotsurepeoplereallyfindthat very useful. with theexpensesandkindofdeductrevenues,Ithink, they'regoingto look at. Also theformat ofthestatementactivitieswherewestartout statement requirement.So,that'ssomethingIthinkthey'regoingtotakea The governmentwidefinancialstatementsdon'thaveacashflow probably needssomeimprovement.Forinstance,cashflowstatements. the model’s reexamination? going tocutdownontheamountoftimeittakespreparestatements. less complexafterthemodelislookedat.So,Ireallydon'tthinkit's timelines ofthefinancialstatements.Idon'tthinkthey'regoingtogetany government reportingentities,that'swhat'sreallygoingtodrivethe large government.So,Ithinkwhateverthelocalsituationsarefor Statements werealwaysdonewithinthefour-month periodforavery has tobedonebyOctober31st,they’reaJune30thyear-end, fourmonths. including itscomprehensiveannualfinancialreport. There’s astatelawit involved inNew York City'spreparationofitsfinancialstatements have. Idon'tthinkit'sreallythereportingmodelitself.usedtobe statements isbaseduponwhateverlegalorcontractualrequirementsthey I thinkthattheamountoftimeittakesgovernmentstoissuefinancial reduce thetimeittakestoissuefinancialstatements? the reexaminationofreportingmodelcouldsuggestchangesthatmight timeliness –ofgovernmentfinancialstatements.Isthereapossibilitythat accrual andcomprehensivefinancialresourcesmeasurementfocus. to thegovernmentalfundfinancialstatementsbylookingatmodified at thiswholereportingmodelandifwe'regoingtomakeamajorchange that's causingtheGASBanditsadvisorycounciltosay“Let’s takealook reporting model.So,Ithinkthat'skindofonetheimportantdrivers wouldn't besurprisedifit'stweakedalongwiththechangesin focus. So,themodifiedaccrualaccountingisgoingtobetweakedandI that tosomethingcalledtheneartermfinancialresourcesmeasurement accrual basisofaccountingandthey'reprobablygoingtomovechange GASB, asparttheirconceptualframeworkthey'relookingatthemodified what aretheimportantaspectsoflookingatreportingmodel. The 1–25

GOVT/NFP/VOL. 2016 – NO. 1 1–26

government model and they looked at what governments were reporting and then basically had come to the conclusion that “This really isn't worth it. We're not going to choose to require it.” So, I think that's another area available that will be looked at. QUINLAN: Unlike the situation with lease accounting, it’s not as if GASB wants to conclude its deliberations right after the FASB. So, I suppose, the examination could take another half-dozen years, couldn’t it? RUPPEL: Yes it could, Mike. If you look at the GASB's technical plan, they're going to plan to do a preliminary reviews document of this and get comments. So, their schedule for voting on a ballot draft of a final statement is for May 2021. So, that's a little bit far in the future and I'm sure if they make significant changes, they'll be a long implementation time period. So, this is something that’s going to be worked on for a long period of time and we'll be talking about this quite a bit in the future. QUINLAN: A few minutes ago, in a different context, you mentioned the idea of CPAs becoming more involved in the standard setting process. I noticed that GASB announced the appointment of a financial reporting model task force to assist with the process. Are you surprised that the membership includes a number of active and retired auditors from government and private practice? RUPPEL: Well, I'm not surprised. I think that's a good group of people to have involved because auditors tend to see a lot of different governments in a lot of different situations. People that work in government, they're seeing their situation and they're not seeing it as broadly but I think you really need both because the auditors aren't diving into implementation necessarily as hard as some of the government financial statement preparers are. So, they're taking a deeper look whereas the auditors have a broader look. So, I think you need both perspectives there and I think there's some academics, there’s some government auditor type folks. I looked at the list. I think it's a pretty good cross section of people to have as a resource for the GASB to use. QUINLAN: Every quarter, Warren, you inevitably comment on final guidance that GASB has issued. And this program is no different: there is a new final statement – No. 79 - on how state and local government external investment pools, as well as the participants in those pools, measure and report their investments. Before we go any further, please tell me: what exactly is an “external investment pool”? RUPPEL: Well, Mike, an external investment pool is an investment fund basically where a lot of times the state will set up a fund or municipalities, they have short-term investments similar to a money market fund that they want to put on deposit with the state. They set up the fund for their local governments within the state to participate in. What makes it an external fund is that it has participants that are outside of the reporting entity of the state. So, the state sets it up but you have governments outside of the state’s reporting entity that can invest in the fund. QUINLAN: Until now, the GASB literature in this area made a reference to the SEC’s video transcript video transcript Rule 2(a)(7). Is that essentially the reason for the new standard? RUPPEL: That's exactly the reason that those requirements under that rule are basically changed or going away and it was kind of modeled on mutual funds where one-dollar value per share was kind of the driver and it allowed things to be carried at amortized cost. So, without the GASB video transcript video transcript UPL Yes itis,Mike.Ifyouremember, 67and68werethefoundation forthe RUPPEL: So,we’vegotanewGASB exposuredraft,proposingaccountingand QUINLAN: No,pensionsandOPEBhavebeenatopicthathasjustverycurrent Well,RUPPEL: Warren, itwouldn’t beaquarterlyprogramwithoutdiscussionof QUINLAN: Aswe’vediscussedpreviously, theGovernmental Accounting Standards SURRAN: OPEB standardsthatcame out –sameconcept,verysimilarstandards,one natural outgrowthoftheimplementation ofstandards67and68? financial reportingguidance onpensionissues. To whatextentisthisa been intermsofGASBactivity. standards implemented,weshouldseethisareakindof calmdownalittle So, Ithinkthat'salittlebitencouraging.Oncewegetthese OPEB where we'redoingfinetuningasopposedtosome majorchanges. for alongperiodoftimeandIthinkwe'refinallygetting tothepoint some topicrelatedtopensionbenefits,OPEB,or liability, wouldit member contributionrequirements. Three, accountingforpaymentsmadebyanemployer to satisfyplan and Two, deviationsfromtheguidanceinan Actuarial StandardofPractice; information; One, presentationofpayroll-relatedmeasuresinrequiredsupplementary those concerns,including: GASB recentlyissuedanexposuredraft,“PensionIssues,”toaddress governments andotherstakeholderstoraiseanumberofpracticeissues. As you’dexpect,theimplementationofpensionstandardshascaused worse shapethantheircurrentbalance. new rulesalsomademanygovernments’ long-termfinancesappearin pension fundsfromonegovernmenttothenext.Butonotherhand, On onehand,thechangesaremakingiteasiertocomparehealthof statements 67and68bringsbothgoodnewsbadnews. liabilities. And asyoumight expect,theimplementationofguidancein impact onthewaythatstateandlocalgovernmentscalculatetheirpension Board approvednewregulationsinrecentyearsthatwillhaveamajor the criteriathatarespecifiedinstandard. done andgovernmentscannowcontinuewiththataccountingiftheymeet GASB didn'tissuethestandard.So,itwasagoodthingthattheygot accounting. So,itactuallywouldhaveaprettywiderangingimpactifthe So, theywouldhavetogetfairvalueinformationandchangetheir governments thatweremembersofthepool. would notonlychangeforthepoolitselfbutalsoallparticipating So, Mike,keepinmindthatiftheaccountinghadtochangeforthis,it cost.” all theserequirements,youcancontinuetoaccountforatamortized investments, thisistheliquidity, thisisthecreditquality, etc.Ifyoumeet the typesofinvestmentsthatwillallowthisandtheseare “Okay, ifyouwanttostillaccountforthesepoolsatamortizedcost,here’s standard containsalotofinformation,requirementsthatsay wanted tohappen.So,theyrelativelyquicklyissuedthisstandardandthe but wouldbereportedatfairvaluewhichisnotsomethingthattheGASB issuing thestandard,theseinvestmentswouldnolongerbereportedatcost 1–27

GOVT/NFP/VOL. 2016 – NO. 1 1–28

just applied to the pension benefits, one applied to post retirement benefits other than pensions. So, in coming up with the OPEB standards, certain things that kind of came to light because the second time you look at something, often times you identify problems or you want to make some changes. So, this basically kind of catches up some of the pension standards to some of the thinking that evolved as part of the OPEB standard. So, very much kind of in tune with what the GASB’s thinking was on the OPEB standard. So, with this proposed changes we will be in good sync in terms of the accounting requirements for these types of benefits. QUINLAN: I notice that one of the issues deals with schedules of required supplementary information. My recollection is that it’s not unusual for preparers and auditors to have issues with what’s presented in RSI. What’s the question here? RUPPEL: Well, there's a very specific question that this proposed standard addresses and that's the standards are written such that the requirements compare contributions and other things to covered employee payroll. So, that's what the standard said. What they were really wanted to look at was covered payroll. So, a covered employee may have payroll, may have salary that's not earning them pension benefits. So, the old standards would have the entire salary even the portion of it that's not earning pension benefits presented in the schedule. Now, the new requirement would be that it's just the covered payroll. So, for that employee, whatever portion of the salary earns them the pension benefits, that's what would be disclosed. QUINLAN: The second issue that Becky mentioned involves a “deviation” from a standard of practice. Tell me, Warren: is that as bad as it sounds to a layman? RUPPEL: It's not really that bad. The GASB standards require that the amounts that are calculated by actuaries are calculated in accordance with the actuarial standards. This modification to the pension standards makes it clear that if the actuary has a deviation from the acceptable standards, what the amounts that they calculate will not be considered GAAP. So, it makes that clear and again this was an item that was focused on really because it was focused on as part of the OPEB standards. QUINLAN: The final issue in the exposure draft is accounting for payments made by an employer. That would seem to be fairly straight-forward, wouldn’t it? RUPPEL: You would think so, Mike. This is a very specific topic that's covered where sometimes in some cases an employer may make contributions on behalf of an employee. So, the question arose as to whether or not those contributions should be considered employer contributions or should they be considered employee contributions and the exposure draft really says they should be treated as employee contributions. You might think why is that so important but when it comes to a cost-sharing multiemployer plan where you're allocating the unfunded liability among all the participating employers, that's done based upon employer contribution. So, it becomes important to not get over allocated some of the liability video transcript video transcript because it relates to employee contributions. QUINLAN: The same questions as before, Warren: Is this exposure draft on the fast- track to issuance? Do you anticipate any roadblocks? video transcript video transcript UPL It’s greattobehere,Mike. Thank you. MarksPaneth’sRUPPEL: Warren Ruppel,thanks,asalways,forbringingusup-to- QUINLAN: No,Ithinkthisisfinetuningsomeveryspecificitems.So,you'll RUPPEL: date. some oftheitemsthatareinpensionstandards. So, theseproposedchangesalongwithGASB77areefforts tokindoffix be addressed. complex standards,sothere'sgoingtobeafewtechnicalareasthatneed commentary onthestandardsbutalsorealizingthatthesearevery statement whichisoneofthereasonswhyyoulikebroadparticipationand So, itaddressedtheproblemthattheyreallydidn'tanticipateaspartof you needtomake.” “Okay, youdon'thavetorecorditbuthereareallthesedisclosuresthat financial statements.So,FASB cameoutwiththestatementandsaid get theinformationtheyneededinacostsharingplantorecordontheir under theFASB standard,therewasreallynowayforthatgovernmentto could beaunionplan,itanothertypeofplanthatarereported Board. So,ifthegovernmenthademployeesthatwerepartofaplan,it plans thatwerenotcoveredundertheGovernmental Accounting Standards past abouttweakorchangingthepensionstandardsrelatedtocostsharing Mike, thisconversationremindsmeoftheconversationswe'vehadin standard. So,theyshouldhaveaprettysmoothtracktoacceptance. it's kindoftryingtofixacoupleproblemsthatwereinthepension period willberelativelyshortbecauseit'sagainnotthatcontroversialand see afinalstatementcomeoutveryquicklyandIthinktheimplementation 1–29

GOVT/NFP/VOL. 2016 – NO. 1

government specialist 2. Auditing - Auditing 2. Governmental

GOVT/NFP/VOL. 2016 – NO. 1

auditing - governmental 2. Field ofStudy: (Self-Study): Reading Required Preparation: Advance Prerequisites: Course Course Level: Expiration Date: Objectives: Learning Overview: Segment Running Time: Transcript: Video Accreditation: Recommended General Survey Accelerating Change:The2015Inspector 2 hoursself-study 1 hourgrouplive For completereport,goto:www.agacgfm.org Accountants Excerpted withpermissionfromthe Association ofGovernment Prepared byKearney&Companyforthe AGA “Accelerating Change: The 2015InspectorGeneralSurvey” Update See page2–13. introductory courseincostmanagement. Work experienceinmanagementorauditing,an June 9,2018 Auditing -Governmental See page2–19. None decades. Onournextsegment, place atfederaldepartmentsandagenciesoverthepastfour passage oftheInspectorGeneral Act, whichhasput72I.G.sin One ofthemostsignificantpost-Watergate reformswasthe 34 minutes inspectors general. trends -thathaveanimpactongovernmentauditorsaswell information oncross-cuttingissues-andidentifiesemerging survey oftheinspectorgeneralcommunity, provides firm ofKearney&Co.andacontributortothelatest AGA Upon successful completion of this segment, you should be able to:

l

l

l

l

Explain why inspectors general are considered "agents of change"; Distinguish between risk-based audits and blanket reporting mandates;

information is threatened; Specify the difficulties in accessing data stored in legacy computer systems.

Identify why inspectors general believe their access to Jeffrey Green , apartnerinthe 2–1

GOVT/NFP/VOL. 2016 – NO. 1 Outline 2–2 I. Emerging Trends A. Survey Providing Information and C. IGs as Agents of Change Identifying Issues 1. Not a part of traditional IG mission 1. Inspector General Act of 1978 put in 2. Part of IG oversight is to come up place 72 federal inspectors general with more effective and efficient a. To serve as agency watchdogs ways of doing things b. Ensuring integrity and efficiency 3. Go a step beyond looking for fraud, of government operations waste and abuse 2. Annual survey of the inspector D. Components Added to IG Mandate general community by the 1. Entire financial statement audit is all Association of Government new since the CFO Act Accountants: 2. Additional mandates a. Provides information on cross- cutting issues that affect a. DATA Act reporting inspector general operations b. Recovery Act reporting b. Identifies issues that may emerge c. Improper payments in future years that will have an E. Long-Term Audit Process Goals impact on I.G. operations 1. Trying to come up with new ways to B. Trends in Hiring execute auditing process 1. IGs mentioned the hiring process a. Make audits more streamlined and the difficulties in hiring staff and efficient a. Especially in IT and data 2. Trying to provide more real-time analytics information 2. IGs do not have direct authority a. Thinking beyond basic financial 3. Difficult getting good qualified statement auditing model candidates i. To provide audits as a tool for a. Sometimes getting too many change candidates – takes so long to go "But the goal is consistent to make through auditing more than just the after-the- i. Best candidates have already fact check-the-box comment..." found other jobs - Jeff Green

II. Mandated Audits A. Improper Payments B. Travel Card Audits 1. Do all the agencies need to do all the 1. When DATA Act was enacted mandated audits every year? a. New requirements for purchase 2. Should there be some additional and travel card audits flexibility for the IGs to do some 2. If you are an agency that has had risk-based assessments and some very little travel card activity risk-based auditing? a. Is it time and money well spent 3. Improper payments example to do a travel card audit every a. Most reported improper year? payments confined within just a b. Maybe we do some kind of risk- few agencies inside of the scoring basis federal government i. Direct travel card audits to be outline outline outline outline outline b. Maybe not all agencies need cyclical or only in high-risk annual improper payments audits agencies c. Maybe there be some kind of sliding scale, risk-based scale? outline outline outline outline outline Outline (continued) III. Early-Warning Reporting Early-Warning III. Mandated Audits-Continued II. .FocusedonPerformance Auditing A. Trying toHoneInonHighest-Risk C. .AbilitytoQuicklyReactanIssue B. .Ifthereisamajorissuewithinthe 1. Time spentonmandatedaudits 2. DebateovertheextenttowhichIGs 1. Areas .Needto gettheinformationinto 3. SomeagencieslikeFEMA orSBA 2. Someagencieshaveresourcestoact 1. RecentproblemsintheareaofIT 2. .IGshoulddoaperformanceaudit a. agency Reducestimeyoucanspendon a. their agencies address thehighest-riskareaswithin where theycandosomething withit hands ofmanagementinatimeframe Canquicklyreachtocontractors a. have contractvehicles quickly Reportisworthlessbythetimeit b. Can'twaitayearormoretoissue a. security Getthe informationto c. Gettothemeatofissue b. right away more targeted typesofaudits to doemergency response work is issued an auditreportonIT security management .CoordinatingOMBCircular A-123 into D. .IGsInterestedin Working asa C. .Hopetoseeeverybodyacross 4. Auditorshavebeenrelyingon 3. CoordinatingCircular A-123 2. UpcomingrevisiontoOMBCircular 1. Audits .SeveralIGstogetherdraftedapaper 3. IGswanttospeakofcommon 2. A desireforIGstoworkmoreasa 1. Community audit work help reduceriskofwherewetestour government usingCircular A-123 to target thehigh-riskareas management's worktohelpthem throughout government reference intoauditsisgoingon Encouragesagenciestoconduct a. A-123 with accesstoinformation expressing someoftheirconcerns government-wide goals community hasemerged recently enterprise-wide riskassessments 2–3

GOVT/NFP/VOL. 2016 – NO. 1 Outline (continued) 2–4

IV. Use of Audit and Analysis

A. Using Audit in Oversight of Internal B. Using Risk-Based Data Analytics Controls 1. Data analytics dependent on getting 1. Ideally IGs use the financial good data to analyze statement audit in oversight of a. Problem in some agencies internal controls 2. Need new and inventive ways to 2. Audit report done just once a year analyze data a. Shouldn't rely solely on financial a. To see what the risks are statement audit to point out areas for improvement in internal b. What are the high risk controls transactions 3. Combination of annual financial c. Target the audit effort towards statement audit and performance those audits "The new tools that are available to a. And other types of audit auditors...are going to be a key as we move forward to make audits more efficient, effective and streamlined." - Jeff Green

V. Data and Budget Issues

A. IG Access to Data Limited B. Problems with Legacy Computer 1. Limitations to data access have been Systems placed on IGs 1. Legacy systems is a problem a. At the Peace Corps, EPA, DOJ auditors struggle with all the time 2. Now up to agency officials (who 2. How does information from them may be the ones under investigation) get into the financial system? a. To grant or refuse an IG 3. How does it get into a system that permission to review the can help management make agency’s records decisions? 3. Without independent access to 4. How can it be in a system that can agency records be audited for reliability? a. Will IGs be able conduct 5. Does the benefit of converting the effective reviews? system justify the cost? b. Does access to agency 6. Have to be creative in getting information call into question the information from a legacy system independence of the IGs? outline outline outline outline outline outline outline outline outline outline Outline (continued) I WorkingRelationships VI. V. Data andBudgetIssues-Continued .IGs andExecutivesManagers A. .IT Security D. IGCommunity Asked toDoMore With C. .HavegottenawayfromtheIGas 2. Mostpeopletrytoworktogether 1. .Informationhastobeprotected 2. IT securitywasdiscussedinevery 1. Cannotdoubletheworkloadand 3. MakingmoreandofIG’s 2. Oldsaying:iftwopeopleleave,you 1. Less .FISMA processhasbeenexpanding 3. IGsreportedthattheirturnoverhas 4. being thebadguyscomingin .FISMA auditsexpanding a. Vendor information b. Personalinformation of a. Maybethey aregettingtothe a. Qualityisgoingtodrop a. interview witheveryIG level ofeffort expect ittobedonewiththesame dollars gotowardsmandatedaudits get tohireone been lessthisyearthaninthepast throughout government Contractorsthatdobusiness i. employees stabilized point wheretheworkforcehas with thegovernment .AuditorsandManagement B. .Needfor Timely Information E. .Working collaborativelywithinthat 3. Ifsomethingiswrong 2. Auditorsneedtobeindependent 1. .Needtobetimelyandrelevant 1. .AGA startedcitizen-centricreporting 5. Taxpayers wanttoknowourhard- 4. Congressneedstheinformationto 3. Managementneedstheinformation 2. process moreefficient independent structuremakes the ItistheIG’s jobtopointitout a. and objective .Taxpayers donotwanttoreada a. Foragencymanagers,Congress, a. a fewyearsago wisely earned taxdollarsarebeingspent make itsdecisions to makegooddecisions .Regardlessofwhat i. .Snapshotofhowanagencyis i. 100-page auditreport taxpayers management thinks doing 2–5

GOVT/NFP/VOL. 2016 – NO. 1 2–6

Outline (continued)

VII. Looking Forward

A. Using Data and Benchmarking C. No Short-Term Solutions 1. Access to data across all of 1. Any time a problem or issue emerges government will be an ongoing issue a. Natural and logical that Congress a. To do more benchmarking and decision makers will ask the b. To be able to look for trends IGs to address it 2. Security of data and information will 2. Issues that we are dealing with are continue to be a hot-button topic longer term solutions a. Using more data analytics a. Not short 12-month or 18-month b. Using more risk-based audit fix approaches B. Keeping a High-Level Viewpoint 1. If you are doing a mandated audit a. Is there information that you can draw that could reduce the work in another audit? 2. Looking to stop the “stove-pipe” approach a. To have more of a high-level look across everything we do outline outline outline outline outline discussion questions discussion questions ru ieOption Group Live Discussion Questions Instructions forSegment .Accelerating Change:The2015 InspectorGeneralSurvey 2. video segment. You maywanttoassignthesediscussion questionstoindividualparticipantsbeforeviewingthe For additionalinformationconcerningCPErequirements,seepageviofthisguide. .The AGA’s thirdannualsurveyofthe 2. Onseveraloccasions,ourprogramhas 1. l l next year? challenges arelikelytoberepeated that thesurveyfindingsonbudgetary offices inparticular?Doyoubelieve government ingeneralandonIG budgetary eventshaveonthe workers. What impactdothesespecific of federaloffices andfurloughof fiscal cliff; sequestration;ashutdown conducted intheaftermathof: inspector generalcommunitywas reporting andauditing? job responsibilities? To financial subject toyourorganization? To your perspective, howimportantisthis general community. Fromyour as themandates,ofinspector reviewed theaccomplishments,aswell 2015 InspectorGeneralSurvey.” The Segment 2.“AcceleratingChange: The Show GovernmentSpecialist: inspectors general.” on governmentauditorsaswell emerging trendsthathaveanimpact Inspector GeneralSurveyandidentifies provides informationonthe2015 “In thissegment,Jeffrey Green words similartothefollowing: introduce thisvideosegmentwith As theDiscussionLeader, youshould l l .Thesurveyemphasizesthattechnology 4. AccordingtoJeffrey Green,the 3. evaluation formonpage A–1. After thediscussion,complete and 2–12. objective questionsareonpages2 –11 on pages2 –9 and2–10. Additional answers toourdiscussionquestionsare developed togeneratediscussion. The questions providedoronesyouhave After playingthevideo,use the useofdataanalytics? comfortable with,andconversant not? To whatextentareyou and internalcontrols? Why orwhy technology toolstoimproveitsaudit organization (orclient)used processes. To whatextenthasyour is akeypartofoversightandcontrol task? inspectors generalperformingthis Why? Howwellarethecurrent and abuse.Doyouagreeordisagree? is topreventanddetectfraud,waste historical missionoftheIGcommunity 2–19 ofthisguide. transcript ofthisvideostartsonpage 2–7

GOVT/NFP/VOL. 2016 – NO. 1 Discussion Questions (continued) 2–8

5. In discussing the role of the IG, Jeffrey Green emphasizes the dual nature of the 7. In reviewing the survey results, Jeffrey IG’s reporting relationship: with Green looks forward to next year’s Congress as well as with agency survey of the IG community, with a leadership. Does that dual-reporting focus on best practices. How interested structure make sense to you? Does it are you in following up on next year’s encourage, or discourage, the survey? Which topics or questions independence of the IG? To what extent would you like to see asked? could reliance on agency administrative support potentially influence IG behavior?

6. Why is it important for IG offices to focus on identifying risks sooner, rather than later? Do you view the issuance of audited financial information to be timely and relevant? More timely and relevant than it has been in the past? Why or why not? Would issuing "risk advisory” or “early-warning” audits influence your response? How? suggested answers to discussion questions suggested answers to discussion questions .Accelerating Change:The2015InspectorGeneralSurvey 2. Suggested AnswerstoDiscussionQuestions .Onseveraloccasions,ourprogramhas 1. .AccordingtoJeffrey Green,the 3. The AGA’s thirdannual survey ofthe 2. reporting andauditing? job responsibilities? To financial subject toyourorganization? To your perspective, howimportantisthis general community. Fromyour as themandates,ofinspector reviewed theaccomplishments,aswell l l l general performingthistask? How wellarethecurrentinspectors abuse. Doyouagreeordisagree? Why? is topreventanddetectfraud,waste historical missionoftheIGcommunity are likelytoberepeatednextyear? survey findingsonbudgetarychallenges in particular?Doyoubelievethatthe government ingeneralandonIGoffices budgetary eventshaveonthe What impactdothesespecific federal offices andfurloughofworkers. cliff; sequestration;ashutdownof conducted intheaftermathof:fiscal inspector generalcommunitywas perspective andexperience. well asonyourbackground, your organization oryourclients,as capabilities andpracticestructure, Participant responsebasedonyour perspective andexperience. well asonyourbackground, your organization oryourclients,as capabilities andpracticestructure, Participant responsebasedonyour perspective andexperience. well asonyourbackground, your organization oryourclients,as capabilities andpracticestructure, Participant responsebasedonyour .Thesurveyemphasizesthattechnology 4. .IndiscussingtheroleofIG,Jeffrey 5. .WhyisitimportantforIGoffices to 6. analytics? conversant with,theuseofdata extent areyoucomfortablewith,and controls? Why orwhynot? To what tools toimproveitsauditandinternal organization (orclient)usedtechnology processes. To whatextenthasyour is akeypartofoversightandcontrol l l l behavior? support potentiallyinfluenceIG could relianceonagencyadministrative independence oftheIG? To whatextent encourage, ordiscourage,the structure makesensetoyou?Doesit leadership. Doesthatdual-reporting Congress aswellwithagency IG’s reportingrelationship: with Green emphasizesthedualnatureof influence yourresponse?How? advisory” or“early-warning”audits Why orwhynot? Would issuing"risk relevant thanithasbeeninthepast? timely andrelevant?More audited financialinformationtobe than later?Doyouviewtheissuanceof focus onidentifyingriskssooner, rather perspective andexperience. well asonyourbackground, your organization oryourclients,as capabilities andpracticestructure, Participant responsebasedonyour perspective andexperience. well asonyourbackground, your organization oryour clients,as capabilities andpracticestructure, Participant responsebasedonyour perspective andexperience. well asonyourbackground, your organization oryourclients,as capabilities andpracticestructure, Participant responsebasedonyour 2–9

GOVT/NFP/VOL. 2016 – NO. 1 Suggested Answers to Discussion Questions (continued) 2–10

7. In reviewing the survey results, Jeffrey Green looks forward to next year’s survey of the IG community, with a focus on best practices. How interested are you in following up on next year’s survey? Which topics or questions would you like to see asked? l Participant response based on your capabilities and practice structure, your organization or your clients, as well as on your background, perspective and experience. suggested answers to discussion questions objective questions objective questions Objective Questions .Accelerating Change:The2015InspectorGeneralSurvey 2. segment, these questionsare onlyfor Group Livepurposes. You maywanttousetheseobjectivequestionstestknowledgeand/orgeneratefurtherdiscussion; . Characteristicsofthe AG community 4. OMBCircular A-123 would 3. The passageoftheCFO 2. Act has Allofthefollowingareissuesidentified 1. )IGsareindividualsandunique d) IGstendNOT tohaveacommunity c) TheIGsliketoworkasindividuals b) EachIGisbasicallythesame. a) include: neitherencouragenordiscourage the d) encouragetheuseof c) discouragetheuseof b) makeitmandatorytouse a) _____enterprise wideriskassessments. hashadnoeffect on d) expanded c) eliminated b) reduced a) Gettingtomanycandidatesfora d) Difficulty inwritinggoodjob c) IGsnothavingdirectauthorityto b) Hiringcandidateswithabroadsetof a) hiring processEXCEPT: by theIG Annual surveyconcerningthe financial statementauditprocess. ______the roleofIGsinthe across government. mindset. with individualgoals. use of potential jobopportunity. descriptions. hire. skills. a fewmaybebasedontheself-studyrequired reading .Allofthefollowingareanticipated 8. IGissuedauditreportsshouldbetimely 7. AccordingtothemostrecentIGsurvey, 6. IGsshouldrelyon______intheir 5. ) IT security. d) maintainingindependence. c) dataaccess. b) hiring. a) future challengesforIGsEXCEPT: Congressandtaxpayersonly. d) agencymanagersandCongressonly. c) agencymanagers,Congressand b) taxpayersonly. a) and relevantfor: aremoreprevalentonthe d) haveledtomanyIGauditreports c) aremoreprevalentonthefinancial b) haveledtolossofmanyIGaudit a) issues relatedtoaccessdata: eitherfinancialstatementauditsor d) performanceauditsonly c) financialstatementauditsonly b) financialstatementauditsand a) assessment ofinternalcontrols. Most ofthesequestionsarebasedonthevideo taxpayers. performance auditside. not beingissued. statement auditside. opinions. performance audits performance audits that startsonpage2–13. 2–11

GOVT/NFP/VOL. 2016 – NO. 1 2–12 Objective Questions (continued)

9. According to the 2015 IG survey 10. The issues associated with legacy data ____of IGs devote at least 20% of systems include: resources to mandatory audits. a) legacy systems were designed to do a) 52% more than what current audit b) 27% standards require. c) 13% b) legacy systems are often too simplistic for current audit d) 11% requirements. c) having access to more data than is required. d) auditors not being able to assert to the completeness of data. objective questions objective questions required reading required reading Self-Study Option Required Reading(Self-Study) SURVEY ACCELERATING CHANGE:THE2015INSPECTORGENERAL Instructions forSegment individuals. the communityisstrongeras agroupthan as awhole,whileothersfeel, unquestionably, this totheirinteractionswith thecommunity effective oversight.Some IGshaveextended Independence isanessentialattributeto depth independentoversighttheyprovide. advocate onbehalfofthevaluein- effectively communicatetheirrolesand they havenotalwaysworkedtogetherto and throughtheirwork.But,asacommunity, to beagentsofchangewithintheiragencies influence positivechange.IGshavestrived IG communityispullingtogetherto access toinformationandtightbudgets,the is increasing.Drivenbyissuesrelatedto The paceofchangewithintheIGcommunity www.agacgfm.org For completereport, goto: Association ofGovernment Accountants Excerpted withpermissionfrom the AGA Prepared byKearney&Companyforthe the following: When takingaCPAR segmentonaself-studybasis,anindividualearnsCPEcreditbydoing Executive Summary .CompletingtheRequiredReading 2. Viewing thevideo(approximately30- 1. segment startsbelow. Required Readingarticleforthis (approximately 25-30minutes). The starts onpage2–19ofthisguide. 35 minutes). The transcriptofthisvideo survey indicated manyIGswouldprefer risk-based agency focusorauditcycle. The away fromaone-size-fits-all approachtoa and theneedtoreviewmandates moving and Transparency Act of2014(DATA Act), new auditsundertheDigital Accountability mandated auditrequirements, includingthe Once again,respondentsraisedtheissueof effective oversight. and thelackofdirecthiringauthorityimpede ineffectiveness ofthefederalhiringprocess positions. Similarly, budgetuncertainty, the antiquated payscales;andunfilledIG community’s primarylegislativepriority; sharing andaccesstodata;theIG Examples include:issuesrelatedtogreater effectiveness ofIGsandtheirwork. concerns thatcontinuetohamperthe However, oursurveyraisedanumberof traditional auditprocess. leverage evaluationsthatstreamlinethe better target auditareasandashiftto as theuseofrisk-baseddataanalyticsto move towardmoreefficient approaches,such their work. The surveyresultsindicatea Change isalsoapparentinhowIGsconduct .Completingtheonlinesteps 3. completing thesesteps. this guidefor instructionson see pagesiiitovatthebeginningof (approximately 35-45minutes). Please 2–13

GOVT/NFP/VOL. 2016 – NO. 1 2–14

more flexibility to focus their work on an at CIGIE, the overall IG community agency’s specific risk areas. governing body.

Respondents again cited information security Our survey highlights the challenges faced as an area on which IGs are placing greater by the IG community and reveals that focus but are having difficulty recruiting and although IG operations vary in size and retaining staff. The Office of Personnel complexity, many issues are common, such Management (OPM) data breach placed a as access to information, while resource spotlight on vulnerabilities in this area and limitations lead to some unique issues among raised longer-term issues that could affect the smaller and medium-sized IG offices. willingness of individuals and agencies to share data for program management and The first section of our report highlights four oversight purposes. Half of the IGs surveyed overarching issues identified during this said if they received additional resources, year’s survey. The remainder expands upon they would direct them toward information and provides greater depth in specific focus security-related audits. areas.

The results indicate the continued importance 1) Access to Information Is Fundamental to of the annual financial statement audit as an Independent Oversight: An issue attracting effective oversight process for maintaining significant attention within the IG sound financial controls within agencies. community is access to information. In last year’s report, this issue was so important to Overall, IGs feel these efforts should not be the IG community that 47 IGs signed a letter reduced. Some IGs suggested a greater focus to the chairman and ranking members of the on internal controls that could result from a House Committee on Oversight and separate audit opinion in certain high-risk Government Reform and the Senate areas. Committee on Homeland Security and Governmental Affairs, expressing concerns This year’s survey reflects the changes about the limitations placed on the IGs at the occurring in the IG community—a Peace Corps, Environmental Protection community actively engaged in influencing Agency (EPA) and change to enable them to fully execute their intended authority rooted in the Inspector Department of Justice (DOJ), regarding General Act of 1978 (IG Act) to provide access to all records to conduct their efficient, effective oversight. oversight. This issue was further highlighted as a result of a recent DOJ decision to give Four Overarching Issues and the department discretion over the release of documents involving national security Trends wiretaps, grand jury testimony and individual credit reports. Each federal office of the inspector general (OIG) is charged with providing oversight to The issue of access to records is of critical detect and prevent fraud, waste, abuse and importance to the community for the violations of the law while promoting precedent it sets. However, access issues economy, efficiency and effectiveness in the have not resulted in audit delays on a broad operations of the federal government. IGs scale. Looming over the question of access to have a unique dual reporting role, reporting information is the issue of IG independence. to both the head of their agency and to John Roth, IG of the Department of Congress. Homeland Security (DHS) was recently quoted in a Government Executive article It has been a challenging year for the IG about the relationship between access to required readingrequired reading required community. The issue of access to records, records and IG independence. “For an IG, which some say is the heart of the IG Act, independence is the coin of the realm. has drawn a great deal of attention. Unfortunately, the Office of Legal Counsel’s Meanwhile, leadership transitions have opinion undermines IG independence and occurred at major department IG offices and creates the conflict of putting the agency that required reading required reading Regardless, they werecompelledtoexpend disproportionate totheactual risk. manner prescribedbylawwas effort requiredtoaddress theseissuesinthe these mandatoryauditswere minimal;the in theiragenciestheareas addressedby IGs statedthattherisksoffraudand/orabuse inefficient useoflimitedresources.Some trust bycertainagencies,resultsinthe extravagant spendingandabuseofpublic developed inreactiontorecentinstancesof size-fits-all approachtomandatoryaudits, As inthepast,IGsindicatedthatone- of theirresources. IGs (>100staff) devoteonaverageonly11% resources tomandatoryaudits,whilelarger Smaller IGsdevote27%oftheiraudit audit work,regardlessoftheagency’s size. will requireabaselevelofplanningand on thesmallerIGoperations,asaudit requirements haveadisproportionateimpact resources tomandatoryaudits. These said theydevoteatleast40%oftheiraudit conducting mandatoryaudits,while13% least 20%oftheirauditresourcesto audits. We foundthat52%ofIGsdevoteat audit resourcestheydevotetomandatory We askedIGstoestimatethepercentageof its mission. agency’s operationsand asignificantpartof address importanthigh-riskareasofan decrease, fewerresourcesareavailableto audits andfundinglevelsremainconstantor fulfilling therequirementsofmandatory worried thatasmoreresourcesaredevotedto improper paymentaudits. The IGsare reviews, purchaseandtravelcardaudits, requirements forconferencespending DATA Act wereaddedtotherecent and reviewrequirementsassociatedwiththe remained flatordecreased.In2015,audit while theirstaffing levelsandbudgetshave examinations andreportingrequirements concerns aboutincreasesinmandatory IG oversightrequirement.NearlyallIGshad addressing managementissuesincludesan concern IGs.Muchoftherecentlegislation to Expand:Mandatoryauditscontinue 2) Mandatory Audit RequirementsContinue conflict isnotwhatCongressintended.” needed toconductoversight. This inherent whether theIGwillhaveaccesstorecords is beingoverseeninthepositionofdeciding several IG Effectiveness: Related todataanalytics, 3) FurtherSharingofDataCould Enhance these auditandreportingrequirements. providing flexibilityastothefrequencyof the IGs,withconsiderationgivento audit andreportingrequirementsplacedupon for acomprehensivereexaminationofthe The surveyresultscontinuetosuggestaneed dovetail withrisk-basedIGauditplans. agencies andnewrequirementswouldlikely security isanareaofhighriskinmost requirements onthem.However, information Congress toimposenewauditandreporting that therecentOPMdatabreachmaycause As anexample,someIGsexpressedconcern might resultinnewcongressionalmandates. The IGcommunityisalerttosituationsthat adversely affect theirotherauditefforts. the effect willbesignificantand other priorities;6%ofrespondentsbelieve affect thembuttheyexpecttomanageitwith effect oftheDATA Act, 75%stateditwill legislation. Ofthosewhohaveestimatedthe surprising, giventherecenttimingof 2/3 oftheIGshaveassessedimpact—not effects mightbe,wefoundthatonlyabout have ontheirauditoperationsandwhatthose effect DATA Act auditrequirementswill we askedtheIGsiftheyhaveestimated audit requirementsbeginningin2016. When is theDATA Act, whichwillnecessitatenew number ofmandates. The latestrequirement oversight requirementsandanincreased The IGcommunitycontinuestojuggleits resources torisk. agencies willallowthemtobetteralign program andfinancialriskswithintheir latitude tostrategicallyassessandaddress their view, providingindividualIGsthe audit cycle,whileotherscouldsunset.In some maybemoreappropriateonatwo-year flexibility inaddressingissues.Forexample, periodically reviewedtoallowtheIGs felt thatmandatedrequirementsshouldbe highest-risk areaswithintheiragencies. They audits hindertheirabilitytoaddressthe The IGsindicatedthatblanketmandatesfor requirements imposedontheiroffices. valuable resourcestomeettheprescribed 2–15

GOVT/NFP/VOL. 2016 – NO. 1 2–16

IGs discussed the restrictions imposed upon Given the desire of government officials to them by the Computer Matching and Privacy reduce improper payments and increase Protection Act of 1988 (CMPPA). CMPPA compliance with benefit program prevents unregulated government access to requirements, streamlining mandates of the personal records for purposes unrelated to CMPPA would enhance the IG’s ability to the legitimate reasons for which the records better utilize a powerful tool in their efforts were collected. A formal Computer Matching to prevent and detect waste, fraud and abuse. Agreement (CMA) is generally required to conduct audits, investigations or In the 2014 report, we highlighted other data evaluations/inspections where the review accessibility concerns. IGs felt technological methodology includes computerized advances that enable data analytics on a comparisons constituting a “Matching broad scale were key to more efficient, Program.” This includes programs designed effective oversight. This type of data to determine benefit eligibility, verify analytics enables OIGs to identify anomalies compliance with benefit program and predict risk areas where fraud may occur. requirements or recoup improper benefit payments or delinquent debts from current or As the use of data analytics expands, a former beneficiaries. The CMA requirement different, more basic issue regarding access applies whether the match is between federal to data is emerging. This year, some IGs systems of records or those systems and non- commented about how they were stymied in federal agency (state and local) systems of their ability to access data stored across IT records. systems. They noted retrieval and analysis was difficult due to the incompatibility of While recognizing the need to protect the data across systems and basic inaccuracies. privacy of individuals, the IGs spoke of the burdensome process required to implement a Another issue that surfaced this year is that CMA. The process can effectively preclude routinely sharing information from an IG’s an IG from carrying out a match in a timely data analysis operation with agency program fashion, thus delaying and thereby staff for follow-up would hamper their minimizing or eliminating the relevance of ability to conduct subsequent audits. Some the match or severely hampering efforts to IGs have developed data analytic capabilities investigate and prevent improper payments that regularly identify more potentially and fraud in their agencies’ programs. abusive or fraudulent transactions so they have the capability to investigate in a timely The IGs with significant data analytic manner. In an effort to better manage the capabilities indicated restrictions on data program, IG offices would like to share this match records across the federal government information with agency program staff for hamper their ability to improve operations, follow-up. A concern expressed by the IGs particularly among programs that rely on was that, by sharing this information, their financial information to determine benefit independence could be impaired, restricting eligibility or compliance with benefit their ability to conduct independent oversight program requirements. They believe such in the future. This issue should be explored restrictions need to be examined to allow for further so opportunities to prevent or detect better oversight of federal funds. fraud, waste and abuse are not missed.

Evidence of the importance of this issue can The small- to medium-sized IGs expressed a be seen in a Feb. 15, 2015 letter from the need for greater support in data analytics CIGIE Legislative Committee to the Deputy through a shared service arrangement. These Director of the Office of Management and IGs brought up the matter of the demise of Budget (OMB). In that letter, the committee the Recovery Operations Center (ROC), identifies several legislative proposals for formed as part of the Recovery Act. Four required readingrequired reading required which there is strong interest in the IG congressional leaders wrote to the U.S. community. The first legislative proposal Treasury Secretary, Jacob Lew, on July 16, identified related to data matching. 2015, asking whether the Department of the Treasury (Treasury) will use its authority under the DATA Act to preserve the ROC’s required reading required reading cited commentsinclude: its ownoperations.Examplesoffrequently how CIGIEcanassisttheIGsandimprove Our surveyaskedforsuggestionsregarding as individuals. voice whenadvocatingasaunit,ratherthan of someIGs,thecommunityhasastronger advocate fortheIGcommunity. Intheview CIGIE isuniquelysuitedtofilltheroleof matters. The IGsallsaidtheybelievethe various administrativeandoperational common concern,aswellsupporton benefit byunitedadvocacyonareasof survey indicatedmanyIGsfelttheywould within thefederalgovernment,2014 each operateasindependentorganizations role ingovernmentoperations. Although they include 72membersthatserveanimportant the IGCommunity: The federalOIGs 4) GreaterCollaborationandSharing Across other responsibilities. data analyticcapabilitywhilefulfillingtheir have theresourcestodevotedevelopinga IG offices becausetheygenerallydonot significance forthesmall-andmedium-sized community. This issuetakesongreater expand dataanalyticworkacrosstheIG ROC’s closurewillbealostopportunityto oversight committees. The IGsareconcerned minority membersofkeyHouseandSenate letter wassignedbythechairsandranking analytic toolsforgovernment-wideuse. The l l l l CIGIE) (facilitated byadirectappropriationto that nowfallsonindividualIGs administrator totakesomeoftheburden director whoismorethanan Hire aprofessionalstaff andexecutive members Continue opencommunication with community atlarge Increase focusonissuesthataffect theIG amongst IGscanalsoberealized savings andfurtherstandardization negotiating onbehalfofallIGs,cost for commonprocurements.By and negotiateonbehalfofallmembers Use CIGIE’s representationroletosolicit cooperation withinthecommunity. it alsoseemstohampercollaboration and executing theresponsibilitiesofposition, strength ofIGsandiscriticaltoeffectively direction.” While thisindependenceisa important than“everyonerowinginthesame me” andfeelthatindependenceismore said they“donotwantCIGIEtospeakfor of communityinterest,thereareotherswho want CIGIEtoadvocateforthemonmatters are extremelyindependent. As muchasthey role ofadvocate;however, theindividualIGs there isgreatsupportforCIGIEplayingthe As reflectedbyoursurveyandinterviews, is stronginterestintheIGcommunity. several legislativeproposalsforwhichthere letter, datedFeb.15,2015,CIGIEidentifies advocacy onbehalfofthecommunity. Inthat of theOMBisanexampleCIGIE’s Legislative Committeetothedeputydirector community. A recentletterfromtheCIGIE role inareasofcommoninteresttotheIG seen evidenceofCIGIEtakingamoreactive services. This year, IGsindicatedtheyhave sharing, thefederalhiringprocessandshared audits, theabilitytoaccessdata,data examples, theycitedtheissueofmandatory issues ofconcerntoCongress’ attention. As CIGIE tookamoreactiveroleinbringing community asawholewouldbenefitif In ourpriorsurvey, manyIGsfeltthe within thecommunitymakessense. identify areaswherefurthercollaboration advocate onbehalfofthecommunityand a strong,clearandproactivevoiceto survey respondentssupportCIGIEservingas clear fromtheresponsesabovethatmost of specificissuescoveredbyoursurvey. Itis governance wasraisedinregardtoanumber The issueofIGcommunityleadershipand l l l audit reports. Develop asearchabledatabaseofallIG common recipientsoffederalfunds Enable informationsharingabout Congress andOMB and beproactiveindealingwith Concentrate onOIGs’ operationalissues 2–17

GOVT/NFP/VOL. 2016 – NO. 1 2–18 The Financial Audit and Conclusion Internal Controls IGs continue to be challenged with tight The annual financial statement audit touches budgets, an ineffective federal hiring process each part of an agency or department, and and one-size-fits-all mandated requirements. many, if not all, of the basic financial The 2015 survey results indicated IGs are information systems used. Issues related to adjusting to a “new normal” when it comes internal controls over agency operations are to the budget and continuing resolutions and, reported to agency management in a formal like the rest of the government, adapting to report. In all but a few cases, the annual and managing this uncertainty. Many of the financial statement audit at federal agencies IGs we spoke with called for direct hiring is conducted by an independent Certified authority, in order to enable them to quickly Public Accounting (CPA) firm under the fill needed positions in lieu of the lengthy close oversight of the agency’s IG. and seemingly ineffective federal hiring process. They also called for more flexibility In past IG surveys, we asked a series of when it comes to mandated audits so they questions regarding the benefits of financial can apply risk-based criteria within their statement audits in federal agencies. The IGs respective agencies to better focus their have always expressed support regarding the oversight audits and evaluations. continuing need for and the value of the annual financial statement audit. More fundamental than these operational difficulties is the challenge to IG authorities This year’s survey indicated that more than and access to all information to conduct 85% of the IGs referenced internal control oversight. This issue, more than any other, improvements resulting from financial has accelerated change and mobilized the statement audits as a major benefit. This community to communicate the importance group of respondents said the financial of unfettered access to all information as a statement audit is a key component of their foundation for effective independent oversight of internal controls within the oversight consistent with the intent of the IG agencies. They felt that the annual financial Act. audit keeps internal controls on the agenda in the agency. In addition, the survey identified steps forward in further cooperation and sharing The same group of respondents also said between IG offices. While the independent they believe internal controls would culture is difficult to adapt, ideas such as deteriorate markedly if not for the financial sharing a government-wide searchable statement audit. Some IGs even suggested database of all IG audits, more information that a more in-depth assessment of internal sharing about common grantees, common controls would benefit high-risk areas or approaches to data analytics and information areas where problems have persisted. security vulnerabilities are beginning to take hold. While the information security side On a related topic, the survey asked the IGs effects of the OPM data breach are relatively whether the auditors used the results of unknown at this point, IGs continue to push management’s OMB A-123 assessment of for greater authority to share information internal control over financial reporting when contained in government databases to performing the financial statement audit. We facilitate oversight work and analytics found that in 92% of the cases, the efforts. independent auditor did. However, the degree to which results are leveraged depended on AGA’s Annual IG Survey is intended to the rigor of management’s assessment. reflect the broad trends in the community. We hope to have provided an overview that required readingrequired reading required This is particularly noteworthy since a leads to more effective and efficient diminished focus on financial controls by independent oversight conducted by the IG management could result in additional audit community government-wide. effort and costs. video transcript video transcript Video Transcript .Accelerating Change:The2015InspectorGeneralSurvey 2. RE:There definitelyhavebeensome trendsthathaveemerged. The hiring GREEN: Well, asyousaid,thisisthethirdannualsurvey. Doesthatmean that QUINLAN: Well, Mike,the AGA hasworkedwiththeCFOcommunityforquitea GREEN: Iknowthatyou’reabusyguy, Jeff. And Ialsorealizethatthe Certainly, Mike.Iamhappytobehere. QUINLAN: GREEN: Fortunately forus,Jeffrey Green,oneofour“regular” expert QUINLAN: Federalpolicymakersandprogram managersarecontinuallyseeking SURRAN: process comes tomind.Ithink,ineachof thesurveys,IGsmentioned that areemerging? we’ve gotsomebaselineinformation andthatyoucanspotsometrends continued it. community. So,wethoughtitwasagreatthingtodo,andso,have And thefirstonewasverywellreceivedthroughout entire voice. And westarteditthreeyearsago,thissurveyisthethirdannual. So, wethoughtstartingthesurveywouldbeawaytogive themthat coverage anddidnothavethesamevoicethattheircounterparts had. partners inourfirm,wefeltthattheIGswerenotgetting thesame geared towardstheCFO. And intalkingto AGA andsomeofthe while. They havedoneannualsurveysandalotofresearchprojects survey oftheIGcommunity? what wasitthatpromptedthe AGA, andyourfirm,toundertakethis Association ofGovernment Accountants hasafullagenda.Remindme: community. Thanks forjoiningusagainthisquarter, Jeff. also acontributortothe A.G.A.’s latestsurveyoftheinspectorgeneral commentators andapartnerinthefirmofKearney&Company, was impact onI.G.operations. Two, identifiesissuesthatmayemerge infutureyearsthatwillhavean general operationsinthefederalgovernmenttoday;and One, providesinformationoncross-cuttingissuesthataffect inspector the Association ofGovernment Accountants: for us,thethirdannualsurveyofinspectorgeneralcommunityby little ongoingresearch–untilnowontheIGcommunity. Fortunately Despite Congress’ intentinenactingthisstatute,therehasbeenvery ensuring theintegrityandefficiency ofourgovernment’s operations. inspectors generaltoserveasagencywatchdogsresponsiblefor 1978 oftheInspectorGeneral Act, whichhasputinplace72federal One ofthemostsignificantpost-Watergate reformswasthepassagein Accountability Office, alsoholdenforcementoroversight roles. Of course,OMBand Treasury, alongwiththeGovernment abuse. programs andoperations,topreventdetectfraud,waste community –toprovideindependentoversightoffederalagency same time,theyrelyonothers–notably, theinspectorgeneral ways tobetterachieveagencies'missionsandprogramresults. At the 2–19

GOVT/NFP/VOL. 2016 – NO. 1 2–20

the hiring process and the difficulties in hiring staff. Especially in some of the emerging areas like IT and data analytics that have a very specific skill set, they are struggling a little bit to attract qualified candidates to the “IT shops” for a variety of reasons that are outlined in the survey: not having direct authority; the difficulty in writing good job descriptions; getting good qualified candidates; getting too many candidates. And it takes so long to go through the pool that the best candidates that they would really want have already found other jobs, by the time they get around to making the offer. So, the hiring has definitely been a trend. And then, I know we have talked about this multiple times, the new mandates constantly having to do more with less. There is a lot of pressure on the IGs to get more reports done and to get more specific types of reports done. So, those have been some things that have been consistent through the years. And then some new things seem to emerge every year that always make it interesting, which is why we think it is good to continue to do the reports. QUINLAN: The survey notes that the pace of change – for society, for government, and for the IG community – is increasing. But it also notes that the IGs have strived to be “agents of change.” That’s not a part of the traditional mission of inspectors general, is it? GREEN: Well, I think if you ask them, they would say it would be. When it was originally passed, it was more of an oversight function. But I think part of oversight is to come up with more effective and efficient ways of doing things. That is why we do the oversight where you are not just looking for problem areas. We are looking for fraud, waste and abuse. Obviously, that is a key part of what IGs do. But to go a step beyond that and find ways to make programmatic and financial changes that allow an organization to run itself more effectively, I think, has always been a component of what an IG is supposed to do. QUINLAN: I know that Becky just mentioned the enactment of the IG Act, back in 1978. Remind me, Jeff: have there been a lot of changes since then? Or are we still operating with the same mission for the past four decades? GREEN: We are in the same model, but it has emerged and it has changed over the years. So, it was very much the oversight role in the beginning. Back in 1978, the CFO Act had not been passed yet. So, there was no financial component. The entire financial statement audit is all new since the CFO Act for the IGs was passed. So, that has definitely expanded their role. There are additional mandates that came in: DATA Act reporting; Recovery Act reporting; improper payments. So, there are a lot of things that were added to their mandate. But I think the basic model is the same. It has just become more complex and requires a different skill set maybe than it did back in 1978, when it was

video transcript video transcript strictly program- or performance-based auditing. QUINLAN: I know that, for the past few years especially, government agencies have gone through “tough” times: the fiscal cliff; sequestration; the two-week shutdown. Do you think that, in the survey, people were responding to the recent environment? Or do these challenges – like the hiring process - seem more like ongoing, long-felt conditions? video transcript video transcript RE:ItisandIthinktheyare.Butagain, itcomesbacktothatone-size-fits-all GREEN: Thatmakessense,Jeff. Butafewyearsago,whentheDATA Act was QUINLAN: Yes, definitely, Mike,butthereisadownsidetothat.Itcameoutinthe GREEN: Sinceyou’re anauditor, Jeff, letmestartwithatrendthatrelatesto QUINLAN: Ithinkitisacombinationofthe two, Mike.Ithink,asprofession, GREEN: continue tohave. and yourefforts? And thatisthesortofdebate thatIthinkweneedto area thatisnotmandated,where areyoubetteroff spendingyourmoney If youarenothighriskontravel cards,butyouarehighriskinanother to becyclicaloronly in agenciesthatareviewedtobehighrisk? do wesomekindofrisk-scoring basisanddirectthetravelcardaudits Is ittimeandmoneywellspenttodoatravelcardaudit everyyear?Or and itisnotmaterialtowhatyoudo,dohavea lotoftravel. debate. Ifyouareanagencythathashadverylittletravel cardactivity, general, andtheIGsinparticular, areinterestedin? card auditsandimproperpaymentaudits.Isn’t thatwhatauditorsin enacted, youtoldmeaboutthenewrequirementsforpurchase andtravel flexibility todotheirjobs. outside ofthat–togoCongressandallowtheIGs havebetter has startedinsideoftheIGcommunityandprobablyneedstoexpand some kindofslidingscale,risk-basedscale?Ithinkitisadiscussionthat required everyyeartodoimproperpaymentsaudits?Orshouldtherebe a fewagenciesinsideofthefederalgovernment.Shouldallbe Most oftheimproperpaymentsthatarereportedconfinedwithinjust comes tomindasaprettygoodexample. based assessmentsandsomerisk-basedauditing?Improperpayments Should therebesomeadditionalflexibilityfortheIGstodorisk- mandated auditseveryyear? mandate sortofactslikeitdoes.Doalltheagenciesneedtodo survey: alotofpeoplethoughtthatonesizedoesnotfitall,butthe IG examinationsandreportingrequirements,right? this isagoodsign:Congressclearlyandexplicitlyrecognizesthevalueof providing mandatoryexaminationsbyIGs.Ontheonehand,Isuppose, area. Recentlyenactedlegislationoftenincludesanoversightrequirement, managers insideofagencies. and providemeaningfulvalue-addedinformationtothefinancial auditors, partofthebasicfinancialmanagementdecisionmakingprocess just theafter-the-fact check-the-boxcommenttomakewhatwedoas government. ButIthinkthegoalisconsistenttomakeauditingmorethan opinion orjustrecentlystartingtogetit.So,itdefinitelyvariesacross still intheinfancyofthatprocess,eitherhavingnotreceivedaclean history withauditingandgettingcleanauditopinionsversusthosethatare agencies: larger agenciesversussmalleragencies; thathavea And Ithinkwearemakingstridesinthatarea.Itdefinitelyvariesacross model toprovideauditsasbasicallyatoolforchange. thinking outsidetheboxbeyondjustbasicfinancialstatementauditing streamlined, moreefficient toprovidemorereal-time information,and and different waystoexecutetheauditingprocess makethemmore trend thatisalsostillsittingtherewearetryingtocomeupwithnew initiatives. So,thereissomeofthat.ButIthinkitalsothatlonger-term sector gaverisetotheSarbanes-Oxley Act andavarietyofother auditors, wetendtobereactive. The financialcrisis inthecommercial 2–21

GOVT/NFP/VOL. 2016 – NO. 1 2–22

QUINLAN: It sounds as if the “debate,” if you will, is over flexibility: to what extent can – and do - the IGs address the highest-risk areas within their agencies? GREEN: Right now, it is limited. I think the survey made a good point of how much time an agency spends doing mandated audits. And definitely, it did vary between the larger agencies and the smaller agencies as to how much time they spent on that. But the time you spend on mandated audits, obviously because of the limited resources available, reduces the amount of time you can spend on more targeted types of audits. And that is the discussion, as I said, I think it is beginning. I think IGs are starting to work together more. They used to be very “silo-ed” inside of their agencies. And through CIGIE and some other efforts that are out there, the IGs are starting to get together, talk and share ideas across government more than they ever had in the past. And I think that that will give a voice for some of these issues that they are facing as an overall community. QUINLAN: There is an upcoming revision to OMB Circular A-123 that would “encourage” agencies to conduct enterprise-wide risk assessments. To some extent would that aid the IGs in determining which areas possess the highest risk? GREEN: Coordinating Circular A-123 reference into audits is something that is going on. It is going on pretty well throughout government right now. I think, as the Circular A-123 process became more refined and the quality of the testing has increased over the last several revisions, auditors have been relying on management's work to help them target the high-risk areas. I know we do that in most of our audits. And also on engagements where we are the A-123 contractor, the other auditors are looking to us to target high-risk areas as well. So, so I think that has been one of the recent successes from the provisions to A-123. It is more an integrated approach and it is not: “We do our test. You do your test. We evaluate it separately.” If management has good information that something is not working well, then obviously auditors should target that, and vice versa. So, I think that has been a success we have had recently. And I would hope to see with the new changes it becomes even more widespread where everybody across government uses Circular A-123 as part to reduce the risk of where we test our audit work. QUINLAN: Another innovation involves the use of “early-warning reporting.” What does this mean in this context? Isn’t the audit traditionally performed once-a-year after the financial statements have already been prepared? What type of early warning can you give? GREEN: I think early warning is discussing more of the performance types of auditing. If there is a major issue within the agency, the IG should look at it right away, do a performance audit, get to the meat of the issue and get the information to management. Procurement type issues come to mind. IT security is something where management needs real-time feedback. We have had some problems recently inside of government in the area of video transcript video transcript IT security. So, every agency is very alert to that and very aware of those risks. If you wait a year or a year-and-a-half to issue an audit report on IT security, the report is worthless by the time that it gets issued. So, it is important that we have a system and we have processes that allow IGs to get in there quickly, do their work quickly, and issue the reports in a timely manner that management can then use to make improvements and make decisions. video transcript video transcript RE:Ideally, Mike,itwouldbeakeycomponentofit.Inlot audits, itis. GREEN: So,let’s getbacktothesurvey:whatextentdoIGsusefinancial QUINLAN: TheIGsdefinitelyareindividualsanduniqueacross GREEN: You andIhavebeenreferringtodaytotheIG“community,” asdoesthe QUINLAN: Thatvariesallacrossgovernment, Mike.Someagenciesdo. GREEN: Let’s saythere’s afast-breakingissuethataffects anagency. And it’s QUINLAN: never beontopofthings. controls, Ithinkyouwould always be“behindtheeightball.” You would financial statementauditto point outareasforimprovementininternal While itisatoolandpartof theprocess,ifyoureliedonnothingbut is doneonceayearandreport isissuedonoraroundNovember15th. through theagency. But,again,fromthetimingofauditreport–andit recommendations attached.So,hopefully, thatdrivessomechange internal control-typeissuesbroughttomanagement’s attentionwiththe You willseethereports,youmanagementletters,andtherebe oversight ofinternalcontrolswithintheiragency? statement audit–whetherit’s performedexternallyorinternally-intheir with government-widesolutions. government-wide problemsandinitiatives andcomeup community mindsettocomeupwithnewandcreativewaysaddress think itwasmuchmore“silo-ed”then. And thereismoreoftheIG And Idonotthink,10or1520yearsago,wewouldhaveseenthat. information. drafted apaperthatbasicallylaidoutsomeoftheirconcernswithaccessto was highlightedinthisyear'ssurvey. SeveralIGswenttogetherand they couldbeaddressed. Access todataisonethatcomesmind. That community andtospeakofcommongovernment-widegoalsintheways survey whenwestarteddoingit,isadesireforIGstoworkmoreas our survey, whichisoneofthethingsthatkindsurprisedmein people. ButIthinkoverthelastfewyears,andithascomeoutof contractors versusdoingthingsinternally, theyareverymuchtheir own government. The sizeoftheirshop,orpreferencesforusing general arereallyquiteindividualandunique,aren’t they? survey. But,Isuppose,insomerespects,theseventy-twoinspectors that comesup,timeisoftheessence. quickly whentheyareneeded.Because,again,intightsituationswhere into resources,sowehavethecapabilitytodothosetypesofthings do somethingwithit.ButIthinkwehavetolookintotheways,and information intothehandsofmanagementinatimeframewheretheycan Bad informationdoesnotgetgoodwithage. You needto getthe I alwayssaygoodinformationdoesnotgetbadwithageorviceversa. it ismoreofanisolatedincidentprobablyarenot. response arewellsetuptodothattypeofwork.Sometheotherswhere that typeofwork,likeFEMA orSBA. Those thatareinthe emergency have contractvehicleswheretheycanquicklyreachtocontractorsdo agencies haveIGstaff lineduptodothattypeofwork. Someagencies or theflexibility, oftheirresources? to conductthistimely, early-warningaudit–intermsofeitherthecapacity, currently havetheavailabilityofstaff inthoseregions, inthenext90days, something thathastobeaddressedinthenextninetydays.DoIGs taking placeintwoorthreedifferent regionsaround thecountry. And it’s 2–23

GOVT/NFP/VOL. 2016 – NO. 1 2–24

I think it is a combination of the annual financial statement audit as well as performance audits and the other types of audit we have been talking about combined are what needs to happen for proper oversight of internal controls. QUINLAN: Another topic that the survey addresses is the increased use of risk-based data analytics by the IGs as a way to target and leverage audit resources. So, that trend is still continuing, right? GREEN: It is definitely continuing, and I think it is going to continue to grow. Data analytics are a great tool. They are dependent on being able to get good data to analyze, which is a problem in some agencies: getting the data or getting access to the data. But I think we are moving more and more away from that “old school” audit approach. I know when I first audited, that is what we did. We got our sledgehammers out and we banged out the balance sheet, and everything sort of fell out from that. That is not a sustainable model anymore. That has not been good auditing practice for 20 years. You have to leverage controls. You have to come up with new and inventive ways to analyze the data to see what the risks are, what are the high risk transactions, and to target the audit effort towards those, as opposed to the fishing expedition that is a huge substantive-based sample where you get what you get. And you test hundreds and thousands and thousands of items and try to draw conclusions. I think the new tools that are developed, and are available to auditors, from new systems and new ways to compare data are tools that everybody is implementing into their audit approaches. And I think they are going to be a key as we move forward to make audits more efficient, more effective and more streamlined. So, that is definitely the way we are going. But there is a caveat to that: that is a new any different skill set that has to be obtained. You have to either hire people who have that skill set. Ideally, you hire people who have the skill set and then train others or use the train-the-trainer approach. But that is not something that you can do walking in with a Staff 1, and asking them to do significant data analytics work. So, it is emerging, but I think we are not quite where we want to be yet. QUINLAN: Thanks, Jeff. We’ll return to your commentary in a minute. SURRAN: The ability of the inspectors general to accomplish their ever-challenging mission depends on the bedrock principles enshrined in the IG Act: independence and access to all of an agency’s records. The good news is, over the past three dozen years, that access has empowered IGs to root out government corruption and has saved U.S. taxpayers billions of dollars. The bad news is that, over the past year, significant limitations have been placed on the inspectors general – at the Peace Corps, the Environmental video transcript video transcript Protection Agency, and the Department of Justice – over their access to records in conducting their oversight. In other words, it is now up to agency officials – who may be the ones under investigation - to decide whether to grant, or to refuse, an IG permission to review the agency’s records. So, questions are being asked: video transcript video transcript RE:Itdefinitelycan,Mike.Legacysystemsareaproblemthatauditors GREEN: Ofcourse, dataanalyticsinvolvestheretrievalandanalysisofthat’s QUINLAN: Accesstoinformationisaproblemanditcameoutinthesurvey inthelast GREEN: Well, Jeff, thesurveydidhighlightcontinuedconcernoverIG QUINLAN: going togoaway shortterm.Butwiththat said,Idonotthinkwecan struggling with legacysystems. And Ithinkitisaproblem thatisnot Defense movesforwardwith theirauditefforts, theyaredefinitely So, thatissomethingwe arestrugglingwith. As theDepartmentof benefit ofconvertingthesystem justifythecostthatitisgoingtotake? And theyareallbeinglooked atonacase-by-casebasistosee:doesthe being putin.Butthatistime consuminganditisextremelyexpensive. the government,legacysystemsarebeingreplacedand newsystemsare satisfied? Those arethethingsthatwestrugglewith. And Iknow, across that theyaretesting,ifyoucannotgettothecompleteness assertionbeing populations? Howcananauditordrawconclusionsbased uponthedata legacy systems,howdowegoandgettothem?How wehavecomplete complexity. So,iftransactionsarebeingoriginatedbackinthoseold debits andcreditstofeedafinancialsystem.So,thatis addingalevelof system wasaddedonattheendtoconvertthosetransactions intothe with transactions. They justrecordtransactions. And thenatooloranother some ofthelegacysystemsarenotevendesignedtoput debitsandcredits government didnotreallyanticipateproducingfinancial statements.So, Because youhavetokeepinmindthat,priortheCFO Act passing,the How canitbeinasystemthatauditedforreliability? How doesitgetintoasystemthatcanhelpmanagementmakedecisions? And howdoestheinformationfromthemgetintofinancialsystem? struggle withallthetime.Someofthesesystemsare20-30yearsold. stumbling blockforsomeIGs,can’t it? stored byagencies’ “legacy”computersystems.Sometimes,thatcanbea because ofaccesstoinformationissues. types ofperformanceauditsthattheyhavenotbeenabletodo,simply do someauditsandhavewantedtolookatinformation And inthatcase,IthinktherehavebeencaseswhereIGswantedto of thetransactions. into moreofthedetail,youhavetogetgranularinyourexamination beyond. Ifyouaretryingtolookatsomethingspecific,haveget It ismoreontheperformanceauditside,thatvalue-addedaboveand information. opinions werelostorauditreportsnotissuedbecauseofaccessto statement perspective,Idonotthinkithasrisentothepointwhereaudit that wehavedone.Ithasdefinitelycauseddelays.Butfromafinancial financial statementauditperspective.Imean,therehavebeensomethings Most ofthetime,auditorshavefoundwaystoworkarounditfroma their work.Itisabalancingact.definitelyhascausedsomedelays. couple ofyears. The IGsarestrugglingtogetaccess toinformationdo far, actuallyresultedindelaysorshiftstoauditengagements? community’s accesstoinformation. Tell me:havetheseaccessissues,so independence oftheinspectorsgeneral? Two, doestheaccesstoagencyinformationalsocallintoquestion improvements besignificantlycompromised?,and to conductthetypeofreviewsthathaveresultedinwidespread One, withoutindependentaccesstoagencyrecords,willtheabilityofI.G.s 2–25

GOVT/NFP/VOL. 2016 – NO. 1 2–26

throw up our hands and say: “Well, it's in a legacy system. We can't audit it.” There are ways. We just have to be creative in how we how we get to the information. We have to be consistent with the standards in how we interpret the information. But I think you can draw some conclusions and provide some feedback to management, even if you cannot get to a statistically valid sample that would support a financial statement audit. In a performance audit-type environment, you could still provide some information for the transactions that have been captured and that are being audited. So, I think we just have to think outside the box a little bit and come up with ways to get to the answers that we need to get to. QUINLAN: Since we’re talking about delays and shifts, let me ask you about the budget level for the IGs: do people in the IG community believe that they are being asked “to do more with less”? GREEN: There is no question that the general feeling is that IGs are being asked to do more with less. It is the old saying: if two people leave, you get to hire one. And sometimes, it takes a long time to hire that one person. So, it causes a burden. And it is making more and more of the IG’s dollars going towards mandated types of audits. So, I think one of the things that has been on the table and has been discussed, and I think I mentioned earlier, is we need to look at the mandated audits. We have to critically assess them: Which ones should everybody do? Which ones should be more targeted to certain information to develop risk-based models? With the budget situation the way it is, I do not think anyone anticipates IG’s budgets doubling over the next 5 years. So, you cannot double the workload and expect it to be done with the same level of effort, or what is going to happen is the quality is going to drop. So, it is a major issue. I think discussions have been started on it. I do not think conclusions have been reached or corrective actions have been put in place. But it is something that is really going to come to the forefront over the next year or two. The one positive thing I would say that came as a result of the survey is that IGs reported that their turnover has been less this year than it has been in the past. So, maybe they are getting to the point where the workforce has stabilized, that they have good qualified people sitting in the chairs, and those people are happy in those chairs, and are going to stay there for a while. So, that was a positive outtake. But I think it does not solve the problem in and of itself. We have to look for other ways to get more resources or, short of that, then you have to take away some of the mandated activities. QUINLAN: I can understand why you – and the survey respondents – stressed data analytics. I’d also be surprised if people didn’t express a lot of concern about IT security. GREEN: Yes, Mike, IT security was talked about in every interview that was done with every IG. It is a major concern inside of government. Information video transcript video transcript has to be protected - the personal information of the employees, the vendor information for the contractors that do business with the government - all of that has to be protected. The FISMA process has really been expanding the FISMA audits throughout government. Testing the IT security, I think, it is an area that has a spotlight shined on it. I think IGs are spending more time and more dollars testing IT and IT security issues. And it is an issue that is not going to go away. video transcript video transcript UNA:Ontheonehand,auditors dowantto haveagoodworkingrelationship QUINLAN: Allin all,itcameupfairlypositive.Ithinkmostpeopletriedtowork GREEN: Inyoursurvey, Jeff, howdidtheinspectorsgeneral–andtheirstaffs - QUINLAN: Ithinkallthree,Mike,andprobablyinthatorder, Iwouldthink. GREEN: Thesurveymentionedanotherchallenge:issuingauditreportsthatare QUINLAN: with theirtopexecutivesand programmanagers.But,ontheotherhand, really seethatasamajorissue. Ithinkthosedaysaresortofbehindus. it isnot.So,Ithinkkindof fellwherewewouldexpect,butIdonot out. Somethinkitisgreat,most thinkitisworkable,andthensome coming in.Itdoesvaryacrosstheboard,andIthink surveypointsthat together. IthinkwehavegottenawayfromtheIGasbeingbadguys and theiragency’s programmanagers? characterize theirworkingrelationshipswithagency’s topexecutives satisfy theobjectivesofallthree. good controlsandfinancialmanagement,weshould beableto different groups,allimportant,withthreedifferent needs.Butifwehave results theyaregettingforthemoneyspend.So, I thinkitisthree doing, whereitisspendingtheirmoney, andmoreimportantly, what information outtheresotheycanseeinasnapshothowanagencyis be producedinonepage,twopages,orfourpagesatmost,thatputsthe do notwanttoreada100-pageauditreport. They wantsomethingthatcan AGA starteditafewyearsago:theircitizen-centricreporting. Taxpayers easier tofollowandunderstand. information, butIthinkforthem,theywantitpackagedinamannerthatis congressionally-mandated deadline.Ithinktaxpayerswantthe then verifytheinformationwhileyouareworkingupagainst as opposedtohavinggoandcreatenewinformationreports, is aloteasiertorespondthemwhentheinformationalreadyathand, good financialmanagement,whenthesecongressionalinquiriescomein,it thing Iwillsaytothatis,ifyouhavethegoodcontrolsand When itasksforit,becomesatopprioritytogetthem. The one Congress needstheinformationwhenitdecidesinformation. needs ittimely:realtime,day-to-daytypeofinformation. But thatisnotsomuchonaday-to-daybasis.Iwouldthinkmanagement with theirmoney, andthatthereislevelofaccountability. dollars arebeingspentwiselyandthatthegovernmentisefficient all liketheinformation. We allwanttoknowthatourhard-earnedtax needs theinformationthatittomakeitsdecisions. Taxpayers, we needs theinformationthatittomakegooddecisions.Congress goal fortheCFO,CIO,andIG. That isthegoal. Management management communityisallabout. That iswhat we haveasacollective that managementneedstomakegoodsounddecisionsiswhatthefinancial multiple sessionswithyouinthepast,abilitytogetinformation Management hastobethefirstconsideration. As Imentionedearlierin timely andrelevant:agencymanagers?Congress?taxpayers? timely andrelevant.ButI’vegottoaskyou,Jeff, for whomshouldtheybe that process. they arerequiredtodo. And theIGsaregoingtoplayasignificantrolein government tobeablecontinueprovidetheservicesanddojob they shouldnothave,andprotectingthatinformation,isparamountforthe The worldweliveinnowwherepeopletrytogetaccessinformation 2–27

GOVT/NFP/VOL. 2016 – NO. 1 2–28

many auditors believe that – to be successful – an auditor must have a degree of independence. How do you walk that line, Jeff? GREEN: Well, independence is the key. And I did not mean to imply, if I did, in terms of independence, that they are all working too closely together. Auditors need to be independent. They need to be objective. The reporting needs to be based on the facts. But what I was trying to say, from the cooperation side: I think management appreciates what the auditors are doing and I think the auditors appreciate the difficulties that management is under. And I think, in most cases, the auditors do the audits and come up with findings and recommendations where warranted that are constructive and point the organization to move forward and make improvements in its processes and its controls and its financial management structure. So, it is kind of that value-added. We always try to say audits need to be “value-added.” And I think we are working towards that. But I would never want to imply that it is not independent, that it is not that arm's-length look at the information. Because if something is wrong or seriously wrong, it is the IG’s job to point it out, regardless of what management thinks. That is their independent reporting function. So, independence is key, but working collaboratively within that independent structure makes the process more efficient and more effective for everybody. QUINLAN: Since you said, “going forward,” Jeff, you reminded me: besides looking back at what’s happened since 1978, what does the IG community think are going to be the challenges of the future? GREEN: Well, I think we have touched on several of them. The hiring and the human capital issues are one that has to be dealt with in the near-term. Access to data, and not just inside of the agency. At some point, access to data across all of government, to do more benchmarking, to be able to look for trends across government that could be either an indicator of risk or a factor that shows that risk is actually mitigated. I think that is something that they need to deal with. The IT security, and the security of data and information, is going to continue to be a hot-button topic, and something that we are going to have to continue to deal with. And basically finding ways to do what we need to do in a more efficient and effective manner by using more data analytics and using more risk-based audit approaches to do things that allow us to do our jobs: to get the audit evidence we need to form opinions; to draw conclusions; to draft reports in a quicker, more timely manner is what we are dealing with. And I think we are going to continue to deal with that for a while. QUINLAN: In that context, what techniques do the IGs think that they can use to meet some of these future challenges? GREEN: Mike, there are. I think we talked a little bit earlier how the Circular A-123 process is being integrated into the audit process. I think breaking down the silos. If you are doing a mandated audit, is there information that you can draw from that mandated audit that could reduce video transcript video transcript the work in another audit or another audit area? Not looking so much “stove-pipe”: we do one thing, then we do the next, and then we do the third. To be that more high-level look across everything that we do, looking for additional efficiencies there is also something I think we need to start exploring a little bit more. video transcript video transcript RE:Certainly, Mike.Iwasgladtodoit. Kearney & Company’sGREEN: Jeffrey Green,congratulationsoncompletingyour QUINLAN: Well, Mike,thatisaninterestingquestion.Iwishhadcrystalball. GREEN: Lookintoyourcrystalballforme,Jeff. When wedothissameinterview QUINLAN: Well, Mike,Ithinkthatisalwaysgoingtohappen. That issort oftherole GREEN: Anytimethataproblemorissueemerges, it’s onlynaturalandlogicalthat QUINLAN: survey oftheIGcommunityandthanksforbringingusup-to-date. those newsolutions,willhelpusmoveforward. with it. And Ithinkdiligence andstayingthecourse,comingupwith evolving industry, withthesystemsanddatariskassociated I thinktheprocessesthatIGshaveinplacearesound.Butitisanever- standpoint arises. And I amoptimisticthatitwillnot. if wesithereayearfromnow, isthatnothingnewfromanegative not goingtobethatshort12-monthor18-monthfix. What Iwouldhope, I thinktheissuesthatwearedealingwithlongertermsolutionsand year fromnow, Idonotthinkwearegoingtoseealotofchange. data analyticsbeingincorporatedintoallfacetsoftheauditbut,honestly, a a wholenewlevelofproblemsforIGs.Iwouldliketoseemoreworkon resource issuebecause,ifthatcontinuestodeteriorate,itisgoingcause would hopethattherehasbeensomeprogressmadeonthehuman different? one yearfromnow, afterthefourthannualsurvey, what’s goingtobe So, Idonotthinkwewilleverseethatgoaway. back fairlyandobjectivelywhathasreallygoneon. boots onthestreet:peoplewhogoinanddowork,thenreport Congress isgoingtocontinuelookInspectorsGeneralsbethe program activity. So,asthingsarise,problemsorissuesthatcomeup, of theIGinanutshell:oversightandindependentlookinto expect tocontinuehappeninginthefuture? it? Isthatlikelytoeverchange?OrisitsomethingtheIGshave Congress anddecisionmakersaregoingtoasktheIGstakeiton,isn’t 2–29

GOVT/NFP/VOL. 2016 – NO. 1

not-for-profit specialist .Accounting 3.

GOVT/NFP/VOL. 2016 – NO. 1

accounting .The OngoingEvolutionof Not-for-Profit GAAP 3. Running Time: (Self-Study): Reading Required Prerequisites: Course Accreditation: Recommended Course Level: Expiration Date: Objectives: Learning Field ofStudy: Overview: Segment Transcript: Video Preparation: Advance See page3–21. For additionalinformation,goto:www.byxbee.com By LawrenceBilansky, CPA of T.M. ByxbeeCo.,P.C. “FASB’s ProposedChangestoNot-for-Profit FinancialStatements” See page3–14. or anintroductorycourseinaccounting. Work experienceinauditingorfinancialreporting, 37 minutes 2 hoursself-study 1 hourgrouplive Update June 9,2018 Upon successfulcompletionofthissegment,youshouldbeableto: Accounting for-profit organizations isevolving. the notionofGenerally Accepted Accounting Principlesfornot- Loscalzo Associates on not-for-profit accounting,explainshow those statements. taken onaprojectofupdatingandimprovingtheinformationin of not-for-profit organizations. Inrecentyears,theBoardhas related tothepresentationrequirementsforfinancialstatements Approximately twentyyearsago,theFASB issuedstandards None l l l l affects not-for-profit organizations. Recognize howthenewFASB standardonrevenuerecognition new FASB standardonleases; Recognize theimplicationonnot-for-profit organizations ofthe proposal forNot-for-Profit Entities; Identify theliquiditydisclosuresrequiredunderFASB within theFASB’s proposal; Identify themajorchangestonot-for-profit accountingcontained Allen Fetterman , wholecturesextensivelyfor 3–1

GOVT/NFP/VOL. 2016 – NO. 1 3–2

Outline

I. Overhaul of Financial Reporting

A. FASB Releases Project Plan C. Some Flexibility in Donor Restrictions 1. FASB and NAC considering 1. Required disclosures regarding how enhanced model to improve financial and when restricted contributions reporting for not-for-profit may be spent organizations 2. Restrictions might be imposed by a. Issued project plan a few months the donor ago 3. Sometimes assets that appear to be 2. Twin objectives permanently restricted really are not a. Update current net asset permanently restricted classification structure a. Can be spent at the discretion of b. Improve form of financial the board statements i. As they take certain steps 3. Complaints about structure of the net required under the law asset classification a. Requests for additional information in financial statements i. About liquidity, financial performance, cash flows B. Changes in Net Asset Classification 1. Right now we have three classes of net assets a, Unrestricted b. Temporarily restricted c. Permanently restricted 2. FASB is proposing to go down to two classes of net assets a. Net assets with donor-imposed restrictions b. Net assets without donor restrictions outline outline outline outline outline outline outline outline outline outline Outline (continued) I.FASB Proposal onFinancialPerformance III. Liquidity IssuesforNot-for-Profits II. .Operatingvs.Non-Operating B. DefinitionofFinancialPerformance A. .DisclosuresonNumberofDays A. .Inorderfor somethingtobe 3. Availability -revenueisavailableto 2. Mission-revenuewouldbe 1. Wholecombinationofwhatwecall 2. Howanorganization reports 1. .Certainqualitativemeasures 4. Certainotherquantitative 3. FASB proposingdisclosureof 2. Howanentitymanagesliquidityis 1. Liquidity isManaged .Hastobebothmissionrelated a. considered “operating” be spentcurrently Orisgeneratedbycarryingout a. support themission operating ifitisgivenordonatedto the statementofactivities Whetherthereshouldbean a. assets revenues, expenses,changeinnet .Howdidtheycomeupwith b. Entity’s strategyto managerisk a. Compareamountoffinancial c. Amountoffinancialassets b. Amountoffinancialassetsat a. disclosures liquidity number ofdaystheymanage Timeframe 30days,6090 a. a quantitativemeasure and available to bespent the mission operating measure days number ofliquiditymanagement of liquidity Thattheentitymanages i. time period liabilities duewithinspecified liabilities available tomeetfinancial balance sheetdate days liquidity .Capital-LikeTransactions D. LoanInterestasNon-Operating C. .UnderwaterEndowments C. Phase 1and2Deliberations B. .FASB hasreaffirmed theplaced-in- 3. Mostof theproposalsdealingwith 2. Capital-liketransactions 1. Putoff toPhase2ofthe 2. FASB saidintereston debtis 1. .Disclosuresrequiredunderthe 2. Value ofassetsthatunderliethe 1. Phase2 2. Phase1 1. .Replacestheovertime approach a. lived assetsorfixed use approachtocapitalizing long- put off untilPhase2 capital-like transactionswill alsobe Dealswithcapitalacquisitions a. redeliberations Hastaken astepback a. nonoperating .Board'spolicyforspending c. Amountoftheoriginalgift b. Amountofunderwater a. proposal corpus orgiftamount endowment lessthantheoriginal Otheritems a. Deliberationsaboutthreeclasses a. i Aretheyoperatingor ii. Ordonationstoacquire i. endowments thatareunderwater endowments Liquidity i. going totwoclassesofnetassets nonoperating? capital items 3–3

GOVT/NFP/VOL. 2016 – NO. 1 3–4 Outline (continued)

III. FASB Proposal on Financial Performance - Continued E. Impact of Donor Restrictions on Asset Classification 1. When organization receives a contribution restricted to the acquisition of long-lived assets or fixed assets a. Recognized in temporarily restricted class 2. Under the proposal would be called net assets with donor imposed restrictions 3. When they acquire that asset a. Would be released from restriction to net assets without donor restrictions 4. What has been put off until later deliberations is whether that asset is operating or not operating

IV. Expense Reporting

A. Nature or Function? C. Netting Investment-Related Expenses 1. Under current GAAP all not-for- 1. Many organizations report net profit organizations should report return on investment their expenses by function a. Net investment expenses against a. Meaning program, management, investment revenue, interest, fund-raising and other functions dividends and gains 2. Proposal will require all not-for- 2. Proposal will make this a required profit organizations to report netting expenses both by nature and by 3. FASB stated that there would not be function a required disclosure of the a. Nature means salaries, rent, components of net investment supplies, interest, etc. return B. No Specific Format Required D. Cash Flow Statement 1. Proposal specifically states no 1. Major recommendation specific format will be required a. Direct method of presenting 2. Currently use matrix called the operating cash flows is required statement of functional expenses b. Indirect or reconciliation method a. Probably the best format will no longer be required 2. Has gone to redeliberations in Phase 1 and FASB has backed off that recommendation 3. FASB expects to have Phase 1 of redeliberations completed outline outline outline outline outline a. Final ASU issued by middle of 2016 b. At that time Phase 2 will begin outline outline outline outline outline Outline (continued) V.Standards Accounting Lease .Financevs.OperatingLease C. The Accounting Behind Right-to-Use B. NewLease Accounting Standardstobe A. .Bothfinanceleasesandoperating 1. Nonprofitswillhavetorecognize 2. Basedonprinciplethatleasesare 1. Requireorganizations toreport 1. Issued .Financeleasewouldbeinessence 2. Standardusesolddichotomyof 2. .Expensewill berecognized a. Onlynonprofits thatissue a. Ratherthaninthefootnotesto a. .Inthefutureit'sgoingtobe b. Difference withproposalisnow a. leases willgoonthebalancesheet commencement ofalease balance sheetatthedateof an assetandaliabilityontheir underlying asset financings oftheright-to-usean sheets andincomestatements results ofleasedealsonbalance an installmentpurchase organizations public versusnonpublic differently foreachleasetype considered public public orconduitdebtwillbe financial statements based onprofessionaljudgment measurements we havebrightline .AccountingforDonatedSpace D. .OtherMiscellanea E. 3. Guidance in AICPA Guidance and Audit 3. Donatedspaceisnotconsidereda 2. Noguidancefordonatedspaceor 1. .Guidanceon: 2. Guidanceincludessomerequired 1. .Paragraph 5.165talksabout a. .Howitimpacts whatyou c. Howtodeterminecontingent b. Howtodetermine aleaseterm a. Entities” Accounting Guide,“Not-for-Profit lease contract below-market leases disclosures how torecognizedonatedspace capitalize payments 3–5

GOVT/NFP/VOL. 2016 – NO. 1 3–6 Outline (continued)

VI. Revenue Recognition

A. Most Non-Profits Unaffected by New C. Timing of Revenue Recognition Guidance 1. Revenue is recognized when earned 1. Industry-specific guidance is being or when the earnings process is eliminated by new revenue standard complete 2. Contributions and collaborative 2. Definition really that hasn't changed arrangements are scoped out 3. They have changed how we will a. Most nonprofits are not going to determine when the earnings be impacted process is complete b. Healthcare and education might D. Retrospective Application be impacted a little bit 1. When an organization applies the B. Government Contracts new revenue recognition rules 1. If a nonprofit organization is a. They have to apply for all years running a program and the local presented government is reimbursing 2. Have to apply retrospectively – them for their costs which is costly a. Is the government giving them a contribution to support a program? b. Is the government purchasing a service from them? 2. Under the new proposal we will call that net asset with donor restrictions "...it is my opinion...that the government is not a customer in most of these contracts. In my opinion the government is providing a payment in support of a program." - Allen Fetterman outline outline outline outline outline outline outline outline outline outline Outline (continued) VII. VII. Partnerships andGAAPAlternatives .Goodwill B. ConsolidatedFinancialStatements A. .Ifanot-for-profit isaparentand 4. FASB willstarta projecttoseeif 3. Canopttoamortizegoodwillovera 2. ASUissued-saidthatprivate 1. FASB isconsidering andwe're 4. ASUcameoutlastyear 3. Ifthegeneralpartnerhascontrol 2. Maybenecessarytoissue 1. .Nonprofitcannotuse10-year a. financial statements consolidates afor-profit intoits for-profits that exceptionshouldapplytonot- period nottoexceed10years annual basis goodwill forimpairmentonan companies nolongerneedtotest a limitedpartnership when anonprofitshouldconsolidate hoping toseebetterguidancefor Said thatinalimitedpartnership a. Thenonprofitwouldconsolidate a. and it'sthenonprofit consolidated financialstatements consolidated financialstatements amortization intheir longer exist the generalpartnermayno the presumptionofcontrolby the limitedpartnership .GAAP Alternatives? C. .Not-for-profit organizations eligible 3. Ifitcomesoutasan ASU 2. Not-for-profits shouldwatchvery 1. .Would notrecommendit a. Reporting FrameworkforSMEs to use A.I.C.P.A.’s Financial Therewillbeaprojectto a. from thePCCuptoFASB carefully anydecisionsthatcome to not-for-profits GAAPmodification shouldapply determine whetherthatU.S. 3–7

GOVT/NFP/VOL. 2016 – NO. 1 3–8 Group Live Option Instructions for Segment

For additional information concerning CPE requirements, see page vi of this guide.

l As the Discussion Leader, you should developed to generate discussion. The introduce this video segment with words answers to our discussion questions are similar to the following: on pages 3–10 and 3–11. Additional “In this segment, Allen Fetterman objective questions are on page 3–12 explains how the notion of Generally and 3–13. Accepted Accounting Principles for not- l After the discussion, complete the for-profit organizations is evolving.” evaluation form on page A–1. l Show Not-for-Profit Specialist: Segment 3. “The Ongoing Evolution of Not-for- Profit GAAP.” The transcript of this video starts on page 3–21 of this guide. l After playing the video, use the questions provided or ones you have Discussion Questions

3. The Ongoing Evolution of Not-for-Profit GAAP

You may want to assign these discussion questions to individual participants before viewing the video segment. 1. How has the classification of net assets 4. How is operating measure addressed in changed under the FASB’s Not-for- the FASB’s proposal? What is the Profit proposal? timetable for addressing issues related to operating measure?

2. What are the liquidity disclosures contained within the FASB’s proposal on presentation of financial statements 5. What is the FASB’s approach to the of not-for-profit entities? Cash Flow Statement under the proposal?

3. What is meant by the term, underwater endowment? What is the FASB’s proposal related to underwater endowment disclosures? 6. How does the FASB’s new standard on leases impact not-for-profit organizations? How does it impact our organization? discussion questions discussion questions suggested answers to discussion questions Discussion Questions(continued) .WhatistheimpactofnewFASB 7. for-profit organizations? standard onrevenuerecognitionnot- 3–9

GOVT/NFP/VOL. 2016 – NO. 1 3–10 Suggested Answers to Discussion Questions

3. The Ongoing Evolution of Not-for-Profit GAAP

1. How has the classification of net assets 3. What is meant by the term, underwater changed under the FASB’s Not-for- endowment? What is the FASB’s Profit proposal? proposal related to underwater l Current Structure: Three Classes of endowment disclosures? Net Assets l Underwater Endowment v Unrestricted v Value of the assets that underlie v Temporarily restricted the endowment is less than the original gift amount v Permanently restricted l FASB’s Proposal Related to l FASB Proposal: Two Classes of Net Underwater Endowment Assets Disclosures v Net assets with donor-imposed v Amount of underwater restrictions endowments v Net assets without donor- v Amount of original gift imposed restrictions v Board’s policy for spending underwater endowments 2. What are the liquidity disclosures contained within the FASB’s proposal on presentation of financial statements 4. How is operating measure addressed in of not-for-profit entities? the FASB’s proposal? What is the timetable for addressing issues related l FASB’s Proposal Related to to operating measure? Liquidity Disclosures l FASB’s Proposal Related to v Number of days NFP Operating Measure organization manages their liquidity v Split operating versus nonoperating based on mission v Other quantitative disclosures and availability n Amount of financial assets at v Mission: Revenue operating if balance sheet date given to support the mission n Amount of financial assets v Availability: Revenue available available to meet financial to be spent currently liabilities v In order to be considered n Compare those financial operating it has to be mission assets to amount of financial related and available liabilities within a specified time period l FASB’s Proposal Related to Operating Measure v Qualitative disclosures v Phase 1: How an operating n Strategy to manage liquidity measure should be reported risk v Phase 2: Whether or not an n How the entity looks at risk operating measure should be n How the entity determines required number of management days suggested answers to discussion questions suggested answers to discussion questions Suggested AnswerstoDiscussionQuestions(continued) .WhatistheFASB’s approachtothe 5. .HowdoestheFASB’s newstandardon 6. proposal? Cash FlowStatementunderthe l l l organization? organizations? Howdoesitimpactour leases impactnot-for-profit Based onyourorganization v v v New Standard Accounting forLeases:Underthe v v v v Statement FASB’s ProposalontheCashFlow n If operatinglease n n If financelease,record professional judgment and operatingleasebasedon Distinguishing betweenafinance reconciliation notrequired If directmethodused, indirect method organizations canusedirector FASB hasreconsideredand no longerrequired Indirect (reconciliation)method operating cashflowsrequired Direct methodofpresenting amortization method pretty muchstraight-line record asonelineexpenseon interest accretedfromPV .WhatistheimpactofnewFASB 7. for-profit organizations? standard onrevenuerecognitionnot- l v v v New Standard Revenue Recognition:Underthe scoped out Collaborative arrangementalso standard Contributions scopedoutof eliminated Industry-specific guidance 3–11

GOVT/NFP/VOL. 2016 – NO. 1 Objective Questions 3–12

3. The Ongoing Evolution of Not-for-Profit GAAP

You may want to use these objective questions to test knowledge and/or to generate further discussion; these questions are only for Group Live purposes. Most of these questions are based on the video segment, a few may be based on the self-study required reading that starts on page 3–14. 1. Which of the following is incorporated 4. With respect to FASB’s position on the into FASB’s proposal regarding not-for- cash flow statement for nonprofits, Allen profit accounting? Fetterman notes that: a) Nonprofits will be required to have an a) the direct method will be required for operating measure. all nonprofits. b) Increased disclosures will be required b) the indirect method will be required as to confirm to users that underwater a reconciliation to the direct method. endowments are not being spent. c) reclassifications of certain line items c) The over time approach will replace will be handled in Phase 2 of FASB’s the placed in use approach with project. respect to capital-like transactions. d) none of the above d) Net asset classifications will be reduced from three classes to two. 5. In terms of the new lease standard and how that will affect nonprofits, Allen 2. How is liquidity addressed in FASB’s Fetterman stresses that: new nonprofit accounting proposal? a) the majority of nonprofit companies a) FASB has proposed that all nonprofits have operating leases only. manage their liquidity over 30 days. b) the proposal does not provide specific b) Many liquidity aspects contained in guidance for below-market leases. the proposal will be further c) the standard will have very little deliberated in Phase 2 of the project. impact on nonprofits. c) Required disclosures will be only d) depreciation on the leased asset and quantitative in nature. interest expense on the lease liability d) Disclosures for underwater would always need to be recognized. endowments are not addressed in this proposal. 6. What does Allen Fetterman note regarding the new revenue standard as it 3. Under FASB’s new nonprofit proposal, relates to nonprofits? entities differentiate between ‘operating’ a) He stresses that nonprofits should be and ‘nonoperating’ using which two giving themselves plenty of lead time concepts? for the implementation. a) mission and availability b) He does not anticipate the new b) mission and function standard having a major impact on c) nature and function nonprofits. d) nature and availability c) He stresses that the standard will need to be applied retroactively, regardless of the length of time of the contract. d) He recommends that nonprofits get outside help for the implementation from consultants. objective questions objective questions objective questions objective questions Objective Questions(continued) . WhichofthefollowingisFASB trying 9. Undertheproposed ASU, whatisthe 8. Whichofthefollowingistrueaccording 7. )alloftheabove d) requirenonprofitstopresent c) requireoperatingcashflowstobe b) reducethenumberofnetasset a) to accomplishwiththeirnonprofit ASU? netassetswithdonorrestrictions d) temporarilyrestrictednetassets c) netassetswithoutdonorrestrictions b) unrestrictednetassets a) funds? underwater portionofendowment appropriate assetclassforthe AllPCCalternativesarefor d) Nonprofitsmayamortizegoodwill c) FRFforSMEsisabetterframework b) Consolidatedfinancialsarenot a) Fetterman? to Allen expenses bynatureandfunction presented usingthedirectmethod classes nonprofits tofollowaswell. rather thantestforimpairment. for nonprofitsthanGAAP. companies. partner withlimitedliability always requiredwhennonprofits 10. With respect toexpenseallocationsfor 10. )that bothquantitativeandqualitative d) c) that onlyqualitativedisclosureswill that onlyquantitativedisclosures b) a) specific guidanceastohow nonprofits, FASB proposed: disclosures willberequired. be required. will berequired. expenses shouldbeallocated. 3–13

GOVT/NFP/VOL. 2016 – NO. 1 3–14 Self-Study Option Instructions for Segment When taking a CPAR segment on a self-study basis, an individual earns CPE credit by doing the following: 1. Viewing the video (approximately 3. Completing the online steps 30-35 minutes). The transcript of this (approximately 35-45 minutes). Please video starts on page 3–21 of this guide. see pages iii to v at the beginning of this guide for instructions on 2. Completing the Required Reading completing (approximately 25-30 minutes). The these steps. Required Reading article for this segment starts below.

Required Reading (Self-Study)

FASB’s PROPOSED CHANGES TO NOT-FOR-PROFIT FINANCIAL STATEMENTS

By Lawrence Bilansky, CPA of T.M. Byxbee on Statement 117, which was issued in Co., P.C. 1993 and has remained unchanged, other For additional information, go to: than a few technical amendments to www.byxbee.com provide interpretative guidance. Based on discussions with the NAC and other Background constituents, the FASB said that the existing standards for financial reporting by The FASB added a project to its agenda in NFPs are generally sound. However, the 2011 to improve financial reporting by not- FASB also acknowledged that it was time for-profit (NFP) organizations. The to take a fresh look at the reporting project’s objectives address suggestions standards to make improvements that will from the FASB’s Not-for-Profit Advisory meet the needs of donors, grantors, Committee (NAC) and are focused on creditors, governing boards, and other users improving: of NFP financial statements.

l Net asset classification requirements; The proposed changes do not address and requirements for recognition and measurement of assets and liabilities or l Information provided in financial revenues, expenses, gains, and losses. statements and accompanying notes Instead, they focus on how these items are about liquidity, financial performance, presented and disclosed. and cash flows. required readingrequired reading required During the project, the FASB performed The proposed ASU would amend current outreach activities with stakeholders in financial reporting guidance to implement addition to the NAC. These stakeholders the findings of the FASB’s NFP project. included members of the National This reporting guidance is primarily based Association of College and University required reading required reading enterprises, suchashealthcare. include bothNFPsandbusiness statements insomebusinesssegmentsthat impact comparabilityoffinancial business entities. These differences could additional differences betweenNFPsand certain proposedchangeswouldresultin NFPs’ financialstatements.However, intended toimprovethepresentationof Observation: The proposed ASU is from itsagendain2014. ultimately removedthisresearchproject standard-setting needs. The FASB prioritize efforts onmoreimmediate availability ofresourcesandhowto activities. The FASB alsodiscussed the beyond thescopeofFASB’s traditional outside thebasicfinancialstatementswas providing guidanceforcommunications FASB membersexpressedconcernthat communications variedgreatly. Many NFPs. However, itwasnotedthatthese health careindustriesandamonglarger prevalent inthehighereducationand communication methodsweremost The FASB’s researchfoundthatthese NFPs couldusetotelltheirfinancialstory. management’s discussion andanalysis,that communication methods,suchas FASB’s agendain2011 tostudy other Communications,” wasaddedtothe Reporting: OtherFinancial research project,“NFP Financial In additiontothestandard-settingproject,a about theproposedchanges. September andOctober, toobtainviews plans toholdtwopublicroundtablesin during thecommentperiod. The FASB also societies. Additional outreachisplanned NFPs andforHCentities;stateCPA Accountants’ (AICPA) ExpertPanelsfor American InstituteofCertifiedPublic Principles andPracticesBoard;the Financial Management Association’s Principles Committee;theHealthcare Business Officers’ (NACUBO) Accounting for aneffective dateandwhetherthere date. The FASB discussedvariousoptions The FASB didnotproposeaneffective Key Factsand Impacts Effective Date,Transition, the proposednet assetswithdonor current unrestrictednetassets categoryto restricted endowmentdeficiencies fromthe The changeinthereclassification ofdonor- proposed ASU. service uponimplementationofthe relating tothoseassetsalreadyplacedin release anyremainingrestrictednetassets currently usingthisoptiontoimmediately estimated usefullifewouldrequireNFPs option toreleaserestrictionsoveranasset’s asset classes.Forexample,eliminatingthe experience reclassificationsbetweennet information isdisplayed,someNFPscould primary impactwouldbeonhowfinancial Observation: While theproposedstandard’s initial yearofapplication. reflect thestandard’s application inthe financial statementswouldnotneedto period presented.However, interim in thenetassetclassesforeachyearor adjustments andtheireffects onthechange reclassifications orretrospective statements woulddisclosethenatureofany initial periodofapplication,thefinancial required uponinitialapplication.Inthe Retrospective applicationwouldbe considering constituents’ comments. permitted) willbedeterminedafter as wellwhetherearlyadoptionwouldbe whether itshouldbethesameforallNFPs, the effective date. The effective date(and soliciting commentsfromrespondentson ASU, butinsteadincludespecificquestions to includeaneffective dateintheproposed However, theFASB ultimatelydecidednot year beforeadoptionwasrequired. Smaller NFPsweregivenanadditional million and$1million,respectively. total assetsandexpensesgreaterthan$5 the issuanceofstandardsforNFPswith beginning approximately18monthsafter for NFPs,wereeffective forfiscalyears extensive overhauloffinancialreporting and 117, whichresultedinamore NFP financialreporting.Statements116 prescribed forthelastsignificantchangein date shouldbesimilartothetimeframe FASB alsodiscussedwhethertheeffective proposed ASU’s individualprovisions. The either onthesizeortypeofNFP oronthe should bedifferent effective datesbased 3–15

GOVT/NFP/VOL. 2016 – NO. 1 3–16

restrictions category also would result in the currently required performance an immediate reclassification of net assets indicator. upon implementation for those NFPs with underwater endowments. l Requiring operating cash flows to be presented using the direct method may Key Facts: The proposed ASU would: enhance understandability and usefulness of information. However, l Reduce the number of net asset classes recategorization of cash flows. presented in the financial statements from three to two: with donor-imposed Changes to Net Asset restrictions and without donor-imposed Classifications restrictions; The net asset classes in the financial l Define two intermediate measures of statements would be reduced from three to operations and require their two under the proposed ASU. However, presentation in the statement of NFPs would still be required to disclose activities; information about the nature and amounts of donor-imposed restrictions. NFPs also l Eliminate the performance indicator would be required to disclose information currently required for NFP business- about the amounts and purposes of board- oriented health care entities; and designated net assets without donor restrictions. l Require presentation of operating cash flows using the direct method and Current: recategorize items reported in the statement of cash flows to align with l Unrestricted the proposed definition of operations in the statement of activities. l Net Assets without Donor Restrictions

Under the proposed ASU, key impacts are l Temporarily Restricted likely to be: Proposed: l Eliminating the distinction between temporary and permanent restrictions l Net Asses with Donor Restrictions from the financial statements would reduce reporting complexity and l Permanently Restricted enhance understandability. These proposed changes reflect changes in Net Assets without Donor Restrictions: state laws, including de-emphasizing The current net asset terminology was the historic dollar value (original gift) established by Statement 117 in 1993. for donor-restricted endowments in When re-examining this terminology, the most jurisdictions. FASB decided to change unrestricted net assets to net assets without donor l Comparability across not-for-profits restrictions. Unrestricted net assets is may be enhanced by defining operating defined as the part of net assets that is activities, but complexity may increase. neither permanently restricted nor The proposed definition may be temporarily restricted by donor-imposed inconsistent with how some NFPs stipulations. However, some users have currently view their operations or interpreted this term more broadly to refer present their financial statements. to the absence of other restrictions beyond required readingrequired reading required those imposed by a donor (i.e., legal, l Comparability between for-profit and contractual, or other). This not-for-profit health care entities will misunderstanding potentially leads to be reduced because of the removal of incorrect conclusions when assessing an NFP’s liquidity or financial flexibility. The required reading required reading restricted netasset classesaremoreinline proposed changestocombine thetwo the historicdollarvalue). The FASB’s remained largely unchanged (i.e.,generally as permanentlyrestrictedby NFPs donor-restricted endowmentfundclassified classification modelandtheportionof guidance in2008. The netasset rejected whentheFASB ultimatelyissued net assetclass.However, thisviewwas endowment fundwouldbeclassifiedinone classification modelsotheentire time proposedrestructuringthenetasset endowment funds.Someconstituentsatthe asset classificationofdonor-restricted adoption ofUPMIFA shouldaffect thenet profit communityaboutwhetherthe There wasintensedebateinthenot-for- permanent. portion ofnetassetsclassifiedas focus essentiallyallowsspendingfromthe original amountofthegift. This changein of theendowmenthasfallenbelow even incircumstanceswherethefairvalue from adonor-restricted endowmentfund earnings). UPMIFA permitsNFPstospend original giftamountplusaccumulated restricted endowmentfund(i.e.,the prudent spendingfromtheentiredonor- spending ofnetappreciationthefundto changed thefocusfromprudent value (originalgiftamount). This law emphasized theconceptofhistoricdollar endowment fundsbyNFPs.UPMIFA de- the investmentandmanagementof enacted bymoststates.UPMIFA governs Law Commissionin2006andsubsequently (UPMIFA) wasapprovedbytheUniform Management ofInstitutionalFunds Act when themodelUniformPrudent temporary andpermanentbecameblurred Observation: The distinctionbetween restrictions class. create acombinednetassetswithdonor restricted andpermanently–to remaining netassetclasses–temporarily FASB decidedtocombinethetwo Net Assets withDonorRestrictions: The experienced. misunderstanding thatsomeusershave terminology moreprecisetoavoidthe FASB proposedthechangetomake purchasing powerofthefund. increases invaluenecessary tomaintainthe fund (thehistoricdollarvalue) andthe sense, identifyingtheoriginal valueofthe should monitorprincipalinanaccounting economic conditions). Thus aninstitution given investmentperformanceandgeneral represents areasonablespendingrate, (i.e., makingadistributioneachyearthat “principal”…while spending“income” institution willacttopreserve “principal,” the Act assumesthatthe that aspecificamountbesetasideas stated: Although the Act doesnotrequire In fact,asthedraftersofUPMIFA have UPMIFA. institutions stillmusttrackprincipalunder the distinctionofprincipalversusincome, However, whileUPMIFA de-emphasized based onthetotalassetsoffund. allows institutionstodeterminespending fluctuations inthefund’s value.UPMIFA return approach,whichmayresultin invest theirendowmentsusingatotal- incorporates theviewthatinstitutions UPMIFA’s basictenets.UPMIFA with donorrestrictionsclassbetterreflects to classifytheseamountsinthenetassets basic tenets. The FASB’s currentproposal sources, whichconflictedwithUPMIFA’s to befundedorrepaidfromunrestricted implied thatthesedeficiencieswouldneed categorization misconceptions. This unrestricted netassetsclasscreated these underwateramountsinthe assets. However, continuingtoinclude underwater amountswithinunrestrictednet its guidancethatclassifieddonor-restricted Observations: In2008,theFASB retained class. are reportedintheunrestrictednetassets restrictions class.Currently, theseamounts be reportedinthenetassetswithdonor the donororbylaw, thatdeficiencywould gift amountrequiredtobemaintainedby endowment fundislessthantheoriginal of anindividualdonor-restricted Underwater Endowments:Ifthefairvalue UPMIFA. with thechangesinlawunder 3–17

GOVT/NFP/VOL. 2016 – NO. 1 3–18

Presentation of Donor-Restricted financial responsibility ratios. However, the Endowment Funds: Example: Under current changes also could prompt the Education guidance, Gift A, a $105 million donor- Department to take a fresh look at the ratios restricted endowment received on January and its application of relevant U.S. GAAP. 1, 2015, which has fallen in value to $100 million at March 31, 2015, is presented as Other Options Considered: The FASB $105 million in permanently restricted net considered other net asset classification assets and negative $5 million in models, including whether net assets should unrestricted net assets at March 31, 2015. be distinguished not only based on donor restrictions but also legal, contractual, or Gift B, comprised of a historic dollar value other restrictions. They also considered (original gift) of $75 million and requiring NFPs to distinguish net assets by accumulated gains of $25 million, is purpose (e.g., operations, net investment in presented as $75 million in permanently plant, or long-term investment). However, restricted net assets and $25 million in after further research and outreach, the temporarily restricted net assets at March FASB decided to update, but not overhaul, 31, 2015. the net asset classification model.

Under the FASB’s proposed ASU, the $100 Observation: Some NFPs currently million balance of each endowment would delineate categories (such as net investment be reported in the net assets with donor in plant) within the unrestricted net assets restrictions category. class either on the face of the financial statements or in the disclosures. This Observations: Colleges and universities disaggregation within the net assets without participating in student financial assistance donor restrictions class would not be programs of the U.S. Department of prohibited by the proposed ASU. Education (Education Department) must comply with certain general standards of Changes to the Statement financial responsibility. These standards were published in 1997 and include a of Cash Flows composite score based on the institution’s primary reserve, equity, and net income The statement of cash flows, which was ratios. first required for NFPs when Statement 117 was issued, has been poorly understood and A Senate task force recently indicated that often underutilized by users. The FASB the Education Department has not kept up discussed options to improve the with changes in accounting practices in understandability and usefulness of applying the ratios. The Senate task force information reported in the statement of referred to an earlier study by the National cash flows. The FASB ultimately decided Association of Independent Colleges and that requiring all NFPs to use the direct Universities (NAICU). The Senate task method of reporting operating cash flows force noted that the study concluded that and re-categorizing certain cash flows to the Education Department’s regulators conform to the proposed definition of “were not using generally accepted operations used in the statement of accounting standards...in calculating the activities would achieve this goal. financial ratios.” For example, the report found that the Education Department was Current guidance for all entities, including treating endowment losses as expenses and NFPs, provides two options for presenting excluding accumulated endowment operating cash flows. These two options are earnings from temporarily restricted net referred to as the direct method and the required readingrequired reading required assets when calculating the primary reserve indirect method. While the FASB has ratio. encouraged use of the direct method, in practice most entities use the indirect The changes in the net asset classifications method of presenting operating cash flows, proposed by FASB may create additional perhaps because it is easier to prepare. challenges in the application of the However, the FASB’s outreach concluded required reading required reading about financial performancecouldbe The FASB alsodecidedthatinformation be requiredforNFPs. ASU, thisreconciliationwouldnolonger the indirectmethod).Underproposed (i.e., alsoreportoperatingcashflowsusing net cashflowsfromoperatingactivities income (changeinnetassetsforanNFP)to method toprovideareconciliationofnet operating cashflowsunderthedirect Topic 230requires entitiesthatreport systems. payments directlyfromtheiraccounting to trackgrossoperatingcashreceiptsand method fororganizations withouttheability 95, isconsideredamorecost-effective in theBasisforConclusionsofStatement accounts). This method,whichisdiscussed period intherelatedassetandliability expense amountsforthechangeduring indirectly (i.e.,byadjustingrevenueand operating cashreceiptsandpayments using thedirectmethoddetermine existing systems.Manyentitiesthatreport personnel andmapinformationfrom to firstyearimplementationcoststrain additional coststhatwerelimitedprimarily insightful. They generallyreportedminimal direct methodtobeclearerandmore stakeholders foundtheinformationin governing boardmembersandother entities generallyreportedthattheir voluntarily electedtodothesame. These universities andotherNFPsthathave reconciliation) aswellsomeprivate cash flows(includingtheindirect direct methodofreportingforoperating follow GASBstandards,whichrequirethe flows. This includedpublicuniversitiesthat direct methodofreportingoperatingcash and similarentitiesthatcurrentlyutilizethe The FASB performedoutreachwithNFPs are ofteneasiertounderstand. method, andthesesectionsofthestatement required tobepresentedusingthedirect Investing andfinancingcashflowsare assess financialperformanceandliquidity. that thispresentationoftenisnotusefulto Nature andFunction Reporting ofExpenses by information is moreinformativetotheir believe thatthenaturalclassification education, andtradeassociation segments, including someinthehealth care,higher statements (orviceversa). These NFPs, classification onthefaceof thefinancial and todisplaytotalexpensesbynatural classifications oftotalexpensesinthenotes to reporttherequiredfunctional Observations: Currently, someNFPschoose benefits. of specialeventsreportedasdirectdonor cost ofgoodssoldandfacilityrentalcosts This wouldincludesalariesreportedinthe classification ifitisanoperatingexpense). expense classification(andfunctional would needtobereportedintheirnatural in thestatementofactivities,theyalso differently thantheirnaturalclassification extent thatotherexpensesarereported consistent withcurrentguidance,tothe included intheexpenseanalysis.However, investment returnwouldnotneedtobe Investment expensesthatarenettedagainst function wouldbeoptional. natural expenseclassification;reportingby interest expense)wouldbereportedby prescribed. Non-operatingexpenses(e.g., in amatrixformat,butnospecificformatis option wouldbetoprovidetheinformation functional expenseclassification.One presented bybothnaturalexpenseand All operatingexpenseswouldneedtobe the notes,oraseparatefinancialstatement). location (statementofactivities,schedulein information aboutallexpensesinone NFPs wouldberequiredtoreport function. operating expensesbybothnatureand decided torequireallNFPspresent To achievegreatertransparency, theFASB report astatementoffunctionalexpenses. and welfareentities,whicharerequiredto currently requiredonlyforvoluntaryhealth salaries, benefits,rent,anddepreciation)is expenses bynaturalclassification(e.g., and supportingactivities).Presentationof (i.e., withincategoriesofprogramservices are requiredtopresentexpensesbyfunction carry outtheirmission.Currently, allNFPs about howNFPsusetheirresourcesto improved byprovidinggreatertransparency 3–19

GOVT/NFP/VOL. 2016 – NO. 1 3–20

financial statement users than the now- conduct and direct supervision or the required functional classification. definition of program services more broadly than the illustrations in the proposed ASU Given the proposed ASU’s requirement that would support. The added requirement to all operating expenses need to be presented disclose the methods used to allocate costs by both natural and functional expense also may prompt some NFPs to take a fresh classification in the same location, this look at their expense allocations. presentation would not comply with the requirements in the proposed ASU.

However, given that the matrix format, which was previously required for voluntary health and welfare entities, is not prescribed under the proposed ASU, some questions have been raised about the level of detail intended by the FASB. While the matrix format is used in the illustration included in the proposed ASU, this expanded expense information may not be equally useful across all segments of the diverse NFP industry. It is not clear whether including two separate columns in the same location (e.g., note disclosure), the first showing expenses by functional classification and the second showing expenses by natural classification, would also meet the requirements under the proposed ASU.

Disclosures Required for Expense Allocations: Certain categories of expenses are attributable to more than one program or supporting service expense category and therefore require allocation. Qualitative disclosure of the methods used to allocate costs among program and supporting service categories would be required. This additional disclosure was prompted by concerns from some stakeholders that the lack of specific guidance on cost allocations may create diversity in functional expense ratios that are often used as a benchmarking tool for comparison purposes across NFPs. The FASB discussed whether the disclosures should be quantitative, qualitative, or both. Ultimately, the FASB decided that only qualitative disclosures would be required. The proposed ASU does not prescribe the contents of this disclosure, but does include example disclosures on required readingrequired reading required cost allocation methods used.

Observation: These clarifications could result in a change in practice for some NFPs that may currently interpret direct video transcript video transcript Video Transcript .The OngoingEvolutionofNot-for-Profit GAAP 3. UNA:A fewminutesago,Beckymentioned thatoneoftheFASB’s objectives QUINLAN: Well, it's interesting,Mike. You certainlyshouldnotbesurprised. This FETTERMAN: A fewyearsago, Allen, wewerediscussingrecentdevelopmentsat QUINLAN: Mike,itisgreattobeback. Thank you. FETTERMAN: With us,onceagain,is Allen Fetterman,wholecturesextensively QUINLAN: Approximately twentyyearsago,theFASB issuedstandardsrelatedto SURRAN: simple, likejust droppingoneoftheexisting threeclasses? replaced withtwoclassesof netassets.Doesthatentailsomething sounds asifthepresentthree classesofnetassetsaregoingtobe was toupdate–andimprove –thenetassetclassificationstructure.It some moreattention.So,it’s gottenalotofattention. a commentletteronmyownpickingupfourissues that Ifeltneeded task forcethatwroteacommentletterforthestatesociety. Ievenwrote various stakeholders.IservedontheNew York StateSocietyofCPAs, a the FASB hasreceivedabout260some oddcommentlettersfrom organizations andit'sgottenalotofattention,scrutiny. Infact, is amajoroverhaulofthefinancialreportingbynot-for-profit for-profit community? Are theregoingtoberedeliberations? been finalized?Isitdrawingalotofattentionandscrutiny fromthenot- proposal nearsitsfirstanniversary, shouldIbesurprisedthatithasn’t presentation offinancialstatementsnot-for-profit entities. As the FASB. Sincethattime,theBoardhasissuedaproposed ASU onthe and governanceissues. Thanks forjoiningusthisquarter, Allen. throughout thecountryonnot-for-profit accounting,auditing,taxation resemble acommercialentity’s financialstatements. statements ofanot-for-profit organization willeventuallymoreclosely By movingthefinancialstatementsinthesedirections, and cashflows. emphasizing operatingvs.nonoperatinginthestatementsofactivities statements. The goaloftheNACistoprovidebetterdisaggregation,by The othercurrentareaoffocusrelatestotheformfinancial liquidity, financialperformance,andcashflows. statements andnotes,particularlyaboutanot-for-profit organization’s have requestedthatadditionalinformationbeprovidedinthefinancial restricted, andpermanentlyrestricted.Creditors,donorsregulators structure ofthenetassetclassification–unrestricted,temporarily For manyyears,thestandardsetterhasheardcomplaintsabout improving theformoffinancialstatementsissuedbynot-for-profits. objectives: updatingthecurrentnetassetclassificationstructureand months ago,theyissuedaprojectplandesignedtoachievetheirtwin to improvefinancialreportingfornot-for-profit organizations. A few known asNAC–announcedthatitwasconsideringanenhancedmodel years ago,whentheFASB anditsnot-for-profit advisorycommittee– consistencies inexternalfinancialstatements.Fastforwardtoafew for-profit organization. The primarypurpose:toprovidereporting the currentpresentationrequirementsoffinancialstatementsanot- 3–21

GOVT/NFP/VOL. 2016 – NO. 1 3–22

FETTERMAN: Well, Mike, yes, right now we have three classes of net assets: unrestricted; temporarily restricted; and permanently restricted. And what the FASB is proposing is to go down to two classes of net assets. We'll call them “net assets with donor-imposed restrictions” and “net assets without donor restrictions.” So, yes, we're going from three to two, but it’s not quite that simple because the problem has been for the last several years. Ever since UPMIFA – which is the Uniform Prudent Management of Institutional Funds Act – there has been a blurring between what's temporarily restricted and what's permanently restricted and many endowments are permanently restricted are at least from the accounting classification point of view but we can spend them. So, are they really permanently restricted? So, what FASB is looking to do is to eliminate the lack of distinction, the blurring between temporarily- and permanently-restricted net assets. QUINLAN: It sounds as if you’re saying, Allen, that so-called “donor restrictions” are less important than how, and when, net assets can be used. FETTERMAN: Well, donor restrictions still remain important but we're not going to have temporarily or permanently. So, yes Mike, you're absolutely right. There are going to be required disclosures regarding how and when restricted contributions may be spent and a lot of times the restrictions might be imposed by the donor. Sometimes what might appear to be permanently restricted really are not permanently restricted because they can be spent at the discretion of the board so long as they take certain steps required under the law. QUINLAN: Another criticism of not-for-profit financial statements involves the issue of the time horizon that an entity uses to manage its liquidity. Tell me: is this supposed to be a quantitative, or a qualitative, measure? FETTERMAN: Well, Mike, how an entity manages liquidity is a quantitative measure. What they're looking for is “Alright, we manage it over a timeframe of 30 days, 60 days, 90 days or whatever” but there's a lot more in that part of the proposal than just how many days over which an entity manages its liquidity. QUINLAN: So, what exactly is the FASB proposing in the area of liquidity? FETTERMAN: Well, FASB is proposing one that they disclose the number of days they manage their liquidity. Then there will be certain other quantitative disclosures such as the amount of financial assets at the date of the balance sheet. Then the amount of those financial assets that are available to meet financial liabilities because many times financial assets are restricted and not available. And then the third thing would be to compare that to the amount of financial liabilities that are due within a specified time period and that would be that 30 days or 60 days etc. that the entity manages those liquidity. Then, FASB has stated that there are going to be certain qualitative measures. There's several of them including what is the entity’s strategy to

video transcript video transcript manage risk of liquidity, how they look at their liquidity risk and in fact how did they come up with their management days, 30 days, 60 days etc. So, they going to be both quantitative and qualitative disclosures but I will tell you that right now – and I think this is a good time, Mike, to mention that – FASB has already determined that based on all these 260 some odd comment letters, they're going to redeliberate most of the issues and they already have. Some of them have already been reaffirmed, Mike, like the video transcript video transcript ETRA:Theproposalisveryclear. Itsaysthatanentityshouldsplitoperating Well,FETTERMAN: let’s startwith“operatingmeasure.”So,howshouldanorganization QUINLAN: Well, Mike,intheproposalfinancialperformanceisreferringto howan FETTERMAN: There’s alsoamajorsectionintheFASB proposalonfinancial QUINLAN: Anunderwaterendowmentisatermofart. That meansthevalueof FETTERMAN: You know, Allen, theconceptofliquidityusuallyinvolvesan QUINLAN: For, example, Mike,FASB saidthatinterest ondebtisnonoperating.Now, entities, butFASB went andthendefinedcertainthings asnonoperating. The originalproposalsrequired anoperatingmeasureforallnot-for-profit determining whetherornot an operatingmeasureshouldberequired. an operatingmeasureshould bereported.ButFASB hasputoff toPhase2 Phase 1ofthedeliberations, they'llbetalkingaboutconceptssuchashow And, Mike,alsothisisone oftheareasthatFASB willbedeliberating. In FASB meansbyoperating,missionand availability. spent. The expenseside,itkindoffallsintoplacealsobutthat'swhat from therevenueside,ithastobebothmissionrelated andavailabletobe currently. So, inorderforsomethingtobeconsidered“operating,”atleast the mission. Availability meansthattherevenueisavailable to bespent admissions inamuseumthatwouldberevenuegenerated forsupporting support themissionorisgeneratedbycarryingout mission, suchas mission, theymeanrevenuewouldbeoperatingifitis given ordonatedto versus nonoperatingbasedontwoconcepts:missionand availability. By differentiate “operating”from“nonoperating”? what wecallthestatementofactivities. there shouldbeanoperatingmeasure.So,it'sthewholecombinationof organization reportsrevenues,expenses,changeinnetassets,whether mean by“financialperformance”inthiscontext? performance. Letmeaskyouabaselinequestion, Allen: whatdothey them. required proceduresstipulatedinthelawandtherearesevenoreightof from anunderwaterendowmentsolongastheyfollowthesteps, Because underUPMIFA, Mike,anorganization canactuallyspendmoney under water. original gift,andalsotheboard'spolicyforspendingendowmentsthatare proposal willbetheamountofunderwaterendowments, is underwaterby$50,000. The disclosuresthatwillberequiredunderthe later the$1millioninvestmenthasdroppedto$950,000. The endowment amount. So,it’s likeIgive youagiftof$1million,investandyear assets thatunderlietheendowmentislessthanoriginalcorpusorgift something thatneedstobedisclosed? organization’s endowmentissaidtobe“underwater”? And isthat relate totheirendowment.Forexample,whatdoesitmeanwhenan organization’s operations.Butinthecontextofnot-for-profits, itcanalso affirmed orshouldbechangedbuttheyaregoingto betalkingaboutit. determined whetherthoseproposalsthatwejusttalkedaboutshouldbe the areaofliquidity, Mike,IshouldtellyouthatFASB hasnotyet probably untilafterthePhase1iscompleted,whateverthatmaybe.In will havetowaitforalittlebitoflongertimeandthat That willbePhase1ofthedeliberations.2otheritemsthat Some ofthemhavenotbeenbutwillbeinthemeetingsnearfuture. reaffirmed. three classesgoingtotwoofnetassets. That's alreadybeen 3–23

GOVT/NFP/VOL. 2016 – NO. 1 3–24

I posed the question in my comment letter as did many others saying to FASB “Well, listen, let’s take an organization that runs a group home for developmentally disabled adults. All the costs of operating that home is part of operating. All the costs of running and maintaining the home, depreciation of the building, maintenance, insurance, real estate taxes are operating but the interest on the loan to acquire the home would not be operating.” I find that troubling and, as I mentioned, was in my comment letter. So, FASB has taken a step back. That's being put off to Phase 2 of the redeliberations. So, we're going to look at that in the future. Phase 1 on this is only going to deal with how to present the operating measure. QUINLAN: You mentioned that financial performance goes beyond operating measure. What about capital-like transactions? What’s FASB proposing in that area? FETTERMAN: Well, capital-like transactions it is a term that FASB came up with in this particular proposal. It deals lot with what in the area of capital acquisitions or donations to acquire capital items is it operating or nonoperating and since FASB has put off the determination of what's operating versus nonoperating and whether an operating measures should be required, most of the proposals dealing with capital-like transactions will also be put off until Phase 2 of these redeliberations but what they have reaffirmed in this area, FASB has, is the placed-in-use approach to capitalizing long-lived assets or fixed assets. When an organization puts the asset in use at that point, it’s recognized depending whether or not where it's presented in the financial statement. It replaces the over time approach. An organization currently still has the option of recognizing revenue in the unrestricted class over time equal with the amount of depreciation that they recognize. That's an optional policy that an organization can adopt. That will no longer be permitted. The placed-in-use approach will be required. QUINLAN: I know we talked about “donor restrictions” a few minutes ago, Allen, in the context of net assets. But how do donor restrictions relate to capital- like transactions in general and to the acquisition of long-lived assets in particular? FETTERMAN: When the organization receives a contribution restricted to the acquisition of long-lived assets or fixed assets, it’s recognized in what today we would call the temporarily restricted class but what would be called under the proposal net assets with donor imposed restrictions. When they acquire that asset be it a building or furniture or equipment, it would be released from restriction to net assets without donor restrictions. What has been put off until later deliberations is the concept of whether that contribution or the acquisition or the placed in service of that fixed asset is operating versus not operating. That they're going to redeliberate. QUINLAN: Every organization must report its expenses. I suppose it’s an age-old question: do you have to report them by their “nature” or by their “function”? FETTERMAN: That's been an age-old question, Mike. Under current GAAP, all not-for- video transcript video transcript profit organizations should report their expenses by function and by function we simply mean program, management, fund raising and there are other functions. The proposal will require all not-for-profit organizations to report expenses both by nature and by function and nature means salaries, rent, supplies, interest, etc. video transcript video transcript UNA:Thanks, Allen. We’ll return toyourcommentary in aminute. QUINLAN: Well, asImentioned earlier, Mike,itwenttoredeliberationsandit'sin Okay,FETTERMAN: I’m gladyoubroughtyourcrystalballwiththisquarter, Allen. QUINLAN: Themajorrecommendationintheproposalisthatdirectmethodof Onefinal item, FETTERMAN: Allen: whataboutthecashflowstatement? What didthe QUINLAN: Manydo,Mike.organizations doreportanetreturnoninvestment FETTERMAN: Idon’t wanttogettoofarintheweeds, Allen. Butwhatabout QUINLAN: Well, theproposalspecificallystatesnospecificformatwillberequired. Isthisone-size-fits-all?FASBFETTERMAN: goingtospecifyaspecificformatfor QUINLAN: deadline yetonthatparticular phase. items theywere. Those will beredeliberatedinPhase2. There's no to financingorfrominvesting toanoperatingdependingonwhichline certain lineitemsonthecash flowstatementreallocatedfromoperating about someaspectsofthecash flowstatementwheretheproposalhad It’ll betalkingabouttheoperatingmeasurebutalso talkingagain of 2016. At thattimePhase2willbegin.doesn'thavealotinit. completed andafinal ASU issuedbythemiddleofthisyear, Juneorso two phases.FASB expectstohavePhase 1oftheredeliberations Will –orwhenwill – FASB finalizethisguidance? reconciliation willnotbearequirement. remain butifanorganization optstousethedirectmethod, that theoptionofpreparingitusingdirectorindirect methodwill direct methodorindirectmethod.So,FASB hasreconsideredandstated organizations. Rightnowotherorganizations havetheoptionofdoing organizations havedifferent reportingrequirementsthanallother organizations andpeoplemyselfincludedthatsaidwhyshouldnonprofit off thatrecommendation. There werealotofcommentsfrommany Now, thathasgonetoredeliberationsinPhase1andFASB hasbacked be there. it willhavetobeusingthedirectmethodandreconciliationnot that ifanorganization hasitscashflowstatementsandallnonprofitsdo, sometimes calledthereconciliationmethodwillnolongerberequiredso presenting operatingcashflowsberequiredandthattheindirectmethod ASU proposeandwhat’s goingoninthatarea? components. That willnotberequired. expenses againstinvestmentreturn,therehastobeanotedetailingofthe components ofnetinvestmentreturn.Currently, ifyounetinvestment FASB statedthattherewouldnotbearequireddisclosureofthe they aregoingtorequirenettingandwhichIfindalsointerestingisthat find veryinteresting.Imeanagreewithitbutinterestingthat and gains. The proposalwillmakethisarequirednetting. This iswhatI investment advisors’ feesagainstinvestmentrevenue,interest,dividends meaning thenetinvestmentexpensessuchasbroker’s feesand against investmentrevenues? investment-related expenses?Don’t mostorganizations justnetthem more convolutedandmaybenotasinformative. best formatbecauseanyotherIcanthinkofwillbealittlebit not bearequiredformat.However, Mike,quitefranklyit’s probablythe the columnsandnaturalexpensesinlines.FASB statedthatwill we callthestatementoffunctionalexpenseswhichhavefunctionsin A matrixwillnotberequired. The matrixthatwecurrentlyuse iswhat reporting expenses? 3–25

GOVT/NFP/VOL. 2016 – NO. 1 3–26

SURRAN: Well, when it comes to accounting for leases, it looks like it is “all systems go” for the accounting standard setters. Of course, leasing is an important activity for almost every organization – whether it is profit- making or not-for-profit. After all, it is a means of gaining access to assets, obtaining financing, and reducing an organization’s exposure to the risks of asset ownership. And because of the prevalence of leasing, it is important for users of financial statements to have a complete and understandable picture of an organization’s leasing activities. In fact, many organizations lease assets such as real estate, airplanes, trucks, ships, and construction equipment. And FASB recently confirmed that its lease accounting standards would be issued in the next month - by the end of the first quarter of 2016. So, what impact will the new standards on lease accounting have on not- for-profit organizations? QUINLAN: Well, Allen, the new FASB standards on lease accounting are going to require organizations to report the results of their lease deals on their balance sheets and income statements, rather than in the footnotes to their financial statements. I’m curious: will this affect not-for-profit organizations? FETTERMAN: Well, Mike, this is a great question at a great time because just yesterday FASB issued ASU 2016-02 on leases. It will have a major impact on many, many organizations including most nonprofit organizations, any organization that leases equipment or space. How many nonprofit organizations lease space for their offices, for their headquarters? It will impact many not-for-profit organizations. QUINLAN: For purposes of not-for-profit entities, when is the new standard likely to go into effect? FETTERMAN: Okay, we have to understand here that we now have in the United States under GAAP, three types of entities: public business entities; private companies; and not-for-profit organizations or not-for-profit entities. But for this lease standard, the dichotomy is different. Because the lease project started sooner, they went back to the old dichotomy of public versus nonpublic. Most nonprofits are considered nonpublic. Only nonprofits that issue public debt or conduit debt will be considered public. So, most nonprofits are nonpublic and therefore the effective date for them will be years beginning after December 15th, 2019 which means, in effect, Mike, the year 2020 before this standard takes effect. Early application is obviously permitted but I'm going to guess that many nonprofits will not early apply. QUINLAN: From what I’ve read, the new guidance is based on the principle that leases are financings of the right-to-use an underlying asset. Tell me, Allen: how will that affect non-public entities in general and not-for- profit organizations in particular? FETTERMAN: Well, nonprofits are going to have to recognize an asset and a liability on their balance sheet at the date of the commencement of a lease. So, let's take the simple example of a nonprofit organization leases office space video transcript video transcript for 10 years. Rent is $40,000 a year. I am going to just make it really simple. We’ll take the $40,000, multiply it by 10 years, = $400,000. We will discount it back to present value – and, by the way, nonpublic entities such as most nonprofits under this standard will be allowed to use a risk- free rate to discount and measure the liability. And the simple entry once we get that number $400,000 discounted back to present value, let’s video transcript video transcript ETRA:Again,Mike,justaswetalkedabout leasesalittlewhileagoforthis FETTERMAN: TheothermajorguidancefromFASB overthepast yearinvolvesrevenue QUINLAN: Rightnow, thereisabsolutelynoguidanceonthat becausespecifically, FETTERMAN: You knowsomenot-for-profit organizations thatget“sweetheart”deals QUINLAN: Well, thefirstthingyoushouldknowisbothfinanceleasesandoperating Remindme, FETTERMAN: Allen: what’s thedifference betweena“finance”leaseandan QUINLAN: year 2019. beginning afterDecember15th, 2018,whichagainmeansineffect the effective dateforthisrevenue recognitionstandardwouldbeyears issue publicdebtorconduit debt.So,mostnonprofitsarenonpublic. The and nonpublicnonprofits wouldbeconsiderednonpublicunlessthey standard, withtherevenuerecognitionsplit isbetweenpublic for-profit organizations generallyconsidered“nonpublicentities”? recognition. Onceagain,remindme:intermsofeffective date,arenot- be putontheoperatingstatementastraight-linebasis. months orunder, would notberecognizedonthebalancesheet,butwould And alsoitmentionsthatshort-termleases,whichareleases oftwelve determine contingentpayments,howitimpactsonwhat youcapitalize. there's alsosomeguidanceinhowtodeterminealease term,howto And also,Mike,intheguidancetherearesomerequireddisclosures, and Accounting Guide, Paragraph5.165. instead ofleasepayable?Contributionrevenue. And youlookinthe Audit to useanassetbutwedon'thavealeaseliability. So,what'sthecredit very simplytheconceptissameasIdescribedbefore. We havearight Entities.” Paragraph5.165talksabouthowtorecognizedonatedspaceand there isinthe AICPA Audit and Accounting Guide,“Not-for-Profit not consideredaleasecontract. Where theygettheguidancebecauseit's Mike, thisstandard,leases,dealswithleasecontractsanddonatedspaceis guidance fordonatedspaceorbelow-marketleases? from developersintermsoftheirleasedspace.Isthereanyspecific straight-line method. will berecognizedasasingleonelineleaseexpenseprettymuchon qualify asfinanceleaseswillbeanoperatingleaseandthe we accreteitbackfrompresentvalue. All otherleases,iftheydon't via leaseholdandsecondlywouldbetheinterestonleaseliabilityas types ofexpenses.Onewouldbetheamortizationright-to-useasset organization believesthatit'safinancelease,thentheywouldrecordtwo In thefutureit'sgoingtobebasedonprofessionaljudgmentandif currently sitsisnowwehavebrightlinemeasurements. measure ofwhat'sfinanceversusoperatingleaseunderGAAP asit difference betweenthestandardasitexistsinthisproposal versustheold would bealeasewhichisinessenceaninstallmentpurchasebutthe simplify itbecausetherearesomecomplexitiesinit. A financelease differently. So,here'showit'sgoingtowork. And againI'mgoingtotry lease andanoperatingisbecausetheexpensewillberecognized practical reasonthatweneedtoknowthedifference betweenafinance leases willgoonthebalancesheetwayIjustdescribedit. The “operating” lease? $310,000. And creditleaseliability$310,000. asset -let'scallitleasehold.It'sarighttousethatasset.Debitleasehold assume thatcomesto$310,000.I'mmakingupanumber, Mike.Debitan 3–27

GOVT/NFP/VOL. 2016 – NO. 1 3–28

QUINLAN: Well, there’s nothing that’s more fundamental to any business than revenue. But just how significant, Allen, is revenue, and the concept of revenue recognition, for not-for-profit organizations? FETTERMAN: Well, Mike, it's always been significant. It's the lifeblood of any entity for profit or not-for-profit. So, it's very important. QUINLAN: I suppose a lot of not-for-profit organizations, from condo associations to health care providers, are going to be in for a surprise when industry- specific guidance is eliminated, right? FETTERMAN: Yes and no, Mike. Industry-specific guidance is being eliminated by this new revenue standard. We're trying to make revenue consistent throughout all industries including the not-for-profit industries, healthcare, education, social services. But most nonprofits, I’ve got to tell you, are not going to be impacted by this standard, certainly not going to be impacted significantly. First of all, contributions are scoped out of the standard. It's not considered a contract with a customer. And, by the way, the revenue standard only deals with contracts with customers. Collaborative arrangements are scoped out. A collaborative arrangement is an arrangement where both parties to the contract share risks, costs and benefits. Think a contract between government and nonprofit. Nonprofit provides a service, government pays them for it. That's a collaborative arrangement. So, with all of that scoped out, most nonprofits are not going to be impacted. Healthcare might be impacted a little bit, education might be impacted a little bit but I also have to tell you it's my guess and others I've spoken to that most nonprofits are already handling their revenue and recognizing it in accordance with these new standards. QUINLAN: I know there’s a new five-step model for recognizing revenue. And it begins with “Identifying the contract with the customer.” But what about a not-for-profit organization that has a grant from a government agency to provide services? In that case, is the government agency considered to be their customer? FETTERMAN: Well, that's a great question and by the way this has been one of the most significant debates in the not-for-profit sector when it comes to accounting and revenue recognition going back since I was a young accountant, I am going back 40 some odd years. Here's the story as I see it. If a nonprofit organization is running a program and the government, local government is reimbursing them for their costs, is the government giving them a contribution to support a program or is the government purchasing a service from them? And it's more than an esoteric question, a theoretical question. This is a practical question because if it's a contribution, it would be reflected in what we currently call temporarily restricted net assets. Under the new proposal we will call that net asset with donor restrictions. If it's a purchase, it’s unrestricted. So, we have to make a determination. is my opinion and it has been for many years that the government is not a customer in most of these contracts. In my opinion the government is providing a payment in support of a program. It's a conditional video transcript video transcript contribution. That's the way I treated it when I was in practice and that's the way I describe it should be treated today as a lecturer. The good news is that FASB is working with the AICPA, one of their nonprofit task forces and they're doing some what they call pre-agenda research on this topic. video transcript video transcript ETRA:Well, theanswer isadefinitemaybe.Here'sthestory, Mike. There has FETTERMAN: Butoneofthequestionsfromanaccountant’s perspectiveis:isit QUINLAN: Well, therearetworeasonswhyanot-for-profit wouldbecomeinvolved FETTERMAN: There’s beenatrendinrecentyearsfornot-for-profit organizations to QUINLAN: Whenanorganization appliesthenewrevenuerecognitionrules,they FETTERMAN: With anynewguidance,thereisalwaysamajoremphasisonthe QUINLAN: Mike,I'mreallyimpressedthatyourememberfromyourcollege FETTERMAN: IfIhadtoputwhatlearned–manyyearsago,inmyoneaccounting QUINLAN: called, Ithink, presumptivekick-outrights orparticipatoryrights, For example, if thelimitedpartnershave kick-out rights,sometimes presumption ofcontrolbythe generalpartnermaynotexistanylonger. out lastyearthatbasicallysaid thatinalimitedpartnershipthe the limitedpartnership. That howeverischanging. A recent ASU came partner hascontrolandit'sthe nonprofit,thenonprofitwouldconsolidate they don'thavethecontrolof thelimitedpartnership.Now, ifthegeneral only havelikea1%interest. The limitedpartnershavea99%interestbut always butmosttimes,thenot-for-profit isthegeneralpartnerbutthey the generalpartnercontrolslimitedpartnershipand mosttimes,not always beenapresumptionthatinlimitedpartnership orsimilarentity answer, Allen? necessary toissueconsolidatedfinancialstatements?So, what’s the parties tothepartnershiporLLCcanbringsomefunding tothetable. the tabletohelpnonprofitfurtheritsmissionorfunding, thattheother their missionthattheotherpartiestopartnershipbringsomething in alimitedpartnershiporanLLCandithastodowitheitherfurthering “business” reasonforthesealliances? companies. Remindme, Allen: what’s goingonhere? What’s the become “involved”withlimitedpartnershipsandliability have toapplyretrospectivelyandyou'reright,Mike,it'scostly. standard inthecurrentyearandyouhavepriorinformation, before thedatethatstandardbecomeseffective, ifyouapplythe comparative financialstatementsfortwoyears,eveniftheprioryearis have toapplyforallyearspresented.So,ifthey'regoingpresent up decidingintermsofretrospectiveapplication? application forcontractsthathavealongduration.So,whatdidFASBend realize itcanbequitecostlyandcomplicatedtoprovideretrospective transition rules. After all, everyonelikestoseetrendinformation.ButI that's happened. how wewilldeterminewhentheearningsprocessiscomplete. That's all really thathasn'tchanged. What theyhavedoneis they havechanged and youreadintoit,someofthestandard,aregoingtofind process iscompleteandI'mgoingtotellyouifreadthefivesteps days. Yes, revenueisrecognizedwhenearnedorthe earnings recognition standard? And isitlikelytostillbecorrectwhenthedustsettlesonnewrevenue earnings processiscomplete.”I’mcurious:wasthatcorrectatonepoint? course –intoonesentence,itisthat:“Revenuerecognizedwhenthe new revenuestandard,Idon'tthinkthegovernmentisacustomer. government isacustomer. Ifyoureadthedefinitionofcustomerin nonprofit andtheisprovidingaprogramservice,whetherthat not thistypeofcontractbetweenagovernmentwherethey'repayingthe future andpossiblywewillgetsomeguidancefromFASB onwhetheror And I'mhopingthatitwillbeaddedtotheFASB agendainthenear 3–29

GOVT/NFP/VOL. 2016 – NO. 1 3–30 meaning that limited partners can kick out the general partner, overrule the general partner, participatory rights meaning they can participate in the management – the financial management, the operational management – of the entity, then the presumption of control is overcome and consolidation would not be required. The good news is again FASB is considering and we're hoping to see a proposal on this sometime this year a proposal to provide better guidance as to when a nonprofit should consolidate a limited partnership. QUINLAN: Okay, so we’ve got an ASU from the FASB on consolidation that you mentioned. And the FASB is going to clarify it for not-for-profit organizations. But didn’t the AICPA also give some related guidance on amortizing goodwill? FETTERMAN: Yes, they did, Mike. This one really surprised me. Let's quickly go back and give you a little background. The PCC, the Private Company Council, made a recommendation which FASB approved. And it became an ASU a year or so ago that said that private companies no longer need to test goodwill for impairment on an annual basis. Using the two-step approach, they can opt to amortize goodwill over a period not to exceed 10 years. So, the question goes anytime the PCC comes up with something that's passed by FASB, the FASB will start a project to see if that that exception to U.S. GAAP, that modification to U.S. GAAP should apply to not-for-profits and by the way public business entities. No determination has been received by FASB for the moment. So, the question was posed to the AICPA. What if a not-for-profit is a parent and will consolidate a for-profit into its financial statements? The for-profit has opted to amortize goodwill over 10 years. Can the nonprofit use that amortization in their consolidated financial statements? The AICPA stated “no” because nonprofits are not currently permitted to amortize goodwill. They have to test goodwill for impairment. So, in this example the nonprofit has to unwind the amortization and test goodwill for impairment. QUINLAN: In many of the situations we’ve been discussing today, Allen, we’re talking about special treatment from FASB for the not-for-profit community. And a few years ago, when the FASB’s parent – the Financial Accounting Foundation – created the Private Company Council, we discussed the idea of whether not-for-profit organizations – as nonpublic entities – should be able to take advantage of the “GAAP alternatives” that the PCC proposes and that FASB adopts – like the amortization of goodwill that you mentioned a few minutes ago. Tell me: to what extent should not-for-profit organizations fall within the jurisdiction of the PCC? FETTERMAN: Well, by definition, Mike, the PCC’s decisions do not apply to not-for- profit organizations totally anyway. They only deal with private companies and not-for-profits by definition are not private companies. They're not public business entities. They're not-for-profit organizations. However, not-for-profit should watch very carefully any decisions that come from the PCC up to the FASB because if it comes out as an ASU, there will be a project begun shortly thereafter to determine whether or not that U.S. GAAP modification should apply to not-for-profit entities. video transcript video transcript QUINLAN: Well, in a similar vein, to what extent are small- and medium-sized not- for-profit organizations “eligible” to use the A.I.C.P.A.’s Financial Reporting Framework for SMEs? FETTERMAN: Well, they're eligible. I mean, there's no doubt that they're eligible. The financial reporting framework for smaller and medium-sized entities that the AICPA came out with is anybody can adopt it. I would not video transcript video transcript ETRA:Mike,thanks.Ilookforwardtoseeingyouagaininthenextquarter. FETTERMAN: AllenFetterman,thanks,onceagain,forbringingusup-to-date. And I’m QUINLAN: about thatthelatestdevelopments. going totakeyouuponthatoffer tocomebacknext quarterandtalk of accounting. That wouldbemyrecommendation too, Mike. FRF forSMEs. They couldusethecashbasisor modified-cashbasis profits thatdonotwanttoreportusingU.S.GAAP, theydonotusethe recommend. Infact,eventhe AICPA doesnotrecommendthatnot-for- 3–31

GOVT/NFP/VOL. 2016 – NO. 1

not-for-profit specialist .Management 4. Advisory Services Advisory

GOVT/NFP/VOL. 2016 – NO. 1

management advisory servies 4. New Tech Trends toKnowandUnderstand Objectives: Learning Overview: Segment Preparation: Advance Prerequisites: Course Course Level: Expiration Date: Field ofStudy: Running Time: Transcript: Video (Self-Study): Reading Required Accreditation: Recommended Upon successfulcompletionofthissegment,youshouldbeableto: likely toimpactyourorganization inthecomingmonthsandyears. to understandandshowshowtheseadvancesintechnologyare identifies thenewandemerging IT trendsthatbusinessleadersneed what’s ontapfromanIT perspective. Technologist critical thataccountantsandfinancialmanagerslookaheadtosee technology, andthefactthatitchangesatsucharapidpace,is of ourlivestoday. Becauseofourever-increasing dependenceon As we’reallwellaware,technologytouchesvirtuallyeveryaspect None or anintroductorycourseinmanagement. Work experienceinmanagementorauditing, June 9,2018 Services Management Advisory Update 34 minutes See page4–10. technology-often-falls-short/ http://daily.financialexecutives.org/new-study-financial-planning- For additionalinformation,goto: From FEIDaily, February3,2016 By HennerSchliebs “New Study:FinancialPlanning Technology OftenFallsShort” See page4–17. For additionalinformation,goto:http://www.neuralytix.com/ By Tom Petrocelli,February2,2016 A NeuralytixInsight State ofEnterprise Applications andDevelopment” 2 hoursself-study 1 hourgrouplive l l l l changing worldofIT. Identify bestpracticestosurviveandthriveintherapidly with thecomplexitiesoftechnologychange; Recognize thechallengesorganizations faceasthey cope business wellintothefuture; Identify theemerging techtrendsthatwillbedriving IT and Recognize today’s technologylandscape; Benjamin Woo 4–1

GOVT/NFP/VOL. 2016 – NO. 1 Outline 4–2 I. Today’s Technology Landscape A. Technology Discussion Points C. Opportunities to Consume Information 1. Discuss and explore the technology 1. Need to focus on the information landscape today. a. Not so much on the infrastructure 2. Identify the emerging tech trends that 2. Need to focus on bringing in data and will be driving IT and business into information the future a. As well as what we can do with 3. Look at the challenges organizations data going back out again face as they cope with the complexities of technology change 3. Take inputs and do something with them 4. Best practices to survive and thrive a. Create insights and take actions B. Importance of Anticipating IT Trends from that 1. Powerful new technologies have D. Accessibility of Information dramatically changed the way we live and do business 1. Probably nothing that we want to do that computers can’t do 2. To be successful stay ahead of the IT game 2. There’s very little that you can’t find on the World Wide Web a. Anticipate trends b. Implement the technologies that will fuel success c. Do it before the competition II. Holistic Approach to Technology A. Being Able to Move Past the Technical C. New Perspectives on IT Personnel Details 1. Today’s leading IT departments have a 1. Technologies today aren’t consumed deep understanding of the business or acquired in disparate silos a. Helping to drive new product 2. We want that infrastructure to be easy changes and we want to consume that b. Helping to drive information that infrastructure in a stack can lead to better competitive 3. Looking at that holistically advantage a. Want an infrastructure on which 2. Seeing lines of business managers information travels as a singular being more involved with technology piece a. Recognizing that technology can B. Technology for Business’ Sake help them understand their world 1. Huge shift away from technology for better technology’s sake D. Leveraging Technology for Marketing a. To technology for business’ sake 1. Perfect example – the Super Bowl 2. Whatever form of technology you 2. Studies have been done using deploy there has to be a business computers outcome a. To understand which chips works a. Has to have direct relevance and better with which soda or beer input towards doing better business i. And where they are going to be purchased 3. High probability of knowing that a certain demographic will buy a certain brand of chips when they buy a certain

outline outline outline outline outline brand of beer a. X number of days or minutes before the Super Bowl b. Due to technological analysis outline outline outline outline outline Outline (continued) I.Current NeedsandFuture Trends III. .TheCloud C. Futureof Technology aFunctionofthe B. LeadershipSkillsofEffective CIOs A. Merelyavehiclefordelivery 2 TheCloud wasthebiggestchange 1. FromanenterpriseIT perspective 4. A lotofithastodowithwhatever 3. A lotofithastodowithwearables 2. Whatcanwethinkofthat 1. Consumer Developingothers’ capabilitiesand 7. Inspiringotherstofollowthem 6. Masteringcommunicationssothat 5. Forging effective relationships, up, 4. Connectingdeeplywithpeopleby 3. Thinkinganalyticallywhileacting 2. Committingtobealeaderfirstand 1. we’ve hadinthelast20years Notenoughrecognitionbymost b. Goingtoseealotmoremobility a. Vehicle, airconditioning, a. you havearoundthehouse Notatechnologyfunction b. Really ahumanfunction a. technology cansolve? capacity todeliverresults but alsocompelneededaction messages arenotonlyunderstood down andespeciallysideways cultivating theirsofterside collaboratively delivering resultsthroughpeople they have companies ofwhatinformation more withtheirinformation and agilityforcompaniestodo lights opening andclosinggaragedoor, .PrivacyandSecurity D. .Havetotagthedatawithwhocan 4. Thewayweshouldbeaddressing 3. Fromaprivacyperspective 2. Whenyousignedupforyourcable 1. people.” data we’re protecting, notthe It doesn’t startwithpeople.It’s the security butitstartswiththedata. “So, there are alotofsoftaspects have accesstoit Having thedatacontrol a. security islookingatthedataitself Getsintoadebateaboutwhat a. You essentiallylegallysigned a. service oryourcell security shouldn’t bekept data shouldbekeptandwhat away partofyourprivacy BenWoo - 4–3

GOVT/NFP/VOL. 2016 – NO. 1 4–4

Outline (continued)

IV. Challenges to Implementation

A. Technology as a Service C. Information Governance 1. Biggest challenge that technology 1. New insights from the governance departments face concept a. For the first time they have a. From the corporate governance competitors perspective i. That competitor is the Internet b. From information governance 2. Bad thing – if you use another perspective software as a service provider 2. Data governance and regulatory a. There is no linkage back into compliance your main IT systems b. Integration component that becomes very difficult 3. Good thing – generally drive down the cost of delivering that service B. Constant Innovation to Keep Up 1. Biggest challenge for IT right now a. Innovating fast enough to catch up with software as a service 2. A lot of IT People are wondering where their jobs will go in the next few years 3. IT has to start to become integrated into the company in different ways 4. Seeing a breakup of IT departments into smaller departments a. That support various different functions within the company 5. Seeing business managers becoming more tech savvy a. Working closely with the IT department outline outline outline outline outline outline outline outline outline outline Outline (continued) V. Changing theAttitudeTowards IT I Best ITPractices VI. .RespectIT Decisions B. Technology asanInvestment,Nota A. .Investin Technologies Around You B. LeveragingBigData A. .IT’s objectiveisthesame 3. Exploreopportunitiessuchas 2. Finance,accounting,procurement 1. Havetostopthinkingthat 2. IT isarelativelysmalllineitemon 1. Cost .Benefit totheintimacybetweenan 2. Don’t getstubbornaboutsupporting 1. Dosomethingwithitthatis 2. Take theinformationthat’s 1. help you.” manner, canhurtyouratherthan “...IT, ifnotdeployedinatimely as yours objectives leasing thatwillsupportIT business often getintheway It’s aninvestmentandhastohave a. technology isacost Works outroughlytobe2.5%of a. the profitandlossstatements business internal IT departmentand the your internalIT department Somethingthatdrivestowards a. profitable accessible toyou i.Canbeimprovedproductivity iii. Canbelitigationmitigation – ii. Canbeareductionnumberof i. a return revenue business outcomes reducing exposureandrisk people thatneedtobehired BenWoo - .IT asaServiceProvider C. .Take Dataout ofSilos C. .Deliverthoseservicesusingametric 4. Needtolookserviceproviders 3. Needtobeaskingthemselves“What 2. IT leadersmustunderstandthatthey 1. .Trust yourtechnology andthatwill 4. Don’t bescaredoftechnology 3. Humanaspect–thereisanof 2. Leverageopportunitytogetatall 1. that isalignedwiththebusiness Look atinfrastructuremodels a. objectives ofthecompany?” am Idoingtodrivethebusiness Theymustbecomeaservice a. year cannot staythesameastheydidlast help youbemoreproductive Recognizethathumansdomake a. gut instincts that accessibledata .Whicharemuchsimplerand i. they have provider mistakes, errorswillhappen much morescalable 4–5

GOVT/NFP/VOL. 2016 – NO. 1 Group Live Option 4–6 Instructions for Segment

For additional information concerning CPE requirements, see page vi of this guide. l As the Discussion Leader, you should of this video starts on page 4–17 of this introduce this video segment with guide. words similar to the following: l After playing the video, use the “In this segment, Benjamin Woo questions provided or ones you have identifies the new and emerging IT developed to generate discussion. The trends that business leaders need to answers to our discussion questions are understand and shows how these on page 4–7 and additional objective advances in technology are likely to questions are on pages 4–8 and 4–9. impact your organization in the coming l After the discussion, complete the months and years.” evaluation form on page A-1. l Show Segment 4.“New Tech Trends to Know and Understand.” The transcript Discussion Questions

4. New Tech Trends to Know and Understand

1. What do business and IT leaders need to 5. What are the top technology trends that do in order to be successful? What do Mr. Woo sees ahead? we do?

2. What are the characteristics of organizations that are successful when 6. What are the technology challenges it comes to taking advantage of the faced by organizations? What profound technology changes we are technology challenges do we face? experiencing today?

3. What are the typical leadership skills of high-performing Chief Information Officers? 7. What are the best practices to survive and thrive in the rapidly changing world of IT?

4. What’s next for IT? Where do we go from here? discussion questions discussion questions suggested answers to discussion questions Suggested AnswerstoDiscussionQuestions .New Tech Trends4. toKnowandUnderstand .WhatdobusinessandIT leadersneedto 1. .Whatarethetypicalleadershipskillsof 3. Whatarethecharacteristicsof 2. we do? do inordertobesuccessful? What do l l l Officers? high-performing ChiefInformation experiencing today? profound technologychangesweare comes totakingadvantageofthe organizations thataresuccessfulwhenit Source: CIOEdge:SevenLeadership Developing otherscapabilities 7. Inspiringothers tofollowthem. 6. Masteringcommunicationssothat 5. Forging effective relationships, 4. Connectingdeeplywithpeopleby 3. Thinkinganalyticallywhileacting 2. Committingtobealeaderfirst 1. CIOs Leadership skillsofhigh-performing v v v are successful Characteristics oforganizations that v v v v Business andIT leadersneedto & George Hallenbeck Graham Waller, KarenRubenstruck Skill You Need toDriveResults involved withtechnology Business managersarenowmore business understand andsupportthe CIO/IT departmentmust yield businessbenefits Technology investmentsmust organization Response isbasedonyour Don’t delay, keepontrack will fuelsuccess Implement thetechnologiesthat may impactyourbusiness Anticipate hownewtechtrends and capacitytodeliverresults. but alsocompelneededaction. messages arenotonlyunderstood sideways. up, down,andespecially cultivating theirsofterside. collaboratively. people. and deliveringresultsthrough 4. What’s nextforIT? Where dowego 6. What arethetechnologychallenges 7. What arethebestpracticestosurvive 5. What arethetoptechnologytrendsthat from here? l l l l l l l technology challengesdoweface? faced byorganizations? What of IT? and thriveintherapidlychangingworld Mr. Woo seesahead? v v v v v Top technologytrends technology cansolve? What canwethinkofthat it! There’s muchmorewecandowith We’ve gotenoughtechnology! v v v Best practices v Delivering serviceseconomically software asaservice Catching upwiththeconceptof Technologies willgetsimpler continue toimprove Economics oftechnologywill Cloud willcontinuetodeliver their information Organizations willdomorewith Consumer wearabledevices information silos Breakdown thedataand you Invest inthetechnologiesaround outcomes Big Data,useittodrivebusiness with this IT organizations maystruggle 4–7

GOVT/NFP/VOL. 2016 – NO. 1 Objective Questions 4–8

4. New Tech Trends to Know and Understand

You may want to use these objective questions to test knowledge and/or to generate further discussion; these questions are only for Group Live purposes. Most of these questions are based on the video segment, a few may be based on the self-study required reading that starts on page 4–10.

1. What does Benjamin Woo discuss in 4. According to Benjamin Woo, what is terms of today's technology landscape? the biggest challenge that IT a) the pace of technology change is departments face today? expected to slow a) competing with the internet in terms b) he notes that the sheer amount of of software as service providers information available on the web b) establishing metrics that marry IT allows more technology possibilities goals and business goals than ever before c) dealing with conflicts with Finance c) there needs to be an increased focus and Accounting over corporate on infrastructure, rather than just governance issues information d) convincing senior management to d) the cloud has many drawbacks that make investments in IT make information sharing increasingly inefficient 5. Benjamin Woo wants business managers to realize that IT spend 2. In terms of trends in the IT world, generally leads to: Benjamin Woo notes that: a) litigation mitigation a) companies should continually be b) reduced headcount required going investing in any technology that forward makes company operations faster c) improved productivity b) IT has become less involved with the business and more involved in d) all of the above corporate governance c) IT departments are much more 6. What advice does Benjamin Woo offer involved in the business than in the IT leaders? past a) they should focus the majority of d) changes are coming in terms of how their time on infrastructure IT delivers technology and how b) they should allow Finance and companies consume it Accounting to take the lead in terms of systems associated with corporate 3. With respect to privacy, Benjamin Woo governance emphasizes that: c) they need to start thinking like a a) data security should begin with the service provider data, rather than people d) they should ramp up their staffing in b) the bulk of the IT budget going order to meet today's IT demands forward for most companies will be spent on ensuring data is safe c) employee access to company data needs to be severely restricted in order to prevent leakage d) security should be compared to objective questions objective questions building a fence around the company objective questions objective questions Objective Questions(continued) .Whichofthefollowingtrendshasbeen 8. Intermsofbestpracticestohelp 7. )alloftheabove d) continuousdevelopment c) economy theAPI b) user-centric designand a) driven fromthecloud? ensuringthatinformationwithinthe d) recognizingthateconomicinhibitors c) followinghisspecificwaysof b) supportingtheIT departmentrather a) Benjamin Woorecommends: companies copewithIT challenges, consumerization company getsoutofitssilos accomplish withinacompany impact whatIT willbeableto still existtoagreatextentandwill analyzing BigData than outsourcingtechnology 10. In termsofthefourstepsoffered for 10. Whichofthefollowinghasresulted 9. )perpetuallicenseshavebecomethe d) theuseofprimarilyprivate APIs has c) developersareusingperiodic b) linemanagersareaslikelyIT to a) from thecloud? )finance leadersshouldletIT own d) c) issues andbottleneckswillsurface finance managerswouldbewiseto b) a) the appropriatetoolsarecriticalin stresses that: improving FP&A,therequiredreading cloud applications industry standardforbilling become prevalent updates updates ratherthancontinuous purchase cloudapplications the executionstageofprocess during theanalysisphase process outsource theplanningphaseof terms ofaneffective analysisphase 4–9

GOVT/NFP/VOL. 2016 – NO. 1 4–10 Self-Study Option Instructions for Segment When taking a CPAR segment on a self-study basis, an individual earns CPE credit by doing the following: 1. Viewing the video (approximately 30-35 3. Completing the online steps minutes). The transcript of this video (approximately 35-45 minutes). starts on page 4–17 of this guide. Please see pages iii to v at the beginning of this guide for instructions 2. Completing the Required Reading on completing these steps. (approximately 25-30 minutes). The Required Reading article for this segment starts below.

Required Reading (Self-Study)

STATE OF ENTERPRISE APPLICATIONS AND DEVELOPMENT

A Neuralytix Insight STATE OF ENTERPRISE By Tom Petrocelli, February 2, 2016 APPLICATION For additional information, go to: DEVELOPMENT http://www.neuralytix.com/ Enterprise application development have INTRODUCTION undergone a major change owing to several movements in the IT industry. Developers Social, mobile, and cloud have not only have been under pressure to create and transformed enterprise applications but the revise applications more quickly, in response processes used to create them. Social to changing business requirements. This has, collaboration features, now embedded in in turn, led to the new methodologies, such applications as diverse as CRM, Microsoft as Agile, and new ways of managing Office, and Evernote note taking software, especially DevOps. enable people to work together collectively that was impossible ten years ago. Mobile Application Development in and devices have opened up new possibilities for for the Cloud accessing the power of computing on the go, allowing use to work when and where we Development is not only for the cloud; It is need to. now done in the cloud. This is the feedback loop of cloud development. While the cloud Neither of these trends would be nearly as has driven a number of trends, such as user- powerful if it weren’t for the third – cloud centric design and consumerization, computing. Cloud computing has continuous development, and the API transformed everything about enterprise economy, but has also enabled these trends. applications – how they are created and required readingrequired reading required deployed, how they are purchased. The Cloud Enables Cooperative Application Deployment Despite popular images of the lone programmer working in a dark room, enterprise software development is a highly required reading required reading and deployittogether. allow teamstoco-authorcodeandpackage BlueMix orCodeAnywhereforexample, Cloud-based developmenttools,IBM facilitates codereviewsandreleases. centralized repositoryforcodewhich Github and Visual StudioOnline,providea oriented development. networking features,enablethisgroup- development tools,deployingsocial collaborative process.Cloudbased environments. services thatcreatecooperativetesting where thereishugepotentialforcloud to aidingclouddevelopers. This isinarea cloud solutionsevenastheyhaveadapted test toolshavebeenslowtodeployas especially QA test.DevelopmentandQA investment inthecloudistesting, One areawheretherehasbeenlittleorno operations team. development teamandthoseofthe interfaces betweenthefunctionsof team. These toolsprovidetheseamless operations professionalsintoanintegrated is awayofinterweavingdeveloperswith methodology. DevOpsisnottechnology. It companies toadoptaDevOps applications aremakingitmucheasierfor and fordevelopingmanagingcloud These toolswhichexistsbothinthecloud virtual machines,andcontainers. options toavarietyofcloudservices, teams canenjoyflexibledeployment Foundry andOpenStack,development cloud-oriented technologiessuchasCloud performance andmonitoring.Usingopen cloud-based toolsasisapplication management workflowsareassistedby work together. Testing andrelease also enableoperationsandQA teamsto matter wheretheyarelocated.Cloudtools APIs accessiblebyalldevelopersno cloud enablescatalogsofplatformsand what newcloudtoolsetsprovide. The Collaborative codingisonlyonepartof expected tobe squashedassoonthey more quickly than inthepastandbugsare they service.Newfeaturesneed torollout responsive totheneedsof businesses Developers areexpectedto be more Periodic Releases Continuous UpdatesReplace 1 2 Tools, suchas premises services. as pushingoutareleasetomanyon- to acloudservercanhavethesameeffect as asinglesetofresources. A singlepush servers andclients,cloudservicesappear centralized. Insteadofupdatingdozens because cloudcomputingisnaturally enterprise cloudapplicationenvironment common incloudcomputing. They fitthe premises world,theyaremuchmore While Agile andCRdohappenintheon- monolithic, waterfallprojectsofthepast. methodologies arearejectionofthe continuous basis.Bothofthese in smallbatchesonaregularornearly assumes thatchangesneedtoberolledout Agile iscontinuousrelease(CR).CR of features. The operationalcompanionto sprints thataddorupdateasmallnumber focuses developmentonshort continuous releasemethodologies. Agile developers haveadopted Agile and are discovered. To accomplishthis,many to buildfeatures fromthegroundupand sessions. Developersbenefit bynothaving performance, oraccesstomore concurrent including extendedfeatures, better them topayforpremiumservices API accessibleservices,further encourages to use.Encouragingdevelopersusetheir components oftheirplatformsforanyone is popular, andBox have openedup such asGoogle,whoseGoogleMaps API anyone whowantstousethem. Vendors Public APIs, however, areavailableto who havepaidafee,orpartners. available tointernaldevelopers,customers developers. Private APIs maybeonly made availabletoalimitedsetof themselves haveputtogether. These are cloud hostedservicesthatthedevelopers and private.Private APIs aregatewaysto There aretwotypesofcloud APIs, public undocumented) APIs. through published(andoften developers accessremotecloudservices JavaScript styledatastructureslikeJSON, oriented protocols,suchasHTTP, and of moderndevelopment.Usingweb- The Restful API hasbecome themainstay Types ofApplications The Cloud-basedAPIFuelsNew 4–11

GOVT/NFP/VOL. 2016 – NO. 1 4–12

only paying fees when their application integrate with other applications. The most reaches a higher level of usage. profound changes, however, are in how enterprise applications are purchased and The Future of Development paid for. in and for the Cloud Despite all the benefits that cloud applications bring to customers, they raise Neuralytix believes that that the cloud is challenges and concerns too. New the new home for the developer. Cloud problems with security and privacy and the services enable developers to operate as a question of data sovereignty have arisen as team by providing open access to code and the next generation of problems for IT. services. It is a key element in the tools that bind DevOps teams together. DevOps Big Gains for End-users is the key to Agile and CR which, in turn, allow for development and deployment of Cloud computing has meant big gains for applications in response to the changing customers of enterprise applications. More business climate. than anything, cloud computing puts line of business managers in the IT driving One area where we see greenfield seat. This was the breakthrough for the opportunities for development tools original enterprise cloud applications vendors is in development and QA test. especially Salesforce.com. It allowed a line This is still an underserved space that new of business manager to purchase their own vendors can exploit and traditional tools applications without waiting for IT to vendors need to enhance quickly. become involved.

Developers already lean heavily on cloud- The gains for developers have also become based RESTful APIs and will continue to the gains for the knowledge worker. do so with an increase in the use of public Developers’ adoption of Agile computing APIs. The ramifications of this strategy are has meant quicker rollouts of homegrown starting to be felt as developers accelerate and purchased applications. This, in turn, their work using cloud services and, at the has allowed a line of business or functional same time, become beholden to them. silo to have the latest and greatest in When Public APIs change, it forces software technology and functionality. changes on developers whether they are ready for them or want them. Information accessible anywhere – it’s no longer behind the firewall Finally, cloud-based services with RESTFul APIs has opened up a new One of the key problems that the cloud has application architecture called a solved for the end-user is information microservice architecture. Microservices, accessibility. Cloud applications, which small services accessed through a reside in the vendors’ data center, are RESTFul API, are expected to grow in available from anywhere the Internet is importance as more developers try and find available. Key business data is no longer the smallest possible set of functions that locked behind a corporate firewall. This can be created and updated. This fits well makes access across the globe, whether an within the Agile and CR methodologies by end-user is on-site, traveling, or at home, allowing atomic, incremental changes to much easier. small portions of code at any one time. Key business information is also available STATE OF ENTERPRISE on a variety of mobile devices, making it required readingrequired reading required easier to access critical information while APPLICATIONS away from the office. Mobile applications would not be possible without cloud The cloud had changed everything about computing. Mobile devices don’t have the enterprise applications – how they are resources to process large amounts of data, delivered, their accessibility, and how they and walking around with a corporate required reading required reading moved betweencountries. data canbestoredinandhowit also raisedthequestionofwhichcountry the commonSafeHarboragreementhas 5-2015) EUCourtofJusticerulingagainst stored onserversinIreland. The recent(10- US DepartmentofJusticeoveremails by Microsoft’s continuedstrugglewiththe brings itsownwoes,however, asevidenced data mustbekeptlocal.Keepinglocal sovereignty. Inmanyregionsandcountries, continue tostrugglewithissuesofdata Finally, cloudapplicationcompanies that vendorsneedtoaddress. of theircustomers.Itistheinternalthreat application vendorswiththeirdataandthat employees andinternalcontrolsofcloud Managers questioniftheycantrustthe is mostlyamatteroftrust,nottechnology. personnel ofthecloudsoftwareprovider. It will notbeproperlysecuredfromthe cloud becauseofconcernsthattheirdata deploy missioncriticalapplicationsinthe matter. ManyIT managersarehesitantto Internal securityandprivacyisadifferent outsourcing economics. software provider. This issimple security abetterinvestmentforthecloud than onecompanymakingadvanced are moreeasilyspreadacrossmanyclients major cloudvendor. The costsofsecurity no different, andmaybebetter, witha most part,securityfromoutsidethreatsis raises anumberofconcernsforIT. Forthe Moving corporatedatatoapubliccloud cloud services. or processmuchdatalocallyanddependon enterprise mobileapplicationsdon’t store dangerous. Forthesereasons,most database onamobilephoneisinherently growth wasin thelowsingledigits. 2014 duringa timewhenothersoftware showed 56%growthbetween 2013and and tripledigitgrowth.SAP, forexample, enterprise cloudapplications, oftendouble software vendorsshowshigh growthin Recent financialreportsfrom thelargest sovereignty are topofmind Data security, privacy, and Cloud ApplicationsContinuetoGrow 3 In the lines. high growthintheOffice 365business enterprise Office 365)cloudofferings with infrastructure andcommercial(i.e. revenue grew88%fromacombinationof FY fourthquarterof2015,Microsoftcloud together togive end-userschoiceinhow 365 merge desktopandon-lineapplications few yearswehaveseenMicrosoft Office is truefordesktopapplications. Inthepast security/cost/accessibility ratios. The same developers canchoosethebest resources togethersothatIT managersand clouds merge cloudandon-premises move towardahybridcloudmodel.Hybrid continue subscriptions. will staywithacurrentvendorand make itmuchmorelikelythatanenterprise around anenterpriseapplication’s platform in willbecomecomplete.Development to createhomegrownapplication,thelock applications, throughtheirpublished APIs, uses theunderlyingplatformofthesecloud monthly subscriptionrenewal. When IT company torefuserenewayearlyor and evolvesthereislessimpetusfora that applicationconsistentlyaddsfeatures companies adoptacloudapplicationand recurring subscriptionrevenue.Once Growth willalsocomefromincreased premises applicationtocloudapplications. grow ascompaniestransitionfromon- vendors. First,overallcloudrevenuewill Growth willcomeinthreewaysfor enterprise cloudapplicationstocontinue. Neuralytix expectstheadoptionof major softwarecompanies. been reportedbyIBM,Oracle,andother application revenueandcustomershave IBM Cloud infrastructurevendorsincluding need tostayin-house. applications orinstancesof needs tobeon-premisesbutcertainlysome that allapplicationsorapplicationdata difficult orimpossible. That doesnotmean to anoutsidecloudapplicationvendor regulatory requirementsthatmakemoving financial servicesandhealthcarehave at leastnotentirely. Industriessuchas Some industriescannotmovetothecloud, The HybridModelEmerges 5 4 , Oracle,andMicrosofthavebegunto Similar growthinenterprisecloud 4–13

GOVT/NFP/VOL. 2016 – NO. 1 4–14

best to work. The same is true for Adobe customer will only be charged when an Creative Cloud. In both cases, different end-user actually accesses a license. In this features, collaboration capabilities, data way, companies will no longer pay for access, and performance needs can be applications that go unused and will have balanced between on-premises and cloud the flexibility to provide applications to applications. This gives enterprises choices business partners on a temporary basis as in when and how to use cloud computing. well as seasonal workers.

Neuralytix believes this trend toward New Buyers Emerge hybrid cloud applications will continue into enterprise applications. At present, it is Starting with the earliest enterprise cloud mostly the user experience that is the applications, especially Salesforce.com, a similar but not data integration. It is major trend in IT has been in how expected that in the near future data will be enterprise applications are purchased. shared between cloud and on-premises Today, a line of business manager is just as applications based on security and likely to purchase an application on their regulatory compliance requirements. This own and from their own budget as is IT. will allow some data to be shared across Cloud computing is the big driver of this the boundaries of the corporate firewall shift. Cloud applications do not need IT to while other data is kept securely on- install, configure, or maintain them. The premises. software vendor does this for the customer.

Purchasing Enterprise The fact that line of business managers can Applications Changes purchase software on their own has Dramatically emboldened them to become more involved in IT purchases that affect their The truly titanic shift that cloud computing departments or divisions. Rather than create has enabled is in how enterprise tension, it has led to a more cooperative applications are purchased and paid for. For model of purchasing for IT. Whereas IT much of the past 40 years, software was continues to be the principle purchaser of sold to IT departments as perpetual infrastructure, line of business managers licenses. It was IT’s responsibility to share designing making with IT compile business requirements, combine professionals when it comes to application them with corporate needs and constraints, purchases, leading to better purchasing and source applications. These applications decisions overall. were purchased as perpetual licenses on a per user or enterprise-wide basis, with an Application Purchases Continue to annual maintenance fee levied to cover Evolve upgrades and support. Neuralytix believes that the cooperative New Ways to Pay model of purchasing will continue to expand until nearly all application While this is still a major model, it is purchases have joint responsibility. It is quickly giving way to yearly or month-to- also believed that subscriptions and month subscriptions for cloud applications. eventually consumption pricing will Subscriptions charge a yearly or monthly become the dominant form of pricing fee that can be renewed or not at the end of enterprise software. This does not mean the term. This gives an enterprise the ability that perpetual license, especially site to adjust the amount of license as licenses, will disappear entirely but they circumstances change. will have a lesser share of the way software required readingrequired reading required is sold. Moreover, pricing is continuing to evolve from subscriptions to consumption pricing. ABOUT NEURALYTIX With consumption pricing, an enterprise will only pay for applications and features Neuralytix is the leading global IT that are actually used6 7. In some cases, a advisory, consulting and market research required reading required reading FALLS SHORT NEW STUDY: FINANCIALPLANNINGTECHNOLOGYOFTEN Neuralytix Companies? June2015, Tom Petrocelli, 3 Is The MovetoCloudHurtingSoftware Petrocelli, July2014 in CollaborativeDevelopment Tools, Tom 2 LeveragingtheCloudforDevelopment, Trends Petrocelli, July2014 1 CloudIDEsFosterCollaborativeCoding, Tom outcomes. role istohelpourClientsachievebusiness business problembeingsolved;andthatour in otherwords,aholisticapproachtothe we needtolookattechnologiesdomains– performance isnoindicationofthefuture; premises: thatquantitativeanalysesofpast firm. Neuralytixisfoundedonthreekey Agility Keyto Staying Ahead executives acrossindustries. an overalltrendechoedbyfinancial succeed, technologyinnovation emerged as In adaptingthefinancedepartment to more challenginginthecomingyears. percent feeldoingsoisonlygoingtoget advantage initsrespectivemarket,and59 company tomaintainacompetitive five years,ithasbecomeharderfora financial executivesnotedthatinthelast Magazine, morethantwo-thirdsof In fact,inarecentstudybySAP andCFO finance. not enoughtomeetthenewdemandson financial planningandanalysis(FP&A)is companies, andthestatusquoapproachto to theoverallsuccessoftheirrespective CFOs facemountingpressurestocontribute falls-short/ study-financial-planning-technology-often- http://daily.financialexecutives.org/new- For additionalinformation,goto: From FEIDaily, February3,2016 By HennerSchliebs 2015, https://sway.com/aRR4q38jfHe6qKn0 Application Landscape, Tom Petrocelli,Sept 7 CloudComputing Trends: CloudChangesthe Petrocelli, August 2015,Neuralytix Ecstasy oftheCloud,Janet Waxman and Tom 6 MicrosoftChannelPartnersFeelthePainand and JeanBozman,July2015,Neuralytix Delivering HybridEnvironments, Tom Petrocelli 5 IBMCloudStrategy: A SpectrumofOptions, July 2015 Fourth QuarterPerformance,MicrosoftCorp. 4 MicrosoftCloudandHardwareResultsDrives executives feel theircurrentFP&A systems the studyalso foundmostfinancial time insightsandoverallbusiness agility, While technologyiskeyto improving real- more quickly. available, butalsodeliverthoseinsights widen thebreadthofdatainsights across anorganization, CFOscannotonly systems andstandardizefinancialreporting leveraging technologytoautomateoutdated makers. ByworkingcloselywithIT, and looking insightstocompanydecision- be abletodeliverclear, actionable,future- will leadthepackincomingyears on historicaldata,financeexecutiveswho deliver real-timeanalysis.Beyondreporting business iscloselytiedtotheirability For financialleaders,havinganagile competitive advantageinthelastfiveyears. opportunities hasbecomealarger sourceof agility inrespondingtobusinessthreatsand survey respondentsnotedthatgreater More thanthree-quarters(77percent)of Short Current ITSystemsFall 4–15

GOVT/NFP/VOL. 2016 – NO. 1 fall short. In fact, more than half of effectively helps the whole process run respondents feel their company often trades smoothly. 4–16 off when it comes to the depth of data and complexity of calculations used for Step Four: Analyze financial planning and business analysis to produce reports in a timelier manner. Analyzing the results of a planning process effectively with manual tools like Excel can Additionally, data migration is another area be extremely difficult. Tools that can where respondents feel IT systems should automatically record results are critical for be doing more to automate processes. finance departments in helping to analyze Eighty-three percent of respondents believe how long it took to complete each task and their companies would financially benefit to compare completion to the plan. Having from devoting less time, attention and the ability to analyze this makes it easy to resources to data migration and manual identify bottlenecks in the process and reconciliation. highlight areas for improvement.

By reevaluating current IT systems, and As CFOs are increasingly challenged to implementing new technologies that allow improve their contributions to high-value for greater automation, finance leaders can planning and analysis, finance is becoming ensure they have the tools needed to stay reliant on IT integration to deliver insights competitive in the market, especially as that help inform company decision-making. agility becomes a core element of success. Finance leaders need to put pressure on IT So what can CFOs do to improve financial and evaluate current support systems to planning and maximize the impact of stay competitive and opportunistic in the advanced technology? market, and drive overall business value.

There are four steps CFOs can take to improve the reporting process: Step One: Plan The key to the planning step is centralizing and standardizing. CFOs need to assess their existing checklists and design templates for each process. By comparing the steps taken by each entity, finance departments can identify best practices while weeding out negative steps. Step Two: Execute After the plan has been made, it is time for the execution stage. Using the templates created in the previous step, financial leaders should create a task list with hard deadlines. In the execution phase, it is critical to identify what tasks can be automated and leverage an advanced technology solution to help in that automation process. Step Three: Monitor Close monitoring helps finance teams required readingrequired reading required identify issues, overdue tasks and resource bottlenecks earlier in the close cycle. This is another area where the right technology can play a critical role in allowing you to monitor progress and drill down into specific details. Being able to monitor video transcript video transcript Video Transcript .New Tech Trends4. toKnowandUnderstand URN We’re alltooawarethattechnologytouchesvirtuallyeveryaspectof SURRAN: UNA:Inourfirstsegmentwe’llbediscussingthecritical natureoftoday’s QUINLAN: There areseveralteachingpointsinourprogram: trends criticaltoorganizations today. report andlookforwardtohisinsightsintotheemerging technology visionary andthoughtleader. We’re verypleased toincludehiminour firm. Benisawell-recognized,celebrated,andprovocativemarket director ofNeuralytix,aleadingIT marketresearchandconsulting This programfeaturestechnologist,Benjamin Woo, themanaging impact theirorganizations overthelongterm. opportunity tocarefullyconsiderhownewtechnologyadvancesmight coming downthe“technologypike.”Moreimportantly, they’llhave an watching thisprogram,viewerswillhaveabettergrasponwhat’s and businessleadersneedtoknow, appreciateandunderstand.By In thisreport,we’llidentifythenewandemerging tech trendsthatIT perspective. what’s ontapforusinthecomingmonthsandyearsfromanIT thought itwouldbeagoodideatostop,takelookforward,andsee technology andthefactthatitchangesatsucharampantpace,we relatively closeby. Duetooureverincreasingdependenceon asleep, there’s usuallyacomputingdevice,applicationornetwork, our livestoday. Whether we’reatwork,play, wideawakeorsound discussion and exploretheseissuesinmore detail.Ourinterviewguest and businessleaders.)Now, withthatsaid, let’s begintoday’s and doitbeforethecompetition. (ThatistheorderofdayforIT anticipate trends,implement thetechnologiesthatwillfuelsuccess, that’s exactlywhatneedstobedone.Stayaheadof theIT game, be amindnumbingtask.But, tobetrulysuccessful,therealityis, investments whilekeepingasharpeyeonwhatthefuture willoffer can I’m sureyou’llagreethatcapitalizingonyourcurrenttechnology fast, and,fromwhatexpertstellus,it’s abouttogetevenfaster. Now, way weliveandthedobusiness. The paceofchangehasbeen driven bypowerfulnewtechnologies,hasdramatically changedthe and professionallivesoverthepastdecade.Monumental change, Just thinkforamomenthowtechnologyhasinfluenced ourpersonal complex technologylandscape. Now, let’s beginourreport. in therapidlychangingworldofIT. with thecomplexitiesoftechnologychange. driving IT andbusinesswellintothefuture. today. l l l l We’ll thenconcludewithbestpracticestosurviveandthrive Then, alookatthechallengesorganizations faceastheycope Next, we’llidentifytheemerging techtrendsthatwillbe First, we’lldiscussandexplorethetechnologylandscape 4–17

GOVT/NFP/VOL. 2016 – NO. 1 4–18

is, Benjamin Woo, the managing director of Neuralytix, a leading IT market research and consulting firm. Ben, welcome to the program. WOO: Thanks, Mike, I'm very honored to be here. QUINLAN: Ben, as you know, we’re here to talk about new technology trends that IT and business leaders need to know and understand. You and your firm, Neuralytix, offer IT analysis to all types of organizations and businesses every day. So let me ask you this, “As you look out on the IT landscape today, what do you see?” What observations and perspectives can you offer? WOO: The most important thing about IT is really what it stands for – Information Technology. We need to focus on the information part and not so much on the infrastructure part. We're very lucky in today's world that we've got the Cloud as well as data center infrastructure to support all the information activities that we are looking for. So, as we look forward into the Information Technology age in the next decade, we need to focus on what can we do to bring data and information in as well as what can we do with data going back out again. The simplest way of thinking about this is all the sensors that we have right out there whether they're temperature sensors, whether they are other forms of sensors as this concept of “Internet of Things”, all those are inputs and allow us to then take those inputs, do something with it and create insights and take actions from that and we look at end points such as mobile phones and tablets and laptops and those are opportunities for us to consume the information that's out there. QUINLAN: Ben, what excites you most about that vision that you just described? WOO: What excites me most, I think, is the reality of what's going on. We have talked in the past a lot about computers being artificial intelligence and artificial or virtual that. We brought that artificialness and made it real. There's probably nothing that we want to do that computers can't do. It’s really a function of money and a function of programming. One of the best references is the movie Minority Report where Tom Cruise is moving around with his head. That is available today and what that does for us is that we can start to take in and consume that information in new ways and that's the exciting part of it. QUINLAN: Ben, what are the key components that are enabling the current landscape you just described? What’s at the core of it? WOO: At the core of it is the vast amount of information and data that is out there. There's very little that you can't find on the World Wide Web now and I think that's a really exciting thing. Whether it's something simple, a how to video to something very complex, some reference is out there and what that allows us to do is take the next step in understanding and creating knowledge. So, the basic elements are out somewhere in the Internet, you can find that and now you can do something with that. video transcript video transcript Whereas before we may have had to go to a library and look at the reference book, now we can understand new things that we haven’t understood before or things that we've understood before in different ways and in real time and that's really the exciting thing that's going on. QUINLAN: Ben, your organization promotes a holistic and forward-looking approach to technology; tell us about that and what it means. video transcript video transcript O:That'sagreatcomment,Mike.Itisprofoundandwhatwe'reseeingin WOO: I’msure you’re wellawarethattechnologychangecanberoughon QUINLAN: So,technologies todayaren'tconsumedoracquiredindisparatesilos.So, WOO: with newpartners towardsgettinggreater revenueandbettermargin. tapping into,howcanwecombine different productsandmarrythem higher probabilityofsuccess, whatareareasthatcompanyisnot understanding withallthedata that'soutthereofwhatmighthavea surveys, theymightdofocus groupsbutnowwehaveamuchbetter marketers eitherguessedat what themarketmightwant,theydo better. A basicexampleistheMarketingDepartment.Foralongtime and recognizingthattechnologycanhelpthemunderstand theirworld seeing linesofbusinessmanagersbeingmoreinvolved withtechnology a keyshiftinthewaywe'reseeingtechnology. At thesametime,we’re and growthinnewproductsdevelopmentof andthat's helping todriveinformationthatcanleadbettercompetitive advantage business. Infact,theyarehelpingtodrivenewproduct changes,theyare So, today'sleadingIT departmentshaveadeepunderstandingofthe social skills,etc. That isreally, reallychanged. in thecorner;wedon'treallywanttotalkthembecause theyhaveno type ofconceptswereshovedintoacorner. They werethegeekswhosat the CIO,ManagementInformationSystemsManagerandallthoseITIS department nowisasupporterofthebusinessfunction.Forlongtime the pointonehastotakeintoaccountisthatCIOorIT profitability, bettercompetitiveadvantageoroverallenterprisevalue. So, better businesswhetherthatisgrowthinrevenue,higher want touse.Ithashavedirectrelevanceandinputtowardsdoing or somethingisfaster, better, cheaper, whateverthewordsarethatyou outcome. We don'twanttoinvestintechnologybecauseit'sanewwidget form oftechnologyyoudeploy, therehastobeanoutcome,abusiness technology’s saketotechnology forbusiness’ sake.Ultimatelywhatever the technologyworldtodayisahugeshiftawayfromfor change wehavebeenexperiencing. successful whenitcomestotakingadvantageoftheprofoundtechnology characteristics oforganizations thatyouhavecomeacrossare make themwork.Inyourexperience,describethecultureor inner strengthandcapabilitytomasterleadingedgetechnologies organizations. Noteveryeffort issuccessful.Noteverycompanyhasthe that's wherewewanttogetto. makes it?Doesitworkwithsomethingelse?” That isallassumedand really havenothingtodowith“WhatspecifichandsetIhave? Who that you'redoingandevenadvancedapplicationsareonyourphone make thecall,sendyoure-mail,receiveacallandallbasicfunctions You don'tcarewhat'sreallyinsidethatmobilephonesolongasyoucan information. The simplestexampleofthisisyourmobile phone,right? deal withthosethingsandtowardswhatwecandothedata information travelsasasingularpieceandmoveawayfromhavingto because essentiallywewanttomakethewholeinfrastructureonwhich and theapplicationnetworks. We're lookingatthatholistically stack. So,wearethinkingaboutnotonlythehardwarebutsoftware infrastructure tobeeasyandwewantconsumethatina not infrastructuretechnologybutinformationtechnology, wewantthat manually. Nowadays,becauseofwhatIsaidearlierregardinghowit's sort andputittoworkwewouldsewthoseproductstogether at onepointwewouldbuyaserver, wewouldbuyaproductofsome 4–19

GOVT/NFP/VOL. 2016 – NO. 1 4–20

QUINLAN: Can you give us an example of how marketers are using technology? WOO: The perfect example of this and comes at least once a year and that's the Super Bowl, right? Studies have been done using computers to understand which packet of chips works better with which soda or beer and what are the outlets they are going to be purchased at. So, whether it's a supermarket or a corner deli, etc. There is a high probability of knowing that a certain demographic, when they buy a certain brand of beer in a certain size will pick up a certain brand of chips or other snacks to go with that X number of days before the Super Bowl or X number of minutes before the Super Bowl and that's a great deal of information we never had before and that helps the supply chain, it helps our ability to make profits and to hone in on what are the profitable and growth aspects for the business. QUINLAN: Next, we’ll identify the emerging tech trends driving IT and business. We’ll also discuss the challenges organizations will face as they cope with rapid technology change. With technology change now surging at an exponential rate it will fall to the CIOs of the world to navigate the technology storm and guide their organizations to greener IT pastures. To accomplish this feat, CIOs will not only require inherent technical ability but will also need extraordinary leadership capabilities to effectively execute the tasks at hand. So, you may ask, what exactly are the leadership skills that effective CIOs exhibit? In the book the, CIO Edge: Seven Leadership Skills You Need to Drive Results, authors Graham Waller, Karen Rubenstrunk and George Hallenbeck, all recognized and respected industry experts in their own right, identify the leadership skills that “high performing CIOs” have in common. Here, quoted from the book are the key CIO skills they identified. l First on the list is, “committing to be a leader first and delivering results through people.” l Second, “thinking analytically while acting collaboratively.” l Third, “connecting deeply with people by cultivating their softer side.” l Fourth on the list of common CIO leadership skills is, “forging effective relationships, up, down and especially sideways.” l Fifth, “mastering communications so that messages are not only understood but also compel needed action.” l The sixth is “inspiring others to follow them.” l And, the seventh and final leadership skill that high performing CIOs have in common is, “developing others capabilities and capacity to deliver results.” With that in mind let’s return to our interview guest, Ben Woo, and learn video transcript video transcript more about the new tech trends to know and understand. Ben, earlier you described the current IT landscape. Now I need you to talk about what’s next for IT? Where do we go from here? WOO: Where we go from here is actually a bit of a mystery because we are able to do so many things. The challenge isn’t for technology. We've got enough technology. There are a lot more things than we can do right now. The mystery of it all and the excitement of it all is really about what video transcript video transcript O:Privacy, Mike,isoneofthoseverydifficult topicstotalkabout.I’lleither Ben,what aboutprivacyandsecurity? WOO: As technologyevolveswhat’s QUINLAN: Ithink those arereallyaconsumerfunction. A lotofithastodowith WOO: So,whatexactlyarethetoptechnologytrendsyouforeseetakinglead QUINLAN: or whetherit's somethingprivatewithinthe company, eitherwaywehave to leak. Whether it'sanationalsecurity issuelikewithEdwardSnowden travel outandweendupwith leakagesofinformationthatwedon'twant We haveaproblemherebecausethepeopleinside organizations the peopleinandkeeping outarethetraditionalformsofsecurity. Now, whatthewholeconceptofsecurity is,isdon'tletpeopleout.So, Security usedtobe,builda wall, buildafence,andkeeppeopleout. In termsofsecurity, we'vegottobreakdownthatconceptalittlebit. pertinent andrelevanttowhoIamthensomethingthat's wayfarfetched. as I'mconcerned,Iwouldratherseeadvertisementsand offers thatare answer. I'mgoingtogiveyouveryfuzzyanswerasaresult.Mike,far what shouldbekeptandshouldn’t bekept.Itisahardquestionto away. So,from aprivacyperspectivethisgetsintomassivewarabout company usingyourloyaltycardmeansthatyou'vegiven someofthat you're usingacreditcard,thefactthatyou’rebuyingfrom aparticular got. Again, ifwetakethestrict,strictwayofviewingthis,factthat spending on,howamIspending,whatarethepayment methodswe've want, it'sreallyinsuchareasaswherearewespending, whatarewe fairly clear. We don'thavealotofit.Now, intermsoftheprivacywe signed awaypartofyourprivacy. So,therealityandlegalaspects are service, whenyousignedupforyourcellessentiallylegally Let's talkabouttherealityofprivacy. When yousignedupforyourcable get reallyintroubleorthere'llbesupporters. There's nomiddleground. likely tobethestorythere? that's thenextiterationforwheretechnologyisgoing. connected world. We willseehardtechnologiesgetsimplerandIthink consume itwillmovealongwiththatandweliveinamuchmore terms oftheeconomicstechnologywillcontinuetoimprove.Howwe the wideareanetworkwasexpensive.Nowit'snot.So,dynamicsin the Cloudismerelyavehiclefordelivery. Itusedtobethatplugging into Cloud wasthebiggestchangewe'vehadinlast20yearsandreally consume thattechnology, Idon'tthinkmuchwillchangethere. the about. Intermsofhowwedeliverthattechnology, intermsofhow we something morewithitandreallythat'sthenextiterationofwhatIT is why aretheystoringitandthenhowcanwetakethatinformationdo they actuallyhaveontheircomputers,whatarestoringand companies outthereaboutwhattheyactuallystore,informationdo with theirinformation.Idon'tthinkthere'senoughrecognitionbymost going toseealotmoremobilityandagilityforcompaniesdo of progressinthere.FromanenterpriseIT perspective, Ithinkwe're and closingyourgaragedoor, evenlights.Ithinkwe'regoingtoseealot whether it'savehicle,theairconditioning,open wearables, alotofithastodowithwhateveryouhavearoundthehouse business world? over thenextfewyears? Which willhavethegreatest impactonthe solve. That's reallyahumanfunctionnottechnology function. basic vehicleandthecars.So,whatcanwethinkofthattechnology in theareaofagriculture,areasspacetechnology, eveninthe iteration? We lookattremendousamountsofprogressionandinnovation humans canthinkupthatcomputersdoforus. What's thenext 4–21

GOVT/NFP/VOL. 2016 – NO. 1 4–22

been addressing some of those problems incorrectly. The way we should be addressing it is looking at the data itself and having the data control the security. It's no longer about building a fence, building a wall, keeping people in, keeping people out. It's about taking the data that you have and ensuring that’s tagged properly for the people who are allowed to access that data. QUINLAN: Ben, what do you mean by that? WOO: What do I mean by that? You have to tell the data or at least you have to tag the data with who can have access to it. It's basically writing your name on the cup. The cup itself doesn't know who it belongs to but if you put a tag on it and everybody respects it, then we can figure out who has access to the cup. And some of those access parameters are not hard and fast. So, just because I put “Mike” on the cup for you, there might be elements that are soft such as your mom might come along and fill that cup up or have access to it or wash up for you. Your brothers and sisters, you might want to keep it away. So, there are a lot of soft aspects of security but it starts with the data. It doesn't start with people. It's the data we're protecting, not the people. So, privacy and security does go hand in hand but we do have some conflicting concepts here. Let me just sum up. With privacy you do sign away a lot of your privacy in the services that we undertake – credit cards, phone, cable, cell phones, etc. At the same time we need to have some level of privacy but with that comes certain level of restrictions as well. QUINLAN: I’m curious as to what challenges organizations will likely face as they try to integrate new and emerging technologies with legacy systems. WOO: Mike, I think the biggest challenge that technology departments face is that for the first time they have competitors and that competitor is the Internet. Historically we had built our own CRM system, our ERP systems, our accounting systems, etc. etc. That was the sheer and only control of the IT department. Now, any business leader can jump on the web, go to SalesForce.com, swipe a credit card and essentially take that function out of IT. Now, that's not necessarily a positive thing. There are goods and bads to all decisions. The bad thing is that if you just go and jump off to another software as a service provider, there is no linkage back into your main IT systems and then it's that integration component that becomes very difficult. The good thing of course is you generally drive down the cost of delivering that service. So, I think business leaders are trying to be more understanding of what technology as a service is all about. Technology isn't about a hardware piece that you can buy, then you can touch and feel. Technology is the software component in which it is delivered as a service. The Cloud is a delivery vehicle as we mentioned earlier. So are the internal networks. So, the biggest challenge for IT right now is innovating fast enough to catch up with software as a service that's available on the web and they’re trying to deliver that in an economic video transcript video transcript envelope that is competitive as well. A lot of IT people struggle with this. Let me take you down the road a little bit. A lot of IT People are wondering where their jobs are going to go in the next few years because if we take this concept of moving services through the web, first it might be email and then CRM, ERP, HR, IS and all the different systems, what do IT people get left with? For all intents and purposes nursing an video transcript video transcript O:We oftenforget thatIT isarelativelysmalllineitemontheprofitand SoBen,whatmessagedoyouhaveforbusinessleaders? WOO: QUINLAN: laptop anddo something. We forget thattheseareallinvestments and because it'sso easytopickupaSmartphone, it'ssoeasytopickupa So, therearemanyaspectsof IT andtechnologyatlarge thatweforget opposed toactuallyselling. to stopdealingwithexpense reportsandspendingtimeonthatas it canbeimprovedproductivity ofthesamepeople,helpingsalespeople mitigation, soreducingthe exposure andriskofacompanytobeingsued, people thatneedtobehiredmovingforward,itcan litigation on theprofitandloststatementbutitcanbeareduction inthenumberof producers whichmaynotbeanimmediatelineitemon thebalancesheet, a sunkcostandnotrecognizingthattherearelotofthings thatIT I thinkfortoolongthebusinesses,businessleaders haveviewedIT as and likeanyinvestmentithastohaveareturn. So, wehavetostopthinkingthattechnologyisacost. It'saninvestment nobody's goingtoseethat. At thatpoint,anychangesinIT spendingisrelativelynegligibleand we're inawholenewballgameordriveprofitabilityby another20%. but ifweusetechnologytodrivetoplinerevenuesbyanadditional20%, At halfapercentit'snotevenworthyoffootnoteontheannualreport of howthecompanyisrunorwhatitsobjectivesareprofitability. hundreds ofmillionsdollarsbutitdoesn'treallychangethenetaspect Now, theabsolutenumbermightbehuge,severalmillions or moves theneedlefrom2.5%ofrevenueto2%revenue. roughly tobe2.5%ofrevenue.Ifwetakeout20%techspending,that If youtakeitacrosstheworldallsizesofcompanies,worksout loss statements. new initiatives,thatcanallmakeahugedifference. saying “wewillhavenewlaws”orwhetherthecorporationisdriving any stageitcanallchange. Whether it'sEuropeordifferent continent is inorder.” And thatmovementislikejugglingballsintheairbecauseat who aresaying“Hangonasec,fellows. We gottomakesureeverything and thenthecompliancepeoplewhethertheyberegulatoryorcorporate want todriveinnovation,theIT leaderswhojustwanttokeeptheirjobs So, it'sawholebalancingactrightnowbetweenthebusinessleaderswho way.” reach inandsay“youshouldn'tdoitthisway”orhavetothat regulatory compliance.So,youhavemanylayersofpeoplewhowantto information governanceperspective,thatdataandthenthere's governance conceptbothfromthecorporateperspective, and whatwecandowithinnovationbringingnewinsightsisthis portion. What we'reseeingisthatoutsideofthebenefits oftechnology department. There's oneexceptiontothisandthatis thegovernance managers becomingmoretechsavvyandworkingcloselywiththeIT the company. At thesametimewhatwe’reseeingislinesofbusiness into smallerdepartmentsthatsupportvariousdifferent functionswithin different waysandwhatwe'reseeingisthebreakup ofIT departments So, IT itselfhastostartbecomeintegratedintothe companyin right? Internet connectionandyoudon'tneedawholedepartmenttodothat, 4–23

GOVT/NFP/VOL. 2016 – NO. 1 4–24

that they have a return and that's how business leaders need to think about technology today. QUINLAN: And how about a message for accounting and finance managers? WOO: Yeah. Finance and Accounting often get in the way. Procurement often gets in the way and maybe because I'm a technologist but leave the technology to the technologists. Explore opportunities such as leasing and various different options that will support the business objectives whether you prefer OpEx or CapEx but I do encourage the Finance and the Accounting departments to respect the decisions that are being made by the IT department because ultimately their heart is the right place, their objective is the same objectives as yours and it's important to work together and not be in conflict because that's when it all breaks down and IT, if not deployed in a timely manner, can hurt you rather than help you. QUINLAN: And how about IT leaders, what’s the message for them? WOO: Mike, I think the No. 1 thing for IT leaders to understand is that they cannot stay the same as they did last year and that they must become a service provider. If they spend 80% of their day focusing on the infrastructure whether it's the hardware or software piece of the infrastructure, then they're going to be other businesses as an IT department very, very quickly. They need to be asking themselves “What am I doing to drive the business objectives of the company?” That's No. 1. No. 2 – they need to look to service providers whether it's an ISP or an ASP or an XSP and look at the infrastructure models they have which are much simpler and much more scalable and they must think of themselves as the IT department as a service provider. They must become the next SalesForce.com or the next ERP online system and be able to deliver those services not in terms of number of CPUs or gigabytes of terabytes or network bandwidth. Business people don't care about that. “Tell me how I can acquire the technology service you're delivering in a business term.” Simplest way, using SalesForce.com as the example again, is I pay X dollars for a user. As a business leader I get that if I hire five hundred people, I take my cost and multiply by 500. If I add more people, I just take my cost and multiply it by the new people. I understand how to budget for that. I don't know as a business person how to budget for 48 kilobits. It's not a metric that I measure things by as a business person. So, the three main things are no. 1, stop what you're doing. If you're not focused on delivering information and you're spending too much time tweaking the infrastructure, it's a dead end. No. 2 – You have to start thinking like a service provider, thinking of delivering IT not as computers per se but actually as a service and acting more like service provides. video transcript video transcript And No. 3 – Deliver those services using a metric that is aligned with the business. QUINLAN: We’ll now conclude with best practices for the rapidly changing world of IT. In this report we first discussed the technology landscape today. Then we identified the emerging tech trends that will be driving IT and business video transcript video transcript O:Ithink the besttakeawayisdon'tbe scaredoftechnology. Yet at thesame Ben,wehavecoveredalotofground today.WOO: A final thoughtforour QUINLAN: So,interms ofthetechtrendsincomingyears,Ithink,Mike, WOO: technology. Trust yourtechnology andthatwillhelpyou bemore can useitanywhere, don'tbeafraidoftechnology. Engage withyour vendors, supplychainetc.but becausetechnologyiseverywhereandwe mistakes willhappenandthat canleadtosomeimpactoncustomers, time recognizethathumans domakemistakes,errorswillhappen, audience please. times. forth, itnevertakesawaythehumanaspect.So,it'sabalancing actatall despite alltheconversationsaboutartificialintelligence androbotsso There isahumanaspect. There isanaspectofthegutinstincts.So, excitement ofbusinessthatit'snotabouttechnology100%. what youdowithitbutthat'sallpartofthemysteryas wellasthe at allthataccessibledata.Now, thereisnoparticularbestpracticearound that opportunitytodowhatIsaidinthefirstbestpractice whichistoget it separated. We arenotdoingourselvesanygoodhere. We're notgetting test data,itcouldbecustomerwhateverdataandwekeep that silo.Itcouldbefinanceanditcanproductiondata Too oftenwekeepcertaintypeofdatainthissilo,bits silos. viewers aboutisthefactthatdataandinformationneedstogetoutofits and makesureit'scohesive. And thethirdbestpracticeIwanttotellyour is thebestpracticeinitself,totakeservicesthatareavailableyou has tobeabalance,thereintegrationandtheaspect outside source,softwareasaservicetowhatyouneedbutthere department andthebusiness. There isacost-benefitattimeswithusingan services out. There isbenefittotheintimacybetweenaninternalIT department.” Norcanyougotoofartheotherwayandpushallyour Don't gettoostubbornabout“We havetosupportourinternalIT the bestpractices.Numbertwo–Investintechnologiesaroundyou. took millionsandofdollarstobuild. That's thefirstthingfrom economic inhibitorforustotaketechnologyanddosomethingthatonce money topayforit.Now, theeconomicsideisgone. There isno organizations likeNASA ortheNationalLaboratorieshaveenough that. We usedtocallthemsupercomputersandonlycompanies around sincethebeginningofcommercialcomputingandevenbefore outcomes. That's whatBigDataisallabout. Arguably, BigDatahasbeen something thatisprofitable,thedrivestowardsbusiness that isaccessiblebyyouandyourcompanydoingsomethingwithit, be ontheInternet,itcouldsomewherealongsupplychainbutdata accessible, itmaynotbeonsite.Itcouldatathirdpartysite, taking theinformationthat'saccessibletoyou.Now, whenIsay have triedtoputvaluesaroundthat. The bottomline isthis.Itmeans is averynebulousterm.Itdoesn'treallyhavetruedefinition. Academics number onethingthat'sgoingtoinfluenceusisBigData.Now, BigData trends thatwillnodoubtimpacttheirorganizations in thecomingyears. several bestpracticestohelpthemcopewiththenewandemerging tech world ofIT. Ben,sumupyourthoughtstodaybyoffering ourviewers conclude withbestpracticestosurviveandthriveintherapidlychanging as theycopewiththecomplexitiesoftechnologychange.Next,we’ll into thefuture. Then, wereviewedthechallengesorganizations mayface 4–25

GOVT/NFP/VOL. 2016 – NO. 1 4–26

productive, it will enable you to have greater insights into your business as well as your everyday life and it will make life hopefully a little easier. QUINLAN: Ben Woo, managing director of Neuralytix, thank you for your thoughts and insights today. WOO: Thank you, Mike. It's been a pleasure. QUINLAN: That concludes our report, New Tech Trends to Know and Understand. I’m Michael Quinlan and thanks for watching. video transcript video transcript A–1 Evaluation Form

I. Program Please rate the segments on the Vol. 2016 – No. 1 issue 5 = Excellent, 4 = Very Good, 3 = Good, 2 = Fair, 1 = Poor Overall Speakers Format Content Topics 1.Government Specialist: GASB’s New Initiatives: The More Things Change ______2.Government Specialist: Accelerating Change: The 2015 Inspector General Survey ______3.Not-for-Profit Specialist: The Ongoing Evolution of Not-for-Profit GAAP ______4.Not-for-Profit Specialist: New Tech Trends to Know and Understand ______

Please comment on each segment you used. (Attach additional pages if needed.) Segment 1:______

Segment 2:______

Segment 3:______

Segment 4:______

Suggested Topics to be covered in future volumes (please comment):

______

______

______

______VOL. 2016 – NO. 1 / evaluation form evaluation form ______

______

______GOVT/NFP A–2

II. Discussion Leader

Please rate the discussion leaders 5 = Excellent, 4 = Very Good, 3 = Good, 2 = Fair, 1 = Poor

Knowledge Group Leader/ of Subject Teaching Skills

Segment 1: ______Discussion Leader’s name

Segment 2: ______Discussion Leader’s name

Segment 3: ______Discussion Leader’s name

Segment 4: ______Discussion Leader’s name

III. Summary

Were learning objectives met? o Yes o No

Were prerequisite requirements appropriate?: o Yes o No

Were course materials valuable? o Yes o No

Was course content up-to-date? o Yes o No

Was completion times appropriate? o Yes o No

Name (please print):

Title: Send to: Karen Stolzar Firm: SmartPros Ltd. 12 Skyline Drive, City/State: Hawthorne, NY 10532 evaluation form evaluation form

Date: index index index index index index Index COMBINED INDEX:2015–#2through 2016–#1 Woo, Benjamin 2016 - #1 Woo,- 2016 Benjamin #2 - 2015 Trevor Smith, #2 - 2015 Paul Sharman, Roboff see: Shared Assessments quarterly Warren Ruppel, #4 - 2015 Gary Roboff, #4 - 2015 John Stark, Reed Grillo Protiviti see: Boyan see: P.C. Stein Pashman Woo see: Inc. Neuralytix, Meyer see: NDMAand Associates #3 - 2015 Dean Meyer,N. Ruppel see: LLP Paneth Marks Fetterman see: Loscalzo Associates Green see: Co. & Kearney Stark Reed see: LLC Stark Reed John #4 - 2015 Jr.,Grillo Rocco #1 - 2016 Jeffrey Green, Sharman see: Inc. Information Management Focused quarterly Fetterman, Allen Smith see: Computers Brite #3 - 2015 James Boyan, Audits, cost of federal “blanket” mandates for 2016 - #1 Segment #2 Segment #1 - 2016 for mandates “blanket” federal of cost Audits, #3 Segment #3 - 2015 expenses of Allocation #3 Segment AICPA#3 - Not-for-Profits 2015 & Guide, Audit Accounting #2 Segment #1 - 2016 General Inspectors AGAof Survey #3 Segment #1 - 2015 Care Affordable Act #2 Segment #1 - 2016 general inspectors by information to Access #2 Segment #4 - 2015 Vendor2015 Study Benchmark Management Risk A. By Presenter By A. B. By Topic By B. A–3

GOVT/NFP/VOL. 2016 – NO. 1 A–4

Authoritative GAAP 2015 - #3 Segment #1 Blanket mandates for audits, cost of federal 2016 - #1 Segment #2 Blending requirements for components units 2015 - #4 Segment #1 Budgeting 2015 - #2 Segment #2 Change 2015 - #2 Segment #2 Concerted activity 2015 - #3 Segment #4 Corporate performance management see: CPM Cost principles, new changes in 2015 - #4 Segment #3 Cost-sharing plans 2015 - #3 Segment #1 Data 2015 - #2 Segment #2 Data analytics to assess risks, use of 2016 - #1 Segment #2 Data breach 2015 - #4 Segment #4 Digital forensic presentation 2015 - #4 Segment #4 Enterprise security 2015 - #2 Segment #4 Exfiltration analysis 2015 - #4 Segment #4 External investment pools 2015 - #4 Segment #1 Fair value 2015 - #2 Segment #1 Fair value hierarchy 2015 - #2 Segment #1 Fair value measurement and application 2015 - #2 Segment #1 FASB exposure draft on not-for-profit accounting 2016 - #1 Segment #3 Fiduciary responsibilities, financial reporting of 2014 - #4 Segment #1 Financial Accounting Standards Board see: FASB Financial performance, proposed reporting on 2015 - #2 Segment #3 Financial performance, proposed reporting on 2016 - #1 Segment #3 Full costing 2015 - #3 Segment #3 Functional expense categories and reporting 2015 - #3 Segment #3 Fundraising 2015 - #3 Segment #3 GASB Exposure Draft on Multi-Employer Pension Plans 2015 - #4 Segment #1 GASB No. 67: Pension Plans 2015 - #3 Segment #1 GASB No. 68: Implementation Guide 2015 - #4 Segment #1 GASB No. 68: Pensions 2015 - #4 Segment #1 GASB No. 72 2015 - #2 Segment #1 GASB No. 74: Postemployment Benefits 2015 - #3 Segment #1 GASB No. 75: OPEB Benefits 2015 - #3 Segment #1 GASB No. 76: GAAP Hierarchy 2015 - #3 Segment #1 GASB No. 77: Tax Abatement Disclosures 2015 - #4 Segment #1 index index index index index index Governance 2015 - #4 Segment #2 index index index index index index Remediation 2015 - #4 Segment #4 Segment #4 - 2015 Remediation #3 Segment #3 - 2015 expense Program #4 Segment #2 - 2015 users Privileged #4 Segment #4 - 2015 data of Presentation OPEB see: Benefits Postretirement #2 Segment #2 - 2015 Planning #4 Segment #4 - 2015 PII PII see: Information Identifying Personal #2 Segment #2 - 2015 management Performance #4 Segment #4 - 2015 testing Penetration OPEB see: Benefits Postemployment Other #3 Segment #2 - 2015 measures Operating #1 Segment #3 - 2015 OPEB #3 Segment #2 - 2015 Guidance Uniform OMB #3 Segment #4 - 2015 Guidance Uniform OMB #3 Segment #1 - 2016 statements financial Not-for-profit #3 Segment #2 - 2015 statements financial Not-for-profit #3 Segment #1 - 2016 revised classification, asset Net #3 Segment #2 - 2015 revised classification, asset Net #4 Segment #3 - 2015 Board Relations Labor National #4 Segment #3 - 2015 Relations Labor Act National #1 Segment #2 - 2015 approach Market-based #3 Segment #3 - 2015 expense general and Management #4 Segment #4 - 2015 analysis Logging #3 Segment #1 - 2016 proposed disclosures, Liquidity #3 Segment #2 - 2015 proposed disclosures, Liquidity #3 Segment #1 - 2016 for accounting not-for-profit activities, Lease #1 Segment #1 - 2016 for accounting government activities, Lease #3 Segment #3 - 2015 activities Joint #2 Segment #3 - 2015 budget IT IBB see: budgeting Investment-based #1 Segment #1 - 2016 general, Inspectors AGAof survey #4 Segment #1 - 2016 in trends emergingtechnology, and Information new #3 Segment #4 - 2015 in changes new costs, Indirect #2 Segment #3 - 2015 IBB #1 Segment #1 - 2016 of revision model, reporting financial Government GASB see: Board Government Standards Accounting A–5

GOVT/NFP/VOL. 2016 – NO. 1 A–6

Reporting of expenses 2015 - #2 Segment #3 Reverse engineering 2015 - #4 Segment #4 Risk management 2015 - #4 Segment #2 ROI 2015 - #3 Segment #2 Service concession arrangements 2015 - #2 Segment #1 Shared services 2015 - #3 Segment #2 Single audits, new changes in 2015 - #4 Segment #3 Social media 2015 - #3 Segment #4 Special funding situations 2015 - #3 Segment #1 State of Montana IT Department 2015 - #3 Segment #2 Statement of activities 2015 - #3 Segment #3 Statement of cash flows 2015 - #2 Segment #3 Statement of functional expenses 2015 - #3 Segment #3 Super Circular see: OMB Uniform Guidance Tax abatement disclosures 2015 - #4 Segment #1 Underwater endowments 2015 - #2 Segment #3 Unfunded OPEB liability 2015 - #3 Segment #1 Uniform Guidance for Federal Awards, OMB 2015 - #2 Segment #3 Uniform Guidance for Federal Awards, OMB 2015 - #4 Segment #3 Unobservable inputs 2015 - #2 Segment #1 Velocity 2015 - #2 Segment #2 Vendor risk management 2015 - #4 Segment #2 index index index index index index attendance form attendance form Group AttendanceandCPERecord Segment Title ______Company ______Date______we suggestyoucontactthe appropriate organization forinformationabouttheir requirements. AICPA guidelines. SinceCPErequirementsvarybystateand/orprofessional organization, All CPEhourslistedarerecommended. They aredevelopedinamannerconsistent with Discussion leader______Datecompleted______participated inthegroupdiscussion,andearnedrecommended hoursofCPEcredit. I herebycertifythattheaboveindividualsviewedthisportion ofCPA Report, Location ofSeminar______

Earned ______S Nm SaeHours State Name SS# ______A–7

GOVT/NFP/VOL. 2016 – NO. 1