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Preparing Your Accounting Records for Audit

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Preparing Your Accounting Records for Audit © Tony Abeyta PREPARING YOUR ACCOUNTING RECORDS Presented by: FOR AUDIT James Montoya INTRODUCTION James Montoya, CPA — Principal . 20 years providing audit and consulting services . Have provided audit or accounting services to over 120 entities, primarily tribal governments and related entities . Work with a team of accounting specialists that specialize in providing audit preparation accounting services . Have served as the board Treasurer for three organizations and as a board member on another 2 TRIBAL GOVERNMENT AUDIT EXPERIENCE (2016 AUDITED FEDERAL EXPENDITURES BY AUDIT FIRM) Total: $7B in Native American Federal Award Expenditures $890 $576 $559 $530 $442 $384 $341 $269 $260 $187 REDW KPMP Stauffer BKD Moss Adams BDO RSM CLA Joseph Eve Bluebird Millions $890 $576 $559 $530 $442 $384 $341 $269 $260 $187 * Source: 2016 Federal Audit Clearinghouse Data (as of 11/20/17) 4 SESSION TOPICS . Overview of types of financial statements . Provide target timelines for issuing the financial statements . Describe goals for issuing reports timely, receiving unmodified opinions and minimizing audit findings . Techniques to effectively prepare for your audits . Software tools to manage month-end close processes . Common areas that require additional attention . Q&A OBJECTIVES OF PREPARING FOR AN ANNUAL FINANCIAL AUDIT Provide Auditors with Ensure Adequate Information Needed Minimize Audit Accounting Records for a Timely and Findings and Internal Are Maintained Efficient Audit Control Deficiencies Understand Internal Minimize the Control Processes Effectively Disruption to Daily Needing Communicate Results Responsibilities Improvement to Governing Body COMMON TYPES OF TRIBAL GOVERNMENT FINANCIAL STATEMENT REPORTS 1. Audited Financial Statements of Individual Funds, Component Units and Special-purpose Governments – Examples include enterprise funds, housing authorities, tribal schools, etc. 2. Departmental Financial Statements – All governmental funds to satisfy the Single Audit requirements 3. Primary Government – All funds of a Tribe, including governmental and enterprise funds and blended component units, but does not include discrete component units 4. Reporting Entity – All funds of the Tribe and discrete component units SAMPLE DEPARTMENT OF GOVERNMENTAL SERVICES FINANCIAL STATEMENTS . F/S typically include: – General Fund – Grant Funds – Indirect Cost Fund (internal service fund) SAMPLE PRIMARY GOVERNMENT FINANCIAL STATEMENTS . F/S typically include all: – Gov’t. Funds – Proprietary Funds – Internal Service Funds – Blended Component Units SAMPLE REPORTING ENTITY FINANCIAL STATEMENTS . F/S typically include all: – Gov’t. Funds – Proprietary Funds – Internal Service Funds – Blended Component Units – Discrete Component Units SAMPLE TARGET REPORT ISSUANCE TIMELINE FISCAL Due Date Due Date NEXT FISCAL YEAREND YEAREND ISSUE SUBMIT SINGLE ENTERPRISE & INDIRECT AUDIT COMPONENT COST REPORT UNIT F/S PROPOSAL DUE DATE Time to prepare yearend G/L reconciliations and schedules needed for the audit (PBCs) 31 Dec 31 Jan 29 Feb 31 Mar 30 Apr 31 May 30 Jun 31 Jul 31 Aug 30 Sep 31 Oct 30 Nov 31 Dec ISSUE DEPT, PRIMARY GOVT & REPORTING ENTITY F/S INDIRECT COST PROPOSAL DUE DATES 2016 SINGLE AUDIT REPORT ISSUANCE DATES – TRIBAL ENTITIES (# OF MONTHS AFTER YEAREND) 60% 50% 55% 40% 30% 27% 20% 10% 11% 7% 0% 3-5 Months 6-8 Months 9 Months More than 9 (59 reports) (143 reports) (293 reports) Months (37 reports) * Source: 2016 Federal Audit Clearinghouse Data COMMON REPORT ISSUANCE TIMELINE Time dedicated to preparing yearend G/L reconciliations and schedules NEXT needed for the audit (PBCs) Due Date FISCAL FISCAL YEAREND YEAREND ISSUE ISSUE ENTERPRISE PRIMARY & SOME ISSUE DEPT F/S GOVT & COMPONENT (SINGLE AUDIT REPORTING UNIT F/S DUE DATE) ENTITY F/S Due Date 31 Dec 31 Jan 29 Feb 31 Mar 30 Apr 31 May 30 Jun 31 Jul 31 Aug 30 Sep 31 Oct 30 Nov 31 Dec Many indirect cost proposals are being INDIRECT submitted late and COST during this timeframe PROPOSAL DUE DATE TYPES OF FINANCIAL STATEMENT AUDIT OPINIONS AND 2016 SINGLE AUDIT REPORT F/S OPINIONS – TRIBAL ENTITIES 100% . Unmodified (“clean”) opinion 91% 80% . Modified opinions – Qualified opinion 60% – Disclaimer of opinion – Adverse opinion 40% Note: 20% 210 reports (40%) issued F/S findings 9% (i.e. internal control deficiencies) 0% Unmodified Modified (482 reports) (50 reports) * Source: 2016 Federal Audit Clearinghouse Data QUESTIONS TO ASK . Are you prepared for your audit? . How confident are you with the accounting records? . What still needs to be done and who’s going to do it? KEY TECHNIQUES: UNDERSTAND THE FINANCIAL ACTIVITIES . Become familiar with the financial activities and potential internal control deficiencies by reviewing the following: Prior Year Prior Year Findings & Monthly Internal Audited Financial Management Financial Statements Letter Comments Statements Status of Internal Audit Detailed Trial Current Year Reports Balances Account Reconciliations UNDERSTANDING THE FINANCIAL ACTIVITIES IS KEY TO MAINTAINING ACCURATE ACCOUNTING RECORDS . Accounting errors often result from not monitoring the completion of monthly account reconciliations . All significant balance sheet accounts need to be accurately reconciled on a monthly basis and at year-end . How do you know if all significant accounts are reconciled and correct? RECOMMENDATIONS TO ENSURE ACCOUNT RECONCILIATIONS ARE APPROPRIATELY COMPLETED FOR THE AUDIT . Develop an account reconciliation checklist that includes the following information to track progress: Checklists in Excel should at a minimum include: ‒ Account number and description ‒ Individuals designated to complete and review reconciliations ‒ Anticipated and actual completion dates ‒ Comments or issues related to account balance or schedule Monthly close systems also include: ‒ Type of reconciliation required (e.g., bank reconciliation, capital asset listings, aged accounts payable listings, etc.) ‒ Account balances per trial balance as compared to support ‒ Dashboards showing status of reconciliations PROCESS FOR RECONCILING ACCOUNT BALANCES Determine which G/L accounts need to be reconciled on a monthly basis Understand the basis of accounting applicable to each account Complete the appropriate schedule or report to support the account balance Ensure an independent review is completed for the reconciliation KEYS ACTIVITIES TO ENSURE ACCOUNT RECONCILIATIONS ARE APPROPRIATELY COMPLETED FOR THE AUDIT . Compare account balances to the prior year and prior month and ensure significant fluctuations are expected and supported . Reconciliations and support should be maintained in an organized manner, the main options include: 1. Network folders 2. Maintain hard copies 3. Saving within a document management system 4. Uploading to accounting system, if functionality exists 5. Online web-based monthly close systems PROVIDING SUPPORTING SCHEDULES TO AUDITORS Maintain electronic copies of supporting schedules and provide them to the auditors in an organized format, an example is as follows: SAMPLE EXCEL TRIAL BALANCE CHECKLIST WEB-BASED MONTHLY CLOSE SOFTWARE* https://floqast.com/close-management-software/ * Not affiliated with REDW WEB-BASED MONTHLY CLOSE SOFTWARE – COMPARE SUPPORT TO TB WEB-BASED MONTHLY CLOSE SOFTWARE – FILE STORAGE COMMON FINANCIAL STATEMENT BALANCE SHEET AREAS – TRIBAL GOVERNMENTS AND RELATED ENTITIES Assets Liabilities Net Position Cash Accounts Payable Net Investment in Capital Assets Investments Accrued Liabilities Restricted Inventories Due to other funds Accounts Receivables Unrestricted Due to Related Parties Grant Receivables Unearned Grant Revenues Due from other funds Long-term Liabilities Due from Related Parties Capital assets COMMON CONTRIBUTORS TO INACCURATE ACCOUNTING RECORDS AND FINDINGS . Employee turnover in key accounting positions . Incomplete and outdated written policies and procedures . Lack of reviews and consideration of: – Significant accounting estimates – Unexpected changes in balances from the prior month and the prior year – Unanticipated budget versus actual variances . Vacant positions resulting in inadequate segregation of duties GRANT COMPLIANCE REQUIREMENTS D. Davis-Bacon Act A. Activities B. Allowable C. Cash Allowed or Costs/Cost Management (Removed Under E. Eligibility Unallowed Principles Uniform Guidance) F. Equipment and G. Matching, Level I. Procurement and Real Property of Effort, H. Period of Suspension and J. Program Income Management Earmarking Performance Debarment K. Real Property Acquisition/Relocati on Assistance M. Subrecipient N. Special Tests L. Reporting Monitoring and Provisions (Removed Under Uniform Guidance) * Whitehouse.gov website contains Compliance Supplements providing information related to specific grant requirements CONSIDERATIONS FOR MAINTAINING EFFECTIVE AND CONSISTENT ACCOUNTING FUNCTIONS . Maintain current accounting policies and procedures . Ensure key accounting positions are filled and ensure personnel clearly understand their responsibilities . Train and cross train team members in key accounting functions . If the account reconciliations get behind, consider contracting with external accounting consultants to get current, if necessary . Keep accounting records organized and current QUESTIONS? CONTACTS REDW Audit Preparation and Accounting Services Team James Montoya, Principal Hae-Sun Chung, Accounting Specialist Supervisor [email protected], (505) 998-3266 [email protected], (505) 998-3457 Rochelle Alcon, Senior Manager Valerie Livingston, Accounting Specialist [email protected], (505) 998-3486 [email protected], (505) 998-3415 Karina Mikkelson, Accounting Specialist Willis Kuwanvama, Accounting Specialist Supervisor [email protected], (505) 998-3251 [email protected], (505) 998-3259.
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