Iowa Municipal Professional’s Institute

1. Iowa Municipal Professional’s Institute Accounting, Auditing and Other Fiscal Responsibilities July 24, 2012

2. What’s In This For Me??? • Fiduciary Role and Ethical Responsibilities • Audit Requirements • Internal Control • Single Audit Compliance • Audit Reports

3. I Q TEST

4. P NOANO Y

5. PAY THROUGH THE NOSE

6. Fiduciary Duty • Understanding your fiduciary responsibilities • Duty to the public • Accountability • Tone at the Top • Internal Control

7. Ethical Responsibilities • Public Purpose/Public Benefit • Constitution of the State of Iowa • Article III, Section 31

8. Creating an Ethical Environment • Set the tone at the top • Create a positive workplace • Hire and promote appropriate personnel • Confirm accountability for code of conduct • Implement effective discipline • Design, implement and monitor internal controls

9. I Q TEST

10. BELT HITTING

11. HITTING BELOW THE BELT

12. Accounting, Auditing and Other Fiscal Responsibilities Audit Requirements

13. Auditor’s Responsibility • “The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.”

14. Management’s Responsibility • “It is management’s responsibility to design and implement programs and controls to prevent, deter, and detect fraud.” • Responsibility includes: • Setting the proper tone • Creating and maintaining a culture of honesty and ethics • Establishing appropriate controls

15. Risk Based Approach • Based on internal control • Based on inquiries and interviews • Based on audit risk • Inherent risk • Control risk • Detection risk

16. Audit Requirements • Chapter 11 of the Code of Iowa • Requires audit based on population • Annually if 2,000 or more • Once every four years if 700-2000 • Not required if less than 700 • Citizens may petition for audit • Statutory deadline: March 31 • 9 months after end of fiscal year • Extension process

17. Audit Requirements • Chapter 11 of the Code of Iowa • Filing fees based on budgeted expenditures • Requires request for proposal (RFP) process • Written, competitive process

18. Request for Proposal (RFP) • Chapter 11.6 of the Code of Iowa • Sample RFP available at • http://auditor.iowa.gov • Navigate to FAQs • Request for Proposals (RFP) • Preparing an RFP • Evaluating an RFP • Evaluated and approved by Audit Committee/Council

19. Management Advisory Services • Include MAS in the RFP • Can incorporate MAS within the audit and audit report • Can separate MAS and issue separate report • Agreed-upon procedures report

20. Annual Financial Report (AFR) • Required by Chapter 384.16 and 384.22 of the Code of Iowa • Section 384.16 requires cities to use AFR in completing the certified budget • Section 384.22 requires cities to file AFR with the Auditor of State on or before December 1st • Penalties imposed for late filing or failure to file

21. Audit Committees • GFOA Recommended Practice • Management is responsible for ensuring proper controls exist over transactions.

22. Audit Committees • Role of the audit committee • Select the independent auditor • Request for Proposal (RFP) • Monitor the results of the audit • Evaluate the results of the audit

23. Audit Committees • Role of the audit committee • Ensure audit findings and recommendations are adequately addressed and resolved • Significant Deficiencies • Segregation of Duties • Statutory compliance

24. Audit Committees • Role of the audit committee • Provide a direct link between Council and auditor • Monitor adequacy of internal control on an ongoing basis

25. Expectations • Auditor should be engaged through request for proposal • Auditor should be independent

26. Expectations • Auditor should provide guidance and suggestions • Operating procedures • Internal control • Significant deficiencies • Statutory compliance

28. I Q TEST

29. MAN CAMPUS

30. BIG MAN ON CAMPUS

31. Accounting, Auditing and Other Fiscal Responsibilities Internal Control

32. Internal Control Defined • Process effected by an entity’s board of directors, management and other personnel designed to provide reasonable assurance regarding the achievement of objectives in three categories: • Effectiveness and efficiency of operations • Reliability of financial reporting • Compliance with laws and regulations

33. Components of Internal Control • Control Environment - sets the tone for an organization. Consider the following: • Communication and enforcement of integrity and ethical values • Commitment to competence • Participation of those charged with governance • Management’s philosophy and operating style • Organizational structure • Assignment of authority and responsibility

34. Components of Internal Control • The entity’s risk assessment process – an entity’s identification, analysis and management of risks relevant to the preparation of the financial statements, such as: • Changes in operating environment • New personnel • New or revamped information systems • Rapid growth • New accounting standards • New technology

35. Components of Internal Control • Information and communication • The information system relevant to financial reporting objectives includes the procedures (automated or manual) and records established to initiate, authorize, record, process and report entity transactions. • Communication involves providing an understanding of individual roles and responsibilities pertaining to internal control over financial reporting.

36. Components of Internal Control • Information and Communication (continued)- obtain sufficient knowledge of the information system to understand: • Classes of transactions significant to the financial statements (F/S) • Procedures by which transactions are initiated, authorized, recorded, processed and reported • Accounting records (electronic or manual) and supporting documentation

37. Components of Internal Control • Information and Communication (continued)- obtain sufficient knowledge of the information system to understand: • How the information system captures events and conditions that are significant to the F/S • The financial reporting process used to prepare the entity’s F/S, including significant estimates and disclosures

38. Components of Internal Control • Controlactivities – policies and procedures that help ensure management directives are carried out. Examples include: • Authorization • Segregation of Duties • Safeguarding • Asset Accountability

39. Components of Internal Control • Monitoring of controls – obtain information regarding the types of activities that the entity uses to monitor internal control over financial reporting, including how those activities are used to initiate corrective actions to its controls.

40. Internal Control and Fraud • Control Environment • Elements of Fraud • Opportunity • Motivation • Rationale

41. Segregation of Duties • An internal control procedure whereby no one individual is placed in a position of being able to both commit and conceal an irregularity by performing incompatible duties.

43. I Q TEST

44. VIT _ MIN

45. VITAMIN A DEFICIENCY

46. Accounting, Auditing and Other Fiscal Responsibilities Single Audit Compliance

47. What is a Single Audit? • An audit performed in accordance with: • Single Audit Act Amendments of 1996 • Office of Management and Budget (OMB) Circular A-133

48. Criteria For Single Audit • Single Audit is required: • A city expends $500,000 or more in Federal awards in one fiscal year • Single Audit is not required: • A city expends less than $500,000 in Federal awards in one fiscal year

49. Key Definitions • CFDA Number • Corrective Action • Federal Award • Internal Control • Internal Control over Federal Programs • Management Decision • OMB

50. City’s Responsibilities • Responsible for Identifying: • Federal awards received and expended • Federal programs • CFDA title and number • Award number and year • Name of Federal entity • Name of pass-through entity