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This document provides an initial audit communication with the Washington Suburban Sanitary Commission for the fiscal year 2016 financial statements, A-133, OPEB Trust, and Retirement Plan audits.
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WASHINGTON SUBURBAN SANITARY COMMISSION Initial AUDIT communication with THE COMMISSIONERS for Fiscal year 2016 Financial statements, a-133, OPEB TRUST AND RETIREMENT PLAN audits May 18, 2016
Agenda • Introductions • Objectives • BCA Watson Rice’s Responsibilities • Audit Approach & Timing • Communications – End of Audit • Matters For Discussion • New Government Accounting Standards & A-133 Audit Requirements
Introductions • BCA Watson Rice, LLP • Marshall Blair, Engagement Principal • Albert Lucas, Quality Assurance Partner • Kiyesha Holliday, Audit Senior
Objectives • Communicateclearly with those charged with governance the responsibilities of the auditor regarding the financial statement audit and an overview of the planned scope and timing of the audit. • Obtainfrom those charged with governance information relevant to the audit. • Providethose charged with governance with timely observations arising from the audit that are significant and relevant to their responsibility to oversee the financial reporting process. • Promoteeffective two-way communication between the auditor and those charged with governance.
Objectives • Communication regarding the planned scope and timing of the audit may assist: • those charged with governance to discuss issues of risk and materiality with the auditor; • those charged with governance to understand better the consequences of the auditor's work and to identify any areas in which they may request the auditor to undertake additional procedures; and • the auditor to understand better the entity and its environment.
Responsibilities – Year Ended June 30, 2016 • Financial Statements Audits – Opine on WSSC’s financial statements • OMB Circular A-133 Audit: • Report on Internal Control Over Financial Reporting and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards • Report on Compliance with Requirements that Could have a Direct and Material Effect on each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133
Responsibilities – Year Ended June 30, 2016 • Report to those Charged with Governance (SAS114): • Initial communication – Today’s meeting. • Final communication – Usually done in November each year • Report on Internal Control Deficiencies and/or Management letter, if required (SAS112/115): • Material weaknesses, if identified • Significant deficiencies, if identified • Control deficiencies, if identified
Responsibilities – Year Ended June 30, 2016 • Audit of the OPEB Trust and Retirement Plan • OPEB – Fieldwork completed and draft reports have been prepared. Awaiting confirmations. Reports are to be finalized. • Retirement Plan – Fieldwork is in progress. Audit of significant areas continues; however, draft report dependent on final actuarial valuation.
Responsibilities Summary • We are responsible for forming and expressing an opinion about whether the financial statements that have been prepared by management with the oversight of those charged with governance are presented fairly, in all material respects, in conformity with generally accepted accounting principles. • The audit of the financial statements does not relieve management or those charged with governance of their responsibilities. • Our scope does not include expressing an opinion on the effectiveness of internal control over financial reporting, but assessing internal controls to design audit procedures. WSSC may increase the scope to include an audit of internal controls.
Audit Approach Summary BCA Watson Rice Audit Phases: • Planning – some key planning activities include: • Materiality and significant accounts/class of transactions determination • Preliminary analytics • Update our understanding of WSSC and its environment • Update our understanding of WSSC’s entity level controls • Update financial reporting process/controls • Assess fraud risk and controls relevant to fraud • Identify Risk of Material Misstatement (RMM) at entity and account levels • Determine evidence gathering approach, confidence levels & risks • To be accomplished by: • Interviews with key directors and managers • Interviews/inquiries, inspections, observations, analytics, walkthroughs.
Audit Approach Summary(Cont’d) BCA Watson Rice Audit Phases (Cont’d): • Interim Audit • Determine inherent and control risk for significant areas • Test internal controls (key controls) of significant areas • Conduct audit of major financial systems – Assess general and application controls. Use data analytics to test certain areas. • Design and plan remaining audit procedures • Final Audit • Apply substantive audit procedures to significant areas • Investigate any audit differences, and evaluate findings • Reporting • Form audit opinion and report
Audit Approach Summary(Cont’d) BCA Watson Rice Audit Phases – IT Review(Cont’d): • Scope of Information Technology (“IT”) review will be focused on systems and processes supporting WSSC’s financial processing environment and key supporting infrastructure components. • IT scope of application controls testing will be fully determined during the planning stages of the audit. • The following general control areas are usually assessed: • Access controls • Application development and change controls • Segregation of duties • System software controls • Service continuity • CISCO SSAE 16 Type II report review. • Using data analytics techniques to test certain areas
Audit Approach Summary(Cont’d) • A-133 Audit • Obtain SEFA and populations for listed programs • Determine risks for the various programs • Determine type A, type B and major programs • Test internal controls over compliance • Test WSSC’s compliance with the various requirements of selected programs • Summarize findings and obtain management’s comments, if any • Prepare audit report
Audit Timing OPEB and Retirement Plans (* Audit timing depends upon receiving requested schedules and information timely.)
Audit Timing WSSC Financial Statements and A-133 (* Audit timing depends upon receiving requested schedules and information timely.)
Communications - End Of Audit • Matters to be communicated at the end of the audit include: • Audit adjustments, if any • Uncorrected misstatements, if any • Disagreements with management • Difficulties encountered during the audit • Change in, or adoption of new, accounting policies, if any
Matters For Discussion • We seek the Commissioners’ input on the following matters: • The appropriate person(s) in WSSC's governance structure with whom to communicate • WSSC’s objectives and strategies, and the related risks that may result in material misstatements. • Matters those charged with governance believe warrant particular attention during the audits, and any areas the Commissioners would require additional procedures be undertaken. • Significant legal matters. • Knowledge of any fraudulent activities. • Any ethics and conflict of interest concerns. • Other matters those charged with governance believe are relevant to the audit of the financial statements
New A-133 Audit Requirements • The new rules took effect for single audits of fiscal years that commenced on or after January 1, 2015. • One significant change is, OMB has raised the threshold for OMB A-133 compliance audits of entities that receive federal award money from $500,000 per fiscal year to $750,000 per fiscal year. • Another significant change centers around the risk assessment purposes whereby OMB A-133 classifies major programs as Type A programs, which are the larger programs, or as Type B, which are programs on the smaller size. The new requirements increase the Type A/B threshold from $300,000 to $750,000 for organizations that spend between $750,000 and $25 million in total federal awards per fiscal year; with higher thresholds for higher levels of Federal grant expenditures. • The minimum coverage rules for the percentage of federal awards that must be audited also changed the new Uniform Grant Guidance. For entities meeting the low-risk criteria noted above, the percentage of audit coverage dropped from 25 percent to 20 percent. Entities not meeting the low-risk criteria now have a percentage of audit coverage of 40 percent, which is down from 50 percent in the current A-133 rules.