What’s New in Local Government Accounting & Auditing

1. What’s New in Local Government Accounting & Auditing _____________________________________ June 8, 2011 Auditor of Public Accounts http://www.apa.virginia.gov

2. Session Topics • Discuss results of QCRs of Virginia local government audits • Discuss activities within the APA impacting local governments including recent legislative changes • Discuss pending changes in auditing standards • Discuss potential impact of recent federal regulations http://www.apa.virginia.gov

3. Results of 2010 Quality Control Reviews _____________________________________ Discuss results of QCRs on Virginia local government audits http://www.apa.virginia.gov

4. Sampling • Document all requirement elements • Is sample representative of the population • Method of selection • Is sample size appropriate • Tolerable deviation rate • Evaluate results of test • Sample sizes • AICPA has chart of recommended sizes http://www.apa.virginia.gov

5. Single Audit Testwork and Documentation • Test all applicable compliance requirements and document evidence of tests • Must obtain an understanding and test internal control structure surrounding compliance requirements http://www.apa.virginia.gov

6. Single Audit Testwork and Documentation • Ensure Schedule of Federal Expenditures of Federal Awards is properly prepared and includes all required elements • Ensure sample sizes are appropriate http://www.apa.virginia.gov

7. Audit Documentation - Overall • Document all audit evidence to support audit objective conclusions • Oral explanations do not provide sufficient evidence http://www.apa.virginia.gov

8. Risk Assessment • Required to perform risk assessment procedures • To obtain an understanding of the entity and its environment • To assess risk of material misstatement at the financial statement and relevant assertion levels http://www.apa.virginia.gov

9. Risk Assessment • Must gain an understanding of internal control even if are going to take a substantive approach • Can no longer just default to high control risk without gaining an understanding • If decide to indicate high control risk because a substantive approach is more efficient, must document http://www.apa.virginia.gov

10. Independence • When auditor assists with preparing the financial statements or Schedule of Expenditures of Federal Awards, ensure documentation includes consideration of auditing standards on independence • Standards require that auditor obtain documentation that management acknowledges auditor’s role and approves changes made by auditor http://www.apa.virginia.gov

11. Legal Letter • Legal letter should be obtained prior to the release of the report • Provides evidence that supports the audit opinion • Report should not be dated earlier than the date the auditor has obtained sufficient appropriate audit evidence to support the opinion http://www.apa.virginia.gov

12. State Compliance Requirements • Perform applicable tests of compliance and accounting transactions unique to Virginia localities • Document all evidence to support results of tests performed and conclusions reached • When sampling, select appropriate number http://www.apa.virginia.gov

13. Local Government Update _____________________________________ Upcoming Changes (Website and Transmittal Forms) Legislative Update http://www.apa.virginia.gov

14. Addition of CAFRs to APA Website • Plan to make available on our website electronic copies of locality CAFRs • Most likely on Commonwealth Datapoint • Will encourage electronic submission in the future (is voluntary now) • Reminder that APA website has a section dedicated to Local Government (Audit Specs, alerts, Comparative Report) http://www.apa.virginia.gov

15. Comparative Report • Continue to move toward distributing the Comparative Report in electronic format • Are modifying forms to improve electronic viewing option • Currently formatted primarily for printing http://www.apa.virginia.gov

16. Legislative Update – Senate Bill 1271 • Requires the APA as part of its annual audit of the Department of Taxation to perform a review of the collection and distribution of the Retail Sales and Use Tax focusing on the collection and distribution of local sales and use taxes http://www.apa.virginia.gov

17. Legislative Update – Senate Bill 1271 • Fiscal year 2011 and 2012 review: • Review Taxation’s policies and procedures and audits performed • Review local officials procedures to identify entities that have not paid sales and use taxes and how Taxation could coordinate and assist local officials http://www.apa.virginia.gov

18. Legislative Update – Senate Bill 1271 • Fiscal year 2011 and 2012 review: • Review Taxation’s procedures for identifying proper county or city for distribution of local sales and use taxes • Review Taxation’s coordination with local officials to determine what information both groups can share and how to coordinate activities to enhance collections and accuracy of distribution http://www.apa.virginia.gov

19. Legislative Update – Senate Bill 1271 • Fiscal year 2011 and 2012 review: • APA make recommendations for improvements to Taxation and local officials policies and procedures http://www.apa.virginia.gov

20. Legislative Update – Senate Bill 1271 • Fiscal year 2013 review: • APA recommend annual benchmarks for evaluating the effectiveness of Taxation’s local retail sales and use tax collection and distribution process http://www.apa.virginia.gov

21. Update to Sheriff’s Manual and Audit Requirements • Reviewing New Procedures for • ATMs • Internet Sales • Billing for Room and Board and Fines and Cost http://www.apa.virginia.gov

22. New Accounting Standards http://www.apa.virginia.gov

23. Accounting Standards • GASB 54 is effective for this year. • One item of note is GASB pension project which may impact how multiple-employer report cost sharing pools. http://www.apa.virginia.gov

24. Potential Impact of Recent Federal Regulations _____________________________________ Dodd-Frank Act Tax Increase Prevention and Reconciliation Act Proposed Public Employee Pension Transparency Act http://www.apa.virginia.gov

25. Dodd-Frank Act • Requires studies of municipal securities market and of the role and importance of the GASB • GAO has issued report on GASB Funding and Role in Municipal Market (http://www.gao.gov/products/GAO-11-267R) • Timeliness of financial statements is discussed http://www.apa.virginia.gov

26. Tax Increase Prevention and Reconciliation Act • Passed in 2006 • Requires governments to withhold three percent of their payments for many goods and services and remit the withheld amount to the federal government http://www.apa.virginia.gov

27. Tax Increase Prevention and Reconciliation Act • Applies to federal, state, and local government entities with annual aggregate payments of $100 million or more for goods and services • Implementation date is December 31, 2011 • Some groups are pushing for repeal of the requirement http://www.apa.virginia.gov

28. Tax Increase Prevention and Reconciliation Act • Withholding requirement applies to most payments • IRS has provided some guidance • Established $10,000 threshold • Requirement will not apply to payment card transactions until further guidance is issued http://www.apa.virginia.gov

29. Tax Increase Prevention and Reconciliation Act • Exempt payments include: • public assistance and welfare program payments where eligibility is needs or income based • Interest • Payments for real property • Payments to tax-exempt entities • Intra-governmental payments http://www.apa.virginia.gov

30. Proposed Public Employee Pension Transparency Act • Challenges the validity of current state and local government accounting rules and practices • Mandates federal reporting requirements on state and local governments regarding pension costs http://www.apa.virginia.gov

31. Proposed Public Employee Pension Transparency Act • Requires reporting of financial data in accordance with market value of assets and liabilities, which is contrary to GASB’s current pension standards • Prohibits any future federal bailout related to current or future shortfalls of any state or local government pension plan http://www.apa.virginia.gov

32. Proposed Public Employee Pension Transparency Act • State and local governments that fail to meet the reporting requirements will be denied a federal tax benefit for any specified bond issued during the non-compliance period http://www.apa.virginia.gov

33. QUESTIONS? http://www.apa.virginia.gov