Washington Finance Officers Association 2010 Conference Vancouver September 16, 2010

1. 2010 Updates to Annual Financial Reporting Washington Finance Officers Association 2010 Conference Vancouver September 16, 2010 Duane Walz Assistant State Auditor Local Government Support

2. Agenda • 2010 changes in reporting requirements • GASB 54 • Effects on the financial reporting process • Assuring accuracy of the financial report • SAS 115 update • Q & A for reporting issues

3. Annual financial reports • Preparation • Reporting requirements and changes • Reconciliation • Drafting statements, schedules and notes • Review and oversight • SAS 115 • Internal controls

4. Reporting prescribed in BARS • “Cash-basis” manuals for: • Cities, counties, special purpose districts • Fire districts • Conservation districts • Library districts • Ports

5. BARS updates

6. 2010 changes to financial reporting • Annual updates to reporting requirements • Use update applicable to fiscal year being reported • May use forthcoming year’s update (optional) EFF DATE SUPERSEDES CASH BASIS BARS MANUAL: VOL PT CH PAGE 1-1-10 1-1-07 1 0 1 1

7. Locate chapter and highlight Updates for reporting

8. Reporting requirements

9. 2010 reporting changes • Annual Report Disclosure Form • Required if you are NOT submitting through the State Auditor’s online financial report application • Provides clarity on which forms you are filing • Eliminates the need for negative reporting

10. C-4/C-5 statement presentation • Present fund activities/programs into single fund at report time

11. Financial statement changes 2009 REQUIREMENT that is being phased in over two years • There should be only one general fund • If the local government accounts for the debt and capital projects related to proprietary activities in funds other than proprietary, these activities should be incorporated in the appropriate proprietary fund • Fund presentation for C-4 • Rollup of multiple general funds and/or proprietary funds • Examples: USDA loans – Operating fund, debt service, & reserve fund must be rolled together at report time

12. Financial Statement Changes • There should be only one general fund. • If the local government accounts for the debt and capital projects related to proprietary activities in funds other than proprietary, these activities should be incorporated in the appropriate proprietary fund.

13. Roll-up of managerial funds Proprietary fund example: Accounting system • 401 Water Sewer • 402 Airport • 404 W/S Debt Service fund • 405 Water Improvement • 406 Sewer Improvement • 410 Airport Reserve fund Reporting to the Auditor • 401Water Sewer • 402 Airport Note: Need to eliminate transfers between managerial funds 397s & 597s

14. Fund analysis will be required • Accuracy of fund use • Will require evaluation of present fund numbers for accuracy • Do you have the correct fund numbers? • Do you have the correct activity in the correct fund? • Separation of governmental activities and proprietary activities is essential to accurate reporting • Special revenue funds will be scrutinized under GASB 54 • Are you using special revenue funds for the correct purpose? • Are they special revenue or just reserves?

15. GASB Statement 54 • “Special Revenue funds are used to account for the proceeds of resources that are restricted or committed for purposes other than debt service or capital projects …. The restricted or committed resources need to comprise a substantial portion of the inflows reported in the special revenue fund.” • “Restricted” or “committed” are focal points • Entities may use this calculation to determine whether an activity would qualify for reporting as a special revenue fund. Substantial portion of inflows = (restricted revenues + committed revenues) Total Inflows reported in the fund

16. Statement C-4 - Revised • “All” funds are reported on C-4 except “Fiduciary” fund types • Elimination of budget presentation on the financial statement • Addition of fund total column incorporated into C-4 statement

17. 2010 reporting changes • Beginning/ending cash reporting • Incorporation of “prior period” adjustments in the beginning cash and investments section of C4 • Addition of BARS code subaccounts on Financial Statements and Schedules 04 and 05 (use is optional) • 308.10 / 508.10 reserved (may require note disclosure) • 308.80 / 508.80 unreserved

18. Statement C-5 revisions • Should be prepared for all trust and agency funds including: • Payroll and claims clearing funds • Elimination of budget presentation • Incorporation of total column for all C-5 funds

19. Schedule 04 / 05 Format Change Changes reflect the electronic layout that is the preferred reporting format.

20. Schedule 16 – Emphasis on ARRA • No changes to the schedule, but reporting requirement is to emphasize “ARRA” funds on federal schedule 16 • Must abbreviate and must use “bold” type

21. Notes to Federal Schedule 16 • Additional note required if you have ARRA award

22. Schedule 22 – revised format • If you have “average” annual revenue of less than $200,000, a Schedule 22 “Annual Questionnaire for Audit Assessment” is required. • Now a part of the annual report instead of a separate filing • Must use the 2010 format

23. Notes to financials • Note 1 (c) – Budgets • Budget disclosure is now reported in the notes to financials • Note 1 (m) – Reserved Fund balance – no prescribed language • Use of 508.10 “reserved” requires description of the nature and amounts of these reservations

24. Changes to the notes • Note 3 – Investments – instructions to note were modified to clarify that real property is NOT to be included. • Reference made in BARS that Note 3 should tie to Schedule 12 • Investments may be presented at cost, fair market value, etc., but must be able to reconcile the note to Schedule 12 • Note 6 – Long-term debt – clarifies that you must include “fiscal year being report” plus the remainder of outstanding debt. • Notes are updated EVERY YEAR • Be sure to check BARS manual updates for latest version

25. Reviewing the annual financial report • SAS 112/115 – requirement • SAS 115 – modifies language somewhat, but does NOT eliminate the requirements of SAS 112 • Establish a control for review • Finance committee • Management • Outside source

26. Audit standard for review • The standard considers deficiencies in controls over the preparation of the financial statements. • Indicators of a deficiency are: • Ineffective oversight of financial reporting and internal controls by those charged with governance. • Failure by management or council/board to address a deficiency previously reported. • Identification by the auditor of a material misstatement in the financials that are under audit (ever if the entity subsequently corrects).

27. Criteria for adequate review • The key criteria is to minimize the “potential” for a material misstatement in the financials. • Audit standard emphasizes “likelihood” of whether the control would prevent a material misstatement on the financials. • Control should demonstrate that misstatements on the financials have been reduced to less-than-likely.

28. Preparing the financial report • Use a checklist and matrix to assist in preparing your report • Locate budget and all amendments for the fiscal period being reported • Gather required financial information from outside agencies such as: • Risk management pools, lending agencies and banking/investment institutions • Review the BARS manual for changes

29. Essential steps for accurate reporting • Know your software • Software systems provide some schedules but not all • The report is in the details!! Accurate BARS codes are the foundation of a successful annual report. • Data entry is the key • Many automated systems have eliminated need to separately prepare statements and some schedules • ASP prepares: Schedule 04/05, 07, 11 and 12 • BIAS and VISION systems prepare: C-4/C-5 plus schedules 04/05, 07, 11,12, and 16 • Entities must prepare: • Notes to Financials • Schedules 09,10,17,19, 20, 21 & 22

30. Include year-end compliance • Year-end financial period closing issues • Open period expenditures • Cities: Open until Jan. 20 • Counties: 30+ days (auditor sets the period) • Recording period-end revenue • Interest earnings • Federal reimbursement grants/loans • Year-end journal entries • Record 508.00.00 ending fund balance • Adjustments/corrections (if any) • Fund balance reconciliation • Cash rule: Schedule 04 - Schedule 05 = Schedule 11 + 12 by fund • After recording 508.00 ending fund: Schedule 04 = 05 = 11 + 12

31. Reconciliation • Bank reconciliation • For cash-basis entities, this is a key component in preparing an accurate financial report • Reconciliation to assure that statements and schedules balance to bank statements • Financial statements = Bank reconciliation

32. Final Annual Report Document • All reports and balances provided to audit team are considered FINAL – unless you specifically identify areas that are “draft.” • Modifications made to “final” reports cannot be corrected after audit starts.

33. Filing the Annual Financial Report • Cash Annual Financial report templates for cities/counties is available on the State Auditor’s website, www.sao.wa.gov • DEADLINE - Must be received 150 days after year-end, typically May 29 -30 • Don’t forget the Certification Cover Page

34. Annual Report Training Available • “Cash-basis” financial report preparation classes are provided annually through the WFOA nonconference education program. • Classes located geographically around the state, starting in February • Registration: www.wfoa.org

35. Annual Report Assistance Duane Walz Assistant Audit Manager Local Government Support (360) 795-5595 Duane.Walz@sao.wa.gov www.sao.wa.gov