A Practical Approach to Preparing for your Audit

1. A Practical Approach to Preparing for your Audit May 8, 2012 Presented by: Deborah Garringer, Crowe Horwath LLP Bill Spinelli, City of Tampa

2. Topics for Discussion • Planning and Communication for your Audit • Practical suggestions • Risk Assessment & Internal Controls • Assessing risk • Evaluating Internal Controls • Audit Preparation • Reconciliations • Proper closing procedures • Financial Statements • Audit Challenges • Q & A

3. Annual Audit Process Update: • Plan and Communicate Early • Always Analyze the Risk to Your Entity • Update Internal Controls Documentation • Review New Accounting Guidelines • Review Job Assignments

4. Practical Suggestions Planning • Plan to Plan • There is duplication in many of the year end procedures, discuss how the process can be streamlined. • Have a meeting with all key players. • If you need something from a department, include them in the meeting. • Do this timely, well before year end. • Be organized and prepared. Set up a system that works for your department.

5. Practical Suggestions Planning • Communicate to all participants of planning meeting : • Summarize what was discussed and who is responsible (responsibility chart) • Require acknowledgement of receipt • Allow for input if something is missing

6. Practical Suggestions Planning • Communicate with Departments • Payable cut-off and system lock out dates • Make sure to included key support personnel in the communications • Financial personnel • Operational personnel • Administrative assistants

7. Practical Suggestions Planning • Communicate with Departments • Schedules and assistance that will be needed from that department • Audit or year-end close schedules or reports • Identification of CIP projects completed • Access to files for auditors • Footnote information

8. Practical Suggestions Planning • Document your plan including all significant tasks, responsible individual and due date • Matrix • Checklist • Narrative

9. Practical Suggestions Planning

10. Practical Suggestions Planning • Communication should be: • Early • Complete • Effective

11. Practical Suggestions General Ledger Accounts: • Consider monthly reconciliation for all balance sheet accounts. • Document findings during monthly budget to actual comparisons for use in year-end fluctuation analysis work. • Book the reversing entry when you book accrual.

12. Practical Suggestions for Cash and Investments: • Timing – can be done early in the year-end process. • Bank Reconciliation is key – get this done timely, fill in deposit footnote piece. • Pooled cash equity – reconcile to equity in each fund. • Investments – reconcile to trustee statements (best if done monthly) to ensure all transactions are properly recorded including interest. • Footnotes for investments can be prepared once 9/30 transactions recorded (effective duration by investment type, concentration of asset by type, etc.)

13. Practical Suggestions for Receivables: • For Revenues/Receivables • Prepare FLAIR reconciliation for State Revenues • Book accruals • Reverse prior year accrual • Add amounts to Due from Other Government audit workpaper (and footnote, if applicable) • Agree subsidiary ledger to general ledger. • Print detail report of subsidiary ledger balances. (Report can be spooled for later printing or review.) • If clean up is needed, propose the entry then and rerun report or prepare a reconciliations to the G/L.

14. FLAIR Reconciliation

15. Receivables • Grants – when submitting reimbursement request, add any accruals to Due from other Governments schedule (prepared for auditors and footnote, if applicable) • Look for 12 months of receipts for routine payments • Revenue recognition policy affects accruals.

16. Receivables • For significant interlocalagreements, check revenue against contract to see if receivable needs accrued. Do this when recording the last receipt prior to 9/30. • Don’t forget to reverse prior year accruals. • Prepare reversing entry for 10/1 at the time your prepare the 9/30 accrual.

17. Practical Suggestions for Debt: • Can be done early. • When you make the last payment for the year, update the debt progression schedule for the audit footnotes. • Be diligent in keeping a file for all new debt issues and lease arrangements. When you obtain amortization schedules, add to audit file and footnote schedules. • For proprietary debt, ensure that ending balance per progression agrees to general ledger. • Premiums and deferred amounts can be amortized and then added to debt progression shortly after year-end. • Make sure ending balances agree to G/L

18. Practical Suggestions for Payroll: • Many general ledger software packages can handle accrual automatically. • Find out if your software has this option. • Test the accrual in “train mode” if possible • Propose accrual (and reversing entry) as part of processing the last payroll of the year. • Prepare the reconciliation for the auditors at the time the 941 is filed. • Run leave reports (vacation and sick) after the last payroll for the year. Compensated absence schedules, footnote and accruals can be done shortly after the last payroll run.

19. Practical Suggestions for Capital Assets: • Reconcile capital outlay monthly. • Consider monthly review of all R&M accounts. • Identification of CIP completed can begin before year-end. • Can be time consuming • Make requests early • Don’t forget about intangible assets.

20. Practical Suggestions for Expenditure Accruals: • Look at major contracts for retainage and necessary accruals and go ahead and draft commitment footnote. • Consider performing a Search for Unrecorded Liabilities • Set scope below auditor’s scope. • Perform for at least 3 months across all funds. • Document reasons for not accruing transactions.

21. Practical Suggestions for Accounts Payable: • Prepare detail at 9/30 through your cut off date and keep this report for auditors to use for tie in for their Search for Unrecorded Liabilities.

22. Practical Suggestions for Accounts Payable: • Prepare detail at 9/30 through your cut off date and keep this report for auditors to use for tie in for their Search for Unrecorded Liabilities.

23. Risk Assessment • Have you done it? • Evaluation of internal and external risks • Identify risks and plan to address them • Focus on those that are relevant to the entity’s goals and objectives

24. Entity, Environment and Internal Controls: • Entity • Nature of Activities • Organizational Structure • Performance Measures – Internal and external • Environment • Political • Public • Internal

25. Entity, Environment and Internal Controls: (Con’t) • Entity Internal Controls • COSO • Control Environment • Risk Assessment • Control Activities • Information and Communication • Monitoring

26. Internal Control Documentation • Think COSO • Who are the Key Personnel involved in a process? • What are the transactions? • What are the risks inherent in the process? • What are the IT systems affecting the process? • What is the work flow?

27. Control Environment • What is the tone at the top? • Control environment sets the foundation for all other components • Management’s integrity • Ethical values • Competence of staff • Management’s philosophy and operating style

28. Control Activities • Polices and procedures that ensure goals and objectives are carried out • Ensure actions are taken to address risks • Occur throughout the entity • Include things, such as: • Approvals • Authorizations • Reconciliations • Segregation of duties

29. Information and Communication • Relevant information communicated in a proper form and a timely manner • Includes information systems used to produce reports needed to properly manage • Communication should be effective • Communication is vertical and horizontal

30. Control Monitoring • Performed on an ongoing basis • Focused on risk • May be incorporated into controls • Necessary to ensure controls are functioning as designed • Helps set a positive tone

31. Account Reconciliation • Performed timely and prior to TB final close • Have it reviewed and document review • Agreed to the final TB account amount • Agreed to the sub-ledger (when applicable) • Keep as support TB and sub-ledger amount reports used in the reconciliation • Support all reconciling items • When complete, make the adjustment

32. Account Reconciliation (Con’t) • Balance Sheet Accounts - How often and how many? • Operating Accounts - How often and how many?

33. Trial Balance Close • Close the TB for the auditor • Don’t close the TB for the new year until after the audit • Provide the closed TB to the auditor as soon as possible • Request analytics • Set an adjustment materiality (discuss with auditor)

34. Trial Balance Close (Con’t) • If not complete, identify items still open • Its your trial balance • Provide all adjustments to the auditor • Make all audit adjustments • Make sure equity accounts agree to PY financial statements

35. Create a Checklist: • Set Reasonable Deadlines • Identify the Items to Addressed During the Audit • Assign a Responsible Staff Person • Assign a Reviewer- Use as a Cross-Training Tool

36. Timely Closing Procedures • Coordinationbetween finance and other departments is essential: • When will Payables cut off? • When will grantreimbursements be submitted? • When will inventory counts be performed? • What construction projects are expected to be completed? • Search for outstandinginvoicesoncontracts, including retainage

37. Timely Closing Procedures • Plan for appropriate year-end account analysis: • Balance subsidiary ledgers to the G/L • Accounts Receivables • Deposits • Accounts Payable • Reconcile activity in debt accounts: • Principal payments • New debt

38. Timely Closing Procedures • Plan for appropriate year end account analysis: • Deferred Revenue • Grants • Taxes • Capital Asset Accounts • Assets purchased and disposed • Completed CIP

39. Timely Closing Procedures • Identify year end entries: • Bank reconciliation clean up • Classifying capital items and CIP • Recording Debt Transactions • Revenue and expenditure accruals • Compensated Absence for Enterprise Funds • Recognize revenue for amounts previously deferred

40. Timely Closing Procedures • Identify year end reports: • Accounts Receivable subsidiary and aging • Purchase Orders Carried Forward • Deposit detail • Accounts Payable subsidiary • Sick/Vacation (Accrued Leave Report)

41. Timely Closing Procedures: • Identify valuations and estimates to be performed by specialists: • OPEB • Pension • Self-Insurance • Swap Valuation and Effectiveness Calculation (GASB 53) • Budget Adjustment

42. Timely Closing Procedures: • IT Processes: • P.O. Roll over process • Input of new budget • Closing of fiscal year • Documentation of Closing Process: • Checklists • Notes, Approvals, Sign-off’s • Screen shots

43. Financial Statements • Whose are they? • Who will prepare (client, auditor, third party)? • What are the internal controls over financial reporting and financial statement preparation? • If the auditor is part of the process, who is the client rep taking responsibility? • What are the qualifications of third-party preparer?

44. Financial Statements (Con’t) • Update and complete the MD&A as soon as possible; don’t wait for final “numbers” • Roll the boiler plate information forward • Highlight items which will change • Update future data – generally comes from budget process

45. Financial Statements (Con’t) • Begin statistical section as soon as possible; update what you can, when you can • Revenue capacity schedules • Debt capacity schedules • Demographic data • Operating information

46. Financial Statements (Con’t) • Gather footnote support during reconciliation processes • Roll Notes forward • Cash and Investments – Update after reconciliations completed. At that point, you should have what you need. • Component Unit information • Fixed Assets • Debt

47. Financial Statements (Con’t) • Gather footnote support during reconciliation processes (Con’t) • Pension data • OPEB data • Interfund activities • Cash and Investments – update after reconciliations completed. At that point, you should have what you need. • Component Unit information • Fixed Assets • Debt

48. Financial Statement Preparation: • CAFR/Financial Statement Preparation • Prepare Fund level statements • Schedules for conversion amounts to be updated • Debt – bonds and notes • Other long term liabilities • Capital Assets

49. Financial Statement Preparation: • Schedules for conversion amounts to be updated • Accrued interest • Pensions (NPO) and OPEB • Deferred revenue/Unearned

50. Financial Statement Preparation: • Top Level Statement to be completed • Footnotes need to be done • (SSAP, Cash and Investments, Debt, Capital Assets, Interfund transactions, Pensions, Commitments, Fund Balance composition, etc.) • Statistical Section data to be gathered