State and Local Government Finance Division
Deposits, Investments, Auditing, and Reporting Update
February 11, 2014
Becky Dzingeleski
AGENDA
• Announcements / Reminders
• Audit Review Process
• Audit Report issues in FYE 2013
• Audit Contracts / Invoices
• Breaking News …
• Deposits and Investments
• Communication
Announcements / Reminders
•
Fiscal Management Staff changes –
o Bonaventure Ezewuzie, CPA joined the fiscal
department as a staff accountant October 2013.
o7 Years experience as a compliance auditor
for the NC State Treasurer
o One open staff accountant position in Fiscal to
be filled soon.
Announcements / Reminders
•
Debt Management – One open Position:
Deputy Director
•
Debt Staff changes (2013)
o Phil Anderson – Involved in entire local
government application process for installment
purchase contracts, revolving state loans for
water & sewer projects, etc. and the refinancing
of existing debt. – Replaced Markisha
o Jenny Johanns – Administrative Staff: Debt
payment notices – Replaced Tina
Announcements / Reminders
•
2014 Treasurer’s Conference
 Save the dates
o Winston-Salem – Thursday, May 15, 2014
o New Bern – Friday, May 16, 2014
 Keynote speaker - Dave Bean, CPA - Government
Accounting Standards Board – Topics will include
 GASB 67 - Financial Reporting for Pension Plans
GASB 68 - Accounting and Financial Reporting for Pensions
for Employer Participants
Audit Review Process
•
Successful 2013 process for submission of audit reports,
contracts, and invoice approval. No expected changes for
approval processes regarding Audit Contract, Audit report
submission or invoice for 2014
•
Positive response from auditors and units.
Turnaround was faster in 2013.
LGC Staff availability was improved
 still issues due to Princeville demands.
o Congratulations on getting 984 or almost 85% of the
audits in before December 15th
o As of 2/7/14 we have received 1,089 FYE 2013 audits
o We are still missing – 32 municipalities & 7 counties
Audit Review Process
•
Unit Data Input workbook –2013
o Clarified the way we asked the questions
 Feedback always appreciated
o Additional questions were added in 2013
 May be additional questions in 2014
o Restricted Stabilization by State Statute - RSS tab
 Calculations for RSS and FBA
Audit Review Process
•
2013 was the 2nd full year of NEW SLGF audit
review process
o Additions / changes in Unit Data input workbook to enable
us to get better data and to better assess fiscal health.
o We have easier access to prior year’s financials, unit
letters and responses and five year’s worth of trial
balances
o Intention is the trend information will be helpful for units
experiencing difficulties
o Going forward we will continue to enhance our ability to
expedite a comprehensive and thorough fiscal analysis
Audit Presentation Changes in 2013
GASB 63 went into effect for June 30, 2013
GASB 65 goes into effect 6/30/2014
LGC required implementation of GASB 65 with GASB 63 in
2013 Audit reports
•
Presentation Issues in 2013 audit reports:
 Vague deferred inflows note –large amounts of deferred
inflows as “other” or “miscellaneous
 Give thought to why a certain transaction is unearned,
from there the classification should be straightforward.
Audit Presentation Changes in 2013
Exchange transaction vs. Imposed non-exchange
transaction
From GASBS 65, ¶9: Imposed Nonexchange Revenue
Transactions - “Deferred inflows of resources should be reported when
resources associated with imposed nonexchange revenue transactions
are received or reported as a receivable before (a) the period for which
property taxes are levied or (b) the period when resources are required to
be used or when use is first permitted for all other imposed nonexchange
revenues in which the enabling legislation includes time requirements.”
•
Privilege license is exchange transaction: show as a liability,
not Deferred Inflows
•
Grants that have been prepaid but for which the substantive or
contractual requirements have not been met are liabilities, not
deferred inflows
Audit Review Process – Debt Approval
•
Units requesting November or December LGC debt approval
must already have submitted to our office
o Completed set of financial statements including signed
opinion and MD&A
o Compliance opinions can come subsequently
o Detailed response to Unit Letter (if applicable)
o We must know any Compliance findings that affect the
financials
Our office must have time to review audit report,
write Unit letter (if necessary) and review unit’s
detailed response to our letter.
•
We do not need the final bound CAFR for mass publication
Audit Report Issues
•
Cost Allocation vs. Transfers – Memo 2014-07
https://www.nctreasurer.com/slg/Memos/2014-07.pdf
o Cost allocations should be treated as reimbursements to reduce
the cost of operations – it is not revenue but a contra account.
o Transfers are gifts of financial resources or equipment; they will
be treated as revenue/other financing source to the receiving
fund.
•
Management Representation Letter
o Signing this is accepting responsibility for what is in the Audit report
o Unit needs to review the prepared statements and be in agreement
with the presentation before report is sent to SLGFD
o Management Rep letter should be signed before the Audit report
comes to the SLGFD
2013 Audit Report Issues
Other Post Employment Benefits (OPEB)
•
Use of Alternative Method for determining OPEB liability
(Pg. 35-I-126 thru 129: City of Dogwood Illustrated financial
statements) does require supplementary information (RSI)
following the notes to the financial statements
Firefighters & Rescue Squad Workers’ Pension Fund
•
If significant salaries are paid to these individuals, there
must be a note in the Audit report (Pg.35-I-67) including
On-Behalf Payments for Fringe Benefits and Salaries
(Pg. 35-I-82)
https://www.nctreasurer.com/slg/GASB%20Documents/CityofDogwoodIllus
trativeFinancialStatements.pdf
2014 Audit Contract changes
Parent Government – Component and DPCU
o DPCU (TDA) – Public Authority with separate board
o Memo 2014-08 https://www.nctreasurer.com/slg/Memos/2014-08.pdf
o Signatures of both
o Parent Government Board Chairman / Mayor
o Board Chairman of TDA
o 2013 Group Audit Standards
o If entity is component of another government under the
group audit standards - the entity’s auditor will make a
good faith effort to comply with the requests of the group
auditor.
E-Verify
 Sept. 2013 new language was added: Paragraph # 22 of the
LGC-205 (Rev. 2013 and 2014)
Audit Contracts – Peer Reviews
Auditors with peer reviews other than “pass” must
contact the LGC before contracting – see Item # 5
on contract.
o Pass with Deficiency(ies)
o Addendums required for each audit contract
o Fail
o If pre-issuance review is required by NC CPA
Board or by SLGFD it must accompany the audit
report when sent to the LGC. Pre-issuance review
must be completed before audit is sent to the
LGC for our review – see Item # 12 on contract.
Audit Contracts / Invoices
•
Submit all audit contracts through the Leapfile portal
o Include email addresses for parties to receive contract
approval in portal message box
o Contract approval is by email
currently Tashara Ware is contract reviewer
•
Send Invoices via Email – lgc.invoice@nctreasurer.com
o Approved stamped invoice sent to auditor by email
currently Steven Holmberg sends approved invoices
•
Until 2014 audit contract form is available
o Use of 2013 form is fine until
o When the 2014 form is published - please use the most
current form
Breaking News…
•
Illustrated Financial Statements FYE 2014
o Change in Tax Schedule due to DMV Tax & Tag
changes
o Clarifying
o Cleaning up
o No NEW GASB’s implemented in NC Local Government
Illustrated financial statements for FYE 2014
o Stay tuned for FYE 2015
o GASB 68
Breaking News …
•
Other Post Employment Benefits (OPEB)
o State task force looking at OPEB issue
Help Units determine their true liability
Strategies to meet that liability and
potentially mitigate it
•
DMV Tax Collection System – HB 1779
o Effective September 1, 2013
o In fiscal year 2013-2014 will have 16 months
of revenue; one time occurrence
Breaking News …
•
GASB 68 – Financial Report for Pensions :
The Department of State Treasurer has started a
workgroup between Financial Operations, the Controllers
Office, Retirement, the State’s Actuary, and the State
Auditor to plan for the implementation of GASB 68.
o The objective is to have the data you and your auditors
need to meet your requirements under the standard
o If you are a member of LGERS, you must record
your share of the unfunded liability per the standard
o Effective years ending 6/30/2015
o More to come starting with Spring GFOA in March
then at Treasurer’s Conference in May
Statutory Change for FYE 2015
North Carolina Eastern Municipal Power
Agency members
http://www.ncleg.net/EnactedLegislation/Statutes/HTML/BySection/Cha
pter_159B/GS_159B-39.html
•
§ 159B-39. (Effective July 1, 2014) Permitted uses of
revenue from electric power rates.
•
Amount the Electric Fund is allowed to transfer out is
statutorily limited.
Federal Single Audit requirements
Effective date will be for years ending June 30, 2016
US OMB has announced changes to Federal Single Audit
requirements for local governments and public authorities
that receive Federal Financial Assistance.
 The amount to determine if a Federal Single Audit is required
will be $750,000 of expenditures.
 Among the other changes: minimum threshold to determine
major programs will be $750,000
 Total amount of financial assistance that is required to be
audited reduced to forty percent (40%) and twenty (20%) for
low-risk auditees.
State Single Audit requirements
Possible similar changes to State Single Audit
requirements
State requirements changes to be determined by
our office working with State agencies, local
governments, Office of State Auditor, and others
 Previous changes to State Single audit requirements
were in 2003 when OMB changed the federal
requirements
Deposits and Investments
•
LGC-203 Reports
 Were due January 25th
 Currently 68% - approx. 800 of 1182 have been received
 Late letters to go out the 4th week of February
 First letter goes to finance officer
 Subsequent letters go up the Organizations chain
 Not required for NC Charter Schools
 ABC - LGC-203 report forms are accessed at the NC ABC Commission
Website: http://abc.nc.gov/boards/reports.aspx?folder=136
LGC-203 Report
LGC-203EZ - Units that have Deposits in Pooling Method
Banks, Investments in NC Cash Management Cash or Trust
Portfolio, Finistar, CDARs and have No other investments
Standard LGC-203 – Schools, PHA’s & everyone who
cannot use the EZ form
https://www.nctreasurer.com/slg/Pages/Deposit-and-InvestmentInformation.aspx - Forms & Instructions
Supplementary Schedules created by your office
required with the Standard LGC-203 Form
o Description/detail for each of the investment
categories. Example: Custodian, Type-Name of
Investment, purchase amount, market value*,
purchase date, maturity date, Commercial paper*
and any other special features of the investment
Deposit & Investment Reporting Issues
•
Finistar or CDARs Investments
o Please send statement/ page as of December 31, 2013
that includes the list of banks where funds are deposited
•
DPCU - Discretely Presented Component Units
that are a public authority under the Local Government
Budget and Fiscal Control Act are required to file a
Separate LGC 203 from the Parent Government
o Please do not combine the DPCU cash & investments
in the LGC203 report for the parent government
•
Messages left in emails to LGC0203@nctreasurer.com are
NOT seen by Review Staff. Automated email account
Deposit & Investment Reporting Issues

Use LGC-203 form modified for the current reporting
period
 Status of banks can change due to mergers
 Pooling vs. Dedicated

Collateralization - “Dedicated Method” is complicated.
Examine agreements – Refer to the collateralization booklet
online https://www.nctreasurer.com/fod/Resources/Collateralization.pdf

Custody is tricky – examine custodial agreements
 Signers on accounts do not automatically make them
official custodians in the eyes of FDIC
Deposits and Investment Issues
•
10 Units with Violations as of June 30, 2013
o Insufficient collateralization for accounts in nonpooling banks as of report date.
o REMIC Investments – No authority for moneys of
units of local governments to be invested in them
• AG Opinion
o Brokered CD Investments issued in out of state
banks - violation of §159-30(b) or (b1)
• Must be handled as a Deposit, not an investment
• Corporate CD’s are not eligible in North Carolina
• Has to be the Unit depositing the money into the bank, not
the Broker
Deposits and Investment Bond Question
§159-30(c)(3) Obligations of the State of North Carolina.
§159-30(c)(4) Bonds and notes of any North Carolina
local government or public authority, subject to such
restrictions as the secretary may impose.
o Certificates of Participation – Bond-like but are not Bonds
so not allowable
o LOBs – must evaluate the offering, might be allowable
o UNC Bonds – only if GO Bonds
o Health agency bonds
o Medical Care Commission is a State Agency but is Not an
obligation of the State – not allowable investment
If the product is something you truly want, we can help
evaluate if it is within the N.C. Local Government legal
boundaries
Deposits and Investment Issues
•
Custody and Proper Safekeeping of Investments
o New AG Opinion speaks only to investments held by
a bank and that it is no less secure on the commercial
side than the trust side if:
o There is a legally binding safekeeping agreement
o Which holds the assets separate and apart from the
assets of the bank
o And can readily be identified and accounted for as
belonging to the local government
o The AG opinion says that these are standard federal
banking regulations to which all banks must comply
Deposits and Investment Issues
•
•
•
Make sure deposit accounts are identified as public funds,
as required by Administrative Code chapter 7.0103(a)
An account not labeled as public funds is not secured by
pledged collateral even if the account is with a “pooling
method” bank
In the event of a bank failure, funds in that account in
excess of FDIC limit would face possible loss
o INV 91 pursuant to 20 NCAC 7 - allows DST Financial Operations to
match local government deposit accounts to information provided by
their depositories.
o necessary to ensure that local government funds are sufficiently
collateralized in the pool.
o annual reporting requirement - due July 25
•
NC credit unions are not eligible depositories – some local
governments were not aware of this
Deposits and Investment Issues
•
Markets appear to be volatile and the Banking
industry continues to be unstable due to real estate,
global markets and changes in the Fed
o Be prudent in your banking relationships and in
your investments
o Units of Government should have a Governing Board
Approved “Official Investment Policy”
o No time to gamble for a few extra dollars
o If you don’t understand something – ask questions
of the vendor until you do understand.
LGC Communication Process
• “LGC_News” Listserv
o Used to distribute new memos, publications, items of
general interest and announcements
o Critical with electronic communication/processing
o You and your finance staff as well as your Unit’s
auditor should be members of the LGC_News
listserve.
LGC Communication Process REMINDER
To register for the LGC_News listserve
And stay Informed
Distribution software has changed; let us know if you
are no longer receiving emails
Please provide us with your business card today or send an
email to Tashara Ware Tashara.Ware@nctreasurer.com if
you wish to be registered. Provide name, title/position and
email address of each person to be registered.
How to contact us
•
•
Website
www.nctreasurer.com
Phone
o 919-807-2381 (voice)
o 919-807-2398 (fax)
•
Email
o Becky Dzingeleski becky.dzingeleski@nctreasurer.com
o 919-807-2396 - Cash & investment and form questions
o Tashara Ware tashara.ware@nctreasurer.com
o 919-807-2381 - “Has my report been received” questions
o Sara Shippee sara.shippee@nctreasurer.com
o 919-807-2356 - All other questions