Are You Audit Ready?
Presented by
Donna Collins
Milestone Professional Services

Are you Audit Ready?
• Things that make this process difficult
– Limited staff
• Budget cuts - fewer people
• Availability of personnel to assist with audit prep
– Limited technical ability
• Within key Finance positions
• May be in support areas that impact audit

Are you Audit Ready?
• Things that make this process difficult
– Demanding nature of the process within relatively tight timeframe
• Auditors generally want to start ASAP
• Council/Commission expectations
• GFOA certificate program deadline
• Filing due within 9 months versus 12

Are you Audit Ready?
• Things that make this process difficult
– Information outside of the control of the
Finance Department
• Valuations (pension, OPEB)
• Landfill closure (engineer reports, FDEP compliance)
– Interpretation and expectation differences
• Auditor/Government understanding of technical standards
• Governing body expectations

Are you Audit Ready?
• Things that make this process difficult
– Coordination with other departments
• Information for accruals
• Project status for construction projects
• Grant information from operations

Are you Audit Ready?
• Keys to smoother audit season
– UNDERSTANDING OF THE OBJECTIVES
– PLANNING MEETING
– COORDINATION
– FOLLOW THROUGH
– COMMUNICATION
– PATIENCE

Are you Audit Ready?
Our focus for today

Process within the Government
• Coordinate with outside organizations
• Coordinate with internal departments
• Update documentation
• Perform closing procedures
• Perform year-end account analysis and propose necessary journal entries

Process within the Government
• Prepare for a single audit (if applicable)
• Prepare auditor requested items
• Prepare financial statements
• Complete a GAAP disclosure checklist
• Prepare Annual Financial Report

Coordinate with Outside
Organizations
• Identify the items needed from others
– OPEB Valuation
– Pension Valuations
– Self-Insurance Certification
– Swap Effectiveness Calculation (GASB 53)
• Make sure authority to contract has been given at the appropriate level.

Coordinate with Outside
Organizations
• Communicate deadlines clearly and make sure they are incorporated into the contract.
• Know the key contact personnel for follow up or questions.
• Coordinate with auditors regarding timing of audit and due dates for financial statements.

Coordinate with Internal
Departments - General
• Many items needed to prepare for the audit are provided by other departments within the government.
• Make a list of these items that is complete.
• Add requested by dates and make sure they will meet your needs and be reasonable for the department that must provide the items.

Coordinate with Internal
• Plan to Plan
Departments
– Have a meeting with all key players.
– If you need something from a department, include them in the meeting.
– Do this timely. Early August is not too early.
– Be organized and prepared. Set up system that works for your department.

Coordinate with Internal
Departments
• Send email or memo to all participants of planning meeting that:
– Summarizes what was discussed and who is responsible (responsibility chart)
– Requires acknowledgement of receipt
– Allows for their input if something missing

Coordinate with Internal
Departments
• Communicate with Departments
– Payable cut-off and system lock out dates
– Inventory dates and count procedures
– Final Budget adjustment needed
– Make sure to include key support personnel in the communication
• Financial personnel
• Operational personnel
• Administrative assistants

Coordinate with Internal
Departments
• Communicate needs 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

Coordinate with Internal
Departments
• Don’t forget to coordinate with the
Information Technology Department
– Reports needed
– Internal Control document updates
– P.O. roll over procedures
– Input of new budget
– Actual roll over of old year

Coordinate with Internal
Departments
• Document your plan including all significant tasks, responsible individual and due date
– Matrix
– Checklist
– Narrative

CATEGORY:
General
General
General
General
General
Debt
Debt
Debt
General
Fixed Assets
Fixed Assets
General
General
General
General
General
Inventory
Cash & Investm ts
General
General
General
General
General
General
Payroll
Accounts Payable
Cash & Investm ts
Cash & Investm ts
Cash & Investm ts
Cash & Investm ts
Cash & Investm ts
CLOSING BOOKS TO DO LIST
9/30/2005
GASB 34 DESCRIPTION:
Send memo to departments to count inventory at 9/30
Send memo to depts for end of yr grant reimb requests
Send memo last check run
Send memo to all Finance Directors re:year-end
Announce last check run at Senior Staff
Run additional contingent liability for GASB 34 Conversion
Run contingent liability report for Sheriff, Board (include hire dates) create excel file
Run final check run before end of year.
Review all PW contracts for cutoff
Meet w ith PW(cutoff, status on Infrastructure and GGB)
Remind accounts payable of old year/new year proc.
Run the 600 overnight-Fiscal Year Roll.
Run the 610: Post Pending Budget.
Run WTB and check cash balances.
Hold out journal entry numbers
Call about postage inventory
Prepare confirmations
Run list of O/S encumbrances for payables
to review . Send to depts to verify.
verify return by depts.
Send memo to depts for canceling P.O.'s.
See if IDA had income.
Run preliminary report of grant revenue and expense
Accrue payroll.
Compare carryforw ard P.O. list to rebudget list
Summary of investments by fund and
type for footnote disclosure.
Schedule of interest income compared to
average investment balance.
Mark Investments to Market
NAME DATE DUE:
9/30/2005
9/30/2005
9/30/2005
9/30/2005
9/30/2005
9/30/2005
10/3/2005
10/7/2005
10/7/2005
10/7/2005
10/7/2005
10/7/2005
10/7/2005
10/7/2005
9/15/2005
9/15/2005
9/15/2005
9/15/2005
9/28/2005
9/29/2005
9/29/2005
9/29/2005
9/29/2005
9/30/2005
9/30/2005
10/14/2005
10/14/2005
10/14/2005
10/14/2005
10/14/2005
10/14/2005

Coordinate with Internal
Departments
Communication should be:
Early
Complete
Effective

Coordinate with Internal
Departments
• Follow up is generally necessary
– Finance deadlines don’t necessarily correlate with internal department processes.
– Reminders of the dates items are needed and the impact they have on the audit flow may be helpful.
– Make sure to communicate with support personnel. They often can facilitate your request.

Coordinate with Internal
Departments

Update Documentation
• Internal Control Narratives
– Existing procedures
– New processes or controls
– Key personnel changes
– Make sure that documentation agrees with actual process being followed by staff

Update Documentation
• Information Technology flowcharts
– New software and impact on internal processes
– Upgrades to software
– Changes in key personnel or information flow
– Additional physical safeguards put in place
– Risk assessment of any new technology purchased and controls in place

Update Documentation
• Significant contracts and agreements
• New major grants
• Risk assessment for the government
– Identify potential risks and controls that address the concern
– Evaluate fraud risk specifically
• Consideration of new technical standards and a plan for implementation

Perform Closing Procedures
• Make sure duties are outlined on planning document created earlier in this process.
• Remember that certain reports may only be run on 9/30 due to system limitations
– A/R and A/P detail
– Deposit detail
– Purchase orders carried forward
– Sick/Vacation (Accrued Leave Report)

Cash and Investments
• Timing – can be done early in the yearend process
• Bank Reconciliation is key – get this done timely, fill in deposit footnote piece
• Pooled cash equity - reconcile to equity in each fund

Cash and Investments
• 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.)

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.

Payroll
• 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.

Perform Year-end Account
Analysis
• Include all major funds and accounts with high risk. Begin at TB level but also review
G/L detail where necessary.
• Make sure all “negative” account balances are reclassified (negative assets moved to liability, etc.)
• Document results of analysis

Account Analysis
General Suggestion
• Consider monthly reconciliation for all balance sheet accounts (Black book).
• Document findings during monthly budget to actual comparisons for use in year end fluctuation analysis work.
• Book the reversing entry when you book an accrual.

Account Analysis -Receivables
• For State Revenues/Receivables:
– Prepare FLAIR reconciliation
– Book accruals
– Reverse prior year accrual
– Add amounts to Due from Other Government audit workpaper (and footnote, if applicable)

FLAIR Reconciliation
CITY OF SAMPLE
AMOUNTS RECEIVED FROM STATE OF FLORIDA
SEPTEMBER 30-xx
LOCAL
OPTION
3124100
COMM
SERV TAX
3150000
REV
SHARE
3351200
MOBILE
HOME
3351400
ALCO
BEV
3351500
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
299,379.73
46,438.65
301,466.66
45,598.88
494,327.32
41,512.55
300,001.87
45,271.64
302,272.24
43,023.11
298,799.94
44,629.81
292,586.13
42,888.96
341,137.98
50,199.73
100,471.22
50,839.69
103,259.97
50,839.69
305,174.34
50,839.69
100,142.46
50,839.69
101,619.55
50,839.69
105,677.39
50,839.69
105,284.30
50,839.69
107,550.60
50,839.69
JUN
JUY
AUG
SEP
300,570.54
44,975.09
323,038.90
48,441.96
302,333.92
46,650.77
296,598.17
45,847.33
106,960.79
44,278.21
104,570.84
44,866.51
105,741.75
44,866.51
106,970.78
44,866.51
Total 3,852,513.40
545,478.48
1,453,423.99 585,595.26
BOY Accrual -317,779.27
-52,621.72
-96,910.50
-59,843.84
EOY Accrual 286,020.46
43,829.93
107,517.24
44,866.51
TOTAL 3,820,754.59 536,686.69
1,464,030.73 570,617.93
Per G/L 3,820,754.59 536,686.69
1,464,030.73 570,617.93
DIF 0.00
0.00
0.00
0.00
63.50
206.24
3,010.62
2,141.11
0.00
739.75
0.00
0.00
473.50
907.25
369.87
0.00
40.75
106.00
10,557.23
250.12
169.25
231.62
77.25
0.00
0.00
0.00
2,958.98
0.00
0.00
1/2 CENT
SALE TX
3351900
FIRE GAS TAX
SUPP REFUND
3352300 3354100
RADON
GAS
3354200
FDOT
MOWING
3439101
95,221.67
95,506.32
87,445.12
97,150.11
104,866.52
90,351.98
93,503.27
100,361.73
97,571.08
95,013.77
3,905.32
95,845.34
1,080.00
4,958.95
98,836.30
7,677.21
14,625.83
1,151,673.21
-87.12
-108,316.09
0.00
89,806.78
7,590.09
14,625.83
1,133,163.90
7,590.09
14,625.83
1,133,163.90
0.00
0.00
1,080.00
1,080.00
0.00
0.00
1,080.00
0.00
0.00
0.00
4,235.81
0.00
4,427.31
-141.43
0.00
0.00
4,320.00
17,385.96
4,320.00
17,385.96
4,320.00
17,385.96
0.00
0.00
0.00
0.00
29.55
6,345.00
0.00
6,345.00
0.00
0.00
0.00
6,535.25
29.16
0.00
16,537.68
0.00
6,535.25
-8.12
29,984.69
0.00
0.00
50.59
72,282.87
50.59
72,282.87
50.59
72,282.87
0.00
0.00

Account Analysis -Receivables
• For other revenues/receivables:
– Agree subledger to general ledger
– Print detail report of subledger 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 reconciliation to the G/L.

Account Analysis -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

Account Analysis - Receivables
• For significant interlocal agreements, check revenue against contract to see if receivable needs to be 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 you prepare the 9/30 accrual.

Account Analysis - Revenue
• Perform analytics that compare current year to prior year and current year to budget. Make sure explanations make sense in connection with other known trends. (This will be useful in MD&A.)

Account Analysis - Debt
• Can be done early
• When you make last payment for the year, update the debt progression schedule for the audit and footnotes.
• Be diligent in keeping a file for all new debt issues and lease arrangements. When you obtain or run amortization schedules, add to audit file and footnote schedules.

Account Analysis - Debt
• 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

Account Analysis - Expenditure
Accruals
• 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

Account Analysis - Expenditure
Accruals
• Look at major contracts for retainage and necessary accruals and go ahead and draft commitment footnote.
• Perform analytics that compare current year to prior year and current year to budget. Make sure explanations make sense in connection with other known trends. (This will be useful in MD&A.)

Account Analysis - Accounts
Payable
• Run detail at 9/30 at your cut off date and keep this report for auditors to use for tie in for their Search for Unrecorded
Liabilities
• Make sure this detail agrees to TB for each fund.

Account Analysis - Capital
Assets
• Reconcile capital outlay monthly
• Consider monthly review of all R&M and
Small Tools accounts
• Document reasons for not-capitalizing any
6000 account.
• Prepare a reconciliation for all 6000 accounts to asset additions

Capital Asset Reconciliation
• Sample City
Sample City
Capital outlay reconciliation
9/30/xx
341-41-530.64.01
001-21-520.64.01
352-41-530.64.01
622-21-520.64.01
Capital Outlay
Capital Outlay
Capital Outlay
Capital Outlay
341-41-530.31.00 Professional Services
In Capital Outlay In Capital Assets per TB acct per progression
521,237.43
25,512.00
14,605.50
1,000.00
562,354.93
521,237.43
CIP on capital asset progression and Capital Projects Additions wp
25,512.00
Equipment on capital asset progression
This addl expense for 2011 not capitalized due to litigation on Pedway project. JE to move out of 6400 acct not deemed necessary.
Purchase of 3 riffles. Below capitalization threshold. JE to actually move to another expenditure account not deemed necessary.
30,128.00
On CIP workpaper but no JE to move to 6400 acct. (We generally leave items like this in the original g/l acct but add to CIP
576,877.43
Items not capitalized. See notes above.

Account Analysis - Capital
Assets
• Identification of CIP completed can begin before year end.
– Can be time consuming.
– Make requests early.
• Don’t forget about intangible assets.

Account Analysis – Fund
Balance
• Prepare progression of fund balance amounts (by fund)
• Ensure classifications from prior year are still accurate.
• Identify new description needed within nonspendable, restricted, committed or assigned categories
• Update footnote

Prepare for a Single Audit
• Centralized vs. decentralized accounting for grants will impact this area.
• Decentralized grant management will require earlier coordination/communication with each department that has a grant for the fiscal year.

Prepare for a Single Audit
• Practical suggestions include:
– Make sure you have a separate folder for each significant grant that includes:
• the grant agreement
• the relevant compliance supplement (that the auditors will use to determine testing required)
• Council/Commission acceptance of the grant
• CFDA or CSFA number

Prepare for a Single Audit
• Practical suggestions include:
– Make sure you have a separate folder for each significant grant that includes:
• all reports submitted to the agency
– Financial and operational
– Reconcile financial reports to the g/l
– Attach receipt documentation to request so that date of receipt is easily identified
– Support for all accruals/deferrals
– Documentation of FFATA reporting performed

Prepare for a Single Audit
• Practical suggestions include:
– Make sure you have a separate folder for each significant grant that includes:
• Monitoring documentation for subrecipients
– Copy of entity’s financial statements and audit reports
– Documentation of intended use of the funds received
– Documentation that funds were used for purpose that pass through grant was awarded

Prepare Auditor Requested Items
• Generally the auditors will provide a list of requested schedules during their interim field work. If they do not provide a “client assistance list”, request this document.
• Review the list and ask questions on any items that may not be clear.

Prepare Auditor Requested Items
• Remember that the auditors are looking for the information requested. It may be readily available in another format utilized internally by the government. Ask if this will be acceptable. It can save time and effort.

Prepare Auditor Requested Items
• Audit Preparation – Schedules and requested items
– Detail account schedules to be prepared
• Cash transfers schedule
• Investment detail with market values
• Detail of Receivables
• Due to/from Other Governments
• Schedule of Due to/from other funds
• Fund Balance analysis

Prepare Auditor Requested Items
• Audit Preparation – Schedules and requested items
– Footnote progressions to be updated
• Debt progression (including compensated absences, OPEB)
• Capital Asset progression
• OPEB and Pensions
• Self insured funds

Prepare Auditor Requested Items
• Audit Preparation – Schedules and requested items
– Gather general documentation for new transactions/processes
• New debt (bonds and notes) and leases
• New accounting standards and implementation
• Documentation of new software programs, IT

Prepare Financial Statements
– Prepare Fund level statements
• Can be done by staff
• Make sure review process occurs
– New accounts and funds properly grouped
– Numbers input accurately
– Excel formulas correct and no hidden rows/columns
– Review may need to be done by Finance Director
• Begin as soon as TB closed

Prepare Financial Statements
– Schedules for conversion amounts to be updated. Make sure to coordinate with footnote preparation and auditor requested schedule preparation to gain efficiencies.
– Examples include:
• Debt – bonds and notes
• Other long term liabilities
• Capital Assets

Prepare Financial Statements
– Schedules for conversion amounts to be updated. More examples:
• Accrued interest
• Pensions (NPO) and OPEB
• Deferred revenue/Unearned revenue
• Inventory balances

Prepare Financial Statements
– Top Level Statements to be completed
• Utilize conversion schedules
• Incorporate each item into Statement of Net Assets and Statement of Activities concurrently
• Complete reconciliation statements as you address each conversion item.
• Make sure statements agree. Be careful of $1 differences

Prepare Financial Statements
– Footnotes need to be done
• Make sure to coordinate efforts with other parts of the audit preparation process.
• Agree to Financial statement draft and correct rounding differences in the footnotes as prepared.
• Examples include: SSAP, Cash and Investments,
Debt, Capital Assets, Interfund transactions,
Pensions, Commitments, Fund Balance composition, etc.

Prepare Financial Statements
• Management Discussion and Analysis should be updated
– Make sure amounts articulate with amounts in the financials
– Analysis should be informative and not old
“canned” topical discussions

Prepare Financial Statements
– Statistical Section data to be gathered (if you prepare a CAFR)
• Begin process early
• Make sure first four tables agree with final CAFR
• Review Auditor General desk review results to ensure common errors have not been made.
• Don’t forget appropriate footnotes for each table.

Complete GAAP Disclosure
Checklist
• Purpose: ensure correct application of standards and completeness of document
• Several sources to obtain a current checklist
– GFOA
– PPC from auditors
– AICPA
– Other

Complete GAAP Disclosure
Checklist
• Make sure to complete all sections
• Utilize technical references if you are unsure of standard application to your entity

Prepare Annual Financial Report
• Annual Financial Report due to
Department of Financial Services 45 days after delivery of audit but no later than 9 months after fiscal year.
• Must be complete prior to audit release so that auditors can compare to financial statements.

Auditor’s Perspective
Interim and Planning
• Procedures Include:
– Review of internal control documentation
• Updated for current year
• Includes all major areas
• Proper segregation of duties or compensating controls if segregation not possible

Auditor’s Perspective
Interim and Planning
• Procedures Include:
– Gathering of agreements and contracts
• Properly executed
• Approved in accordance with purchasing policy
• Compliance elements are included (grants)

Auditor’s Perspective
Interim and Planning
• Procedures Include:
– Testing of controls and transactions
• Control testing is often dual purpose – financial statement and compliance
• Are controls documented in narratives provided by client being followed in actual practice
• Are transactions properly authorized

Auditor’s Perspective
Interim and Planning
• Procedures Include:
– Review of preliminary Schedule of Federal and State Assistance
• Complies with Rules of Department of Financial
Services as to format
• Also complies with requirements of Auditor
General
• Includes CFDA and CSFA numbers

Auditor’s Perspective
Year-end
• Procedures include:
– Review of trial balance
• Ensure risk areas from planning are still accurate
• Identify balances that require audit procedures
– Audit of schedules provided by client
• Accurate, complete and agree to TB
• Analysis consistent with other data already gathered

Auditor’s Perspective
Year-end
• Cash Audit Schedules
– Agree to trial balance
– Include all cash accounts and properly identifies restricted cash and the nature of the restriction
– Proper cut off (includes timely bank reconciliation)
– Footnote information has been included

Auditor’s Perspective
Year-end
• Accounts Payable Schedules
– Includes all accruals
– Subsidiary agrees to general ledger
– Clean cut off
– Identification of retainage amounts
– Amounts Due to Other Governments have been properly identified

Auditor’s Perspective
Year-end
• Accounts Receivable Schedules
– Includes all accounts and agrees to trial balance
– All accruals are made with proper cut off
– Needed allowances are recorded
– In governmental funds, balance will be received in next year
– Footnote information available and agrees to schedules

Auditor’s Perspective
Year-end
• Capital Asset Schedules
– Beginning balance agree to prior year audited numbers
– Intangible assets have been properly identified
– Depreciation has been correctly calculated and the change in A/D makes sense
– Reconciliation to capital outlay has been done
– Capitalize interest has been recorded

Auditor’s Perspective
Year-end
• Debt Schedules
– Beginning balance agree to prior year
– New debt issuances have been properly recorded
– Covenants are identified, tested and have been met
– Outstanding amounts agree to confirmations

Auditor’s Perspective
Year-end
• Revenue Schedules
– Relationships between years make sense based on council actions
– All major revenues have been accrued and cut off is clean
– Grants have been evaluated for revenue accruals/deferrals

Auditor’s Perspective
Year-end
• Expense/Expenditure Schedules
– Relationships between years make sense based on council actions
– All major items have been accrued and cut off is clean
– Budget to actual relationships also make sense given events during the fiscal year.

Auditor’s Perspective
Year-end
• Procedures include:
– Review of financial statements
• Statements articulate
• Footnotes agree to the face of the statements
• Amounts agree to audited trial balance and groupings are accurate
• All required disclosures are included
• GAAP followed
• MD&A and Statistical Sections are consistent with
CAFR taken as a whole

Are You Audit Ready?
Suggested Resources
• Governmental Accounting, Auditing, and
Financial Reporting by Stephen Gauthier
• Elected Official Guides (GFOA)
– Audit Committees
– Internal Control and Fraud
• Small Government Resource Manual
(FGFOA)

Are You Audit Ready?
Suggested Resources
• AICPA Audit Guides
– Audit Sampling
– Analytical Procedures
– Auditing and Accounting
– Government Auditing Standards and Circular
A-133 Audits
– State and Local Governments