1 Faster CAFRs NSAA/NASC Joint Middle Management Conference April 10-12, 2006 Indianapolis, Indiana...
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Transcript of 1 Faster CAFRs NSAA/NASC Joint Middle Management Conference April 10-12, 2006 Indianapolis, Indiana...
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Faster CAFRsNSAA/NASC Joint Middle Management
ConferenceApril 10-12, 2006
Indianapolis, Indiana
Presented by:
Herb MaguireCommonwealth of Pennsylvania
Buff CarlsonErnst & Young, LLP
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Faster CAFR’s Where we were:
– ’02 CAFR issued by 12/31/02
– ’03 CAFR issued by 5/31/04• GASB 34 Implementation• SAP implementation
– ’04 CAFR issued by 3/31/05• SAP implementation
– CERTIFICATE OF ACHIEVEMENT ALL 3 YEARS!
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Faster CAFR’s
Where we are:– ’05 CAFR issued by 12/31/05
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Faster CAFR’s
Where we’re going:
1. ’06 CAFR issued by 12/15/06 (5.5 mos.)
2. ’07 CAFR issued by 11/30/07 (5.0 mos.)
3. ’08 CAFR issued by 11/15/08 (4.5 mos.)
4. ’09 CAFR issued by 10/31/09 (4.0 mos.)
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Faster CAFR’s
What are others doing?
Private Industry 75 days, 30 days for quarterly SEC reports
Federal Government – 90 Days
States – Michigan 90 days
IT CAN BE DONE!!
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Faster CAFR’s The Solution:
Expedite the CAFR production and Audit Process
Improve coordination and communication with the Auditors
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Faster CAFR’s
Who’s Opining on What?!?
Let’s look at the Report of the Independent Auditors
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Faster CAFR’s
…..present fairly, in all material respects….the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information..….…
Focus is on OPINION UNITS
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Faster CAFR’s
Who’s Opining on What?!?Component Units Seven Major Funds:
General FundMotor License FundTobacco Settlement FundUnemployment Compensation FundState Worker’s Insurance FundState Lottery FundTuition Payment Fund
Aggregate Remaining Funds (ARF’s)
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Analysis of Opinion Units General Fund consists of 57 agencies. Six other Major Funds contain limited
numbers of appropriations. ARF’s consist of 122 funds
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TOP DOWN
APPROACH!!!
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FOCUS ON OPINION UNITS NEED 100% COVERAGE – NO!!!!!! GET EARLY AUDITOR BUY-IN TO
APPROACH, INCLUDING UNDERSTANDING OF MATERIALITY
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THE TOP DOWN APPROACH What’s Material and What’s Not!!
– ARF’s – 114 Different Funds
– General Fund – 57 Agencies
Which of these are significant?
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Faster CAFR’s
Look at 57 agencies in General Fund Compare
– Assets– Liabilities– Fund Balance– Revenues– Expenditures
Use June 30, 2004 audited numbers
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Calculate a 95% coverage:
D O L L A R SAGENCY ASSETS LIABILITY FND BAL REVENUES EXPENSES
% CUM % % CUM %ABCDEFGH
TOTAL
P E R C E N TASSETS LIAB.
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General Fund Results: 17 agencies comprised at least 95% of
General Fund assets (99%), liabilities (97%), fund balance (99%), revenue (98%) and expenditures (95%) and were considered “significant”
The remaining 40 agencies were considered “insignificant.”
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Faster CAFR’s
For the 114 ARF’s: 22 funds made up at least 95% of total
assets (98%), liabilities (97%), fund balance (98%), revenues (97%) and expenditures (96%), and were considered “significant.”
The remaining 92 funds were considered “insignificant.”
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Focus on: The six major funds The 17 significant agencies in the General
Fund, and The 22 significant funds in the ARF.
A total of 45 key areas.
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Faster CAFR’s
For the 45 Key Areas: Perform rigorous review and audit. Focus on balance sheet accruals and on
accuracy of revenues and expenditures. Prepare and review audit packages for each
key area. Use Comptroller sign-off. Provide training on preparing each type of
audit package – special revenue, enterprise, internal service, agency, etc.
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Faster CAFR’s
For each insignificant agency/fund: Post with any statewide journal entries
which include payroll accruals, non-payroll accruals, federal receivables, investment/security lending adjustment, workers comp accrual, etc
Perform and document variance analyses.
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Faster CAFR’s
Variance Analysis Approach: Establish thresholds for variants. Develop guidance on performing variance
analyses. Train staff on the performance and documentation
of variance analyses. Do year-over-year comparisons along with
differences (in $$ and %). An SAP report . Use SAP’s drilldown capability to quickly
research large variances.
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Faster CAFR’s
General Fund threshold:Assets - $10.5BLiabilities - $7.5BFund Balance – $3.0BRevenues - $38.8BExpenditures - $38.2B
Use a % difference of +/- 25%OR
Use a $$ variance of >$100M
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Faster CAFR’s
ARF Threshold determination: Blended component units make up a
majority of ARF values. Their audited numbers represent:
Assets – 90%Liabilities – 64%Fund Balance – 94%Revenues – 68%Expenditures – 46%
So, threshold can be higher.
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ARF Threshold Determination: % Difference of +/- 50%
OR $$ Difference of >$60M
Auditors reserved the right to perform analytical procedures using lower thresholds and to further explore any exceptions.
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Variance Analyses: Developed procedures on how to conduct
and document variance analyses. Trained staff on the performance and
documentation of variance analyses. Reviewed select variance analyses to
confirm reasonableness before giving to auditors.
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Use of Estimates for Liabilities Plotted liability categories for each key
area and then analyzed the basis for each liability.
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Faster CAFR’s
Liability categories:– Accounts Payable– Invoices Payable– Accrued Payable – Goods Receipt– Due to Other Funds– Due to Political Subdivisions– Due to Other Governments– Due to Fiduciary Funds– Due to Component Units– Payroll Payable– Deferred Revenue– Security Lending– Tax Refund Payable– Advance from Other Funds
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Faster CAFR’sCategory - General Fund Total DPWAccounts Payable and Accrued Liabilities 2,745 2,040Invoices Payable 462 241Accounts payable Good Receipt 21 9Due to Other Funds 66 21Due to Political Subdivisions 790 399Due to other Governments 16 3Due to Fiduciary Funds 4 1Due to Component Units 1 0Payroll Payable 1 0Deferred Revenue 1,518 9Security Lending 1,319 0Tax Refund Payable 565 0Advances from Other Funds 100 0
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What we found: Of DPW’s $2.721B total liabilities:
– $1.706B (63%) was supported by an actuarial valuation!
– $.358B (13%) was estimable.
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Estimating Liabilities Developed a white paper on Using Estimates Met with each Comptroller to discuss our
approach and identify those liabilities that could be estimated
Developed preliminary estimates for review and refinement
Presented approach to auditors for their information and acknowledgement
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Approach to Estimating Liabilities:– Availability of historical data:
• 3-5 years of liabilities
• 3-5 years of expenditures
– Trend analysis of data - % change from month to month, qtr to qtr and year to year.
– Recent program activities:• Legislation
• Regulation
• Funding or process changes
• Agency knowledge of program
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Faster CAFR’s
Approach to Estimating Liabilities (cont’d) Established a “Comfort Level” for each liability
estimate. For General Fund:#10 25% #8 40%
#9 28% #5 7%
A “lookback” in September tested the accuracy of each estimate. Of 24 estimates made, only 3 had significant variances.
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Faster CAFR’s
Use of Entity Wide Entries: Ensured consistency in approach Leveraged SAP to extract support for entries such
as:– Accrued payroll– Accounts payable accruals– Accounts receivable accruals– Federal receivables accruals– Internal activity eliminations– Due to/due from accruals– Compensated absences accruals– Workers’ compensation accrual– And others.
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Faster CAFR’s
Summary Top Down Approach Use of Estimates Better Variance Analyses Entity-Wide entries
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Faster CAFR’s(Amount Expressed in Thousands) Amount % Amount %
Total Liabilities 100% 7,457,312 100% 2,721,010 100%
Sourced Info: -
Accounts Payable and Accrued Liabilities 2,774,983 37% 2,039,731 75%
Invoices Payable 462,050 6% 240,615 9%
Due to other funds 66,287 1% 20,930 1%
Due to political subdivisions 789,557 11% 398,559 15%
Due to Other Governments 15,782 0% 3,295 0%
Summary of Estimable Accounts:
SAP system supported amounts 3% 227,733 7% 0%
Non-SAP system supported amounts 0% 0 0% 0%
Actuarially Supported Amounts 23% 1,705,617 49% 1,705,617 83%
Amounts to be Estimated: 20% 1,513,601 44% 358,339 17%
Comfort level 10 382,895 25% 358,339 100%
Comfort level 9 423,793 28% 0%
Comfort level 8 602,817 40% 0%
Comfort level 7 - 0% 0%
Comfort level 6 - 0% 0%
Comfort level 5 104,096 7% 0%
Total Accounts w /Estimates 46% 3,446,951 100% 2,063,956 100%
Public WelfareGRAND TOTAL
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Faster CAFR’s
HOW DID WE DO IT IN 2005? Two-way communication with Auditors –
Weekly teleconferences and monthly meetings, focusing on each major fund and key audit issues
Reached out to Component Units early in the process and got their buy-in
Met with material business areas at an interim date, conveying expectations and discussing potential real and and potential issues
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Faster CAFR’s
HOW DID WE DO IT IN 2005? Maximized interim testing Maximized use of Internal Audit (SAS 65
considerations) Timely receipt and review of Specialist Reports
SAS 70’s (18 reports were needed) Don’t forget User Control Consideration issues!
Actuarial Reports (9 reports were needed) CAFR Sheriffs Project Management Teamwork
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Faster CAFR’s
What will enable us to get faster? A year-round effort. Discuss/Critique audit issues/problems/delays
with relevant personnel immediately after audit and agree on resolution process
Detailed analysis of audit adjustments with plan to eliminate
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Faster CAFR’s
What will enable us to get faster? Prompt analysis and correction of Reportable
Conditions and Management Letter Comments An effective control environment to maximize
testing prior to year end Continued refinement and expansion of estimates Interim GAAP Reporting TRAINING,TRAINING, TRAINING!!!!! COMMUNICATION!
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Faster CAFR’s
Obstacles to a faster CAFR System updates – degree of
customization – forced migration New GASB pronouncements. Also
impact on component units, not just primary government!
Ineffective estimates Change of auditors, or current auditor
personnel
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Faster CAFR’s
Obstacles to a faster CAFRPersonnel turnover – the graying of the
American work forceNew Major FundsDependence on others – specialists,
component units
PLAN!! PLAN! PLAN!! then EXECUTE
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Faster CAFR’s
Thanks!