Auditor of Public Accounts Local Government Update Spring Conference... · 2019. 12. 3. · SB1312)...

Auditor of Public Accounts Local Government Update

APA Local Government Update

VGFOA 2019 Spring Conference

May 10, 2019

Rachel Reamy, CGFM, Local Government Audit Manager

Auditor of Public Accounts

Overview of Topics

• Key Reminders for Annual Audit and Reporting Requirements

– New requirements from 2019 Legislative Session

• APA Quality Control Reviews Over Locality Audits

• Updates on Local Fiscal Distress Analysis and Monitoring Process

Page 2 WWW.APA.VIRGINIA.GOV

REMINDERS FOR ANNUAL AUDITS AND REPORTING REQUIREMENTS


New Requirements from 2019 Legislative Session

• 2019 legislative session (HB1866 and SB1312) amends Code §15.2-2511

– New requirement for locality to publish a statement if audit is delayed (effective July 1, 2019), submit that statement to the governing body and send a copy to the APA

– Requires “Small Towns” (under population of 3,500) that voluntarily have an audit to submit the audit report to the APA upon completion of their audit


Reminders for FY2019 Reporting Requirements

• GASB 68 Pension and GASB 75 OPEB Resources available at “VRS Guidelines and Resources” https://employers.varetire.org/financial-reporting/

• Submission of final audited CAFR and transmittal data due to APA by November 30

– APA reports to JLARC each year in January those localities who are late in submitting either the audited CAFR and/or transmittal data

• Local officials to submit notarized statement to APA after the CPA firm has presented the CAFR/audit results to governing body


https://employers.varetire.org/financial-reporting/https://employers.varetire.org/financial-reporting/https://employers.varetire.org/financial-reporting/https://employers.varetire.org/financial-reporting/

Comparative Report Transmittal Reminders

• Include activity of all discretely presented Component Units

• Post 110/120 Joint Activity, and send a copy of the forms to APA

• Commonly see all CAFR Capital Project expenditures reported on Form 300

– UFRM specifies nature of “capital projects”

– Maintenance to existing streets, roads, bridges reported on Form 100, not Form 300

• Analysis tab: need adequate explanations for variances


Uniform Financial Reporting Manual FY19 Updates

• Incorporate guidance on new local requirements from 2019 legislation, HB1866 and SB1312

• Updating outdated language at current Health & Welfare category

– “Health and Human Services”

– “Behavioral Health & Developmental Services”

• Guidance for new Moped/ATV sales and use tax revenue collected by the Department of Motor Vehicles


Audit Specifications FY19 Updates

• No major changes expected for FY2019

• Clarify wording and audit procedures based on questions and feedback received during FY18 audits and April 2019 SPECS workgroup meeting

• Incorporate audit procedures as needed to review new local requirements from 2019 legislation


APA Workgroup to Review Audit Specifications

• Working with CPA firms and state agencies this year to review audit requirements in SPECS

– Auditor’s best practices for audit evidence related to compliance requirements

– Auditor’s approach to sampling, use of judgment and application of materiality thresholds

– State agencies’ expectations

– Overall goal to improve efficiencies in meeting audit objectives

• Expectation that timing of any significant changes proposed are implemented for FY2020 audits


Miscellaneous Reminders

• Locality Annual Survey email around May 2019

– Important that we receive any updates to local contact information and auditor/CPA firm

• Planning 2019 Transmittal training for early Fall time frame

• Importance of IT Security controls to minimize prevalent risks of social engineering/phishing attempts

– Key Controls: Locality IT policy and educating staff on how to respond


Other Governmental Entities

• Local Authorities, Boards, Commissions (ABCs) and other Political Subdivisions

– Code of Virginia §30-140 requirements

– Audit and Oversight Provisions

– Requirement to follow APA Audit Specifications and submit audit report to APA 90 days after fiscal year end

• Now posting entities’ audited financial reports on APA Local Government Reports website

• Incorporating APA’s Quality Control Review process in updates to FY19 ABC Specifications


QUALITY CONTROL REVIEWS OVER LOCALITY AUDITS


APA Annual Quality Control Review

• Periodic quality control reviews of CPA firms auditing VA localities

• Chapter 4 of the Specifications for Audits of Counties, Cities & Towns describes this process

• Copy of the final review report is sent to the audit firm, applicable locality, the Board of Accountancy, and VSCPA

• Reports located on APA’s website www.apa.virginia.gov> Local Government page> Quality Control Review Reports


http://www.apa.virginia.gov/APA_Reports/qcr_reports.aspxhttp://www.apa.virginia.gov/APA_Reports/qcr_reports.aspx

APA QCR Process and Common Findings

• FY 2017 reviews completed last year – Nine locality audits at 6 CPA firms – Issued 6 Pass and 3 Pass with Deficiencies reports

• Common findings – Improve audit workpaper documentation of testwork and

conclusions – Improve testwork and documentation to comply with

Uniform Guidance for Single Audits

• Currently planning 2019 selection of firms for locality and APA contracted FY18 audits to begin reviews in early summer

• Upcoming inclusion of local Authorities, Boards, and Commissions (ABCs) audits in 2020 QCR process


LOCAL FISCAL DISTRESS ANALYSIS AND MONITORING PROCESS


APA Requirements – Appropriation Act, §4-8.03 Identifying Potential Fiscal Distress

• Establish workgroup to develop criteria for a preliminary determination to identify potential fiscal distress

• Establish a prioritized early warning system

• APA to notify localities where we make a preliminary determination and need for further review

• Based on request of local governing body or CEO, APA may conduct a review and request additional information to determine extent of fiscal distress, if any

• APA notifies the Governor and chairs of the money committees if we are of the opinion that state assistance, oversight or targeted intervention may be needed to assist a locality, based on results of our additional follow up


Requirements – Appropriation Act, §4-8.03 State Assistance, Oversight, or Intervention

• After receipt of notification by APA indicating fiscal distress in a particular locality, Governor’s office consults with Chairmen of money committees to make the decision if state assistance, oversight, or intervention will be made prior to any expenditure of funds

• Develop a plan to specify the purpose of assistance

– Further assess, help stabilize, or remediate the situation

– Estimated duration, and anticipated resource needs (dollars and personnel)


Focus of Fiscal Distress versus Fiscal Health


Fiscal Distress Generally based on cash flow and immediate short term issues

Often evaluated using ratios focused on cash and fund balance/reserves

Fiscal Health Based on long-term sustainability of a local government's finances and operations

Measured in terms of assets; revenue and spending per capita; ability to provide services; and structural deficit or surplus

2018 Updates to Fiscal Distress Model

• No longer using overall “FAM score” percentage from prior Financial Assessment Model (FAM) as the threshold used to determine need for additional follow up with a locality

• No longer applying the FAM ranking or comparison methodology when evaluating localities’ financial ratio results

• Overview document summarizing 2018 updates is available on APA’s website http://www.apa.virginia.gov/data/download/local_government/guidelines/2018 APA Fiscal Distress Model Overview.pdf


http://www.apa.virginia.gov/data/download/local_government/guidelines/2018 APA Fiscal Distress Model Overview.pdfhttp://www.apa.virginia.gov/data/download/local_government/guidelines/2018 APA Fiscal Distress Model Overview.pdf

2018 Updates to Fiscal Distress Model, cont.

• Focus of new methodology

– Individually analyze each locality’s ratio results

– Assign a points-based scale based on performance results of each ratio

– Weighted points allocated for each ratio based on

o Common industry/professional benchmarks

o APA’s professional judgment

– Higher number of points indicates locality showing weak/undesirable performance in ratios

– Threshold for total ratio points used to direct further analysis using demographic and qualitative factors



• Re-examined prior financial ratios and added new ratios

– 12 financial ratios in updated model

• Make any adjustments to Ratio data as needed

– Account for how locality issues debt on behalf of its school system to finance school capital assets

– Account for any committed fund balances specifically set aside for reserves/rainy day funds


WWW.APA.VIRGINIA.GOV

• Measures ability to make up revenue shortfalls

Unrestricted reserves net of current liabilities compared to

normal revenues

• Measures ability to pay current liabilities without need for additional revenue

Unrestricted reserves compared to current liabilities

• Measures ability to fund expenses in event of revenue shortfall

Unrestricted net position compared to total expenses

• Measures how financial position has improved or deteriorated as a result of resource flow

Change in net position

• Measures total outstanding tax supported debt as a percentage of total tax valuation of real estate and personal property

Total Debt vs. Total Valuation

• Measures whether enterprise funds are self supporting, recovering full costs through charges for services or other revenues

Business Type/Enterprise Activity self-sufficiency

Updated Ratios — Governmental Activities and Business Type Activity Funds Government Wide Statements

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• Measures ability to fund expenditures from reserves in event of a revenue shortfall

Unassigned plus other “available” fund balance

reserves compared to total expenditures

• Measures sufficiency of reserves relative to revenue in the event of unforeseen event or revenue shortfall

Total fund balance compared to total revenues

• Measures whether annual revenues were sufficient to pay for operations

Total revenues compared to total expenditures

• Identifies the percent of the budget that is used or needed for repayment of debt

Debt service principle and interest compared to total

revenues

• Measures whether fund balance has increased or declined from the prior year

Change in unassigned fund balance

• Measures reliance on state and federal revenues

Intergovernmental revenues compared to total operating

revenues

Updated Ratios — General Fund Balance Sheet/Income Statement


• Model includes 2nd assessment phase to review demographic, qualitative, and external factors

– Unemployment rate, poverty rate, population growth or decline, increase or decline in tax base, changes in MHI, etc.

– Commission on Local Government’s fiscal stress rankings on locality revenue capacity and effort

– Virginia Department of Education Required Local Effort/Match calculations

– Any other factors unique to a locality


Local Fiscal Distress – Follow Up Process

• Perform follow up through use of our Financial Assessment Questionnaire for localities that choose to participate

• Conduct meetings with locality officials to discuss responses and additional information

• Make a determination of whether there is a need to report to the Governor and Chairs of the money committees that the locality needs assistance

• Letter sent to each locality to summarize the results of our follow up


Current Status of Monitoring Process

• Identified 14 localities in 2018 model based on FY2017 audited financial data and qualitative analysis

– 4 Cities, 4 Counties, and 6 Towns

• Finalizing review process over completed questionnaires and follow up discussions with identified localities

• Will soon publish formal report to summarize updates to model and results of follow up process

• Finalizing FY18 Ratio calculations and further qualitative analysis for 2019 process


Auditor of Public Accounts Website

http://www.apa.virginia.gov/Local Government.aspx Page 27 WWW.APA.VIRGINIA.GOV

http://www.apa.virginia.gov/Local Government.aspx

APA Local Government Contact Information

• Rachel Reamy, Local Government Audit Manager

– 804.225.3350, ext. 360

[email protected]

• Please use the general email for reporting requirement submissions

[email protected]


mailto:[email protected]:[email protected]

ANY QUESTIONS?


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