What’s New in Local Government Accounting & Auditing

VGFOA SPRING CONFERENCE 2011

http://www.apa.virginia.gov

What’s New in Local Government Accounting & Auditing

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June 8, 2011 Auditor of Public Accounts



Session Topics

• Discuss results of QCRs of Virginia local government audits

• Discuss activities within the APA impacting local governments including recent legislative changes

• Discuss pending changes in auditing standards• Discuss potential impact of recent federal

regulations



Results of 2010 Quality Control Reviews

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Discuss results of QCRs on Virginia local government audits



Sampling

• Document all requirement elements– Is sample representative of the population– Method of selection– Is sample size appropriate– Tolerable deviation rate– Evaluate results of test

• Sample sizes– AICPA has chart of recommended sizes



Single Audit Testwork and Documentation

• Test all applicable compliance requirements and document evidence of tests

• Must obtain an understanding and test internal control structure surrounding compliance requirements



Single Audit Testwork and Documentation

• Ensure Schedule of Federal Expenditures of Federal Awards is properly prepared and includes all required elements

• Ensure sample sizes are appropriate



Audit Documentation - Overall

• Document all audit evidence to support audit objective conclusions

• Oral explanations do not provide sufficient evidence



Risk Assessment

• Required to perform risk assessment procedures – To obtain an understanding of the entity and its

environment– To assess risk of material misstatement at the

financial statement and relevant assertion levels



Risk Assessment

• Must gain an understanding of internal control even if are going to take a substantive approach

• Can no longer just default to high control risk without gaining an understanding

• If decide to indicate high control risk because a substantive approach is more efficient, must document



Independence

• When auditor assists with preparing the financial statements or Schedule of Expenditures of Federal Awards, ensure documentation includes consideration of auditing standards on independence

• Standards require that auditor obtain documentation that management acknowledges auditor’s role and approves changes made by auditor



Legal Letter

• Legal letter should be obtained prior to the release of the report

• Provides evidence that supports the audit opinion– Report should not be dated earlier than the date

the auditor has obtained sufficient appropriate audit evidence to support the opinion



State Compliance Requirements

• Perform applicable tests of compliance and accounting transactions unique to Virginia localities

• Document all evidence to support results of tests performed and conclusions reached

• When sampling, select appropriate number



Local Government Update

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Upcoming Changes (Website and Transmittal Forms)Legislative Update



Addition of CAFRs to APA Website

• Plan to make available on our website electronic copies of locality CAFRs – Most likely on Commonwealth Datapoint

• Will encourage electronic submission in the future (is voluntary now)

• Reminder that APA website has a section dedicated to Local Government (Audit Specs, alerts, Comparative Report)



Comparative Report

• Continue to move toward distributing the Comparative Report in electronic format

• Are modifying forms to improve electronic viewing option– Currently formatted primarily for printing



Legislative Update – Senate Bill 1271

• Requires the APA as part of its annual audit of the Department of Taxation to perform a review of the collection and distribution of the Retail Sales and Use Tax focusing on the collection and distribution of local sales and use taxes




• Fiscal year 2011 and 2012 review:– Review Taxation’s policies and procedures and

audits performed – Review local officials procedures to identify

entities that have not paid sales and use taxes and how Taxation could coordinate and assist local officials




• Fiscal year 2011 and 2012 review:– Review Taxation’s procedures for identifying

proper county or city for distribution of local sales and use taxes

– Review Taxation’s coordination with local officials to determine what information both groups can share and how to coordinate activities to enhance collections and accuracy of distribution




• Fiscal year 2011 and 2012 review:– APA make recommendations for improvements

to Taxation and local officials policies and procedures




• Fiscal year 2013 review:– APA recommend annual benchmarks for

evaluating the effectiveness of Taxation’s local retail sales and use tax collection and distribution process


Update to Sheriff’s Manual and Audit Requirements

• Reviewing New Procedures for– ATMs– Internet Sales– Billing for Room and Board and Fines and Cost




New Accounting Standards



Accounting Standards

• GASB 54 is effective for this year.

• One item of note is GASB pension project which may impact how multiple-employer report cost sharing pools.



Potential Impact of Recent Federal Regulations

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Dodd-Frank ActTax Increase Prevention and Reconciliation ActProposed Public Employee Pension Transparency Act



Dodd-Frank Act

• Requires studies of municipal securities market and of the role and importance of the GASB– GAO has issued report on GASB Funding and

Role in Municipal Market (http://www.gao.gov/products/GAO-11-267R)

– Timeliness of financial statements is discussed

http://www.gao.gov/products/GAO-11-267R



Tax Increase Prevention and Reconciliation Act

• Passed in 2006• Requires governments to withhold three

percent of their payments for many goods and services and remit the withheld amount to the federal government




• Applies to federal, state, and local government entities with annual aggregate payments of $100 million or more for goods and services

• Implementation date is December 31, 2011• Some groups are pushing for repeal of the

requirement




• Withholding requirement applies to most payments

• IRS has provided some guidance– Established $10,000 threshold– Requirement will not apply to payment card

transactions until further guidance is issued




• Exempt payments include:– public assistance and welfare program payments

where eligibility is needs or income based – Interest– Payments for real property– Payments to tax-exempt entities– Intra-governmental payments



Proposed Public Employee Pension Transparency Act

• Challenges the validity of current state and local government accounting rules and practices

• Mandates federal reporting requirements on state and local governments regarding pension costs




• Requires reporting of financial data in accordance with market value of assets and liabilities, which is contrary to GASB’s current pension standards

• Prohibits any future federal bailout related to current or future shortfalls of any state or local government pension plan




• State and local governments that fail to meet the reporting requirements will be denied a federal tax benefit for any specified bond issued during the non-compliance period



QUESTIONS?

What’s New in Local Government Accounting & Auditing

Documents

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