Auditor of Public Accounts Local Government Update - APA Local Government Update VGFOA 2019 Spring Conference May 10, 2019 Rachel Reamy, CGFM ...
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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
WWW.APA.VIRGINIA.GOV Page 2REMINDERS FOR ANNUAL AUDITS AND REPORTING REQUIREMENTS WWW.APA.VIRGINIA.GOV Page 3
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
WWW.APA.VIRGINIA.GOV Page 4Reminders 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
WWW.APA.VIRGINIA.GOV Page 5Comparative 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
WWW.APA.VIRGINIA.GOV Page 6Uniform 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• Updating outdated language at current Health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
WWW.APA.VIRGINIA.GOV Page 7Audit 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 WWW.APA.VIRGINIA.GOV Page 8
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
WWW.APA.VIRGINIA.GOV Page 9Miscellaneous 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
WWW.APA.VIRGINIA.GOV Page 10Other 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
WWW.APA.VIRGINIA.GOV Page 11QUALITY CONTROL REVIEWS OVER LOCALITY AUDITS WWW.APA.VIRGINIA.GOV Page 12
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
WWW.APA.VIRGINIA.GOV Page 13APA 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
WWW.APA.VIRGINIA.GOV Page 14LOCAL FISCAL DISTRESS ANALYSIS AND MONITORING PROCESS WWW.APA.VIRGINIA.GOV Page 15
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 WWW.APA.VIRGINIA.GOV Page 16
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)
WWW.APA.VIRGINIA.GOV Page 17Focus 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
WWW.APA.VIRGINIA.GOV Page 182018 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
WWW.APA.VIRGINIA.GOV Page 192018 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
WWW.APA.VIRGINIA.GOV Page 202018 Updates to Fiscal Distress Model, cont.
• 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 Page 21Updated Ratios — Governmental Activities and Business Type
Activity Funds Government Wide Statements
Unrestricted reserves net of
• Measures ability to make up revenue
current liabilities compared to
shortfalls
normal revenues
Unrestricted reserves • Measures ability to pay current liabilities
compared to current liabilities without need for additional revenue
Unrestricted net position • Measures ability to fund expenses in event of
compared to total expenses revenue shortfall
• Measures how financial position has
Change in net position improved or deteriorated as a result of
resource flow
• Measures total outstanding tax supported
Total Debt vs. Total Valuation debt as a percentage of total tax valuation of
real estate and personal property
• Measures whether enterprise funds are self
Business Type/Enterprise
supporting, recovering full costs through
Activity self-sufficiency
charges for services or other revenues
WWW.APA.VIRGINIA.GOV Page 22Updated Ratios — General Fund Balance Sheet/Income Statement
Unassigned plus other
“available” fund balance • Measures ability to fund expenditures from
reserves compared to total reserves in event of a revenue shortfall
expenditures
• Measures sufficiency of reserves relative to
Total fund balance compared
revenue in the event of unforeseen event or
to total revenues
revenue shortfall
Total revenues compared to • Measures whether annual revenues were
total expenditures sufficient to pay for operations
Debt service principle and
• Identifies the percent of the budget that is
interest compared to total
used or needed for repayment of debt
revenues
Change in unassigned fund • Measures whether fund balance has increased
balance or declined from the prior year
Intergovernmental revenues
• Measures reliance on state and federal
compared to total operating
revenues
revenues
WWW.APA.VIRGINIA.GOV Page 232018 Updates to Fiscal Distress Model, cont.
• 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
WWW.APA.VIRGINIA.GOV Page 24Local 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 WWW.APA.VIRGINIA.GOV Page 25
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
WWW.APA.VIRGINIA.GOV Page 26Auditor of Public Accounts Website
http://www.apa.virginia.gov/Local Government.aspx
WWW.APA.VIRGINIA.GOV Page 27APA Local Government Contact Information • Rachel Reamy, Local Government Audit Manager – 804.225.3350, ext. 360 rachel.reamy@apa.virginia.gov • Please use the general email for reporting requirement submissions localgovernment@apa.virginia.gov WWW.APA.VIRGINIA.GOV Page 28
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