Assn Of School Board New Board Training

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A presentation done for the CNY Association of School Boards New Board Member Training 10/15/11.

A presentation done for the CNY Association of School Boards New Board Member Training 10/15/11.

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  • 1. Thinking. Adapting. Advising.For your Organization’s success. y g 1
  • 2. The Central New York School Boards Association October 15, 2011Overview: Internal Controls Audit Committee • Role • Interaction with the Internal Auditor • Interaction with the External Auditor 2
  • 3. 3 Things to Take Away from the PresentationUnderstand Internal Control issues and howthey are communicated to you What is a Material Weakness What is a Significant DeficiencyWhat to look for in Financial St tWh t t l k f i Fi i l Statements tand External Auditor’s Communications.Understand and Review your riskassessment reports and gain anunderstanding of your District’s risky areas. 3
  • 4. Internal Controls OverviewWhat are internal controlsCOSO Framework Key TermsFraudDifferent Roles within a School DistrictHot Spots 4
  • 5. Internal Controls What are Internal Controls?Internal Controls are processes in place that help you with the overall structure of your District. 5
  • 6. Internal ControlsWhat’s the Big Deal With Internal Controls? Effectiveness & Efficiency of Operations Reliability of Financial Reporting Compliance with Laws and Regulations 6
  • 7. Internal Controls Key TermsSegregation of DutiesManagement Override 7
  • 8. Internal ControlsCOSO Framework 8
  • 9. Internal ControlsCOSO Framework Control Environment 9
  • 10. Internal ControlsCOSO Framework Risk Assessment 10
  • 11. Internal Controls COSO FrameworkControl Activities & Communication 11
  • 12. Internal ControlsCOSO Framework Monitoring 12
  • 13. Internal ControlsWhy is this so important? 13
  • 14. Primary Internal Control Weakness by Size of Victim Organization 47.0% Lack of Internal Controls 22.7% 17.5% Lack of Management Review 17.8% <100 Employees ctor 12.0% 100 100+ Employees ontributing Fac Override of Existing Internal Controls 22.0% 7.8% Poor Tone at the Top 8.5% 7.0% 7 0%Most Important Co Lack of Independent Checks/Audits f C / 5.8% 5.6% Lack of Competent Personnel in Overnight Roles 7.0% 1.6% 1 6% t Lack of Clear Lines of Authority 2.0% 1.2% Lack of Employee Fraud Education 2.0% 0.2% 0 2% Lack of Reporting Mechanism 0.9% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% Percent of Cases
  • 15. The Fraud Triangle 15
  • 16. A Fraud is Born… My spouse lost their job and we’re barely g getting by… g y Nobody I work so hard looks at the and everyone reports I tells me that,print so they but I’m notwon’t notice paid enough… any moneyis missing… 16
  • 17. Employees in Accounting, Finance and Operations perpetrated 44% of the reported cases and were responsible for 44% o t e median losses. espo s b e o % of the ed a osses
  • 18. Tips are by far the most frequent way that fraud is found.
  • 19. Internal ControlsDifferent Roles in a School District Board of Education - Parent Management - Student External Audit - Teacher Internal Audit - Tutor 19
  • 20. Internal ControlsDifferent Roles in a School District 20
  • 21. Internal Controls Hot SpotsExtraclassroom FundsInternal Controls Over InformationTechnology and Online BankingPurchasingP h iFixed Assets 21
  • 22. Internal Controls Hot SpotsExtraclassroom FundsInternal Controls Over InformationTechnology and Online BankingPurchasingP h iFixed Assets 22
  • 23. Internal Controls Hot SpotsExtraclassroom FundsInternal Controls Over InformationTechnology and Online BankingPurchasingP h iFixed Assets 23
  • 24. Internal Controls Hot SpotsExtraclassroom FundsInternal Controls Over InformationTechnology and Online BankingPurchasingP h iFixed Assets 24
  • 25. Audit Committee OverviewRoleInteraction with the Internal AuditorInteraction with the External Auditor 25
  • 26. Audit Committee Role – ContinuedRecommend to the Board the appointment ofExternal AuditorApprove all audit and non-audit services providedby the External A ditb th E t l AuditorRecommend to the Board the appointment ofInternal AuditorI t l A ditReview the scope and plans of the InternalAuditor and independent accountantsReview reports prepared by the Internal Auditorand management’s responses to those reports 26
  • 27. Audit Committee Role - C ti d ContinuedReview and reassess the adequacy of AuditCommittee CharterReview the audited financial statementsReview “management letter” findings,management’s responses, and SAS 114 issues.Meet periodically with management to review majorrisk exposures and management’s responseReview major changes to the District’s auditing andaccounting principles and practices as suggestedby the External Auditor Internal Auditor or Auditor,management. 27
  • 28. Audit Committee Role - ContinuedPeriodic evaluation of the Internal Auditor andExternal AuditorMaintain a procedure for the receipt andinvestigation of concerns received regardingany acco ntingan accounting, control or a diting auditingirregularities.Report to the Board after each meeting 28
  • 29. Audit CommitteeInteraction with the Internal Auditor 29
  • 30. Audit CommitteeInteraction with the Internal Auditor Risk Assessment Reporting Management’s Role Evaluation of the Internal Auditor Reporting to the Board 30
  • 31. Audit CommitteeInteraction with the Internal Auditor Risk Assessment • What is Risk Assessment • What considerations go into a Risk Assessment? • Example • Internal Audit Plan • Questions to ask? 31
  • 32. 32
  • 33. 33
  • 34. Audit Committee Interaction with the Internal AuditorWORKPLANIn further analyzing each of these areas, we considered thesize/impact to the District of material fraud or error occurring the occurring,complexity of the transaction, employee training, frequency offindings, and other factors. Based upon this analysis, we suggestthe following testing be performed in order of priority:School Lunch CateringOur risk assessment did result in school lunch being classified ashigh risk because of the nature of the cash transactions,managements oversight. We recommend testing in the school luncharea to ensure they are receiving as much revenue as possible dueto the hard financial times at districts throughout New York State. 34
  • 35. Audit Committee Interaction with the Internal Auditor• What questions should we ask? • What are the high risk areas and why? • What can the District do to address the risks? • Is it cost effective for the District to fully address the risk, or are there mitigating controls they can implement? 35
  • 36. Audit CommitteeInteraction with the Internal AuditorManagement’s Role g• Meeting Participation• W k with Internal Auditor for practical Work ith I t l A dit f ti l solutions to internal audit findings.• Prepare written response to Internal Auditor’s report.• Implement changes to procedures as needed.• Provide Audit Committee feedback on effectiveness of the internal audit function. 36
  • 37. Audit CommitteeInteraction with the Internal Auditor Evaluation of the Internal Auditor • AICPA Tool- link is at end of handout under “Resources.” • Feedback from management • Trust your gut!! 37
  • 38. Audit CommitteeInteraction with the Internal Auditor Reporting to Board • Highlights of the meeting • Anything regarding Board action • Meeting minutes 38
  • 39. Audit CommitteeInteraction with the External Auditor 39
  • 40. Audit CommitteeInteraction with the External Auditor • Ri k A Risk Assessment t • Reporting • Financial Statements Overview • Management’s Role • E l ti of th E t Evaluation f the External A dit l Auditor • Reporting to the Board 40
  • 41. Audit CommitteeInteraction with the External Auditor Risk Assessment • Similar considerations as internal audit, but for different objectives. • Audit Plan 41
  • 42. Audit CommitteeInteraction with the External Auditor Reporting • Financial Statements of the District • Financial Statements of the Extraclassroom Clubs • “Management Letter” Management Letter • SAS 114 Letter 42
  • 43. Audit Committee Interaction with the External Auditor Financial Statements of the District • Opinion on the Financial Statements • Management’s Discussions and Analysis • District-Wide Financial Statements • Government Fund Financial Statements • Fiduciary Funds Statements • Schedule of Federal Award Expenditures • Single Audit Reports • S h d l of Findings and Q Schedule f Fi di d Questioned C t ti d Costs 43• Other Documents
  • 44. Audit CommitteeInteraction with the External AuditorOpinion on Financial Statements Unqualified Q Qualified Disclaimer Adverse 44
  • 45. Audit Committee Interaction with the External Auditor Unqualified O i i (Excerpt) U lifi d Opinion (E t)In our opinion, the financial statements referred to abovepresent fairly, in all material respects, the respective financialposition of the governmental activities and each fund of theDistrict as of June 30 2011 30, 2011… 45
  • 46. Audit Committee Interaction with the External Auditor Qualified Opinion (Excerpt)In our opinion, except for the matter discussed above, thefinancial statements referred t above present f i l i allfi i l t t t f d to b t fairly, in llmaterial respects, the financial position of the ExampleCentral School District Extraclassroom Activity Fund as ofJune 30, 2010, and its cash receipts and disbursements forthe year then ended, on the basis of accounting described inNote 1 1. 46
  • 47. Audit Committee Interaction with the External AuditorManagement’s Discussion and Analysis• The purpose of the MD&A is to provide the reader of the financial statements with an easy to understand overview of the statements as a whole.• The minimum contents of the MD&A are prescribed in GASB 34 and 37 and are based on currently known facts, decisions or conditions. 47
  • 48. Management’s Discussions and Analysis 48
  • 49. Management’s Discussions and Analysis 49
  • 50. Audit Committee Interaction with the External AuditorDistrict Wide Statements• The basis of accounting is the same as a business – (full accrual)• Includes items such as • Property Plant & Equipment Property, • Depreciation Expense • Long Term Liabilities such as notes and bonds 50
  • 51. District-Wide Financial Statements 51
  • 52. District-Wide Financial Statements 52
  • 53. Audit Committee Interaction with the External AuditorGovernmental Fund Financial Statements• General Fund• Special Aid Fund ( p (Federal Funds) )• School Lunch• Capital Fund• Debt Service – as applicable 53
  • 54. Audit Committee Interaction with the External Auditor Fund Balance ClassificationsFund balance (District’s Equity) is classified ingovernmental funds in 5 different categories:• Nonspendable• Restricted R ti t d• Committed• Assigned g• Unassigned 54
  • 55. Government Fund Financial Statements 55
  • 56. Government Fund Financial Statements 56
  • 57. Audit Committee Interaction with the External AuditorFiduciary Fund Statements• Trust & Agency Fund g y• Expendable Trust• Non-Expendable Trust 57
  • 58. Fiduciary Fund Financial Statements Private Purpose Trust Scholarship Age ncyASSETS Cash $ 17,549 $ 416,935 Restricted Cash 0 91,883 Due from Other Funds 12 5,888 Accounts Receivable 11,314 0TOTAL ASSETS $ 28,875 $ 514,706LIABILITIES Extraclassroom Activity Balances $ 0 $ 91,883 Due to Other Funds 0 221,493 Other Liabilities 0 201,330 201 330TOTAL LIABILITIES 0 $ 514,706NET ASSETS Reserved for Scholarships 28,875TOTAL NET ASSETS $ 28,875 58
  • 59. Audit Committee Interaction with the External AuditorSingle Audit Statements• Required of the District is their expenditures are $500,000 or more.• Programs are classified as major and non- major programs by dollar size and risk.• Programs are selected for compliance testing based upon a prescribed formula. 59
  • 60. Schedule of Expenditures of Federal Award 60
  • 61. Single Audit Reports 61
  • 62. Single Audit Reports 62
  • 63. Schedule of Findings and Questioned Costs 63
  • 64. Audit Committee Interaction with the External AuditorExtraclassroom Statements• Districts with Extraclassroom clubs are required to have an audit at year end.• Extraclassroom Clubs are not Booster Clubs• Typically it is on the cash basis of accounting • Cash Receipts • Cash Disbursements 64
  • 65. Financial Statements of the Extraclassroom Clubs 65
  • 66. Financial Statements of the Extraclassroom Clubs 66
  • 67. Management LetterTo the Board of Education of Example Central School DistrictLadies and Gentlemen:In planning and performing our audit of the financial statements of Example Central School District for the year ended June 30,2010, we considered the District’s internal control over financial reporting (internal control) as a basis for designing our auditingprocedures for the purpose of expressing an opinion on the financial statements but not for the purpose of expressing anopinion on the District’s internal control. Accordingly, we do not express an opinion on the District’s internal control.However, during our audit, we became aware of several matters that are opportunities for strengthening internal controls,improving operating efficiency and reducing expenses. The memorandum that accompanies this letter summarizes ourcomments and recommendations regarding those matters. A separate report dated October 6, XXX contains our report onsignificant deficiencies and material weaknesses in the District’s internal control. This letter does not affect our report datedOctober 6, XXX on the financial statements of the District.We have already discussed these comments and recommendations with various District personnel, and will be pleased todiscuss them in further detail at your convenience. DERMODY, BURKE & BROWN, CPAs, LLC 67
  • 68. Communication with Governing Body - SAS 114 Letter 68
  • 69. Audit CommitteeInteraction with the External AuditorManagement’s Role • Meeting participation • Work with External Auditor for practical p solutions to audit findings. • Prepare written response to auditor’s findings in the management letter and Schedule of Findings and Questioned Cos s Costs. • Implement changes to procedures as needed. • Provide Audit Committee feedback on 69 effectiveness of the external audit function.
  • 70. Audit CommitteeInteraction with the External Auditor Evaluation of the External Auditor • AICPA Tool- link is at end of handout under “Resources.” • Feedback from management • Trust your gut!! 70
  • 71. Audit CommitteeInteraction with the External Auditor Reporting to Board • Highlights of the meeting • Anything regarding Board action • Meeting minutes 71
  • 72. 3 Things to Take Away from the PresentationUnderstand Internal Control issues and howthey are communicated to you What i Wh t is a Material W k M t i l Weakness What is a Significant DeficiencyWhat to look for in Financial Statementsand External Auditor’s Communications.Understand and Review your riskassessment reports and gain an t t d iunderstanding of your District’s risky areas. 72
  • 73. Questions? 73
  • 74. ResourcesSee www.p12.nysed.gov/mgtserv/internalcontrolsfor internal control checklists and the “Segregation of Duties isan Important Internal Control” worksheetSee coso.org/guidance.htm for more information on riskassessment considerationsSee AICPA.org– The AICPA Audit Committee Toolkit:Government Organizations; “Management Override of InternalG tO i ti “M tO id f I t lControls: The Achilles’ Heel of Fraud Prevention” 1. Audit Committee Charter Matrix 2. Evaluating the External Auditor 3. Evaluating the Internal Audit Team 4. Fraud and the Responsibilities of the Audit Committee 74
  • 75. Contact Information Brian DuMond, CPA, Partner Johanna Dorrance 443 North Franklin Street Syracuse, NY 13204 (315) 471-9171 (315) 471-8555 www.dbbllc.com dbbllAuburn ~ New Hartford ~ Syracuse