Federal Audit Requirements & Fraud Prevention

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Finance presentation at the 2009 MPCA Annual Conference.

Finance presentation at the 2009 MPCA Annual Conference.

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  • Federal funding in excess of $500K or more. Financial assistance includes loans, insurance, loan guarantees, and other non-cash assistance (property, commodities, etc.) but does not include direct assistance to individualsExpended, generally means, performing the activity of the grantEntities with funding less than $500K have no single audit or program audit requirement. Funding of subrecipients uses the same rules as the federal requirementsSingle audit are usually annually, but two-year audits are allowable when there is no annual financial audit and with grantor/cognizant agent permission (generally rare)
  • New data collection form and electronic filing is….Intended to be used for audit period ending in 2008, 2009, and 2010Includes internal control terminology updates for SAS 112 Reporting package can only be submitted electronically via internet data entry system, no more paper submissions will be accepted.Reporting package submission must be in one pdf
  • Referrals to other services, such as hospital and substance abuse services Case management and other services are designed to assist health center patients in establishing eligibility and gaining access to Federal, State and local programs that provide additional medical, social, or educational support or enabling services such as transportation, translation and outreach services, and patient education services.
  • Activities allowed or unallowed… there are three types of grantsOperational grants for other than managed care and practice management network plansPlanning grant for health centersPlanning grants for managed care or practice management networks or plansAllowable costs/cost principles..Program income, including but not limited to, fees, premiums, and 3rd party reimbursements may be used for allowable activities and for such other purposes as not specifically prohibited if such uses furthers the objectives of the project.Eligibility for individualsUnder health care for the homeless, if a grantee has provided services to a previously homeless individual and the individual is no longer homeless as a result of becoming a resident in permanent housing, the grantee may continue to provide services for NOT more than 12 months.Program IncomeHealth centers must have a schedule of fees or payments for the provision of their health services consistent with locally prevailing rates and charges and designed to cover their reasonable costs of operation. Centers are also required to have a corresponding schedule of discounts applied and adjusted on the basis of the patient’s ability to pay; determined on the basis of the official poverty guidelines as revised annually by HHSCenters are required to collect appropriate reimbursement for costs in providing health servicesProgram income, including but not limited to, fees, premiums, and 3rd party reimbursements may be used for allowable activities Financial reportingSF-269 financial status reportSF-270 – request for advance or reimbursement ONLY if specified in the terms and conditions of the awardSF-272 Federal cash transaction reportsSpecial reportingUniform Data System is comprised of 2 separate set of reports … the Universal Report and Grant Reports. Grantees that receive a single grant under the consolidated health centers program or receive CHC and or MHC only are required to complete the Universal Report only.Grantees that receive multiple awards must complete a Universal Report for the combined grants and individual grant reports for the their HCH and PHPC funding if applicable.Unless the requirement is waived, grantees are required to have a governing board that is composed of individuals, a majority of whom are being served by the center, and who as a group, represent the individuals being served by the center.The board shall meet at least once a month and approve the annual budgetsSelects services to be provided by the center and schedules the hours during which services will be providedApproves the selection of the director for the centerAnd except for the case of a public center, establishes general policies for the center
  • Please keep in mind that the topics related to ARRA are based on current guidance. The final role of each state and federal agency and the grant compliance requirements are still in process as we meet today. Based on the changes in those aspects of this initiative, the implications on the single audit and grants management may change.Specific fundingobjectives of the grants revolve around:Job creation and retentionRelief to the working and lower class populationEnergy conservationPromotion of renewable energy sourcesHealth care & educationLocal unit infrastructure, including roads and bridgesOf the $787 Billion in grants, $280 billion will be administered through states and local municipalities.Funds must be obligated and spent by 9-30-2012 – As of June 5, 2009 $141 billion has been made available in stimulus grants and $46.4 billion has been paid out. Per the Act, recipients shall use grant funds in a manner “that maximizes job creation and economic benefit”
  • For example: Genesee County - $30 million in grants in local units with an additional $42 million in monies to local and intermediate school districts and $48 in MDOT and transit grants in the county. Wayne County - $128 million in grants with an additional $298 million schools and $165 million in MDOT roadinfrastructure and transit grants That is a total of $591 million to Wayne County alone and that amount is still only .07% of the total $787 billion dollars in funding.Coordination of all these grants, all these recipients, all these projects and all the required reporting indicates a significant administrative burden and responsibility on all the participants in this process.
  • In summary, we are bolding going where federal grants have never gone before, we have never seen a grant program with this level of state and federal agency involvement and oversight, this level of transparency and reporting (including deliverables never measured before – such as employment impact) this level of public and political scrutiny as (like it or not) the ability of this program to meet its objectives will be the first major success or potential of the Obama administration. It is a big deal for the Whitehouse and as a result, a big deal for the federal agencies involved. And that importance will also fall onto the local governments administering these grants at the local level.All Federal departments and agencies receiving Recovery Act stimulus funding must submit weekly Financial and Activity Reports detailing distribution of Recovery funds, major actions taken so far, and actions planned for the near term. The Governor and local officials of each state must certify that infrastructure projects have been reviewed and are an appropriate use of tax dollars. Public Access to grants and contract information, including RFP’s for competitive grant programsSignificant federal scrutiny via Quality Control Reviews (QCRs) of single audits performed on entities receiving Recovery Act money (primarily in 2010 – 2011 timeframe) – results to be placed on Recovery.gov. Plan to use current single audit testing and reporting process to play a large role in monitoring the grant.
  • OMB issued interim guidance to the federal agencies in April of 2009. While the guidance if for federal agencies, it does include information on the compliance requirements that might be useful for recipients and their auditors. I did not include in your handouts as it is 172 pages long. can give you a link for the guidance but since it is 172 pages, I did not include in my sources. OMB issued a new Compliance Supplement was issued 3-2009, but did not include specific guidance for testing the specific compliance requirements of the ARRA grants. Appendix Seven of the 2009 compliance supplement DOES provide some guidance on testing grants funded under the ARRA. A copy has been provided in your handouts as the end of this section. Would suggest that you read the materials as it will outline federal agency requirements, discuss the impact on clusters, and what some of your responsibilities as a sub recipient will be. It also discusses the presentation of the ARRA grants on the Data Collection Form Schedule of Federal Awards. Appendix VII is only the first step and we expect OMB to develop additional guidance to this supplement as time progress. Such additions will include effective dates
  • Timely reporting – reports due with ten days of the end of the quarter – meaning information must flow back up the grant chain (local recipient, local municipality, state, federal) in order to report results on a quarterly basis to the federal government so that the public can be.
  • No change here as we have always had these compliance requirements. Requirements specific to award document are going to be important because, as noted before, the 2009 compliance supplement does not include any specific guidance on ARRA grants. KEEP IN MIND THAT AGENCIES MAY WAIVE CERTAIN COMPLIANCE REQUIREMENTS ON EXISTING SPECIFIC PROGRAM COMPLIANCE IN ORDER TO SPEND MONEY QUICKLY OR TO DIRECT EXISTING ALLOCATIONS TO PROJECTS THAT PROMOTE JOB CREATION AND ECONOMIC DEVELOPMENT (IE CDBG). NEED TO KEEP IN TOUCH WITH YOUR FEDERAL AGENCIES TO DETERMINE WHAT REQUIREMENTS THEY MAY BE WAIVING.
  • Most of the impact on A-133 reporting and testing will happened in the 2010 and 2011 years as little monies have been distributed as of June 30, 2009. But Sept and Dec 2009 year ends may see some specific ARRA single audit implications due to the desire to implement these projects, spend the monies, and impact the economy as soon as possible.
  • Note, most of the federal agencies (HUD, HHS) have their own specific page for ARRA activities and information. Look for the recover act icon (circle with green plant, red gears, and stars from the flag)To get to the ARRA section of the MDOT page, you need to click on the symbol for the michigan.gov
    ecovery in the lower right hand corner of the MDOT home page.The OMB link is directly to the compliance supplement where you can scroll down to get to Appendix VII (where information is placed to date on ARRA). GFOA NEWSLETTER HAS A MONTHLY UPDATE ON THE STIMULUS PROGRAMHUD website has archived web casts regarding specific aspects of HUD’s programs under the ARRA State website should be most helpful as several communities will be getting their grants as a first tier recipient from the State of Michigan. Screen shots follow:State site:Grant opportunitiesFAQMichigan programs Interactive county map
  • SAS 115 …..GAO issued interim guidance making it permissible for auditors to implement SAS 115 on their FS audit performed under government auditing standardsHowever OMB has not provided guidance to date regarding use of the new guidance ad definitions in SAS 115 for reporting on internal control over compliance in single audits.
  • Lack of an internal control to identify a noncompliance issue TIMELY related to a federal grant compliance categoryLOWEST LEVEL of deficiencyNOT required to be disclosedREQUIRED to be communicated (NOT in writing, but can be…) and documented how it was communicated
  • A control deficiency that is consequentialRequired to be disclosed in writing
  • Lack of significant policy – e.g. a grant with significant construction and the organization doesn’t have a procurement policyNo separate expense approval over grant expenditures by someone involved in the grantLack of controls over complicated level of effort calculationsIssues with IT system that impacts a significant compliance category, such as, accumulation of information for reporting where anyone could go into the IT system and adjust the report rules and there is no verification of changes
  • A significant deficiency that could be material, even if know amount is not materialRequired to be disclosed in writing
  • Lack of policy – e.g. a grant with material or all construction and the organization does not have a procurement policyLack of adequate review of federal financial reports prior to submission to the grantorThis is a strong indicator of a material weakness even if management subsequently corrects the noncomplianceFor which such functions are important to the monitoring or risk assessment component of internal control for a type of compliance requirement
  • Beginning with the 2009 plan year end (years beginning on or after January 1, 2009), organizations subject to the Employee Retirement Income Security Act of 1974 (ERISA) will generally be required to have their 403(b) plan’s financial statements audited, if they have more than 100 eligible participants as of the beginning of the plan year. These audited financial statements will be a required attachment to the plan’s Form 5500.Although the first audit is not required until the 2009 plan year, Form 5500 requires the statement of net assets be fully comparative. Thus the 2008 financial information will need to be included in the plan’s 2009 audited financial statements.

Transcript

  • 1. Presented by: Jean Young, Partner, CPA and Amanda L. Ward, Associate, CPAJean.Young@plantemoran.com Amanda.Ward@plantemoran.com
    FEDERAL AUDIT REQUIREMENTS AND FRAUD PREVENTION
    1
  • 2. AGENDA
    By the end of the session, we will:
    Provide an overview of changes to the single audit requirements and the impact of ARRA
    Provide an update on new auditing standards and accounting pronouncements
    Provide guidance on how to protect against fraud and other internal control related matters
    2
  • 3. Single Audit
    3
  • 4. OVERVIEW OF SINGLE AUDIT REQUIREMENTS
    Applicability: Not-for-profits and Governments (including NFP hospitals)
    Audit Requirements
    • Federal expenditures > $500K = AUDIT
    • 5. Federal expenditures < $500K = NO AUDIT
    • 6. Funding of subrecipients
    Audit Frequency
    • Annually
    4
  • 7. DATA COLLECTION REVISIONS
    Revised on-line submission procedures
    Ensure proper identification of agencies to receive reports
    Expenditures need to agree with the SEFA, with clusters properly identified
    Findings must be properly identified and agree with the single audit report
    5
  • 8. CONSOLIDATE HEALTH CENTERS – 93.224
    The objectives is to provide populations that would ordinarily not have access to health care:
    Primary and preventive health services
    Referrals to other service
    Case management and other services
    6
  • 9. CONSOLIDATE HEALTH CENTERS – 93.224
    Applicable Compliance Categories
    • Activities allowed or unallowed
    • 10. Allowable cost/cost principles
    • 11. Eligibility
    • 12. Program income
    • 13. Financial reporting
    • 14. Special reporting
    • 15. Special Tests and Provisions
    7
  • 16. Overview of ARRA
    • $787 Billion in Federal Grants to States, Local Municipalities, and Non Profit Organizations
    • 17. Majority of Grants Subject to Single Audit (A-133) Compliance Testing & Reporting
    • 18. Grants Provided Through Both Existing Grant Programs/Formulas & New Programs
    • 19. Mandate to Spend it Quickly!!
    8
  • 20. IMPACT ON MICHIGAN
    • $3.8 Billion in Funding to Date
    • 21. $228 Million in Direct Grants to Local Units
    • 22. More than 50 Separate Funding Programs
    • 23. Over 17,000 Projects
    • 24. 1,700 Local Grant Recipients
    • 25. > $1 Billion in Infrastructure Projects
    9
  • 26. GRANT OVERSIGHT
    Unprecedented Oversight and Transparency
    • Michigan Economic Recovery Office
    • 27. Direct GAO Oversight and Monitoring
    • 28. Single Audit Reporting
    • 29. Increased Quality Control Reviews of Reports Issued
    • 30. Single Audit Reports and Results of Quality Control Reviews Accessible by Public
    • 31. Quarterly Reporting of Both Financial and Programmatic Status of Grant on Federal Website
    10
  • 32. FEDERAL AGENCIES - OMB
    OMB Responsibilities
    • Publish Compliance Guidance
    • 33. Implementation Guidance to Federal Agencies
    • 34. Compliance Testing Guidance to Auditors & Recipients
    • 35. Only Interim Testing Guidance Published
    • 36. Appendix VII of March 2009 A-133 Compliance Supplement
    • 37. Expect Additional OMB Guidance in future!!
    11
  • 38. GRANT ACCOUNTING
    All ARRA Grants Must be Accounted for Separately
    • Both Programmatic and Financial Data Tracked Separately From Other Federal Grants
    • 39. Federal Agencies Must Identify Award as ARRA
    • 40. Recipients Must Identify ARRA Portion to Sub-recipients
    • 41. Separate Tracking/Reporting of ARRA Portion vs. Normal Portion of Existing Grant Programs
    12
  • 42. GRANT COMPLIANCE
    Recipient Compliance Requirements
    • General Grant Compliance Requirements
    • 43. Specific Program Compliance – if ARRA Grants Fall Under an Existing CFDA Number
    • 44. Requirements Specific to Award Document
    13
  • 45. SINGLE AUDIT IMPLICATIONS
    Large Increase in Grant Dollars Subject to Single Audit
    • More Entities Required to Have Single Audit
    • 46. More Major Programs to Evaluate for Testing
    • 47. June 2009 Fiscal Year Dollars Expected to be Minimal (Significant Impact in 2010 and 2011)
    14
  • 48. PREPARING FOR ARRA GRANTS
    Ensure Internal Control System Has Capacity to:
    • Separately Account for ARRA grants
    • 49. Gather the Data for Quarterly Reports in the Required Time Frame
    • 50. Adhere to Compliance Requirements
    • 51. Monitor Sub-Recipients and Gather Reporting Data From Them
    15
  • 52. MANAGING ARRA GRANTS
    • Read the Grant Award Document
    • 53. Get Finance Dept Involved at the Start of the Grant Process
    • 54. Monitor Changes in Grant Requirements:
    • 55. OMB Website & Compliance Supplement Updates
    • 56. State Web Site Reporting Requirements
    • 57. Federal Agencies Recovery Act websites
    16
  • 58. WHAT TO EXPECT IN THE FUTURE
    • Federal and State Monitoring
    • 59. Focus on Preventing Waste, Fraud, & Abuse
    • 60. Increased Scrutiny and Review of Single Audit Reports
    • 61. Pressure to Expend Promptly
    • 62. High Public Interest and Scrutiny
    • 63. High Political Visibility
    • 64. Changes to Compliance Requirements
    17
  • 65. ARRA WEBSITE RESOURCES
    State Website – www.michigan.gov/recovery
    GAO Website - www.gao.gov/recovery
    Federal Website - www.recovery.gov
    OMB-www.whitehouse.gov/omb/circulars_a133_compliance_09toc
    18
  • 66. SAS 112IMPACT ON SINGLE AUDIT
    PREVIOUSLY…..
    • Circular A-133 previously required the auditor to report REPORTABLE CONDITIONS and MATERIAL WEAKNESSES in internal control over compliance
    AFTER SAS 112
    • Circular A-133 revised to now require internal control terminology consistent with SAS 112
    • 67. Definitions of control deficiency, significant deficiency and material weakness related to internal control over compliance were developed
    WHAT’S NEXT…..
    • SAS 115
    19
  • 68. DEFINITION – CONTROL DEFICIENCY
    A control deficiency exists when the design or operation of a controls does not allow management or employees , in the normal course of performing their assigned functions, to prevent or detect on a timely basis noncompliance with a type of compliance requirement of a federal program.
    20
  • 69. DEFINITION – SIGNIFICANT DEFICIENCY
    A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity’s ability to administer a federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a federal program, that is more than inconsequential, will not be prevented or detected.
    21
  • 70. EXAMPLES OF SIGNIFICANT DEFICIENCIES IN INTERNAL CONTROL OVER COMPLIANCE
    Policies and procedures which are incomplete, inadequate, or outdated for activities subject to a type of compliance requirement
    Inadequate segregation of duties over a type of compliance requirement
    Controls over complex types of compliance requirements
    IT controls relating to activity subject to the type of compliance
    22
  • 71. DEFINITION – MATERIAL WEAKNESS
    A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected.
    23
  • 72. EXAMPLES OF SIGNIFICANT DEFICIENCY, may be a MATERIAL WEAKNESS
    Lack of operating policies and procedures for a material noncompliance category
    Ineffective oversight by those charged with governance over compliance with those program requirements
    Identification by the auditor of material noncompliance for the period under audit that was not initially identified by the entity’s internal control
    Identification of fraud in the major program of any magnitude.
    24
  • 73. INTERRELATIONSHIP BETWEEN INTERNAL CONTROL AND NONCOMPLIANCE
    Presumption that a material finding of noncompliance is at least a significant deficiency
    • Section III noncompliance finding will almost always translate into a significant deficiency or material weakness
    Internal control deficiency possible even when noncompliance is not present
    25
  • 74. REQUIRED FINDING REPORTING
    A significant deficiency/material weakness/noncompliance on the financial statements is required to be disclosed as a finding in the A-133 report
    A significant deficiency/material weakness/noncompliance in major federal program is required to be disclosed as a finding in the A-133 report
    Fraud/questioned costs must be disclosed as a finding if the amount is over $10,000
    26
  • 75.
    • Revised SAS 112 (Communicating Internal Control Related Matters Identified in an Audit)
    • 76. Changes are primarily limited to the definitions of deficiency in internal control, significant deficiency, and material weakness  
    • 77. Material weakness – is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s F/S will not be prevented, or detected and corrected on a timely basis. In this SAS, a reasonable possibility exists when the likelihood of the event is either reasonably possible or probable as those terms are used in FAS 5, Accounting for Contingencies.
    • 78. Significant deficiency – is a deficiency, or combination of deficiencies, in internal control that is less than a material weakness, yet important enough to merit attention by those charged with governance.
    • 79. List of material weakness indicators
    • 80. Updated communication
    • 81. Effective for periods ending on or after December 15, 2009
    AICPA – SAS 115
    27
  • 82. Accounting & Auditing Update
    28
  • 83. Accounting and Auditing Update
    SFAS 157, Fair Value Measurements
    FSP FAS 117-a, Endowments of NPOs: Net Asset Classification of Funds Subject to an Enacted Version of the UPMIFA, and Enhanced Disclosures
    SFAS 161, Disclosures about Derivative Instruments and Hedging Activities
    SFAS 164, Not-for-Profit Entities: Mergers and Acquisitions
    SFAS 165, Subsequent Events
    29
  • 84. Accounting and Auditing Update
    SFAS No. 157 Fair Value Measurements
    • Defines fair value
    • 85. Establishes a framework for measuring fair value
    • 86. Requires new disclosures about fair value measurements in the financial statements and their effects on earnings
    • 87. Does not address what should be measured at fair value, but rather how to measure fair value
    • 88. Effective 2008 for financial assets and liabilities
    30
  • 89. Accounting and Auditing Update
    SFAS No. 157 Disclosure
    Fair Value Hierarchy
    • Level 1 – Observable inputs that reflect quoted prices for identical assets or liabilities in active markets
    • 90. Example – publicly traded securities; U.S. agencies; treasuries
    • 91. Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with observable market data
    • 92. Example – Municipal bonds that are rated by a bonding agency; auction rated securities; receive-fixed, pay-variable interest rate swap based on LIBOR swap rate; 3 year option on exchange traded shares
    31
  • 93. Accounting and Auditing Update
    SFAS No. 157 Disclosure
    Fair Value Hierarchy (Continued)
    • Level 3 – Unobservable inputs that cannot be corroborated by observable market data
    32
  • 94. Accounting and Auditing Update
    FSP FASB 117-1 – NFP Endowments Subject to UPMIFA
    • Applies to all NFP
    • 95. Applies to donor-restricted endowment funds (funds that cannot be wholly expended on a current basis under terms of gift instrument)
    • 96. Also applies to board designated endowments
    • 97. Effective for fiscal years ending on December 31, 2008
    • 98. Currently, Michigan does not follow UPMIFA, however, bill pending with Governor for signature
    • 99. Disclosure provisions still apply
    33
  • 100. Accounting and Auditing Update
    FSP FASB 117-1 – NFP Endowments Subject to UPMIFA
    Minimum requirements:
    • Description of governing board’s interpretation of relevant law underlying net asset classification
    • 101. Description of endowment spending (distribution) policy(ies)
    • 102. Description of endowment investment policy(ies)
    • 103. Return objectives and risk parameters
    • 104. How the objectives relate to spending policy(ies)
    • 105. Strategies for achieving objectives
    • 106. Composition of endowment by net asset class (would present for each date for which a balance sheet is presented)
    • 107. Endowment roll-forward by net asset class (would present for each period for which a statement of activities is presented)
    • 108. Planned endowment distribution for next year (if known)
    34
  • 109. Accounting and Auditing Update
    SFAS No. 161 Disclosures about Derivative Instruments and Hedging Activities
    • Amends FASB Statement No. 133
    • 110. Two tabular disclosures for derivatives
    • 111. Balance sheet – Where derivatives are recorded and what is the fair value?
    • 112. Income statement – Where is the change in fair value recorded and what is the change?
    • 113. Hedged items are not part of the tabular disclosures
    35
  • 114. Accounting and Auditing Update
    SFAS No. 161 Disclosures about Derivative Instruments and Hedging Activities
    • Other disclosures
    • 115. Qualitatively discuss, by underlying risk, objectives for holding or issuing derivatives
    • 116. Provide information that would enable users to understand an entity’s volume of derivative activity
    • 117. Existence and nature of credit-risk related contingent features embedded in derivative instruments
    • 118. Effective periods beginning after 11/15/2008
    36
  • 119. Accounting and Auditing Update
    SFAS 164, Not-for-Profit Entities: Mergers and Acquisition
    • Would eliminate the pooling of interest method in recording mergers between NFP organizations. The acquiring NFP would recognize either goodwill of the acquired business or nonprofit activity or the contribution inherent in the merger or acquisition as follows:
    • 120. Measure goodwill as the amount by which the value of the consideration transferred exceeds the net of the amounts assigned to identifiable assets acquired and liabilities assumed
    • 121. Measure the contribution inherent in the transaction as the amount by which the values assigned to the identifiable assets acquired exceeds the consideration transferred and the liabilities assumed
    37
  • 122. Accounting and Auditing Update
    • NFP Goodwill and Other Intangibles Acquired in a Merger or Acquisition
    • 123. Amend the effective date and transition provisions of Statement 142, making them effective for a NFP organization
    • 124. Statement 142 requires an organization to make certain assessments about the nature of intangible assets acquired in a merger or acquisition as of the acquisition date, such as whether an intangible asset has an indefinite life. Goodwill, therefore, would be tested for impairment periodically, rather than amortized.
    • 125. Effective for mergers occurring on or after December 15, 2009, and for acquisitions occurring in fiscal years beginning on or after December 15, 2009
    38
  • 126. Accounting and Auditing Update
    SFAS 165, Subsequent Events
    • Establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued
    • 127. New disclosure in financial statement
    • 128. Effective for periods after June 15, 2009
    39
  • 129. IRS FORM 990
    Redesigned based on three guiding principles:
    • Enhancing transparency
    • 130. Promoting tax compliance
    • 131. Minimizing the burden on the filing organization
    Some major changes
    • A governance section that requires the organization to answer several questions related to policy and procedures
    • 132. Reported officer and key employee compensation using calendar year-end reporting (i.e., W-2) versus fiscal year-end amounts
    40
  • 133. IRS FORM 990
    Schedule H – Hospitals
    • Includes charity care and community benefit, billing, operations, related entities, locations, etc.
    • 134. For 2008, only Part V, Facilities Information, must be completed
    • 135. For 2009, all parts must be completed (Parts I – VI)
    41
  • 136. Employee Retirement Income Security Act (ERISA)403(b) PLANS – NEW AUDIT REQUIREMENTS
    Audit requirements:
    • > 100 eligible participants
    42
  • 137. Internal controls
    43
  • 138. INTERNAL CONTROL - DEFINITION
    Internal control is a process - effected by an entity’s board, council, management, and other personnel - designed to provide reasonable assurance regarding the achievement of the internal control objectives.
    44
  • 139. INTERNAL CONTROL OBJECTIVES
    Reliability of financial reporting
    Effectiveness and efficiency of operations
    Compliance with applicable laws and regulations
    Reduce risk that errors would not be detected in a timely period
    45
  • 140. INHERENT LIMITATIONS
    Human error
    Deliberate circumvention
    Collusion
    Management override
    Cost/benefit considerations
    46
  • 141. COMPONENTS OF INTERNAL CONTROL
    Control environment
    • Sets the tone of the organization
    • 142. Provides discipline and structure
    • 143. Generated by the management
    Control activities
    • Physical controls
    • 144. Segregation of duties
    • 145. Independent checks on performance
    Monitoring
    47
  • 146. Internal Controls over cash
    Collection of cash receipts
    Cash disbursements
    Bank reconciliations
    48
  • 147. Collection of cash receipts
    Prompt deposits
    Segregation of duties
    Controlled by a register
    Use of lock box system
    Bonding the cash custodian
    Restrictive endorsements
    Limited remote site collections of cash
    49
  • 148. Cash disbursements
    Segregation of duties
    Checks never signed in blank
    Control over blank checks
    Controls over mechanical check signing processes
    Petty cash controls
    Purchase requisitions
    Pre-numbered purchase orders
    Recording of payable and approval for payment
    Budget system
    50
  • 149. Bank Reconciliations
    Receipt of unopened bank statements
    Performed timely
    Reconciliation between the bank statement and the general ledger
    Reviewed by independent party
    51
  • 150. Internal controls over investments
    Prompt deposits
    Substantiation of all purchases
    Maintenance of a detailed listing of all investments and reconciliation to the general ledger
    Established investment policies
    Independent review of the investment portfolio
    52
  • 151. Documentation of internal controls
    Written handbook
    Checklist
    Periodic meetings with staff
    53
  • 152. QUESTIONS?
    54