Presented by: 	Jean Young, Partner, CPA 	and 	Amanda L. Ward, Associate, CPAJean.Young@plantemoran.com	Amanda.Ward@plantem...
AGENDA<br />By the end of the session, we will:<br />Provide an overview of changes to the single audit requirements and t...
Single Audit<br />3<br />
OVERVIEW OF SINGLE AUDIT REQUIREMENTS<br />Applicability: Not-for-profits and Governments (including NFP hospitals)<br />A...
Federal expenditures < $500K = NO AUDIT
Funding of subrecipients</li></ul>Audit Frequency<br /><ul><li>Annually</li></ul>4<br />
DATA COLLECTION REVISIONS<br />Revised on-line submission procedures<br />Ensure proper identification of agencies to rece...
CONSOLIDATE HEALTH CENTERS – 93.224<br />The objectives is to provide populations that would ordinarily not have access to...
CONSOLIDATE HEALTH CENTERS – 93.224<br />Applicable Compliance Categories<br /><ul><li>Activities allowed or unallowed
Allowable cost/cost principles
Eligibility
Program income
Financial reporting
Special reporting
Special Tests and Provisions</li></ul>7<br />
Overview of ARRA<br /><ul><li>$787 Billion in Federal Grants to States, Local Municipalities, and Non Profit Organizations
Majority of  Grants Subject to Single Audit    (A-133) Compliance Testing & Reporting
Grants Provided Through Both Existing Grant Programs/Formulas & New Programs
Mandate to Spend it Quickly!!</li></ul>8<br />
IMPACT ON MICHIGAN<br /><ul><li>$3.8 Billion in Funding to Date
$228 Million in Direct Grants to Local Units
More than 50 Separate Funding Programs
Over 17,000 Projects
1,700 Local Grant Recipients
> $1 Billion in Infrastructure Projects</li></ul>9<br />
GRANT OVERSIGHT<br />Unprecedented Oversight and Transparency<br /><ul><li>Michigan Economic Recovery Office
Direct GAO Oversight and Monitoring
Single Audit Reporting
Increased Quality Control Reviews of Reports Issued
Single Audit Reports and Results of Quality Control Reviews Accessible by Public
Quarterly Reporting of Both Financial and Programmatic Status of Grant on Federal Website</li></ul>10<br />
FEDERAL AGENCIES - OMB<br />OMB Responsibilities<br /><ul><li>Publish Compliance Guidance
Implementation Guidance to Federal Agencies
Compliance Testing Guidance to Auditors & Recipients
Only Interim Testing Guidance Published
Appendix VII of March 2009 A-133 Compliance Supplement
Expect Additional OMB Guidance in future!!</li></ul>11<br />
GRANT ACCOUNTING<br />All ARRA Grants Must be Accounted for Separately <br /><ul><li>Both Programmatic and Financial Data ...
Federal Agencies Must Identify Award as ARRA
Recipients Must Identify ARRA Portion to Sub-recipients
Separate Tracking/Reporting of ARRA Portion vs. Normal Portion of Existing Grant Programs</li></ul>12<br />
GRANT COMPLIANCE<br />Recipient Compliance Requirements<br /><ul><li>General Grant Compliance Requirements
Specific Program Compliance – if ARRA Grants Fall Under an Existing CFDA Number
Requirements Specific to Award Document</li></ul>13<br />
SINGLE AUDIT IMPLICATIONS<br />Large Increase in Grant Dollars Subject to Single Audit<br /><ul><li>More Entities Required...
More Major Programs to Evaluate for Testing
June 2009 Fiscal Year Dollars Expected to be Minimal (Significant Impact in 2010 and 2011)</li></ul>14<br />
PREPARING FOR ARRA GRANTS<br />Ensure Internal Control System Has Capacity to:<br /><ul><li>Separately Account for ARRA gr...
Gather the Data for Quarterly Reports in the Required Time Frame
Adhere to Compliance Requirements
Monitor Sub-Recipients and Gather Reporting Data From Them</li></ul>15<br />
MANAGING ARRA GRANTS<br /><ul><li>Read the Grant Award Document
Get Finance Dept Involved at the Start of the Grant Process
Monitor Changes in Grant Requirements:
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Federal Audit Requirements & Fraud Prevention

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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.
  • Federal Audit Requirements & Fraud Prevention

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

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