Wrapping up Audit: Best Practices for Requirements & Common Deficiencies

Best Practices for Wrapping up the Audit and Requirements and Common Deficiencies in Client Prepared Sections of the Audit Presented By: Jamie L. Wilkey, Partner Jen Martinson, Principal

Best practices for wrapping up the audit Objectives A review of requirements and common reporting deficiencies for client prepared sections of the audited financial statements

Review and post audit adjusting entries as provided with the first draft Review fund level financial statements Compare budget numbers to internal budget document Compare fully adjusted internal trial balances (including audit adjustments) to numbers within the draft financial statements Review note disclosures and required supplementary information to source documents, such as IMRF GASB actuarial report Post First Draft Review entity-wide financial statements Conversion schedules provided by L&A Review client communication letters Agree with recommendations? Management responses are now required

Once #s are agreed to with the Auditors, begin drafting Management Discussion and Analysis (MD&A) Goal to have draft of MD&A to the Auditors at the final draft for their review/approval Post First Draft Continued Draft transmittal letter, if applicable Normally transmittal letter does not include number references most can be drafted earlier in the audit process Goal to have draft of transmittal letter to the Auditors at the final draft for their review/approval Update any necessary statistical pages, if applicable Goal to have updates to the Auditors at the final draft for their review/approval

Final Draft 1 2 3 4 Review any questions/changes to the report with the Auditors, including client communication letters Provide the following items to the Auditors: Draft of MD&A Draft of transmittal letter, if applicable Updates to statistical pages, if applicable The Auditors will assemble the final report for approval prior to sending to the printer. Ensure signed representation letter submitted to the Auditors Confirm timing for reproduction as well as Board/Council presentation of the audit

Requirements and Common Reporting Deficiencies for Client Prepared Sections of the Audited Financial Statements

1) Describe the basic government-wide and fund financial statements, as well as the difference in the kinds of information provided by each Management Discussion and Analysis Requirements 2) government-wide statements (Statement of Net Position and Statement of Activities) for current period and preceding period Provide condensed financial information from 3) Provide an overall analysis of the government s financial position and results of operations (improved or deteriorated?) Provide a why, not just numbers/percentages Explanations should be appropriate based on level of financial statements being explained COMMON REPORTING DEFICIENCY

4) Address governmental activities separately from business-type activities If economic factors significantly affected the operating results of the current year (COVID-19), they should be discussed in this section Management Discussion and Analysis Requirements Continued 5) Provide an analysis of significant balances and transactions of individual MAJOR funds Provide a why, not just numbers/percentages COMMON REPORTING DEFICIENCY 6) Provide an analysis of significant budgetary variations for the GENERAL FUND only Original budget vs. final budget AND final budget vs. actual Provide a why, not just numbers/percentages COMMON REPORTING DEFICIENCY

7) Describe significant capital asset and long-term debt activity during the year Provide a reference to the notes to the financial statements for both capital assets and long-term debt Provide summarized information on both topics, no need to repeat notes to the financial statements Management Discussion and Analysis Requirements Continued 8) Disclose currently known facts, conditions or decisions that are expected to have a significant effect on financial position Focus should be on things that have actually happened, rather than things that might happen 9) Amounts in the MD&A must tie to the financial statements

The Certificate of Achievement program requires preparation of two additional client prepared sections Annual Comprehensive Financial Report Sections 1) Transmittal Letter 2) Statistical Section

1) Presented on your governments letterhead 2) Dated on or after the audit opinion date Transmittal Letter Requirements 3) Addressed to the government s citizens, as well as others, such as the Board/Council 4) Signed by at least the chief financial officer 5) State that management is responsible for the contents of the report

6) comprehensive annual financial report is intended to fulfill (EMMAfiling for example) Mention any legal requirements the Transmittal Letter Requirements Continued 7)Address the results of the audit Modified opinion? 8) Discuss your internal controls, including their objectives and inherent limitations?

9) Include a profile of your government Population and structure of government Description of Services Reference any component units Summarize the budgetary process, including legal level of budgetary control State legal level of budgetary control for each fund with a budget disclosed (fund level, for example) Information on the local economy Information on long-term financial planning Financial policies affecting your financial position in the current year Major initiatives that are expected to impact your future financial position Describe major budgetary initiatives that had a significant impact on the financial statements Transmittal Letter Requirements Continued

10) Include acknowledgments GFOA Certificate of Achievement - MUST GFOA Distinguished Award? GFOA Popular Annual Financial Reporting Award? Individuals involved in the preparation of the report, or those that government s financial reporting or internal controls Budget Presentation Transmittal Letter Requirements Continued contributed to your 11) Must direct readers to the MD&A 12) Do not duplicate information provided in the MD&A

Most Auditors will update all financial related information or information that can be obtained from the audit (i.e., debt schedules, etc.) Statistical Section All other schedules should be client provided Recent bond official statements are useful resource if a full official statement was done with the bond issue many of the schedules are included as part of that process

Financial Trends information to help the reader understand how the performance and well-being have changed over time financial Government s Net Position by Component SOURCE: Statement of Net Position Statistical Section Continued Changes in Net Position SOURCE: Statement of Activities Fund Balances of Governmental Funds SOURCE: Governmental Balance Sheet Changes in Fund Balances for Governmental Funds SOURCE: Governmental Statement of Revenues, Expenditures and Changes in Fund Balances

Revenue Capacity information to help the reader assess the Government s most significant local revenue sources Assessed Value and Actual Value of Taxable Property SOURCE: County Extension Statements Statistical Section Continued Direct and Overlapping Property Tax Rates SOURCE: County Extension Statements Principal Property Tax Payers SOURCE: County (Difficult in some counties) Property Tax Levies and Collections SOURCE: County Extension and Distribution Statements

Debt Capacity information to help the reader assess the affordability of the Government s current levels of outstanding debt and the Government s ability to issue additional debt in the future Ratios of Outstanding Debt by Type SOURCE: Debt related notes to the financial statements, personal income and population from Demographic Stats Statistical Section Continued Ratios of General Bonded Debt Outstanding SOURCE: Debt related notes to the financial statements, EAV information from Revenue Capacity Stats, population from Demographic Stats Direct and Overlapping Bonded Debt SOURCE: Most recent entity audited financial statements (Difficult in some cases) Pledged Revenue Coverage SOURCE: Audited financial statements (Only required if you have Revenue Bonds, etc. that pledge a revenue stream for repayment of debt) Legal Debt Margin SOURCE:Audited financial statements

Demographic and Economic Information information on demographic and economic indicators to help the reader understand the environment within which the Government s financial activities take place Statistical Section Continued Demographic and Economic Statistics SOURCE: Variety of Census related websites, Local school enrollment, Government records, Department of Employment Security Principal including phone calls to employers, Illinois Manufacturers Directory and Illinois Business Services Directory Employers SOURCE: Variety of sources,

Operating Information information related to service and infrastructure data to help the reader understand how the information in the Government s financial report relates to the services the Government provides and the activities it performs Statistical Section Continued Full-Time Function/Program SOURCE: Government payroll records Equivalent Government Employees by Operating Indicators SOURCE: Government department records Capital Assets SOURCE: Government department records

GFOA Certificate of Achievement Program www.gfoa.org/coa-award Link to COA checklist for most governments: www.gfoa.org/comprehensive-general-purpose- checklist Important Resources GASB Statement No. 44 Economic Condition Reporting: The Statistical Section https://www.gasb.org/cs/ContentServer?c=Docume nt_C&cid=1176160028553&d=&pagename=GAS B%2FDocument_C%2FDocumentPage

Questions ??? Lauterbach & Amen, LLP 27W457 Warrenville Road Warrenville, IL 60555 630.393.1483 Phone 630.393.2516 Fax www.lauterbachamen.com Jamie L. Wilkey, Partner jwilkey@lauterbachamen.com Jen Martinson, Principal jmartinson@lauterbachamen.com