Audit Insight 2024 | Navigating GASB Updates & Federal Audits
This webinar prepares auditors and auditees for the upcoming governmental audit cycle. During this presentation, you'll gain a comprehensive understanding of the latest updates on GASB pronouncements and GASB projects and their impact on the economy and government operations.
Freddy Smith: Good morning and Happy Friday to you. Welcome to EisnerAmper 2024 governmental accounting and auditing update. I'm going to start off the program by giving an introduction of myself, as well as EisnerAmper as a firm. Either myself, my colleagues, or EisnerAmper the firm may be new to you, because we're a little bit, I guess, new to the governmental space. EisnerAmper is one of the largest accounting, tax, and advisory firms in the US, with about 2,000 colleagues worldwide and over 300 partners around the country, and again, globally. As a firm, as I mentioned, we're somewhat new to the governmental market, but we've come into that market through the M&A space with the merger of Postlethwaite & Netterville out of the Gulf South. We now offer a very broad base of accounting and auditing products, as well as advisory and consulting services, grants management, IT, cybersecurity, and we will touch on that in a few slides.
Personally, I'm Freddy Smith. I've got over 30 years of experience in public accounting, about 20 of those have been dealing with state and local governments and serving their unique needs. I'm a CBA, a CGMA, Chartered Global Management Accountant, and I also hold the single audit advanced certificate designation that's been provided and issued by the AICPA. My colleagues who are going to join me today were listed on the previous slide. We're going to tag team this presentation today, bring you some information that you need in your daily job, both at year-end for financial reporting, as well as in your operations and preparing your upcoming budgets. In addition to my team that's going to join me in doing the presentation, there's some other key members of the EisnerAmper governmental services team that are pictured there, and I'll give a proper introduction to each team member that's going to speak as we move along through the presentation.
We've got a good lineup for you today. We're going to split this up into about four sessions with four different topics. We're going to cover government budgets and operations in 2024, talk about the economics and the picture out there heading into 2024. Hopefully, you'll get a few tidbits to help you with your budgeting this upcoming year. We're going to give you a GASB update so that you can have the knowledge that you need to keep getting those unmodified opinions. We're also going to cover what's new in the 2023 Compliance Supplement, as well as some important changes in the Uniform Guidance itself, again, so you can keep getting those clean opinions, those unmodified opinions, for your single audits.
And last but not least, we're going to look at some agreed upon procedures that we do here in Louisiana. Those of you in the audience that are auditees in Louisiana are probably familiar with these agreed upon procedures, you may or may not be a fan, but nonetheless, we're going to point out to you some value that they can provide to an organization. And those of you all who are not in Louisiana, hopefully you can see the value of these agreed upon procedures, and hopefully apply them to your internal controls and look for improvements.
Before we dive into the content, allow me a little infomercial, if you would, just to talk about the services that we provide as a firm, EisnerAmper. Traditional audit and accounting services, we call them assurance services now, financial statement audits, under GAAS and Yellow Book. We prepare financial statements, including aquifers that receive the GFOA Certificate of Excellence. We perform single audits, that is those under the Uniform Guidance Part F. We provide accounting assistance, if your bookkeeping is behind because you're experiencing attrition in your accounting staff, you need help catching up your books, doing reconciliations, we have teams of people that can provide that assistance. And if you're managing your organization, and you've got some concerns, and you're not exactly sure what those concerns might be, you can't necessarily articulate those concerns, we can always come in and do some agreed upon procedures as an information gathering process and/or fact finding mission.
Our advisory services, we provide grants management and subrecipient monitoring, as well as disaster recovery. Everyone knows that if you're in the grants world, the federal grants come with a lot of strings attached and a lot of requirements, and we have teams of people that can assist you with administering the complex regulations of these grants. In fact, I did fail to mention that this webinar is actually the second of what we like to call a two-part series. The first was provided back in December by our advisory and grants management team, led by Jennifer Butler. And last but certainly not least, business intelligence and cybersecurity and IT services are in great demand these days, and we as a firm, we do that. We do dat with a D, that's how we like to say it down here in South Louisiana, we do dat.
All right. So now, let's dive into our first section of content, and joining me today is going to be Tommy Naquin. I'll kick us off through the first few slides, but Tommy will come in about halfway through the presentation. Tommy also practices in the governmental space, he has over 30 years of experience, like me, old codger, and he comes from the Big Four world, as well as the smaller firm world, has a lot of experience serving state and local governments, especially those entities that specialize in law enforcement.
All right, so let's go. What's going on in the economic world that's going to impact our operations and our budgets as governments? Well, for the last year and a half, we've been fighting inflation, right? Good news is, that inflation is close to being under control, according to Mr. Powell and the Bureau of Labor Statistics. We're at 3.1% now. If you remove energy and food from the equation, which are actually lower than that 3.1%, you're at 4%, but altogether, averaged out, we're at 3.1%. Now, not exactly where the Fed chair wants that to be, the target is 2%, and 2%, 2.5% is what we experienced before this recent spike, but it's much better than we were about a year ago when we were around 8% unemployment, 3%, 3.7%, not quite as low as it was, still under the average of about 5.8%, so that is an indicator of a tight labor market. I'm probably not telling you anything out there in the audience, tight labor market, unemployment is low.
Interest rates. Of course, the way that we've been battling interest or inflation as a nation is that we raise the interest rates, right? The Fed chair announces the Fed funds rate, and the banks ensue, and all the interest rates follow. The good news is, again, as inflation has come under control, interest rates are starting to level out. There has been indications from the Fed chairman that possibly there could be a rate cut in 2024, but that is still to be determined. As a result of the higher interest rates that have been coming about for the last year and a half, as well as the fact that the governments have a lot of cash because of some pandemic programs, the municipal bond market was kind of slow in 2023, but we do see that recovering, because ultimately, infrastructure projects and other things that a government needs to do can't stay on hold forever, and they need sources of cash, and that federal money is not going to last forever as well.
Investment markets are still volatile, even though they've recovered from the early 2023 and 2022 when interest rates started to come up, that affected the investment markets, but now we're seeing a rebound. Real estate values, for the most part held their own, if not increased, despite the increase in interest rates. Residential has increased, as well as industrial, but there has been some decrease in the commercial real estate space, not only because of the increase in interest rates, but because of the move toward remote working. The experts are predicting a short, shallow recession in 2024, but the key word there is shallow, and it just depends on which economist you talk to, maybe it won't even happen.
Okay, I'm going to now kick it over to Astrid for another polling question.
Astrid Garcia: Polling Question #2.
Freddy Smith: All right, well-
Tommy Naquin: By the way, this will be the last one.
Freddy Smith: Yes, it will be, the last national championship, or at least last year was the national championship. We are admittedly showing our South Louisiana flare here in our bias, because the correct answer, I'll go ahead and share the correct answer with you, is C, because Nick Saban won his first national championship at LSU, and we like to take a little bit of credit for that.
Astrid Garcia: All right, let's give it a few more seconds to have everyone submit their answer. Make sure that you select an answer and hit the submit button to register your polling question. Okay, back to you, Freddy.
Freddy Smith: All right, so it looks like only 36.9% got the right answer, but we would also accept seven national championships, because that is actually the technically correct answer, even though the biased answer is item C. But good job, glad to see that everyone is awake on this Friday morning and paying attention, and that you did a good job on this very technical accounting question.
All right, so what do all those economic indicators mean for your revenues in 2024? Well, your sales tax, after several years of booming, everything's relative, but somewhat booming increases because of a couple of factors, one, inflation, increased economic activities, and also the Wayfair decision giving rise to more internet sales, you're going to see that come back down to normal, probably around 0.5% to a 1% increase, still an increase, or perhaps flat, but more normalized. Your property tax, most likely about a 1% to 2% increase. The increases in the residential real estate, as well as the industrial, will be offset somewhat by the commercial sector. The caveat to that is, if this is a reassessment year, you may experience a pretty significant increase because of those residential values.
State and federal grants, we're likely to see a decrease there because of the wind down of the pandemic programs. And by the way, if you are a recipient of the State and Local Fiscal Recovery Funds, it's just a reminder that in 2024, you must obligate those funds. So if you're still holding on to some of that pandemic money from the State and Local Fiscal Recovery Program, 2024 is the year. The Infrastructure and Jobs Act that was passed under the Biden administration in 2021 is somewhat slow to roll out and be dispensed, so we're not looking for that money to make up the significant, I guess, downfall from the other pandemic programs. Something that will offset somewhat these federal grants will be the opioid settlement. Many of you may have already signed the agreements to receive that fund, or receive the fines themselves. User fees, we're looking at a 1% to 2% increase, if at all. We all know that user fees are often politically not popular to increase, so therefore most operating budgets can survive without an increase, and therefore we're not looking for those user fees to increase.
On the expenditure side, healthcare costs are going to keep rising to the tune of about 5%. Pension plan contributions, be somewhat of a mixed bag, depends on which plan you're in and the health of that plan. Here in Louisiana, there is some good news, because of the state surpluses that were experienced in the last several years, the state gave a cash injection, if you will, to the statewide pension plans, and as a result, that contribution rate is going down from anywhere from 25%, if you're in teachers, down to 21%, and lasers is also going to go down too. Other states, such as Texas, Florida, New York, going to experience a little bit of increase, but those are planned increase, and they're moderate increases. Texas, you'll see about 0.25% increase, Florida, about a 1% to 2% increase, and in New York, about a 0.25% increase as well.
Salary costs. You would think that salary costs would go up with the unemployment low and the supply kind of tight, however, as you all probably know, governments have a little more difficulty raising salary costs and keeping up with the private sector, keeping up with the labor market. Attrition is a big deal to governments, and because of that attrition and losing people to retirements, as well as the private sector, we're looking to see not really an increase in salary costs, despite perhaps the best attempts to keep your labor force satisfied through salary increases. And if you're experiencing attrition and losing people to retirement, the work that doesn't go away, right? So you may be looking at contracted services, so those costs are going to increase. Also, your private contractors, they have to keep up with the labor market, so the contractor that does your garbage collection, they've got to increase their wages, so they're likely coming to you for an increase in their contract. Those costs that are holding steady or decreasing, fuel and equipment.
All right, we as auditors... So that's what you can expect for your budget and just your revenues. But also, there are these things called gap financial statements that are kind of cousins to the budget, but a little bit different because different bases of accounting, we would expect to see your revenues taper off as your sales taxes taper off, as well as your property taxes. The investments that you hold, we're looking to see those investments recover. Personnel costs stay constant for the most part. And we're looking to see your OPEB and pension liabilities, which are very big components of most governments' financial statements, increase and decrease respectively. Now, a lot of that is driven by whether or not your OPEB and your pension liabilities or plans are employ a trust. Most pension plans do have money funded in a trust, so the investments will rebound, therefore the liabilities will decrease. Your OPEB plans, most in the deep south, Louisiana at least, are not funded through a trust, so those liabilities will increase.
The variations in the budget, as part of our audits, we'll be looking for budget compliance to make sure that your revenues weren't too favorable, and that you favorably budgeted, and that your expenditures, you were conservative there. On your grants, period of performance is going to be something that we're going to be looking at, just to make sure that you met the deadlines for the COVID grants, and your activities, are they allowable, as the deadline approaches for these COVID grants, did you get creative in their uses? We'll also be looking at compliance for the opioids. And I also mentioned that the capital markets will be rebounding in 2024, despite higher municipal bond rates, and the governments are exhausting their pandemic cash.
All right, with that, I am going to hand it over to my friend and colleague, Tommy Naquin.
Tommy Naquin: Okay, thank you, Freddy. And first, I'd like to apologize for my voice. I contracted the flu in December, and long since got better, but my voice never came back. So anyway, I'm enjoying the Godfather voice for now.
Anyway, personnel cost. We're going to go through some economic trends and all that. My first disclaimer here is I'm not an economist, so I guess we should call this Economics for Dummies by Dummies. How's that? But when you look at the unemployment rate now, it's actually down, I think it's right at around 3.5%, and that's been holding steady since end of the previous year, the last year. But what does that mean, 3.5? Well, there are different sectors that go into that calculation too. So when you look at the sector that includes professionals, policemen, teachers, accountants, attorneys, and things like that, the unemployment rate is a lot lower than that, but it's just going through part of that average.
So what does that mean, the workforce? The pool of potential employees is a lot tighter for the people in this audience, probably, and for us as well. And I guess on the higher end, which brings that average up to the 3.5, is in the sector for natural resources, construction, and farming, and things like that, which is a little alarming. So we're not building things, we're not growing food as much, maybe. But the point is that the workforce is very tight with respect to the pool that y'all would be attracting.
Now, what does that mean, the unemployment rate? I think there are a lot of other trends or matrices that you have to consider too in this day and age, and one of those is productivity. And I can look at the trends and the graphs and all that, and I think it's slightly down, but when I step back, I feel like with the same number of people that we have, we're not getting quite the same amount of workout. I don't know what that means, maybe it's the older generation, they're retiring, and then that's being replaced by younger people, or maybe the younger generation has a different attitude toward work-life balance. But the bottom line is, when you step back, how is the average worker at working? Are you getting as much done?
So when you're looking at your personnel and filling the spots, I think you have to consider the effectiveness, especially during the transition period. And also, going down the list, things that might affect your strategy toward personnel, there is a trend toward increased privatization, that could be an option for some governments. Examples of that would be-
... option for some governments. Examples of that would be prisons, schools, utilities, and that's where you're basically farming out or transferring the ownership of that governmental purpose or asset.
Now, the next slide is rethinking. I think in going through your budgets and your planning, there everything is changing. We're going through rapid changes. And to quote the wise man, Yogi Berra, "The future ain't what it used to be." I think that's more true now than it ever has been. The future ain't what it used to be. So let's consider staffing issues. I know that we all have them. It's just a limit to the people out there and when you have attrition, it's not as easy as going to the grocery store and picking an item off the shelf.
So I think you have to rethink a few things. And the current position that you might be needing to fill might be finance related. In the past you had a CPA in that position or an accounting degree, but is that really necessary? And I'll tell you that I'm a CPA and I'm proud of it. I passed the CPA exam early in my career, but if I hadn't passed the CPA exam but then continued on to get the same jobs and have the same role and do the same things, I think I would know what I know today. So I think you have to really think... you have to adapt to what's available out there and to fill your needs.
And consider outsourcing. When you have a shortfall in your staffing, consider outsourcing. I'll tell you this, that I think the higher levels of outsourcing, I think in some ways is easier than the lower levels because I guess the CFO is going to come in and they're going to delegate, they're going to report to the board and all that, but you have to have those people that can roll up their sleeves and get the work done. And sometimes a CFO will fill that role and sometimes not. But the difficult part is getting the people that are going to be the boots on the ground and know what they're doing. So I think that long-term planning, you have to be able to fill those spots.
Other things that might fit into your long-term strategy is the use of AI. AI is in our life, whether we think about it or not, every time you fill out a form online and you start typing and it populates the answer, that's AI doing it. So AI is part of just about everything we do. And I think you'll see that a lot of applications these days will have more and more functionality toward that. I've heard that purchasing and RFP processes, a lot of that can be driven by AI and I don't know much about that, but I'm told that that's out there. It might be a functionality of the application you're currently using.
Also, portions of your bank reconciliation. These are just examples. Obviously, if you have a difference or reconcile a difference, you have to get the answer. Nothing's going to replace a person saying, okay, well we have the difference between the general ledger and our reconciled balance. Somebody has to go and research it or walk down the hall and ask people and determine what that adjustment is and make the adjustment and move on. But what AI can do is some of the automated processes like compare the general ledger activity to your bank activity and spit out the differences. So AI can be used in a lot of functional ways. So be thinking about that.
Collections is a big thing. Whenever you have the opportunity to use a kiosk or phone square or online collection processes, you're going to be better off, I think because you're eliminating the risk of human error. And I know that there are probably some school boards with school districts out there. And when you have a athletic event, inevitably the pre-numbered tickets that you sell don't reconcile the cash that you collect ends up in somebody's drawer and gets deposited way too late. These are things that some of these electronic alternatives can reduce. On top of that, when you're reducing the need for the human interaction in some of these, you're reducing risk with some of the fraud risk and human error, you're reducing that risk.
So moving on, recruiting. Sell that career. Think in the private sector, you might have your W2 wages might be a little bit higher. But in your governmental sector, you're going to have a strong pension. You're going to have OPEB benefits, holidays and more structure to your environment. My wife works for the state police and she had Martin Luther King day off. She had inaugural day off. She gets the holidays and her work schedule is a lot more structured. Sell that, sell that to the and I think the younger generation, that's what they're looking for. They're looking for that work-life balance. But a lot of these things, pension, OPEB, holiday, that's worth real money there. So I guess my message there is there's a lot that you can sell for a governmental career and a governmental track.
And the last thing I wanted to point out is, and I'm not going to get in depth about this, but I'm really just pointing out, as long as we're in the rethinking mode, GFOA has an initiative that they document on their website. You go to the best practices, go to their website, gfoa.org, then best practices, and then you click on the rethinking initiatives. And they're basically talking about rethinking budgets. And historically, we've always gone line by line and estimated incremental changes and there will always be elements of that, right?
But the problem with that is it's not as adaptive to a rapidly changing environment. And one thing that we have noticed over the past decade or two is that we have rapidly changing environments from time to time with disasters and pandemics and the economy or whatever. So we have that. And the initiative goes into rethinking the budgeting and rethinking public engagement, that's an important thing. I know that when I mention public engagement, you're all out there reaching for your Tylenol because it's giving you a headache, but the constituents are part of this process, and the idea is to turn data into understanding. And it goes into dealing with those troublemakers out there, how to deal with the politics and the cynicism. So they have white papers and research and forums as well.
And another branch of what they're talking about, rethinking reserves, and way I like to describe it is the reserves that they're talking about, it ain't your Mama's fund balance, right? It's not the same. There's a lot of overlap. We typically look at our fund balance, oh yeah, we're doing well, but what are you reserves? There is overlap, but when you think of a more risk approach, I guess saving, stashing money away into savings to deal with issues versus an insurance policy. So your reserves, I think take on a little bit different context and they go into that. Like I said, they have white papers and forums. And the other offshoot of that is rethinking financial reporting. That's an old topic, but interesting nonetheless. So check it out, gfoa.org, go to best practices and then do the rethinking initiative. So that is all I got. So I think now we're-
Astrid Garcia: Polling Question #3.
Freddy Smith: Another very highly technical question for you here, and obviously the author of this polling question didn't watch the playoffs this weekend, and I'll not give that away. So we'll see if anybody else in the audience also did not watch the playoffs and is not keeping up because one of these teams is no longer in the game.
Astrid Garcia: All right, let's give it a few more seconds for people to submit their answer. Make sure to select an answer and hit the submit button. And I will close the polling question now. Thank you.
Freddy Smith: All right, well we've got some people in the audience that are not necessarily keeping up with the playoffs or maybe they're just living in fantasy land and really hopeful that the Philadelphia Eagles can somehow get back into the playoffs after losing. But the 9ers look like they are the winner. And second place, looks like we've got a lot of swifties out there with the Travis Kelce fans.
All right, next we are going to move on to our next topic, and that is the always popular GASB update, the Governmental Accounting Standards Board, steady putting out pronouncements that we must pay attention to and often implement. And bringing us an update for those will be Don McLean and Tiffani Dorsa.
Don is a partner in our Baton Rouge office. He's involved in a lot of the quality control activities of the governmental sector. He has over 25 years of experience, much of that serving state and local governments. He's been with our firm as a combined Postlethwaite & Netterville and EisnerAmper for almost 10 years now after coming over from another local firm. Tiffani Dorsa, over 20 years serving state and local governments. She actually started out as a tax practitioner, but then we recruited over to the good side, the audit side. Tiffani also brings a wealth of knowledge in the nonprofit arena as well as the governmental sector. So with that, I am going to turn it over to Don and Tiffani.
Don McLean: Thanks Freddy, and welcome everybody who joined us in this webinar regarding the GASB update. As Freddy said, for those of you who are not familiar or attending this webinar, don't know what GASB is. Like Freddy said, that's a Government Accounting Standards Board. Many folks out there probably are aware of the FASB or the Financial Accounting Standards Board. So this is his cousin who provides or issues of accounting guidance for governments.
This slide here is relevant to folks who are working on implementing these standards over the next couple of years and including these new pronouncements in your financial statements. So this gives you an outline of when some of the new standards are coming out. December 31st year end has statement 94 is public-private and public-public partnerships. Statement 96 is SBITAs, or some people say SBITAs. That's Subscription Based Information Technology Arrangements. And the Omnibus 2022, that's going to have a split implementation. Some portions of it are implemented on December 31st, 2023 and somewhere in June. And of course the next is the implementation guides that are going to be implemented, and those are also implemented in various section.
Then in June of 30, 2024, we have accounting changes and corrections of errors in statement 100. And of course in 2024 you're going to have our compensated absences. So we're going to go through these with you. And we'll start with the public-private and public-public partnerships and availability payment arrangements. And just before I continue, I just overall these next two standards that I'm going to cover is statement 94 is this one, the PPP and also the SBITAs. It's sister standards to the lease standard. GASB 87 that came out last year, a lot of folks implemented the lease standard. All of these, a lot of what I'm going to talk about, you've probably seen if you were working on implementing the lease standard.
As I mentioned, the standard is effective for reporting periods beginning after June 15th, 2022. So the June 30th, 2023 already went through this implementation. The next folks that have to implement it are December 31st, 2023. And the standard addresses PPP that are not within the scope of statement 60, which statement 60 was the service concession agreement standard. And GASB 87 is the leases.
The GASB defines PPP as an arrangement in which a government, or they call it the transferor contracts for an operator, which could either be a government or a private company to provide public services by conveying control of the right to operate the non-financial asset. And that means infrastructure or other capital assets such as buildings, which is called the underlying asset for a period of time and an exchange or an exchange like transaction. This definition is fairly close to what the lease standard definition is also.
And then an availability payment arrangements say through this into the standard also are arrangements whereby a government compensates an operator for services that may include designing, construction, financing, maintaining or operating an underlying non-financial asset for a period of time in exchange or an exchange like transaction. Under these arrangements, these payments are made by the government are based entirely on assets availability for use. Now, exchange and exchange like transaction means that it has to be an economic value to it. It's not an exchange for a dollar. So it has to be something that'll be an economic type transaction where there's like a sale or a contract that you have entered into.
Here's some pictures of things that government may have that if they enter into these kind of agreements, they'll either be in PPP or an APA. It could either be buildings that could have transportation systems, they could have a hospital that they may have an arrangement like this with. Oftentimes you may see these with toll bridges and toll roads and also the bridges below. So these are kinds of things that we're talking about. I would think that you'll have to be a fairly big state and local government for this standard to affect you, but it could also affect the smaller local governments if you have an arrangement like this.
This slide here, it may be useful to you if you have to implement this. The reason why is because if you read the standard, it will guide you down a path. They pretty much say that if you have an underlying PPP asset with existing assets to transfer order and it meets the definition of a SCA, you got to go to paragraphs 15 and 38. Well, paragraph 15 will tell you how the asset is recorded, but paragraph 38 will tell you how the liability is recorded and so forth and so on. So if you are in a situation where you have to implement the standard, this slide will probably be useful to you. Otherwise you have to go into the standard and when you get to a paragraph, it's going to say, okay, if you had this situation, go read another paragraph and so forth.
Like I said earlier, this standard is for PPPs and they're not within the scope of GASB 60. However, this standard did amend GASB 60 by including service concession arrangements in this standard. So service concession arrangement is a public-public or public-private partnership where they're transferring the operator in which the following criteria are met. So if you have one of these arrangements and it meets these specific criteria, they're going to be a service concession agreement still. And the difference between the two I'm going to discuss a little bit later, but basically it's accounting for both of these on how they're accounted for.
So with a service concession agreement, there's the transferor, which is the government conveys to the operator the right and related obligation to provide public services through the use and operation of underlined PPP for significant consideration. And I underlined that and bolded it because that needs to be one of the primary components of this. And it describes what those are, which included a new facility improvement to an existing facility. The operator collection is compensated by the fees from third parties, for example, like a toll bridge or a toll road you go through and you pay for using that road.
However, the transferor determines or has the ability to modify or approve which services the operator is required to provide to whom the operator is required to provide the services and the prices or rates that can be charged for the services. So the government still has control over how much the operator can charge, and the transfer is entitled to significant residual interest in the asset if one is included in the arrangement.
This is the accounting, how to recognize it for the P3s and APAs for the transfer orders. For all P3s, you recognize a receivable for the installment payment to be received, if any, and the deferred inflow of resources for the assets recognized included in the payments received from the operator. This is very similar to a lessor accounting in the lease standard. So this will actually be recorded in the governmental fund on the modified basis of accounting. So that's important to keep that in mind when you're looking at this.
If the underlying P3 asset is a new asset or an existing asset that has been approved and the P3 is a service concession agreement, the government also has to recognize a capital asset at the acquisition value when the asset is placed into service. That means that once it's constructed, the government won't have to determine what the acquisition value of that asset is and placed into service usually close to the inception of the agreement.
However, if the P3 is not an SCA, the government also has to recognize a receivable for the capital asset measured at the operator's estimated carrying value on the future date of the transfer and ownership. Now that's going to be a tough thing to estimate because you have to decide, "Well, they built this asset for me, I have to book a receivable today on something that I'm going to get in the future, but it's going to be the carry value of the netbook value of that asset in the future." And this is the county for operators. Just want to make it clear that when we talk about operators here, we're talking about governmental entities because they follow GASB. If you're a private company, you wouldn't be following exactly these requirements because you'll be following whatever requirements FASB has for you.
So just like I mentioned on the transferor side, they have to book a liability for the installment payments that's opposing for the transferor. The books are receivable for that. Also, they need to recognize an intangible right to use asset, which is exactly how the lease standard is organized. Everybody should be familiar with that if they have to implement leases. And if the P3 asset is a new asset and the P3 is not an SCA, remember I said earlier that they had to book a receivable. Well, the operator needs to book a liability for the estimated carrying value as of the future date of the transfer. This is probably one of the most difficult requirements to meet, will be this estimated carrying value of the future date of the transfer. All right, we got a polling question.
Astrid Garcia: Polling Question #4.
Don McLean: All right, while y'all are deciding on that, one of the things I didn't mention is on the year implementation for this standard, it's going to be almost exactly equal to how the lease standard was implemented, where you have to look at the terms and conditions that you had at the beginning of the year, earliest date implemented, and record the asset and the liability as of that date. So refer to the GASB if you have one of these, how are you going to implement it? You'll be restating the beginning balances at the beginning balances of the balance sheet in the year you're implementing it.
Astrid Garcia: All right, I will now be closing the polling question. Please make sure you've selected an answer and hit the submit button. Back to you, Don.
Don McLean: All right. So we have answers all over the place here. The arrangements that result in a government compensate and operator are based entirely on the non-financial assets availability for use is referred to, and I think the giveaway was availability here is availability payment arrangements. So that's the correct answer.
Next, we're going to discuss the subscription based information technology arrangements. And of course that's kind of a long tongue twister there. So a lot of folks are calling that SBITAs or SBITAs, I like SBIs better, it's just easier for me to pronounce. But certainly you could pronounce it however you want unless you like saying it's subscription based information technology arrangements. That seems like it would be a big exercise.
Now, all SBITAs meet the definition of a lease. So this is almost exactly like a lease standard. The only thing about SBITAs is, and that's different from the lease standard is a leases also have lessor leases where the government owns the asset they're leasing it out to somebody else. GASB didn't feel like anybody, any governments will be having an asset that they developed internally. There'll be a subscription base that they're collecting from a private company or another government. So there's no such thing as a lessor type accounting in SBITAs.
The accounting depends on the underlying asset. If you have a tangible asset alone, you still follow GASB 87, which is leases. IT software alone, you follow this standard. If you have a combination of the two and you have to then decide if the software component is insignificant compared to the cost of the underlying asset, then you follow 87. Otherwise it's 96. So there's some decisions to make and you have to look and see what the costs are for the subscription component of an asset compared to the asset itself and decide if you have to split these up depending on the materiality you're dealing with. Like I said earlier, the standard is sister standard-
... earlier the standard is a sister standard to the lease standard. So what I did is I put the definition of the leases right next to the SBITA'S definition. And you can almost see where certain words were just replaced. So it's almost exactly the same. Also, the control element that was in the lease standard in order for you to say that you had a lease, that you had a book in presenting your financial statements, is exactly the same.
Recognition and measurement. The SBITA should be reported under provisions effectively the same as those for the lessee under GASB 87. You recognize the subscription asset and a subscription liability except for short-term SBITAs. The measurement of the subscription assets should include certain capitalizable implementation costs that were similar to those described in statement 51, which is intangible assets. There's phases in implementation of SBITA, you have the preliminary project phase, the initial implementation stage, and the operation and additional implementation stage. Under the standard cost incurred under preliminary project stage or just expense, the initial implementation stage components of that you can capitalize. And then on operation, additional implementation stage, it depends what it is. If you're adding more modules to the agreement, then that could be capitalized, but otherwise everything's expensed.
The initial reporting of a SBITA is you have the tangible right to use asset lease liability plus prepayments and any ancillary costs to place the asset to use. On the liability side, and this is on leases, the lease liability is the present value they expected lease payments over the lease term. And again, you can see they're very similar to each other, these two, the lease standard compared to the SBITA standard.
Subsequent reporting. You amortize the lease asset over the shorter of the useful life of the asset of the lease term, and you reduce the lease liability. You do the same thing for SBITAs. And again, if you are using a governmental fund, of course when we learn when we're implementing the lease standard, you'll be recording this as other financing source proceeds from the issuance of a lease, and capital outlay expense for the lease, and then it'll be a government-wide adjustment to get it onto the government-wide.
All right. So subscription term of a SBITA is, again, the same sister to the lease standard. You have the non-cancelable period. You have these various options and usually these options are your lateral, either the government or the entity providing the subscription based the contract, and you have to determine if it's reasonably certain to exercise those options or not to determine what the ultimate term is. Just know that when you're reading these agreements, and both the government and vendor have the options to terminate regardless of probability, that's usually defined as being a month-to-month agreement. So that's really a cancelable period within the lease, or the SBITA itself. So again, it'll be the non-cancelable period. So if you have an agreement that says you're entering to this for three years, that's definitely the non-cancelable period. And then any options to renew or terminate by either one, the government or the party providing the subscription agreement.
A discount rate. When we implemented the lease standard, this was probably one of the most difficult areas within leases. So most SBITAs do not provide the rate. Of course, that will make the world a lot easier if they did, but they don't. So what usually happens is the government has to use their incremental borrowing rate, and they have to kind of figure out what that rate will be, because when you implement this you have to have that discount rate determined in order to... That interest rate determines so you could discount the payments back and record the asset and the liability.
Here are a few examples of things you might run into when you are evaluating if you have SBITAs and you might think, "Does this apply? Does GASB 96 apply or not?" You could have a multifunctional printer. Some of these printers, of course, they are a tangible asset, but they have a software component to it too. Should you or should you not differentiate those two? Some governments may own electric cars that have a software component also. Usually, you would think that the hard asset component to these will exceed whatever the software is. So you probably choose to continue following the lease standard if you're leasing these.
The one in the middle cloud computing arrangements, that's really what the standard was written for, is if you have subscription-based cloud computing, either accounting software, or any other kind of teaching software that you have, if your school board that you have an agreement to pay over several years, that's going to be usually what we see as being something that the standard will apply to. You can have website subscriptions that you are locked into, laptops, or usually hard assets. They have software to it, but usually folks are not going to differentiate those two from each other. And then you might have software such as Microsoft Word, and different kinds of TurboTax or whatever, that you might have out there, that usually those are a year-to-year type arrangements. So we usually see those as being just a short-term agreement.
This is what we've seen in the last year when we are evaluating SBITAs. Online purchases of software licenses, they're mostly annual. And the issue that we have when we're evaluating SBITAs, they don't really have agreements as well-written as a lease would be. A lot of times you're buying these softwares online and there might just be a receipt for the purchase. So it's really hard to discern if it's several years or not. So if you're involved in evaluating this, you might need to actually get the agreement to determine. Some of the challenges are when they have automatic renewals. Remember, I discussed if you have the options to renew, options determining automatic renewals considered in this, and accounting software is typically one that we see that could be a software that comes into being accounted for the SBITA standard.
All right, one more polling question.
Astrid Garcia: Polling Question #5.
Don McLean: I see a question somebody asked about at what point would a discount rate change for SBITA. It is covered in the standard when you have, whatever change you have, usually if you have a decrease in the right of use asset, or an increase in the right of use asset, you have to recalculate what the liability is. At that point you'll have to recalculate the SBITA asset and liability, and then correct that, and you'll have to correct the discount rate. And also, if you have any other kind of CPI rates attached to it at that point. So there's requirements in the standard that trigger when you have to do that.
And again, the standard is implemented the same way as the other one as the lease standard based on the terms and circumstances that were in effect on the first day of the year, and you'll record the asset liability at that time.
Astrid Garcia: Okay, wonderful. I'll be closing the polling question now. Please make sure you've all submitted your answer.
Back to you.
Don McLean: All right. So it looks like we had some trouble with this one. We're all over the place. All of the above got the winning answer.
Well, perpetual license are scoped out of the lease of the standard. Copy releases that include a software component, it's possible, but usually those will probably still follow the lease standard. The payments to accompany over a period of time for the use of their accounting software is really the correct answer. Of course, you have to have all those other criteria in it too. But of all these answers here, that's the most correct.
And with that, I'll turn it over to Tiffany, so she'll cover the rest of the important standards that are coming out over the next couple of years.
Tiffani Dorsa: Thank you, Don. And good morning and good afternoon to those out there that are joining us. I know we're running a little bit over on time, so I'm going to actually expedite my presentation to try to catch up on some time, because we do have some other important information to get to you about uniform guidance and statewide AUPs. The first standard we're going to cover is the Omnibus for 2022. The Omnibus covers those things that are not significant enough to issue a new standard on, but because of practice issues that have been identified during the implementations of new standards, and the accounting and reporting of financial guarantees was covered within this Omnibus. So we'll just talk a little bit about that. So it covered financial guarantees, guarantees of legally separate entities or individuals, which could also include component units in an exchange or exchange like transactions. So there's a little discussion on financial guarantees and the disclosure requirements as it relates to those, and the recognition of where that shows on the financial statement.
The other derivative instruments are those that are going to be not identified as an investing or a hedging derivative. So if you do not meet the definition under the investing or hedging derivatives, then you would fall under the "other derivatives." And this kind of covers, you're not meeting the hedging effectiveness criteria. You would separately report the information here and separately disclose it from your investment earnings, so you'd have a separate line item for all the derivative instruments. Just also remind you that Don mentioned early on in the presentation that there are various implementation dates for all of these.
So financial guarantees and other derivatives had a different implementation date than the leases and public-private partnerships and SBITAs. What's covered with leases and PPPs and SBITAs, this addressed the clarification of lease terms. It talked about the options to terminate, and what was considered an option to terminate, excluded things like defaults and payments to pay, so that would not be considered an option to terminate. And there's a few other examples within the standard that show up with respect to the classification of lease terms.
It also talks about variable payments based on a rate or rate index that should be included when the calculation of a lease. But if the payments are variable and based on a future event or a performance of a specific requirement, then those would be excluded in the calculation of those liabilities. It also talked about when a change in the governmental's incremental borrowing rate may happen, does that impact a change in discount rate should occur? And this basically said, even if there's a change in the governmental borrowing rate that should not impact the calculation of those variable lease payments, or the changes in rate or indexes of those variable lease payments does not require to go back and recalculate those liabilities.
It extended the use of LIBOR, which I know the requirements for that didn't come in time in accordance with the standard that was originally set out. So it did extend that. And there are some other technical updates and corrections, which include things like information under GASB 34, which actually states discussion analysis, management discussion analysis should focus specifically on the total government, even if you don't have a total government column shown in your financial statement.
So it's things to be looking out for short reads, so make sure you catch up on those to make sure you're covering all the things that got covered in those just generic items within the Omnibus.
The next thing we're going to cover is the statement 100 Accounting changes and Error Corrections. We all know that things happen. There could be changes, error corrections that could happen. There are accounting changes that may exist. It defines each of the categories of what's the change in accounting principle, what's the change in accounting estimate. If changes to or within the reporting financial entity and correction of error in a previously issued financial statement. So it defines all of these things, and it prescribes the accounting on how that impacts your financial statement. So it puts clarity in the information of how an entity will report the impact of those. And this is effective for fiscal year ends after June 15th 2023.
Overall, the changes in accounting principles and error corrections will be reported retroactively by restating prior periods if you can. Changes in accounting estimates are to be reported prospectively by recognizing that change in the current period. Changes to and within the financial reporting entity, so that is if you're adding, or you have a change between major fund and non-major funds, or blended component unit being the non-blended component unit, that's reported by just adjusting the beating balances of the current period. And then it talks about how you're going to make these changes with respect to required supplementary information and supplemental information. So changing accounting principle. Changing accounting principles, when a principle is changed, you're changing from one method to another allowed method. Or there has been an updated method in accounting principles that you're now taking effect. So anytime we adopt a new accounting principle, this falls under that, that is reported retroactively by restating the prior period presented if practical.
And if it's not practical, you need to restate the beginning balances of the current period. It also requires some disclosure requirements. If you are unable to do that, you need to disclose why it's not practical to do so. You're changing accounting estimates. Estimates include those things that result in an input of data and assumptions used within data, and the measurement methodology used in creating an estimate. When changes to those inputs occur, then you have a change in accounting estimate, those reported prospectively in your financial statement and you recognize any change as a result of that accounting estimate in the current period flows. And as I mentioned, the change within the reporting entity just adjusts the current beginning balances of the period. An error correction is reported retroactively by restating prior periods presented. Again, it's the presentation of what impacts the basic financial statements.
For with respect to RSI and supplemental information, the statement addresses how to present RSI, and the effect on the accounting change error correction. So for periods earlier than those presented within the basic financial statements. So if you have a one-year period financial statement, and that is your basic financial statements, those should not be restated for changes in accounting principles. However, periods earlier than those presented within the basic financial statements should be restated for error corrections if practical. So that's true for both your RSI and SI. If you can't do it, then there's disclosure requirements within those reportings that you should disclose why it's not practical to restate or correct those if you do that.
Compensated absences is the next standard. So this will be effective after fiscal years beginning after December 15th 2023. This clarified the definition of a compensated absence, and you see that definition here. It also gave some clarity to the recording of that liability, what should be recorded, when it should not be recorded, and those items that should be attached to compensated absences when it's attached to salary-based payments.
So the three general criteria that you used for unused leave balances to be recognized as a liability. It has to be attributable to the services already rendered. The leave has to accumulate, and the leave is more likely than not to be used for time off or otherwise paid or settled. And it does define more likely than not means a likelihood of more than 50%. So it does give you a threshold. However, determining what's more likely than not is really upon the government to, or the entity following GASB to document how did they get to that more likely than not criteria. Is it based on history of the organization and the use of those, of how that leave is going to be paid or settled, are there trends going the other direction, and how that is determined.
Examples of compensated assets you're all familiar with: your vacation, your PTO, your sick leave, holiday pay, parental leave, and in certain types of sabbatical leave fall within the definition of compensated absences. So, is sabbatical leave of compensated absences? I kind of gave it away at the first slide that said yes. Only though if employees are not required to perform significant duties. If an employee is required to perform duties of a different nature while they're off, then no, it's not considered a compensated absences. But if leave is dependent upon the sporadic occurrence of an event, like jury duty or parental leave, if the birth of a child or military leave, you do not actually recognize that a liability until the leave actually takes commences, or takes place.
Salary-related payments. I mentioned this when I first started speaking about the compensated ABS liability. In order for it to have consistency among governmental reporting and the liabilities that are being recorded, not all governments reporting the salary-related payments and obligations associated with the leave, most of them were just reporting the gross wages of their employees, and the leave that they were entitled to, and maybe not including those things such as tax payments, social security Medicare taxes, that are part of an employer's responsibility for payment related to those compensated benefits. So they should include those liabilities as part of the compensated absences' calculation. And the way you're going to value this is based on the rate of pay of that employee at that point of time in which you're recording that liability. The caveat here is if that rate of pay based on policy is going to be different than the current rate of pay, let's say it's time and a half, then you would record that liability based on that rate as expected to be paid out, and paid out within the financial resources of the organization.
From a recognition and disclosure perspective, a couple of things that are great here. So you got your account reports on a basis consistently or governmental fund accounting principles. So it's going to be liquidated with expendable available resources. For long-term disclosures, you have the option and the disclosure to provide the additions or deletions from the compensated absence liability or net those together. And as long as you say their net increases and decreases in that compensated liability, you're allowed to present it that way now. So sometimes it's often difficult for the tracking of that to actually know what the additions are, or the deletions may be, and so they do allow for netting, as long as that is disclosed appropriately within the financial statement. They still do require a calculation of a short and long-term compensated absence estimate of a short-term portion of your compensated absences on the face of the financial statements. They did not take that away.
So it is important to recognize there's some changes in disclosures. The things that are required within the calculation now of compensated absences and those that should not be included. The one thing I'll also mention is if compensated absences are to be paid out by financial resources, they have to be paid. And there were some disclosures, definitions of what has to be paid or settled. If it's paid or settled or going to be used to transfer over to your defined benefit plan obligations, those are excluded from compensated absence liability. So that may be something that has to be estimated, depending on how the organization's policies are, and if you're aware of the ability of that employee to use those PTO, or time off, to then subsequently cover your defined benefit obligations.
The other things we'll mention, the implementation guides. I'm not going to go through these with you in a lot of details since we're way over, but the implementation guides here gives you the questions that were added by type, the updates to existing guidance and certain things, and the implementation guide for 2020, 2021 and 2023. So please read over those. And with that, we do not have a whole lot of time for questions, but I'll leave those to the end. And if we do have some, I will be sure to get back with you at the end of the presentation. So with that, I'm going to turn it over to our next speakers, Amanda and Brandy, as they talk through uniform guidance.
Amanda Strebeck: Hi, my name is Amanda Strebeck. I'm a partner in the Baton Rouge office, and I'm going to go over a few items related to the 2023 compliance supplement, and a few takeaways that you need to be aware of with some of those changes and some upcoming changes.
The compliance requirements are broken down into seven parts, and the areas that we're going to focus on the most are part three, which list out all the compliance requirements by assistance listing number. Part four gives more specifics about the actual testing that you need to do for the various programs. And then part five goes over the cluster of programs, which we'll talk a little bit more about as well.
The key takeaway this year is really that the Covid funding is still considered high-risk, and it still needs to be audited. It doesn't, even if you audited it in the prior year, it's still considered high-risk in the current year if it's over the certain thresholds depending on the total federal expenditures for the year. So that's important to be aware of. And then what's also important is we're noting that a lot of other organizations, hospitals, not-for-profits, if they never have met the threshold for a single audit, are now having to have one. So that client may not be prepared for that, it's going to impact scheduling from an audit perspective, and then it's also going to have increased cost for the client and the firm. So it is creating, I think, about 10,000 more single audits year over year that are having to be filed with the federal Audit Clearinghouse. There's really a large impact of all of this Covid money, that is still flowing.
Some of the key changes, the compliance supplement was issued in May of 2023, which is significantly earlier than it has been in prior years, which is very helpful. We need to be alert that there are Covid waivers that are expiring that we need to be on the lookout for. This gives the website where you can access the compliance supplement, and then also the GAQC will be updating some of their resources to reflect the changes in the 2023 supplement.
The best place to start is with Appendix V as your starting point. This kind of tells you what changes occurred year over year. They do a good job of highlighting new programs and programs that in the prior year were a no, and that this year they're a yes as far as what's considered direct to material that has to be evaluated. So that's very helpful to get a good understanding, that's important before you start planning any audits or communicating with clients to see if there's any new programs.
The six requirement mandate continues, so that's where you have to go in and identify. You look at the ones that are marked yes, and then you determine if they're direct to material to the program, and then you have to pick six for testing. So that still remains the same year every year.
I'm going to kind of zoom through these. There's just a few changes related to part three related to the Build America Buy America Act that you need to be aware of. Some things related to cash management. There was a lot of questions about what was considered the timing of when something was paid, was it when the check was cut, or when the reimbursement was made. So this kind of clarifies the testing around that to assist the auditor with determining exactly what needs to be tested.
Reporting, this is an area that can sometimes be difficult as far as determining what to test. Is the information quantifiable, how can we evaluate it against objective criteria. And this outlines that if there's not any quantifiable or objective criteria, we're not required to test that. It is important to note that they do recommend that you document the why you're not testing that, so make sure that that's included in the documentation as well.
There are several new programs this year, and those are listed here by their assistance listing number. We do want to point out that there were several programs that were not added from the FCC, those are listed here. They were not at it because they're still trying to evaluate what needs to be tested, and how that's going to look going forward. So be aware that that will probably be added to the 2024 Compliance Supplement, so just make a mental note of that.
One big change with clusters. Cluster programs are multiple assistance listings, programs, that have to be audited altogether. So there may be two or three assistance listing numbers that...
... may be two or three assistance listing numbers that you have to include in the total population for that program. So those have to be identified on the schedule of federal awards, they have to be identified as part of the planning process. And so part five lists out all those clusters. But this year they've decoupled a couple of those programs. There's four listed here, so they're no longer considered a cluster program. So it's going to be important to evaluate how those need to be tested in the current year since in the past they were coupled together. So there's going to have to be some discussions about the best approach for that in ensuring compliance, the proper reporting.
Part six. This kind of goes through all the internal control concepts. It's a really great starting point for when you're planning and performing the audit and trying to develop the procedures or also just communicating with clients about this is what you need in place with regards to the program for allowable calls. These are general recommended controls, things like that. So this is a really helpful document as well.
Part seven. This is for the areas for programs that are not in the compliance supplement. So certain programs exist and they don't have an assistance listing number, so they're not listed. So when you go to part three, you're not going to see them in part four, you're not going to have the specific procedures that you need. So when that's the case, you go to part seven and you have to evaluate all of the different areas and then determine the six that are appropriate. But this kind of gives some framework around how that testing needs to be completed. So this is an important area as well to understand.
So that kind of covers the different areas. I'm going to turn it over to Brandy Smith and she's going to talk about a few other changes related to single audits.
Hi everyone. My name is Brandy Smith. I am an audit partner in our New Orleans office. And next I'm going to talk about higher risk programs. So when we start an audit, we get a list of all of your federal programs for our auditees, and we have to go through a risk assessment process to determine which programs are higher risk, which means that we potentially may need to audit those programs.
So here are a list of the programs that the federal government specifically told us are higher risk programs. So we need to take that into account when looking into the higher risk criteria for each of your large programs.
These are some programs that were previously identified as high risk in the 2022 compliance supplement and are no longer considered to be high risk. We still, as we go through our risk assessment process, determine that they are high risk, but the government is not telling us that it is a higher risk program.
So as far as the higher risk designation, that will often tell us that a Type A program is a major program. Your Type A programs are your large program. So depending on the total amount of federal funding that an auditee receives, there are certain thresholds that we have to use to determine if a program is a large program and what we call a Type A program.
If a program is Type A and is deemed to be a higher risk, there is a very good chance that we will need to audit it. But there are two criteria that if both are met may mean that we may not have to audit it. One is if the program would otherwise meet the low risk criteria. And two, if the COVID portion of the funding received is an immaterial portion, then we may not have to deem the entire program as a higher risk program and as a major program that we would have to audit.
Astrid Garcia: Polling Question #6.
Brandy Smith: Yeah, so if you are an auditee, it's very important as we are going through this process, you can see to identify which of your grants have COVID funding. So if you have a grant that maybe a part of it is COVID, part of it is not COVID, you need to separately identify that on your schedule of federal awards because one, it is required by the uniform guidance, but also we need to know that when we're doing our audit planning and doing our risk assessment. So it's very important to make sure that you're identifying to your auditors what is COVID-related funding.
Astrid Garcia: Awesome. I will be closing out the polling question. Please make sure everyone has submitted their answer. Back to you.
Brandy Smith: So we've gotten a mix of responses. So the correct answer is yes. Even if you didn't have any findings for that program the last three years, we would still have to audit it as a major program because it's a hundred percent COVID funding. So we don't meet the criteria that an immaterial amount of the grant is COVID funding because it's all COVID.
And we talked about this a little bit. Only two of the grants, when we went through the list of the higher risk programs, only two of them have both COVID and non-COVID portions. So for example, a Medicaid cluster is a program that's been in existence for years before COVID. So you could receive Medicaid funding that's not specifically COVID funding. So this one and also the Abandoned Mind Land Grants, you could potentially have immaterial COVID funding.
In addition to your Type A, your large programs, if you have any Type A programs that are deemed to be low risk, then we have the risk assess your Type B programs, which are your smaller programs. So again, we do have to look to see if any of your Type B programs are deemed higher risk, but that's not the sole criteria in determining whether or not we have to audit that program.
Next I'm going to talk about the Federal Audit Clearinghouse. So when the single audits are complete, we are required to submit those to the Federal Audit Clearinghouse, which is an online platform. And the website changed, effective October 1st, 2023. So now all 2023 audits, and now even 2022 and prior audits that weren't submitted by the October 1st deadline have to be submitted on a new FAC website, which we have included on this slide.
Next, I mentioned this previously, but on the SEFA, make sure you're identifying your COVID-19 funding. You also have to include it when you submit your audits to the Federal Audit Clearinghouse. You also have to identify COVID funding there as well. Next poll.
Astrid Garcia: Polling Question #7.
Brandy Smith: The compliance supplement is about 2000 pages in total. So it is a huge document. There's a lot of information in it. But it's good for us auditors, we have to read through it. But also if you're an auditee and you want to know what we may potentially look at as auditors, it's good for you to read through it just to get information about the program and about internal controls.
Astrid Garcia: We have a few more people that still need to submit their answers, so just make sure to select an answer and hit the register button to make sure you qualify for your CPE certificate. And I will be closing the polling question now. Back to you.
Brandy Smith: So most of you say you're going to print it out at your desk. Just as a reminder, it is about 2000 pages. So it is a lot and it gets updated every year. So we usually save it on our computer or there's a link online where you can go to it at any time that you need it.
A few other updates and reminders. Like Amanda mentioned, COVID, the funding is winding down, but entities are still spending COVID money. So just as a reminder, we still expect to see it for the next few years. And the ones that we're seeing the most are Education Stabilization Fund, the Provider Relief Fund, and the Coronavirus State and Local Fiscal Recovery Funding.
Pay attention to different pandemic funding waiver expirations. So there were some waiver exceptions that came out after COVID just because of the difficulties of everything going on, but some of those waivers are going away, different reporting, other types of requirements. So just make sure you're on top of those requirements if you are receiving federal grant funds.
The OMB is expected to issue a federal register proposing changes to the uniform guidance, and it can impact any area of the uniform guidance, including the various compliance requirements. I think the biggest change of interest to a lot of people is the raising of the requirement, the threshold to require a single audit. Currently, the requirement is 750,000, and the proposed change would be to move that threshold up to a million. So we don't know when all of that will be approved, but that is something that we foresee coming up within the next couple of years.
The 2024 compliance supplement expected much earlier than usual. The 2023 supplement came out in May. So hopefully we'll see the 2024 supplement come out within the next few months. And when that comes out, there could be changes to individual programs, so it's important for us auditors and also our clients to review it as well, those significant changes.
There's also a new risk assessment standard that's coming out that will be more applicable for us auditors, but may result in us asking the different questions, the different types of questions to our auditees. So that's just something to be on the lookout for.
And next I will turn it over to the next group.
Freddy Smith: All right, Brandy, thank you. And we are coming up on the end of our program, but nonetheless, we want to bring this next presentation to you regarding the agreed upon procedures of the state of Louisiana.
We'll give you perhaps the abbreviated version, but nonetheless, we'll at a minimum tell you where those procedures are so that you could find them in case they could be of use to your organization. We're going to have Jennifer Mistretta, a partner in our New Orleans office, walk through those procedures, as well as Rodney Combs, a partner in our Baton Rouge office. Jennifer.
Tiffani Dorsa: Thanks Freddie. So I do want to talk a little bit about agreed-upon procedures. Just so you understand assurance services that we can provide. So many of you are familiar with an audit where we come in and we do testing and we provide an opinion on your financial statements. We can also provide review services, which we don't come in and look at a lot of documents. We mostly do inquiry and analytical procedures, and we issue an accountant's report on our procedures and on the financial statements. And then there's a compilation level of engagement where we take your trial balance and we put it into financial statement format.
But another type of procedure that has become more popular is agreed-upon procedures. And these procedures are built and customized to each organization. So we'll meet with an organization's management. Management a lot of times we'll take a first pass at building the procedures. And then we tailor them a little bit to what the management wants to achieve. And to put just some technical wording in there. So it's targeted some specific areas.
Those specific areas could be processes, it could be specific classes of transactions. We can come in and look at a specific grant. But a lot of times it's really targeted. So we could obtain a population perhaps of your disbursements and take a sample of those disbursements. Do all of the disbursements have two signatures? Do all of them have this type of attribute? Are they coded correctly? Or we could look at your grant awards and say, "Do all of the expenditures that we select in this sample meet the requirements of this grant award?" We can also recompute certain high risk calculations. And then finally, one of the examples is that we can compare documents or schedules to make sure that they have a certain attribute. So were they during the grant period or do they meet certain requirements of the government?
So that's just something to think about. These agreed-upon procedures can add value to the organization, and a lot of times they're built to reach additional areas of the organization that maybe we don't cover or that maybe aren't covered as much as management would like in a traditional audit or other type of assurance engagement.
So we're going to talk a little bit now about the Louisiana statewide agreed-upon procedures. Those cover a wide variety of areas as you can see here. We mentioned these are not areas that we would necessarily cover in a financial statement audit. For instance, the prevention of sexual harassment or ethics requirements that might be part of a state law or some type of local law. Compliance with those items may not necessarily be something we would cover in a financial statement audit.
So now I'm going to turn it over to Rodney to talk a little bit more about the Louisiana statewide agreed-upon procedures.
Tommy Naquin: Good afternoon. I'm Rodney Combs. I'm part in Baton Rouge office. I'm happy to be with you this afternoon. I'm going to discuss a few things centralized about the agreed-upon procedures. It's applicable to organizations that have at least $500,000 in funding, and it's applicable to all local governments and some quasi governments, those organizations that receive public funding and so forth. And also components of local governments as well.
And it's not mandatory, but could be applied to school activity funds if there's a separately contracted engagement related to those. And those school activity funds, those are like payments to activity funds as far as sports, math club, band, those types of things at schools and so forth. I'm very interested to find out that agreed-upon procedures could apply to those as well. And also some private and parochial schools, university and foundations, and some booster associations.
The agreed-upon procedures, they went while they went away for a couple years due to COVID, the state agreed-upon procedures. And they came back, and I tell you when they came back, came back with steroids. But in the past you could rotate some things, but certain things, like Jennifer was mentioning, those written policies and procedures, if you tested them the previous year, and there were no exceptions, you may not have to test them the next year.
But when they came, they went away for like two years and they came back, everything had to be tested, all procedures. There's no longer any rotation of those procedures as well. So you know that concerns some governments and organizations do because why? Because if you got to test everything, there's more costs. Right? Okay. So moving forward, there's a polling question. Jennifer, you want-
Astrid Garcia: Polling Question #8.
Tiffani Dorsa: And as we talked about, these are examples of some of the procedures that can be customized. But when we sit down and we work with management to understand where their concerns are, what areas they want to target, we have a list of various types of procedures that we can pull from in order to meet management's requested needs. So those could be obtaining a population and selecting a sample to test do those checks have all of the right attributes that are required by the organization's policies? Or if there's a certain percentage of a grant population that has to come from a certain population, we can help you recompute those calculations and make sure they're in compliance with the grant requirements. Or just pulling a sample of documents and schedules and making sure that they have the correct attributes. Do all of the invoices have the required purchase requisitions and approvals along the way? So just making sure that those are customized to the organization's needs and where management feels there's some risk.
Astrid Garcia: Wonderful. Thank you. Jennifer. I will be closing the polling question now. Please make sure you submit your answer before I close it. All right. Moving on.
Rodney Smith: And of course there's some centralized thoughts on what's applied is listed as all the above. Okay. So we'll move forward with the presentation.
Now, what's new in year six? As I mentioned the six, there's been going on for us several years, and this is the sixth year. There are some expanding instructions, and also some clarifications on some things that there may have been some confusion on in the past. And also the timing has changed. It's going to be for fiscal years beginning on or after January 1st of 2023. And there are some new procedures included. One of those is bank reconciliations. They need to be completed. The review of the bank reconciliations need to be completed within one month after the reconciliation was prepared. That wasn't always the case. So that was a clarification that was made about by that.
And also information technology cybersecurity training, that we're required to test that to ensure that employees receive that. If you've been paying attention to the news the last couple of years, you'll notice that various municipalities, even some schools have run into some cybersecurity issues. And most of the times it had to do with people in the organization not being familiar with some of the risks related to cybersecurity, clicking on various things that they don't know where they originated from. And that gave the hackers the opportunity to come in and cause chaos within those organizations. So that's one of the things the Legislative Auditor added to the agreed-upon procedures that would now be checked.
Another thing, the Legislative Auditor is now tracking the exceptions. In the past, we just list the turning the exceptions when we report to the Legislative Auditor. But sure, the auditors, my fellow colleagues know now when we go in and submit those reports, including the agreed-upon procedures, they want us to specify what areas they had exceptions with, so the Legislative Auditor can contract them and see if there have been improvements that's made by the organization going forward, correcting those exceptions.
What are some of the common areas of exceptions? Written policies and procedures, those are the common areas that there are various exceptions. You saw Jennifer spoke before about some of those written policies and procedures. And if you look at it from the standpoint of some of these organizations, they're in place to provide services for the community. And they're used to having standards of documentation and things like that that assist them in providing services.
Now, for these written policies and procedures from the Legislative Auditor, if they're not always applicable to these organizations and they don't necessarily use these policies and procedures that are instrumental in governing the organization, they don't always have these things written down. And just in general, all of us that work in organizations, we don't document. We're just humans, there are things in our head that doesn't make it to the paper. So there may be things within organization that they have policies and procedures, but this is to ensure that they're written down so that they can be followed.
And one of the things that you'll notice, when someone retires or someone is terminated, often they try to come behind someone and there's not written standards and policy and procedures, so the organization runs into trouble. So that's another reason why it should have some written policies and procedures, why that's so important.
And also the bank reconciliations. There's not uncommon that they will have outstanding items that aren't researched by individuals in the amount of time that it should be done. And also, as far as credit card purchases and certain payroll disbursements, not saying that there are any issues associated with this, but once again, it's a documentation type thing. There's not always clear evidence as the reasoning for why that transaction took place or some support that hadn't been provided. And I'm just speaking as individuals such as myself, I don't always turn in all my support that's needed for some of my expenditures.
But of course we have policies, procedures in place where someone would check and make sure that I provide those things. And that doesn't always occur at some of these small municipalities. They're trying to get by with a small array of people that's working in the organization and they don't necessarily have the time and the individuals to follow up on these types of things. And as you know, these are the types of things that can cause problems, especially when it goes to these are the things that the public is interested in as far as scandals and things like that, even if it's a small type thing. So that's another reason why we need to have support and documentation to make sure it's clear evidence for these types of things, credit card purchases.
And also, the IT, lack of backups associated with the critical areas, antivirus software. And employees that have been terminated, they still have access to the computer software. And as I mentioned before, this is an issue that has arisen recently due to cybersecurity issues associated with municipalities and schools and universities as well. So this is a common area of exception.
And due to those things that I've just spoken of, those recent things that have occurred in the news concerning these organizations, it supports that there would have exceptions related to IT issues.
So small reflection on agreed-upon procedures. Agreed-upon procedures, they can add value to the organization, can assist with the implementation of standards. One of the things Don spoke of this morning was the SBITA, that could be agreed upon procedures that we can apply to organizations to assist them in implementation of new standards.
And also it encourages those in charge of governance to get involved into the process and be more involved with what's going on in the organization from a financial standpoint by having these agreed-upon procedures. Because of course, these reports are turned into those in governance, and they can be aware of the exceptions and the improvements that's needed throughout the organization. And of course, they have the responsibility to ensure that that takes place.
And also, I mentioned the cybersecurity risk. There's a lot of cybersecurity risks that's going on as far as training, due to lack of training and lack of knowledge of individuals knowing what's out there in the public as far as hackers and things that they use to enter the organization as far as certain risks. So we can encourage the organization to have people that know, that are aware of these cybersecurity risks and so that they'll be prepared when a hacker tries to enter the organization from an IT perspective.
And also travel expenses, to ensure that there's support for the adequate travel and also ensure that there's clear evidence and ensure that these things are documented. And also credit card transactions, to ensure that there are proper controls and reporting as evidence that's needed in support of those credit card transactions to just reduce the possibility that something may have occurred that shouldn't have, and we have documented evidence concerning that.
So that concludes my presentation. And I ended right at 12 o'clock. So I did just as I was instructed to do, to turn it back over to Freddie, I think.
Freddy Smith: Yeah, thank you Rodney. And for those of you all out in the audience that may be interested in hiring someone to perform these agreed-upon procedures, or if you just internally wanted to perform them on yourself, you can obtain these procedures at the Louisiana Legislative Auditor's website. I don't know the exact address, but you can search engine that, Google it. Louisiana Legislative Auditor. If that doesn't work for you, reach out to one of us and we would be happy to send those procedures to you.
And with that, that is going to wrap up our program. We thank you all for joining us today. We hope you got a little bit knowledgeable of what you're going to be experiencing in your audit and in your budgets and upcoming accounting policies. And should you need any accounting, audit, and/or business services in managing and running your government, please don't hesitate to reach out to one of the fine professionals that presented here today. So thank you again and have a good weekend.
Transcribed by Rev.com
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