Audit, Financial Management and Expenditures Resources to Help You Up Your Game Barbara A. Loescher, CIA Chief, Internal Audit Section/Assistant Inspector General May 4, 2017

Today’s Topics DHS Audit Guide Financial Management Manual Allowable Cost Policy Manual Uniform Guidance issues DHS review and resolution of county audits Pending legislation

DHS Audit Guide Revision Reasons for the revision: To bring the Guide into conformance with the Uniform Guidance To adopt a risk-based approach in the Guide in alignment with that of the AICPA To eliminate excess, obsolete or unnecessary information To combine all parts into one searchable, navigable document

Primary Changes Testing of some fee-based services is no longer required. Language related to information technology and separation of duties duplicated audit industry requirements and was removed. Three required schedules were slightly altered. The switch to risk-based auditing allows auditors to determine major programs and applicable compliance testing.

Where Can I Find It? The Audit Guide is available on the Department of Administration’s website. The revision was finalized and posted in January, 2017. It was effective for any audits for periods ending December 31, 2016 and later. There will be some minor revisions in late 2016.

Financial Management Manual Why was a revision necessary? Was last revised 1995 Not in compliance with Uniform Guidance Doesn’t adequately address today’s issues, i.e., information technology, fraud, current accounting issues. Needed to be more readable

Goals for the Revision To facilitate better access and awareness to the Department’s requirements regarding financial management To give providers useful information on best practices that can be applied to prevent audit findings To incorporate new requirements from the Uniform Guidance

Primary Changes Manual has been expanded to include non- profits, not just counties. Chapters on allowable cost and the model contract have been removed and are now separate documents. New section on fraud, waste and abuse Expansion on information technology issues Expansion on internal controls New section on procurement

Allowable Cost Policy Manual Why was this revision necessary? Last revised in 1999 Is not in compliance with the Uniform Guidance Needs to more clearly define what is allowable and what is not

Primary Changes The manual will be expanded from the previous version to include: How to set up your system to account for unallowable costs A new section on expressly prohibited costs A new section on documentation requirements Department interpretation of what constitutes “reasonable and necessary”

Timeline for Distribution Both manuals need to be reviewed internally by several entities before it can be published. Both manuals will be provided to potential external users for comment. Goal is to be ready to post online by July 1st on the Department’s web.

Uniform Guidance Should be fully implemented with the exception of procurement requirements (July 1, 2017) Department implementation is in progress Still to come: Sanctions policy Audits of provider agencies

Resolution of County Audits Common findings for counties: Lack of separation of duties Lack of expertise for preparing financial statements Lack of reconciliations As the cognizant agency, the Department is responsible for following up on cross-cutting findings Has met with varying levels of warmth

Pending Legislation Has been drafted that impacts both the audit threshold and allowable reserves earned by non- profit organizations Is being promoted by Wisconsin Association of Foster Care Agencies Changes will impact providers of DHS, DCF and DOC Counties

Proposed Changes - Threshold The audit threshold will be increased from $25,000 to $100,000.

Impact of Threshold Increase Fewer individual waivers requests Eliminates the need for mandate relief waivers at the current thresholds Saves staff time for processing waivers

Proposed Changes - Reserves Non-profits would be able to retain up to 5% of revenue annually Basis for calculation changes from allowable costs to revenue No restriction on use of reserves

Proposed Changes - Limits 10% cap on reserve retention is eliminated Levels the playing field between for-profit and non-profit providers Providers may use funds for any purpose they want

Excess Reserves Provider is required to notify purchasers Purchasers must request any excess within 6 months If incorrect, recovery may extend beyond 6 months

Audits Audits may be conducted by the Department or county up to six years after the end of a contract period.

For-Profit Agencies Are not addressed in the new legislation Basis for calculation will be changed from costs to revenue to agree with legislation 10% limit still applies

Timeline Bill is being circulated at the Capitol It takes effect on the January 1st after publication DHS will update necessary guides and manuals

In Summary New manuals and policies are in their final stages of being written. We will let you know when they are published. Training will be offered in Fall, 2017.

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Questions Contact Information Barbara Loescher, CIA (608) 267-6773 BarbaraA.Loescher@ dhs.wisconsin.gov