Financial Statement and Accountability Audit Updates Spring BAR Meeting June 13, 2019 Erika Davies Assistant Audit Manager Community and Technical College Expert Erin Anderson Assistant State Auditor

Statewide Community and Technical College Experts Today’s Presenters Statewide Community and Technical College Experts Erika Davies Assistant Audit Manager Everett Erin Anderson Assistant State Auditor Financial Audit

Agenda and Overview Grays Harbor College

Agenda What we do as Experts Community College Audit Overview Exception trends State of Washington CAFR Relationship Financial Related Themes Capital Assets Foundations Accountability Related Themes Selected Colleges Cash Receipting Cybersecurity SAO Resources Erin’s slide Centralia College

2,721 total Audits in 2018

Community and Technical Colleges: 67 total in 2018-2019

Highlights 22 Colleges met March 31 deadline this year- Congratulations! Renton Technical Cascadia Seattle Colleges Lake Washington Bellevue Highline Bellingham Technical Walla Walla Centralia Columbia Basin Skagit Valley Yakima Valley Wenatchee Valley Grays Harbor Everett Lower Columbia Peninsula Big Bend Clark Olympic Edmonds Bates Technical

Subject Matter Expert Role Walla Walla Community College

Community and Technical College Experts What we do Client & Auditor HelpDesk Develop Testing Strategies and Internal trainings Develop Planning Guide Provide Information to College Employees Peninsula College

Community and Technical College Experts Auditor and Client HelpDesk How it works Client portal Auditor portal Common questions Look for the HelpDesk button on our website at SAO.wa.gov!

Community and Technical College Experts Testing Strategies and Internal Trainings Testing strategies = audit procedures Step by step guide helps ensure we meet audit standards “Know Before You Go” training Required for all auditors to take before auditing a community college Green River College

Community and Technical College Experts Planning Guide Auditor Resource What’s new for Current Year Required Risks to Assess System Understandings Foundation Information Updated Annually

Trends in Audit Exceptions

Let’s play Family Feud!

Family Feud We surveyed audit reports of community and technical colleges for the most popular categories of financial statement findings last year…. The top 3 answers are on the board!

2018-2019 Financial Audit Exceptions 7 Findings Foundation Issues (3) Financial Statement Preparation (3) GASB Implementation (1)

Family Feud We surveyed audit reports of community and technical colleges for the most popular categories of financial statement management letters last year…. The top 4 answers are on the board!

2018-2019 Financial Audit Exceptions 8 Management Letters Financial Statement Preparation (4) Capital Assets (2) Certificates of Participation (1) GASB Related Balances (1)

2018-2019 Financial Audit Exceptions 113 Exit Items Financial Statement Preparation (49) Pension/OPEB (10) Capital Assets (16) Tuition & Fees (12) Risk Assessment (7) Cash & Investments (15) Payroll & Other expenses (4)

Family Feud We surveyed audit reports of community and technical colleges for the most popular category of accountability finding last year…. The top answer is on the board!

2018-2019 Accountability Audit Exceptions 1 Finding Cash Receipting (1)

Family Feud We surveyed audit reports of community and technical colleges for the most popular categories of accountability management letters last year…. The top two answers are on the board!

2018-2019 Accountability Audit Exceptions 2 Management Letters Procurement (1) Cash Receipting (1)

2018-2019 Accountability Audit Exceptions 13 Exit Items Cash Receipting (4) Disbursements (3) Open Public Meetings Act (2) Risk Assessment (2) Loss Reporting (1) IT Controls (1)

Washington State CAFR

Higher Ed Planning & Coordination How do Colleges get selected? Washington State CAFR What is the CAFR? Higher Ed Planning & Coordination How do Colleges get selected? How is this helpful?

Overview The WA Comprehensive Annual Report (CAFR) is a detailed presentation of the state’s financial condition as a whole Reports most significant activities and balances for the fiscal year Prepared by the Office of Financial Management Statewide Accounting Team Presented in three sections: Introductory Section Financial Section Statistical Section Largest Financial Audit Performed in Washington

State of Washington CAFR Higher Education Planning and Coordination AFRS Queries are ran for all 34 Community and Technical Colleges for significant line items College selections are based on risk and quantitative size of account balance 1 College selected for general audit cycle risk Cash and Cash Equivalents Depreciable Capital Assets Charges for Services (Tuition) Education Expenses Operating Grants Federal Grants in Aid  

State of Washington CAFR Selected in the FY19 CAFR Audit Bellevue College Seattle Colleges Tacoma Community College Community Colleges of Spokane Clover Park Technical College

State of Washington CAFR For Example: Bellevue College Helps Local Teams focus on other areas Reduced Budgets No duplicative work How is our CAFR audit work useful? Bellevue College

Common Financial Statement Themes Everett Community College

Net Investment in Capital Assets Balance is a calculation, therefore auditors will most likely be checking to ensure the reported amount follows this equation: Total capital and infrastructure assets (including land and construction in progress) Less: accumulated depreciation Less: outstanding principal of related debt  

Net Investment in Capital Assets – Tips Number one cause of errors is from formula errors in the financial statement template To avoid misstatements: Check and make sure the financial statement workbook is referencing the correct cells Do a manual calculation of what you would expect the balance to be and compare it to the financial statement workbook Save this for the auditors as evidence of your review!

Capital Assets – Reconciliation Reconcile Capital Asset amounts throughout the year! Ensure amounts in Direct line agree to the Capital asset balance reported on the financial statements Investigate differences and make appropriate adjustments Retain support of your reconciliation and adjustments for the auditors Agree the Capital Asset balance on the statement to the notes to the financial statements

Capital Assets – Physical Inventory Physical inventories help catch additions and deletions that were not entered or removed from the financial system SAAM 30.45.10 suggests performing a physical inventory once every other year During the physical inventory process, ensure purchased assets were added to the system and depreciation has been started Retain documentation of the physical inventory for the auditors

Capital Assets – CIP Check that Construction in Progress (CIP) is properly moved to a depreciable asset balance when projects are substantially complete (SAAM 30.20.20)

Foundations For most Colleges, we issue two opinions: one for the College as a whole and one for the related Foundation (discretely presented component unit) Suggestions: Communicate early and often Include review of the foundation as part of financial statement preparation process Consider updating your agreement with the Foundation

Common Themes in Accountability Audits

Planned Accountability Audits for the 19-21 Biennium Seattle Colleges Skagit Valley College Big Bend Community College Walla Walla Community College South Puget Sound Community College Wenatchee Valley College Everett Community College Shoreline Community College Columbia Basin Community College Lake Washington Institute of Technology Bates College Pierce College Renton Technical College Green River Community College Grays Harbor College Lower Columbia College

Cash Receipting Segregation of duties – one individual should not have control over the entire accounting transaction (authorization, recording, custody) The following duties should be segregated: Cash receipts Cash counts Bank deposits Deposit receipt reconciliation Bank reconciliations Posting of deposits Cash disbursements

Cash Receipting Security – It’s important to put safeguards in place over cash to protect against theft or loss. Example controls: Keep all cash in a safe until it is deposited Consider using a drop safe for areas with regular cash receipts to limit access to the contents of the safe Limit access to the safe to supervisory and authorized staff only Change the combination to the safe on a regular basis, especially during times of high staff turnover Consider installing a camera and alarm system If cash boxes are used, ensure each staff is assigned his/her own cash box in order to readily assign responsibility in the event of a loss

Cash receipting Reconciliation and documentation – SAAM 85.50 requires cash to be deposited daily and reconciled on a daily basis. Investigate any differences and document their causes. Monthly bank reconciliations should also be performed to ensure all amounts were properly deposited and appropriately credited by the bank. Management review – Supervisors should initial and date all reconciliations to demonstrate that they reviewed and approved the reconciliations.

Cybersecurity

Cybersecurity How robust is your cybersecurity training?

Cybersecurity “Scammers” target college employees who handle money Are staff trained to make a phone call before wiring funds? Is the wire request expected? Any large and unexpected wire transfer requests should be treated with increased skepticism.

Cybersecurity: Recognizing attacks Are staff taught how to spot real-world attacks? Are staff taught how to spot red flags? Do staff know that large wire transfers have been made at several public institutions already? These were real fraudsters who got a hold of public funds.

Common IT security audit recommendations Policies Risk assessments of information system processes and policies should be routinely updated in consideration of industry standards User access Review user access privileges on a periodic basis to ensure unauthorized users do not have access to modify key components of the system. Only users who need access to perform their job duties have access to systems for payroll, tuition, capital assets, etc. Backups Document and maintain a specific process for determining what data and systems to back up Create a weekly backup that is kept for at least three weeks

Five Simple Things that Work! Invest in a Modern Operating System Install ALL Security Patches ASAP! Never use computer as Administrator Install Anti-Malware Software and keep it updated Create ‘strong’ passwords, and don’t reuse them

Opening Email Attachments Just a Few More Tips Data Loss Prevention Control use of removable media (flash drives, CD/DVDs) Don’t let staff move data to ‘free’ Cloud File Shares Take Charge Set Policy Enforce it TRAIN YOUR STAFF! STOP and THINK Before Clicking links Opening Email Attachments

Office Resources

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The Audit Connection Blog

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SAO Online Services The Audit Connection Blog

SAO Online Services

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Keeping track of previous audit issues: The old way

Follow the status of audits with ease Sample slide title Issues and corrections in one place Better prepare for next audit Show quickly that an issue is resolved Bring new staff up to speed quickly Sample language

Tracker Response Pending Verification Pending N/A Entity Reported Status Audited Status N/A Response Pending Verification Pending

The Future of Tracker The information Tracker will show is already available – Tracker will just present it in a more user-friendly way Improved transparency increases trust in government

Office of the Washington State Auditor Thank you for the opportunity to present today!

Contacts Troy Niemeyer Assistant Director of State Audit Higher Education Program Manager (360) 725-5363 Troy.Niemeyer@sao.wa.gov Erika Davies Community and Technical College Expert (425) 948-7401 Erika.Davies@sao.wa.gov Erin Anderson Community and Technical College Expert (360) 725-5589 Erin.Anderson@sao.wa.gov