OSA Update Katie Thigpen, Audit Supervisor Holli Harrison, IS Audit Supervisor NC Office of the State Auditor

Session Etiquette Please turn off all cell phones. Please keep side conversations to a minimum. If you must leave during the presentation, please do so as quietly as possible. 2

Session Topics 3 Financial Audit Update Information Systems Audit Update

Financial Audit Update 4 Financial Audit Update - Topics Summary of Financial Reporting for 2012 Preview of Financial Reporting for 2013 Audit Standards Update Federal Compliance Audit Scope for 2013 Materiality and Risk in a Financial Statement Audit

Summary of Financial Reporting Findings/Issues Noted Statement on Auditing Standard 115 Communicating Internal Control Related Matters Identified in an Audit

Summary of Financial Reporting Findings/Issues Noted No pervasive reportable findings… TOUCHDOWN!

Summary of Financial Reporting Audit Adjustments Posted – Pervasive Items Classification Invested in Capital Assets, Net of Related Debt Unspent Debt Proceeds Retainage and Accounts Payable

Summary of Financial Reporting North Carolina Accounting System Fiscal year 2011 – 4 pilot Universities Fiscal year 2012 – all Universities OSA concern – completeness of data file Feedback

Preview of Financial Reporting – Financial Reporting Standards Update (GASB) GASB 60 – Service Concession Arrangements GASB 61 – Financial Reporting Entity ( amends GASB 14 & 34 ) GASB 62 – Codification of pre-1989 FASB GASB 63 – Deferred Outflows / Deferred Inflows

GASB Accounting and Financial Reporting for Service Concession Arrangements Definition / Criteria Financial Reporting / Required Disclosures GASB 60 Flowchart Pro forma Impact

GASB GASB 60 Appendix C

GASB The Financial Reporting Entity Omnibus (an amendment of GASB Statements No. 14 and No. 34 Fiscal Dependency AND Financial Benefit/Burden for Component Unit Treatment

GASB The Financial Reporting Entity Omnibus (an amendment of GASB Statements No. 14 and No. 34 Fiscal Dependency AND Financial Benefit/Burden for Component Unit Treatment More Restrictive Blending Criteria for Identified Component Units

GASB The Financial Reporting Entity Omnibus (an amendment of GASB Statements No. 14 and No. 34 Fiscal Dependency AND Financial Benefit/Burden for Component Unit Treatment More Restrictive Blending Criteria for Identified Component Units Additional Criterion for Blending for Identified Component Units

GASB The Financial Reporting Entity Omnibus (an amendment of GASB Statements No. 14 and No. 34 Fiscal Dependency AND Financial Benefit/Burden for Component Unit Treatment More Restrictive Blending Criteria for Identified Component Units Additional Criterion for Blending for Identified Component Units Condensed Combining Information for Blended Component Units

GASB The Financial Reporting Entity Omnibus (an amendment of GASB Statements No. 14 and No. 34 Fiscal Dependency AND Financial Benefit/Burden for Component Unit Treatment More Restrictive Blending Criteria for Identified Component Units Additional Criterion for Blending for Identified Component Units Condensed Combining Information for Blended Component Units Reporting an Asset for Equity Interest in Discretely Presented Component Units

GASB The Financial Reporting Entity Omnibus (an amendment of GASB Statements No. 14 and No. 34 Fiscal Dependency AND Financial Benefit/Burden for Component Unit Treatment More Restrictive Blending Criteria for Identified Component Units Additional Criterion for Blending for Identified Component Units Condensed Combining Information for Blended Component Units Reporting an Asset for Equity Interest in Discretely Presented Component Units Going Forward / Pro Forma Impact

GASB Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements No new requirements Add to the GASB codification No change required for financial reporting

GASB Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position Background Reporting Requirements Statement of Net Assets becomes Statement of Net Position Statement of Revenues, Expenses and Changes in Net Assets becomes Statement of Revenues, Expenses, and Changes in Net Position Pro Forma Impact

GASB ____________________ University Statement of Net Position Exhibit A-1 June 30, 2013 Page 1 of 2 ASSETS Current Assets: Cash and Cash Equivalents$0.00 Restricted Cash and Cash Equivalents0.00 Short-Term Investments0.00 Restricted Short-Term Investments0.00 Receivables, Net (Note _)0.00 Due from Primary Government0.00 Due from State of North Carolina Component Units0.00 Due from University Component Units0.00 Inventories0.00 Hedging Derivatives0.00 Notes Receivable, Net (Note _)0.00 Other Assets 0.00 Total Current Assets 0.00 Noncurrent Assets: Restricted Cash and Cash Equivalents0.00 Receivables, Net (Note _)0.00 Restricted Due from Primary Government0.00 Restricted Due from State of North Carolina Component Units0.00 Endowment Investments0.00 Restricted Investments0.00 Other Investments0.00 Hedging Derivatives0.00 Notes Receivable, Net (Note _)0.00 Capital Assets - Nondepreciable (Note__)0.00 Capital Assets - Depreciable, Net (Note _) 0.00 Total Noncurrent Assets 0.00 Total Assets 0.00 DEFERRED OUTFLOWS OF RESOURCES Current Deferred Outflows of Resources: Accumulated decrease in fair value hedging derivatives 0.00 Other Deferred Outflows of Resources 0.00 Total Current Deferred Outflows of Resources 0.00 Noncurrent Deferred Outflows of Resources: Accumulated decrease in fair value hedging derivatives 0.00 Other Deferred Outflows of Resources 0.00 Total Noncurrent Deferred Outflows of Resources 0.00 Total Deferred Outflows of Resources 0.00 Total Assets and Deferred Outflows of Resources 0.00

GASB LIABILITIES Current Liabilities: Accounts Payable and Accrued Liabilities (Note _)0.00 Due to Primary Government0.00 Due to State of North Carolina Component Units0.00 Deposits Payable0.00 Funds Held for Others0.00 Unearned Revenue0.00 Interest Payable0.00 Obligations Under Reverse Repurchase Agreements0.00 Hedging Derivative Liability0.00 Short-Term Debt0.00 Long-Term Liabilities - Current Portion (Note _) 0.00 Total Current Liabilities 0.00 Noncurrent Liabilities: Deposits Payable0.00 Funds Held for Others0.00 U. S. Government Grants Refundable0.00 Funds Held in Trust for Pool Participants0.00 Hedging Derivative Liability0.00 Long-Term Liabilities (Note _) 0.00 Total Noncurrent Liabilities 0.00 Total Liabilities 0.00 DEFERRED INFLOWS OF RESOURCES Current Deferred Inflows of Resources: Deferred Inflows of Resources Under Service Concession Arrangements (Note _) 0.00 Accumulated increase in fair value hedging derivatives Other Deferred Inflows of Resources 0.00 Total Current Deferred Inflows of Resources 0.00 Noncurrent Deferred Inflows of Resources: Deferred Inflows of Resources Under Service Concession Arrangements (Note _) 0.00 Accumulated increase in fair value hedging derivatives Other Deferred Inflows of Resources 0.00 Total Noncurrent Deferred Inflows of Resources 0.00 Total Deferred Inflows of Resources 0.00 Total Liabilities and Deferred Inflows of Resources 0.00

GASB NET POSITION Invested in Capital Assets, Net of Related Debt0.00 Restricted for: Nonexpendable: Scholarships and Fellowships0.00 Research0.00 Endowed Professorships0.00 Departmental Uses0.00 Loans0.00 Restricted for Specific Programs0.00 Other0.00 Expendable: Scholarships and Fellowships0.00 Research0.00 Endowed Professorships0.00 Departmental Uses0.00 Loans0.00 Capital Projects0.00 Debt Service0.00 Restricted for Specific Programs0.00 Other0.00 Unrestricted 0.00 Total Net Position$0.00

Highlights for Financial Reporting – Pro Forma Update – 2013 Financial reporting follows GAAP. The pro forma is provided to be a guide (not all inclusive) Availability of Pro Forma (

Auditing Standards Update – No impact on fiscal year 2013 audits

Federal Compliance Audits – Federal Programs Selected For Audit Research and Development Cluster Student Financial Assistance Cluster Higher Education Grant

Audit Risk and Materiality 26 Concept of Materiality Financial Reporting Auditing Determining Materiality Quantitative Factors Qualitative Factors

Information Systems Audit Update 27 Summary of 2012 IS Audit Procedures Common Opportunities for Improvement Preview of IS Audit Procedures for 2013

Summary of 2012 IS Audit Procedures – Third Year of Financial/IS Audit Partnership Years one & two – no formal communication of IS issues to Universities Concerns were communicated verbally to frontline IT staff Issues with potential financial impact noted in financial audit workpapers Financial auditors found end-user controls to mitigate IS audit concerns

Summary of 2012 IS Audit Procedures – Third Year of Financial/IS Audit Partnership Year three – formal communication of IS issues to CIO NOT findings in the Financial Statement audit “Opportunities for Improvement” Goal – help you avoid findings in an IT audit

Common Opportunities for Improvement IT Risk Assessments incomplete or outdated Disaster Recovery plans not tested Inadequate separation of duties between programmers and DBAs Lack of access rights recertification on the server, database and/or network

Common Opportunities for Improvement Less than optimal password settings End users with local administrator access (can override controls) Insufficient monitoring of network equipment and events Excessive number of privileged users on the network

Preview of IS Audit Procedures for Continue to work with Financial Audit New workpaper methodology this year – different understanding of IT controls Goal – improve efficiency of partnership so we have time for in-depth IT audits