1. APA Local Government Update
Brown Edwards 2018 Annual Governmental Conference
_____________________________________
January 11, 2018
Rachel Reamy, Local Government Audit Manager
Auditor of Public Accounts

2. Comparative Report and Transmittal Process Other Governmental Entities
Overview of Topics
Comparative Report and Transmittal Process
Other Governmental Entities
Quality Control Reviews over Locality audits
Recent Updates to UFRM and Audit Specifications, New Legislation Requirements
Impact of OPEB Implementation for GASB Statements 74 and 75
Locality Fiscal Distress Analysis and Monitoring

3. Comparative Report Transmittal Training
Transmittal Preparation training
Available web-based training materials for locality/auditors to review or refresh on preparing the transmittal forms
We will provide yearly training again for the 2018 transmittal process during August, early September 2018 time frame

4. Comparative Report Transmittal Reminders
Important reminders on transmittal process and reporting requirements are included at following documents on APA’s website:
2017 Transmittal Forms Update
Reporting Requirements and Distribution
November 30th Code mandated deadline for submission of final, audited CAFR and transmittal form to the APA

5. Comparative Report Transmittal Process
December/January – APA staff perform desk reviews of Transmittals and Annual Financial Reports
APA reports to JLARC each year in mid January those localities who are late in submitting either the audited CAFR and/or transmittal data
February 1 – Code of Virginia deadline for APA to release Comparative Report (typically only have a draft at this point)
February/March –follow up on missing audit reports and transmittals; continue desk review process
March/April – electronic Comparative Report is finalized

6. Other Governmental Entities
Authorities, Boards, Commissions (ABCs) and other Political Subdivisions
Audit and Oversight Provisions
APA Audit Specifications
Requirement – submit audit report to APA 90 days after fiscal year end
Updated contact information for APA’s records
Local Government annual survey- ABCs that are locality’s component units
Now including audited financial reports submitted to APA on Local Government Reports website

7. APA Annual Quality Control Review
Periodic quality control reviews of CPA firms auditing VA localities
Chapter 4 of the Specifications for Audits of Counties, Cities & Towns describes this process
Copy of the final review report is sent to the audit firm, applicable locality, the Board of Accountancy, and VSCPA
Reports located on APA’s website
Local Government page> Quality Control Review Reports

8. APA QCR Process and Common Findings
Last year’s 2017 reviews completed over 6 FY16 locality audits at 5 CPA firms
4 Pass reports
2 Pass with Deficiencies reports
Common findings:
Improve audit workpaper documentation of testwork and conclusions
Improve testwork and documentation to comply with Uniform Guidance for Single Audit
Currently planning 2018 selection of firms and locality FY17 audits to begin reviews in Spring

9. Increased Focus on Single Audit Compliance
UG requires performance of a federal study of Single Audit quality once every six years
OMB exploring potential to use other data points (QCRs, peer reviews, etc.) to meet the intent of the study
2016 AICPA Peer Review of Single Audits to enhance oversight prior to federal study
48% of engagements reviewed found to be “non-conforming”
Common problem areas—identifying direct and material compliance requirements; planning and performance of controls and compliance testing; audit documentation
AICPA GAQC Sept webinar, Single Audits: New Insights on Factors Driving Single Audit Quality, available as resource

10. Updates to Uniform Financial Reporting Manual (UFRM)
2017 legislation (Chapter 484) amended Locality reporting requirements, Code of Virginia §
Locality’s submission to the APA should include a notarized statement
Submit along with audited CAFR on 11/30 or as soon as the results of the audit have been presented to the local governing body
Template notarized statement provided for locality’s reference
Local Government page> Annual Guidelines, Manuals, and Other Procedural Documents

11. Updates to UFRM/Audit Specifications
Local Stormwater Utility program reporting requirement (only for applicable localities)
Reporting is specific only to requirements under Code § , refer to further guidance in UFRM at Chapter 2-4 (p. 2-6)
Item 2D of Chapter 836, 2017 VA Acts of Assembly, requires locality to submit report to the APA by October 1 each year, effective with FY17 reporting
Coordinated with DEQ to retain same report format
Stormwater Utility Report template provided at
Local Government page> Annual Guidelines, Manuals, and Other Procedural Documents

12. Updates to Audit Specifications
2017 legislation changes related to auditor communication of other internal control deficiencies or financial matters (i.e.: management letter) must be made in writing (SPECS 2-9)
Provide copy of management letter to the APA
Management letters are now published on APA’s website
Please redact any sensitive information (FOIA exempt) included in letter before sending to APA
APA has noted sensitive information in FY16 and FY17 management letters related to Information Systems control deficiencies

13. Updates to Audit Specifications
Updates to Retirement Systems for GASBS 74 OPEB implementation (SPECS 3-7)
Required audit procedures focused on VRS administered OPEBs for Group Life Insurance (GLI) and Line of Duty Act (LODA)
Census data elements
Employer reporting requirements and access to myVRS Navigator
Auditor attestation report to APA only for LODA, communicate any deficiencies noted for GLI

14. Preparing for Upcoming OPEB Implementation
GASB Statement 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans
Applicable to VRS and other independent OPEB’s financial statements
Effective FY2017
GASB Statement 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions
Applicable to Local Government’s financial statements
Effective FY2018

15. Preparing for Upcoming OPEB Implementation
OPEB standards closely mirror GASB 67/68 pension accounting
Funding and accounting are separated
Liability discount rate will be based on a projection of how long dedicated assets (plus future contributions) will cover current plan members’ future benefit payments
Unfunded OPEB liability will now be reported on face of the financial statements
Expanded note disclosures and RSI

16. Commonwealth Sponsored OPEBs
Other Postemployment Retiree Health Insurance Credit (RHIC)
4 Single Employer Plans-Social Service Employees, Registrars, Constitutional Officers, and State
1 Cost sharing Plan- Teachers
Approximately 90 Multi-Agent Plans- Political Subdivisions
Other Employment Group Life (GLI)
Cost Sharing plan includes Teachers, Localities and State
Virginia Local Disability Program (VLDP)
Cost Sharing plan includes Teachers and Political Subdivisions, treated separately for allocation purposes

17. Commonwealth Sponsored OPEBs
Other Postemployment Line of Duty Death and Disability (LODA)
Cost Sharing plan for “Participating” Employers only, includes Local Governments and State
VRS and DHRM now administrating LODA
“Non Participating” Employers
Provide Line of Duty benefits but NOT through the VRS administrated trust
Keep in mind locality must determine its own liability for GASB 75 reporting
Purchase of insurance to fully fund the statutory required benefits, likely considered “insured plans” in GASB 75, para. 11

18. APA Audit Process and VRS Reporting for Commonwealth Sponsored OPEBs
APA audit assurance provided similar to audit work for GASB 68
APA to issue multiple opinions for OPEB plans
VRS to publish OPEB schedules and templates for journal entries, disclosures/RSI

19. Other Commonwealth Sponsored OPEB
Pre-Medicare Retiree option of The Local Choice (TLC) Health Benefits Program
Administered by the Department of Human Resource Management (DHRM)
APA Audit team currently determining GASB 75 impact and discussing with DHRM to ensure adequate information is timely disseminated to localities for FY18

20. Preparing for Non-Commonwealth OPEBs
Local Governments participate in their own or other, external OPEB plans
APA will not be involved in providing audit assurance or financial reporting information for non-Commonwealth OPEBs
Ensure you are planning and discussing with OPEB’s Plan Administer and the Plan’s auditors
Audit assurance/opinions provided?
Timing and method of communicating financial reporting information for locality’s FY18 financial statements?

21. Locality Fiscal Stress Monitoring and Oversight
APA worked with the General Assembly to review current locality requirements and determine how best to expand locality oversight to address fiscal stress indicators and implement a monitoring process
New locality fiscal stress analysis and monitoring language created in 2017 budget session
Requirements at Chapter 836 of 2017 Acts of Assembly,§4-8.03

22. Staff Directors for HAC and SFC Governor’s Deputy Chief of Staff
APA New Requirements – Chapter 836, § Identifying Potential Fiscal Distress
APA to establish workgroup to develop criteria for a preliminary determination to identify potential fiscal distress
Workgroup members:
Secretary of Finance
Staff Directors for HAC and SFC
Governor’s Deputy Chief of Staff
Commission on Local Government
Virginia Association of Counties
Virginia Municipal League

23. APA to establish a prioritized early warning system
APA New Requirements – Chapter 836, § Identifying Potential Fiscal Distress
APA to establish a prioritized early warning system
APA to notify localities where we make a preliminary determination of fiscal distress
Based on request of local governing body or CEO, APA may conduct a review and request additional information to determine extent of fiscal stress
Based on results of review, APA shall notify the Governor and chairs of the money committees if APA is of the opinion that state assistance, oversight or targeted intervention is needed

24. Plan to specify the purpose of intervention
New Requirements – Chapter 836, § State Assistance, Oversight or Intervention
After receipt of notification by APA indicating fiscal distress in a particular locality, Governor and Chairmen of HAC and SFC will create a plan for either assistance, oversight, or state intervention prior to any expenditure of funds from the cash reserve.
Plan to specify the purpose of intervention
Further assess, help stabilize, or remediate the situation
Estimated duration, and anticipated resource needs (dollars and personnel)

25. APA New Procedures in FY2017 Financial Ratio Model
APA used model to calculate 10 ratios using audited data from the localities’ FY14-FY16 CAFRs
The model ranks each locality’s performance by ratio and converts into percentile rankings
The model uses an average of the percentile rankings to determine an overall Financial Assessment Model (FAM) percentage or “score”
FAM score calculates based on comparison of all localities’ ratio results to each other for each FY
APA used the FAM score to evaluate and make a preliminary determination for need to follow-up with a locality

26. Ratios Used – from Governmental Activities and Business Type Activities Funds in Gov’t Wide Statements
Compare unrestricted reserves net of current liabilities to normal revenues - ability to make up revenue shortfalls
Compare unrestricted reserves to current liabilities - ability to pay current liabilities without need for additional revenue
Compare unrestricted reserves to total liabilities -ability to pay total liabilities without need for additional revenue
Compare revenues plus unrestricted reserves to expenses plus liabilities – ability to meet future obligations
Compare unrestricted net position to total expenses – ability to fund expenses in event of revenue shortfall
Compare total assets to total liabilities – measures the degree to which the assets are being financed with debt

27. Ratios Used – from General Fund Balance Sheet and Income Statement
Compare liquid assets to total liabilities – ability to pay liabilities without needing additional revenues
Compare total expenditures to total liabilities – measure how well locality is paying its general fund bills
Compare assigned and unassigned fund balances to total expenditures – measures ability to fund expenditures from reserves in event of a revenue shortfall
Compare total fund balance to total revenues – measures sufficiency of reserves relative to revenue

28. Financial Ratio Model Evaluation Scale
APA used the FY16 FAM score result to determine need for additional follow-up with a locality
APA set a threshold/cutoff point to perform follow up review - for 2016, set at less than or equal to 16%
APA also selected localities based on trends or other qualitative factors
Identified 6 localities based on current FAM score and 2 localities due to delinquent CAFR filings for further follow-up

29. Notification to Locality
For localities that have a FAM score that causes concern, notification letter sent to Governing body and Management
Described FAM calculation process and the cause for concern
Described APA’s follow up process using the questionnaire and locality’s option to participate
Sent notification letters to all other localities to update on the new process and notify they did not fall below our threshold
Option to use ratio calculations and questionnaire for self-assessment

30. APA Follow-up Questionnaire to Locality
To identify other qualitative, policy and/or management type factors potentially impacting the Locality’s ratio results in the model
Budget process
Debt and Borrowing
Expenses and Payables
Revenue and Receivables
Other Areas
Vacancies in key positions?
New systems or technology issues?
Results of annual audit

31. APA Current Follow-up Process
Review completed questionnaire responses for “follow-up” localities that choose to respond
Meet with locality officials to discuss responses
Make a determination of whether there is a need to report to the Governor and Chairs of the money committees that a locality may need assistance
Send final letter summarizing APA’s follow-up process is complete
Finalize with report to General Assembly summarizing follow-up at all localities and APA’s considerations and plans to refine the model in 2018

32. APA Future Actions Refine Criteria and Early Warning System/Model
Refine criteria this year as APA considers feedback from localities and workgroup members
Consider adjustments for other unique factors impacting ratio calculations
Incorporate CLG’s fiscal stress rankings on locality revenue capacity/effort
Incorporate more qualitative and environmental criteria along side the financial ratio calculations
Evaluate “scoring” process/how model identifies locality that meets initial determination of potential distress for APA’s further review

33. Rachel Reamy, Local Government Audit Manager
APA Local Government Contact Information
Rachel Reamy, Local Government Audit Manager
, ext. 360
Please use general for reporting requirement submissions
APA website, Local Government page
Government.aspx

34. Questions