april 3-6, 2013, long beach, ca facilities accounting audits and arbitrage april 3-6, 2013, long...
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APRIL 3-6, 2013, LONG BEACH, CAFacilities AccountingAudits and Arbitrage
APRIL 3-6, 2013, LONG BEACH, CA
History and Context
And late breaking developments
Audits &Arbitrage
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First…some history
SAB vs. Department of General Services Authority to “cause the audits”
SAB Sub-Committee on Audits Established Audit Working Group
Audit Working Group
Audit process discussed
Recommendations Presented
Recommendationsreceived
Discussion and the recommendations to the SAB
SAB Sub-Committee
Adopt new audit process
Required legislation to be carried by SAB members
State Allocation Board
Audit Sub-Committee
Audit Working Group
Audit Sub-Committee
SAB
But it became…
…Without the spin off to implementation at the OPSC level
OPSC did change their audit process back to primarily desk audits
OPSC did clarify some guidance OPSC did review their audit guide
They did not rewrite the manual or provide a coordinated audit guidance
However…
We are all waiting
If we have a new program, then why spend the time and effort now
Be diligent to assure the efforts of the Working Group are considered in the requirements of the new program
Now…
SB 581 (Wyland)
SB 584 (Wyland)
Current Legislation
Audits District Fiscal Performance OPSC
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Audits &Arbitrage
How does the Fiscal Audit relate to the Facilities Projects? Journal Entries
Status of Project – Value in place Retention held is a liability Ensure all liabilities are booked at year-end
Internal Controls High dollar, high risk for fraud, public contract
code, and other significant issues Process must cross departments, adding
complexity
THE FISCAL AUDIT
Financial and Performance Audits A financial audit gives an opinion on the financial
statements of the fund where the bond proceeds are deposited – the Building Fund (21)
A performance audit is a broad term, which can encompass many difference areas. Minimally, auditors test bond expenditures and review internal controls.
Proposition 39 Overview
The Performance Audit
• Yellow Book states that performance audit objectives range from narrow to very broad in scope.
• Article 13 requires an “annual, independent performance audit to ensure that the funds have been expended only on the specific projects listed”
Audit Risk Areas & Controls
• Key Internal Controls– Purchasing– Cash disbursement cycle– Year-end closing and accruals– Compliance with laws and regulations
Audit Risk Areas & Controls
• Purchasing Controls– Established written policy for purchasing– Use and approval of purchase orders and contracts– Segregation of duties– Conflict of interest policies with vendors– Compliance with laws and regulations
• PCC – bid requirements
Audit Risk Areas & Controls
• Cash disbursements controls– Expenditures are compared to budget– Invoices matched to P.O. and receiving report or “OK
to pay”– Segregation of duties– Supporting documentation approval
Audit Risk Areas & Controls
• Year-end Closing Controls– Accruals for accounts payable are set up based upon
invoices for work done or goods received by June 30– Open purchase orders are investigated for amounts
that should be accrued– Journal Entries have supporting documentation and
represent bona fide business transactions.• When recording bond sales or refundings follow CSAM
Procedure 705
Audit Risk Areas & Controls
• Compliance with laws & regulations– Monitoring projects bids– Ensuring bid openings– Board approval of change orders– Change orders > 10% and re-bid requirements
Common Audit Findings to Avoid
• What are high-risk audit areas?– Bid process lacking– Segregation of duties weak– Purchase order approval not sufficient or timely– Accrual of accounts payable at year-end incomplete– Budget overruns (usually outside of the audit scope
but COC and public will demand to know why!)
Board Fraud Policy(CSBA 3400)
Flow charts and any related narratives or procedure documents
The OPSC Audit
• Provide Board Fraud Policy• (CSBA 3400) Provide flow charts and any
related narratives or procedure documents
Flow Charts & Procedures
19
Documentation Required
Annual Audit reports for each year of your project
Construction Bid Announcement (DVBE)
Bid Summary for all bids received Notice to Proceed & Notice of
Completion for all contractors
The OPSC Audit
Documentation (cont’d)
Evidence of Architect, Engineer and Construction Manager Selection Process
All DIR letters approving LCP Prop. 39 Bond Oversight
Committee Reports List of LCP expenditures (?)
The OPSC Audit
Documentation (cont’d)
Architect Agreement(s) Main Contractor’s Agreement(s),
addendum(s), and final billing(s) DSA Approved Change Orders Construction Manager
Agreement(s)
The OPSC Audit
Documentation (cont’d)
Budget Summary (Form 01 or Form J01) for total general fund expenditures
Transaction Ledger for Routine Restricted Maintenance Account
Chart of Accounts (object code list)
The OPSC Audit
Documentation (cont’d)
General Ledger for all facilities funds Project inception to completion
Deposits Expenditures
Interest documentation Force Account Labor – legal
statement complied with laws and regulations
The OPSC Audit
Documentation (cont’d)
Certificate of Occupancy (?) Interest reported Fund 35 Inter-fund transfer list Invoices & Warrants (~20-25)
The OPSC Audit
The OPSC Audit
OPSC Verifications Verify 50-06 to GL Expenditures Verify contracts to expenditures Verify eligible expenditures (F&E) Verify Contract with Initial
Invoice Verify Contract + Changes = Final
Invoice
The OPSC Audit
OPSC Verifications Classroom Count or square
footage = approval 50% contracted prior to 50-05 50-05 to occupancy date 50-06 to hard costs (60% rule) RRMA 3% Verification (for years
prior to sweep enabling change)
The OPSC Audit
The OPSC Audit
Helpful Tips: Read all correspondence from OPSC Verify References
Regulations vs. Advisories such as Building Blocks
SAB Items Is it applicable and why?
Do not assume it is correct
The OPSC Audit
Helpful Tips cont’d: Request more time to respond Have a single point of contact Talk with other districts or your
consulting team Put it in writing
Use confirming emails for all conversations, “My understanding of what we discussed today is…if that is not correct please respond to this email.”
The OPSC Audit
Helpful Tips cont’d: Keep documentation organized and
easily accessible Keep track of your item
How long is it taking? Escalate to a higher level
Stay tuned for any changes…
The OPSC Audit
Arbitrage Requirements Monitoring
Audits &Arbitrage
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Defined Not excluded from tax if an “arbitrage
bond” (ref. IRS code section 103(b)(2)) • Earnings on investment proceeds in excess on
investment yield (.125% or more)
• Exemptions:1. Placing the proceeds in a construction fund and spending the
funds within two years
2. Small issuers’ exemption applies when the issue is $5 million or less and total tax-exempt debt is $10 million or less.
Arbitrage
Monitored - IRS form 8038T Methodology - performed at five year
intervals, hire an expert! Don’t be late in submitting any rebates due as
heavy penalties apply Record any unpaid liabilities in the financial
statements
Reimbursement of bond funds with OPSC funds Questions about arbitrage potential and Prop 39
requirements
Arbitrage
Lettie BoggsColbi Technologies, [email protected]
Andrea SullivanDolinka Group, LLC(949) [email protected]
Christy WhiteChristy White [email protected]
Presenter contact information:
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