No Agenda on Record for the 8.16.2012 Finance and Audit

Meeting

Items for this agenda attached

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Memorandum Date: August 16, 2012 TO: Finance and Audit Committee DEPARTMENT: Management Services PRESENTED BY: Mike Barnhart, Financial Services Manager AGENDA ITEM TITLE: PRE-AUDIT CONFERENCE WITH MOSS ADAMS, CPAS IN

ACCORDANCE WITH PROFESSIONAL AUDITING STANDARDS

I. MOTION

None

II. AGENDA ITEM SUMMARY

In accordance with professional auditing standards, Moss Adams has requested a pre-audit conference with the Finance and Audit Committee. The communication will include a discussion of auditor responsibilities under generally accepted auditing standards and an overview of the planned scope and timing of the audit.

III. BACKGROUND/IMPLICATIONS OF ACTION

A. Board Action and Other History The County is required by state law to have an annual audit conducted of its accounts and fiscal affairs by an independent accountant licensed by the State of Oregon. Moss Adams is in the 1st year of a two year contract extension, and this is their 9th consecutive year as Lane County’s auditor B. Policy Issues In accordance with APM Chapter 2 Section 6, audits conducted by external firms are submitted to the Finance and Audit Committee. C. Strategic Plan Annual financial audits support the Lane County Value of open and accountable government, and stewardship.

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D. Financial and/or Resource Considerations None E. Analysis The principal purposes of this pre-audit communication are three-fold:

• For Moss Adams to communicate clearly with the Committee the responsibilities of the auditor in relation to the financial statement audit, and an overview of the scope and timing of the audit;

• To obtain from the Committee information relevant to the County audit;

• To provide the Committee with timely observations arising from the audit that are relevant to their responsibilities in overseeing the County’s financial reporting process.

Although this pre-audit conference will primarily focus on communications from Moss Adams to the Committee, effective two-way communication is also very important in assisting Moss Adams to:

• Understanding matters related to the audit in context, and in developing a constructive working relationship.

• Obtain from the Committee information relevant to the audit.

• Helping the Committee fulfill their responsibility to oversee the financial

reporting process, thereby reducing the risks of material misstatement of the financial statements.

F. Alternatives/Options Not applicable

IV. TIMING/IMPLEMENTATION None

V. RECOMMENDATION Not applicable

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VI. FOLLOW-UP To be determined.

VII. ATTACHMENTS None

MOSS ADAMS LLP | 1

Lane County 2012 Audit Plan External Audit Update for the Finance and Audit Committee August 16, 2012

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WHAT WE WILL COVER

• Moss Adams LLP Service Team

• Audit Objectives/Responsibilities

• Audit Approach and Planned Audit Timing

• Single Audit

• Our Communications Plan

• New Accounting and Auditing Pronouncements

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MOSS ADAMS LLP SERVICE TEAM

Team Member Responsibilities

Jim Lanzarotta, Partner

Engagement partner, overall responsibility

Kevin Mullerleile, Senior Manager

Engagement review and administration

Micah Clinger, Senior

Day-to-day staff supervision

Kevin Villanueva, Senior Manager

Onsite IT systems review

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OUR AUDIT OBJECTIVES/RESPONSIBILITIES

• Audit the County’s financial statements; • Obtain reasonable assurance; • Audit compliance with federal programs; • Audit compliance with Oregon Minimum Standards; • Communicate findings

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COUNTY MANAGEMENT’S RESPONSIBILITIES

• Financial statements are materially correct and comply with applicable accounting standards;

• Adequate records and internal controls over financial reporting;

• Compliance with laws and regulations applicable to its activities;

• Provide accurate and complete financial information;

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COUNTY MANAGEMENT’S RESPONSIBILITIES (CONTINUED)

• Adjust the financial statements to correct material misstatements;

• Assess the effects of any uncorrected misstatements; • Inform us about all known or suspected fraud; • Provide us with a representation letter

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• Audit Opinion • Oregon Auditing Standards Compliance • Federal Internal Control and Compliance • Federal Compliance for Major Programs • Schedule of Findings and Questioned Costs • Communications with Those Charged with

Governance

MATERIALITY Quantitative and qualitative factors.

REPORTING

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Establish Engagement Objectives

Conclude Audit / Present Reports

Understand County and

Establish Audit Strategy

Perform Audit Plan

Hold Entrance Meetings

F&A Committee Communication

Understand the County

INHERENT RISK

CONTROL RISK

Assess Risk of error inherent in accounts

/ fraud

Develop the preliminary audit

strategy and audit approach

Understand and evaluate flow of significant classes of transactions and

related controls within significant processes

Assess risk of material

misstatement and

perform other risk

assessment procedures

Perform Analytical and Data Analysis Procedures

Perform Tests of Controls

Perform Year End

Procedures

Conclude the Audit

Issue Reports / Meet with

F&A Committee

ABOUT OUR AUDIT APPROACH

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PLANNED AUDIT ASSURANCE PLAN Planned Audit Assurance From

Significant Audit Area Risk Assessment

Test of Controls

Analytical Procedures

Test of Details

Cash and investments

Accounts receivable

Intergovernmental and tax revenues/receivables

Capital assets

Long term debt

Payroll expenditures Materials & services expenditures/payables

Net assets/fund balance

Interfund balances and transfers

Financial reporting

Oregon Minimum Standards & Local Budget Law

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OUR RISK ASSESSMENTS AND RESPONSE Cycle Identified Risk Planned Response Grant revenues/receivables

Reporting receivables and revenues before eligibility requirements have been met; Reporting payables and expenses before eligibility requirements have been met; Incorrect reporting of pass-through grant activity

Sample and test grants for proper revenue recognition; Read significant grant documents to assess proper financial statement classification; Assess results of single audit and other regulatory audits

Federal Awards Compliance Audit

Decentralization of County departments that charge to federal awards

Perform tests of controls and compliance for each major program’s direct and material compliance requirement per A-133 guidance; Test SEFA for accuracy and completeness

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PLANNED AUDIT TIMING

Meet with County management to understand County’s activities for 2011-12 May 2012

Develop risk assessments and test internal controls June 2012

Meet with the F&A Committee to discuss our audit plan for 2011-12 August 2012

Test major programs under the single audit September 2012

Perform substantive audit procedures and review financial statements October 2012

Complete testing of remaining major programs under the single audit October 2012

Meet with the F&A Committee to discuss reports and recommendations December 2012

Issue our reports December 2012

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SINGLE AUDIT

• No prior year findings • Prior year expenditures $62.4M, required

audit coverage $15.6M • Major programs will be selected after reviewing

County’s preliminary schedule of expenditures of federal awards (SEFA)

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COMMUNICATIONS PLAN

• Communicate with management throughout the year • F&A Committee and BOCC meetings; • Communicate our views on risks; • Present the results of our audit reports; • Available to Committee member questions

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NEW ACCOUNTING PRONOUNCEMENTS

• GASB No. 61, The Financial Reporting Entity: Omnibus, will be early implemented by the County in FY2012.

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UPCOMING ACCOUNTING PRONOUNCEMENTS

FYE 6/30/13 • Service Concession Arrangements • Codification of Accounting and Financial Reporting

Guidance • Deferred Outflows, Inflows and Net Position

FYE 6/30/14 • Items Previously Reported as Assets and Liabilities

FYE 6/30/14 • Accounting and Financial Reporting for Pensions

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ACCOUNTING PRONOUNCEMENTS IN THE WORKS

• Government Combinations o Accounting for mergers and acquisitions

• OPEB Plans

o Similar to pension standard recently issued – will require more liability to be reflected in the financial statements

• Fair Value Measurement o Consider if appropriate to change reporting for certain investments

at fair value instead of cost

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ACCOUNTING PRONOUNCEMENTS IN THE WORKS (CONTINUED)

• Financial Guarantees o Reporting of guarantees either made or received by a government

• Conceptual Framework – Recognition and Measurement o Evaluate and develop criteria for when information should be

included in governmental financial statements, and when it should be reported.

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AUDITING STANDARDS CHANGES

• SAS 118 o Other Information in Documents Containing Audited Financial

Statements

• SAS 119 o Supplementary Information in Relation to the Financial

Statements as a Whole

• SAS 120 o Required Supplementary Information

• Auditing Standards Board Clarity Project o Group Audits

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CLOSING THOUGHTS

Lane County Finance & Audit Committee, August 16, 2012

Meeting Notes

In attendance: Members Rob Handy, Sid Leiken, and Anette Spickard. Jenn Inman for Liane Richardson, David Suchart, Mike Barnhart, Jeanne Sun, Cathy McDougal. From Moss Adams – Jim Lanzorotta, Kevin Mullerleile, and Micah Clinger.

Commissioner Handy called the meeting or order at 1:30.

1. Board of Appeals Filing Fee: Presented by David Suchart

David Suchart provided a brief overview of a recommendation from the County Clerk’s office to implement a filing fee for petitions made to the Lane County Board of Property Tax Appeals. A brief discussion among members and Mr. Suchart followed. Ms. Spickard and Mr. Suchart pointed out that this fee would mitigate costs to the Clerk’s office, but would not cover any related costs to Assessment & Taxation. In response to Commissioner Leiken’s inquiry, Ms. Spickard confirmed that the Department of Revenue is aware the County is creating a plan to address the needs of the Board of Property Tax Appeals. The committee was unanimous in approving this recommendation to be forwarded to the Board of Commissioners.

In a related discussion, the committee members were in agreement to ask that the Legislative Committee be asked to consider the County’s retention or increased share of recording fees. Jenn Inman will carry that request onto the County Administrator and Intergovernmental Relations Manager.

2. Revision of Marriage License Waiver Fee: Presented by David Suchart David Suchart provided a brief overview of a recommendation from the County Clerk’s office to increase the Waiver of Marriage License waiting period fee. This recommendation includes an update to Lane Manual language to reflect that the County no longer performs marriage ceremonies after hours, on weekends, or holidays. The members unanimously approved the recommendation to be forwarded to the Board of Commissioners. 3. Pre-Audit Conference With Moss Adams: Presented by Moss Adams CPA’s. See attached agenda cover memo. Mr. Lanzarotta of Moss Adams provided a pre-audit conference presentation to the committee. Commissioner Leiken inquired if the County’s bond rating might be in danger. Mr. Lanzarotta commented that Lane County does a good job managing the revenues we do have, including the discipline to maintain a 10% reserve. Lane County continues to be a “low risk auditee”, one

of the benefits of which is the avoidance of additional audit costs required when a greater percentage of records must be examined.

Mr. Lanzarotta provided an overview of the coming new accounting pronouncements and their potential impact on the County and County’s audit.

The Governmental Accounting Standards Board modified the rule (GASB 61) concerning how to report component units. In the past, component units like HACSA were required to be “blended” into the CAFR because their board was essentially the same as the County board. However, new guidance now requires there also be a financial benefit or burden between the two governments to report “blended”. Since this is NOT the case between Lane County and HACSA, HACSA will now be presented “discretely”, which means HACSA will not be reported as a county fund, but will be separately reported in a stand-alone column.

Further, GASB 68 will change how the County will report its pension liabilities and expenses. The main thrust of these changes is to require governments providing defined benefit pensions like PERS to recognize their long-term obligation for pension benefits as a liability in the balance sheet. Prior to this change, the long-term obligations were only disclosed in the footnotes.

Committee members were in agreement to ask the Legislative committee to consider strategies to work with PERS to make the transition to this type of reporting go smoothly. Jenn Inman will carry that request onto the County Administrator and Intergovernmental Relations Manager.

Commissioner Handy adjourned the meeting.

Meeting Notes Submitted by Jenn Inman