well, now that that's over... what we learned and what to communicate about pension auditing...

Well, Now That That's Over . . . What We

Learned and What to Communicate About

Pension Auditing

Year 1 is ____

V

Plan

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NSAA 2015 Annual ConferenceJune 10, 2015

Gerry Boaz, CPA, CGFM (TN)Randy Roberts, CPA, CGFM (AZ)

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What’s the scope of pensions?

3,985 Plans

$3.3 Trillion Assets

14.2M active membersContributed $44.9M

Employers contributed $89.1M

9.3M annuitantsBenefit payments $242.4B

* NASRA.org (As reported by US Census Bureau as of Fiscal Year 2013)

*

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Our focus today . . .

234 total plans- 134 cost sharing- 79 single employer- 21 agent multiple employer

~ 27% audited by state auditors

Plan reporting- Plan CAFRs- Within state/ local

govt CAFRs

Preparation for GASB 68- AICPA White Papers- AICPA SLG Accounting

& Audit Guide

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Our objectives for you . . .

1. Understand how the implementation of GASB 67 is going

2. Be able to brief constituents about what all this means

3. Understand the best practices and lessons learned moving forward

Cost Sharing Plan

CAFRGASB 67

Schedule of employer allocations

Schedule of selected pension amounts

Auditor:•Opinion on CAFR•Tests of census data•Opinion on each schedule

Participating employers’ financial statements

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Cost Sharing Plan

CAFRGASB 67





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• Cost Sharing Plans – obligations of more than 1 employer are pooled and assets can pay benefits to employees of any employer in plan

• Single measure of pension liability (not in the plan level financial statements)

• Single actuarial valuation

Cost Sharing Plan

CAFRGASB 67





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• Participating employers need to know their share of the plan’s pension amounts

• Plans in best position to provide that information

• One schedule to provide the pro rata percentage of each participating government

• One schedule to provide the relevant pension amounts

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Example cost sharing plan schedule of employer allocations

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Example cost sharing plan schedule of collective pension amounts

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Example cost sharing plan schedule of pension amounts by employer

Cost Sharing Plan

CAFRGASB 67





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• Plan auditor opines on the plan’s financial statements, which follow GASB 67

• Plan auditor tests census data of retired and inactive members

• Plan auditor designs tests of census data for active memberso Options for who tests this

• Plan auditor opines on scheduleso Using AU-C 805 (Elements of

Financial Statements) standardo Establishes materiality at level lower

than financial statement materiality

Single Employer Plan

CAFRGASB 67

Auditor:•Opinion on CAFR•Tests of census data

Participating employer’s financial statements

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Communicate selected pension amounts


CAFRGASB 67



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• Single Employer Plans – pensions provided to employees of 1 employer

• Single measure of pension liability (not in the plan level financial statements)

• Single actuarial valuation


CAFRGASB 67



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• Plan auditor tests census data of retired, inactive, and active memberso Decentralized governments may call

for cost sharing approach


CAFRGASB 67



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• Governments still need to obtain selected information from plan auditor

• Decentralized governments may need to apply cost sharing approach to decentralized accounting funds

Agent Multiple Employer Plan

CAFRGASB 67

Separate actuarial reports

Schedule of changes in net fiduciary position

Auditor:•Opinion on CAFR•Report on census data•Opinion(s) on schedule


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CAFRGASB 67





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• Agent-Multiple Employer Plans – pooled for investments, but otherwise separate accounts for each employer such that only an employer’s share of pooled assets can be used to pay benefits of that employer’s employees

• Measure of pension liability for each employer (not in the plan level financial statements)

• Separate actuarial valuation for each employer


CAFRGASB 67





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• Participating employers need to receive their own actuarial valuation report

• Plans in best position to provide employers’ pension amountso Pension liability less fiduciary net

position by employero Amounts for deferred items and

pension expense • Schedule provides changes in fiduciary

net position by employer

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Example agent-multiple employer schedule of changes in fiduciary net

position by employer


CAFRGASB 67





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• Plan auditor tests census data of retired and inactive members; either – o Opinion on effectiveness of controls

over plan census data (SOC1Type2), oro Opinion directly on census data

(attestation engagement)• Employer auditor tests census data for

active memberso Use plan auditor reports as evidence

• Plan auditor opines on scheduleo Using AU-C 805 (Elements of Financial

Statements) standardo Establishes materiality at level lower

than financial statement materialityo Either – o Opinion on schedule as a whole plus

SOC1Type2 opinion on effectiveness of controls over changes to employer accounts, or

o Opinion on each employer column

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What are we seeing? Plan financial statements (as of May)•Most plans have issued their GASB 67 CAFRs• Exceptions – December CY2014 plans close to being

issued (a couple of CY2013 early implementations)•Most are audited by public accounting firms• However, about 16 state auditors comprising almost

30% of the individual plans audited• Have not become aware of any plan financial

statements with modified opinions•Very few state auditors said they used specialists•Only 4 states included GASB 68 schedules with plan CAFRs

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Approaches to census data testing Based on the surveys we’ve received . . .•Most indicated following the AICPA White Papers•Many plan auditors tested census data of all members – retired, inactive, and active• Some sent their auditors to employer government

locations• A couple used plan’s internal auditors to gather

employer government evidence

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Approaches to census data testing Based on the surveys we’ve received . . .•Several plan auditors required employer auditors to audit active member census data• Report under attestation standards•One state used organization staff and firm staff to do specific work • Didn’t need organization staff from other division to

issue attest reports•Working papers available to plan audit team

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Challenges we noted – census tests Based on the surveys we’ve received . . .•Challenges validating data• Inadequate support/documentation at plan or

employer• Differences between plan and employer• In general, original hire date, marital status, date of

birth, gender, wage adjustments• Specific situation – one retirement system’s IT

conversion treated every original hire date as of the date of conversion• One state noted age of some personnel records for

long-time employed individuals posed challenges

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Challenges we noted – census tests Based on the surveys we’ve received . . .•Challenge providing sufficient detail for employer auditors • To ensure consistent work across employers• To understand application of plan provisions• To ensure completeness of populations tested by

employers•Challenge obtaining timely audit reports from employer auditors

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Challenges we noted – census tests Based on the surveys we’ve received . . .•Challenge addressing confidentiality concerns• From plan to employers• From employers to auditors•Challenges addressing errors noted• Going through the process of analyzing• Normally didn’t affect overall accuracy (not systemic)

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Best practices we noted – census tests•Work with plan actuaries, before testing, to confirm key census data elements and assumptions•Work with plan and employer governments, before testing, to arrange for documentation needed•Be specific with employer auditors about what data elements or audit procedures are important

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Best practices we noted – census tests•Use plan’s practices to economize tests needed• Leverage internal controls when plan has good

ones•Use plan’s internal auditors’ results, either • To help perform tests•When internal auditors are involved in testing plan

data/controls during the year, or

•Use web portal to accumulate employer documentation about census data and internal controls

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What to expect from the state and local government accounting & audit guide

•For plans (Chapter Part I)◦ Accounting and reporting for single employer,

cost sharing, and agent plans◦ Statements, note disclosures, required

supplementary information, and recognition standards

◦ Auditing considerations for single employer, cost sharing, and agent plans◦ Census data, investments, contributions/related

receivables, benefit payments/payables, investment & admin expenses/liabilities, and pension liabilities amounts

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•For employers (Chapter Parts II and III)◦ Accounting and financial reporting

considerations ◦ Recognition, measurement, note disclosures,

required supplementary information, and special funding situations

◦ Auditing considerations for single employer, agent, and cost sharing plans◦ Census data, net pension liabilities, deferred

outflows and inflows

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•Important new guidance for plan and employer auditors (included in Chapter Parts I, II, and III)

◦ Relevant assertions◦ Examples of what can go wrong◦ Example audit procedures to consider

•Our Advice . . .• Remember the Risk Assessment Standards – we

identify risks of material misstatement and we test and gather evidence to address them•Use this concept when implementing this chapter

– for effective and efficient auditing!

well, now that that's over... what we learned and what to communicate about pension auditing...

Documents

plans financial statements

pension auditingyear

plans pension amountsplans

cost sharing plans obligations

informationone schedule

us census bureau

thisplan auditor

implementation of gasb