Financial Statement and Accountability Audit Updates Spring BAR Meeting June 13, 2019 Erika Davies

1. Financial Statement and Accountability Audit Updates Spring BAR Meeting June 13, 2019 Erika Davies Assistant Audit Manager Community and Technical College Expert Erin Anderson Assistant State Auditor Community and Technical College Expert

2. Today’s Presenters Statewide Community and Technical College Experts Erika Davies Assistant Audit Manager Everett Erin Anderson Assistant State Auditor Financial Audit

3. Agenda and Overview Grays Harbor College

4. Agenda Centralia College • What we do as Experts • Community College Audit Overview • Exception trends • State of Washington CAFR Relationship • Financial Related Themes • Capital Assets • Foundations • Accountability Related Themes • Selected Colleges • Cash Receipting • Cybersecurity • SAO Resources

5. 2,721 total Audits in 2018

6. Community and Technical Colleges: 67 total in 2018-2019

7. Highlights • Renton Technical • Cascadia • Seattle Colleges • Lake Washington • Bellevue • Highline • Bellingham Technical • Walla Walla • Centralia • Columbia Basin • Skagit Valley • Yakima Valley • Wenatchee Valley • Grays Harbor • Everett • Lower Columbia • Peninsula • Big Bend • Clark Olympic • Edmonds • Bates Technical 22 Colleges met March 31 deadline this year- Congratulations!

8. Subject Matter Expert Role Walla Walla Community College

9. Community and Technical College Experts • Client & Auditor HelpDesk • Develop Testing Strategies and Internal trainings • Develop Planning Guide • Provide Information to College Employees Peninsula College

10. Community and Technical College Experts Auditor and Client HelpDesk Look for the HelpDesk button on our website at SAO.wa.gov!

11. Community and Technical College Experts Testing Strategies and Internal Trainings • Testing strategies = audit procedures • Step by step guide helps ensure we meet audit standards • “Know Before You Go” training • Required for all auditors to take before auditing a community college Green River College

12. Community and Technical College Experts Planning Guide

13. Trends in Audit Exceptions

14. Let’s play Family Feud!

15. Family Feud We surveyed audit reports of community and technical colleges for the most popular categories of financial statement findings last year…. The top 3 answers are on the board!

16. 2018-2019 Financial Audit Exceptions 7 Findings • Foundation Issues (3) • Financial Statement Preparation (3) • GASB Implementation (1)

17. Family Feud We surveyed audit reports of community and technical colleges for the most popular categories of financial statement management letters last year…. The top 4 answers are on the board!

18. 2018-2019 Financial Audit Exceptions 8 Management Letters

19. 2018-2019 Financial Audit Exceptions 113 Exit Items

20. Family Feud We surveyed audit reports of community and technical colleges for the most popular category of accountability finding last year…. The top answer is on the board!

21. 2018-2019 Accountability Audit Exceptions 1 Finding • Cash Receipting (1)

22. Family Feud We surveyed audit reports of community and technical colleges for the most popular categories of accountability management letters last year…. The top two answers are on the board!

23. 2018-2019 Accountability Audit Exceptions 2 Management Letters

24. 2018-2019 Accountability Audit Exceptions 13 Exit Items

25. Washington State CAFR

26. Washington State CAFR

27. Overview • The WA Comprehensive Annual Report (CAFR) is a detailed presentation of the state’s financial condition as a whole • Reports most significant activities and balances for the fiscal year • Prepared by the Office of Financial Management • Statewide Accounting Team • Presented in three sections: • Introductory Section • Financial Section • Statistical Section • Largest Financial Audit Performed in Washington

28. State of Washington CAFR • AFRS Queries are ran for all 34 Community and Technical Colleges for significant line items • College selections are based on risk and quantitative size of account balance • 1 College selected for general audit cycle risk Higher Education Planning and Coordination

29. State of Washington CAFR Selected in the FY19 CAFR Audit

30. State of Washington CAFR How is our CAFR audit work useful? • For Example: Bellevue College • Helps Local Teams focus on other areas • Reduced Budgets • No duplicative work Bellevue College

31. Common Financial Statement Themes Everett Community College

32. Net Investment in Capital Assets Balance is a calculation, therefore auditors will most likely be checking to ensure the reported amount follows this equation: Total capital and infrastructure assets (including land and construction in progress) Less: accumulated depreciation Less: outstanding principal of related debt

33. Net Investment in Capital Assets – Tips • Number one cause of errors is from formula errors in the financial statement template • To avoid misstatements: • Check and make sure the financial statement workbook is referencing the correct cells • Do a manual calculation of what you would expect the balance to be and compare it to the financial statement workbook • Save this for the auditors as evidence of your review!

34. Capital Assets – Reconciliation Reconcile Capital Asset amounts throughout the year! • Ensure amounts in Direct line agree to the Capital asset balance reported on the financial statements • Investigate differences and make appropriate adjustments • Retain support of your reconciliation and adjustments for the auditors • Agree the Capital Asset balance on the statement to the notes to the financial statements

35. Capital Assets – Physical Inventory • Physical inventories help catch additions and deletions that were not entered or removed from the financial system • SAAM 30.45.10 suggests performing a physical inventory once every other year • During the physical inventory process, ensure purchased assets were added to the system and depreciation has been started • Retain documentation of the physical inventory for the auditors

36. Capital Assets – CIP Check that Construction in Progress (CIP) is properly moved to a depreciable asset balance when projects are substantially complete (SAAM 30.20.20)

37. Foundations • For most Colleges, we issue two opinions: one for the College as a whole and one for the related Foundation (discretely presented component unit) • Suggestions: • Communicate early and often • Include review of the foundation as part of financial statement preparation process • Consider updating your agreement with the Foundation

38. Common Themes in Accountability Audits

39. Planned Accountability Audits for the 19-21 Biennium • Seattle Colleges • Skagit Valley College • Big Bend Community College • Walla Walla Community College • South Puget Sound Community College • Wenatchee Valley College • Everett Community College • Shoreline Community College • Columbia Basin Community College • Lake Washington Institute of Technology • Bates College • Pierce College • Renton Technical College • Green River Community College • Grays Harbor College • Lower Columbia College

40. Cash Receipting • Segregation of duties – one individual should not have control over the entire accounting transaction (authorization, recording, custody) • The following duties should be segregated: • Cash receipts • Cash counts • Bank deposits • Deposit receipt reconciliation • Bank reconciliations • Posting of deposits • Cash disbursements

41. Cash Receipting • Security –It’s important to put safeguards in place over cash to protect against theft or loss. • Example controls: • Keep all cash in a safe until it is deposited • Consider using a drop safe for areas with regular cash receipts to limit access to the contents of the safe • Limit access to the safe to supervisory and authorized staff only • Change the combination to the safe on a regular basis, especially during times of high staff turnover • Consider installing a camera and alarm system • If cash boxes are used, ensure each staff is assigned his/her own cash box in order to readily assign responsibility in the event of a loss

42. Cash receipting • Reconciliation and documentation – SAAM 85.50 requires cash to be deposited daily and reconciled on a daily basis. Investigate any differences and document their causes. • Monthly bank reconciliations should also be performed to ensure all amounts were properly deposited and appropriately credited by the bank. • Management review – Supervisors should initial and date all reconciliations to demonstrate that they reviewed and approved the reconciliations.

43. Cybersecurity

44. Cybersecurity How robust is your cybersecurity training?

45. Cybersecurity • “Scammers” target college employees who handle money • Are staff trained to make a phone call before wiring funds? • Is the wire request expected? • Any large and unexpected wire transfer requests should be treated with increased skepticism.

46. Cybersecurity: Recognizing attacks • Are staff taught how to spot real-world attacks? • Are staff taught how to spot red flags? • Do staff know that large wire transfers have been made at several public institutions already? • These were real fraudsters who got a hold of public funds.

47. Common IT security audit recommendations Policies • Risk assessments of information system processes and policies should be routinely updated in consideration of industry standards User access • Review user access privileges on a periodic basis to ensure unauthorized users do not have access to modify key components of the system. • Only users who need access to perform their job duties have access to systems for payroll, tuition, capital assets, etc. Backups • Document and maintain a specific process for determining what data and systems to back up • Create a weekly backup that is kept for at least three weeks

48. Five Simple Things that Work!

49. Just a Few More Tips

50. Office Resources