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Financial Reporting and Compliance Requirements

Financial Reporting and Compliance Requirements

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Financial Reporting and Compliance Requirements

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  1. Financial Reporting and Compliance Requirements Presenter: David Surette Social Services Program Manager DHHS Office of Audit

  2. My Goals • Discuss changes to the Maine Single Audit Law (MAAP) • Explain Department audit requirements • Explain Federal audit requirements • Explain the Department reporting and settlement Requirements. • Discuss agreement compliance.

  3. Legislation Public Law 2005, Chapter 519 amended and expanded upon the reporting requirements found in Title 5, Chapter 148-C, the Maine Uniform Accounting and Auditing Practices Act For Community Agencies (MAAP). The original law and the rules have been in effect since the end of 1996. The changes are effective as of March 29, 2006. (Handout # 1).

  4. Reporting Responsibilities of Community Agencies A. If the community agency expends less than $500,000 of agreement funding from the Department, the agency shall comply with the terms of financial reporting contained in the individual social service agreements with the department. (5 MRSA §1660-F, sub-§1. as amended)

  5. Reporting Responsibilities of Community Agencies B. If the community agency expends $500,000 or more of agreement funding from the department, the agency must have an entitywide financial and compliance audit of the agency's financial statements and agreement supplemental schedules prepared by a qualified independent public accountant in accordance with the reporting requirements for the department and comply with the terms of financial reporting contained in the individual social service agreements with the department. (5 MRSA §1660-F, sub-§1, as amended)

  6. Federal Circular A-133Audits of States, Local Governments, and Non-Profit Organizations • Effective for fiscal years ending after December 31, 2003, “Non-Federal entities that expend $500,000 or more in a year in Federal awards shall have a single or program specific audit conducted for that year in accordance with the provisions of this part”(A-133, §__.205)

  7. Financial Reporting and Audit Requirements • Reports required by the Agreement • A-133 Audit Requirements • MAAP Audit Requirements

  8. AgreementContents • Requirements from the agreement • Rider A: Specifications of Work to be performed. • Rider B: Payment and Other Provisions. • Rider C: Rider B Exceptions. • Rider D: Additional Requirements. • Rider E: Program Requirements. • Rider F: Budget; F-1 Pro-Forma ASF; F-2 Agreement Compliance Form; F-3 MAAP Requirements

  9. Agreement Amount Federal Funds (source) State Funds (source) Services Provided Eligibility Goals Conditions (General) Method of Payment Reporting Settlement Compliance Budgets AgreementContents

  10. ReportingRequirements • Narrative • Statistical/Performance • Units of Service • Financial (Cost)

  11. Financial Reports • Quarterly Reports • Final Financial Report (ASF)

  12. SETTLEMENT Pro Forma Budget

  13. Pro Forma(Cost Settlement) • Each agreement shall contain a Pro Forma Agreement Settlement Form (ASF) to illustrate the closeout method to be applied (MAAP Sec. 05(3)b) (Handout # 2)

  14. Cost SharingAgreements • Agreements with more than one funding source that participate in the allocation of program expenses.

  15. Definition(Restricted/Unrestrictive Revenue) • Restricted Revenue…income from organizations or individuals that require the funds be used for a specific purpose within a program or the program itself. • Unrestricted Revenue…income from organizations or individuals that are not restricted by the donor for specific use in any of the agency’s programs.

  16. Definition(Client Fees) • Client Fees – Program…Fees from agreement or MaineCare subsidized clients. • Client Fees – Private…Fees from clients that pay fully themselves or are covered by third party insurance.

  17. Unallowable Costs • When non-allowable costs (e.g. bad debts, interest, etc.) are charged to a program they will be accounted for in the cost sharing process as provided in the agreement budget. Non-allowable costs must be covered by specifically designated non Federal revenue (MAAP Sec. .04B(3)e).

  18. Pro Forma Adjustments • Removal of fee for service revenue and an equal amount of expenses. • Removal of restricted revenue and related expenses which purchase part of the total program. • Removal of revenue and an equal amount of expenses from restricted program funding sources that do not require financial reporting and a settlement. • Removal of sub recipient agreements and related expenses. • Removal of unallowable expenses against non-State, non-Federal funds (restricted? or unrestricted revenue). • Removal of in-kind revenue and expenses. • Removal of client fees-program and an equal amount of expenses.

  19. SETTLEMENT Agreement Settlement Form (ASF) Actual (Handouts 3 and 4)

  20. Agreement Settlement(Pro Forma) • Community agencies entering into Department agreements should follow the cost sharing and matching methodology described in the agreement and as reflected in the pro forma agreement settlement form (ASF) included in the agreement document. The pro forma ASF should clearly identify the steps necessary to reach an accurate settlement (MAAP Sec. .04B(3)a).

  21. Agreement Settlement(Revenue Sources) • When developing a budget and cost sharing methodology for an agreement, the Department and Community Agency shall consider the restrictions on use of funds imposed by all revenue sources listed in the program budget (MAAP Sec. .04B(3) d).

  22. Agreement Settlement(Commitment) • Other available income (unrestricted funds) shall be specifically identified as such in the agreement budget. These amounts represent a commitment by the community agency to the program (MAAP Sec. .04C(3)c).

  23. COMPLIANCE Agreement Compliance Section

  24. Agreement ComplianceSection • Each Agreement shall contain a standard section which presents the related agreement compliance testing requirements (MAAP Sec. .05(3)a) (Handout # 5)

  25. Internal Control is:(per Statement on Auditing Standards No. 109) • A process---effected by those charged with governance, management, and other personnel—designed to provide reasonable assurance about the achievement of the entity’s objectives with regard to the reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations. • It follows that internal control is designed and effected to address business risks that threaten the achievement of any of these objectives

  26. Internal Control Responsibilities of Community Agencies • Design and operate an internal control system reasonably sufficient to ensure that the community agency meets acceptable standards in the areas of financial reporting reliability, operating efficiency and effectiveness and compliance with applicable laws and regulations.

  27. Internal Control Consists of 5 Interrelated Components • The Control Environment (Tone; Consciousness) • Risk Assessment (Identification and Analysis) • Control Activities (policies and procedures over procurement, safeguarding of assets, accounting, disbursements, reporting, etc.) • Information and Communications (in a form to allow carrying out of responsibilities) • Monitoring (assesses the quality over time, modify as appropriate)

  28. Administrative Control is: • Internal Control system related to Government funds.

  29. Cost Principles • Requirement from MAAP rules (.04A Adoption of Federal Circulars) (Handout # 6)

  30. Cost Principles • Circular A-122 (Cost Principles for Non-Profit Organizations) • Attachment A, General Principles (Handout #7) • To be allowable costs must be: • Reasonable for the performance of the award • Conform to the limitations of the award • Be consistent • Be determined in accordance with GAAP • Be adequately documented

  31. What is Reasonable? • Does not exceed that which would be incurred by a prudent person under the circumstances. • Consideration given to whether the cost is generally recognized as ordinary and necessary for the operations or performance of the award. • Restraints or requirements imposed by generally accepted business practices, arms length bargaining, regulations and terms of the award.

  32. What is Reasonable? • Whether the individual concerned acted with prudence in the circumstances, considering their responsibilities to the organization, its members, employees, and clients, the public at large and the Federal (and State) government.

  33. Budget RevisionRequirement • Total expenses in any one category (personnel, equipment, subcontract, all other) exceed the budgeted amount for that category by at least ten percent or $1,000, whichever is greater. • Total program income differs from the budgeted amount by at least ten percent or $5,000, whichever is greater.

  34. Budget RevisionRequirement • Non-budgeted equipment items are substituted for specific budgeted items. • There are non budgeted line items in excess of $1,000 MAAP Sec. .04B(2)

  35. GAAP • The rules and practices at a particular time • Written rules (promulgated) • AICPA: opinions, bulletins, interpretations, guides. • FASB (Financial Accounting Standards Board): statements, interpretations, bulletins. • SEC • Publications, textbooks, articles

  36. Cost PrinciplesAttachment BSelected Items of Cost (52) 1.Advertising has limitations. 3. Alcoholic beverages are unallowable. 8. Compensation for personal services (salary and fringes) has limits. • Reasonable if comparable to that paid for similar work in the labor markets in which the organization competes for the kind of employees involved. 11. Depreciation: straight line method presumed.

  37. Cost PrinciplesSelected Items of Cost 15. Capital Equipment is defined as item with a useful life of more than one year and an acquisition cost of the lesser of the agency’s level for financial statement purposes or $5,000. Unallowable except where approved in advance. 17. Fund raising costs are unallowable. 19. Goods or services for personal use of the organization’s employees are unallowable.

  38. More Selected Items of Cost 23. Interest: unallowable except for that incurred to acquire or replace capital assets after 9/29/95. (Why that date?) 37. Professional Services: not officers or employees of the organization. 43. Rental costs under “less-than-arms-length” leases are limited. 47. Taxes: those that are required to be paid are allowable.

  39. Resources • MAAPStatute. • 2005 Revisions. LD 1968; Summary of LD 1968; x Bill Text; Documents for LD 1968; x Enacted Public Law 519; x Download Chapter Text; SS page151) • MAAP Rules. (x Rules by Department; x10 DHHS; xCh. 30). • Federal Circulars. • Audit Web Site. • 287-2779