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State Auditor’s Office Update Presented to the Puget Sound Finance Officers Association

State Auditor’s Office Update Presented to the Puget Sound Finance Officers Association December 14, 2012. 1. Topics. 1. Transitioning to a new State Auditor 2. Audit frequency 3. Local government financial condition

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State Auditor’s Office Update Presented to the Puget Sound Finance Officers Association

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  1. State Auditor’s Office Update Presented to the Puget Sound Finance Officers Association December 14, 2012 Chuck Pfeil, CPADirector of State and Local Audit 1

  2. Topics 1. Transitioning to a new State Auditor 2. Audit frequency 3. Local government financial condition 4. Public Development Authorities (PDAs) and Public Facilities Districts (PFDs) 5. On call contracting 6. Receiving payments through a vendor

  3. Topics 7. Electronic BARS 8. Online filing requirement Single Audit reform SEC

  4. Transitioning to a new State Auditor Troy Kelley, State Auditor-elect Doug Cochran, chief of staff Ruta Fanning, transition team leader

  5. Audit Frequency • Budgets and cycles regularly reviewed at team level • State Auditor’s Office reassessing Accountability Audits in schools, cities and counties. • Current school cycles: • 85 annual • 120 two year • 41 three year • 49 limited-scope accountability audits (audit assessments) • 110 offered less frequent audits; 61 accepted

  6. Audit Frequency • Current city & town cycles: • 110 annual • 117 two year • 40 three year • 40 limited-scope accountability audits (audit assessments) • 123 being offered less frequent audits

  7. Audit Frequency • Current county cycles: • 30 annual • 9 two year • 4 being offered less frequent audits • Budget reductions from $3,300 to $33,000 being made • Plan on annual statewide review

  8. State Auditor’s Office Audit Summary on Local Government Financial Condition 8

  9. Local Government Financial Condition • Our audits evaluate financial condition at least once every three years. • Small but growing trend of distressed governments: • 88 governments reported on since 2006 • 28 cities, two counties, 16 schools and 42 special purpose districts • Reported 22 governments in 2008 and 37 in 2010 • Growing state and national interest. 9

  10. Local Government Financial ConditionGovernment types most affected 10

  11. Local Government Financial ConditionGovernment types most affected • In 2006 we found most financial condition issues in hospitals and school districts. • School districts showing signs of distress have declined. • We continue to see distress in hospitals and a growing frequency in entities like cities, counties, risk pools, public development authorities and public facilities districts. 11

  12. Local Government Financial Condition The state has limited authority to step in • The Superintendent of Public Instruction can intervene when school districts are faced with distressed financial condition or the prospect of insolvency. 12

  13. Local Government Financial Condition Where are these governments? 13

  14. Local Government Financial Condition Resources • State Auditor’s Office Client Support Portal/Local Government Performance Center • State Treasurer’s 2010 report on financial health of cities and counties • Association of Washington Cities “Red Flag Checklist” • Government Finance Officers Association “Fiscal First Aid Resource” Future Tool: Enhancements to the State Auditor’s Local Government Financial Reporting System 14

  15. State Auditor’s Office Audit Summary on Public Development Authorities (PDAs) and Public Facility Districts (PFDs) 15

  16. PDAs & PFDs • We audit PDAs and PFDs at least every three years. • Many do an effective job. • We have found recurring audit issues with some. 16

  17. PDAs & PFDsWhat are they? • Public corporations formed by cities, towns or counties. • Established to carry out a specific function. • PDA purposes vary widely: • Convention center • Sports facility • Museum • Housing • Economic development • Tall ships • Public market • PFDs are formed to acquire, create or operate certain public facilities: • Convention center • Museum • Sports, recreation and entertainment facilities 17

  18. PDAs & PFDs What have we found? Common audit issues fall into four areas: • Inadequate monitoring by the creating entities. • Inadequate governance by the appointed boards. • Declining or distressed financial condition. • Non-compliance with laws and regulations. 18

  19. PDAs & PFDsRecommendations to creating entities • Ensure appointed officials receive training and guidance on applicable laws and regulations. • Ensure appointed board members take an active role in monitoring operations. • Attend audit entrances and exits. • Monitor their financial health. • Inform the State Auditor when new PDAs and PFDs are created. 19

  20. PDAs & PFDsRecommendations to the Legislature Change state law to require creating entities to: • Monitor the PFDs they create. (This requirement is already in PDA law.) • Receive annual reports from the PDAs and PFDs summarizing operations. • Notify the State Auditor of new PDAs and PFDs. 20

  21. On Call Contracting • Some government use what they refer to as on call contracting • Bid for a type of service for a period of time. Vaguely specified. • Not specifically authorized in state law • But we are not saying they aren’t legal 21

  22. On Call Contracting • Concerns center around public works. Early warning based on interactions with L&I and MRSC. • Make sure you are in compliance with applicable laws (bidding, contracting, prevailing wage,…) • Questions? • Cindy Evans, Manager, Legal Services cindy.evans@sao.wa.gov • Scott Bills, Asst Audit Manager scott.bills@sao.wa.gov 22

  23. Receiving payments through a vendor • Growing number of entities accepting payments through a vendor • Often appears to citizen that payment is being made to the government • Legal concern • Funds not transferred to government timely • Funds sitting in vendors bank; not a qualified public depository 23

  24. Electronic BARS • Have published 15 BARs manuals/reporting packages in .pdf and paper • Consolidated those into 10 manuals • 2012 is last year for paper BARS 24

  25. Electronic BARS • Creating manual that combines web-based and .pdf….indexing our .pdf • Will be released in January 25

  26. Online Filing Requirement • Online filing done by most governments 1,000 of 1,700 filers in 2012 • Will be working to encourage greater use in 2013 • Incentive will be f/s creation for cash basis filers 26

  27. Proposed Federal Audit Changes OMB considering Federal Audit changes: • Higher audit threshold • Fewer compliance requirements • Focus on improper payments, fraud, errors and waste • Higher questioned cost threshold

  28. Securities & Exchange Commission Report on Municipal Securities Market July 31 report issued http://www.sec.gov/news/studies/2012/munireport073112.pdf • Seeking expanded authority including: • Setting issuer disclosure requirements (timeframe, frequency, content) • Establishing the form and content of financial statements • Questionnaire in Fall 2012

  29. Auditor’s Office Contacts Brian Sonntag, CGFM State Auditor (360) 902-0360 Brian.Sonntag@sao.wa.gov Chuck Pfeil, CPA Director of State and Local Audit (360) 902-0366 Chuck.Pfeil@sao.wa.gov 29

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