Municipalities Articles
Impact of Stimulus Funds on Single Audit
By: Dennis Gardiner, Partner | email
About half of the $770 billion of the economic stimulus funds will be received by governmental bodies and not-for-profit organizations as grant funds, requiring these entities to have single audits performed on the Federal programs. Along with these funds come unprecedented transparency and accountability requirements. The objective of these additional requirements is to let Americans know where their tax dollars are going and how they are spent.
The new requirements will impact all levels of the grant process including federal agencies, recipients and sub-recipients, and independent auditors. Federal grantor agencies will provide technical assistance to the auditing profession. In addition, high-risk programs will be targeted for priority audits, inspections and investigations. Quality control reviews will ensure that single audits are properly performed, and that improper payments and other noncompliance are fully reported. Follow-up reviews of audit quality, with an emphasis on Recovery Act funds, will be available on www.recovery.gov, which serves as a public source of information on recovery funds.
The normal reporting processes will be followed for all Federal funds when a single audit is required, however Recovery Act funds will be identified separately on each and every report and must be tracked separately from the initial receipt by the recipient. These are not new federal programs, they’re existing programs with new compliance requirements. Recipients are also required to separately identify Recovery Act funds to each subrecipient at the time of the subaward and each time the funds are disbursed.
Grant recipients will be required to report certain information to the Federal awarding agency within 10 days after the end of each quarter: the total amount of Recovery Act funds received, the amount expended, the name and a description of each project for which funds were spent, the completion status, number of jobs created and retained, subcontracts and pass-through grants awarded by the recipients, and finally, the purpose, cost and rationale for infrastructure investments.
Internal controls over compliance are always tested on a single audit, but with additional funding, officials are concerned that a recipient’s internal controls may not be able to cope. Normally, single audit findings are not reported until nine months after year end, so any control deficiencies won’t be corrected before increased funding is released.
The unprecedented transparencies and accountability requirements come with a price tag for recipients and their independent auditors. With the increased audit considerations, we expect the amount of work we do on single audits, and accordingly, the cost of a single audit, to increase significantly. Federal funding may become the largest source of revenue for local governments, possibly more than property tax. For some grant recipients, Recovery Act funds will have to be audited as major programs for the fiscal year ending June 30, 2009. We anticipate even more for fiscal year 2010.
Postemployment Benefit Reporting and GASB No.45
By: Janis Slater, CPA, Manager | email
Governmental Accounting Standards Board Statement No.45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, issued in 2004, requires governments to recognize and report the cost of postemployment benefits (OPEB) when they are earned, regardless of when they are paid. Larger governments have already implemented GASB 45, while medium and smaller governments are required to report in fiscal years ending June 30, 2009 and 2010, respectively.
The requirements include reporting the Net OPEB Liability on the Statement of Net Assets and a footnote disclosing Plan Descriptions, Funding Policies, Annual OPEB Cost and Net OPEB Obligations, (actuarially determined), Funded Status and Funding Progress, and descriptions of Actuarial Methods and Assumptions. A Schedule of Funding Progress for the Retiree Health Plan is part of the Required Supplementary Information.
One of the most frequent situations which creates a liability for an entity is called an “implicit rate subsidy”. When current employees and retirees are insured together as group, the premium paid by the retirees is usually lower than the premium for retirees separately insured because the premiums are calculated using a blended rate. Because of the effect of age on the cost of claims, separately rated premiums for retirees would be higher than the blended premium rates. Even when retirees are required to pay their own premiums, the government is subsidizing the retirees’ premiums through higher premiums for current employees; the government has a liability for an implicit rate subsidy for retirees. Furthermore, the resources needed to make up the difference between what the retirees pay and what they should be paying (age adjusted premiums), are paid by the government, not the active employees. Thus the government has an obligation to cover the implicit rate subsidy.
The frequency of the actuarially determined valuation depends on the number of members: every two years for plans with over 200 members, every three years for plans with between 100 and 199 members. Plans with less than 100 members are allowed to use an Alternative Measurement Method.
Governments are encouraged to acquire the actuarial valuations required by the Statement. An independent auditor would be precluded from giving an unqualified opinion, or lowering the opinion to either qualified or adverse, since it would be difficult to determine materiality without the actuarial information. The potential for an adverse effect on an entity’s bond rating should also be considered.