Faster CAFRs

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• Faster CAFRs
• NSAA/NASC Joint Middle Management Conference
• April 10-12, 2006
• Indianapolis, Indiana
• Presented by
• Herb Maguire
• Commonwealth of Pennsylvania
• Buff Carlson
• Ernst Young, LLP

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Faster CAFRs

• Where we were
• 02 CAFR issued by 12/31/02
• 03 CAFR issued by 5/31/04
• GASB 34 Implementation
• SAP implementation
• 04 CAFR issued by 3/31/05
• SAP implementation
• CERTIFICATE OF ACHIEVEMENT ALL 3 YEARS!

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Faster CAFRs

• Where we are
• 05 CAFR issued by 12/31/05

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Faster CAFRs

• Where were going
• 06 CAFR issued by 12/15/06 (5.5 mos.)
• 07 CAFR issued by 11/30/07 (5.0 mos.)
• 08 CAFR issued by 11/15/08 (4.5 mos.)
• 09 CAFR issued by 10/31/09 (4.0 mos.)

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Faster CAFRs

• What are others doing?
• Private Industry 75 days, 30 days for quarterly
  SEC reports
• Federal Government 90 Days
• States Michigan 90 days
• IT CAN BE DONE!!

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Faster CAFRs

• The Solution
• Expedite the CAFR production and Audit Process
• Improve coordination and communication with
  the Auditors

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Faster CAFRs

• Whos Opining on What?!?
• Lets look at the Report of the Independent
  Auditors

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Faster CAFRs

• ..present fairly, in all material respects.the
  aggregate discretely presented component units,
  each major fund, and the aggregate remaining fund
  information...
• Focus is on OPINION UNITS

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Faster CAFRs

• Whos Opining on What?!?
• Component Units
• Seven Major Funds
• General Fund
• Motor License Fund
• Tobacco Settlement Fund
• Unemployment Compensation Fund
• State Workers Insurance Fund
• State Lottery Fund
• Tuition Payment Fund
• Aggregate Remaining Funds (ARFs)

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Faster CAFRs

• Analysis of Opinion Units
• General Fund consists of 57 agencies.
• Six other Major Funds contain limited numbers of
  appropriations.
• ARFs consist of 122 funds

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Faster CAFRs
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Faster CAFRs

• TOP DOWN
• APPROACH!!!

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Faster CAFRs

• FOCUS ON OPINION UNITS
• NEED 100 COVERAGE NO!!!!!!
• GET EARLY AUDITOR BUY-IN TO APPROACH, INCLUDING
  UNDERSTANDING OF MATERIALITY

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Faster CAFRs

• THE TOP DOWN APPROACH
• Whats Material and Whats Not!!
• ARFs 114 Different Funds
• General Fund 57 Agencies
• Which of these are significant?

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Faster CAFRs

• Look at 57 agencies in General Fund
• Compare
• Assets
• Liabilities
• Fund Balance
• Revenues
• Expenditures
• Use June 30, 2004 audited numbers

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Faster CAFRsCalculate a 95 coverage

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Faster CAFRs

• General Fund Results
• 17 agencies comprised at least 95 of General
  Fund assets (99), liabilities (97), fund
  balance (99), revenue (98) and expenditures
  (95) and were considered significant
• The remaining 40 agencies were considered
  insignificant.

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Faster CAFRs

• For the 114 ARFs
• 22 funds made up at least 95 of total assets
  (98), liabilities (97), fund balance (98),
  revenues (97) and expenditures (96), and were
  considered significant.
• The remaining 92 funds were considered
  insignificant.

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Faster CAFRs

• Focus on
• The six major funds
• The 17 significant agencies in the General Fund,
  and
• The 22 significant funds in the ARF.
• A total of 45 key areas.

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Faster CAFRs

• For the 45 Key Areas
• Perform rigorous review and audit.
• Focus on balance sheet accruals and on accuracy
  of revenues and expenditures.
• Prepare and review audit packages for each key
  area. Use Comptroller sign-off.
• Provide training on preparing each type of audit
  package special revenue, enterprise, internal
  service, agency, etc.

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Faster CAFRs

• For each insignificant agency/fund
• Post with any statewide journal entries which
  include payroll accruals, non-payroll accruals,
  federal receivables, investment/security lending
  adjustment, workers comp accrual, etc
• Perform and document variance analyses.

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Faster CAFRs

• Variance Analysis Approach
• Establish thresholds for variants.
• Develop guidance on performing variance analyses.
• Train staff on the performance and documentation
  of variance analyses.
• Do year-over-year comparisons along with
  differences (in and ). An SAP report .
• Use SAPs drilldown capability to quickly
  research large variances.

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Faster CAFRs

• General Fund threshold
• Assets - 10.5B
• Liabilities - 7.5B
• Fund Balance 3.0B
• Revenues - 38.8B
• Expenditures - 38.2B
• Use a difference of /- 25
• OR
• Use a variance of gt100M

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Faster CAFRs

• ARF Threshold determination
• Blended component units make up a majority of ARF
  values. Their audited numbers represent
• Assets 90
• Liabilities 64
• Fund Balance 94
• Revenues 68
• Expenditures 46
• So, threshold can be higher.

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Faster CAFRs

• ARF Threshold Determination
• Difference of /- 50
• OR
• Difference of gt60M
• Auditors reserved the right to perform analytical
  procedures using lower thresholds and to further
  explore any exceptions.

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Faster CAFRs

• Variance Analyses
• Developed procedures on how to conduct and
  document variance analyses.
• Trained staff on the performance and
  documentation of variance analyses.
• Reviewed select variance analyses to confirm
  reasonableness before giving to auditors.

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Faster CAFRs

• Use of Estimates for Liabilities
• Plotted liability categories for each key area
  and then analyzed the basis for each liability.

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Faster CAFRs

• Liability categories
• Accounts Payable
• Invoices Payable
• Accrued Payable Goods Receipt
• Due to Other Funds
• Due to Political Subdivisions
• Due to Other Governments
• Due to Fiduciary Funds
• Due to Component Units
• Payroll Payable
• Deferred Revenue
• Security Lending
• Tax Refund Payable
• Advance from Other Funds

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Faster CAFRs
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Faster CAFRs

• What we found
• Of DPWs 2.721B total liabilities
• 1.706B (63) was supported by an actuarial
  valuation!
• .358B (13) was estimable.

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Faster CAFRs

• Estimating Liabilities
• Developed a white paper on Using Estimates
• Met with each Comptroller to discuss our approach
  and identify those liabilities that could be
  estimated
• Developed preliminary estimates for review and
  refinement
• Presented approach to auditors for their
  information and acknowledgement

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Faster CAFRs

• Approach to Estimating Liabilities
• Availability of historical data
• 3-5 years of liabilities
• 3-5 years of expenditures
• Trend analysis of data - change from month to
  month, qtr to qtr and year to year.
• Recent program activities
• Legislation
• Regulation
• Funding or process changes
• Agency knowledge of program

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Faster CAFRs

• Approach to Estimating Liabilities (contd)
• Established a Comfort Level for each liability
  estimate. For General Fund
• 10 25 8 40
• 9 28 5 7
• A lookback in September tested the accuracy of
  each estimate. Of 24 estimates made, only 3 had
  significant variances.

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Faster CAFRs

• Use of Entity Wide Entries
• Ensured consistency in approach
• Leveraged SAP to extract support for entries such
  as
• Accrued payroll
• Accounts payable accruals
• Accounts receivable accruals
• Federal receivables accruals
• Internal activity eliminations
• Due to/due from accruals
• Compensated absences accruals
• Workers compensation accrual
• And others.

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Faster CAFRs

• Summary
• Top Down Approach
• Use of Estimates
• Better Variance Analyses
• Entity-Wide entries

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Faster CAFRs
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Faster CAFRs

• HOW DID WE DO IT IN 2005?
• Two-way communication with Auditors Weekly
  teleconferences and monthly meetings, focusing on
  each major fund and key audit issues
• Reached out to Component Units early in the
  process and got their buy-in
• Met with material business areas at an interim
  date, conveying expectations and discussing
  potential real and and potential issues

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Faster CAFRs

• HOW DID WE DO IT IN 2005?
• Maximized interim testing
• Maximized use of Internal Audit (SAS 65
  considerations)
• Timely receipt and review of Specialist Reports
• SAS 70s (18 reports were needed)
• Dont forget User Control Consideration issues!
• Actuarial Reports (9 reports were needed)
• CAFR Sheriffs
• Project Management
• Teamwork

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Faster CAFRs

• What will enable us to get faster?
• A year-round effort.
• Discuss/Critique audit issues/problems/delays
  with relevant personnel immediately after audit
  and agree on resolution process
• Detailed analysis of audit adjustments with plan
  to eliminate

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Faster CAFRs

• What will enable us to get faster?
• Prompt analysis and correction of Reportable
  Conditions and Management Letter Comments
• An effective control environment to maximize
  testing prior to year end
• Continued refinement and expansion of estimates
• Interim GAAP Reporting
• TRAINING,TRAINING, TRAINING!!!!!
• COMMUNICATION!

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Faster CAFRs

• Obstacles to a faster CAFR
• System updates degree of customization
  forced migration
• New GASB pronouncements. Also impact on
  component units, not just primary government!
• Ineffective estimates
• Change of auditors, or current auditor personnel

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Faster CAFRs

• Obstacles to a faster CAFR
• Personnel turnover the graying of the American
  work force
• New Major Funds
• Dependence on others specialists, component
  units
• PLAN!! PLAN! PLAN!! then EXECUTE

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Faster CAFRs

• Thanks!