CPB FY 2002 Business Plan

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Inspector General Update on Audit Activities

• PBMA New Orleans
• June 1, 2007

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IG Actions to Improve Oversight Process

• Review of Lobbying
• Currently Winding Up Survey Work
• Most Grantees Surveyed Responded
• - TV 85, Radio 75
• Many Indicated They Had Lobbied Congress
• - TV 70 of responders
• - Radio 46 of responders

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IG Actions to Improve Oversight Process

• Review of Lobbying
• All TV and Radio Grantees responded.
• They Had Used No CPB or Federal Funds for
  Lobbying.
• Many grantees could not document this statement,
  because
• - CPB funds were commingled with Station
  Funds.
• - No specific accounting for the costs of
• these specific lobbying activities.

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IG Actions to Improve Oversight Process

• Review of Lobbying
• All these grantees had far more than
• sufficient funds of their own to pay for this
• lobbying activity without requiring them to
• use CPB or other Federal funds.

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IG Actions to Improve Oversight Process

• Review of Lobbying
• We expect to finalize and issue Final Report to
  CPB and Congress in next month.

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IG Actions to Improve Oversight Process

• Areas Needing Grantee Attention
• Even though CPB no longer requires a final report
  to be submitted for CSG and Inter-connection
  Grants, Grantees are required to account for
  expenditures of CPB funds. Such accounting is
  required to
• - Show that expenditures are not used for
  restricted
• purposes, i.e.
• a. supplant licensee funds or support
• b. pay for other than public broadcasting
  services.

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IG Actions to Improve Oversight Process

• Areas Needing Grantee Attention
• - Assure that expenditures are properly
  documented in accordance with Grantee practices
  and generally accepted accounting standards.
• - Provide necessary accountability to
  determine whether unexpended CPB funds were
  properly refunded to CPB.

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IG Actions to Improve Oversight Process

• Areas Needing Grantee Attention
• Grantees need to understand scope of Attestation
  work CPAs are providing for Annual Financial
  Reports (AFRs).
• - AICPA standards provide for attestations to
• provide for one of three different levels of
  assurance.

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IG Actions to Improve Oversight Process

• Areas Needing Grantee Attention
• The potential levels of Attestation include
• - Examination Level Engagements,
• This is the highest level of assurance and calls
  for the audit practitioner to perform sufficient
  work including testing of items against
  established criteria, to allow them to express an
  opinion as to whether the station properly
  presented information in the AFR in all material
  respects.

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IG Actions to Improve Oversight Process

• Areas Needing Grantee Attention
• - Review Level Engagements,
• This is a middle level of assurance and the
  practitioners objective is to accumulate
  sufficient evidence to restrict attestation risk
  to a moderate level. The type of procedures
  performed are generally limited to inquiries and
  analytical procedures (rather than also including
  search and verification procedures).

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IG Actions to Improve Oversight Process

• Areas Needing Grantee Attention
• - Agreed-Upon-Procedures Level
• Engagements,
• This engagement is one in which a practitioner
  is engaged to issue a report based on specific
  procedures performed .

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IG Actions to Improve Oversight Process

• Areas Needing Grantee Attention
• In having attestations performed on AFRs,
• Stations need to ensure themselves that they are
  obtaining necessary assurance. Without necessary
  testing of transactions against established CPB
  criteria for NFFS, there is little assurance that
  amounts reported are appropriate.

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IG Actions to Improve Oversight Process

• Review of CPB Required Audit Process
• Later this year the OIG will be working with CPB
  to review CSG reporting requirements. In doing
  so, the OIG will be surveying the Grantee
  Community seek information regarding changes to
  the audit and reporting process.

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IG Actions to Improve Oversight Process

• Review of CPB Required Audit Process
• Currently at stations receiving CSGs
• - Many Stations Licensees have their
  Financial Statement audits performed in
  accordance with GAAS or GAGAS.
• - The Station also has to have its own
  Financial Statement audit performed in
  accordance with GAAS or GAGAS.

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IG Actions to Improve Oversight Process

• Review of CPB Required Audit Process
• Currently at Stations Receiving CSGs
• The Station also has to submit an Annual
  Financial Report attested to by an Independent
  Public Accountant.

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IG Actions to Improve Oversight Process

• Review of CPB Required Audit Process
• Thats three audit engagements. Are all of them
  necessary?
• Consideration should be given to whether CPB can
  justify the necessity for all of these audits.
• Perhaps the licensees audit can be modified to
  include additional schedules or footnotes to
  provide detailed information on Station assets,
  liabilities, revenues, and expenditures to meet
  CPB needs.
• Perhaps other changes to contents or opinions
  might reduce or streamline the process.

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IG Actions to Improve Oversight Process

• Improvements to Reporting Requirements
• At the same time, CPB and the OIG will be
  looking at other reporting requirements
• - Requesting whether NFFS received from
  Governmental or Non Profit Entities contain CPB,
  Public Broadcasting Entities, or Federal funds.
• - Restricting CPB funds from being used for
  receptions, and/or entertaining Federal or State
  employees.

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IG Actions to Improve Oversight Process

• Station Grant Audits
• OIG audits of your Annual Financial Reports are
  based on CPB Financial Reporting Guidelines which
  are located within CPBs Integrated Station
  Information System (ISIS), click on the Get
  Help icon on a particular Schedule of your AFR.

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IG Actions to Improve Oversight Process

• CPB has greatly improved the instructions for
  preparing the Annual Financial Report making it
  easier to avoid common mistakes in reporting.
• We look at revenue categories that have
  historically had the most riskgreatest audit
  potential.

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IG Actions to Improve Oversight Process

• We look at the CPB Guidelines and your original
  supporting documentation (that you keep for the
  auditors) for Revenue line items for common
  mistakes.
• The first step in the Process
• All revenue Reported as NFFS must be included in
  the stations Audited Financial Statements.

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IG Actions to Improve Oversight Process

• For State and Local Governments
• --For TV--are there Digital Grants or Grants for
  New or expanded Facilities?
• --Do not include capital fund contributions on
  any line other than Line 18.

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IG Actions to Improve Oversight Process

• For University Stations
• --Was Schedule B completed properly? Often
  start with the licensees federally approved
  indirect cost rate.

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IG Actions to Improve Oversight Process

• For Non-Profit OrganizationsCash or in-kind
  contributions are OK
• --Was it pure underwriting?
• --Were there elements of an exchange
  transaction? If value received is commensurate
  with the value givenno NFFS. If value received
  is greater than the value given, then recognize
  the difference as NFFS.

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IG Actions to Improve Oversight Process

• For Business and IndustryCash or in-kind
  contributions are OK
• --Was it pure underwriting?
• --Cash property or services received from a
  for-profit entity in exchange for specific
  goods or services cant be claimed as NFFS.

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IG Actions to Improve Oversight Process

• For In-Kind Contributions of Services Other
  Assets
• --Donor must provide documentation.
• --Donor states intention to make a
  contribution.
• --Donor states the nature of services provided.

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IG Actions to Improve Oversight Process

• --Donor independently documents fair value of
  the service.
• --Donor documents the dates that service was
  provided.
• --Donated services would have needed to be
  purchased-Underwriting Trades.
• --Cant claim in-kind contributions if related
  to fundraising including Thank You events.

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IG Actions to Improve Oversight Process

• --Specific exclusions from in-kindsDonated
  Programs, Contributions in Support of Local
  Productions, Station Exclusive Event, a Public
  Performance (broadcast pick-up), Program
  Services, Promotional Items, Volunteers
  Services.

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IG Actions to Improve Oversight Process

• --Donor must provide documentation-invoice
  stating regular charge for this space or time.
• --Donor states intention to make a contribution.

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IG Actions to Improve Oversight Process

• --Is it a fair value or are there exchange
  elements. The advertising may be very valuable
  to the contributor.
• --Advertising must relate to a program or
  station promotionnot merely airing the
  stations programming schedule.

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IG Actions to Improve Oversight Process

• In-Kind Contributions of Property Equipment
• --For TV--are there Digital New or Expanded
  Facilities included here?
• --Documentation and Valuation of fair value, as
  above.
• --Specific Exclusions from in-kindscompact
  disks, records, tapes and cassettes.

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IG Actions to Improve Oversight Process
Challenges Auditing CPB Production Grants
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Auditing Challenges

• Most production projects are funded from multiple
  sources without requirements to discretely
  account for costs by funding source, inhibiting
  effective auditing
• Production grant terms are vague in describing
  cost accounting requirements for handling direct
  and indirect costs

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Production Grant Terms

• Cost reimbursement grant agreements auditing
  incurred costs
• Records must be kept in accordance with
  generally accepted accounting principles
• Accounting principles need to be consistently
  applied traceable to general ledger
• Records need to be maintained to reflect all
  costs direct indirect, materials, equipment,
  supplies services, and other costs

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Initial Audit Observations

• Total costs include direct production costs, rate
  card charges for certain production staff
  salaries fringe benefits, and indirect costs
• Rate card methodology not fully documented not
  readily traceable to general ledger
• Indirect cost methodology not fully documented
  not readily traceable to general ledger

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Recordkeeping Needed

• Audit trail from final financial reports
  submitted to CPB to production project accounting
  records
• Documentation linking projects total cost
  accounting to general ledger
• Documented indirect cost methodology
• Documented rate card methodology

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Addressing Cost Accounting Responsibilities

• Management is responsible for selecting the cost
  methodology that best meets its needs
• Variety of cost accounting methodologies
  available
• Standard costing unit cost basis
• Activity based costing tracks cost by activity
  (e.g., building use, equipment use, etc.)
• Job order costing tracks costs by product
• Process costing tracks costs by department

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Costs Must be Supported with Documentation

• Total costs need to be accounted for using cost
  accounting methodologies which account for both
  direct indirect costs
• Direct costs documentation includes
• employee time sheets,
• vendor invoices (materials, supplies, etc.),
• talent agreements
• production acquisition contracts

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Documenting Indirect Costs

• Indirect costs (including rate card charges)
  documentation includes a methodology for charging
  costs that
• Document the logic of the allocation methodology
• allocation means the process of assigning a cost
  to one or more cost objectives (e.g., station
  operations and production activities) in a
  reasonable realistic proportion to the benefits
  provided or other equitable relationship
• costs must be assigned consistently in accordance
  with GAAP appropriate to the circumstances

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Documenting Indirect Costs (contd)

• Are traceable to general ledger
• Are periodically updated to reflect current
  financial activities

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IG Contact Information

• Kenneth Konz [phone]
  kkonz_at_cpb.org
• Bill Richardson [phone]
  brichardson_at_cpb.org
• David Tanner [phone]
  dtanner_at_cpb.org