NASCSP Monitoring –
Principles & Practices
Training
Presented by:
Denes L. Tobie, CPA
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May 10, 2006
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© 2005 Wipfli LLP
© 2004 Wipfli Young
We’re All in this Together!
Where does this session fit into the four circles?
© 2005 Wipfli LLP
Agenda
Topic One – OMB Circulars Then
and Now
Topic Two – Head Start Prism
Fiscal Checklist
Topic Three – Financial Analysis
Topic Four – Understanding the
Annual
Topic Five – Other
miscellaneous items to be
aware of in your agency
© 2005 Wipfli LLP
Agenda
Meet the trainer
• Denes L. Tobie, CPA
• Partner with Wipfli LLP, with the firm since 1997
• Nonprofit Auditor who works exclusively with
Nonprofits
• Currently oversees audits in Iowa, Idaho, New
Jersey, Mississippi, Texas, Tennessee, Ohio, Illinois,
Wisconsin, Michigan, Arkansas, Nevada, Missouri
and Indiana
• Trainer at GFP conference in Las Vegas for 6 years
• Training for Board of Directors, State Agencies and
Staff, both internal and external
© 2005 Wipfli LLP
Learning the Lingo
• OMB = Office of Management and Budget
• DHHS = Department of Health and Human
Services
• GAAP = Generally Accept Accounting
Principles
• SAS = Statement on Auditing Standards
• AICPA = American Institute of Certified Public
Accountants
• CFR = Code of Federal Regulations
• CFDA = Catalog of Federal Domestic
Assistance
• PRISM = Program Review Instrument for
Systems Monitoring
© 2005 Wipfli LLP
Topic One –
OMB Circulars – Then and Now
I.
ADMINISTRATIVE REQUIREMENTS FOR NONPROFIT ORGANIZATIONS (A-110)
A.
B.
C.
Original circular – July 1, 1976
Last major revision – November 29, 1993
Changes since November 1993 revision
1. October 13, 1994 – Increased small
purchase threshold to $100,000
2. August 29, 1997 – Implemented Single
Audit Act Amendments of 1996
3. November 6, 1999 – Freedom of Information Act
request and research data revisions
D.
DHHS implemented as 45 CFR Part 74
© 2005 Wipfli LLP
Topic One –
OMB Circulars – Then and Now
II. COST PRINCIPLES FOR NONPROFIT ORGANIZATIONS
(A-122)
A. Original circular – June 27, 1980
B. Changes since June 27, 1980
1. 1983 and 1984 – Added lobbying costs to
selected items of cost and clarified
documentation required relating to
lobbying
2. October 6, 1995 – Revised interest costs to allow
interest
3. June 1, 1998 – Added additional unallowable
costs and clarified other costs
C. DHHS adopted by 45 CFR 74.27
D. Updated and revised, issued on May 10, 2004 –
Mainly clarifications and more user friendly
© 2005 Wipfli LLP
Topic One –
OMB Circulars – Then and Now
III. AUDIT OF STATES, LOCAL GOVERNMENTS, AND OTHER
NONPROFIT ORGANIZATIONS (A-133)
A. Original circular – March 16, 1990
B. Major revision – June 30, 1997
1. Merged in A-128 audit requirements for governments
2.
3.
4.
5.
6.
7.
8.
Raised minimum audit threshold from $25,000 to $300,000
Changed due date to nine months
Created risk based approach for determining major programs
Created a data collection form
Revised definitions for audit findings and questioned costs
Added responsibilities for auditees
Provided audit submission process
© 2005 Wipfli LLP
Topic One –
OMB Circulars – Then and Now
III. AUDIT OF STATES, LOCAL GOVERNMENTS, AND OTHER
NONPROFIT ORGANIZATIONS (A-133) (continued)
C. Annual revision to Compliance Supplement
D. Revision to Single Audit Collection Form and
instructions (effective for audit periods after 01/01/01)
E. DHHS adopted by 45 CFR 74.26 and 92.26
F.
1/1/04 Minimum audit threshold raised to $500,000
© 2005 Wipfli LLP
Topic Two – Head Start Prism Fiscal
Checklist
• See the attached Fiscal Checklist
© 2005 Wipfli LLP
Topic Two – Head Start Prism Fiscal
Checklist
• Broken down into 5 Areas:
• Section I – Fiscal Risk Indicators, 12 questions
• Section II – Internal Controls and Monitoring, 18
questions
• Section III – Fiscal Accountability, 18 questions
• Section IV – Reporting, 7 questions
• Section V – Summary Standards, 2 questions
Total 57 Questions of Fun!!!
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• Financial Analysis covers all
aspects of your organization and
can be incorporated into, and
obtained from, many aspects of
your organization, including:




Program reports
Program financial statements
Agency financial statements
Tax returns
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• You will learn how to look at your internal
information differently than you ever have
before and benefits will be gained
• Provides you with executive level review of key
financial data
 Establishes additional internal control points
within your own systems
 Allows for more specific and efficient planning
for the audit process
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
•
Required by regulations (OMB Circular A-110
Financial and Program Management)
•
Also implied by DHHS in Head Start and
Community Services Block Grant programs
•
Improve the standards at which you operate your
programs
•
Provides more information to the Board and
Executive Director
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• Most important item to review is
the agency-wide trial balance
(How many currently review on an
agency-wide basis? Why not?)
(Do you know what to look for?)
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
FOUR (4) KEY QUESTIONS YOU SHOULD ASK
• What is it?
• Where is it from?
• What does it mean?
• What do we do with it?
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• First thing to know about the
trial balance is where do the
numbers come from.
• Must have a review system in
place that requires balances to
be reviewed, reconciled, and
adjusted on a regular basis.
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• If the numbers aren’t supported by
reliable information, the rest of
analytical process is a waste of
time.
• Also, if numbers aren’t reliable the
information reported to funding
agencies, program directors and
your board is incorrect.
(And a waste of their time!)
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• What should you be looking for
on the agency-wide balance
sheet?
 Does your balance sheet balance?!
 Does the bank reconciliation agree to the
general ledger?
 Are there any credit balances in your
asset accounts?
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• What should you be looking for…
(continued)
 Do subsidiary ledgers support the
reported amounts on the balance
sheet?
 Did we buy any equipment this
month with agency funds? Was it
recorded properly?
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• What should you be looking for…
(continued)
 Are there any debit balances in the
liability accounts?
 Was any new debt incurred? If so, was
it recorded properly?
(Can be a very detrimental adjustment at yearend if not recorded properly)
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• Overall, does it look reasonable?
Any odd looking accounts? If
so, look into them now!!! Don’t
wait for your auditors to find
them.
You won’t have reliable information
and it will cost more during your
audit!!!
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• If your balance sheet is correct,
then your revenues and
expenses are usually correct, but
may be misclassified.
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• Next, analyze your individual
program trial balances and results.
 Any odd looking balances in the
revenues?
 Any odd looking balances in the
expenses?
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• Next, analyze your individual
program trial balances... (continued)
 Have all revenues been recorded
properly?
 What is the bottom line? Are you
over spent?
 Have you recorded all of your
invoices properly or receivables
properly?
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• Next, analyze your individual
program trial balances... (continued)
 How is the program doing compared
to budget?
 Any significant over spent areas?
 Do you need to get modification from
your funding source?
 Have you followed internal procedure
to get executive director or board
approvals for budget modifications?
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• Next, start to look at key numbers,
what do you know about each
program?
 Are you on track to serve the
number of participants you are
required to serve?
 What is your year-to-date in kind
received, are you on track to get the
amount required?
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• Finally, look at trends. Should be
analyzing your programs based on
individual cost.
• What is your average cost per child that
month?
• How does that compare to last month?
• What about your annual cost per child
budget?
• Is it over or under your projections?
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
Total Federal Head Start Grant annually
(Calendar year end)
Number of children to serve
$
Annual amount received per child
$
5,000
Monthly amount received per child
$
417
3,000,000
600
Jan
Feb
March
April
Budgeted costs per month
Budgeted costs year to date
$
$
250,000 $
250,000 $
250,000 $
500,000 $
250,000 $
750,000 $
250,000
1,000,000
Actual costs per month
Actual costs year to date
$
$
246,540 $
246,540 $
238,950 $
485,490 $
272,480 $
757,970 $
252,375
1,010,345
Year to date variance
$
3,460 $
14,510 $
(7,970) $
(10,345)
600
589
600
604
600
602
Children to serve
Actual children served
600
610
Cost per month per child
$
419 $
396 $
453 $
414
In Kind requried
In Kind received
Year to date required
Year to date received
$
50,000 $
35,000
50,000
35,000 $
50,000 $
48,000
100,000
83,000 $
50,000 $
64,000
150,000
147,000 $
50,000
56,000
200,000
203,000
(15,000)
(17,000)
Year to date variance
$
© 2005 Wipfli LLP
(3,000)
3,000
Topic Three –
Financial Analysis
• When deciding on what trends to look
at, keep in mind “Key Performance
Indicators”
• What is important to each program
• Key performance indicators are
separate from trends, but you need to
monitor both aspects
• Make sure they are meaningful
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
Next, use the key numbers to analyze
trends in your programs…
• What is your transportation cost per
child?
• What are your average meal costs for
the HS children?
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
SUMMARY FINANCIAL REPORT
Month of
Program
Funding
Source
Funding
Period
TOTALS
Current Month Program Period
To Date
To Date
$
© 2005 Wipfli LLP
-
$
-
Total
Grant
$
Unexpended
-
$
-
Topic Three –
Financial Analysis
PERFORMANCE REPORT
Month of
Program
Funding
Source
Funding
Period
TOTALS
Performance
Required
$
© 2005 Wipfli LLP
-
Performance
To Date
$
Comments
-
Topic Three –
Financial Analysis
• Assign measurables to each
aspect of your organization
• If you think it is a waste of time,
don’t do it, but we challenge you
to tell us how you can manage
your “business” without it!!
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
Analysis of this type allows you
to be proactive not reactive!!
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• You can look at any program or
cost center to begin trend
analysis.
• Once established, they can be
updated monthly to provide on
going information to you and
your program directors.
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• They can be early warning
indicators of an impending
problem.
• Act on it and correct the
problem, or do nothing and
jeopardize the program?
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• Lastly, do a budget vs. actual
analysis for the agency-wide
information and the individual
program information.
• This is required in both the HS
and CSBG programs.
• HS governance regulations
require it
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• To do this you need to be sure to
budget correctly. This means, if
your program does not operate
for 12 months, be sure your
budget doesn’t make that
assumption, otherwise your
budget will have odd fluctuating
variances.
(How many do agency-wide
budgets?)
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• A true budget reflects
anticipated activity during
certain times of the year, not
equally throughout the year
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
Total Federal Head Start Grant annually
(Calendar year end)
Number of children to serve
$
Annual amount received per child
$
5,000
Monthly amount received per child
$
417
3,000,000
600
ASSUMES SAME ACTIVITY EACH QUARTER
Budgeted costs per quarter
Budgeted costs year to date
1st quarter
2nd quarter
$
750,000 $
750,000 $
$
750,000 $
1,500,000 $
Actual costs per month
Actual costs year to date
$
$
978,997 $
978,997 $
848,951 $
1,827,948 $
272,480 $
2,100,428 $
905,550
3,005,978
Variance per quarter
Variance year to date
$
$
(228,997) $
(228,997) $
(98,951) $
(327,948) $
477,520 $
149,572 $
(155,550)
(5,978)
© 2005 Wipfli LLP
3rd quarter
4th quarter
750,000 $
750,000
2,250,000 $
3,000,000
Topic Three –
Financial Analysis
Total Federal Head Start Grant annually
(Calendar year end)
Number of children to serve
$
Annual amount received per child
$
5,000
Monthly amount received per child
$
417
3,000,000
600
ASSUMES SAME ACTIVITY EACH QUARTER
Budgeted costs per quarter
Budgeted costs year to date
$
$
1st quarter
750,000
750,000
$
$
2nd quarter
750,000
1,500,000
$
$
3rd quarter
750,000
2,250,000
$
$
4th quarter
750,000
3,000,000
Actual costs per month
Actual costs year to date
$
$
978,997
978,997
$
$
848,951
1,827,948
$
$
272,480
2,100,428
$
$
905,550
3,005,978
Variance per quarter
Variance year to date
$
$
(228,997) $
(228,997) $
(98,951) $
(327,948) $
477,520
149,572
$
$
(155,550)
(5,978)
BUDGET BASED ON ACTUAL PERFORMANCE ACTIVITY
Budgeted costs per quarter
Budgeted costs year to date
$
$
1st quarter
920,000
920,000
$
$
2nd quarter
925,000
1,845,000
$
$
3rd quarter
270,000
2,115,000
$
$
4th quarter
885,000
3,000,000
Actual costs per month
Actual costs year to date
$
$
978,997
978,997
$
$
848,951
1,827,948
$
$
272,480
2,100,428
$
$
905,550
3,005,978
Variance per quarter
Variance year to date
$
$
(58,997) $
(58,997) $
76,049
17,052
$
$
© 2005 Wipfli LLP
(2,480) $
14,572 $
(20,550)
(5,978)
Topic Three –
Financial Analysis
• Report Format
• Use technology to help prepare, don’t
recreate the wheel, saves time and
reduces the possibility of human error.
• Use same format each month so
everyone gets used to it and becomes
familiar with the process and reports.
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• Present trend analysis
• It can present a lot of information in a
concise manner
• Pictures are sometimes easier to
follow than all of the numbers
© 2005 Wipfli LLP
Assets, Liabilities, and Net Assets
1995-2004
5000000
4500000
4000000
3500000
3000000
2500000
2000000
1500000
1000000
500000
0
1995
1996
1997
1998
1999
Total Assets
2000
Total Libilitites
© 2005 Wipfli LLP
2001
Net Assets
2002
2003
2004
Revenues and Expenses 1995-2004
$8,000,000
$7,000,000
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$0
1995
1996
1997
1998
1999
Revenue
© 2005 Wipfli LLP
2000
2001
Expenses
2002
2003
2004
Changes in Unrestricted Net Assets
1995-2004
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
1995
1996
1997
1998
1999
2000
Unrestricted Net Assets
© 2005 Wipfli LLP
2001
2002
2003
2004
Topic Three –
Financial Analysis
• Annually, someone should be
analyzing the agency-wide trial
balance, be sure that all accounts
reconcile with supporting information
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• Be sure to save this supporting
documentation for your auditor, it will
save time later and make the audit
process more efficient.
• Consider creating an audit book
(separate binder with tabs) to store
this information and keep it by
individual account.
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• Any questions you ask at yearend when reviewing your account
analysis, chances are your
auditor will (or should) ask the
same questions.
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• Compare the year- end balances
to prior year- end balances.
• Can you explain these variances?
• Document so that whenever the
question comes up again
(executive director, program
manager, auditor), you have the
answer at your finger tips and
don’t have to research it again.
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• Does your physical inventory of property
and equipment agree with your property
and equipment on your general ledger.
•
Required to be done once every two years!!
• If your property and equipment balances
increased, has your depreciation expense
increased?
• If property and equipment is down, and
disposals were sold, was the sale
recorded properly?
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• How do your deferred revenues
compare to prior years? Can you
explain the variances from prior
years?
• Finally, most important number to
verify is net assets. Do they agree
with your prior year audit? If not,
why?
• There should be NO adjustments to
this account during the year.
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• What other accounts do you
have? What would account for
their fluctuations? Can you
explain the variances?
• Analytical review can be a key
tool to use when closing the
books at the end of the year.
• Auditors use it and so should you!
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• Next, look at your income statement in
comparison to prior years.
• Are revenues up?
• Did you get new programs?
• Did you get increases in your existing
programs?
• Is your in kind revenue up?
• How about donations?
• Did you have a new fundraising campaign?
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• How do your overall expenses look?
• Are salaries up? If so, is this increase
comparable to wage increases, or did it
come from new staff and new programs?
(Remember to relate this to your balance
sheet amounts for accrued payroll and
benefits.)
• Are space costs up?
• Are you renting new facilities?
• Or have your lease costs increased?
• Are you budgeting for anticipated (or built
in) rental cost increases?
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• How does your depreciation expenses
compare to prior years? Again, relate
this to your balance sheet analysis for
property and equipment.
• How about interest expense?
• Does it agree with your year end
statement from your bank?
• How have you planned for or
budgeted your insurance increases?
© 2005 Wipfli LLP
Topic Three –
Financial Analysis
• Overall, what is your bottom line?
• Excess revenues over expenses?
• If so, why?
• Fee for service activities?
• Fund-raising campaign?
• Excess expenses over revenues?
• Are programs overspent?
• Did you lose funding and not cut expenses?
© 2005 Wipfli LLP
Topic Four – Understanding the
Annual Audit
AUDITEE RESPONSIBILITY UNDER OMB CIRCULAR A-133
The auditee shall:
A.
Identify, in its accounts, Federal awards received and expended (CFDA title
and number, award number and year, Federal agency, and pass-through
entity. (§___.300)
B.
Maintain internal control. (§___.300)
C.
Comply with laws, regulations, and award agreements. (§___.300)
D.
Prepare appropriate financial statements, including schedule of Federal
awards. (§___.300)
E.
Ensure audits are properly performed and submitted when due. (§___.300)
F.
Follow-up and take corrective action on audit findings. (§___.300)
G.
Follow procurement standards prescribed by OMB. (§___.305)
H.
Prepare a schedule of expenditures of Federal awards. (§___.310)
1. List programs by Federal agency
2. List pass-through entity and number
3. Provide expenditures by CFDA number
4. Include notes regarding accounting policies
5. Identify amount provided to subrecipients
6. Include noncash assistance, loans, etc.
© 2005 Wipfli LLP
Topic Four – Understanding the
Annual Audit
I.
J.
K.
L.
M.
N.
O.
P.
Prepare a summary schedule of prior audit findings. (§___.315)
Prepare an action plan for current audit findings. (§___.315)
Submit audit package and data collection form by due date to Federal
clearinghouse and to each pass-through entity. (§___.320)
Sign and certify data collection form. (§___.320)
Make copies available for public inspection (unless restricted by law or
regulation. (§___.320)
Submit copy of any management letters issued by auditors, if requested.
(§___.320)
Keep one copy of form and reporting package (financial statements and
schedule of Federal expenditures, summary schedule of prior findings,
auditor’s reports, and corrective action plan) for three years from date of
submission.
Work with the auditor to take corrective action. (§___.400)
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
A-133 Audit Reports and
Reporting Package Responsibilities
Responsible Party
Item
Financial statements
Opinion on Financial Statements
Schedule of Expenditures of Federal Awards
Opinion on Schedule of Expenditures of
Federal Awards
Report on Internal Control
Report and Opinion on Compliance
Schedule of Findings and Questioned Costs
Summary Schedule of Prior Audit Findings
Corrective Action Plan
Data Collection Form
© 2005 Wipfli LLP
Auditee

Auditor










Topic Four – Understanding the Annual
Audit
• Whose statements are they
anyway?
 They’re yours!
 Auditor gives an OPINION
only on them—does not
PREPARE them
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
• See Sample NPO, Inc. Financial
Statements attached
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
• Parts of an Audit Report
• Financial
 Auditors Opinion
 Statement of Financial Position
 Statement of Activities
 Statement of Cash Flows
• Notes to the Financial Statements
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
• Parts of a Single Audit Report
• Funding source requirements:
• Schedule of Program Activity
• Schedule of Expenditures of Federal Awards and
List of Programs
• Report on Internal Control over Financial
Reporting and on Compliance and other
Matters
• Report on Compliance with Requirements
Applicable to Each Major Program and
Internal Control over Compliance
• Schedule of Findings and Questioned Costs
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
ITEMS THAT SHOULD BE REVIEWED AND
UNDERSTOOD:
•
Opinion, what type was issued on the financial
statements, unqualified, qualified, etc.
•
Were there any restrictions or qualifications?
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
ITEMS THAT SHOULD BE REVIEWED AND
UNDERSTOOD:
On the Statement of Financial Position:
• Significant changes in balances – WHY
• Current Ratio – Current assets vs. current
liabilities
• Total Net Assets, how much are they and what
are they made up of? (Will be explained more
later.)
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
ITEMS THAT SHOULD BE REVIEWED AND
UNDERSTOOD:
On the Statement of Activities:
• Increases or decreases in total revenue, where
and why
• Changes in total expenses, should be
proportionate to changes in revenue
• Change in net assets, was it positive or negative
and why?
• Any other additional adjustments to this
statement?
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
ITEMS THAT SHOULD BE REVIEWED AND
UNDERSTOOD:
On the Statement of Cash Flows:
• Was cash provided by or used by operating
activities?
• How was cash used in investing activities?
• How was cash used in financing activities?
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
• Footnotes to the financial statements
provide the reader with information to
further understand your financial
information.
• It describes your significant account
policies.
• Provides more detailed information to your
material account balances.
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
• Basis of Presentation
 Accrual
 How do you record grant awards?
 Description of Cost Allocation Plan
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
• Other disclosures:
 Concentration of cash, if cash balances
are over $100,000 (the FDIC insured limit)
 Terms of notes receivable and payable
 Related parties
 Subsequent events
 Commitments and contingencies
 Functional classification of expenses
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
• Other disclosures:
 Retirement plan
 Leases
 Related parties
 Property and equipment
 Descriptions of material balance
sheet items
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
• Other disclosures:
 Revolving loans (housing)
 Notes/mortgages payable
 Changes in accounting policy
 Prior period adjustments
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
• Schedule of Program Activity has two
purposes:
 Fulfills A-133 requirements for disclosing
expenses based on CFDA #’s (Catalog of
Federal and Domestic Assistance).
 Breaks down annual activity by individual
grant.
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
Schedule A
Schedule of Program Activity
Year Ended December 31, 2004
F ED ER A L P R OGR A M S
D e pa rt m e nt o f A gric ult ure
DHHS
10 .5 5 8
9 3 .6 0 0
US D A C hild a nd A dult C a re F o o d P ro gra m
T o tal
C hild a nd
C hild a nd
F ull- Y e a r,
T o tal
A dult C a re
A dult C a re
10 .5 5 8
P a rt - D a y
F e de ra l
GA A P
T OT A L
A ge nc y
F o o d P ro gra m
F o o d P ro gra m
S ubt o t a l
O 6 C H 0 2 0 1/ 2 2
P ro gra m s
A djus t m e nt s
P R OGR A M S
A c t iv it y
( 1)
(2)
(2)
(3)
(4)
R E V E N UE
G ra n t re v e n u e
$
D o n a t io n s
3 ,3 4 1,110
$
7 0 ,3 0 1
In k in d c o n t rib u t io n s
To ta l R e v e nue
16 0 ,5 7 0
$
0
7 1,4 12
$
2 3 1,9 8 2
0
$
0
3 ,10 9 ,12 8
$
0
3 ,3 4 1,110
$
0
0
$ 3 ,3 4 1,110
0
0
$
0
7 0 ,3 0 1
3 2 ,16 8
0
0
0
7 8 3 ,6 2 2
7 8 3 ,6 2 2
(
7 5 1,4 5 4 )
3 2 ,16 8
0
3 ,4 4 3 ,5 7 9
16 0 ,5 7 0
7 1,4 12
2 3 1,9 8 2
3 ,8 9 2 ,7 5 0
4 ,12 4 ,7 3 2
(
7 5 1,4 5 4 )
3 ,3 7 3 ,2 7 8
7 0 ,3 0 1
EXP EN SES
P e rs o n n e l
2 ,114 ,3 7 8
3 6 ,5 9 4
10 ,6 3 2
4 7 ,2 2 6
2 ,0 5 2 ,15 2
2 ,0 9 9 ,3 7 8
0
2 ,0 9 9 ,3 7 8
15 ,0 0 0
F rin g e b e n e f it s
3 7 2 ,2 6 5
0
0
0
3 6 7 ,9 18
3 6 7 ,9 18
0
3 6 7 ,9 18
4 ,3 4 7
Oc c upa nc y
2 2 0 ,0 15
0
0
0
3 6 3 ,7 8 0
3 6 3 ,7 8 0
T ra v e l
2 1,4 2 2
0
0
0
2 1,4 4 2
2 1,4 4 2
E q u ip m e n t re p a irs a n d m a in t e n a n c e
9 1,3 4 3
390
0
390
6 0 ,8 2 2
6 1,2 12
Fo o d
18 6 ,5 2 6
115 ,4 9 1
4 7 ,8 3 7
16 3 ,3 2 8
2 3 ,19 8
18 6 ,5 2 6
S u p p lie s
117 ,6 5 4
4 ,8 2 1
5 ,7 4 4
10 ,5 6 5
10 7 ,0 8 9
117 ,6 5 4
Othe r
16 9 ,7 3 9
3 ,2 7 4
7 ,19 9
10 ,4 7 3
112 ,7 2 7
12 3 ,2 0 0
(
13 ,0 4 6 )
In k in d e xp e n s e s
T o t a l E xp e n s e s
(
14 4 ,8 6 6 )
2 18 ,9 14
0
(
2 1,4 4 2
3 5 ,14 5 )
6 5 ,2 7 6
0
18 6 ,5 2 6
0
0
117 ,6 5 4
0
110 ,15 4
5 9 ,5 8 5
3 2 ,16 8
0
0
0
7 8 3 ,6 2 2
7 8 3 ,6 2 2
(
7 5 1,4 5 4 )
3 2 ,16 8
0
3 ,3 2 5 ,5 10
16 0 ,5 7 0
7 1,4 12
2 3 1,9 8 2
3 ,8 9 2 ,7 5 0
4 ,12 4 ,7 3 2
(
9 4 4 ,5 11)
3 ,18 0 ,2 2 1
14 5 ,2 8 9
118 ,0 6 9
0
0
0
0
0
19 3 ,0 5 7
19 3 ,0 5 7
N e t a s s e t s - D e c e m b e r 3 1, 2 0 0 3
8 6 1,7 4 0
0
0
0
0
0
0
0
$
20)
2 6 ,0 6 7
C h a n g e in N e t A s s e t s
N E T A S S E T S - D E C E M B E R 3 1, 2 0 0 4
1,10 1
(
9 7 9 ,8 0 9
$
0
$
0
$
© 2005 Wipfli LLP
0
$
0
$
0
$
19 3 ,0 5 7
$
19 3 ,0 5 7
(
7 4 ,9 8 8 )
8 6 1,7 4 0
$
7 8 6 ,7 5 2
Topic Four – Understanding the Annual
Audit
• Which programs do you subsidize
on an annual basis?
• How much reserves do you have on
hand and how long will they last if
you continue to subsidize?
• Every program should be analyzed
to gain information
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
• How should you use this schedule?
 Review each grant and program to see
if it appears reasonable
 Which programs are overspent?
 Which programs are under spent?
 If there is an over expenditure, who is
paying for it?
 CSBG $$, Agency $$, private funding
sources
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
• If a grant is completed, did you spend it
all?
• Are the individual line items in line within
the grant budget?
• If you didn’t spend it all, have you
requested carryover?
• Or do you have to return unspent funds?
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
• Are there any negative expenses? If so
why? Is there something that should be
reclassified?
• What was the outcome of your agency
activity?
• Did you have to use reserves to fund
overspent grants?
• Did you add to your unrestricted net asset
balance? Or take away?
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
• What is the balance of your temporarily
restricted net assets? And what are they
restricted for?
• What is the balance of your unrestricted
net assets? And how is it funded? (i.e.,
property and equipment, receivables,
loans, or cash?)
• If either one (temporarily or unrestricted
net assets) is in a deficit position, this
needs to be addressed ASAP!! Or it could
be a finding.
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
ITEMS THAT SHOULD BE REVIEWED AND
UNDERSTOOD:
• Report on Internal Control over Financial
Reporting and on Compliance and other
Matters
• Report on Compliance with Requirements
Applicable to Each Major Program and
Internal Control over Compliance
Both of these opinions should be reviewed
to see if any findings were listed, and if so,
are they internal control or compliance
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
ITEMS THAT SHOULD BE REVIEWED AND
UNDERSTOOD:
•
Schedule of Findings and Questioned Costs tells
the reader 9 things:
1. What kind of opinion the overall financial
statements received
2. Whether or not the were reportable conditions
related to the overall financial statements
3. Any noncompliance items
4. Whether or not the were reportable conditions
related to the major programs
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
•
Statement of Findings and Questioned Costs
(continued)
5. Type of opinion on the major programs
6. Where or not there were findings on the
major programs
7. What federal programs were tested
8. Threshold for determining federal
programs
9. Whether or not you are a low risk auditee
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
• What is the balance of your net assets?
• And what are they restricted for?
• And how is it funded? I.e., property and
equipment, receivables, loans, or cash?
• If either any are in a deficit position, this
needs to be addressed ASAP!! Or it
could be a finding.
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
• It is important to have a plan for
the unrestricted net assets
• Also key to know where they are
coming from and what they are
used for.
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
• RULE OF THUMB: Available
unrestricted net assets should be
equal to 5-10% of annual revenue
• Organization’s 2005 Revenue:
$17,644,944
• Organization’s 2005 Unrestricted
Net Assets are $175,713
• Recommended balance should be
between $882,250 and $1,764,500
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
• RULE OF THUMB: Available
unrestricted net assets should be
equal to 5-10% of annual revenue
• Organization’s 2005 Revenue
excluding in kind: $4.9 Million
• Organization’s 2005 Unrestricted Net
Assets are $290,016
• Recommended balance should be
between $245,000 and $490,000
© 2005 Wipfli LLP
Topic Four – Understanding the Annual
Audit
• RULE OF THUMB: Available unrestricted
net assets should be equal to 5-10% of
annual revenue
• NPO’S 2005 Revenue: $19.2 Million
• NPO’S 2005 Unrestricted Net Assets are
$2,801,987 less property and equipment of
$2,118,395 and loans receivable of $503,629
equal an available net assets balance of
$179,963
• Recommended balance should be between
$960,000 and $1,920,000
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
A-110 Sec.___.42 Codes of conduct.
• The recipient shall maintain written
standards of conduct governing the
performance of its employees engaged in
the award and administration of
contracts. No employee, officer, or agent
shall participate in the selection, award,
or administration of a contract supported
by Federal funds if a real or apparent
conflict of interest would be involved.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Conflict of Interest Policy should be a clear written
policy to include:
• Full disclosure of financial interest for board and staff
• Conditions and procedures for board or staff to withdraw
from any action for which a real or potential conflict of
interest might exist
• Transparency and full record keeping of all board or
agency decisions and the parties involved
• Policies and procedures for selective “independent” prior
review of actions or decisions that may pose potential
conflict of interest issues
Avoid situations that advantage board member interests or the
appearance of advantage
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Approach taken by reviewers this year:
•
•
•
Increased emphasis on describing interrelated areas of
noncompliance among services and systems
Emphasis on fiscal monitoring using a “risk based”
approach using red flags to identify underlying fiscal
problems earlier
Fiscal checklist assesses fiscal health in two major
areas:
•
•
Internal Controls
Governance
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Internal Controls/Standards for
Financial Management
• See Checklist attached
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Accounting
1. Are the duties of accounting personnel of the organization
defined in:
•
•
•
a. in a written policy manual?
b. by job description?
c. Are fidelity bonds in place?
2. Is there a chart for:
•
•
a. the accounting department?
b. the Agency?
3. Accounting Manual
•
•
•
a. Does the manual define who has approval authority and
any limits of authority.
b. Provide guidelines for controlling expenditures.
c. A chart of Accounts
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Accounting (continued)
4. Does the accounting system provide for:
•
•
•
a. Documenting and recording the non-Federal share and inkind contributions?
b. Accumulating and recording expenditures by budget cost
category and by grant?
c. Are monthly financial statements prepared?
•
Balance sheet
Revenue/expenditures
Comparison of budget to expenditures
5. Does the organization prepare audited financial statements and
have A-133 audit conducted annually?
6. Has the A-133 audit report been submitted in accordance with A133 timelines?
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Accounting
(continued)
7. Does the organization have a written allocation plan
for indirect costs and/or a negotiated cost rate?
8. Are there written procedures maintained for governing
the maintenance of accounting records?
a.
b.
c.
d.
e.
f.
reconciliation of subsidiaries to control accounts?
journal entries are approved and explained with
supporting documentation?
Approval authority of journal entries?
Transactions dated for the date of entry into the system?
Accrual accounts provide adequate control over income
and expense?
Accounting records and valuables are secured in a
limited-access area?
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Cash Disbursements
1.
2.
3.
4.
5.
6.
7.
Are duties adequately separated? a. To prepare checks? b. To
sign checks? c. Reconcile bank accounts? d. Assign G/L
account number? e. Have access to cash receipts?
All disbursements are properly supported by evidence of
receipt and approval of the related goods and services.
Blank Checks are accounted for and blank checks are not
signed in advance.
Un-issued checks kept in a secure area.
Bank accounts are reconciled monthly.
Bank accounts and check signers are authorized by the board
of directors or trustee.
Is a check signing machine used?
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Cash Disbursements (continued)
8.
9.
10.
11.
12.
Who has access to this machine?
Are keys for signature plate controlled?
Is a log maintained for the check protector utilized?
Is authority for a check to be signed, delegated to
someone not authorized to sign checks?
Have parameters been established by the authorized
check signers for such use?
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Budgetary Controls
1.
Does the organization have and use an operating budget to
control program funds?
2.
Are there budgetary controls in effect to preclude incurring
obligations in excess of (e.g., comparison of budget with
actual expenditures on a monthly basis):
a. total funds available for an award?
b. total funds available for a budget cost category?
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Consultants
1.
Are there written policies or consistently followed procedures
regarding the use of consultants which detail at a minimum:
(Obtain a copy):
a.
b.
c.
d.
2.
Circumstances under which consultants may be used?
Consideration of in-house capabilities to accomplish services
before contracting for them?
Requirement for solicitation or bids from several contract
sources to establish reasonableness of cost and quality of
services to be provided?
Consulting rates, per diem, etc?
Are consultants required to sign "consulting agreements"
outlining services to be rendered, duration of engagement,
reporting requirements, and pay rates?
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Property Management
1.
2.
3.
4.
5.
Are equipment records maintained in
accordance with 45 CFR 74.34?
Equipment Records include:
Description
Serial #
Source of funds/grant number
Title vests recipient/federal
Acquisition date
Location/condition
Unit acquisition cost
Physical inventory every two years
Reconciled with equipment records
Maintenance procedures
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Purchases
1.
2.
Does the organization have written purchasing procedures?
If not, briefly describe how purchasing activities are handled.
(Obtain a copy of policy or procedure)
Do the purchasing procedures provide for:
a. Pre-numbered purchase orders?
b. Procedures to insure procurements are competitive
prices? c. Invoices are matched with purchase orders and
receiving reports?
d. A segregation of duties in that different individuals are
responsible for:
1. Purchase
2. receipt of merchandise or services
3. voucher approval
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Purchases (continued)
2.
Do the purchasing procedures provide for:
e. Is there a pre set $ threshold for obtaining bids?
f. Are there bid procedures in place, approved by the
board?
g. Who is authorized to solicit bids, approve bids? Are bid
packages retained on file for audit purposes?
3.
Conflict of interest policy for vendors, consultants, etc.
(Board members, purchasers, selecting and awarding
officials).
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Travel
1.
Does the organization have formal travel policies or
consistently followed procedures which, at minimum,
state that:
a.
b.
c.
d.
e.
f.
Travel charges are reimbursed based on actual costs incurred
or by use of per diem and/or mileage rates?
Receipts for lodging and meals are required when
reimbursement is based on actual cost incurred?
Per diem rates include reasonable dollar limitations?
Subsistence and lodging rates are comparable to Federal per
diem rates and current Federal mileage rates for personal auto
use?
Commercial transportation costs are incurred at coach fares
unless first class is adequately justified?
Travel requests are approved prior to occurrence?
Travel expenses reports show purpose of trip?
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Credit Cards
1.
2.
Does the organization have internal procedures to
control the use of organizational credit cards,
access to credit cards, and prohibit any personal
expenditures?
Do policies require prior approval of expenditures,
documentation of amounts charged and limit the
amount and types of expenses that can be
incurred.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Program or Grant-Related Income
1.
Does the organization have written policies and
procedures relating to program or grant-related income?
(If yes, proceed below)
a.
b.
c.
d.
e.
Does the applicant maintain records of the earning, receipt, and
disposition of program or grant-related income for which it is
accountable?
Does the program or grant-related income account identify the
type and source of income producing services?
Is a management system in effect that adequately identifies
program or grant-related income for each Government project?
Is there a system to properly dispose of program or grant-related
income?
Are there any financial statements available issued by an
independent accounting firm which identify the source and
disposition of program or grant-related income?
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Audit Report
1.
2.
3.
4.
5.
6.
Opinion on the financial statements.
Financial statements and notes thereto.
Schedule of expenditures of federal awards.
Report on compliance and internal control over financial
reporting based on an audit of financial statements
performed in accordance with Government Auditing
Standards.
Report on compliance with requirements applicable to
each major program and internal controls over
compliance in accordance with OMB Circular A-133.
Schedule of findings and questioned costs, including a
summary of the auditor’s results.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Audit Report (continued)
7.
8.
9.
10.
Summary schedule of prior audit finding.
Data collection form (A-133).
Additional report on immaterial noncompliance and
other items not required to be reported according to
A-133 (management letter) or assurance one was not
issued.
10. Agency’s response/corrective action plan for
each audit issue.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Non-Federal Shares
1.
2.
3.
4.
The good or service is necessary, reasonable, allocable
and allowable. (Basic Cost Principles, reference OMB,
A-122).
The good or service supports an activity that is
included in the program plan and covered by the Head
Start Program Performance Standards.
The good or service is something on which the program
could legally and appropriately spend Federal dollars.
The good or service is something on which the program
would normally spend Federal dollars.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Non-Federal Shares (continued)
5.
6.
The service is performed by the donor for the program,
not by the program for the recipient (especially important
in evaluating allowability of parent volunteer hours). Cash
is converted to a good or service. (Cash becomes nonFederal share when it is spent on an allowable program
cost and is recorded as non-Federal share when the
goods or services are purchased, not when the cash is
received.)
Any Program Income generated and approved for use by
the program must be generated and used in the budget
year during which it was generated and is not counted as
non-Federal share.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Non-Federal Shares (continued)
7.
8.
9.
10.
The amount of non-Federal share generated equals or
exceeds the amount specified in the grant application
(usually 20 percent of total obligation authority (TOA),
less if approved waiver, more if more was included in the
grant proposal and approved in the grant award).
The good or service was provided during the applicable
project period.
To the extent possible, non-Federal share is generated
and documented proportionate to the expenditure of
Federal funds.
Source documentation exists in sufficient detail to
support the claim of the good or service as non-Federal
share.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Non-Federal Shares (continued)
11.
12.
13.
14.
15.
Services are valued similarly to the wages and benefits
paid for a similar service performed by program or
agency staff.
Where no similar service function or job exists in the
program or agency, services are valued based on
documented wage and benefits rates for similar services
performed in the community at large.
Value lies in the service performed, not in the person
performing the service.
Goods are valued at a rate consistent with their market
value in the service area.
Discounts for goods or services are claimed only if those
discounts are not available to the general public.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Non-Federal Shares (continued)
16.
17.
18.
19.
Valuations for donations of space are supported by up-todate, written professional appraisals.
Time spent by parents or other volunteers on fundraising
is not claimed as non-Federal share.
Funds used for non-Federal match in one program are not
used for match in another program.
Except in special circumstances where allowed by
statute, Federal funds cannot be used for match for other
Federal funds.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Vacancies and Impact of Chronic
Under-enrollment
1.
Vacancies are filled in a timely fashion.
2.
Turnover rates are reasonable.
3.
Funds remaining from unfilled vacancies are not
routinely used to fund recurring costs.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Payroll/Personnel Internal Controls
1.
Is employment properly authorized?
a. Type of document
b. Approved by?
c. Assignment of employee position, cost centered. What
is the distribution of the authorization form?
2.
Is separation/termination of employment immediately
reported to the payroll department?
a. By who?, increases, decreases, insurance, pension
b. Type of document
c. Approved by?
d. Who gets a copy?
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Payroll/Personnel Internal Controls
(continued)
3.
Are changes in payroll properly authorized?
a. Withholding, increases, decreases, insurance, pension
b. Who authorizes changes?
c. Who authorizes changes to payroll?
d. Once being authorized, how long before changes go
into effect.
e. Does someone, other than payroll staff, approve payroll
prior to issuances of payroll checks?
4.
Once an employee’s benefit withholding is deducted
from their payroll, how long will it be before payment
is made to the appropriate vendor?
a. Who makes the payment?
b. Who What type of document is utilized?
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Payroll/Personnel Internal Controls
(continued)
5.
6.
7.
8.
9.
10.
11.
Are original time records properly prepared and approved
by supervisors?
Are the payroll records regularly compared with the
records of the personnel department?
How are payroll checks distributed to employees?
Who reconciles the payroll checking account?
Who prepares the quarterly payroll tax reports,
reconciles payroll to quarterly reports to annual W-2
figures?
Who signs the payroll checks? Is it consistent with other
authorized check signers?
Did the reviewer obtain a listing from the Personnel
department of all employees?
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Payroll/Personnel Internal Controls
(continued)
12.
13.
Did the reviewer obtain a printout of the bi-weekly (or
the Agency basis) payroll, to include, by the pay
period: hours worked, gross pay, deductions, net pay
amount and the cost center charged?
Did the reviewer obtain a copy of the latest wage &
salary comparability study?
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Personnel Policies
1.
Are personnel policies established in writing which
include as appropriate the following:
a. Duties and responsibilities of each employee's
position?
b. Qualifications for each position?
c. Salary ranges associated with each job?
d. Promotion policy?
e. Equal employment opportunities?
f. Annual performance appraisals?
g. Types and levels of fringe benefits paid to
professionals, nonprofessionals, officers, or governing
board members?
h. Drug Free Workplace Act - details regarding
employees responsibilities and
requirements/consequences.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Personnel Policies (continued)
2.
3.
4.
Does the organization maintain daily attendance
records for hourly employees? (Is this a 'positive'
recording system showing actual time and
attendance performed?)
Does the agency designate appropriate staff to sign
and certify work performed in item 2?
Does the agency have a policy requiring employees
to disclose outside employment/consulting?
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Documentation for Compensation
1.
2.
Salaries and wages are assigned to appropriate
projects and supported by personnel activity reports
(except when a substitute system has been approved
in writing by the cognizant agency).
Reports reflecting the distribution of activity of each
employee are maintained for all staff members
(professionals and nonprofessionals) whose
compensation is charged, in whole or in part, directly
to the Head Start or Early Head Start program.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Documentation for Compensation
(continued)
3.
4.
5.
To support the allocation of indirect costs, activity
distribution reports are also maintained for other
employees whose work involves two or more functions or
activities if a distribution of their compensation between
such functions or activities is needed in the determination
of the organization's indirect cost rate(s) (e.g., an
employee engaged part-time in indirect cost activities and
part-time in a direct function).
Reports reflect an after-the-fact determination of the
actual activity of each employee. [Note: Budget estimates
determined before the services are performed do not
qualify as support for charges to awards.]
Reports account for the total activity for which employees
are compensated and which is required in fulfillment of
their obligations to the organization.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Documentation for Compensation
(continued)
6.
7.
8.
Reports are prepared at least monthly and coincide with
one or more pay periods.
Charges for the salaries and wages of nonprofessional
employees (i.e., non-exempt employees) are supported by
records indicating the total number of hours worked each
day maintained in conformance with Department of Labor
regulations implementing the Fair Labor Standards Act
(29 CFR Part 516).
Salaries and wages of employees used in meeting cost
sharing or matching requirements on awards are
supported in the same manner as salaries and wages
claimed for reimbursement from ACF.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Wage Comparability
1.
2.
3.
A thorough, up-to-date wage comparability survey
supports the grantee agency’s wage and salary
structure.
The wage comparability survey includes relevant wage
data from the grantee’s service area, neighboring areas
and/or other nearby areas with similar labor market
characteristics.
Wage comparability data from outside the grantee’s
service area (e.g., across a state or even across a region)
is viewed in the context of the labor markets, cost of
living, etc. of those areas in relation to those same factors
in the grantee’s service area.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Wage Comparability (continued)
4.
5.
6.
7.
8.
The wage comparability survey includes appropriate
comparisons (e.g., public school teachers with bachelor’s
degrees are not used to establish comparability for Head
Start teachers with CDAs).
Comparability data is reported as hourly wages to ensure
accurate comparisons.
An adequate number of cases is used to establish
comparability for most grades, classes or levels in the
classification system.
The wage comparability study is current or has been
updated within three to five years.
The wage comparability data reflects compensation in
other publicly funded human services programs, or at
least a reasonable mix of public and private sector human
services salaries.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Wage Comparability (continued)
9.
10.
11.
12.
The wage comparability studies considers factors like the
type of organization, scope of responsibility, program size
and budget, and qualifications (i.e., level of education and
experience) of job incumbents.
Final wage decisions include consideration of
comparability of salary, benefits and other perks.
The agency’s can articulate the rationale for its
compensation decisions.
Salaries and wages are not higher than those paid to
individuals providing substantially similar services in the
area.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Wage and Salary Administration
1.
2.
3.
4.
5.
6.
Salaries and wages paid and total personnel costs are
consistent with what the grantee agency proposed and
was approved in its grant application.
Salaries and wages paid are consistent with the grantee
agency’s salary scale.
Salaries and wages are reasonable taking into account
wage comparability information, the responsibilities of
the position, and the qualifications of the employee.
Each position is classified as exempt or non-exempt as
defined by the Fair Labor Standards Act.
Non-exempt employees receive properly calculated
overtime pay.
Non-exempt employees are paid for overtime, not
awarded "comp time."
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Wage and Salary Administration (continued)
7.
8.
9.
10.
11.
All employees receive at least minimum wage.
Less than twelve month employees whose salaries are
spread over a year receive at least minimum wage for
each hour worked during each pay period.
A position classification system groups positions with
similar qualifications and levels of responsibility for wage
and salary administration purposes.
The position classification system is pegged to the
agency’s or program’s salary scale.
Position classifications and the salary scale ensure fair
and consistent wage and salary administration.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Wage and Salary Administration (continued)
12.
13.
Preference in awarding salary increases is granted to
classroom teachers and staff who obtain additional
training or education related to their responsibilities as
employees of a Head Start program.
Criteria for incentive pay are clearly defined and pay not
related to performance (i.e., bonuses) is not awarded.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Compensation Policies
1.
2.
3.
Agency policies and procedures clearly define fringe
benefits.
Agency policies and procedures clearly define provisions
for performance awards (e.g., incentive pay, performancebased compensation, and non-cash awards), if
applicable.
Compensation policies are applied consistently across
the organization.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Compensation Policies
4.
5.
(continued)
When the Federal government grants funds specifically
for the improvement of salary and wages those increases
are granted to Head Start personnel regardless of whether
or not funds are available to provide similar increases to
employees who perform non-Head Start services.
Written policies include position descriptions addressing
roles and responsibilities, relevant qualifications, salary
range, and employee benefits.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Compensation Procedures
1.
2.
3.
4.
Employees are actually paid what is reported.
Head Start employees received across the board COLA
increases at least at the percentage specified in the
funding guidance from ACF for the current program
year.
In cases where employees did not receive the prescribed
COLA, an up-to-date, relevant wage comparability survey
reveals that providing a cost-of-living increase would
result in a salary exceeding comparability.
If the COLA increase was not reflected in the initial
refunding, retroactive COLA increases were granted or an
across the board increase of at least the COLA
requirement was given at the beginning of the program
year.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Compensation Procedures (continued)
5.
6.
7.
Funds specifically allocated and awarded for
improvements in salaries and fringe benefits are used
exclusively for that purpose unless some deviation from
that requirement was requested and approved;
documentation exists regarding why the requirement was
not addressed.
Time sheets are signed by employee or by a responsible
supervisory official who has first hand knowledge of the
activities performed by the employee.
Time sheets are consistent with actual pay.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Administrative Cost (15%)
1.
2.
3.
The salaries and benefits of employees engaged in the
management functions of accounting, budgeting,
coordination, direction, and planning, as well as the
management of payroll, personnel, property and
purchasing and those who support their work (e.g.,
clerks, secretaries) are included in administrative
costs.
Administrative personnel costs include the
janitor/custodian for administrative office space.
Administrative personnel costs include costs associated
with volunteers carrying out administrative functions.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Taxes, Premiums, Contributions
1.
2.
3.
4.
5.
All employee withholding and other taxes are paid on a
timely basis.
All premiums are paid prior to their due dates.
Employer contributions to pension plans are made on a
timely basis.
Dollars withheld from employees’ pay checks are used
only to pay the taxes and premiums and make the
contributions for which they were intended.
IRS reports have been properly completed and filed with
the IRS (IRS 990, 941 and 1099.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Benefits Administration
1.
2.
3.
4.
5.
Fringe benefits are applied consistently to all employees
in a particular classification.
Agency benefits include both health insurance and
retirement or pension programs.
Organization-furnished vehicles are not available to
employees for personal use.
Use of agency credit cards by staff is tightly controlled.
Agency credit cards are never used by employees to
cover personal expenses.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Benefits Administration (continued)
6.
7.
8.
Entertainment costs are incurred only as incidental
expenses in conjunction with other activities contributing
to employee morale, health and welfare, professional
development, community involvement or service,
employee recognition, and other program related
functions.
Leave obligations are calculated, potential liability is
assessed, and leave recorded on the books is charged to
the appropriate grant.
When leave accruals from grant year to grant year are
allowed, year end and other periodic entries are made to
financial statements for accrued leave.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
Benefits Administration (continued)
Fraud may be perpetrated through payroll by padding the
earnings of employees, by overfooting the payroll records, by
padding the payroll with fictitious employees, by leaving exemployees on the payroll, by keeping unclaimed wages, and
by failing to record deductions from employees’ wages.
Payroll procedures involve hiring, keeping a record for each
employee of the time worked and not worked, computing the
periodic pay, individually and in total. Payroll manipulation
may be accomplished by one person alone, if precautions are
not taken. Even with proper safeguards, the collusion of two
or more employees makes fraud comparatively easy.
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
• Many organizations, including NPO’s are
adopting less expensive public company
reforms
• Including:
• Implementing audit committee oversight of
auditors
• Implement restrictions on executive
compensation
• Development of ethic codes
• Approval of non-audit services by the board
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
• Be sure to have at least one
financially savvy member on the
board and be sure that they are
on the audit committee
• Strengthen internal controls
© 2005 Wipfli LLP
Topic Five –
Other Miscellaneous Items
• Make CEO, ED, and other
executives more accountable
• Board should be involved in the
audit, have at least one board
member attend the exit conference
• Board presentations from the
auditors, both with and without
management present
© 2005 Wipfli LLP
Summary
• Discuss with your board what kind of information they
want but keep it simple.
• Use technology to do this work for you, don’t recreate the
wheel.
• Analyze your net assets. Know what is temporarily
restricted and unrestricted.
• Remember only donors or funding agencies can restrict
your assets. Boards can only designate net assets.
• Be familiar with your tax return. It tells a lot about your
organization, and is public information.
• While you are a nonprofit organization, you are also a
business and you need to manage your organization as a
business.
• Grants are competitive and the organizations that are the
most efficient and effective will prevail.
• You are increasing being asked to do more with less,
both dollars and staff, and you need to be able to
respond to this challenge.
© 2005 Wipfli LLP
Concluding Thoughts…
Questions???
© 2005 Wipfli LLP
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Financial Analysis for NPOs