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May 20, 2015

Craig E. Witmer, CPA, CGFMMember of the Firm

Kevin B. Stouffer, CPAManager

Capital Area SBOAccounting/Auditing Update

Topics:

•GASB 68 – Pension Example

•Uniform Grant Guidance - Overview

Handouts:

• Slide copies

•GASB Example Disclosures

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GASB 68 Accounting and Financial Reporting for Pensions

• Implementation is now – June 30, 2015

• Focus for Today• Sample calculation using current

information from PSERS

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Timing• GASB 68 is effective for school districts’ year end 6/30/15

• PSERS will implement the plan standard, GASB 67, as of 6/30/14

• This measurement date will be June 30, 2014 for the school districts’ June 30, 2015 fiscal year• This is built into the standards to allow adequate time to provide

necessary information to employers to include in their financials

• School districts must record their collective share of the following as of a date no earlier than the end of the districts’ prior fiscal year end:• Net pension liability

• Pension expense

• Pension deferred outflows and inflows

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Timeline

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District Fiscal Year

July 1, 2014 June 30, 2015

Contributions subsequent to beginning NPL / Contributions subsequent to measurement date

Contribution during plan year

Plan Year

July 1, 2013 June 30, 2014

Measurement

Date

(NPL, DO,DI for District as of 6/30/15)

What will PSERS Provide?• Schedule of Net Pension Allocations by Employer

• Detailed out for each Employer• Includes:

• Beginning and ending Proportion share and NPL• Proportionate share of contributions• Sensitivity Analysis

• Schedule of Allocations of Pension Amounts by Employer• Detailed out for each Employer• Includes:

• Proportionate share of NPL• Proportionate share of plan deferred inflows and outflows• Calculation of change in proportionate share and amortization

of this• Proportionate share of pension expense

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What will PSERS Provide?• Schedule of Employers’ Proportionate Share of Deferred

Outflows/Inflows• Includes future amortization of Deferred inflows/outflows

calculated by PSERS

• Supplemental Notes for employers to help with implementation

• Footnote Information for Employers (planned for later)

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What will Employer Need to do?• Calculate difference between proportionate share of

contributions and actual contributions• Difference for summer pays

• Create amortization schedule for this item

• Merge into calculation of pension expense and related footnote disclosures

• Determine allocation between governmental activities and proprietary funds/business-type activities (food service)

• Take information from PSERS and employer provided to create necessary journal entries

• Prepare necessary footnotes and RSI schedules

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Calculation Inputs – Sample School District• Information from PSERS (Plan year Ending June 30, 2014)

• Beginning Collective Net Pension Liability(NPL) = $ 40,936,255,000

• Ending Collective Net Pension Liability(NPL) = $ 39,580,717,000

• Ending Collective Deferred Inflows of Resources = $ 2,829,572,000

• Ending Collective Deferred Outflows of Resources = $ 0

• Collective Pension Expense $3,466,118,000

• Collective Contributions to the Plan $1,992,084,000

• Average Remaining Service Life 5.15 Years

• School District Proportionate Share – Beginning .1327%

• School District Proportionate Share – Ending .1371%

• Information from Employer• Actual employer contributions $2,817,932

• Based on 16%, not 16.93% for 13/14

• Governmental Activities % 98%

• Food Service % 2%

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Calculation Step 1 – Record Beginning NPL

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Collective NPL 40,936,255,000

District Share 0.1327% 54,322,410

DR CR

Net Position 54,322,410

NPL 54,322,410

Govt Act 98% 53,235,962

Food Service 2% 1,086,448

Calculation Step 2 – Record Beginning Deferred Outflow for Contributions Subsequent to the Measurement Date

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This is District Fund Level Expense for 13/14 that is subsequent to beginning NPL based on plan year – June 30, 2013

School District Contributions @ 16.93% 2,981,724

School District Contributions @ 16 2,817,932

DR CR

Deferred Outflow of Resources 2,817,932

Net Position 2,817,932

Calculation Step 3 – Record Proportionate Share of Contributions to the Plan

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This differs from actual contributions due to when plan recognizes contributions for summer pays

Collective Plan Contributions 1,992,084,000

District Share 0.1371% 2,731,147

DR CR

Net Pension Liability 2,731,147

Deferred Outflow of Resources 2,731,147

Calculation Step 4 – Record 1st year of amortization of difference between proportionate share of contributions and actual contributions

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Actual Contributions 2,817,932

Proportionate share of contributions 2,731,147)(

Difference 86,785

Amortize (divide by 5.15) 16,851

DR CR

Pension Expense 16,851

Deferred Outflows of Resources 16,851

Calculation Step 5 – Record Deferred Outflow for Contributions Subsequent to the Measurement Date (Ending)

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This is for contributions during 14/15 that are subsequent to the plan year end date / measurement date of 6/30/14

School District Contributions @ 21.4% 3,768,984

School District Contributions @ 20.5% 3,610,475

DR CR

Deferred Outflow of Resources 3,610,475

Pension Contributions (fund level expense) 3,610,475

Calculation Step 6 – Record Deferred Outflow or Inflow for Change in Proportionate share

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For the first year this is only the change of the NPL since there are no beginning plan deferred outflows/inflows. In year 2 this will encompass the change in proportionate share of collective NPL and Deferred Inflows/Outflows

Beginning Collective NPL 40,936,255,000

Beginning Proportionate Share-PY % 0.1327% 54,322,410

Beginning Proportionate Share-CY % 0.1371% 56,123,606

Change in Proportionate Share - Deferred Outflow 1,801,195

DR CR

Deferred Outflow of Resources 1,801,195

NPL 1,801,195

Calculation Step 7 – Record 1st year of amortization of change in proportionate share

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Change in Proportionate Share - Deferred Outflow 1,801,195

Amortize (divide by 5.15) 349,747

DR CR

Pension Expense 349,747

Deferred Outflows of Resources 349,747

Calculation Step 8 – Record proportionate share of collective pension amounts

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Collective Deferred Outflows 0

Collective Deferred Inflows 2,829,572,000)(

Collective Pension Expense 3,466,118,000

Proportionate Share - Deferred Outflows 0.1371% 0

Proportionate Share - Deferred Inflows 0.1371% 3,879,343)(

Proportionate Share - Pension Expense 0.1371% 4,752,048

DR CR

Pension Expense 4,752,048

Deferred Outflows 0

Deferred Inflows 3,879,343

NPL (difference) 872,705

Calculation Step 9 – Calculation CheckDo Entries to NPL equal ending proportionate share?

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Collective NPL - Ending 39,580,717,000

Proportionate share of NPL - Ending 0.1371% 54,265,163

Step 1 - record beginning NPL 54,322,410

Step 3 - reverse beginning D/O for share of contribubtions 2,731,147)(

Step 6 - record D/O for change in share of NPL 1,801,195

Step 8 - record share of plan numbers 872,705

Check total 54,265,163

Final Impact for June 30, 2015

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DR (CR)

Governmental BTA/

Statement of Net Position Total Activities Food Service

98% 2%

Deferred Outflows 5,131,857 5,029,220 102,637

Deferred Inflows 3,879,343)( 3,801,756)( 77,587)(

Net Pension Liability 54,265,163)( 53,179,860)( 1,085,303)(

Net Position 51,504,478 50,474,388 1,030,090

Statement of Activities/Statement of Revenue, Expenses and Changes in Net Position

Pension Expense 5,118,646 5,016,273 102,373

Contributions (Fund Level Pension Expense) 3,610,475)( 3,538,266)( 72,210)(

Total 0 0)( 0

Comparison

June 30, 2014 Net Position 17,735,604 153,380

June 30, 2014 General Fund Revenue 40,372,581

June 30, 2014 Reported Salaries 17,495,813

Uniform Grant Guidance (UGG)

•Current Guidance for Federal Awards• Duplicative• Conflicting• Eight (8) Circulars

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•Purpose of new guidance• Reduce administrative burden for those

receiving federal awards• Strengthen accountability for federal

dollars by improving policies that protect against waste, fraud, and abuse

• Increase management focus on performance outcomes

• Streamlined rules governing federal funds

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• Impact to School Districts• Effective for federal grants awarded after

December 26, 2014• One resource for federal guidance• Defines administrative requirements to

ensure performance over federal grants

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• Effective Date• All new federal awards made after

December 26, 2014• Additional funding to existing awards

(“funding increments”) made after December 26, 2014

•Audit Requirements• Effective for fiscal years beginning on or

after December 26, 2014

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• June 30, 2015 Year-End• Expected to have minimal impact (only

effective for grants awarded after December 26, 2014)

• June 30, 2016 Year-End• Will be effective for grants awarded after

December 26, 2014• Will not be effective for any carryover of

grants from the previous year• Both sets of guidance (pre-UGG and UGG)

will be effective if any carryover of grants24

•Document Details• Six (6) Subparts

• Subpart A, 200.XXX – Acronyms and Definitions

• Subpart B, 200.1XX – General

• Subpart C, 200.2XX – Pre-Award – Federal

• Subpart D, 200.3XX – Post-Award –Recipients

• Subpart E, 200.4XX – Cost Principles

• Subpart F, 200.5XX – Audit Requirements

• Eleven (11) Appendices

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•Document Details• Three Major Sections

• Reforms to administration requirements (Subparts A-D)

• Reforms to cost principles (Subpart E)

• Audit requirements (Subpart F)

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• Administrative Requirements• Focus on performance

• Fixed amount awards focused on meeting performance milestones

• Emphasis on performance goals and performance reporting

• Information to be included in a federal award• Standard 15 data elements• Guidance on federal award agency, program, or

award specific terms and conditions• Requires federal awarding agency to include an

indication of the timing and scope of expected performance as related to the outcomes intended to be achieved

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• Procurement• Document policies which reflect federal law,

standards of UGG, and any state regulations• Necessary (and economical – shared service

purchases recommended where practical)• Written conflict of interest policies required• Documentation of procurement

activities/steps required• For compliance with the new procurement

standards only, the federal government is providing a grace period of one full fiscal year after the effective date of the Uniform Guidance for Federal Awards

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•Procurement – Five Methods• Micro Purchase

• Threshold - $3,000 (aggregate total); $2,000 if subject to Davis-Bacon

• No competitive quotes required if management determines that price is reasonable

• Small Purchase• Threshold – less than the simplified acquisition

threshold (currently $150,000)

• Informal procedures acceptable

• Price or rate quotes must be obtained from an adequate number of sources (3)

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• Procurement – Five Methods• Sealed Bids

• Threshold – more than the simplified acquisition threshold (currently $150,000)

• Formal solicitation required• Fixed price awarded to responsible bidder that conformed

with all material terms and is the lowest in price• Most common for construction contracts

• Competitive Proposals• Threshold – more than the simplified acquisition threshold

(currently $150,000)• Formal solicitation required• Fixed price or cost-reimbursement contracts• Used when sealed bids are not appropriate• Awarded to responsible firm whose proposal is most

advantageous to the program, with price being one of the various factors

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•Procurement – Five Methods• Noncompetitive Proposals

• May be used only when one or more of the following are applicable:• The item is available only from a single source

• The public exigency or emergency for the requirement will not permit a delay resulting from competitive solicitation

• The Federal awarding agency (or pass-through entity) expressly authorizes this method in response to a written request from the non-Federal entity

• After solicitation of a number of sources, competition is determined to be inadequate

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• Internal Controls• Required to establish and maintain effective

internal controls over federal programs• Financial Management System – written

procedures to implement the requirements of cash management and for determining the allowability of costs in accordance with the cost principles

• Best practice to utilize:• COSO (Committee of Sponsoring Organizations)• Green Book (from U.S. Government Accountability

Office)

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•Other Administrative Requirement Key Changes• Interest earned on federal funds

• Up to $500/year may be retained

• Amounts in excess of $500/year should be paid back

• Technology• Defined that computers are considered supplies

and not equipment

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•Other Administrative Requirement Key Changes• Stronger oversight

• Emphasis on conflict of interest policies and procedures

• Mandatory disclosure of fraud or bribery impacting award

• Emphasis for federal agencies to build on single audit results, rather than repeating procedures

• Terminology• “Must” means “required”

• “Should” indicates best practices or recommended approach

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•Cost Principles Key Changes• Time and Effort Reporting

• Focus on high standards for maintaining strong internal controls to justify costs of salaries and wages

• Personnel activity reports not specifically required –focus shifted to appropriate internal controls in place to ensure that charges to federal awards for salaries and wages are based on records that accurately reflect the work performed

• Maintained that when charges based on budgeted amounts, internal controls must exist to ensure adjustments are made so final amounts charged to federal awards are proper

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•Cost Principles Key Changes• Time and Effort Reporting

• Time distribution records must be maintained for all employees whose salary is:• Paid in whole or in part with federal funds

• Used to meet a match/cost share requirement

• Certifications for employees who are 100% federally funded are not required

• Cannot be based on budgeted distributions alone –needs to be support by actual hours worked

• Include all time worked for the organization to calculate what portion relates to federal awards

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•Cost Principles Key Changes• Time and Effort Reporting

• Nonexempt employees must also prepare records indicating the total number of hours worked each day

• In addition to the allocation of time, need to continue to consider controls over existence of employees and reasonableness of compensation

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• Cost Principles Key Changes• Other Items of Interest

• Subrecipient Monitoring• Mandatory risk assessment to determine appropriate

monitoring• Verify subrecipients have audits• Review audit results• Determine necessary action for subrecipient

noncompliance, follow up, issue management decision• Indirect/Direct Costs

• Pass-through entities required to provide indirect cost rate to subrecipients

• List of items requiring prior written approval• Fringe benefits – excessive severance unallowable• Conference spending clarified 38

• Single Audit Changes• Effective for June 30, 2016 fiscal year• Single audit threshold raised from $500,000 to

$750,000• Coverage requirements for major programs tested

changed to 20% for low risk auditees and 40% for non-low risk auditees

• Threshold raised for Type A programs (from $300,000 to $750,000)

• Questioned costs threshold raised to $25,000• Findings require “perspective” section (isolated,

prevalent, type of sampling used)39

•What To Do Now• Read the Uniform Grant Guidance• Communicate with all sources of federal grants to

determine which grants are impacted by UGG• Prepare/Update internal controls related to

federal grants (written policies and procedures are required)

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•Resources• Uniform Grant Guidance (2 C.F.R. 200)

• https://www.whitehouse.gov/omb/grants_docs• Includes a crosswalk from predominant sources in

existing guidance• Council on Financial Assistance Reform (COFAR)

• https://cfo.gov/cofar• Includes resources for understanding the uniform

guidance• COFAR Frequently Asked Questions

• https://cfo.gov/wp-content/uploads/2014/11/2014-11-26-Frequently-Asked-Questions.pdf

• Detailed list of frequently asked questions regarding Uniform Grant Guidance 41

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Craig E. Witmer, CPA, CGFM Kevin B. Stouffer, CPAMember of the Firm Manager

cwitmer@sek.com kstouffer@sek.com

Smith Elliott Kearns & Company, LLCCertified Public Accountants & Consultants

804 Wayne AvenueChambersburg, PA 17201

717.263.3910

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