Chapter 11 - Auditing Chapter 12 - Budgeting
Chapter 11 - Auditing Chapter 12 - Budgeting
Chapter 11 - Auditing Chapter 12 - Budgeting
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ACCY 161 – Fall 2013<br />
<strong>Auditing</strong> Governmental Entities (and Nonprofit Entities) Week of Nov <strong>11</strong>th<br />
I. Class Notes<br />
1. Projects – start this weekend on BlackBoard and handouts on class web page – to be<br />
completed by the last day of class.<br />
II.<br />
a. #1 CAFR review<br />
b. #2 Service Efforts and Accomplishment review<br />
c. #3 Not-for-Profits<br />
d. #4 Federal Government<br />
e. #5 Careers<br />
GAAP Hierarchy Summary – “Compliance with GAAP”<br />
1. Statements and Interpretations<br />
2. Technical Bulletins and Industry Guides<br />
3. Emerging Issues and Practice Bulletins<br />
4. “Q’s and A’s” and industry practices<br />
III. Governmental <strong>Auditing</strong> Standards – GAGAS: Generally accepted government auditing<br />
standards set forth in the “yellow book:”<br />
“The concept of accountability for public resources is key in our nation’s governing process<br />
and a critical element for a healthy democracy. Legislators, government officials, and the<br />
public want to know whether government services are being provided efficiently,<br />
effectively, economically, and in compliance with laws and regulations. They also want to<br />
know whether government programs are achieving their objectives and desired outcomes, and<br />
at what cost. Government managers are accountable to legislative bodies and the public for<br />
their activities and related results. Government auditing is a key element in fulfilling the<br />
government’s duty to be accountable to the people. <strong>Auditing</strong> allows those parties and other<br />
stakeholders to have confidence in the reported information on the results of programs or<br />
operations, as well as in the related systems of internal control. Government auditing<br />
standards provide a framework to auditors so that their work can lead to improved<br />
government management, decision making, oversight and accountability.”<br />
A. Include Generally Accepted <strong>Auditing</strong> Standards (GAAS) – see Notes 18a<br />
1. Expanded for specific needs of governmental and not-for-profit entities –<br />
2. Note the “*” on the illustration on that page indicating that the AICPA does not<br />
have standards for performance audits but does have standards for consulting<br />
services.<br />
B. Essentially set by the Governmental Accountability Office (GAO) – a federal agency<br />
– you will visit this page on the Federal project.<br />
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ACCY 161 – Fall 2013<br />
IV. Types of “normal” audits<br />
A. Financial audits<br />
B. Attestation Engagements<br />
<strong>Auditing</strong> Governmental Entities (and Nonprofit Entities) Week of Nov <strong>11</strong>th<br />
C. Performance audits – defined by the GAO, not GASB or AICPA<br />
1. No auditing or performance standards<br />
2. No opinion, but an independent determination of:<br />
a. Efficiency<br />
b. Effectiveness<br />
c. Economics<br />
3. Examples: http://www.gao.gov/docsearch/pastweek.html<br />
D. Investigations – not covered by auditing standards Investigations – not covered by auditing<br />
standards but often done by audit agencies or audit units. In the State of California done by:<br />
1. BSA – Bureau of State Audits<br />
2. DoF – Department of Finance<br />
3. SCO – State Controller’s Office<br />
4. CHP – California Highway Patrol<br />
5. DMV – Department of Motor<br />
Vehicles<br />
6. BoE – Board of Equalization<br />
7. FTB – Franchise Tax Board<br />
8. IG – Various inspector generals<br />
9. Various internal audit departments<br />
Generally has potential for criminal as well as civil actions as a result of the process.<br />
So evidential matter is very important in both content and process of acquisition an<br />
presentation. If you are interested in this area you should think about taking a Criminal<br />
Justice class.<br />
E. Some comments on objectives:<br />
1. For performance audits: more directed towards “waste.”<br />
2. For investigations: more directed towards “fraud and abuse.”<br />
F. Performance and Accountability Reports in the Federal Government<br />
1. Not the same as the ad-hoc approach found at the state and local level:<br />
2. But a formal reporting process primarily at the federal level: Performance and<br />
Accountability Reports<br />
Example: U. S Department of Treasury<br />
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ACCY 161 – Fall 2013<br />
V. Single Audit – Part of Project #1<br />
<strong>Auditing</strong> Governmental Entities (and Nonprofit Entities) Week of Nov <strong>11</strong>th<br />
A. Established by Congress and administered by the Office of Management and Budget (not GAO)<br />
and provides for an organization-wide audit rather than a grant-based audit.<br />
B. Referenced to OMB-133 – Office of Management and Budget Circular No. 133.<br />
C. Essentially a compliance audit tagged on to a financial audit<br />
1. Internal controls, reportable conditions, questioned costs, corrective actions, disallowed costs<br />
2. Three parts to the total package<br />
a. Financial audit – GAAS/GAGAS<br />
b. Internal controls and compliance audit – GAGAS<br />
c. Program-specific audit – Single audit guidelines<br />
3. Then a schedule of findings and questioned (but not disallowed) costs<br />
4. Sort of a Sarbanes-Oxley for governmental and nonprofit entities<br />
5. Cognizant agency.<br />
D. Example from search above “Single Audit”<br />
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ACCY 161 – Fall 2013<br />
<strong>Auditing</strong> Governmental Entities (and Nonprofit Entities) Week of Nov <strong>11</strong>th<br />
<strong>Budgeting</strong><br />
I. Budget Officer Example<br />
A. Job Description<br />
Staff Services Manager I (Specialist), Budget Officer – Information Technology<br />
& Management Services Division - Salary: $5079 - $6<strong>12</strong>7 California Public<br />
Utilities Commission Information Technology & Management Services Division<br />
B. How To Apply: Interested candidates must submit an online job application<br />
along with a resume, statement of qualifications (soq) and a completed<br />
questionnaire. The SOQ must address the candidate’s experience and<br />
qualifications:<br />
as they relate specifically to bullet items in the Required Experience/Qualifications<br />
section of this bulletin.<br />
The SOQ shall be in:<br />
<strong>11</strong> point,<br />
Arial font,<br />
no longer than three (3) typewritten pages<br />
and should be in a narrative format.<br />
Candidates will be rated on the content of their statements as well as their<br />
written communication skills.<br />
If a candidate submits more than three pages, only the first three pages of the SOQ<br />
will be evaluated.<br />
The content of the SOQ should provide the reviewers with sufficient details for<br />
each topic area to demonstrate the candidate’s ability to serve as a Staff Services<br />
Manager I (Specialist) in the capacity of Budget Officer. The Questionnaire<br />
requires responses to the questions listed below in writing. The response should<br />
be typed and no more than three (3) pages in length. Please do not state “see<br />
application or see resume” in your responses.<br />
In the ONLINE JOB APPLICATION, please enter responses to your Questionnaire<br />
in the same field as the SOQ.<br />
1. Briefly describe a situation that demonstrates your ability to maintain good<br />
relationships with a diverse (all program/operational/administrative<br />
levels/technical and non-technical) customer base in a complex environment.<br />
2. Describe a project you've managed including a) number of team members on<br />
project b) work with vendors, agencies & the public c) level of responsibility<br />
d) degree of autonomy e) project outcome f) what you learned from the<br />
experience.<br />
3. Describe your experience in the preparation and development of budgets.<br />
Specifically, describe the methodology used to develop them, your role and<br />
responsibilities, staff and their responsibilities, evaluation and monitoring,<br />
and effective controls.<br />
4. Describe your experience leading teams through difficult situations. Explain<br />
the situation, what specifically made that situation difficult, how you managed<br />
the team through that situation, and the final outcome.<br />
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ACCY 161 – Fall 2013<br />
<strong>Auditing</strong> Governmental Entities (and Nonprofit Entities) Week of Nov <strong>11</strong>th<br />
C. DUTIES AND RESPONSIBILITIES: The Budget Officer will be responsible for<br />
the Budget Office and report to the Chief of Management Services, who reports to<br />
the Director of the Division. The Budget Officer will be responsible for the<br />
development, adoption and administration of the Commission’s budget. This<br />
position is also responsible for directing and managing complex, distributed<br />
analytical projects of significant impact to the Commission. Based on a thorough<br />
understanding of the organization and its strategic and business planning goals,<br />
this position will be responsible for the provision of budgetary and analytical<br />
support to a broad range of internal and external stakeholders. The budget and<br />
analysis function serves as a business partner for internal customers, providing a<br />
high level of customer service.<br />
This position will also be responsible for planning, organizing and reviewing the work<br />
of staff that support the portfolio of projects assigned to this position.<br />
The Budget Officer plans, oversees and has direct responsibility for all strategy,<br />
policymaking/implementation, budgetary, operational, and personnel planning for<br />
the Budget Office. S/he will be responsible for the effective resolution of a broad<br />
range of governmental, fiscal, supervisory, and/or managerial issues.<br />
In addition, s/he will conduct and review analytical studies and surveys; formulate<br />
procedures; policies; program alternatives; make recommendations on a broad<br />
spectrum of administrative and program-related problems; review and analyze<br />
legislation, statutes, regulations, and policy guidelines and advise management on its<br />
impact or potential impact; and represent the Commission.<br />
The Budget Officer will be responsible for planning, reviewing, managing,<br />
directing, assigning tasks, and establishing priorities based on Commission needs.<br />
Oversee, develop, and implement processes and procedures in order to streamline<br />
and improve efficiencies within the Office. Prepare management memos and<br />
reports.<br />
D. REQUIRED EXPERIENCE/QUALIFICATIONS: Knowledge, skills and ability must<br />
be demonstrated in the following areas:<br />
Thorough understanding of public budgeting and fund accounting; knowledge<br />
of Generally Accepted Accounting Principles (GAAP); Government Accounting<br />
Standards Board (GASB) Statements, Guidelines, and Standards;<br />
California State financing and budgeting practices, calendar, and legislative<br />
procedures.<br />
Working knowledge of budgeting and accounting software; and federal, state<br />
and local laws, regulations relating to the assigned areas of responsibility.<br />
Strong leadership and program management skills and political astuteness.<br />
Knowledge of effective change management, planning, organizing, directing<br />
and engaging staff. Excellent written and communication skills. Strong<br />
interpersonal, team building, and customer service skills.<br />
Experience with a variety of computer systems and tech savvy. Experience<br />
collecting and using data to drive management decisions. Excellent analytical<br />
skills, including the ability to use good judgment when analyzing data and<br />
situations, draw sound conclusions, and take effective actions. Flexibility and<br />
willingness to thrive in an environment of change.<br />
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ACCY 161 – Fall 2013<br />
<strong>Auditing</strong> Governmental Entities (and Nonprofit Entities) Week of Nov <strong>11</strong>th<br />
E. DESIRABLE EXPERIENCE/QUALIFICATIONS College graduation with a<br />
Bachelor’s or Master’s degree in accounting, finance, public administration or a<br />
closely related field; and three years of progressively responsible professional<br />
experience in a combination of the following areas; public accounting, budgeting,<br />
financial management; financial planning; or an equivalent combination of training and<br />
experience.<br />
II. Some broader comments on budgeting related to public policy and public administration<br />
1. Growth of government in from the late 1800’s to now<br />
a. More demands for public goods – primarily education<br />
b. The special case of the public good of national defense in response to globalization<br />
c. Regulations of a more complex economy and society<br />
d. Social equity issues seen in redistribution of income or wealth<br />
e. A situation issue of the “baby-boom” generation<br />
2. One of the points that has been recognized at the beginning of modern public<br />
administration was an article written by Woodrow Wilson before he became the 28th<br />
Ppresident of the United States. Here are some excerpts from that article written in 1887<br />
(from “The Study of Administration” by Woodrow Wilson, Political Science Quarterly (June<br />
1887))<br />
There is scarcely a single duty of government which was once simple which is not<br />
now complex; government once had but a few masters, it now has scores of<br />
masters. Majorities formerly underwent government; they now conduct<br />
government.<br />
….<br />
If an explanation be sought why a science manifestly so susceptible of being made<br />
useful to all governments alike should have received attention in Europe, where<br />
government has long been a monopoly, rather than England or the United States,<br />
where government has long been a common franchise , the reason will doubtless<br />
be twofold:<br />
<br />
first that in Europe, just because government was independent of popular<br />
assent, there was more government to be done; and,<br />
second, that the desire to keep government a monopoly made the<br />
monopolists interested in discovering the least irritating means of<br />
governing. …<br />
We have enthroned public opinion; and it is forbidden us to hope during its reign<br />
for any quick schooling of the sovereign in executive expertness or in the<br />
conditions of perfect functional balance of government. The very fact that we have<br />
realized popular rule in its fullness has made the task of organizing that rule just so<br />
much more difficult. In order to make any advance at all we must instruct and persuade<br />
a multitudinous monarch called public opinion – a much less feasible undertaking than<br />
to influence a single monarch.<br />
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ACCY 161 – Fall 2013<br />
<strong>Auditing</strong> Governmental Entities (and Nonprofit Entities) Week of Nov <strong>11</strong>th<br />
3. Public administration or a more modern term the “new public management” (NPM)<br />
a. Legal aspect<br />
b. Managerial aspect<br />
c. Political aspect<br />
d. The political-administrative dichotomy issue<br />
4. Public policy – this is what we want the government to do<br />
5. A good comment on the role of the public administrator: from “Introduction to Part I” by<br />
Jay M. Shafritz and Albert C. Hyde in Classics of Public Administration (2008) Wadsworth<br />
Cengage Learning<br />
Rome, like Egypt, Persia, and other empires before it, conquered the ancient<br />
world because it had an organizational doctrine that made its soldiers far more<br />
effective than competing forces – and because its legions were backed up by a<br />
sophisticated administrative system of supply based on regular if not equitable<br />
taxes. The Roman Empire only fell when its legions degenerated into corps of<br />
mercenaries and when its supply and tax bases were corrupted. Napoleon was<br />
wrong. Armies do not "…march on their stomachs;' as he said; they march on the<br />
proverbial backs of the tax collectors and on the roads built by administrators.<br />
Regular pay allows for discipline. Strict discipline is what makes a mob an army.<br />
And a disciplined military, obedient to the leaders of the state, is a precondition for<br />
civilization. This is the classic chicken and egg problem. Which comes first----<br />
effective public administration or an effective military? The rise and fall of<br />
ancient Rome proved that you could not have one without the other. Early<br />
bureaucrats in ancient Rome and modern Europe literally wore uniforms that<br />
paralleled military dress. After all, the household servants of rulers<br />
traditionally wore livery. It indicated that the wearer was not free but the<br />
servant of another. Government administrators are still considered servants in<br />
this sense; they are public servants because they, too, have accepted<br />
obligations, which mean they are not completely free. Indeed, until early in the<br />
twentieth century many otherwise civilian public officials in Europe-most<br />
notably diplomats-had prescribed uniforms. Both victorious soldiers and<br />
successful managers tend to be inordinately admired and disproportionately<br />
rewarded as risk takers. True, the specific risks and rewards are different; but<br />
the phenomenon is the same. They both may have to put their careers, and<br />
sometimes significant parts of their anatomy as well, "on the line" to obtain a goal<br />
for their state or organization. Notice again the military language for "the line"<br />
originally referred to the line of battle where you faced the enemy. This is why line<br />
officers today are still those who perform the services for which the organization<br />
exists. This is the direct link between the roman centurion and the fire captain, chief<br />
of detectives, or elementary school principal. Life on the line is still a daily struggle.<br />
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ACCY 161 – Fall 2013<br />
6. Implementation example:<br />
<strong>Auditing</strong> Governmental Entities (and Nonprofit Entities) Week of Nov <strong>11</strong>th<br />
a. So: “between the idea and deed is the valley of action”<br />
b. Here is an example of a policy-public administration disconnect :From 1966 to 1969<br />
the Economic Develop Administration of Oakland California was to administer a $23<br />
million demonstration grant to improve employment and quality of life. Here are some<br />
comments from the article:<br />
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ACCY 161 – Fall 2013<br />
<strong>Auditing</strong> Governmental Entities (and Nonprofit Entities) Week of Nov <strong>11</strong>th<br />
<strong>Budgeting</strong> from the Textbook<br />
I. <strong>Budgeting</strong> Review from Prior Lectures<br />
A. Comments<br />
1. Budgets and budgetary accounting and reporting are supported by the GASB principles<br />
(#10 for example) – See <strong>Chapter</strong> Two Appendix<br />
2. Budgetary accounting is used only in the governmental funds – see Illustration 2-2 –<br />
and not in the proprietary or fiduciary funds or in the government-wide accounting<br />
3. But budgets should be used in all governmental entities for accountability reasons.<br />
4. The budget process is not determined by GASB, only that a budget is used in the<br />
governmental funds<br />
5. There can be some statutory requirements – such as formal policies or public laws – that<br />
require the use and form of the budget that operationally will supplement the GASB<br />
budgeting requirements.<br />
B. Budget Objectives<br />
1. Compliance with laws<br />
2. Prospectively: Communicate policies, priorities, operational plans, financial plans<br />
3. Retrospectively: Communicate performance, effectiveness and efficiency<br />
4. Compliance with GASB standards<br />
II. Budget Types<br />
1. Capital budget<br />
2. Current budget – this is the one we use in our governmental accounting class<br />
3. Cash receipts and disbursements budget<br />
4. Prospective budget – 3 to 5 year budget - this where the budget officers and budget<br />
analyst earn their keep.<br />
III. Budget Types and Processes<br />
A. Types of current operating budgets<br />
1. Object of expenditure<br />
2. Zero-based budgeting<br />
3. Performance budgets<br />
4. Program budgets<br />
B. <strong>Budgeting</strong> processes<br />
1. Timetables<br />
2. Level of detail<br />
3. Objective is to make the budgeting process efficient and effective<br />
IV. Budgetary Reporting – Related to General Financial Reporting in <strong>Chapter</strong> Nine<br />
1. Original budget<br />
2. Final or revised budget<br />
3. Actual amounts<br />
4. Difference or variance<br />
5. Interim reporting until the actual final amounts are determined<br />
Interview Comment: “<strong>Budgeting</strong> is about savings, planning is about spending”<br />
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