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Financial Reporting and Financial Reporting and Compliance RequirementsCompliance Requirements

Presenter: David SurettePresenter: David Surette

Social Services Program ManagerSocial Services Program Manager

DHHS Office of AuditDHHS Office of Audit

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My GoalsMy Goals

Discuss changes to the Maine Single Discuss changes to the Maine Single Audit Law (MAAP) Audit Law (MAAP)

Explain Department audit Explain Department audit requirementsrequirements

Explain Federal audit requirementsExplain Federal audit requirements Explain the Department reporting Explain the Department reporting

and settlement Requirements.and settlement Requirements. Discuss agreement compliance.Discuss agreement compliance.

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LegislationLegislation

Public Law 2005, Chapter 519 amended Public Law 2005, Chapter 519 amended and expanded upon the reporting and expanded upon the reporting requirements found in Title 5, Chapter requirements found in Title 5, Chapter 148-C, the Maine Uniform Accounting 148-C, the Maine Uniform Accounting and Auditing Practices Act For and Auditing Practices Act For Community Agencies (MAAP). The Community Agencies (MAAP). The original law and the rules have been original law and the rules have been in effect since the end of 1996. The in effect since the end of 1996. The changes are effective as of March 29, changes are effective as of March 29, 2006. (Handout # 1).2006. (Handout # 1).

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Reporting Responsibilities of Reporting Responsibilities of Community AgenciesCommunity Agencies

A. If the community agency A. If the community agency expendsexpends less than less than $500,000$500,000 of agreement of agreement funding from the Department, the funding from the Department, the agency agency shall comply with the terms shall comply with the terms of financial reporting contained in of financial reporting contained in the individual social service the individual social service agreements with the departmentagreements with the department. (5 . (5 MRSA §1660-F, sub-§1. as amended)MRSA §1660-F, sub-§1. as amended)

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Reporting Responsibilities of Reporting Responsibilities of Community AgenciesCommunity Agencies

B. If the community agency B. If the community agency expends $500,000expends $500,000 or more of agreement funding from the or more of agreement funding from the department, the agency must have an entitywide department, the agency must have an entitywide financial and compliance audit of the agency's financial and compliance audit of the agency's financial statements and agreement financial statements and agreement supplemental schedules prepared by a qualified supplemental schedules prepared by a qualified independent public accountant in accordance independent public accountant in accordance with the reporting requirements for the with the reporting requirements for the department department and comply with the terms of and comply with the terms of financial reporting contained in the individual financial reporting contained in the individual social service agreements with the department.social service agreements with the department. (5 MRSA §1660-F, sub-§1, as amended)(5 MRSA §1660-F, sub-§1, as amended)

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Federal Circular A-133Federal Circular A-133Audits of States, Local Audits of States, Local Governments, and Non-Governments, and Non-

Profit OrganizationsProfit Organizations Effective for fiscal years ending after Effective for fiscal years ending after

December 31, 2003, “Non-Federal December 31, 2003, “Non-Federal entities that expend $500,000 or entities that expend $500,000 or more in a year in Federal awards more in a year in Federal awards shall have a single or program shall have a single or program specific audit conducted for that year specific audit conducted for that year in accordance with the provisions of in accordance with the provisions of this part”(A-133, §__.205)this part”(A-133, §__.205)

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Financial Reporting and Financial Reporting and Audit RequirementsAudit Requirements

Reports required by the AgreementReports required by the Agreement

A-133 Audit RequirementsA-133 Audit Requirements

MAAP Audit RequirementsMAAP Audit Requirements

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AgreementAgreementContentsContents

Requirements from the agreementRequirements from the agreement Rider A: Specifications of Work to be Rider A: Specifications of Work to be

performed.performed. Rider B: Payment and Other Provisions.Rider B: Payment and Other Provisions. Rider C: Rider C: Rider B Exceptions.Rider B Exceptions. Rider D: Additional Requirements.Rider D: Additional Requirements. Rider E: Program Requirements.Rider E: Program Requirements. Rider F: Budget; F-1 Pro-Forma ASF; F-Rider F: Budget; F-1 Pro-Forma ASF; F-

2 Agreement Compliance Form; F-3 2 Agreement Compliance Form; F-3 MAAP RequirementsMAAP Requirements

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AgreementAgreementContentsContents

Agreement AmountAgreement Amount Federal Funds Federal Funds

(source)(source) State Funds State Funds

(source)(source) Services ProvidedServices Provided EligibilityEligibility GoalsGoals

Conditions Conditions (General)(General)

Method of Method of PaymentPayment

ReportingReporting SettlementSettlement ComplianceCompliance BudgetsBudgets

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ReportingReportingRequirementsRequirements

NarrativeNarrative Statistical/PerformanceStatistical/Performance Units of ServiceUnits of Service Financial (Cost)Financial (Cost)

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Financial ReportsFinancial Reports

Quarterly ReportsQuarterly Reports Final Financial Report (ASF)Final Financial Report (ASF)

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SETTLEMENTSETTLEMENT

Pro FormaPro Forma

BudgetBudget

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Pro FormaPro Forma(Cost Settlement)(Cost Settlement)

Each agreement shall contain a Pro Each agreement shall contain a Pro Forma Agreement Settlement Form Forma Agreement Settlement Form (ASF) to illustrate the closeout (ASF) to illustrate the closeout method to be applied (MAAP Sec. method to be applied (MAAP Sec. 05(3)b) (Handout # 2)05(3)b) (Handout # 2)

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Cost SharingCost SharingAgreementsAgreements

Agreements with more than one Agreements with more than one funding source that participate in funding source that participate in the allocation of program expenses.the allocation of program expenses.

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DefinitionDefinition(Restricted/Unrestrictive (Restricted/Unrestrictive

Revenue)Revenue)

Restricted RevenueRestricted Revenue…income from …income from organizations or individuals that require organizations or individuals that require the funds be used for a specific purpose the funds be used for a specific purpose within a program or the program itself.within a program or the program itself.

Unrestricted RevenueUnrestricted Revenue…income from …income from organizations or individuals that are not organizations or individuals that are not restricted by the donor for specific use in restricted by the donor for specific use in any of the agency’s programs.any of the agency’s programs.

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DefinitionDefinition(Client Fees)(Client Fees)

Client Fees – ProgramClient Fees – Program…Fees from …Fees from agreement or MaineCare subsidized agreement or MaineCare subsidized clients.clients.

Client Fees – PrivateClient Fees – Private…Fees from …Fees from clients that pay fully themselves or clients that pay fully themselves or are covered by third party insurance.are covered by third party insurance.

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Unallowable CostsUnallowable Costs

When non-allowable costs (e.g. bad When non-allowable costs (e.g. bad debts, interest, etc.) are charged to debts, interest, etc.) are charged to a program they will be accounted for a program they will be accounted for in the cost sharing process as in the cost sharing process as provided in the agreement budget. provided in the agreement budget. Non-allowable costs must be covered Non-allowable costs must be covered by specifically designated non by specifically designated non Federal revenue (MAAP Federal revenue (MAAP Sec. .04B(3)e).Sec. .04B(3)e).

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Pro Forma Pro Forma AdjustmentsAdjustments

Removal of fee for service revenue and an equal Removal of fee for service revenue and an equal amount of expenses.amount of expenses.

Removal of restricted revenue and related expenses Removal of restricted revenue and related expenses which purchase part of the total program.which purchase part of the total program.

Removal of revenue and an equal amount of expenses Removal of revenue and an equal amount of expenses from restricted program funding sources that do not from restricted program funding sources that do not require financial reporting and a settlement.require financial reporting and a settlement.

Removal of sub recipient agreements and related Removal of sub recipient agreements and related expenses.expenses.

Removal of unallowable expenses against non-State, Removal of unallowable expenses against non-State, non-Federal funds (restricted? or unrestricted non-Federal funds (restricted? or unrestricted revenue).revenue).

Removal of in-kind revenue and expenses.Removal of in-kind revenue and expenses. Removal of client fees-program and an equal amount Removal of client fees-program and an equal amount

of expenses.of expenses.

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SETTLEMENTSETTLEMENT

Agreement Settlement Agreement Settlement Form Form

(ASF)(ASF)

ActualActual

(Handouts 3 and 4)(Handouts 3 and 4)

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Agreement SettlementAgreement Settlement(Pro Forma)(Pro Forma)

Community agencies entering into Community agencies entering into Department agreements should follow Department agreements should follow the cost sharing and matching the cost sharing and matching methodology described in the agreement methodology described in the agreement and as reflected in the pro forma and as reflected in the pro forma agreement settlement form (ASF) agreement settlement form (ASF) included in the agreement document. included in the agreement document. The pro forma ASF should clearly identify The pro forma ASF should clearly identify the steps necessary to reach an accurate the steps necessary to reach an accurate settlement (MAAP Sec. .04B(3)a).settlement (MAAP Sec. .04B(3)a).

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Agreement SettlementAgreement Settlement(Revenue Sources)(Revenue Sources)

When developing a budget and cost When developing a budget and cost sharing methodology for an sharing methodology for an agreement, the Department and agreement, the Department and Community Agency shall consider Community Agency shall consider the restrictions on use of funds the restrictions on use of funds imposed by all revenue sources imposed by all revenue sources listed in the program budget (MAAP listed in the program budget (MAAP Sec. .04B(3) d).Sec. .04B(3) d).

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Agreement SettlementAgreement Settlement(Commitment)(Commitment)

Other available income (unrestricted Other available income (unrestricted funds) shall be specifically identified funds) shall be specifically identified as such in the agreement budget. as such in the agreement budget. These amounts represent a These amounts represent a commitmentcommitment by the community by the community agency to the program (MAAP agency to the program (MAAP Sec. .04C(3)c).Sec. .04C(3)c).

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COMPLIANCECOMPLIANCE

Agreement ComplianceAgreement Compliance

SectionSection

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Agreement ComplianceAgreement ComplianceSectionSection

Each Agreement shall contain a Each Agreement shall contain a standard section which presents the standard section which presents the related agreement compliance related agreement compliance testing requirements (MAAP testing requirements (MAAP Sec. .05(3)a) (Handout # 5)Sec. .05(3)a) (Handout # 5)

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Internal Control is:Internal Control is:((per Statement on Auditing Standards per Statement on Auditing Standards

No. 109)No. 109) A process---effected by those charged with A process---effected by those charged with

governance, management, and other personnelgovernance, management, and other personnel—designed to provide reasonable assurance —designed to provide reasonable assurance about the achievement of the entity’s objectives about the achievement of the entity’s objectives with regard to the reliability of financial with regard to the reliability of financial reporting, effectiveness and efficiency of reporting, effectiveness and efficiency of operations, and compliance with applicable operations, and compliance with applicable laws and regulations. laws and regulations.

It follows that internal control is designed and It follows that internal control is designed and effected to address business risks that threaten effected to address business risks that threaten the achievement of any of these objectivesthe achievement of any of these objectives

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Internal Control Internal Control Responsibilities of Responsibilities of

Community AgenciesCommunity Agencies

Design and operate an internal control Design and operate an internal control system reasonably sufficient to ensure system reasonably sufficient to ensure that the community agency meets that the community agency meets acceptable standards in the areas of acceptable standards in the areas of financial reporting reliability, financial reporting reliability, operating efficiency and effectiveness operating efficiency and effectiveness and compliance with applicable laws and compliance with applicable laws and regulations.and regulations.

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Internal Control Consists of Internal Control Consists of 5 Interrelated Components5 Interrelated Components

The Control Environment (The Control Environment (Tone; Tone; Consciousness)Consciousness)

Risk Assessment (Identification and Risk Assessment (Identification and Analysis)Analysis)

Control Activities (policies and procedures Control Activities (policies and procedures over procurement, safeguarding of assets, over procurement, safeguarding of assets, accounting, disbursements, reporting, etc.) accounting, disbursements, reporting, etc.)

Information and Communications (in a form Information and Communications (in a form to allow carrying out of responsibilities)to allow carrying out of responsibilities)

Monitoring (assesses the quality over time, Monitoring (assesses the quality over time, modify as appropriate)modify as appropriate)

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Administrative Control is: Administrative Control is:

Internal Control system related to Internal Control system related to Government funds.Government funds.

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Cost PrinciplesCost Principles

Requirement from MAAP rules (.04A Requirement from MAAP rules (.04A Adoption of Federal Circulars) Adoption of Federal Circulars) (Handout # 6)(Handout # 6)

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Cost PrinciplesCost Principles Circular A-122 (Cost Principles Circular A-122 (Cost Principles

for Non-Profit Organizations)for Non-Profit Organizations) Attachment A, General Principles Attachment A, General Principles

(Handout #7)(Handout #7) To be allowable costs must be:To be allowable costs must be:

Reasonable for the performance of the Reasonable for the performance of the awardaward

Conform to the limitations of the awardConform to the limitations of the award Be consistent Be consistent Be determined in accordance with GAAPBe determined in accordance with GAAP Be adequately documentedBe adequately documented

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What is Reasonable?What is Reasonable?

Does not exceed that which would be Does not exceed that which would be incurred by a prudent person under the incurred by a prudent person under the circumstances.circumstances. Consideration given to whether the cost is Consideration given to whether the cost is

generally recognized as generally recognized as ordinaryordinary and and necessarynecessary for the operations or performance for the operations or performance of the award.of the award.

Restraints or requirements imposed by Restraints or requirements imposed by generally accepted business practices, arms generally accepted business practices, arms length bargaining, regulations and terms of length bargaining, regulations and terms of the award.the award.

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What is Reasonable?What is Reasonable?

Whether the individual concerned Whether the individual concerned acted with prudence in the acted with prudence in the circumstances, considering their circumstances, considering their responsibilities to the responsibilities to the organization, its members, organization, its members, employees, and clients, the public employees, and clients, the public at large and the Federal (and at large and the Federal (and State) government.State) government.

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Budget RevisionBudget RevisionRequirementRequirement

Total expenses in any one category Total expenses in any one category (personnel, equipment, subcontract, all (personnel, equipment, subcontract, all other) exceed the budgeted amount for other) exceed the budgeted amount for that category by at least ten percent or that category by at least ten percent or $1,000, whichever is greater.$1,000, whichever is greater.

Total program income differs from the Total program income differs from the budgeted amount by at least ten budgeted amount by at least ten percent or $5,000, whichever is percent or $5,000, whichever is greater.greater.

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Budget RevisionBudget RevisionRequirement Requirement

Non-budgeted equipment items are Non-budgeted equipment items are substituted for specific budgeted substituted for specific budgeted items.items.

There are non budgeted line items in There are non budgeted line items in excess of $1,000excess of $1,000

MAAP Sec. .04B(2)MAAP Sec. .04B(2)

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GAAPGAAP

The rules and practices at a The rules and practices at a particular timeparticular time Written rules (promulgated)Written rules (promulgated)

AICPA: opinions, bulletins, interpretations, AICPA: opinions, bulletins, interpretations, guides.guides.

FASB (Financial Accounting Standards FASB (Financial Accounting Standards Board): statements, interpretations, Board): statements, interpretations, bulletins.bulletins.

SECSEC Publications, textbooks, articlesPublications, textbooks, articles

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Cost PrinciplesCost PrinciplesAttachment BAttachment B

Selected Items of Cost (52) Selected Items of Cost (52)

1.1. Advertising Advertising has limitations.has limitations.

3. 3. Alcoholic beveragesAlcoholic beverages are unallowable. are unallowable.

8. 8. Compensation for personal servicesCompensation for personal services (salary and fringes) has limits. (salary and fringes) has limits. Reasonable if comparable to that paid for Reasonable if comparable to that paid for

similar work in the labor markets in which similar work in the labor markets in which the organization competes for the kind of the organization competes for the kind of employees involved.employees involved.

11. 11. DepreciationDepreciation: straight line method : straight line method presumed.presumed.

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Cost PrinciplesCost PrinciplesSelected Items of CostSelected Items of Cost

15. 15. Capital EquipmentCapital Equipment is defined as item is defined as item with a useful life of more than one year with a useful life of more than one year and an acquisition cost of the lesser of the and an acquisition cost of the lesser of the agency’s level for financial statement agency’s level for financial statement purposes or $5,000. Unallowable except purposes or $5,000. Unallowable except where approved in advance.where approved in advance.

17. 17. Fund raising costsFund raising costs are unallowable. are unallowable. 19. 19. Goods or services for personal useGoods or services for personal use of of

the organization’s employees are the organization’s employees are unallowable.unallowable.

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More Selected Items of More Selected Items of CostCost

23. 23. InterestInterest: unallowable except for that : unallowable except for that incurred to acquire or replace capital incurred to acquire or replace capital assets after 9/29/95.assets after 9/29/95.

(Why that date?)(Why that date?)

37. 37. Professional ServicesProfessional Services: not officers or : not officers or employees of the organization.employees of the organization.

43. 43. Rental costsRental costs under “less-than-arms- under “less-than-arms-length” leases are limited.length” leases are limited.

47. 47. TaxesTaxes: those that are required to be : those that are required to be paid are allowable.paid are allowable.

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ResourcesResources MAAPStatute. MAAPStatute.

http://janus.state.me.us/legis/statutes/5/title5ch0sec0.htmlhttp://janus.state.me.us/legis/statutes/5/title5ch0sec0.html

2005 Revisions. 2005 Revisions. http://janus.state.me.us/legis/http://janus.state.me.us/legis/ (Search LD (Search LD 19681968; ; Summary of LD 1968Summary of LD 1968; x Bill Text; ; x Bill Text; Documents for LD 1968Documents for LD 1968; ; x Enacted Public Law 519; x Download Chapter Text; SS x Enacted Public Law 519; x Download Chapter Text; SS page151)page151)

MAAP Rules. MAAP Rules. http://www.state.me.us/sos/cec/rcn/apa/a0/chapts10.htmhttp://www.state.me.us/sos/cec/rcn/apa/a0/chapts10.htm (x Rules (x Rules by Department; x10 DHHS; xCh. 30). by Department; x10 DHHS; xCh. 30).

Federal Circulars. Federal Circulars. www.whitehouse.gov/omb/circulars/index.htmlwww.whitehouse.gov/omb/circulars/index.html

Audit Web Site. Audit Web Site. http://www.maine.gov/dhhs/audithttp://www.maine.gov/dhhs/audit

dave.r.surette@maine.govdave.r.surette@maine.gov 287-2779 287-2779