Audit Committee Meeting   6/2/2022

I would like to call this meeting of the Audit Committee to order.

It is 2.02 on June 2nd.

And the purpose of our conversation today, and for those of you, all of us, except for our Supervisor Andrews, have been through this, and this is really the start of our audit season.

And so the purpose of today is really to review the work plan,

that's established by the external auditors that we use, which is Robinson, Farmer, Cox, and Associates.

Mr. Foley is here to do that on behalf of RFCA.

We hold a place on here to nominate or re-nominate the chair.

I've been serving as chair since I've been CFO.

I'm happy to do so.

unless there's a motion by any of the committee members to change that.

So I'll pause in the event that anybody would like to nominate a new chair.

If no, we'll just keep moving forward.

Okay.

This meeting is being held pursuant to and in compliance with ordinance number 20-A16, an ordinance to ensure the continuity of government during the COVID-19 disaster.

I do believe the next time we meet, assuming the plan is as it is supposed to roll out, that we will be back in person for the fall audit committee.

I think September is the date of the changes to our meeting posture for committees like this, and so likely we will be meeting in person.

So we have here committee members present, our Board of Supervisors rep, Supervisor Andrews,

School Board Rep, Ms. Osborne, County Executive, Jeff Richardson is here, I as the CFO am here, and the Superintendent's Designee, Rosalyn Schmitt, who is the COO for the schools is also present.

Absent from this meeting is Supervisor Galloway,

And I also would like to make sure that I introduce the staff that's here today to support our audit functions.

And with us, I don't know if Shenandra's camera's working for some reason, I don't believe it's working.

But Shenandra Usher, she is our assistant CFO for operations.

She oversees the controller's office, which is the function of our government that is responsible for performing the audit.

We are without a controller at the moment.

And so we and I'll have Shenandra talk a little bit more about this later.

We have enlisted

and outside accounting firm Citron Cooperman to help us navigate the pre-audit and audit prep work that we have starting now because of the controller's absence.

But here representing the controller's office is our chief accountant who's over the accounting unit, Lindsey Huff, which some of you probably know.

And then Jacob Sumner, who is the other assistant CFO

over our policy and partnerships function.

So he works with our external partners and the board agenda items and a lot of our policy work.

So we have Jacob and Shenandra both are gonna be involved in the audit process as well as Lindsay as we move forward.

So with that, barring any questions or anything from the committee,

I am going to turn this over now to Mr. Foley.

All right, will do.

Thank you, Nelsie.

Good afternoon, everyone.

Glad to be here with you all.

I think most of you all know me, but my name is David Foley.

I'm a partner with the Robinson Pharma Cox Associates and

the partner in charge of the county's audit and also the audit manager overseeing the audit as well.

As Nelsie stated, kind of the point of this meeting is to kind of kick off the audit, also to kind of go over an understanding of the services that we're going to provide and kind of go through the work plan for the audit.

and also you know it's just a good way to have a two-way communication before we kind of get into to the audit field work in case if the committee has any concerns or areas that they would like us to to look at as part of the audit so really just a good good way to kick off

the audit.

And so as far as kind of just communicating the services that we will provide as part of the audit,

We issue a standard engagement letter that will be sent into the county that just kind of goes through the various pieces of the audit, the responsibilities as us as auditors,

Responsibility for management as part of the audit, which I'll be, I've got that engagement letter with me.

So I'll pull that up on the screen and we'll kind of walk through that, you know, again, just to confirm the understanding of the services that we provide.

Kind of walk through the work plan and kind of timeframe of the audit.

And then after we get through that, just kind of want to talk about this,

New GASB that the county will be implementing this year for this part of the audit.

So I'll go ahead and pull up the engagement letter.

And so, again, the point of the engagement letter is for us to confirm our understanding of the services that we're going to provide

The county is part of the audit.

You know, the first part of this letter talks about the audit scope and the objectives of the audit.

Of course, we'll audit the financial statements of the county and it's a discretely presented component unit, the schools.

This talks about the various kind of pieces of the report that's included in the audit, included in the annual report for the county.

So it includes the financial statements, talks about the RSI, the required supplementary information that's included in the financial report, which includes management discussion and analysis,

Budgetary comparison information.

And then there's some schedules related to the pension and OPEB funding.

In addition to the financial statements and acquired supplementary information, there's some other supplementary information that's included in the financial report, such as the schedule of expenditures of federal awards.

on the schedule reports, all the federal grant expenditures the county expends during the fiscal year.

And then some combining an individual fund statements and schedules are also included in the report.

And then the kind of last piece of the report is an introductory section to the

to the report as well as the statistical section of the report that provides a lot of trend information over the past 10 years.

So again, as far as the objective of the audit, there's really three objectives to the audit that we do.

One of course is to express some opinions on whether the financial statements are fairly presented in all material respects.

in conformity with generally accepted accounting principles and also to report on the fairness of the supplementary information referred to above in relation to the financial statements as a whole.

So that's kind of the first main objective is to express an opinion on whether the financial statements are materially correct.

The other two objectives

that are part of the audit are in accordance with government auditing standards.

One of those is the reporting objective is to report on the county's internal control over financial reporting and compliance with provisions, the laws, regulations and contracts in accordance with government auditing standards.

So, you know, in addition to just

Looking at the financial statement numbers themselves, you know, we look at the look and gain and understanding of the county's internal controls that it has over its financial reporting.

And then the third main piece of the audit is the compliance, the federal compliance piece.

So in addition to looking at internal controls and the financial statements, another big piece of the audit is the federal compliance piece.

So for the major federal grant programs that the county and school board have, there's various compliance requirements that the county has to comply with, county school board have to comply with when they're carrying out and expanding their federal grant programs.

And so as part of the audit, OMB provides a compliance supplement for each of the federal programs

And so as part of the audit, we take that compliance supplement and go through each of those requirements to make sure that the county is complying with those federal grant compliance requirements.

so really those are the three main pieces to the audit so when we meet again in November to go over the results of the audit you'll see there'll be actually three different reports from us that are included in the financial report so there'll be our independent auditors report that gives the opinion on the county's financial statements and then we also have

a report related to the county's internal control over financial reporting.

And then a third report that talks about the internal control and compliance with the major federal grant programs.

So again, you'll see three different reports from us in the financial report.

So those are the main objectives of the audit.

Kind of the next section of the engagement letter is just to go over the auditor's responsibilities for the audit and the financial statements.

So as far as our responsibilities related to the audit, we have to conduct our audit in accordance with generally accepted auditing standards.

Also we have to perform the audit in accordance with government auditing standards.

Then, in addition to those two, we also have to perform the audit in accordance with the APA specifications.

So the APA each year list sends out various audit specs that have various different compliance items that we're required to go through and check as part of the audit.

And then the other piece that we have to perform audit is, again, related to the Single Audit Act, which is the federal compliance.

Just

Additional audit responsibilities as part of the audit, we'll evaluate the appropriateness of the accounting policies used and the reasonableness of significant accounting estimates.

Again, we'll evaluate the overall presentation of the financial statements and related disclosures.

We plan and perform our audit to obtain

reasonable assurance about the valuation of financial statements and whether they're free, again, from material in the statement.

This letter talks about some inherent limitations related to an audit just because an audit does include sampling and we don't look at, an audit doesn't include looking at every single transaction that the county has.

Our procedures will include tests of documentary evidence supporting the transactions that are included in the county's financial statements.

So audit procedures related to internal control.

And as part of the audit, again, we'll obtain an understanding of the county and its environment and including internal control

related to we had to sufficiently identify and assess any risks of material misstatements to the financial statements.

Again, as required by uniform guidance, we'll perform tested controls over the compliance to evaluate the effectiveness and design of controls related to federal grants.

you know again audit procedures related to compliance again compliance is a big piece of the audit that we have to do for the county so again we have to there's follow the APA specifications which again list a lot of state compliance items that we have to look at as part of the audit and then of course the the federal compliance piece again looking at the

in the county's compliance with this major federal grant programs.

Other services that are included in the audit that we perform, we assist the county with the financial statement and SEFA preparation.

So basically we take the adjusted numbers that the county has and then put those into the

The financial statements that are included in the County's annual report.

Some agreed upon procedures that we have to perform as part of the audit.

At the end, once the audit's completed, the APA requires each year that in addition to sending in the audit report, a transmittal has to be prepared that's sent into the APA, which they use that to prepare the comparative cost report that they send out.

So as part of the audit, we prepare that for the county.

Also at the end of the audit, there's

Again, another agreed upon procedures we do related to DEQ and the landfill assurance.

So we prepare that and have that submitted to DEQ at the end of the audit in accordance with their requirements.

and then lastly another agreed upon procedures that we have to do as part of the audit is related to the Virginia retirement system.

So the APA has had in place over the last five, 10 years a requirement that as part of the audit we have to look at the Virginia retirement system and perform various checks and tests.

to go through to make sure that the information that's going into the Virginia retirement system is accurate.

So as part of the audit, we will perform those tests and then at the end of the audit, we issue a separate agreed upon procedures report that communicates the results of those procedures.

The next section of this engagement letter just talks about

Management's responsibilities for the financial statement and the single audit, you know, again, management's responsible for developing and implementing and establishing and maintaining effective internal controls relevant to the preparation and fair presentation of the financial statements, you know, to make sure that they're free from material misstatement.

Management is responsible for making draft financial information, schedule expenditure, federal awards, and other financial records available to us so that we're able to go through those and audit them.

some additional responsibilities.

If we have any adjustments that needed to be made to the county's books, of course we would, any adjustments that we have, we would go through those and discuss those with management and then for both an agreement, then those would need to be, any adjustments would need to be posted to the county's financial system.

Just a few other responsibilities for management.

Again, management is responsible for the design and implementation of programs and controls to prevent and detect fraud as well as informing us of any known or suspected fraud.

Again, management's responsible for identifying all federal awards received and understanding and complying with those related grant compliance requirements.

Management's responsible for establishing and maintaining a process for tracking the status of any audit findings, if there are any.

So again, those are just kind of an overview of the responsibilities of management related to the audit that we do.

And then just kind of at the end of the letter, just some engagement administration, fees and other.

You know, at the conclusion of the engagement, we'll prepare, this is related to the single audit.

We'll prepare the data collection form that's required to be uploaded to the federal clearinghouse.

Of course, we'll issue our reports, our audit reports to the county at the completion of the audit.

And then as far as fees, our fees for the services are done in accordance with the audit contract.

And that's our standard engagement letter.

Again, the point of that letter is to just

All right, couldn't find my unmute button.

Does the committee have either any questions related to the audit work plan or if there are any areas that the committee members would like for the RFC team to dig into

that there might be of concern.

I think that was the original question, David, you had asked if there's anything in particular.

So I will look for any hands.

A couple quick things, one is I think, oh here it's in now, good, Supervisor Gallaway, and there was a quick reference to the fact that the new procedure software that the county uses might be

Leading to some differences obviously for the newbie to be asking this question is probably not very sensible but I'm curious if with all the changes there are significant changes to how the work needs to be done as well.

I mean

No, it's not a new system.

So there's

When I referenced that the county's financial statements were paid in accordance with GAAP, really what determines and spells out what's GAAP and how everything should be recorded

is the county has to follow GASB and so GASB issues various different accounting pronouncements that discusses and dictates how certain transactions and financial statements have to be prepared and the folks at GASB never think they have enough

reporting standards out there.

So it seems like each year they issue new standards that we have to incorporate when preparing and getting the financial statements together.

And so this year there is a new GASB that does have to be implemented.

It's GASB 87.

We've discussed this and

probably for the last three years in the audit committee meetings and saying that each year we still had time to get it implemented and now finally that year is upon us.

So it doesn't change the county's accounting system.

But there will be some new procedures that we have to do as auditors and there have to be new information provided from the county to implement that standard.

And so basically what that standard does is previously there was always a distinction in financial

in financial reporting between a capital lease and an operating lease and capital leases are kind of the same related to treated the same way debt is where if you have a capital lease the assets recorded and also the lease

Liabilities recorded, then you amortize or depreciate the asset over its useful life and you recognize the lease liability and then that liability is reduced over the years when you make those payments.

That was for a capital lease.

Operating leases were different.

An operating lease, the county didn't really own the assets, so no asset was recorded on the financial statements and no liability was recorded.

So basically you would recognize the expenditure each year as you made those lease payments.

So what 87 does is it says, okay, we're no longer gonna distinguish between a capital lease and an operating lease.

And they're all basically gonna be treated the same.

And so now what we have to do for the standard is any operating lease that the county had, we now have to record an asset, basically a right to use asset on the books, which then gets

amortized over the life of the asset, as well as that lease liability now has to be put on the financial statements similar to the way capital lease did, and then that liability is reduced over time when those payments are made.

So in order to implement that standard,

The county has some work they'll have to do to pull together the leases that they have.

And then we have, as a firm, we have, so there's really two pieces to this.

One is you gotta gather all the lease information that you have, and then those have to be analyzed.

And then the second piece is the actual calculation, calculating these,

these assets and liabilities and provide calculating the information is required to be put in the financial statements as well as disclosed.

And we have, as a firm, decided we've purchased some software

The software we're going to use is called UGAP.

And this basically will help once we get the information from the county related to the leases, we've got this software that will help do those calculations as far as coming up with the asset values, the liabilities, and then also spitting out the disclosures.

Thank you.

Any other questions, Mr. Richardson?

I'm sorry, I haven't done that in a while, but so I was overdue.

My question following Supervisor Andrews' question is that we've gone through a pretty painful but necessary transition to an outsourced payroll function.

The company is ADP.

David, with that, what does that look like from an auditing perspective now that we do payroll outsourced?

Yes, absolutely.

So whenever an entity has a change in procedures or pulls in, has a change in procedures or has a new system to

you know process information you know as part of the audit we want to go through and you know kind of evaluate that and and look to make sure that you know we're going to do one it's going to take us some time we want to kind of go through that system and understand how it's being processed as well as probably increase the the testing that we do over that just because it's a new process so

That will definitely be one of the main focuses of the audit this year.

Anytime you have something new, as an auditor, you want to go in and make sure that that's operating the way it is to make sure there's no potential misstatements out there.

Thank you, David.

Any other questions about the audit plan or

areas of focus that any committee members might have a question for our auditor before we move to the next.

As we head into GASB, I know, David, you were talking about GASB 87, which was part of a very big discussion that we had last year.

in terms of our preparation.

I wanted to give Ms.

Usher a moment to talk a little bit to the audit committee about what we have done to prepare ourselves for the audit relative to this change from the categorization of operating and capital lease relative to just GASB in general with 87.

Sure.

Good afternoon, everyone.

As Nelsie mentioned earlier, we've been working with Citrin Cooperman, a licensed independent CPA firm.

And so what we've done thus far for GASB 87 is we've reached out to all departments within the organization to include the county executive's office and the county attorney's office.

to gather all the documentation for everything that we think could be considered a lease under the GASB 87 ruling.

And we've submitted that information to Citron Cooperman to help us identify the differences between our capital leases and our operating leases.

And so right now they're reviewing the information, extracting the data so that they can create a schedule of leases for us so that we're able to do the financial calculations and make the pertinent

journal entries into our financial system for our financial reporting.

Thank you, Shenandra.

And just to bring home the kind of full circle of the work, Jacob and the board, Supervisor Galloway and Andrews, you might recall that we had added a position back in December, a contract manager position for our department that is gonna report up through Jacob's role

And part of this was a recognition that there's a lot of information that lives within departments that we are unaware of.

Much of that stemming from agreements that have been signed over time between a department and an external

partner entity, some of which was also procurement related.

And so this contract manager function is going to really harness much of the work that Shenandra has already collected and be much more, it'll be much, I'm not finding the word, but it'll be much more systematic as we move forward.

And so that is something that we've had to do

to kind of readjust to this new GASB 87 ruling but also just an understanding of the engagements that our departments, including the schools, have been doing that we may not have record of so that we are better prepared for this.

So thank you for that.

I think 87 is certainly the biggest one that has to be implemented this year.

There's a few other

I would call them minor Gatsby's that really have little to no effect on the county.

Certainly, Gatsby 87 is the big one.

And right now, I don't believe in the next year or two there's any other significant Gatsby's that are out there that the county really needs to

Do a lot to implement.

I think the other kind of Gatsby's out there aren't really related or don't really have an effect to the county.

Okay.

But that's something we constantly monitor because while there's not any right now, I'm sure, I bet a lot of money that there's going to be some new Gatsby's implemented here in the near future.

Great.

Thank you for that.

I do not mean to drag the meeting out unnecessarily.

It's a question for Ms. Birch or any of the staff.

Sure.

It would complicate it if we weren't prepared for it.

And so part of what we did soon after I got on board and we had the CARES funding, as you all probably recall, that was the first funding that kind of came out of nowhere because the pandemic in a lot of respects came out of nowhere.

We quickly pivoted and created a grants unit after about six months of working CARES

and realizing that we had some grant reconciliation challenges.

Mr. Gallaway will likely remember that because it came up as an issue in the audit right before I joined.

And so since that time, we have this grants unit that is fully prepared.

We have both an accountant and a compliance person.

who that is what their function is, is to make sure we're prepared for the audit when it comes to ARPA.

So we had a little bit of reporting last year.

I can't remember the dollar value.

It was a small portion of ARPA that was in our audit for FY21.

And so I, from my vantage point, I don't expect it to be

An issue for us to be able to comply from an audit perspective.

So that's my answer.

We are prepared for that.

No, I mean, you know, as you said, you know, last year, while the amount of ARPA funds that were spent last year was very minor.

And so that will certainly, you know, as I referenced that, you know, as part of the audit, we have to do federal compliance work.

Certainly, I don't know the amount of ARPA funds that were spent during this year, but I'm sure a significant amount, well, that'll be a big focus of the single audit.

But

you know last year what was significant was the CARES funding and so that was a big part of the audit and you know we we looked at

looked at that compliance and what the county was doing to track those funds and to reconcile those funds.

And the county did an excellent job with that funding and accounting and documenting its compliance with those.

So I would anticipate that same type of system going along with the ARPA funds.

Yeah, thank you.

Any other questions before we move on to schedule?

Shenandra, can you just talk us through kind of what is the schedule for the audit?

When do we plan for it to be finished in coordination with David?

As far as planning, we'll start our year-end procedures.

We started conversations around year-end procedures and we'll start the actual work beginning in July after the end of our fiscal year.

Our anticipated audit plan is to be done with most of the schedules and the documentation.

In early September, like mid to early September, David Foley and RFC will come back out on site mid October, somewhere around the second week of October for the post audit work in review.

And then we'll be ready to we should be ready in a we should be in a place to present the financial statements.

I'm going to make a recommendation of November 18.

That's in spirit of what we did last year.

It was the Friday preceding the holiday.

Great.

Thank you for that, Shenandra.

So we will, Mr. Vasemi, who works out of my office, will circulate that date.

We won't spend time now trying to make sure that that works for the committee.

but to get it on your busy schedule.

I just want to thank Supervisor Andrews for reminding me of the time.

I missed the whole meeting if you didn't text me.

So I lost track today.

That's okay.

Thanks.

Thanks, Supervisor Andrews.

Thank you.

We'll make sure to call you, Ned.

We'll add that to our plan.

So that we're compliant with the two things I didn't mention is that the

Information about this meeting was posted on the website under our Audit Committee homepage.

So you'll see the agenda there.

And then we've recorded this meeting, and it will be made available to the public after the meeting at the same location.

So I failed to mention that earlier, and I apologize for that.

Second.

Anybody second?

Second.

Mr. Andrews, great.

Awesome.

Thank you all very much.

Have a great weekend.

Thank you everyone.