Loading...
2023-09-05 City Council Special PacketOp E D o Agenda Edmonds City Council SPECIAL MEETING - AUDIT ENTRANCE CONFERENCE CITY COUNCIL CONFERENCE ROOM 121 - 5TH AVENUE N, EDMONDS, WA 98020 SEPTEMBER 5, 2023, 12:30 PM PERSONS WISHING TO ATTEND THIS MEETING VIRTUALLY IN LIEU OF IN -PERSON ATTENDANCE CAN CLICK ON OR PASTE THE FOLLOWING ZOOM MEETING LINK INTO A WEB BROWSER USING A COMPUTER OR SMART PHONE: HTTPS://ZOOM. US/J/95798484261 IF MEMBERS OF THE PUBLIC CANNOT ACCESS THIS MEETING USING A PERSONAL DEVICE, A MONITOR IS PROVIDED AT THE CITY COUNCIL CONFERENCE ROOM, LOCATED AT 121 5TH AVE N, EDMONDS WA. 1. CALL TO ORDER 2. AUDIT ENTRANCE CONFERENCE 1. Fiscal Year 2022 Audit Entrance Conference (60 min) ADJOURN Edmonds City Council Agenda September 5, 2023 Page 1 2.1 City Council Agenda Item Meeting Date: 09/5/2023 Fiscal Year 2022 Audit Entrance Conference Staff Lead: State Auditor's Office (SAO) Department: City Clerk's Office Preparer: Scott Passey Background/History N/A Recommendation N/A Narrative The State Auditor's Office will provide a presentation regarding the City of Edmonds 2022 Fiscal Year Audit. Attachments: Entrance Packet Edmonds-9.5.23 Packet Pg. 2 2.1.a Entrance Conference: City of Edmonds The Office of the Washington State Auditor's vision is increased trust in government. Our mission is to provide Z citizens with independent and transparent examinations of how state and local governments use public funds, and L develop strategies that make government more efficient and effective. 0 The purpose of this meeting is to share our planned audit scope so that we are focused on the areas of highest risk. v as We value and appreciate your input. 0 L Audit Scope w Based on our planning, we will perform the following audits: a Accountability audit for January 1, 2022 through December 31, 2022 N N We will examine the management, use and safeguarding of public resources to ensure there is protection from misuse and misappropriation. In addition, we will evaluate whether there is reasonable assurance for adherence >- to applicable state laws, regulations and policies and procedures. y U- We plan to evaluate the following areas: M N • Accounts payable — general disbursements, credit cards, and electronic funds transfers • Payroll — leave accrual and usage .� • Monitoring of fuel usage 0 • Open public meetings — compliance with minutes, meetings and executive session requirements • Financial condition — reviewing for indications of financial distress w d 0 IL Financial statement audit for January 1, 2022 through December 31, 2022 We will provide an opinion on whether your financial statements are presented fairly, in all material respects, in 0 r, accordance with the applicable reporting framework. The audit does not attempt to confirm the accuracy of every w amount, but does search for errors large enough to affect the conclusions and decisions of a financial statement user. 0 Federal grant compliance audit for January 1, 2022 through December 31, 2022 a This audit is required by federal law when a local government spends $750,000 or more annually in federal financial assistance. We will provide an opinion on compliance with federal requirements that could have a direct and material effect on your major federal programs. We plan to test the following federal program: • Coronavirus State and Local Fiscal Recovery Funds, ALN no. 21.027 Pa Packet Pg. 3 2.1.a This report must be submitted, along with the Data Collection Form, to the federal clearinghouse within 30 days after receipt of the report or nine months after the end of the audit period, whichever is earlier. Engagement Letter We have provided an engagement letter that confirms both management and auditor responsibilities, and other engagement terms and limitations. Additionally the letter identifies the cost of the audit, estimated timeline for completion and expected communications. a� Levels of Reporting c Findings 0 Findings formally address issues in an audit report. Findings report significant results of the audit, such as as = significant deficiencies and material weaknesses in internal controls; misappropriation; and material abuse or non-compliance with laws, regulations or policies. You will be given the opportunity to respond to a finding and uJ this response will be published in the audit report. a Management Letters N Management letters communicate control deficiencies, non-compliance, misappropriation, or abuse that are less 0 N - significant than a finding, but still important enough to be formally communicated to the governing body. >0- Management letters are referenced, but not included, in the audit report. y Exit Items Exit items address control deficiencies, non-compliance with laws or regulations, or errors that have an M N LO insignificant effect on the audit objectives. These issues are informally communicated to management. 0; c Important Information 0 E w Confidential Information Our Office is committed to protecting your confidential or sensitive information. Please notify us when you give d a us any documents, records, files, or data containing information that is covered by confidentiality or privacy laws. Audit Costs The cost of the audit is estimated to be approximately $109,000 inclusive of travel costs, other expenses, if any. c w Expected Communications c During the course of the audit, we will communicate with Dave Turley, Administrative Services Director, on the z o audit status, any significant changes in our planned audit scope or schedule and preliminary results or a recommendations as they are developed. Please let us know if, during the audit, any events or concerns come to your attention of which we should be aware. We will expect Mr. Turley to keep us informed of any such matters. Audit Dispute Process Please contact the Audit Manager or Assistant Director to discuss any unresolved disagreements or concerns you have during the performance of our audit. At the conclusion of the audit, we will summarize the results at the exit Pa Packet Pg. 4 conference. We will also discuss any significant difficulties or disagreements encountered during the audit and their resolution. Loss Reporting Washington state law requires all state agencies and local governments to immediately notify SAO if staff know or suspect loss of public resources, or of other illegal activity including a cyber-attack if it resulted in a loss of public resources or potentially impacted financial records or systems. State and local government employees should alert us to suspected fraud through the online Report a Suspected Fraud or Loss form below. These notifications can be made on our website at www.sao.wa. og v/report-a-concem/how-to-report-a-concern/fraud- pro rg Cybersecurity Loss Reporting State and Local governments may also be required to report cybersecurity issues to the Washington State Attorney General's Office (AGO) or to the State Auditor's Office, including security breaches and cyber fraud. To learn more about when to report cybersecurity issues, please visit our website at https:Hsao.wa. o�your- government-experienced-a-cybersecurity-issue-here-is-when-and-how-to-report/. Peer Reviews of the Washington State Auditor's Office To ensure that our audits satisfy Government Auditing Standards, our Office receives external peer reviews every three years by the National State Auditors Association (NSAA). The most recent peer review results are available online at www.sao.wa.gov/about-sao/who-audits-the-auditor/. Our Office received a "pass" rating, which is the highest level of assurance that an external review team can give on a system of audit quality control. Emerging Issues Some of the emerging issues affecting local governments are the following: • Trust but verify Fraud prevention guide — November 2022. See attachment. • SAO Audit Connections — May 2023. See attachments. • GASB Handout — March 2023. See attachment. Working Together to Improve Government Audit Survey When your report is released, you will receive an audit survey from us. We value your opinions on our audit services and hope you provide us feedback. Local Government Support Team This team provides support services to local governments through the Budget, Accounting, and Reporting System (BARS) and annual online filing technical assistance, provides accounting, reporting and BARS training. Our website and client portal offers many resources, including a client Help Desk that answers auditing and accounting questions, updated BARS manuals, access to resources and recorded trainings, and additional accounting and reporting resources. Additionally this team assists with the online filing of your financial statements. Pa Packet Pg. 5 2.1.a The Center for Government Innovation The Center for Government Innovation of the Office of the Washington State Auditor offers services designed to help you, help the residents you serve at no additional cost to your government. What does this mean? They provide expert advice in areas like building a Lean culture to help local governments find ways to be more efficient, effective and transparent. The Center also provides financial management technical advice and best practices and resources. These can be accessed from the "Improving Government" tab of our SAO website and help you act on accounting standard changes, comply with regulations, protect public resources, minimize your cybersecurity risk and respond to recommendations in your audit. The Center also offers the Financial Intelligence Tool, better known as FIT, to help you assess and monitor your finances and compare your financial operations to other local governments like you. You can email the Center for a personal training session to learn all the benefits using the FIT tool can provide. The Center understands that time is your most precious commodity as a public servant, and wants to help you do more with the limited hours you have. If you are interested in learning how the Center can help you maximize your effect in government, call them at (564) 999-0818 or email them at Center@sao.wa.gov. Audit Team Oualifications Kelly Collins, CPA, CFE, Director of Local Audit — Kelly has been with the Washington State Auditor's Office since 1992. In her role, she oversees the audit teams that perform the audits for over 2,200 local governments. She serves on the Washington Finance Officers Association Board and is a member of the Washington Society of Certified Public Accountants' Government Auditing and Accounting Committee. Phone: (564) 999-0807 or Kelly. Collins@sao.wa. gov Wendy Choy, Assistant Director of Local Audit - Wendy has been with the Washington State Auditor's Office since 2002. In her role as Assistant Director, she assists with statewide oversight and management of all the audits for local government. She is also the program manager for public hospital districts. She served as an Audit Manager for six years prior to becoming an Assistant Director of Local Audit. Phone: (425) 502-7067 or Wendy.Choyksao.wa.gov Kristina Baylor, Program Manager — Kristina has been with the Office of the State Auditor since 2005. She was promoted to Program Manager in 2015 and in this role, she has overseen our Agency's audits of Fire Districts, Emergency Services Agencies, Trauma Care Councils and Conservation Districts. Currently, she oversees the Agency's audits of Water and Sewer Districts. Kristina also manages the Agency's local audit team based in Mill Creek, which performs financial, single and accountability audit work for local and state governments in the Snohomish and northern King County areas. Prior to becoming an Agency Program Manager, she served in various roles including the Audit Manager for the Everett team and as an Assistant Audit Manager on the Bellingham and Everett teams. Kristina has a Bachelor's in Business Administration — Finance from Western Washington University. Phone: (425) 951-0290 or Kristina.Baylor(ksao.wa.gov Magdalene "Maggie" Wallis, CPA, Assistant Audit Manager — Maggie worked for the State Auditor's Office in 2012 and has returned to work beginning in 2016. Prior to joining the SAO, Maggie worked as an accountant at a financial services company. She received a master's degree in Accounting from Auburn University in 2013. Phone: (425) 510-0490 or Magdalene.Wallisgsao.wa.gov as c as L c 0 U as c L w a N N O N M as N U- M N T N C 0 E w d 0 IL i as c L c w c as E 0 a Pa Packet Pg. 6 Irina Frolova, Audit Lead — Irina has been with the State Auditor's Office since 2022. Irina performs audit work in accordance with the audit plan to ensure Office quality expectations and standards are met. She earned a Bachelor of Science degree in Accounting from Virginia Commonwealth University. She is also in the process of preparing for CPA exams. Phone: (425) 510-0495 or Irina.Frolovagsao.wa. og_v Jonathan Conde, Assistant State Auditor — Jonathan has been with the State Auditor's Office since August 2023. In his role as audit staff, Jonathan performs audit work in accordance with the audit plan to ensure Office quality expectations and standards are met. He holds a Bachelor of Science degree in Business Management through Western Governors University and is currently working towards completing his Master of Business Administration degree through WGU. Phone: (206) 787-0484 or Jonathan.Conde@sao.wa.gov Morgan Fairbanks, Assistant State Auditor — Morgan has been with the State Auditor's Office since 2022. In her role as audit staff, Morgan performs audit work in accordance with the audit plan to ensure Office quality expectations and standards are met. Morgan has previous bookkeeping and accounting experience from working in the hospitality and distribution industries. She earned a Bachelor of Science in Accounting from the Western Governors University. Phone: (425) 758-2245 or Morgan.Fairbanks@sao.wa.gov as c L d c 0 U c w a N N O N L to d cc 0 N LL Pa Packet Pg. 7 NiA Mi S t, verify: 2.1.a WO A guide for elected officials & appointed boards to prevent fraud I'°e LN r� Look inside for our special Opullout with three simple techniques to detect fraud Pa Packet Pg. 8 PtINUfldl Uf IlfldflUdl (,.dill, d11U IL C.USIS UUMHUN5eS UIIIFU115 UI UUIId1N every year. While corporate fraud may dominate the headlines, in reality, smaller organizations —including local governments —are more vulnerable to fraud, and their average financial loss is twice that of larger organizations. Employee fraud often comes as a shock to those charged with oversight of a government when it happens in their own agencies. It shouldn't. Just because fraud hasn't been discovered or possibly hasn't happened, does not mean that your agency is not vulnerable. Not only can fraud damage your government's finances, assets and hard-earned reputation, it can also affect your government's ability to obtain funding, attract top staff and maintain public trust. As an elected official or a member of an appointed board, you have a duty to understand your government's operations. You also have a key role to play when it comes to fighting fraud. Boards and other officials have the responsibility to lead by example, which demonstrates to employees that you are committed to preventing, detecting and responding to fraud. The State Auditor's Office (SAO) created this resource to help you understand your role as an elected official or board member in fighting employee fraud. Throughout this resource, you will find tips for implementing policies and best practices that can help you prevent, detect and respond to fraud in your government. !00,F, rr Packet Pg. 9 LI iftvm Employee fraud comes in many forms and appears at all levels within your government. An employee intending to commit fraud will often take their time to learn a process fully before they misuse it for personal gain. Examples of fraud schemes used by employees include: • Pocketing cash or equivalent (inventory/equipment/supplies) • Not properly recording vacation and sick leave used, and then cashing out leave • Falsifying reporting of overtime or extra pay, or creating and adding fictitious employees to the payroll • Changing vendor bank account information to their personal bank account • Using agency credit cards and/or fuel cards for personal purchases • Submitting reimbursements for expenses not incurred • Using government assets for personal gain Red flags Employees who commit fraud often show certain behaviors —or red flags — that indicate they might be engaging in wrongdoing. While these red flags do not always mean that an employee is committing fraud, understanding and recognizing them can help your government more quickly detect fraud and mitigate any losses. For example, an employee who works long or odd hours and does not take sick leave or vacation may seem like a very dedicated public employee. However, that employee may also be taking advantage of business hours in which they are less likely to get caught committing fraud. Here are other behavioral red flags to be aware of: • Living beyond their means • Experiencing financial difficulties • Excessive control issues or unwillingness to share duties • Unusually close relationship with a vendor or customer aIL:�"�i '•1 The ACFE 2022 Report to the Nations concluded that at least one of these red flags appeared in 92 percent of fraud cases. The ACFE also estimates that the average organization loses 5 percent of its annual revenue to fraud each year, causing a median loss of $117,000 before it is detected. SAO investigates frauds in all types of governments, from large state agencies to small special purpose districts. We have found that people in all types of positions at every level of government, from administrative assistants to department heads and elected officials, perpetrate fraud. On average, our office reports $3.8 million of public fund losses annually. No matter what type or size of government you oversee, fraud could happen to you. How employee fraud happens Usually, an employee chooses to commit fraud when three factors align: pressure, opportunity and rationalization — also known as the Fraud Triangle. Pressure. The employee has a motivation or need for money, often due to financial hardship. Opportunity. The employee has the opportunity to commit fraud because of the organization's poor internal controls. For example, a lack of , segregation of duties allows an employee to commit and conceal the fraud at the same time. Rationalization. The employee convinces themselves that what they did was okay. For example, they rationalize that they deserve the additional compensation because they are underpaid and overworked. An organization has little control over the pressures an employee may feel or the rationalizations they may make. To break the Fraud Triangle, governments instead must focus on reducing the opportunity for a fraud to occur. • 2.1.a Your first line of defense in minimizing fraud risk is fraud prevention. Board members have a responsibility to develop an organization -wide framework that aims to prevent fraud. Here are tips to consider when designing your government's fraud -prevention framework: • Set the tone at the top. A key responsibility of the board is to set the appropriate tone at the top through your attitudes, actions and communications. This tone helps define your agency's culture and influences the behavior of managers, employees, vendors, contractors and other stakeholders. 0 0 ^A111k Set expectations for every employee as it relates to fraud. Do not tolerate fraud at any level of the agency. Communicate this message —verbally and in writing —to all your employees. Ensure that management is encouraging ethical behavior and empowering employees, customers and vendors to insist that ethical standards are met every day. • Talk about fraud risks at your board meetings. Have discussions at the board level about how fraud could occur, what internal controls your government has in place to prevent fraud, and how someone could override those controls. Establish a fraud policy. A well -crafted fraud policy is critical for communicating your agency's anti -fraud stance, the expected process for reporting fraudulent actions, and what happens to those who commit fraud. Your policy should focus on deterrence, detection, and correction of misconduct and dishonesty. Be alert to the possibility of conflicts of interest. It is not always possible to avoid conflicts of interest. Make sure that you identify and appropriately manage any potential, perceived or actual conflicts. For example, be aware of an employee —or even another board member —using their position to make financial decisions that result in an undisclosed personal gain. Beware of the trusted employee syndrome. The trusted employee syndrome occurs when boards and executives put full faith into someone and rely on their word because they trust them. It is great to have trusted employees in your agency, but you should also ask to see information from independent sources to verify their work, such as system -generated reports and actual bank statements. Remember: Trust is not an internal control. 6� Pag Packet Pg. 12 Attend meetings and interact with your external and internal auditors. Do you understand the risks and issues auditors have identified relating to internal controls? SAO's auditors encourage board members to attend entrance and exit meetings for audits, and they will talk with you about risks your agency might encounter. • Perform a fraud risk assessment. A risk assessment is a process for identifying your government's vulnerabilities to fraud and developing a plan to mitigate those risks before they cause damage. As board members, you can perform this assessment annually or hire a consultant to complete an independent assessment. Your insurance company may also provide this service for a small fee. After you have completed your risk assessment, you will want to evaluate your government's insurance coverage for fraud loss. Make sure your agency has adequate coverage in the event a fraud occurs and that you regularly reassess whether it is enough. Also, take a close look at which employees you are bonding to minimize the agency's risk of misappropriation. How to perform a risk assessment: 1. Identify and document risks Start with identifying fraud risks, which should include consideration of all types of schemes and scenarios, incentives, pressures and opportunities to commit fraud. 2. Weigh the risks Assess the relative likelihood of each fraud risk occurring. Interview staff and other key stakeholders to learn more about their roles. 3. Mitigate the risks Decide what the response should be to address the identified risks. You may want to conduct a cost -benefit analysis of fraud risks to help determine which controls or specific fraud -detection procedures to implement. 4. Monitor the risks Continually monitor the identified risks and conduct ongoing risk assessments to help mitigate them. c c w c a� E z U 2 r r Q Pag Packet Pg. 13 2.1.a Detectingfraud You can never fully prevent fraud, so it is important to have a process for identifying fraudulent activities or attempts. As a board member, you are ultimately responsible for ensuring management fulfills its internal control responsibilities. Tnn nfton cmnllnr nrnnni�ntinnc—thncn IAM-k fMAtnr+hnn NIM Here are tips for improving your board's ability to detect fraud: • Make sure your board is receiving accurate and timely financial information. Most boards have fiscal responsibilities relating to budgeting or approving expenditures. For example, it is very important that you review actual documents and system -generated reports before approving expenditures. • Ask questions to ensure you understand what you are approving, and make sure those answering your questions can provide adequate supporting documents. Set up a tip hotline. A tip hotline offers an anonymous way for people to report concerns via phone, mail or internet about suspected fraud. According to the ACFE, tips are the most common detection method by a significant margin-42 percent in the 2022 report —with more than half coming from employees and another 18 percent from customers. Many insurance companies or government risk pools may be able to help provide this service to your government at a very low cost. It is important to make sure that someone independent of operations, such as a board member, receives those tips. $10,000 000`0 L$ $10,000 000`0 L$ $10,000 L$ L$ 1 Pag .-)I U,_ I Packet Pg. 15 000`0 i Review expenditures before you approve them The truth lies in the bank statements Pay attention to payroll DO NOl accept verbal presentations or answers when approving expenditures. DO 1. Review original documents and system -generated reports before approving expenditures. 2. Ask questions to make sure you understand all expenditures paid, which will help to confirm and verify expenses are for legitimate business purposes. 3. Make sure the staff answering your questions can provide adequate, original documents to support their statements. DO NO- ignore your agency's bank statements or think you do not have enough time to review them. A simple 15-minute scan of the transactions could help you detect unusual activity, especially if you review the statements each month and develop a baseline expectation of activity level and type. DO Make sure you know the source of the bank statements. Are they original, or are they copies that an employee could have altered before providing them for review? 2. Independently review the bank statements. If the employee misappropriating funds is the same person reviewing the bank statements and performing the reconciliation, the loss of funds could go undetected for years. Take the time to understand how money comes in and goes out of your agency Failure to review the bank statement might seem like a small oversight, but it could have drastic consequences. Bank account activity is the core source of a government's money flow in and out. DO NOT accept verbal presentations or answers when approving payroll amounts. Employee compensation is typically one of the largest operating expenses for governments. DO 1. Request a detailed payroll report that shows compensation paid to each employee. 2. Review employee compensation by types of compensation paid, such as salaried amounts, overtime, stipends or extra pay. 3. Ask questions to make sure you understand any compensation paid that is beyond the normal salaried amounts. 4. Make sure employee compensation agreements are documented and clearly defined. Consider annually comparing actual amounts paid to employment agreements to confirm that the amounts paid align with agreements. Packet Pg. 16 1 • If your government has not experienced an employee fraud yet, it likely will at some point. Moreover, when fraud is suspected or confirmed, it can be a chaotic time for your government. Being prepared to respond to a fraud event is critical to your government's response time, recovery and overall credibility. Preparing for fraud before it happens Develop a fraud response plan. Having a fraud response plan to follow will help your board navigate through the crisis effectively and efficiently. The plan should include important steps to follow when addressing a fraud concern and help with identifying important details around the suspected or confirmed fraud. It should include how to handle notifying others who need to know, such as legal counsel, law enforcement and SAO. Plan for negative public and media attention before it happens. As part of your fraud response plan, designate a spokesperson for your agency and develop a process for handling media inquiries. Consider media training for your board, too. What to do when you discover fraud Washington state law (RCW 43.09.185) requires all state agencies and local governments to notify SAO immediately if staff suspects or knows that a loss of public resources or other illegal activity has occurred. In the unfortunate event that your government is victim to fraud, we recommend you take the following actions: • Follow your fraud response plan. Report the loss to SAO using the form on our website. Even if you do not have all the information yet, report the loss as soon as you can. You can always update a loss report when you have more information to share. MA S Packet Pg. 17 Protect your agency's accounting records. Secure all original records related to the loss in a safe place until SAO has completed its investigation. For example, you should secure backup copies of computer records and original paper records related to the situation in a vault, safe or locked cabinet until the investigation is complete. • Notify others who need to know. This may include other governing board members, department managers or financial officers, depending on the circumstances. • Notify your legal counsel and file a police report with the local or state law enforcement agency, if appropriate. Do not enter into a restitution agreement with an employee before an investigation has established the amount of loss. Under state law (RCW 43.09.260), local governments must obtain written approval from SAO and the Attorney General's office before they make any restitution agreement, compromise, or settlement of loss claims covered by RCW 43.09.185. Tips for responding to public and media attention • Act and respond quickly. Designate a spokesperson (if you have not already). This can be an executive leader or an elected/appointed leader. Do your best to find someone who has had some media training. • Be transparent. Try to have as many facts confirmed as possible before speaking publicly. Once you do speak publicly and you get a question that you do not have an answer to, it is okay to say that you do not have the information at the moment, but will find out. • Tell the truth the first time. Make sure your facts are nailed down. Changing a series of facts after you have gone public with them breaks trust. If possible, tell the whole story at once. Try your best to avoid trickling out information. • Keep the audience as the focus. Remember, reporters are trying to inform the same people you are. Do not argue with them. Ignore intentionally antagonistic people online. Do not block them, but do not engage with them either. Pag Packet Pg. 18 Additional resources • Suspect a loss of public funds? This resource provides basic guidance on what to expect when working with SAO. • SAO's Resource Library offers a variety of free guides, checklists and best practices to help Washington governments improve internal controls to prevent fraud. • SAO's Preventing Fraud webpage contains multiple internal control assessment tools, guidebooks, free training links, and additional resources to help combat fraud. • Bank statements deserve your attention. This article provides tips and best practices for what to look for when reviewing bank statements. • Fraud Prevention Checklist -This checklist can help you test the effectiveness of your fraud prevention measures. • The Association of Washington Cities (AWC) provides multiple educational resources and services for governments. Specific to risk management, we suggest looking at these pages: > Risk Management Service Agency (wacities.org) > Elected officials essentials workshop (wacities.orgl • The Municipal Research and Services Center (MRSC) provides good guidance on board responsibilities and practical tips for board members. For assistance This resource was developed by the Office of the Washington State Auditor. Please send any comments, questions, or suggestions to the Special Investigations Team at fraudPsao.wa.gov. Disclaimer This resource is provided for informational purposes only. It does not represent prescriptive guidance, legal advice, an audit recommendation, or audit assurance. It does not relieve governments of their responsibilities to assess risks, design appropriate controls, and make management decisions. Pag ` ` -� Packet Pg. 19 LI @ ,top tj ol ►ir L �I I C RA e Ir Washington State Auditor's Office P.O. Box 40031 Olympia WA 98504 www.sao.wa.gov 1-564-999-0950 Office of the Washington State Auditor V11. 0 2.1.a QW m U c L JF C O U w V L C IJA Q N N O N L M N Ui M N C O E W I d Y U R d as I c L r W E M U a r Q Packet Pg. 20 ni ct Welcome to WASBO 2023! The Office of the Washington State Auditor is delighted to see everyone in person again this year, and share all the ways we can work together on #GoodGovernment. Check out our sessions • SAO Audit Update • Protect Your District's Data • Strengthen Your Team • Help With ASBs • Managing Change With Lean Stop by our exhibitor booth • Come see your district's FIT profile • Learn what trainings we offer • Meet SAO staff and ask questions A I L d O ci d • L C W • El N N O N L d 00 Have a i� peek insidC11! Ui CP 2 Lease accounting (GASB 87) and the capitalization threshold E 3 Emergency Connectivity Fund WI program documentation challen m lie 4 Get familiar with FIT and school a district data 5 How charter and tribal schools fare under public audit w 7 Are your school district's finances ready for an earthquake? E 10 New SAO resource to help protec district ACH payments Q 11 Learn about SAO's new fast, free and independent cyber checkup: 12 An invitation to visit SAO's Centei for Innovation's new webpages 13 What you need to know about ASB and cash receipting 14 How to evaluate your risk when making electronic disbursements Pag Packet Pg. 21 McCarthy's Corner - Continued from page 1 I'm glad in -person conferences have returned after managing through the darkest days of the COVID-19 pandemic. But both school business officers and our auditors are still accounting for that historic time. Everything about public education was unsettled, and major new federal programs were launched. We've seen that some school districts struggled to meet all the requirements of pandemic -related federal grants in the past year. They are not alone. Many local governments, from small special purpose districts to large counties, found understanding and complying with federal expectations a challenge. We appreciate your collaboration as we work together through the continuing complexity of a historic period. Looking to the future, an exciting set of changes is coming to our award -winning Financial Intelligence Tool, also known as FIT. As you may know, FIT allows local governments to monitor key metrics through their financial reports and compare themselves to peers on those measures. We now have three years of school data to display in FIT. Later this year, we plan to launch a mobile -friendly version of the tool. And starting in 2024, we will make FIT's school district data available to the public, just like data from other governments. We believe it is a positive way to demonstrate transparency and accountability, which in turn increases public trust. No one knows more about schools' financ accountability than th members of WASBO. And this edition of the Audit Connection is packed with news you can use in your work. Inside you'll find information on: • Our new "cyber checkup" program • Emerging audit issues • ACH fraud, a growing concern for all governments • Reminders about ASBs and fundraisers • And much more Finally, as a parent and former school board member, I know how important schools are to every community. Enjoy the WASBO conference! It's a pleasure to share ideas, hear about new issues, and visit our colleagues in public education. Pat McCarthy Pat.McCarthy@sao.wa.gov, (564) 999-0801 Emerging issue: Lease accounting (GASB 87) and the capitalization threshold As school districts follow GASB Statement No. 87, the new reporting requirement for leases, auditors have noticed a common theme: Districts need more clarity on establishing a capitalization threshold. The goal of GASB 87 is to increase lease comparability across governments and provide financial statement users with better, more complete information by establishing a single model for lease accounting. Districts have done well overall in implementing this standard for the year ending Aug. 31, 2022, which is currently under audit. OSPI Bulletin No. 056-21 contains a general overview of the requirements. The bulletin states that districts may establish a lease liability threshold for leases that Continued on page 3 Pag May 2023 I The Audit Packet Pg. 22 2.1.a Continued from page 2 are clearly insignificant individually and in the aggregate. The Accounting Manual for Public School Districts does not prescribe a specific dollar amount because districts of all sizes must be able to use the guidance. Based on the number and size of leases they have, districts must determine a threshold that is both insignificant and a fixed number. If the threshold is toc high, it might result in districts omitting leases beyond what is "clearly insignificant" in the aggregate. For example, a percent of expenditures would not be a good threshhold to apply to individual leases for reporting decisions because it would not be fixed and would result in a threshold that is significant. The threshold should be low, perhaps in the thousands of dollars, and be a fixed number rather than a percentage or a ratio. If you have technical questions, remember you can ask SAO for guidance through our HelpDesk. Simply log into the client portal and follow the instructions. Emerging issue: Emergency Connectivity Fund program documentation challenges While auditing school districts' federal programs this year, auditors have noted a challenge related to the Emergency Connectivity Fund (ECF) program. This program was part of the federal government's COVID-19 relief package and intended to facilitate a fast conversion to remote learning. The program often was not listed on districts' Schedule of Expenditures of Federal Awards when it should have been. This appears to have happened because the federal funds were managed by districts' information technology departments, bypassing their business offices where internal controls over federal programs are typically managed. As a result, the program was not initially included in districts' federal single audits when it likely should have been. Additionally, districts are having trouble providing the documentation the program requires. To make sure we are interpreting the requirements correctly for audit purposes, we verified them with the Federal Communications Commission, the awarding agency. Specific to the ECF grant, the documentation must show that award funds were used only to purchase equipment and services for students and staff with "unmet need," meaning they did not have adequate resources to learn or work remotely. The documentation must be: • Specific. For example, it might consist of a list of each student or employee who checked out the equipment, along with information supporting the unmet need of each person. • Relevant and accurate at the time of reimbursement. For example, counts or data from the initial grant application phase are likely neither relevant nor accurate at the reimbursement stage. For more information about program requirements and a list of frequently asked questions, please refer to the FCC's webpage dedicated to this program: https://www.fcc.gov/emergency-connectivity-fund- faqs. a� U c m L T r- 0 V a) U w a N N 0 N m M N IQ aP u) c 0 lie m U 0 a. i a� c L r c w r- (1) E z U 0 r Q May 2023 1 The Audits Packet Pg. 23 2.1.a Get familiar with FIT and school district data We are excited to announce that our interactive Financial How to access your data Intelligence Tool (FIT) now contains three years of school district financial data. FIT is a unique and powerful way to To access your data in FIT, follow these simple steps: visualize and analyze the financial data of Washington's 1. Find FIT at portal.sao.wa.gov/FIT. local governments. Before school district data becomes visible to the public through FIT in January 2024, we are providing schools the opportunity to become familiar with the tool. We encourage you to look at your district's financial data, trend information, and data visualization of revenues and expenditures. This is the first step to fully integrating school district data into FIT, which lets users search, filter, and compare financial data from across the state. In January 2024, FIT users like journalists, bond rating groups and lenders, legislators, the public and others will be able to explore 2. Read and accept the information window, which says that the application contains data submitted by local governments. 3. Click the login button near the top of the page. You should enter the credentials you use to submit your district's data to SAO. 4. Use the "Find Government by Name" menu on the left-hand side of FIT to find your school district and access its profile. How charter and tribal schools fare under public audit In the 2022-23 school year, Washington's charter and tribal schools served more than 7,000 students. The Office of the Washington State Auditor examines the public funding each type of school receives. Recent audits of tribal schools have found that overall, the schools keep records to support revenue and expenditures, and have worked to implement audit recommendations. Charter public schools began serving Washington students in the 2014-15 school year. Recent audits have found improvements in their compliance with Washington's legal requirements. Currently 16 charter schools operate in Washington, including four new schools that opened for the 2021-22 school year. Based on SAO audits, some key areas of continued focus for charter schools include: • Documenting adherence to meeting requirements under the state's Open Public Meetings Act, including maintaining meeting minutes • Keeping straightforward records to show they separate public and private transactions, and maintaining adequate supporting documentation • Identifying and tracking public assets • Following applicable procurement requirements for purchases and public works projects • Employing Washington -certificated instructors and ensuring their certifications are current • Documenting and reporting student enrollment in accordance with applicable requirements SAO continues to encourage cha schools to work closely with their authorizer to ensure they comply with their charter contracts and receive relevant guidance to comply with Washington state la CHARTER SCHOOLS, AT A GLANCE 2022-23 school year: 16 charter schools served 5,042 students .. Catalyst Public Schools Location Bremerton V Grades K- 8th 6th -12th Students 444 146 Rainier Valley Leadership Academy Seattle PRIDE Prep Spokane 6th -12th 514 Rainier Prep Seattle 5th - 8th 334 Spokane International Academy Spokane K - 9th 733 Summit Schools Olympus Tacoma 9th - 12th 196 Summit Schools Sierra Seattle 9th - 12th 375 Summit Schools Atlas Seattle 6th - 12th 465 InnovationWillow Public Schools Walla Walla 6th - 8th 56 Impact Public Schools -Puget Sound Elementary Tukwila K - 5th 595 Impact Public Schools-Salish Sea Elementary Seattle K- 3rd 338 Impact Public Schools -Commencement Bay Elementary Tacoma K - 2nd 331 Lumen High School Spokane 9th -12th 36 Pullman Community Montessori Pullman K- 5th 95 Pinnacles Prep Wenatchee 6th - 8th 168 Whatcom Intergenerational High School Bellingham 9th -12th 72 Why Not You Academy Des Moines 9th -10th 144 Pag May 2023 1 The Audit Packet Pg. 25 TRIBAL SCHOOLS, AT A GLANCE School Chief Kitsap Academy 2022-23 school year: 7 tribal schools served 2,032 students Suquamish Tribe, Suquamish 6th -12th 78 Chief Leschi Schools Puyallup Tribe, Puyallup K-12th 594 Lummi Nation Schools Lummi Nation, Bellingham K-12th 385 Muckleshoot Tribal School Muckleshoot Tribe, Auburn K-12th 556 Quileute Tribal School Quileute Tribe, La Push K-12th 142 Wa He Lut Indian School Frank Landing Indian Community, Olympia K-8th 136 Yakama Nation Tribal School Confederated Tribes and bands of Yakama Nation, Toppenish 8th -12th 141 Keep an eye out for these performance audits focused on local schools and districts School Safety Planning Follow -Up revisited recommendations from the 2019 School Safety Planning audit that were developed to improve regional cooperation through the work of Educational Service Districts (ESDs). The follow-up audit found that each of the nine ESDs has established a regional school safety center; all of them also provide training, resources and consultation to districts on safety issues. However, even though state law requires all ESDs to provide training and resources to help school districts learn how to bill Medicaid for eligible behavioral health services, only two did so regularly. W0000111111" K-12 Education: Lessons Learned from the COVID-19 Pandemic seeks to identify the key lessons learned V!r about public education during IMPI I the pandemic. The audit team is designing a survey of selected school districts, asking them about the innovative or nontraditional techniques they used to help teachers and students stay on course for educational goals when classrooms were closed to in -person learning. Dual Credit Programs in Washington will examine the state's dual credit programs, which allow students to earn high school and college credit simultaneously. Benefits of these programs include giving students early exposure to college coursework and reducing the cost of higher education. However, participation varies across student demographics, and the process of transferring dual credits can sometimes be challenging. This audit may evaluate opportunities to close participation gaps, as well as examine the extent to which Washington's colleges and universities accept dual credits earned in these programs. I Packet Pg. 26 a� U c a� a� c 0 LU a� c.� c L Q N N O N cu aD ii M N Ui ci v� c 0 E w m Y cu 0- I aD c L c w c aD t 0 r Q 2.1.a The Cascadia Subduction Zone (CSZ) is a large fault line stretching from northern California to southern Canada that is capable of producing the strongest of earthquakes. Stresses have been building along this zone for more than 300 years; experts believe that a giant earthquake, including one as high as a magnitude 9.0, followed by a large tsunami, has a 15 to 25 percent chance of occurring in the next 50 years. However, this is only one of many earthquake risks in our state. As a school district leader, you should be aware of your earthquake risks and take steps to ensure that your district is in a position to minimize losses and continue operating after a disaster. A major earthquake is going to be very costly if your area is directly affected, and even more so if your district is unprepared. The Washington State Department of Natural Resources (DNR) has information that can help school districts assess their risk. DNR reports on earthquake risk for the SCHOOL u 1 CSZ and 19 other potential scenarios in our state that could affect counties like Yakima, Douglas, Chelan and Walla Walla. The agency also recently evaluated 561 public school buildings across the state and found that nearly all of them are at risk of partial or total collapse during an earthquake. Here are some steps you can take to financially prepare your school district. Address infrastructure risks now • Assess capital asset vulnerabilities. You should know each of your building's risks and the estimated cost to make it safe, and then establish priorities and timelines for any needed construction projects. The Office of Superintendent of Public Instruction (OSPI) offers natural hazard assessment grants to help you gather building information (such as a structural assessment). Contact your OSPI regional coordinator for more information. You can also learn more about your district's buildings by viewing the pre -disaster mitigation section in the Information Condition of School Inventory System (ICOS). This system tracks information about each school district's buildings, including potential natural hazards for each site and historical building hazard assessment results. • Learn about state funding programs. In 2022, the Legislature formally established the school seismic safety grant program with Senate Bill 5933, and approved $91 million in funding to begin this program. OSPI oversees these funds and is prioritizing Continued on page 8 May 2023 1 The Audits Packet Pg. 27 Continued from page 7 schools along the coastal region that face a dual risk of earthquake and tsunami. Schools can use funds for planning and construction for relocation, a retrofit or a tsunami evacuation structure. OSPI is working directly with at -risk coastal districts to coordinate projects. Once the coastal region has been served, there will be a funding opportunity for other high -risk buildings in districts across the state. • Explore federal grants for preparedness and mitigation. Federal grants are available to help you prepare before disaster strikes, such as the Emergency Management Performance Grant, the program for infrastructure preparedness called Building Resilient Infrastructure and Communities, and the Hazard Mitigation Grant Program. These opportunities are available to local jurisdictions as subrecipients to the state. You can find more information at https://mil.wa.gov/grants. Improve your post -disaster financial resiliency • Ensure that you have a business continuity plan. As part of your continuity of operations planning, your district should be prepared for your financial services to function after an earthquake emergency. This plan needs to work even if you have no internet, power or phone service. Staff should be trained on how to access the plan in case of an emergency. This plan should be a component of your statutorily required comprehensive school safety plan, sometimes referred to as an emergency operations plan. • Form your financial risk management strategy. Know your insurance options and coverage details, as well as your insurer's size and financial standing. For those participating in a risk pool, this would include the pool and all excess insurers. One thing to consider is an emerging tool called parametric risk insurance. This type of product provides a set payout based on the earthquake's magnitude rather than the extent of damage. It also can pay out within days, whereas traditional earthquake policies may take months or even one to two years to pay. • Consider the adequacy of your emergency cash reserves. Depending on the size of the earthquake, an event of this nature could be costlier than you ever imagined, and your emergency cash reserves should reflect your estimated need. Consider the extra costs to support the school community, the potentially high costs for materials and supplies to carry out repairs, the additional costs to resume operations after the disaster, and the overall estimated length of recovery. Take action now to ensure recovery funding later Make sure your district has a current hazard mitigation plan. Each school district must have a plan in place before a disaster occurs in order to access Federal Emergency Management Agency (FEMA) funding after a disaster. School districts can choose to annex to their county's plan or adopt their own. If you want to learn more about creating a hazard mitigation plan, read FEMA's guidance. If you are looking for funding to help you develop a plan, two grant programs are available: the Building Resilient Infrastructure and Communities and the Hazard Mitigation Grant Program. Continued on page 9 a� U c m aT c 0 U a) U c ;a c w 0 Q N N 0 N m LL M N Lri as u� c 0 E w lie U 0 a. i a� c r c w c m E z U 0 r Q Pag May 2023 1 The Audit Packet Pg. 28 Continued from page • Qualify your school district for recovery -based grants now. Learn about recovery -based grants and the steps you need to take now to qualify for grant funding after a disaster. Recovery -based grants can have prequalifying conditions or requirements for maintaining eligibility. Talk with your local emergency management department, the Washington State Department of Commerce, and the Washington State Military Department for help identifying potential programs. • Prepare to manage federal grant(s). You will need people with special skills to apply for and manage federal grant money. They should be familiar with local and federal procurement rules, as well as grant regulations and local grant policies. Evaluate your capacity to manage an influx of grant funds and what steps you will need to take if the need exceeds the capability of your resources. You'll want to think about how you would meet those financial management obligations and what that process may entail (for example, expedited hiring). If you do not manage these grants properly and maintain the appropriate documentation, you may have to repay grant funds years after receiving them. Given the potentially hefty price tag of an earthquake disaster and the risk to student safety, you should be informed about the extent of risk facing your school district and actively help shape the path forward. Learn more about the earthquake risks in Washington • What to Expect When you are Expecting an Earthquake (1 hour 30 minutes; video provides detailed information about earthquake risk in Washington) Dr. Erin Wirth - Understanding Cascadia's next Great Earthquake (1 hour) • Tsunami Escape - Washington's Uphill Battle, a TVW documentary (20 minutes) If you have questions or comments, email center@sao.wa.gov or contact Team School Programs at (509) 726-1874. Earthquake probability statistics were obtained from the Pacific Northwest Seismic Network, which were adapted from the United States Geological Survey. Read more in the School Seismic Safety Project 2019-2021 Legislative Report (see Figure 1, page 11). 3r � M N Sri aP u� c 0 E w lie U 0 a. i a� c r c w Y E U 2 r Q May 2023 1 The Audits Packet Pg. 29 Are your ACH internal controls strong enough 1r&,N to protect your district from fraudsters? SAO has a new resource to help you Do you remember the Nigerian prince scheme —that long -running internet fraud where the bad actor drains your bank account after convincing you to share your personal information? Scammers made $703,000 in 2018 alone on that one. While some fraudsters are still working that old con, others have moved on to impersonating your employees and vendors to redirect Automated Clearing House (ACH) payments meant for payroll direct deposits or vendor payments. In fact, Washington governments reported $4.7 million lost to these schemes in 2020 and 2021. How do these bad actors target your ACH payments? They typically start by emailing one of your employees, perhaps asking to update contact information first. This allows them to change bank account information months later without raising alarms. Once they persuade staff to change banking information, vendor or employee payments will go straight to the scammers. Really slick operators may hack into a vendor's actual email account, and wait until they see a large payment is due to go out before making their move. Your own employees can also perpetrate ACH fraud. If employees have the right system access, it only takes a few keystrokes to change a vendor's banking information to a personal account. You should know that once you send an ACH paymen the money is gone. Your bank, as the originating ban can request the receiving bank return the funds. However, the receiving bank is under no obligation to do so —and in BeStpractices C use many cases, it's ACH Electr°nlc not even possible if the fraudsters have already moved the money out. sm Fraudsters constantly refine and evolve th scams, so you must vigilant and ensure yc school district's intern payment., controls evolve, too. To help you, SAO has developed a new resource: Best Practices for ACH Electronic Payments. This new resource has: • Tips to help you develop and maintain policies for your ACH payment process • Key areas to address in your ACH employee fraud training to help employees become "responsibly suspicious" and learn how to spot red flags • Recommendations about how to segregate duties to reduce your fraud risk —an important practice for preventing and detecting ACH payment fraud • Advice to help you establish a verification process for new payee information or requested changes to existing contact information, mailing addresses or banking information • Guidance for managers on how to monitor for and prevent unauthorized payee account changes in the vendor master and ACH payment files Interested in additional resources? All our guidance is available online at no cost. We have a lot of great information to share, so spend a few minutes in SAO's Resource Library to see what we have to offer! I I I - - - - � I .7 M N Ui as c 0 E w lie U 0 a i 0 a� c CU L c w c d z U 0 r a May 2023 1 The Audits Packet Pg. 30 Smart school districts know cyber health is key. Talk to SAO's Center for Government Innovation today about a free checkup! e Cybercriminals find school districts very attractive�� targets due to the vast amount of sensitive data about employees and students they maintain. To keep pace with the constantly evolving threats and tactics, it's essential that you understand how to minimize your district's risk of attack. That's why SAO's Center for Government Innovation is excited to launch new cyber checkups, as part of its #BeCyberSmart program. The Center's checkups provide a fast, free and independent assessment of your district's vulnerability to common threats. The Center's checkups draw on the framework developed by the Center for Internet Security (CIS) in its Critical Security Controls, Version 8.0. The CIS Controls —developed by a consortium of private companies, government agencies and universities —are a list of highly effective defensive actions organizations can take to improve their cybersecurity. A cyber checkup will help you: • Understand cybersecurity safeguards and why they're important • Identify cybersecurity gaps and prioritize improvements • Begin building a cybersecurity program if you don't have one already • Connect to free and low-cost resources to improve your cyber health To learn more about the Center for Government Innovation's new cyber checkups, visit the Center's webpage or contact the Center at 564.999.0818 or Center@sao.wa.gov. Smerr�eg� sknowcyharMan hE'alth rs key ielh ro �� ue tO1raYabou�ach� Pag Packet Pg. 31 Check out SAO's Center for Government Innovation webpage to find helpful tools and resources When's the last time you visited the Center for Government Innovation's web page? It's chock-full of tools and resources to help your district solve problems and improve operations. Cyber Checkups — Get a fast, free and independent assessment of your district's vulnerability to common cybersecurity threats. It includes actionable steps you can take to improve your overall cyber health. Schedule your checkup online today! Lean Services — Want to streamline tasks and workflow? Whether it's payroll, purchasing or any other area, the Center's Lean special can help your school district optimize efficiency, quality and customer service. .0 a EFq TOOLSOk' n�°ae;m° ��s Teambuilding & Leadership Workshops — Strengthen your team,' increase trust and productivity, even promote workplace harmony and employee satisfaction with the Center's CliftonStrengths workshops. Online Resource Library— Browse our free guides, best practices and checklists addressing topics as varied — and essential — as internal controls, operations, cybersecurity, technology and more. Financial Intelligence Tool (FIT) — Visualize your district's data in a whole new light on the Center's interactive FIT tool. Technical Advice — Get guidance on how to incorporate leading best practices into your district's internal controls, processes, cybersecurity and more. Connect with the Center for Government Innovation today! 0 aw o Pag May2023jTheAW%._jPacket Pg. 32 ■ r72.1.a771 Small -dollar transactions, big responsibilities: What you need to know about AS6fundraising and cash receipting Whether from yearbook sales, prom tickets or direct donations, the money raised by Associated Student Body (ASB) groups are public funds. State law (RCWs 28A.325.020 and .030) makes plain that ASB funds are designated as public funds of the school district. This means districts must safeguard and account for ASB funds the same way they guard levy dollars or apportionment funds. It also means if ASB funds go missing or are stolen, you must report the loss to SAO. Since fundraisers often involve lots of transactions for small dollar amounts being collected by students, they are a high -risk activity that call for strong controls and oversight. Ensuring you have strong cash handling procedures in place will go a long way to protecting these public funds. Here are some key steps to take for every fundraiser. Document all the money you receive as soon as you receive it. Lots of methods can achieve this goal: cash register receipts, reports from a point -of -sale system or old-fashioned receipt books. (If you use receipt books, just make sure they're printed with the district and school name on them as a fraud -prevention measure.) If you have to void a receipt, two people must witness and sign it. Do a cash count. If it's a multi -day event, do it at the end of each day. At one high school, SAO auditors conducted their own cash count and found the ASB fund was $1,161 short. A school official was aware of the shortage, but did not quickly report it to management. That meant the loss of public funds was not reported to law enforcement or SAO as required by state law. Deposit the funds each day, in the same cash or check composition noted on the receipts and cash counts. (To deposit less frequently requires a waiver from your County Treasurer (RCW 43.09.240).) SAO auditors once discovered an ASB holding more than $15,000 in the ASB office. This substantially increases the risk of fraud or loss. Money collected at an after -school event should be locked in the school safe or deposited in the night drop at the district's bank. 4. Ensure the fundraising receipts are reconciled to the fundraising documents and revenue projections at the end of the event. Other best practices include ensuring you provide annual training for ASB staff and students on the role of ASBs; establish procedures for activities that involve goods or money; and have rigorous staff oversight of ASB activities to ensure everyone follows district policies and procedures. SAO offers resources and an on -demand training to make sure your cash handling procedures are strong: Cash Receipting Guide and Checklist: Find tips and best practices for managing your cash collections. The guide includes a suite of short, one -to -two -page resources for leaders, managers, supervisors and payroll clerks. You can print the guide in sections, and customize the checklist to meet your needs. Cash Receipting: Fraud Prevention and Internal Controls on -demand training: Follow an actual fraud case while learning about important best practices for internal controls. Packet Pg. 33 2.1.a How to evaluate your risk when making electronic disbursements The disruptions caused by the COVID-19 pandemic resulted in increased dependence on technology and electronic payment networks. This shift has created new opportunities for bad actors to steal public resources and assets from your government. By using various cyber fraud schemes, such as fake email addresses or compromised email accounts, bad actors are successfully tricking governments into rerouting electronic disbursements to their own accounts. And the fraudsters are raking in a hefty profit. Between 2019 to October 2022, Washington's governments have reported more than $21.8 million in estimated cyber losses to our Office. Unfortunately, we hear frequently of organizations in both the public and private sector falling victim to these cyber frauds. Between 2019 to October 2022, our Office has received 175 reports of cyber frauds from governments in Washington state. Considering governments are increasingly using electronic disbursements, including Automated Clearing House (ACH) payments and electronic funds transfers (EFTs), it is important to understand what factors might be increasing your risk of experiencing a cyber fraud. Based on our own investigations of cyber-related fraud, here are some key risks to be aware of: • Personnel changes — Whether employees are retiring or seeking new opportunities, staff changes have been happening everywhere, especially in government. With staff turnover comes the risk that newer employees may not be aware of the processes and controls your government has in place to combat these frauds. Remember to educate and train your staff on your expected policies and procedures, and to be vigilant on these cyber schemes. • Remote working environments — While technology makes it easier for remote employees to perform their duties and stay connected, remote work environment also bring several cybersecurity challenges. It's important to stay on top of these potential vulnerabilities to prevent cyber frauds, such as phishing or malicious software being installed for deceitful purposes. Our Office has some tips and tricks available on how to protect your data in this October 2022 blog post. • Operational adjustments — Your government's operations may have shifted since the onset of the COVID-19 pandemic, and now you may be using electronic payments more frequently than physical checks or warrants. This is ripe for bad actors to take advantage of, as they hope that you will fall for their scheme and wire these payments directly into their bank accounts. Check out some best practice tips regarding these ACH payments and wire transfers. The "everything is okay" trap — Your government's staff and management may have a mindset that you won't experience a cyber fraud, especially if you have strong policies established, clean audits, haven't experienced a fraud yet. This potentially false sense of security may heighten the risk of your employees and managers letting their fraud -prevention guard down, and that's one trap you don't want to fall into. It's always a good practice to revisit your policies and procedures, and we recommend bookmarking our Segregation of Duties Guide to help you evaluate your current environment. At the end of the day, no government is immune from these risks, and fraud can absolutely happen to you. But just because fraud can happen, doesn't mean you have to let it. You can prevent electronic disbursement frauds if you take proactive action now by establishing strong controls and monitoring. More resources Our Office has other excellent resources available on internal controls and best practices to consider implementing, to prevent cyber frauds from happening to you. Check out our #BeCyberSmart page, Resource Library, and new Preventing Fraud page. a� 01 c m JT c 0 U a) U c 0 c w �a 0 Q N N 0 N m w Pag May 2023 1 The Audit Packet Pg. 34 Setting the tone at the top: SAO's fraud -prevention resource for elected officials and appointed boards Publicly elected school directors have a responsibility to understand their district's operations. They also have a key role to play when it comes to preventing, detecting and responding to employee fraud. That's why we developed Trust, but Verify: A Guide for Elected Officials & Appointed Boards to Prevent Workplace Fraud to help leaders better understand their role in creating a fraud -prevention culture. I-ook inside for our special pullout with three s t fraud ,PChniquesto _ Preparing your district's annual report? SAO can help Before you file your financial statement with OSPI, download our Checklist for Preparing and Reviewing School District Financial Statements. This handy self -assessment checklist will help you ensure that you don't miss a step when preparing your financial reports. This year's checklist includes recording transactions. Checklist f - � or Preparin district F g and "e date co mP/etetl: CornPlete (� yc Keyrecorpmo„tl hy. nanC�ai S'}a �e�e�(IJJnO J(��OO/ In t M n o j rP bse this checklist Vourtliseritt's ann alhoo/Districts t. M1elp Pare antl re Pre he uesnon report' with the pyhcePt t �W sh! 9ton hoot yUstrict finan 'ournal eat o SPPerintentlenyr fPphlic Ih on�(O. 1," Cc -Id n rya thys al cchecklie With 'he st 6Accoungn re KIt tid.so eto m¢an¢ens S ng vmliclmr ao Ibetr hbedaa o�! i9slbcarl flNdsorh¢ea¢re �ndba ane. _ Ne dr'sRicrk. c� uBloum�r _ ��C��tridao- � en tWrheAP�riayelY Nacr��et the ol#.�_. Iyrowaratr-� 'aoaixwa¢¢,.aetaa�r�zrre_sre'z^ac, Coming soon: Updated OPMA resources Only a few years ago, people could show up to watch school board members conduct district business in person, with a microphone for public comment perched in front of them. The pandemic changed many things, including how local governments comply with Washington's Open Public Meetings Act (OPMA). Almost overnight, public meetings shifted to virtual environments and staff were scrambling to make it all work. Three years later, districts are returning to in -person meetings and events, but the OPMA will continue to require governments to provide a virtual option. Since 1W failure to comply with the OPMA could expose schools to legal liability, SAO's Center for Government Innovation = is partnering with the Municipal Research and Services I Center (MRSC) to update their OPMA resources. The new updates will include: • Guidance on the latest OPMA-related court decisions and state legislation • Practical tips on how to hold hybrid meetings • Robust information for elected officials when they communicate through social media, messaging and shared documents Tips on emergency meetings during extreme weather ryaR =�,.mE W � x M�"P`� ^'rsaory RS� a,sove,R the end of June on SPA0's resources by notified when �ookfor the new You like to be PIIRSC,s Websites. If y e_neWsletter at and Up for SAD s they're gublishedI sign pE AN ra stay In th�� with S SC a� U c a� c 0 c� m U c c Lu 0 Q N N O N L d N LL z I NacKet Pg. ;3f GASB UPDATE March 2023 The Governmental Accounting Standards Board (GASB) establishes generally accepted accounting principles (GAAP) for U.S. state and local governments. All statements, exposure drafts and other documents for public comment are available from the GASB website, www.. ag sb.org, free of charge. Here is a summary of current and upcoming accounting and financial reporting standards. GASB Pronouncements Effective for Reporting Year 2021 • Statement No. 89, Accounting for Interest Cost Incurred before the end of a Construction Period This statement suspends paragraphs 5-22 of GASB 62. Do not capitalize interest cost related to capital assets — expense as incurred. This statement was originally effective for the 2020 reporting year but was postponed by GASB 95. GAAP — Formalizes that interest incurred before construction is complete for a capital asset is not capitalizable. CASH — Does not apply since this is in relation to capital assets. Implementation Guide 2019-1 This guide's objective is to provide guidance that clarifies, explains, or elaborates on GASB Statements. This guide addresses OPEB, Derivative Instruments, Nonexchange Transactions, Impairment and Insurance Recoveries, and other accounting and reporting topics. This guidance was originally effective for the 2020 reporting year, but was postponed by GASB 95. GAAP — Most of the required changes have been implemented in BARS. Please review the new rules for storm cleanup and insurance recoveries, which can be found in the insurance recovery BARS codes. CASH - Most of the required changes have been implemented in BARS. Please review the new rules for storm cleanup and insurance recoveries, which can be found in the insurance recovery BARS codes. • Statement No. 98, The Annual Comprehensive Financial Report This statement replaces the term comprehensive annual financial report and the related acronym with annual comprehensive financial report (ACFR). Effective for years ended after December 15, 2021. GAAP — Most of the required changes have been implemented in BARS. CASH — Does not apply since cash does not prepare ACFRs. Pag Packet Pg. 38 2.1.a GASB Pronouncements Effective for Reporting Year 2022 • Statement No. 87, Leases This statement's scope includes definition of a lease, lease term, short-term leases, subleases, and sale -leasebacks. Guidance related to accounting and reporting for lessee and lessor. An implementation guide is available: Implementation Guide 2019-3 - Leases. The statement and guidance were originally effective for the 2020 reporting year but was postponed by GASB 95. GAAP — Please see the Leases project page for accounting and reporting requirements. Early implementation allowed. CASH - Please see the Leases project page for accounting and reporting requirements. No early implementation allowed. • Statement No. 91, Conduit Debt Obligations The objectives of this Statement are to provide a single method of reporting conduit debt obligations by issuers and eliminate diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated with conduit debt obligations, and (3) related note disclosures. This statement was originally effective for the 2021 reporting year, but was postponed by GASB 95. GAAP - Conduit debt will not be reported unless certain criteria has been met. CASH - Conduit debt will not be reported unless certain criteria has been met. Statement No. 92, Omnibus 2020 This statement addresses a mix of implementation issues related to leases, reinsurance recoveries, and derivative instruments (effective immediately for reporting year 2020). Other items effective for reporting year 2022 include intra-entity transfers of assets, postemployment benefit arrangements, government acquisitions, etc. This guidance was originally effective for the 2021 reporting year, but was postponed by GASB 95. GAAP — Most of the required changes have been implemented in BARS. CASH - Most of the required changes have been implemented in BARS. • Statement No. 93, Replacement of Interbank Offered Rates This statement provides exceptions to derivatives hedge accounting termination provisions and lease modifications solely to replace an interbank offered rate (IBOR). This guidance was originally effective for the 2021 reporting year but was postponed by GASB 95. GAAP — LIBOR has been removed from the hedging derivative section of the BARS manual. CASH — Does not apply to cash due to only apply to hedging derivatives. Pag Packet Pg. 39 2.1.a Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for IRC Section 457 Deferred Compensation Plans This statement supersedes GASB Statement No. 32. IRC section 457 deferred compensation plans that meet the definition of a pension plan should follow the accounting and financial reporting requirements of pension plans. GAAP — Most of the required changes have been implemented in BARS. CASH - Most of the required changes have been implemented in BARS. Statement No. 99, Omnibus 2022 This statement addresses a mix of implementation issues related to LIBOR, nonmonetary transaction disclosures, future revenue pledges, and terminology updates to leases, reinsurance recoveries, and derivative instruments (effective immediately for reporting year 2021). Other items effective for reporting years after 2022 include clarification issues with leases, PPP, and SBITA, and financial guarantees and derivative instrument requirements. GAAP — Most of the required changes have been implemented in BARS. CASH - Most of the required changes have been implemented in BARS. GASB Pronouncements Effective for Reporting Year 2023 • Statement No. 94, Public -Private and Public -Public Partnerships and Availability Payment Arrangements This statement establishes the definition of PPP's and APA's and provides uniform guidance on accounting and financial reporting for transactions that meet those definitions. GAAP — Adds more situations for Service Concession Arrangements to apply and updates the accounting and reporting requirements in these areas. CASH — Does not apply due to the fact that Service Concession Arrangements are not reported in Cash. • Statement No. 96, Subscription Based Information Technology Arrangements This statement brings the guidance on the accounting and financial reporting for "SBITA's" in line with that of GASB 87 - Leases. GAAP — Adds leased software to similar accounting and reporting requirements as leases CASH — Adds leased software to similar accounting and reporting requirements as leases. Implementation Guide 2021-1 This guide's objective is to provide guidance that clarifies, explains, or elaborates on GASB Statements. This statement brings the guidance on the accounting and financial reporting for derivatives, fiduciary activities, leases, and more. GAAP — Most of the required changes have been implemented in BARS. CASH - Most of the required changes have been implemented in BARS. Pag Packet Pg. 40 2.1.a GASB Pronouncements Effective for Reporting Year 2024 Statement No. 100, Prior Period Adjustments, Accounting Changes, and Error Corrections This statement improves the accounting and financial reporting guidance for prior -period adjustments, accounting changes, and error corrections — amendment of GASB Statement 62. GAAP — Clarifies when to apply the accounting and financial reporting for the variety of transactions that make up these categories. CASH — BARS will provide clearer guidance and updated BARS codes regarding these types of transactions. Statement No. 101, Compensated Absences —Reexamination of Statement 16 This statement improves the accounting and financial reporting guidance for compensated absences. GAAP — Provides clearer definitions of the types of absences and the requirements for the accounting and financial reporting. CASH — BARS will provide clearer guidance and requirements for reporting specific types of absences. GAAP — For all statements, earlier application is encouraged. CASH— Implementation will be at the time of BARS prescription. Current GASB Exposure Drafts, Invitations to Comments, etc. Documents for public comments are posted to hit2s://www.gasb.orWexposuredocument. Pag Packet Pg. 41