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
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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
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develop strategies that make government more efficient and effective.
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The purpose of this meeting is to share our planned audit scope so that we are focused on the areas of highest risk. v
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We value and appreciate your input.
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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
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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 >-
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We plan to evaluate the following areas: M
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• Accounts payable — general disbursements, credit cards, and electronic funds transfers
• Payroll — leave accrual and usage .�
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• Open public meetings — compliance with minutes, meetings and executive session requirements
• Financial condition — reviewing for indications of financial distress w
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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
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accordance with the applicable reporting framework. The audit does not attempt to confirm the accuracy of every
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amount, but does search for errors large enough to affect the conclusions and decisions of a financial statement
user.
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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
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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.
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Levels of Reporting
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Findings
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Findings formally address issues in an audit report. Findings report significant results of the audit, such as
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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
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this response will be published in the audit report.
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Management Letters
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Management letters communicate control deficiencies, non-compliance, misappropriation, or abuse that are less
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significant than a finding, but still important enough to be formally communicated to the governing body.
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Management letters are referenced, but not included, in the audit report.
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Exit Items
Exit items address control deficiencies, non-compliance with laws or regulations, or errors that have an
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insignificant effect on the audit objectives. These issues are informally communicated to management.
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Important Information
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Confidential Information
Our Office is committed to protecting your confidential or sensitive information. Please notify us when you give
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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.
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Expected Communications
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During the course of the audit, we will communicate with Dave Turley, Administrative Services Director, on the
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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
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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-
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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.
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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
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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
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2.1.a
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A guide for elected officials
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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•
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.
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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.
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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.
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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
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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
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2 Lease accounting (GASB 87) and
the capitalization threshold
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3 Emergency Connectivity Fund
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4 Get familiar with FIT and school a
district data
5 How charter and tribal schools
fare under public audit
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7 Are your school district's finances
ready for an earthquake?
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10 New SAO resource to help protec
district ACH payments
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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.
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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.
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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
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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).
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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!
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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.
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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.
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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!
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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.
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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.
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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.
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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
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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.
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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.
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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