Presentation of the Audit Results to the Finance Committee of Partner4Work For the year ended June 30, 2018 March 25, 2019
Table of Contents Summary of Audit Objectives and Results 3 Summary of Required Communications and 4 Audit Considerations Outlook of the Sector 5 Internal Control Related Matters 7 Recent Accounting Updates 9 Cybersecurity 12 Appendices A - AICPA Not-for-Profit Reporting Model Examples B - Required Communications C - Areas of Audit Emphasis 2
Summary of Audit Objectives and Results Audit Objectives Our audit objectives were as follows: • Express an opinion on Partner4Work’s consolidated financial statements • Complete communications required under various professional standards • Align our performance with finance committee and management expectations • Provide proactive and timely communication of significant and/or required matters to the finance committee and management • Perform timely fieldwork to meet both organizational and regulatory deadlines Audit Results We executed the audit in accordance with the above audit objectives presented to you on August 29, 2018: • Pending approval from the finance committee, completion of our keep- current procedures, and receipt of the management representation letter, we are prepared to issue unmodified opinions on the consolidated financial statements and on the SEFA as of, and for the year ended, June 30, 2018. • Required communications under Statement of Auditing Standards (SAS) AU-C 260 & 265 • A summary of required communications is included on Page 4. • We will address internal control matters on Page 7. • We have discussed observations with management over the course of our procedures. We believe that the nature and extent of such conversations are appropriate. • Further, we affirm that we remain independent in accordance with the relevant standards. 3
Summary of Required Communications and Audit Considerations • Qualitative aspects of accounting practices - Consistency of accounting policies - Significant estimates and disclosures • Note 2 - Pledges and Contributions Receivable • Note 3 - Net Assets and Accounting for Contributions • Note 7 - Federal Grants • No Corrected and uncorrected misstatements • There were no difficulties encountered or disagreements with management. A full text of these comments can be found in Appendices B and C, which begins on Page 19. 4
Outlook of the Sector Slow improvement in Key success factors contributions mitigated by investment returns • Ability to attract local support • Corporate profit is forecasted • Ability to educate the wider to grow at an annualized rate community of 2.2% through 2023. • Effective quality control • Per capita disposable income is anticipated to rise at an • Having a good reputation annualized rate of 2.8% over the same period. • Superior financial management and debt • S&P 500 index is projected to management continue to perform well, growing at an annualized 5.6%, while the yield on the 10-year Treasury note is expected to rebound from historic lows. Big Thinking. Personal Focus. 5
Outlook of the Sector (Continued) Modern civic Benefits and challenges engagement of technology • Traditional forms of civic • Younger generations are engagement, including group simply finding new channels and union membership, have to engage. Millennials decreased among millennials. volunteer and engage in consumer activism and are • According to the Bureau of spurring the use of social Labor Statistics, individuals media for civic causes at with college degrees are higher rates than older twice as likely to volunteer for generations. and be involved with civic organizations. Therefore, the • Organizations will increasingly increase in college students leverage social media for has the potential to increase recruiting and fundraising participation rates if industry purposes. organizations are successful in repositioning recruitment • Organizations are expected to strategies to appeal to increasingly use social media younger generations. to keep their community members engaged and grow their member and donor base. Big Thinking. Personal Focus. 6
Internal Control Related Matters • The design or operation of a control does not Deficiency allow management, or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. Significant Deficiency • A deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Material Weakness • A deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the Organization’s consolidated financial statements will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control was for the limited purpose of designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Organization’s internal control over financial reporting (internal control). Accordingly, we do not express an opinion on the effectiveness of the Organization’s internal control. The audit was not designed to identify all deficiencies in internal control that might be material weaknesses. Given these limitations, we did not identify any deficiencies in internal control over financial reporting or over compliance that we consider to be material weaknesses. However, material weaknesses might exist that have not been identified. 7
Internal Control Related Matters Improve Level of Communicated Reduce Risk of Comment Operations/ Deficiency in prior years? Fraud Reporting Due to system limitations of Quickbooks, certain Best Practice X - - password requirements cannot be configured Privileged accounts should only be assigned to individuals in the IT dept. Best Practice X - - responsible for administering IT systems There is no formal business continuity or Best Practice X - - IT disaster recovery plan The VPN requires only a username and password for remote Best Practice X - - access and does not require a second form of authentication External penetration tests on the network Best Practice X - - are not performed 8
Recent Accounting Updates NFP Bond Obligor Other NFP Effective Date ASU 2014-09: Revenue from Years beginning after Years beginning after Contracts with Customers December 15, 2017 December 15, 2018 ASU 2016-14: NFP Reporting Years beginning after December 15, 2017 Model Years beginning after Years beginning after ASU 2018-08: Contributions June 15, 2018 December 15, 2018 Years beginning after Years beginning after ASU 2016-02: Leases December 15, 2018 December 15, 2019 9
Recent Accounting Updates (Continued) Accounting Standards Update (ASU) 2014-09: Revenue from Contracts with Customers • Impacts accounting for exchange transactions • Requires increased disclosures surrounding the revenue recognition process • Early adoption is permitted • Retrospective or modified retrospective application is permitted. ASU 2016-14: Not-for-Profit Entities: Presentation of Financial Statements of Not-for-Profit Entities • Changes net asset classification to ‘with’ and ‘without’ donor restriction • Requires functional and natural expense schedule • Requires additional disclosures on liquidity and availability of resources • Early adoption is permitted • Should be applied on a retrospective basis (except for functional expenses and liquidity and availability of resources disclosures) • NEXT STEP: Prepare pro forma financial statements, consider necessary changes to organization or board-approved policies and present to stakeholders for feedback. (See Appendix A for AICPA Examples.) 10
Recent Accounting Updates (Continued) ASU 2018-08: Not-for-Profit Entities: Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made • Should assist organizations in: - Evaluating whether transactions should be accounted for as contributions or as exchange transactions - Determining whether a contribution is conditional • For a contribution to be considered conditional, the agreement must have a right of return/release AND include a barrier • Administrative tasks that do not relate to the purpose of the agreement are not considered a barrier • Early adoption is permitted • Should be applied on a modified prospective basis to agreements that were completed or entered into after the effective date • Retrospective application is permitted ASU 2016-02: Leases • Requires both operating and finance leases to be recognized on the statement of financial position of the lessee • Requires improved disclosures to help financial statement readers better understand the amount, timing and uncertainty of cash flows arising from leases • Recommend assessing the impact of this change on bank or other financial-related covenants 11
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