4A. Governance: Risk Aversion: Recognizing Red Flags. CAPLAW 2011 National Training Conference

Transcription

1 4A. Governance: Risk Aversion: Recognizing Red Flags CAPLAW 2011 National Training Conference Thursday, June 16, p.m. 5:30 p.m. Minneapolis, MN Mr. Dan Miller, CPA Chief Financial Officer Meliora Partners, Inc. 125 West Merle Hibbs Blvd. #424 Marshalltown, IA dan@meliorapartners.org Handouts: 1. Miller PowerPoint Slides 2. Red Flag Exercise

2 Risk Aversion : Recognizing Red Flags Why are you concerned with Red Flags? What are you going to do if you find any? What does internal control mean to you? OMB Circular A-123 s purpose is to provide guidance to federal managers on improving accountability and effectiveness of federal programs and operations by establishing, assessing, correcting and reporting on internal control. Per the circular management is responsible for establishing and maintaining internal control to achieve the objectives of effective and efficient operations, reliable financial reporting, and compliance with laws and regulations.

3 Internal control guarantees neither the success of agency programs, nor the absence of waste, fraud, and mismanagement, but is a means of managing the risk associated with federal programs and operations. IT IS A PROCESS! Agency managers and staff should be encouraged to identify control deficiencies, as this reflects positively on the agency's commitment to recognizing and addressing management problems.agencies should carefully consider whether systemic weaknesses exist that adversely affect internal control across organizational or program lines. A-123, IV, B Pop Quiz COSO is thought by many to have initiated much of the internal control framework. What does COSO stand for? What year was Information Memorandum 112 issued? What of the following should be considered of red flag: 1. Bank just called-payroll checks are bouncing 2. Board chairperson wants to schedule your review 3. Current audit has 2 repeat findings 4. Head Start Tri-Annual review arrived unannounced this morning

4 Red Flags are warning signs that people, systems, regulations, policies, and/or reports are not as efficient, accurate, or timely as they are intended to be. Most organizations are a reflection of their leadership their tone at the top We will examine Red Flags in four areas: Governance Programmatic Financial Administration and Personnel Governance No quorums at scheduled meetings Minutes of meetings are late or inaccurate, indicate no official actions, or not easily accessed by those who request them Committees that are formed never meet or take any action, seldom or never make recommendations to full board Agenda items of meetings are consistently carried over to subsequent meetings Board slots remain open for long periods of time Governance- No self assessment is evident No evidence of board involvement and approval of financial audit Board does not review or approve agency personnel and fiscal policies, or revisions to either Monitoring of the agency s actions to correct audit and programmatic findings or actions necessary to comply with applicable laws and regulations is not evident No review and approval of major financial expenditures

5 Governance- There are no procedures or activity regarding hiring, evaluation, compensation, and termination of executive director Board is not structured according to its by-laws Board does not review and approve funding applications nor does it monitor operating budgets There are no written standards of conduct for disclosing, addressing, and resolving complaints or conflicts of interest No process for reviewing grant programmatic provisions Governance- There is no evidence of board training in their roles and responsibilities These Red Flags can be found in various monitoring protocols like Head Start and CSBG. They are not kept secret-in fact you are told up front what they are looking for. Note-most monitoring today includes a review to determine the quality of services and the quality and sustainability of the management systems to support the services Programmatic- while many issues or regulations relate to a specific program, there are many general programmatic Red Flags Clients are not being served in the quantity budgeted Your program is significantly over/under spent Clients are not given access to programs in geographical areas you committed to serve Specified goals you laid out in your application are not being met

6 Programmatic- You have repeated monitoring deficiencies A review of client files finds that ineligible parties are being served -examples Program employees cannot articulate the goals of the program Client files are unorganized and specific assistance cannot be traced to individual records Duplicated assistance is given to the same client Agency personnel are taken as clients without proper screening Financial You can screw up a lot of things but if you can t keep track of the money, you re doomed! (anonymous ED quote) Bank reconciliations are incomplete or not done at all (this is on almost every monitoring protocol Why?) Financial ratios are not reviewed or understood Current ratio = current assets/current liabilities Debt to Equity ratio = total debt/total equity Financial- The aging of accounts receivable and accounts payable is not performed Financial statements issued to the board often have to be corrected or redone Claims submitted to grantors are consistently late or have to be re-filed Agency is holding checks after they are signed and should be mailed The agency s board only reviews grant expenses to budget, not operating income/loss

7 Financial Balance sheet accounts are not reviewed or reconciled on a regular basis (examples?) Program managers do not receive and review monthly comparisons of actual spending to budget Financial personnel receive little or no training, don t understand other position duties, or you rely on one person to do it all The main reason given for converting to a new financial software is that it will solve most of our financial issues Financial Short term lines of credit are growing or never fully paid off during the year Inventory of agency assets is not performed or completed Lease files are incomplete or cannot be located Agency procurement procedures are out-of-date or not followed by certain individuals Please look at Exercise #1 Do you see a Red Flag?

8 Administration and Personnel Higher turnover than similar agencies Positions remain unfilled for long periods A significant portion of terminations end up in litigation Work Comp incidents and rates are increasing Resolution of personnel issues are being forwarded to the board with increasing frequency Resistance to change or alter personnel policies over long periods of time Administration and Personnel No succession planning exists or there is resistance to put plans in place No one but the Executive Director is allowed to present at board meetings or any gathering outside the agency Wage comparability studies indicate many positions are underfunded Few if any new funding applications are brought before the board for consideration Small percentages of personnel are signing up for company benefits Administration and Personnel Employees are placed in new positions based on longevity rather than qualifications No discussion or planning for cuts in funding and their impact on the agency Scheduled employee performance reviews are performed only on demand or not at all So how do you address all these issues?

9 2011 Community Action Program Legal Services, Inc.

10 ABC Agency, Inc. Everytown, USA Statement of Assets, Liabilities, and Net Assets Month-End, 2011 Current Assets Cash $145,015 Petty Cash $2,220 Grants Receivable $1,300,000 Other Receivables $17,500 Inventory $5,700 Prepaid Expenses $22,000 Suspense $3,775 Total Current Assets $1,496,210 Land, Property, and Equipment - Net $1,501,390 Other Assets $15,400 $15,400 Total Assets $3,013,000 Current Liablilities Line of Credit $199,900 Current Portion of Mortgage $50,000 Accrued Wages Payable $42,000 Accounts Payable $89,000 Unearned Revenue $1,225,000 Accrued Payroll Taxes -$4,400 Accrued Property Taxes $7,500 Judgement Balance $22,000 Total Current Liabilites $1,631,000 Long-Term Liabilities Mortgage Payable $1,250,000 Net Assets Unrestricted Assets $72,000 Restricted Assets $65,000 Current Year Profit/(Loss) -$5,000 $132,000 Total Liabilities and Net Assets $3,013,000