RD134 - Secretary of Finance Report on Audit for the Year Ended June 30, 2014


Executive Summary:
This report summarizes our fiscal year 2014 audit results for the five agencies under the Secretary of Finance and arises from our work on the Comprehensive Annual Financial Report. Overall, our audit for the year ended June 30, 2014, found the following:

• Proper recording and reporting of transactions, in all material respects, in the Commonwealth Accounting and Reporting System and in the agencies’ accounting systems;

• Internal control and compliance findings requiring management’s attention; and

• Adequate corrective action with respect to audit findings reported in the prior year that are not repeated in this report.

This report also includes information on the following significant initiatives and issues for agencies under the Secretary of Finance.

Status of System Development Project

The Commonwealth is in the process of implementing the Cardinal System, a statewide accounting and financial reporting system. The Commonwealth implemented Phase one of the Cardinal System project in December 2011 with the implementation of the Department of Transportation’s financial system. Phase two of the implementation occurred in October of 2012 with the Department of Accounts implementing the base modules of Cardinal. Phase three, which involves an incremental rollout to all state agencies, will occur over the next two years with Cardinal becoming the official system of record by the end of fiscal year 2017.

The Commonwealth has developed a funding methodology to support system maintenance and operation costs for the Cardinal system. The funding model is an internal service fund model that relies on user charges based on rates that are approved by the Joint Legislative Audit and Review Commission.

Pension Accounting Changes

The Commonwealth will implement new Governmental Accounting Standards Board (GASB) standards which cover the accounting and reporting of pension activity by employers in fiscal year 2015. These standards increase the amount of pension liability and expenses the Commonwealth and its localities report in their financial statements.

Shared Responsibilities for Management of Retirement System Member Data

The Virginia Retirement System (the Retirement System) launched a web-based benefits management system that allows agencies to immediately access and update member and agency- related retirement data. Each employer is now responsible for the reporting and reconciling of member data supporting retirement contributions. These changes increased the interdependency of key Commonwealth information systems supporting human resource and payroll activities.

Statewide Implementation of New Federal Grant Requirements

Effective December 2014, the Federal Government has approved new requirements which will impact multiple agencies in the Commonwealth who receive federal funds. Each federal granting agency implemented the Office of Management’s and Budget’s Uniform Guidance: Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. The new requirements are seen as the largest change in federal grants management in 30 years and this change will impact a wide array of activities.

The Commonwealth uses a decentralized approach to managing federal funds; therefore, the Department of Accounts (Accounts) will have a role in reviewing the new requirements and identifying responsible parties for compliance with the requirements. They anticipate completing this review no later than June 30, 2015.