OIG Audit Update

Inspector General – Update on Audit Activities

PBMA New Orleans

June 1, 2007

IG – Actions to Improve Oversight Process

• Review of Lobbying

Currently Winding Up Survey Work

Most Grantees Surveyed Responded

- TV 85%, Radio – 75%

Many Indicated They Had Lobbied Congress

- TV 70% of responders

- Radio 46% of responders



All TV and Radio Grantees responded.

“They Had Used No CPB or Federal Funds for Lobbying.”

Many grantees could not document this statement, because :

- CPB funds were commingled with Station Funds.

- No specific accounting for the costs of

these specific lobbying activities.



All these grantees had far more thansufficient funds of their own to pay for this lobbying activity without requiring them touse CPB or other Federal funds.



We expect to finalize and issue Final Report to CPB and Congress in next month.


• Areas Needing Grantee Attention

1. Even though CPB no longer requires a final report to be submitted for CSG and Inter-connection Grants, Grantees are required to account for expenditures of CPB funds. Such accounting is required to:

- Show that expenditures are not used for restricted purposes, i.e.

a. supplant licensee funds or support b. pay for other than public broadcasting services.


• Areas Needing Grantee Attention- Assure that expenditures are properly documented in accordance with Grantee practices and generally accepted accounting standards.- Provide necessary accountability to

determine whether unexpended CPB funds were properly refunded to CPB.


• Areas Needing Grantee Attention

2. Grantees need to understand scope of Attestation work CPA’s are providing for Annual Financial Reports (AFR’s).

- AICPA standards provide for attestations to provide for one of three different levels of assurance.


• Areas Needing Grantee AttentionThe potential levels of Attestation include:

- Examination Level Engagements,This is the highest level of assurance and calls for the audit practitioner to perform sufficient work including testing of items against established criteria, to allow them to express an opinion as to whether the station properly presented information in the AFR in all material respects.


• Areas Needing Grantee Attention- Review Level Engagements,

This is a middle level of assurance and the practitioner’s objective is to accumulate sufficient evidence to restrict attestation risk to a moderate level. The type of procedures performed are generally limited to inquiries and analytical procedures (rather than also including search and verification procedures).


• Areas Needing Grantee Attention- Agreed-Upon-Procedures Level

Engagements,

This engagement is one in which a practitioner is engaged to issue a report based on specific procedures performed .


• Areas Needing Grantee AttentionIn having attestations performed on AFRs,Stations need to ensure themselves that they are obtaining necessary assurance. Without necessary testing of transactions against established CPB criteria for NFFS, there is little assurance that amounts reported are appropriate.


• Review of CPB Required Audit Process

Later this year the OIG will be working with CPB to review CSG reporting requirements. In doing so, the OIG will be surveying the Grantee Community seek information regarding changes to the audit and reporting process.



Currently at stations receiving CSGs:- Many Station’s Licensees have their Financial Statement audits performed in accordance with GAAS or GAGAS.- The Station also has to have its own Financial Statement audit performed in accordance with GAAS or GAGAS.



Currently at Stations Receiving CSGs:

The Station also has to submit an Annual Financial Report attested to by an Independent Public Accountant.


• Review of CPB Required Audit ProcessThat’s three audit engagements. Are all of them necessary?Consideration should be given to whether CPB can justify the necessity for all of these audits.

• Perhaps the licensee’s audit can be modified to include additional schedules or footnotes to provide detailed information on Station assets, liabilities, revenues, and expenditures to meet CPB needs.

• Perhaps other changes to contents or opinions might reduce or streamline the process.


• Improvements to Reporting Requirements

At the same time, CPB and the OIG will be looking at other reporting requirements:

- Requesting whether NFFS received from Governmental or Non Profit Entities contain CPB, Public Broadcasting Entities, or Federal funds.- Restricting CPB funds from being used for receptions, and/or entertaining Federal or State employees.


• Station Grant Audits

OIG audits of your Annual Financial Reports are based on CPB Financial Reporting Guidelines which are located within CPB’s Integrated Station Information System (ISIS), click on the “Get Help” icon on a particular Schedule of your AFR.


• CPB has greatly improved the instructions for preparing the Annual Financial Report making it easier to avoid common mistakes in reporting.

• We look at revenue categories that have historically had the most risk…greatest audit potential.


• We look at the CPB Guidelines and your original supporting documentation (that you keep for the auditors) for Revenue line items for common mistakes.

• The first step in the Process:

• All revenue Reported as NFFS must be included in the station’s Audited Financial Statements.


• For State and Local Governments

--For TV--are there Digital Grants or Grants for New or expanded Facilities?

--Do not include capital fund contributions on any line other than Line 18.


• For University Stations

--Was Schedule B completed properly? Often start with the licensee’s federally approved indirect cost rate.


• For Non-Profit Organizations—Cash or in-kind contributions are OK

--Was it pure underwriting?--Were there elements of an exchange transaction? If value received is commensurate with the value given…no NFFS. If value received is greater than the value given, then recognize the difference as NFFS.


• For Business and Industry—Cash or in-kind contributions are OK

--Was it pure underwriting?--Cash property or services received from a for-profit entity in exchange for specific goods or services can’t be claimed as NFFS.


• For In-Kind Contributions of Services & Other Assets

--Donor must provide documentation.--Donor states intention to make a contribution.--Donor states the nature of services provided.


--Donor independently documents fair value of the service.

--Donor documents the dates that service was provided.

--Donated services would have needed to be purchased-Underwriting Trades.--Can’t claim in-kind contributions if related

to fundraising including “Thank You” events.


--Specific exclusions from in-kinds—Donated Programs, Contributions in Support of Local

Productions, Station Exclusive Event, a Public Performance (broadcast pick-up),

Program Services, Promotional Items, Volunteers Services.


--Donor must provide documentation-invoice stating regular charge for this space or time.

--Donor states intention to make a contribution.


--Is it a fair value or are there exchange elements. The advertising may be very valuable to the contributor.

--Advertising must relate to a program or station promotion…not merely airing the station’s programming schedule.


• In-Kind Contributions of Property & Equipment

--For TV--are there Digital New or Expanded Facilities included here?

--Documentation and Valuation of fair value, as above.

--Specific Exclusions from in-kinds—compact disks, records, tapes and cassettes.


Challenges Auditing CPB Production Grants

Challenges Auditing CPB Production Grants

Auditing Challenges

• Most production projects are funded from multiple sources without requirements to discretely account for costs by funding source, inhibiting effective auditing

• Production grant terms are vague in describing cost accounting requirements for handling direct and indirect costs

Production Grant Terms

• Cost reimbursement grant agreements – auditing incurred costs

• Records must be kept in accordance with generally accepted accounting principles

• Accounting principles need to be consistently applied & traceable to general ledger

• Records need to be maintained to reflect all costs – direct & indirect, materials, equipment, supplies & services, and other costs

Initial Audit Observations

• Total costs include direct production costs, rate card charges for certain production staff salaries & fringe benefits, and indirect costs

• Rate card methodology not fully documented & not readily traceable to general ledger

• Indirect cost methodology not fully documented & not readily traceable to general ledger

Recordkeeping Needed

• Audit trail from final financial reports submitted to CPB to production project accounting records

• Documentation linking project’s total cost accounting to general ledger

• Documented indirect cost methodology

• Documented rate card methodology

Addressing Cost Accounting Responsibilities

• Management is responsible for selecting the cost methodology that best meets its needs

• Variety of cost accounting methodologies available:– Standard costing: unit cost basis

– Activity based costing: tracks cost by activity (e.g., building use, equipment use, etc.)

– Job order costing: tracks costs by product

– Process costing: tracks costs by department

Costs Must be Supported with Documentation

• Total costs need to be accounted for using cost accounting methodologies which account for both direct & indirect costs

• Direct costs documentation includes:– employee time sheets, – vendor invoices (materials, supplies, etc.), – talent agreements– production acquisition contracts

Documenting Indirect Costs

• Indirect costs (including rate card charges) documentation includes a methodology for charging costs that:– Document the logic of the allocation methodology:

• allocation means the process of assigning a cost to one or more cost objectives (e.g., station operations and production activities) in a reasonable & realistic proportion to the benefits provided or other equitable relationship

• costs must be assigned consistently in accordance with GAAP appropriate to the circumstances

Documenting Indirect Costs (cont’d)

– Are traceable to general ledger– Are periodically updated to reflect current

financial activities

IG Contact Information

• Kenneth Konz: (202) 879-9660 [email protected]

• Bill Richardson: (202) 879-9661 [email protected]

• David Tanner: (202) 879-9638 [email protected]

OIG Audit Update

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