Ohio governmental entities – Calendar Year 2019 Audit Update

The following are updated reporting requirements and process changes for Ohio governmental entities focused on their 2019 calendar year audit.

Auditor of State (AOS) filing deadlines for unaudited December 31, 2019, financial statements through Hinkle System (as of midnight by the date listed):

• Monday, March 2, 2020: Submission deadline for cash-basis financial statements, including OCBOA 34 look-alike statements.
• Friday, May 29, 2020: Submission deadline for GAAP-basis financial statements.

Significant Exposures

• A simple Google search reveals that an ever-increasing threat continues to emerge for state and local governments: cybersecurity attacks. An August 2019 article by the IT security firm Barracuda Networks states, “nearly two-thirds of all publicly known ransomware attacks in the United States in 2019 have targeted state or local governments.”

The same article indicated that 45% of those attacks are directed at communities with fewer than 50,000 residents and 24% were directed at communities with fewer than 15,000 residents. A December 23, 2019, article by Government Technology indicates 140 governmental units have experienced ransomware attacks and states the number is certain to be higher due to incidents that are not reported publicly. As these numbers indicate, it is almost certain that these attacks will continue to increase.

How prepared is your government to prevent or respond to a cyberattack? Many organizations believe they have devoted appropriate resources to cybersecurity, but the reality is, they’re vulnerable. You can test your readiness with our two-minute Cybersecurity Confidence Quiz. After the quiz, you’ll receive a personalized report to help address areas of weakness.

• In May 2019, Moody’s Investors Services released an update, which emphasized the need to have audited financial statements within 12 months after the close of the fiscal year. Moody’s indicated that, in certain circumstances, they will accept unaudited statements. If audited statements are not received within 18 months; however, it will consider withdrawing its bond rating. This requirement will be particularly important to governments that have biennial audits—i.e., one audit for a two-year period. In the “non-audit” year, these governments will be required to provide unaudited statements. The biennial audit will be due six months after the end of the two-year period.

GASB Standards with CY2019 Implementation Date

• GASB Statement No. 83, Certain Asset Retirement Obligations, effective for periods beginning after June 15, 2018. This Statement establishes uniform criteria for governments to recognize and measure certain asset retirement obligations (AROs), including obligations from legally enforceable liability associated with the retirement of that asset that may not have been previously reported. Additional disclosures related to the ARO is required, not including landfill closure and post-closure care obligation. ARO liabilities are recorded at the time of the obligating event and valued at the current value of future outlays expected and must be updated annually.
• GASB Statement No. 84, Fiduciary Activities, effective for periods beginning after December 15, 2018. This Statement establishes criteria for identifying fiduciary activities of all state and local governments. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary component units and postemployment benefit arrangements that are fiduciary activities. The focus for most governments will center on determining whether funds currently reported as Agency Funds meet the criteria to be reported as Custodial Funds under the new definition. Reporting decisions should focus on the assumptions that 1) the government does not have administrative involvement in the operations of the fund and 2) the assets of the fund are not derived from the government’s provision of goods or service. More information on GASB 84 requirements can be found here. 
• GASB Statement No. 88, Certain Disclosures Related to Debt, Including Direct Borrowings and Direct Placements, effective for periods beginning after June 15, 2018—earlier application is encouraged. This statement will improve information that is disclosed in the notes to the financial statements related to debt, including separate disclosure of direct borrowings and direct placements instruments. It also clarifies which liabilities governments should include when disclosing information related to debt. Debt is defined for disclosure purposes as a liability that arises from a contractual obligation to pay cash (or other assets that may be used in lieu of cash) in one or more payments to settle an amount that is fixed at the date the contractual obligation is established. Required disclosure include: unused line(s) of credit, assets pledged as collateral for the debt, terms specified in debt agreement related to defaults, significant termination events and significant subjective acceleration clauses.
• GASB Statement No. 90, Majority Equity Interests, an amendment of GASB Statements No. 14 and No. 61, effective for periods beginning after December 15, 2018. Earlier application is encouraged, and the requirements of this Statement should be applied retroactively, except for the provisions related to 1) reporting majority equity interest in a component unit and 2) reporting a component unit if the government acquires a 100% equity interest. Those provisions should be applied on a prospective basis. A majority equity interest that meets a definition of an investment should be measured using the equity method, unless it is held by a government that is engaged only in fiduciary activities, a fiduciary fund or an endowment or permanent fund. Those governments or funds should measure the majority equity interest at fair value.

Pending GASB Statements Requiring Attention during CY2020

• GASB Statement No. 87, Leases, effective for periods beginning after December 15, 2019—earlier application is encouraged. This statement will increase usefulness of government financial statements by requiring reporting of certain lease liabilities that currently are not reported. It will enhance comparability between governments by requiring lessees and lessors to report leases under a single model. Disclosures will be enhanced, including timing, significance and purpose of a government’s leasing arrangements. Implementation of this Standard will require governments to identify lease agreements and list significant terms (term of lease, interest rate, fixed or variable payments, etc.) of each. Learn more about GASB 87 requirements here.

Pension and OPEB Update

The pension and OPEB liabilities reported by for OPERS and OP&F for fiscal years ending December 31, 2019, are expected to increase, some dramatically, over those reported in the prior year. As the liabilities reported at December 31, 2019, will be based on the pension systems’ financial information as of December 31, 2018, we are anticipating the following changes in liabilities (excluding changes in employer contributions and overall proportionate share):

• OPERS – Net pension liability increase of 63%; Net OPEB liability increase of 12%
• OP&F – Net pension liability increase 43%; Net OPEB liability decrease of 83% (due to assumption changes)

Additional Compliance Testing Requirements for 2019 Audits

• The testing of National Instant Criminal Background Check System (NICS) required by executive order 2018-03K, signed by then Governor Kascih, has been suspended in the 2020 Ohio Compliance Supplement. Additional information will be provided when available.

• There is a continued focus on property tax exemptions granted within each county. Testing during the 2019 audit (on tax year 2018 information) will include the following procedures required by the Auditor of State’s office:

1. 1. Obtain a listing from each county of each property/parcel receiving tax exemptions for a) non-business credit (10% rollback), b) homestead reduction and c) owner-occupied credit (2.5% rollback). The listing should include the owner/taxpayer for each property/parcel.
   2. Testing of a random sample for each type of exemption granted will be made to determine whether the parcel in question was eligible for the exemption