Association of Government Accountants The Central Kentucky Chapter
September 2002 - Volume XXIV, Issue 5

The President’s Message

By Cindy Upton, Chapter President

The Central Kentucky Chapter Executive Committee works hard to meet your professional needs through a number of activities. For example, your Program Director, Margaret Hurst, has made sure that we can get an hour of governmental continuing professional education (CPE) at our monthly luncheon meetings. Margaret spends a lot of time and effort identifying topics that qualify for CPE and scheduling speakers who can deliver it. If you have a suggestion for our monthly meetings, please contact Margaret.

Your Education Director, Lee Ann Watters, who is also a former president of our chapter, is putting together an excellent program for our October governmental accounting and auditing update. We will once again meet at the Holiday Inn in Frankfort for quality CPE, good food, a forum to visit with old friends and colleagues, and an

opportunity to meet new friends and colleagues.

Each chapter is requested by the national office to have an Early Careers Director, who is responsible for encouraging young people and those changing careers to pursue governmental financial management. We are fortunate to have finally found our Early Careers Director—Sharon R. Parrish, Professor of Accounting, at Kentucky State University. I know that many of you had Sharon as an instructor and are pleased that she is leading our effort to encourage people to consider a career in governmental financial management with the rest of us.

HAPPY BIRTHDAY TO CINDY UPTON!

We Welcome Our New Members!

Welcome new members! The following people joined the Central Kentucky Chapter during August: Nadine Cox, Christina Watts, Debora Jones, Mary Anne Gill, Lydia Reynolds, and Brent King.

The September Speaker

By Margaret Hurst, Program Coordinator and the FAC website

Kentucky Governor Paul Patton appointed T. Kevin Flanery as Secretary of the Kentucky Finance and Administration Cabinet beginning in January 2001. He serves as the chief financial officer and manager of the financial resources of the Commonwealth and heads the central coordination of administrative services to agencies in state and local governments. His cabinet is responsible for the coordination of the biennial budget for the entire executive branch and has a staff of approximately 800 employees with an operating budget of more than $300 million. He leads the ongoing redesign of administrative services-how state government makes purchases and manages state funds-for Governor Patton's EMPOWER Kentucky initiative.

Prior to his appointment, Secretary Flanery served in the Patton Administration as deputy secretary in the Finance and Administration Cabinet and in the Transportation Cabinet. He also served as the legislative liaison and chief information officer for the Transportation Cabinet, a work force of 6,000 employees and led that cabinet's quality improvement efforts including projects under Empower Kentucky. He joined Transportation in 1996 as Executive Director for the Office of the General Counsel where he managed more than 2,000 cases, oversaw a budget of $7 million and served as the ethics officer.

He is an executive committee member for the Center for Quality Management in Louisville and was graduated with distinction from the University of Kentucky College of Law. He holds a Bachelor of Arts in Psychology, cum laude, from Bellarmine College in Louisville.

He and his wife Lori live in Louisville with their four children, Kendall, Jared, Hayden and Micah.

Chapter Meeting Minutes

By Mary Montgomery, Secretary

The monthly Chapter meeting was held Thursday, August 1, 2002, at the Office Pub & Deli. Margaret Hurst, AGA Programs Coordinator, introduced the guest speaker, Mrs. Jill LeMaster, Executive Director of the Executive Branch Ethics Commission.

Mrs. LeMaster presented the five provisions of the Executive Branch Code of Ethics. All employees in the Executive Branch of government are required to comply with provisions, concerning matters with clients. Mrs. LeMaster noted the provisions as follows: gifts, solicitation, conflicts of interest and contracting services, outside employment, and post-employment.

Mrs. LeMaster made the following points for each provision of the Code of Ethics:

Gifts: Gifts may not be accepted, if there value is above $25.

Solicitation: A state employee may not solicit money, services or accept donations from clients, except when raising funds for a charitable organization.

Conflicts of Interest/Contracting: Generally, a state employee must not use his official position or office to obtain financial gain for himself or a family member. Also, a state employee must not perform an activity that would allow him to “enjoy the benefits”

of any contract between his employer and a client.

Outside Employment: An employee is prohibited from accepting employment from any of his employer’s clients, unless approved by the appointing authority.

Post-Employment: A former employ is prohibited for one year following termination of employment from dealing in matters, or with clients of the former state employer, with which he was directly involved during the last three years of his state employment. A current or former officer or elected official is prohibited for six months following termination of employment from accepting employment from dealing in matters, or with clients of the former state employer, with which he was directly involved during the last three years of his state employment.

Mrs. LeMaster stated that each state agency has an Ethics Officer, who receives updates on advisory opinions, financial disclosures required, new legislation, approved outside employment.

Ms. LeMaster noted that an advisory opinion could be obtained by contacting the Executive Branch Ethics Commission, if a state employee has a concern about a certain situation.

Meeting Minutes of the Chapter Executive Committee

By Mary Montgomery, Secretary

The Chapter Executive Committee met on Wednesday, August 7, 2002, at Brando’s. Members in attendance were as follows: Cindy Upton, Mary Montgomery, Rick Waddle, Jennifer Harper, Linda Sagraves, Amy Small, Phil Nally, Margaret Hurst, and Dan Flaherty.

To complete our executive committee for the 2002-2003 year, the Early Careers Director was introduced as Sharon Parrish.

Dan Flaherty noted the website: www.ckyaga.com is up and running. Check it out!

The Chapter Recognition Update, prepared by Cindy Upton, will be forwarded to all members upon organization of the “points” requirements.

Planning reports to be submitted to the national office by August 15, 2002: (1) Education (Lee Ann Waters), (2) Professional Development (Margaret Hurst), (3) Community Service (Rex Gregory), (4) Membership (Amy Small).

Betty King will be asked to be the speaker for the AGA training scheduled in October.

Congratulations to Mike Presson, at GOT, for passing the May 2002 CPA Exam.

The next CEC meeting will be held Wednesday, September 4, at 11:30 at Brando’s. The next membership meeting will be held Thursday, September 5 (Cindy Upton’s Birthday), at 11:30 at the Office Pub & Deli. The speaker will be Kevin Flannery, Secretary of the State.

Should You Become a Certified Government Financial Manager?

By Cindy Upton, Chapter President

The certified government financial manager (CGFM) designation is the mark of excellence in federal, state, and local government. Since its inception in 1994, the CGFM has become the standard by which government financial management professionals are measured. Its education, experience, and ethics requirements have served to elevate the most seasoned financial professionals. More than 13,000 people have received the CGFM designation so far. Having a CGFM has opened doors for me that otherwise might have remained closed.

Over the past two decades, a number of actors have created a rapidly changing environment for today’s government financial managers. Beginning with the New York City financial crisis in the 1970s and 1980s, state and local governments began overhauling their financial management systems. In 1990, the federal Chief Financial Officers (CFO) Act called for reforms that brought the goal of accountability to the forefront.

The value of financial managers against this turbulent backdrop has shot upwards. The CGFM is the first certification broad enough to cover the whole field of government financial management—federal, state, and local. It deals not with testing a person in a specific area, but with measuring a wide range of knowledge and skills that a professional needs to succeed at all levels of government.

Many members of our chapter hold the CGFM designation. If you would like more information on becoming a CGFM, you can call me or visit the AGA’s web site at www.agacgfm.org.

Frequently Asked Questions about the CGFM Training Courses

Must I take the CGFM training courses in consecutive order? These courses were designed to stand-alone and may be taken in any order.

Am I required to take all three courses before sitting for the CGFM exams? While each course will benefit you on the job, you take only the courses you need to prepare for the exams.

When and where do I take the exams?

Prior to taking the exam, you must submit your CGFM application to AGA. You may contact AGA at 703-684-6931 or 800-AGA-7211 to request an application or for additional information on becoming a CGFM.

As an AGA member, do I get a discount on these courses? These courses have been carefully priced to provide every student the lowest possible tuition, regardless of AGA membership.

What topics and subjects qualify for CPE hours required for maintaining the CGFM? CPE that would satisfy the CGFM program requirement should be in government financial management topics or related technical subjects applicable to government financial management areas. The CGFM holder is initially responsible for determining if a topic or subject qualifies as acceptable CPE. To help you determine, you can visit our website at http://www.agacgfm.org/cgfm/cgfm_detail.htm to find a listing of more than 50 topic and subject areas that qualify for government financial management CPE hours.

Would satisfying the CPE requirements of the American Institute of Certified Public Accountants (AICPA), Institute of Internal Auditors (IIA) or of a state board of accountancy also satisfy the requirements of the CGFM Program?

However, individual CGFMs who are members of the AICPA, IIA or are licensed CPAs, are cautioned that the CGFM Program’s CPE requirements, while similar in many respects to those of the AICPA, IIA or of state boards of accountancy, are not identical.

Newsletter Notes: If you know of any news, promotions, presentations, awards, certifications, retirements, etc. affecting our chapter members, please send your comments and suggestions to the newsletter editor, Jennifer Harper at AGAKYUSA@aol.com. October entries must be submitted by September 20^th.

Analytical Tools for Management

By Otis Singleton, CPA

Analytical procedures are evaluations of financial data using its relationships to other financial or non-financial data. Analytical procedures can be very simple, such as comparing this year’s financial data to last year’s data, or very complex, such as using regression analysis to calculate data for the purpose of comparison.

Auditors are required to use analytical procedures if they conduct an audit in accordance with generally accepted audit standards or Government Auditing Standards. Analytics can be used to identify variances in account balances that could indicate errors, fraud, or other unusual activity that may well be legitimate. Analytics can be just as helpful to the management of a state agency, such as division directors or branch managers, as they are to the auditors in attempting to identify accounting errors or fraud.

With Kentucky’s new statewide accounting and reporting system, MARS, agency management has greater access than ever before to financial reports. MARS, short for Management Administrative and Reporting System, allows you to obtain report from Document Direct, the MRDB, or from Seagate Info Desktop. MARS records the expenditures of all state agencies to a uniform set of object codes.

Using a simple Excel spreadsheet management could perform a detailed analysis of the expenditures for a division by object from fiscal year 2000 to 2002 – pictured below.

After performing the analytical procedure management may notice trends or relationships in the data for specific Objects. Those trends can be used to develop expectations that can be applied to future accounting periods for specific Objects or accounts in order to verify the validity or integrity of the accounts. If fluctuations occur in a specific Object in fiscal year 2003 that do not meet established expectations or do not follow the normal “trends” then management may wish to investigate to determine the cause of the fluctuations.

Management will benefit because they can correct errors prior to an audit engagement, decreasing the workload normally created by an audit. The auditors could also consider the analytics performed by management to be an internal control that can be relied upon to ensure that account balances are materially accurate, thus increasing audit efficiency that in turn decreases the length of an audit. Auditors will benefit as well because management will be able to provide more information to the auditors at the beginning of the engagement such as known problems or errors.

New Accounting Reform Bill

By Tom Crouch, CPA, CIA, CISA

The Sarbanes-Oxley Act of 2002 is the most comprehensive accounting reform since the 1930s. The bill passed the US House 423-3 and the US Senate 99-0 on July 25, 2002. The new law is interesting both for what it directly says and for where it may be leading.

The bill applies to US publicly traded companies and external auditors who

audit them. The logic may ultimately be extended to US external auditors of

many types of large organizations, including governmental units, and to internal auditors in those large organizations. A few of the key provisions are addressed below.

Auditors must retain audit work papers (audit documentation) pursuant to two separate provisions. Auditors should study these two provisions. These provisions should eliminate the document shredding such as was done related to Enron.

Auditor independence is greatly enhanced. The external auditors for a

publicly traded company may not provide most of the non-audit services, which have previously been permitted. This provision is a huge change. Many

auditors think that the audit costs will rise because the audits have been priced low in order to get the more profitable non-audit business.

Two separate provisions require CEOs and CFOs of public companies to certify matters in periodic reports filed with the SEC. There are criminal penalties for false certifications. The segment related to good internal controls might increase the importance of internal controls for accountants and auditors.

The segment on good internal controls may also increase the need for internal auditors. In fact, it would seem that audit committees and senior management would expect a similar certification on internal controls from the Internal Audit Department management. These provisions may really push the importance of a good internal audit group. This really seems to be logically consistent with what many career auditors think should have been happening all along.

WOW! Those politicians really did a good job on this part. My thanks to the IIA (theiia.org) and other groups for their practical and effective lobbying efforts with the politicians.

When an accounting restatement is required, the CEOs and CFOs must disgorge or forfeit any profits due to the misconduct. This is a significant change.

The provision on insider trading during pension fund blackout periods

eliminates one unfair aspect related to the prior law. Executive officers and directors of a public company are prohibited from acquiring or transferring any equity security of such public company during "blackout

periods" with respect to such security. Blackout periods are those periods during which trading is suspended for beneficiaries or participants in a retirement plan.

Whistleblower protection is provided in section 806. Section 1107 provides fines and prison time for anyone who retaliates against informants as described there.

There are going to be improvements in disclosure requirements including "off-balance sheet transactions." The SEC is required to conduct a study on "off-balance sheet transactions."

The General Accounting Office (GAO) is required to conduct a study of the effects of mandatory auditor rotation. This auditor is projecting that the public companies may have to rotate auditors once every 5 to 10 years. My

guess is that GAO may push for mandatory auditor rotation every 3 to 5 years. The national CPA firms may need to push quickly for a 10-year mandatory rotation or risk seeing a lower limit imposed upon them.

Only a few key provisions in this landmark legislation are addressed above. There are many other provisions which each of you may find interesting. For more information about the new legislation, refer to the following website address: http://www.cpawebsite.com/newsletter/heisercpa/current/sarbanessummary.htm

The Treasurer’s Report

By Rick Waddle, Treasurer

Central Kentucky Chapter
Financial Report
For The Month Ended June 30, 2002
Central Account			Education Account
Beginning Bank Balance		$4,597.52	Beginning Bank Balance	$500.00
Revenue:			Revenue:
Interest on checking	3.63
SE Regional Conference Profit-Sharing	74.01
March & April Dues	317.85
May Dues	15.00
Total Revenue	$410.49
Expenses:			Expense:
Office Pub & Deli-June Meeting	154.03
Raffle Prize for National	70.77
Postage	34.00
Web Hosting & Domain Name	103.40
Total Expenses	$362.20
Ending Bank Balance		$4,645.81	Ending Bank Balance	$500.00

The State and Local Government Conference

State Treasurers, State Auditors, State Comptrollers, County Officials, City Managers and the like meet annually at AGA's State and Local Government Leadership Conference. This conference provides an outstanding forum for leaders from state and local governments across the country to join together to share ideas and solutions to their challenges. Offering more than 15 hours of Continuing Professional Education (CPE) credit, the conference educational sessions address the leading issues in state and local government financial management. This conference will be held at the Richmond Marriott, Richmond, VA, on September 23-24, 2002.

Consider how hard it is to change yourself and you'll understand what little chance you have in trying to change others. --- Jacob M. Braude

Chapter Executive Committee

Office	CEC Officers	E-mail Address	Phone
President	Cindy Upton	Cindy.Upton3@Irc.state.ky.us	(502) 564-8100
President-Elect	Roy Hunter	Rhunter@cmbcpa.com	(502) 695-1040
Past President	Phil Nally	Phil.Nally@mail.state.ky.us	(502) 564-7750
Secretary	Mary Montgomery	mmontgomery@kyauditor.net	(502) 573-0050
Treasurer	Rick Waddle	Rick.Waddle@mail.state.ky.us	(502) 564-7750
Program Coordinator	Margaret Hurst	Margaret.hurst@lrc.state.ky.us	(502) 564-8100
Education/Training	Lee Ann Watters	LWatters@cmbcpa.com	(502) 695-1040
Newsletter Editor	Jennifer Harper	jharper@kyauditor.net	(502) 573-0050
Historian	Linda Sagraves	Lsagraves@kyauditor.net	(502) 573-0050
Community Service	Rex Gregory	Rex.gregory@mail.state.ky.us	(502) 564-7334
Attendance	Don Fields	Don.Fields2@mail.state.ky.us	(502) 564-7334
Membership Coordinator	Amy Small	asmall@kyauditor.net	(502) 573-0050
CGFM Coordinator	Jonathan Smith	Jonathan.Smith@mail.state.ky.us	(502) 564-2532
Website Development Coordinator	Dan Flaherty	Danielwf@bellsouth.net Dan.Flaherty@mail.state.ky.us	(502) 564-8890 (502) 291-3889
WEBSITE	To be announced

AGA Central Kentucky Chapter P.O. Box 576 Frankfort, KY 40602-0576	POSTAGE
ADDRESS CORRECTION REQUESTED