Co-authored by Daniel A. Hedden, CPA, Partner, Baker Tilly
On April 30, 2021, the Ohio Auditor of State released Auditor of State Bulletin 2021-005 to all county treasurers and fiscal officers as defined by Ohio Revised Code. The purpose of the bulletin was to prescribe the form and substance of the Certificate of Transition by outgoing fiscal officers as required by recently enacted § 117.171 of the Ohio Revised Code (ORC). The Certificate of Transition is intended to facilitate a smooth and efficient transition of power or change in position to benefit both incoming and outgoing county treasurers and fiscal officers as defined by ORC § 5705.01 (D), as well as the constituents of the affected entity.
ORC Section 117.171 and the required Certificate of Transition is expected to enhance and improve the orderly transition of fiscal officers and by extension, the essential services that relate back to the finance office. Processing the vital functions of the school district and other government finance offices to handle cash, pay vendors and employees, and comply with accounting and reporting requirements is often unheralded but a critical component to the overall success of any organization.
The Certificate of Transition requires all Ohio fiscal officers, including school district treasurers/CFOs, to provide to their successors a complete and accurate list of items as required by statute and as prescribed by the Auditor of State. While this may seem intuitive, this structure gives both parties a common vocabulary to transition the most critical functions of fiscal operations. As shown in Exhibit A below, many requirements are readily available but could change frequently. It is reasonable to conclude that managing this many details could result in a few overlooked items during an emotional, sudden, or even standard transition.
Upon closer inspection, many will notice a correlation between the Certificate of Transition and internal controls. This is not by accident.
Internal controls help entities achieve important objectives for operations, reporting, and compliance. They promote continual improvement for every function, operating unit, division, and overall entity. The goals of internal controls are to develop an effective internal control environment, assess risk, establish control activities, communicate and inform the status of internal controls and continually monitor performance. The result is an adaptable, efficient system that manages risk and supports sound decision-making and school district governance.
There is a catch. The Certificate of Transition is now mandated and is in the category of compliance instead of the individual control environment for each entity. External compliance is typically more restrictive and requires more structured planning. This results in more demand for the fiscal officer’s time. Fortunately, a proactive solution exists.
School districts routinely, and successfully, outsource repetitive and compliance-driven tasks to leverage staff properly, mitigate risk, and ensure timeliness. A minimal outsourcing investment can result in increased value for the district. Objectivity and independence can increase the support for the existing/outgoing and incoming fiscal officer. Externally-driven timing will help ensure data remains current and prevents exposure to risk in the event of an unexpected change in leadership. In addition to compliance with the Certificate of Transition, outsourcing can help identify other areas to benefit the district. Proactive outsourcing can supplement training, increase documentation best practices, effectively support preparation for audits, support monthly reconciliations and perhaps most beneficial, provide an as-needed resource for emerging issues and the inevitable daily challenges facing the fiscal officer.
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Exhibit A: Incoming treasurer/CFO requirements
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1. Keys or other means to physically access items under position’s purview
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2. List of authorized users of all credit, debit, purchasing and procurement cards
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3. List of all systems utilized and directions on how to access systems
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4. List of all bank and investment accounts, including reconciliations and accompanying support
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5. List of any cash and checks, including petty cash and change funds
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6. List of statutory filings, notifications and any other statutorily required responsibilities
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7. Copy of or link to copies of current school district policies adopted by the board as well as any collective bargaining agreements
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8. Organizational charts and position descriptions/responsibilities for the treasurer/CFO office
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9. List of current leases, contracts, outstanding loans, advances, debt schedules, continuing disclosure obligations, lines of credit, state and federal grant agreements and other agreements
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10. All budgetary documents
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11. List of any pending correspondence pertaining to the treasurer/CFO office requiring immediate attention (such as IRS notices)
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12. Any other records pertaining to the operation of the office
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13. All books and papers in the treasurer’s/CFO’s possession belonging to the district as required by ORC 3313.28
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In summary, the Certificate of Transition by outgoing fiscal officers is a positive development for the public sector because it creates a specific framework and communication tool that enhances the internal controls for school districts as well as all units of government – and we all benefit. This is, however, an add-on to the periodic workload of the fiscal officer and, as such, is subject to an “available time” priority system that could result in unexpected non-compliance, particularly for unplanned transitions. The organization will benefit from proactive management of this requirement to ensure that transition documents are developed, maintained, and updated periodically.