Accounting, Financial Reporting and Auditing Issues for Tribes
A recent Indian Country Today Media Network column addressed issues facing tribes related to accounting, financial reporting and auditing. The piece states that information contained in the financial statements of Tribes “...for all practical purposes is worthless to any interested user...and understandable only by the preparing CPA firm.” It also:
- Recommends that Tribes move away from organization-wide audits specified by Statement No. 34 of the Governmental Accounting Standards Board;
- Asserts that entities created by Tribes to administer tribal self-determination awards should follow standards issued by the Federal Standards Advisory Board (FASAB) as part of the Federal government;
- Recommends establishment of an independent Tribal Accounting Standards Board.
We agree the existing standards do not always consider the many important differences between Tribes and other governmental entities. However, treating tribal organizations that administer self-determination awards as Federal entities is inconsistent with tribal sovereignty and self-governance and it would not improve auditing, accounting and financial reporting by Tribes. Instead, Tribes and organizations that advocate for Tribes, such as the Native American Finance Officers Association and the National Indian Gaming Association, should redouble their efforts to affect changes in auditing, accounting and financial reporting within the existing accounting and auditing standards. Doing so will improve the usefulness and understandability of financial statements so they better meet the needs of interested users.
Management, governing bodies and auditors of all types of entities—commercial businesses, non-profit organizations and federal, tribal, state and local governments—face an increasingly complex web of laws, regulations, authoritative pronouncements and non-authoritative guidance. Many organizations are responsible for establishing accounting, financial reporting and auditing requirements, including the following:
- Financial Accounting Foundation (FAF)
- Governmental Accounting Standards Board (GASB)
- Financial Accounting Standards Board (FASB)
- United States Federal government
- Federal Accounting Standards Advisory Board (FASAB)
- General Accountability Office (GAO)
- Office of Management and Budget (OMB)
- Securities and Exchange Commission (SEC)
- National Indian Gaming Commission (NIGC)
- American Institute of Certified Public Accountants (AICPA)
- International Accounting Standards Board (IASB)
These organizations establish the standards, guidelines, principles, frameworks and other requirements to produce useful, effective financial information to creditors, investors, grantors, owners, governing bodies, citizens and others. Each standards-setting organization has established procedures for soliciting and considering input from interested parties, including Tribes.
As Mr. Lake and Mr. Noonan point out in their article, the unique circumstances and needs of Tribes are still often misunderstood and/or not considered, resulting in standards and requirements not well-suited to Tribes and their enterprises. A prime example is the most recent revision to the federal requirements applicable to recipients of federal awards. On December 26, 2014 the Federal Register published an update to OMB’s Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Recipients of Federal Awards. The updated OMB rule reiterates the Single Audit Act Amendments of 1996, which require that Single Audit Reporting Packages, including reporting entity financial statements, be made available for public inspection. Previously, Tribes were responsible for allowing public inspections, and only summary information (not including financial statements) was available through the Federal Single Audit Clearinghouse website. As originally proposed, the new OMB rules would have required publication of tribal financial statements on the Clearinghouse website. Because of Tribes’ objections, as well as the Native American Financial Officers Association (NAFOA) and others, the final rule allows Tribes to opt out of having their financial statements published on the Clearinghouse website.
The tribal exemption from website publication is a small victory for Tribes, but more work remains to be done. For example, a tribal exemption must be pursued from the Single Audit Act requirement that financial statements be made available for public inspection. In many instances, much of the content in financial statements is sensitive business, operational and governance information; it is private and confidential to Tribes. This sensitive content is not related to the administration or expenditure of federal awards, and it is inappropriate to be made available for public inspection.
Until the requirement for public inspection can be changed, some Tribes have minimized adverse consequences by designing organizational units and financial reporting structures that isolate activities involving expenditure or administration of federal awards. To comply with federal audit requirements, they prepare separate audited financial statements of only these applicable organizational units to include in the Single Audit Reporting Package. Those separate financial statements are not entity-wide financial statements, but they comply with relevant GASB and AICPA standards and meet the requirements of the Federal Single Audit Act and related regulations. This protects the confidentiality of tribal financial information that is not involved with federal awards.
Would a Tribal Accounting Standard Board benefit Tribes? We aren’t convinced. The process requires significant resources. For example, the Financial Accounting Foundation, the Governmental Accounting Standards Board and the Financial Accounting Standards Board collectively spend over $50 million annually, mostly devoted to the accounting standards-setting function. While it may sound appealing to create a Tribal Accounting Standards Board, tribal resources can be deployed much more effectively within the existing structure to improve reporting by Tribes for its members and other financial stakeholders.
For many years, the Native American Finance Officers Association (NAFOA), a tribal organization, has focused on technical accounting and financial reporting standards applicable to Tribes. NAFOA has provided education and advocated for Tribes in the accounting standards setting process, as demonstrated by the following:
- Since 2000, a Native American CPA has represented NAFOA Governmental Accounting Standards Board Advisory Council.
- NAFOA has published accounting and financial reporting guides for Tribes and tribal gaming.
- In partnership with the American Indian Policy Institute at Arizona State University, NAFOA developed and conducts training and certification programs specific to Tribes and tribal gaming. The programs cover the sovereign, legal, regulatory, accounting and financial management of Tribes, including federal awards.
- NAFOA provided tribal input to the AICPA in the development of their Gaming Guide.
- NAFOA provides input to the Federal OMB and other regulatory authorities on existing regulations and proposed changes.
We believe all concerned tribal financial professionals should join with NAFOA to uphold and strengthen tribal sovereignty by addressing the ongoing and future complex accounting, financial reporting and auditing standards and other financial and business strategies..
Tribes are sovereign, independent nations that govern and manage their affairs and control their resources. As part of their fiduciary responsibility, it is essential that Tribes have appropriate accounting, financial reporting and auditing standards so they can better convey financial and compliance information to their constituents and stakeholders..
Audits of all tribal resources help demonstrate a Tribe’s fiduciary duty to its membership, assist with assessing financial condition, business results and compliance with tribal laws and/or grantor regulations. Audits also provide a financial picture of the use of tribal resources and play a key role in assisting tribal governance and its membership, and the strengthening of Tribes for future generations.
Corrine Wilson, CPA, Principal with REDW LLC, a CPA and consulting firm with offices in Phoenix and Albuquerque that works extensively with tribes. She is a member of the Fort McDermitt Paiute-Shoshone Tribe, has been a board member of NAFOA, and was NAFOA’s GASAC representative 2000-2006. She has more than 25 years of experience as a Tribal CFO and in auditing and consulting for Tribes. Bruce Bleakman, CPA, is an REDW Principal (retired) with extensive experience serving tribes and their enterprises. He has served on GASB and AICPA task forces, and served as the project lead for NAFOA’s accounting publications.
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