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New Audit Requirements

ADMINISTRATIVE LETTER # 5
POLICY CODE: IL

 

TO: Superintendents of Schools
Municipal Officials of School Administrative Units
Directors of Applied Technology Regions

FROM: Susan A. Gendron, Commissioner

DATE: July 9, 2008

SUBJECT: New Audit Requirements

Recently, Public Law 2007, Chapter 668 was enacted by the legislature and signed by Governor Baldacci on April 18, 2008. This recently enacted law included revisions to the audit statutes that are intended for the following:

• Result in the submission of the audit report and initial report to the Commissioner of Education by school administrative units earlier to ensure accurate data for school funding calculations,
• Provide clarification on recent federal audit requirements and required corrective action – see below,
• Remind school administrative units of the required audit reconciliation of the annual financial data prepared and certified by the auditor which must be included in the initial report to the commissioner, and
• Remind school administrative units that the statutes indicate that each school administrative unit’s school board is responsible for providing a copy of the audit report to the Department of Education.

The new statutes require an “Initial Report to the Commissioner” due on or before November 1st and submission of the June 30th audit report within 6 months after the end of the audit period (no later than December 30th).

Enclosed with this letter is 20-A M.R.S.A. Chapter 221, Subchapter II Audits (§ 6051 and §6052) that include the revisions enacted in P.L. 2001 Chapter 668 Please review these new requirements with your auditor. Public Law 2007, Chapter 668 is available on the Legislature’s web page at:
http://janus.state.me.us/legis/LawMakerWeb/externalsiteframe.asp?ID=280028851&LD=2323&Type=1&SessionID=7

The “Initial Report to the Commissioner” due on or before November 1st and
the submission of the June 30th audit report due within 6 months after the end of the audit period (no later than December 30th) should be sent to:

 

Tonya Perkins, Auditor I
School Operations & Finance
Department of Education
23 State House Station
Augusta, ME 04333-0023

If you have questions, please direct those questions to Tonya K. Perkins at 624-6865 or email tonya.perkins@maine.gov

SAG:scb

Attachments

Cc: Auditors of School Administrative Units & Applied Technology Regions
Tonya K. Perkins, Auditor I
Suzan C. Beaudoin, Supervisor of School Finance
Joanne Allen, School Finance Coordinator

CHAPTER 221
SCHOOL RECORDS, AUDITS AND REPORTS
SUBCHAPTER II
AUDITS

20A § 6051. School administrative units

1. Audit. A school board shall provide for an annual audit of the school administrative unit. The audit shall include the following:

A. Accountability of all revenues and expenditures;
B. A determination of whether or not proper budgetary controls are in place;
C. A determination of whether or not the annual financial report submitted to the department is correct;
D. An audit of all federal programs in accordance with applicable federal law;
E. A determination as to whether the school administrative unit has complied with applicable provisions of the School Finance Act of 1985 and the School Finance Act of 1995; and
F. Any other information which the commissioner may require.

2. Fiscal year. The fiscal year of an audit shall be from July 1st to June 30th, except that audits of federal programs shall conform to federal requirements.

3. Auditors. Audits shall be conducted by either the Department of Audit or qualified certified public accountants or public accountants registered by the Board of Accountancy.

4. Initial report to the commissioner. On or before November 1st, the school board shall provide the commissioner with:

C.      Written determination of whether or not proper budgetary controls are in place;
D.     A written determination of whether or not the annual financial data submitted to the department is correct, including submission of an audited reconciliation of the annual financial data prepared and certified by the auditor; and
E.      A written determination as to whether the school administrative unit has complied with applicable provisions of the Essential Programs and Services Funding Act.

5. Records. Financial records and accounts shall be kept for 7 years after the end of the fiscal year and shall be available to the auditors and any other upon request.

6. Report to commissioner. Within 6 months after the end of the audit period, the school board shall provide the commissioner with:

A. A copy of the audit report;
B. Accountability of all revenues and expenditures;
C. Written assurance that the audit has been conducted in accordance with applicable state and federal laws relating to financial and compliance audits; and
D. Any other information that the commissioner may require.

20A § 6052. Federal audits

The following provisions apply to federal audits.

1. A school board of a school administrative unit which accepts federal funds shall hire auditors and pay out of available school funds or from federally allocated sums for any audit of federal programs.
2. Report to commissioner. The auditor shall provide the commissioner with a copy of the audit.
3. Use of audit. The commissioner may use these audits to provide the Federal Government with any information it requires.

SAMPLE RECONCILIATION
AUDIT ADJUSTMENTS TO ANNUAL FINANCIAL DATA SUBMITTED TO THE MEDMS FINANCIAL SYSTEM

CLARIFICATION REGARDING NEW AUDTING STANDARD
FINANCIAL STATEMENT PREPARATION

With the recent changes in Auditing standard (SAS 1112), there have been a lot of questions regarding any corrective action expected from the Department of Education. The corrective action request is asking for the school department’s or municipality’s current processes in place to prevent or detect material misstatements in the school department’s or municipality’s own financial statements.

• A description of the corrective action that will be implemented;

 

A description of the current processes that are in place to help prepare and review the financial statements; or what new process will be put in place to take a more active role in helping to prepare the financial statements;

• The contact person(s) responsible for monitoring and maintaining corrective procedures;

 

Who prepares the information given to the auditors to prepare the statements, and who reviews the statements and compares them with the raw data; or who will be taking this role.

• The anticipated completion date of the corrective action.

 

When will the new processes be put in place if something new is being done?

The following, used with permission from the State Department of Audit from Minnesota, should provide some more clarification:

“• Correcting and following up on findings - An increase in the number of reportable findings will have a direct correlation to the amount of work required by a government’s management to correct and follow-up on reportable findings. In turn, this will affect the amount of audit effort required by your auditors to follow-up on corrective action to the findings.
The audit process may take longer because:
• The auditor will be required to gather more evidence and documentation to evaluate whether or not findings are significant deficiencies or material weaknesses, and
• The auditor must perform follow-up procedures on all previous audit findings.

Understanding financial statements and their disclosures - the financial statement closing process is also highly dependent on the skills, experience, training, and competency of the preparer(s) and approver(s). As such, if the entity does not have the necessary resources to effectively apply generally accepted accounting principles to recording the entity's financial transactions or prepare its financial statements, then a likely material weakness exists. The key controls are the review and approval by the preparer's supervisor and the review and approval by the governing body. As such, it is necessary for the governing body to have sufficient skills to read and understand the entity's financial statements and their degree of precision.

This last section has raised concerns about who can prepare an entity’s financial statements. Many local governments have their independent auditors prepare the actual financial statements, including notes to the financial statements. The reasons a local government has their auditor prepare the financials could give rise to a finding of a deficiency in internal control over financial reporting. The more complex the financial transactions underlying the financial statements, the more likely that this condition could result in a significant deficiency. Does this mean that your auditor can no longer prepare your financial statements? No, but if the reason is your staff does not have the expertise or knowledge to prepare the financials then there is likely a significant deficiency. This lack of expertise can be mitigated if the governing body is able to understand the financials and what is in them.

Some governments state that there is sufficient internal control because they rely on their auditor’s expertise and knowledge to prepare the proper financial statements. By doing this, they have made their auditors part of the internal control system of the entity. This creates an independence issue for the CPA, which generally would mean the auditor must disclaim an opinion on the entity’s financial statements.”

 

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