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ADMINISTRATIVE LETTER: 48
TO: Superintendents of Schools
FROM: Angela R. Faherty, Acting Commissioner
DATE: May 17, 2010
SUBJECT: Audit Requirements
Recently, Public Law 2009, Chapter 571 was enacted by the legislature and signed by Governor Baldacci on March 31, 2010. This recently enacted law included revisions to the audit statutes 20-A M.R.S.A. Chapter 221 Section 6051, as follows:
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 PL 2009 Chapter 571. Please review these new requirements with your auditor.
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:
Shel Marcotte, Supervisor of Audit
As amended by Public Law 2009, Chapter 571, Part E – effective 3/31/10:
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:
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:
7. Exception. If a municipal school administrative unit meets all of the following eligibility criteria, then the municipal school administrative unit may file the annual municipal audit or audits in lieu of the annual audit required by this section:
8. Corrective action plan. The commissioner shall review the audits of the school administrative unit and determine if the school administrative unit should develop a corrective action plan for any audit issues specified in the annual audit. The corrective action plan must address those audit findings and management comments and recommendations that have been identified by the commissioner, and the plan must be filed within the timelines established by the commissioner. The school administrative unit shall provide assurances to the commissioner that the school administrative unit has implemented its corrective action plan within the timelines established by the commissioner. If the school administrative unit has not met the conditions for submitting a corrective action plan or providing assurances that the school administrative unit has implemented the plan, the commissioner may withhold monthly subsidy payments from the school administrative unit in accordance with section 6801A.
20A § 6052. Federal audits
CLARIFICATION REGARDING NEW AUDTING STANDARD
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 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;
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.
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.
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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