KEYS TO A SUCCESSFUL AUDIT - Donna Denker & Associates

Report
Presented by Dave Yuhas
Donna Denker and Associates
 Please
turn off cell phones
 Questions are mandatory
 Personal experiences are welcome
 “Clean” jokes about auditors are
acceptable
 Slow me down if I get going to fast
 Evaluation
• Things you learned
• Topics you would like covered at future seminars
 To
gain an understanding of the overall
audit process and the steps that can be
taken to make your audit successful.
 Present the audit from another side.
 Possibly eliminate the fear and instill an
assertive approach.
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What triggers an audit
What defines a successful audit
The auditor’s report
Auditing standards
Engagement letter
Planning meeting -- entity
Minutes
Policies/procedures and internal controls
Risk assessment
Fraud/abuse/asset misappropriation
Information/documentation
Planning meeting with auditor
Litigation/contingencies
Account balances and transaction classes
 Why
o’ why do we have to have an audit?
• Over $500,000 in Federal expenditures
• It’s in the by-laws
• By ordinance or resolution
• Grant requirement
• Funding agency requires
• Financial institutions
 Overall
unqualified (clean) opinion
 No findings
 No questioned costs
 What is your definition of a successful
audit?
• Opinion qualifications expected
• Findings not significant or material
• Issued before deadline
 What
was audited
• Opinion units – could be one or more
 The
standards governing the audit
• Generally accepted auditing standards
• Governmental auditing standards (yellow book)
• Other standards for Single Audits or program
specific
• Example – Attachment “A”
 Wording
that indicates opinion
qualification.
 Required supplemental information
• Budget to Actual
• Management Discussion and Analysis
 Schedule
of Expenditures of Federal
Awards (SEFA)
 Going concern
 Questioned costs
 Dave
– How do you know what you share
with us today will result in a “successful”
audit?
 How soon to break?
 What’s for lunch?
 Did I forget to shut off my cell phone?
 There
are auditing standards that are
mandatory for every kind of audit and
the auditor’s work papers must show
evidence of compliance with standards.
 This is what is going to make the
difference in your audit…knowing what,
why and how.
 This is what we will focus on today
 Links to sources – Attachment “B”
 Read
carefully and completely!!
 Understand
your responsibilities
 Understand
• Objective
• Procedures
the scope of the audit
 Fee
structure
 When
• Well before the auditor shows up
 Who
should be there
• Those charged with governance
• Management
• Program directors
• Key accounting personnel
 The
audit preparation guide –
Attachment “C”
 Items
to discuss
• Contact person
• Dates
• Attendance and schedules
• Prior year audit and findings
• Areas of focus
• Mental attitudes
• Subsequent meetings

Auditor may request for period before fiscal year
and definitely up until date report is issued.

What are they looking for?
• Board actions that could or will have financial impact.
 Contracts/purchase commitments
 Debt
 Capital purchases
 Compensation
 Discussion on litigations

Could include minutes from committees under the
governing body.
 Make
sure policies and procedures are
current
 Do they reflect the current process
 Key controls
 Auditor is required to gain
understanding, document and test
 Applies to both the financial and
compliance areas
 There will be a report issued
 Auditor
required to perform prior to field
work
 Identification of significant
accounts/transaction classes
 Basis for the type and extent of
procedures that auditor will perform
 Involves selection of samples that will be
tested
 Another
area that auditor must address
on all engagements and show evidence
in work papers.
 Inquiries at all levels
• Governing body
• Management
• Staff
 What
happens if there is fraud
 Retribution
 Confidentiality
 Always provide copies if possible
 Inquire about a secure way of sharing
 Confidentiality
 Contracts/Grant agreements
 Loans and leases
 Minutes
 Governing documents
 Communications with funding agencies
 Personnel policies
 Refer to audit preparation guide
• Attachment “C”
 Required
by standards
 When
• Normally within first few days of field work
 Who
should attend
• Management
• Members of governing body
• Program directors
• Key finance staff
 What
will be discussed
• General review of fiscal year
• Changes
 Personnel
 Key accounts
 PP&E
 New contracts
 New benefits
 Litigation/Contingencies
 On site visits from funding or regulatory agencies
 Attorney
inquiries
• Potential contingencies
• Environmental contingencies
• Ongoing negotiations with funding agencies
 What
is required to be disclosed
• If contingency is probable and outcome can be
estimated
• Items that will have negative impact on entity
 Procedures
performed will be based on
associated risk, significance of account,
industry and results of internal control
assessment.
 Auditor required to obtain sufficient
evidence to reach conclusion on
assertions.
 Will
be tested
 Adequate controls – a must!!
 Bank reconciliations are the starting point
• Reconciling items
• Stale dated checks
 Confirmations
 Restrictions
 Insured
 Cash
and cash equivalents policy
 Activity between accounts
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Tends to be a problem area
Absence of policies and procedures
Good billing/collection process
Confirmation
• Not effective in most instances
• Subsequent receipts

Separate by:
•
•
•
•

Trade
Related parties
Employees
Travel
Supporting schedules
• Aged
• Detailed

Collectability
• Allowance for doubtful accounts
• Collection avenues
 Investment
policy
• Provides direction and addresses risks
 Confirmation
 Insured
 Investment
activity schedule
• Regularly
• Deposits and withdrawals
• Interest and accrued interest
• Realized and unrealized gains/losses
 Generally
not significant account
 If
significant make sure auditor is there for
year end inventory
 Physical inventories
• Count sheets
• Extended values
 Policy
• Valuation
• Expense recognition
 Definition
– Service provided over
period of time that is paid up front.
 Policy for those paid with Federal funds
 Consistently applied
• Types
 Generally
consists of
• Insurance
• Maintenance contracts
 Capitalization
policy
 Evidence of physical inventory
 Federal regulations
• What information is required
 Depreciation schedule
• Roll forward
• Detailed by category
• Allocation by function
• Useful lives
 Reconciliation to general
ledger
 Additions
• Support costs to bring into service
• Useful life
 Disposals
• Method
• Approved
• Proceeds
 Obsolete/impaired
 Infrastructure
 Year
end cutoff procedures
• Date of receipt
• Date of invoice
• Transfer of title
 Accounts
payable subsidiary report
• By vendor
• Period of time outstanding
 Impact
on expenditure reports
 Related
party payables
• Identify
 Held
checks
• Classification
 Encumbrances
• Not the same as payable
• Budgeting tool
 Always
should be in balance
 Confirmation with related parties
 Should maintain a detailed schedule
• By fund
• Purpose
 Disclosures
• By fund
• Purpose
for both
 Another
account where problems tend to
show up
 Liability for goods or service not
included in accounts payable.
 Accrued Wages
 Prorated
 Payroll period
 Taxes and other benefits
 School contracts
 Fringe Benefits
• FICA – Employer and Employee
• Unemployment
• Health Expense
• Retirement
• Vacation or sick time
 Compensated absences
• Detailed schedule
 Earned
 Used
 Extrapolated at current pay rate
 Current vs. non-current
 Another
account in which balances will
be confirmed.
 Must maintain an activity schedule
• Principal payments
• Interest payments
• New debt
 Accurate
amortization schedules
 Operating vs. capital leases
 Covenants
• Compliance
 Generally
some form of reconciliation to
prior year audited financial statements is
first step.
 Review of general ledger detail
 There should be no activity that hasn’t
been approved by management
 Prior period adjustments
 Classifications
 Budgets
are a “must”
• Must be created timely to be useful
• Must be monitored
• Must be a performance measurement
• Must be for revenue and expenditures
• Must be for all funds
 General
procedures will be comparison
of budget to actual followed by inquiry.
 Presented in financial statements
 Federal
revenues
• Schedule of draw downs by fund
• Break out accrued/deferred revenue
• Program income
• Interest income
• Pass through funds
 Donations/Contributions
• Maintain a schedule
• Identify restrictions
 Proceeds
from sale of assets
 Insurance reimbursements
 Settlements
 Restitution
 Charges for services
• Must have a good billing and collection process
• Goes hand in hand with accounts receivable
• Auditor will generally perform some form of
analytical procedure

Will involve testing of internal controls
• Support
• Authorization
• Coding

Analytical procedures
• Budget to actual
• Current year vs. Prior year

Significant transaction classes
• Salary and wages
 Reconciliation of general ledger to submitted quarterly reports
 Highest compensated individuals
 Bonus/ Incentives
 Compensation paid as something else
 Significant transaction classes
• Travel
• Contract payments
• Related parties – note disclosure
• Repairs and maintenance
• Material transactions
 Employer
(Cont)
and employee contributions to
retirement plans – disclosure support
 Manual journal entries
• Management overriding controls

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