KEYS TO A SUCCESSFUL AUDIT - Donna Denker & Associates
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Transcript KEYS TO A SUCCESSFUL AUDIT - Donna Denker & Associates
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.
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
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