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Presented by Dave Yuhas Donna Denker and Associates.

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1 Presented by Dave Yuhas Donna Denker and Associates

2  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

3  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.

4  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

5  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

6  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

7  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”

8  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

9  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?

10  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”

11  Read carefully and completely!!  Understand your responsibilities  Understand the scope of the audit Objective Procedures  Fee structure

12  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”

13  Items to discuss Contact person Dates Attendance and schedules Prior year audit and findings Areas of focus Mental attitudes Subsequent meetings

14  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.

15  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

16  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

17  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

18  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”

19  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

20  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

21  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

22  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.

23  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

24  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

25  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

26  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

27  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

28  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

29  Additions Support costs to bring into service Useful life  Disposals Method Approved Proceeds  Obsolete/impaired  Infrastructure

30  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

31  Related party payables Identify  Held checks Classification  Encumbrances Not the same as payable Budgeting tool

32  Always should be in balance  Confirmation with related parties  Should maintain a detailed schedule By fund Purpose  Disclosures for both By fund Purpose

33  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

34  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

35  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

36  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

37  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

38  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

39  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

40  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

41  Significant transaction classes (Cont) Travel Contract payments Related parties – note disclosure Repairs and maintenance Material transactions  Employer and employee contributions to retirement plans – disclosure support  Manual journal entries Management overriding controls


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