VIP Focus: Educating Elected Officials on the Audit

DashBoard, Feb. 4, 2015

Submitted by Phil Saurman, CPA, Shareholder/Governmental Services for Hungerford Nichols CPAs + Advisors, Grand Rapids

Another school year is well underway in the state of Michigan and once again, each Board of Education has many areas of oversight to monitor and decide upon important issues. One of the most important is the financial health of your district, which is highlighted once a year in your Annual Financial Report and is prepared each year by the independent auditors of your district.

The AFR can be a difficult document to understand from a lay-person’s knowledge and experience. In this article, we will discuss four of the most important areas covered in an annual audit and explain why they are important to each Board of Education member.

  1. The role of the Board of Education
  2. What do auditors do (and not do)
  3. Board of Education audit review areas
  4. Fraud awareness

What is the role of the Board of Education?

  • Set a proper “tone at the top”
  • Ensure open communication and proper allocation of resources
  • Stress that the audit is important and that staff will be held accountable
  • The Finance (or Audit) Committee will help the Board fulfill its responsibility

What do auditors do?

  • Talk to staff, management, directors and Board members
  • Review certain transactions
  • Review a lot of documents
  • Report deficiencies noted during the audit
  • Provide reasonable assurance the financial statements are materially correct

What auditors do not do?

  • Check or verify every financial statement figure
  • Provide an opinion on the internal controls of the district
  • Look at every individual transaction
  • Judge the appropriateness of financial strategies or decisions
  • Comment on the quality of management governance
  • Replace or fulfill responsibilities of management or the Board of Education

What should the Board look for in the AFR?

  • Compare the current year to the previous year
  • Look at fund balance levels
  • Do any funds have deficit balances?
  • Compare the general fund balance to total general fund expenditures
  • Compare your district’s results to similar districts
  • Look for and inquire about unusual items or transactions
  • Question and understand any “audit findings” that are itemized in the AFR
  • Assign one Board member to complete an audit disclosure checklist

What is the Board of Education’s role in fraud prevention?

  • Clearly communicate to employees the behavior that is expected of them
  • Take strong action against employees who commit fraud
  • Provide employees the means and opportunity to report the occurrence of fraud or other abuse anonymously

One common misconception is that the auditors are responsible for detecting fraud. Not even the most well designed internal controls or procedures can prevent and detect all forms of fraud. Most frauds that occur in a school district do not meet the audit materiality threshold.

It is important for the Board to recognize their role in preventing, deterring and detecting fraud. The active involvement of the Board in setting the proper “tone at the top” increases the likelihood that fraud will be prevented, deterred and detected.

Phil Saurman, CPA, is the Shareholder for Governmental Services with Hungerford Nichols CPAs + Advisors, a Tax, Auditing and Business Consulting firm with offices in Grand Rapids and Greenville, Mich. The firm is celebrating 74 years of helping local businesses, school districts and municipalities throughout Michigan.

VIP Focus articles are company-sponsored advertisements and do not necessarily reflect the views or positions of MASB. It’s intended to provide Very Important Partners with a space to share information of value to you and your district.

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