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Tips for Audit Preparation

Kris Blackburn, Controller

June 11, 2019

Don’t Cringe – A Smoother & More Efficient Audit is Possible!

• Controller for South Washington County Schools• Started in August 2014; duties include audit & budget• Sixth largest district in the State serving over 18,000 students• East metro school district serving all or parts of the communities of Cottage Grove,

Newport, St. Paul Park and Woodbury and Afton, Denmark and Grey Cloud Island Townships, Minnesota

• Other experience:• Worked as contracted business manager for several Minnesota charter schools• Spent more than 14 years in public accounting performing audits of school districts and

other governmental entities• Provided audit-focused training to both auditors and school district personnel

Brief Presenter BioKris Blackburn

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• Don’t reinvent the wheel be afraid to ask “Why/What do you need?”• You might have a document, spreadsheet, report, etc. that meets their need already• Don’t be afraid to ask “Why/What do you need?”

• Scheduling Issues• Tell them about conflicts, important deadlines for staff, etc• If they don’t know, they can’t accommodate

• I’m Not Ready!!• Tell your Auditor ASAP so you can develop a plan.

• Know About an Issue?• Tell your Auditor!

• Have a Question about how to handle something?• Ask your Auditor!

Tip #1Communication: Talk to your Auditor

• Understand what your auditors are doing (and what they are not doing)• Audit Planning• Timing/Approach; any significant changes from prior year

• Assessing Internal Controls• First time can be time consuming; easier if you have your processes

documented!• If continuing auditor, let them know of any significant changes from prior year

& ask to see what they have documented & READ THEM (sometimes outdated processes are still documented)

Tip #2Understand the Audit Process

• Testing Transactions & Analyzing Results• Sample testing: are the internal controls you said you have being followed? are the

amounts reported correctly (coding, proper fiscal year, etc)? are other special compliance requirements (MN Legal Compliance, Federal programs, etc) being followed?

• Analytics: expectation developed based on information from you & deviations explained

• Reporting• Draft reports• Corrective action plans required for all findings• Other - management letters for example, may provide suggestions for

improvement(s)

Tip #2Understand the Audit Process (continued)

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• Put together an audit prep timeline with document/workpaper names, date due, and who is responsible• Review timeline regularly to determine progress (or delays)• Setup an audit folder – file all audit documents/workpapers in the

folder and organize by “section" (cash, receivables, payables, etc); consider a naming convention that matches items to the prepared by client (PBC) list provided by your auditors for easy reference• Goal should be to have a solid Trial Balance to auditors one week

before they come onsite for final fieldwork

Tip #3Organize aka “The PLAN”

• Verify all beginning balances match prior year ending balances (trust me, they don’t always match) – be prepared to explain why if they don’t (see Tip #1 – communication!!)• For Assets, Liabilities – what should the balance be? does the balance

make sense?• Document the balance – have ready schedules, workpapers, etc

detailing the amount(s) behind the total

Tip #4Balance your Balance Sheet

• ASSETS:• Cash – Reconcile!! Make sure all your cash accounts are reconciled• Receivables (Taxes, Interest, Accounts Receivable, Due from Other

Governmental Units, Due from Other Funds) – Amounts yet to collect (often may actually collect in subsequent months – July & August, so pay close attention there); verify supporting detail information matches the ending balances• Inventory – Adjust to year end actual balance(s); verify the balance equals the

supporting detail information• Prepaids – Verify the balance equals the supporting detail information

Tip #4Balance your Balance Sheet (continued)

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• LIABILITIES:• Salaries Payable – what was payable at 6/30 (summer contract payouts, vouchers for June

work paid in July)• Other Payroll Liabilities Payable (taxes, etc) – often should match amounts paid in July related

to June salaries• Accounts Payable – Amounts due, paid in subsequent months (often July & August); cut off

date & materiality – what is reasonable?; verify supporting detail information matches the ending balances

• Contracts Payable – especially during construction projects; what is owed yet (don’t forget retainage payable!)

• Due to Other Governmental Units - Verify supporting detail information matches the ending balances

• Unearned Revenue – example: grants where we received the funds, but have not fully earned the revenue; also Food Service account positive balances (paid more than used)

Tip #4Balance your Balance Sheet (continued)

• EQUITY• Again, make sure beginning balance equals prior year ending balance (use

your audit reports & UFARS turnaround reports)• Verify Nonspendable Fund Balance equals Total Inventory plus Prepaid assets

amount• Restricted Fund Balance Calculations – Beginning Balance, Plus Revenue, Less

Expenditures Equals Ending Balance (many auditors have a handy workpaper template, but easy to make your own – tab for each Restricted Balance & all restricted fund balances have one or more FIN codes associated with them –refer to UFARS, Balance Sheet & FIN code descriptions)

Tip #4Balance your Balance Sheet (continued)

• Easy to leave fixed assets & long term debt until the end, since they don’t affect day to day operations, but also easy to do early!• Fixed Assets:

• Make sure only assets meeting capitalization threshold are added• Coding considerations:

• Per UFARS only items meeting capitalization threshold should be in OBJ 500 series• Perhaps some expenditures should be in OBJ 400 series• Capitalization thresholds are generally PER ITEM (not total purchase)• Educate staff who code invoices

• Ask “what could I do during the year to make it easier to identify assets at year end”? (invoice copies, review certain accounts, etc)

Tip #5Fixed Assets & L/T Debt – Do them EARLY!

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• Long Term Debt:• Obtain debt payment schedules for all new debt, including leases (or ask auditors for

help if no principal/interest breakdown)• Tie payments to debt schedules – OBJ 580 & 581

• Make sure Principal & Interest breakdown in OBJ codes matches breakdown on schedules• Rollforward debt schedules with all principal & interest payments (auditors will need

next five years individually and then five year increments thereafter – formulas are great for this!)

• Compensated absences – obtain necessary information on time off balances and pay rates as of 6/30 and complete workpaper to calculate the year end balance

Tip #5Fixed Assets & L/T Debt – Do them EARLY! (continued)

• Analyze & Review – identify and understand reasons for large variances – the auditors will likely ask anyway!

• Revenues:

• Focus analysis by reviewing totals by SRC categories

• Example:

• Local Revenues (SRC 001-099 & 601-629)

• State Aids (SRC 200-399)

• Federal Aids (SRC 400-599)

• Other Revenues (SRC 631-640 & 649-699)

Tip #6Revenues & Expenditures

• Expenditures:• Focus expenditure analysis by reviewing totals on totals by PRO, then

subtotals by OBJ categories – overall categories, not every PRO/OBJ• Example:

• Elementary & Secondary Regular Instruction (PRO 200’s)

• Salaries (OBJ 100’s)

• Benefits (OBJ 200’s)

• Services (OBJ 300’s)• Supplies & Materials (OBJ 400’s)

• Equipment & Capital (OBJ 500’s)

• Other (OBJ 800’s)

Tip #6Revenues & Expenditures (continued)

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• The new Uniform Guidance requires many processes/procedures be

documented; make sure you have written procedures AND that they

are being followed!

• For vendors whom you purchase >$25,000 from (with federal funds),

you must check them on the “naughty” list, aka suspended/debarred

search – document the search even if your vendors don’t appear.

• Verify completed time & effort forms are on file for all employees

paid with federal funds and their coding % is accurate.

Tip #7Federal Programs – documentation is key

• Myth: The Auditors are trying to find something to “get us”.• FALSE!!! It is more work for them too if they do find something that results in a

finding. If they find something, use it as an opportunity to improve a process.

• Myth: If I ask the Auditors for help, they’ll give me a finding.• They can provide “technical assistance”, so ask them up front if you want them help

with how to handle something or to review how you handled it. Note if they find it on their own and have to correct it, that could result in a finding.

• Myth: The Auditors will find fraud if it’s happening.• The intent of the audit is not to find fraud; in fact, it is one of the least common ways

fraud is discovered.

Bonus Content! Mythbusters

Kris Blackburn, CPAController

South Washington County Schools ISD #833District Service Center

7362 E Point Douglas Rd SCottage Grove MN 55016

651.425.6266kblackbu@sowashco.org

Questions??