Need better inventory controls over laptop computers? Wondering how many people you need to have segregations duties over cash receipts? What are compliant federal program timekeeping requirements? The auditors at Christy White have specialized experience to share with you garnered from auditing hundreds of local educational agencies. We make, without extra charge, practical suggestions for improvements.
Ideas for Pre-Audit Planning to Improve Controls and Avoid Audit Findings
Pre-audit planning helps to avoid findings, or at least minimize the negative consequences. Having exemplary internal controls in place will help reduce potential audit findings. Discuss in your pre-audit meeting with our auditor new or concerning financial and compliance areas and how to best put proper controls in place. Ask the auditor to look at the internal controls and provide you with feedback. You may be able to implement their recommendations before the audit cycle and avoid findings. Common internal control deficiencies to be aware of include:
- Lack of segregation of duties
- Absence of appropriate review
- Failure to safeguard assets
- Failure to provide complete and accurate information
- Inability to perform tasks timely
- Deficiencies that could result in violations of law
- Non-compliance with grant terms
- Failure to follow up on prior year findings
Post Audit Findings Clean-up
Local educational agencies (LEAs) must respond in the audit report to any audit findings. As your auditor, we work with you early on to discuss potential audit findings before they make it to the audit report. Working together you may find compensating controls that work, find the issues were isolated to a narrow set of circumstances or find that the auditor needs to talk to the right person. Tracking down the root cause of the finding is critical in assessing the impact and planning corrective action.
Audit findings might be resolved by corrective action, determining the conclusion is insignificant (and you can live with the consequences) or not valid (in which case the auditor needs to reevaluate their work).
Auditors must, to the extent applicable, cite in each audit finding: the statutory authority, the nature of the audit finding, the context, the cause, the impact, questioned costs and their recommendation.
Who is Looking at the Findings?
In addition to your LEA board and community; the county, state and federal government offices look at audit findings and your response, depending on the nature of the finding. The first step in resolution is the LEA’s response in the audit report. From there, the county office reviews the corrective action plans by May 15th, following the audit report submission. If your LEA’s plan is inadequate or not corrected in the following year, expect the county to be contacting you! Auditors also report the status of prior year findings in their subsequent reports; it's expected that audit findings do not repeat year to year, except under extraordinary circumstances.
How Can You Fight Apportionment Significant Audit Findings?
If you are hit with an audit finding that has a material effect on your LEA’s funding and you believe there is good reason not to be fully penalized then consider the avenues available.
Seek a waiver – waiver are relatively narrow in scope and relate primarily to attendance accounting errors, relevant Education Code (EC) sections include:
- EC Section 41609 for minor and inadvertent errors
- EC Section 46206 for instructional time shortfalls
Appeal the finding - to appeal an audit finding, check out the Educational Audit Appeals Panel website (eaap.ca.gov). If an audit finding has an apportionment significance, the LEA may want to appeal the audit finding based on “substantial compliance.” There are two types of appeals:
- A “summary review” involves less than 150 ADA or $750,000 and the EAAP executive officer may waive or reduce the reimbursement or penalty upon a finding of “substantial compliance,” and that other remedial measures are sufficient to induce full compliance in the future.
- More substantial exceptions require written approval of the Executive Officer plus the Department of Finance and the State Superintendent of Schools.
There are three grounds on which to appeal audit findings:
- errors of fact
- errors of interpretation of the law
- substantial compliance
“Substantial compliance” means nearly complete satisfaction of all material requirements of a funding program that provides an educational benefit substantially consistent with the program's purpose.
- A “minor or inadvertent” noncompliance may be grounds for a finding of substantial compliance provided that the local educational agency can demonstrate it acted in good faith to comply with the conditions established in law or regulation necessary for apportionment of funding.
If you decided to go the appeals route, there are strict timelines on filing the appeal (within 30 days of the audit submission for a summary review and 60 days for a formal review). It's best to use an attorney that has experience in this area of law.
In summary, the solution to audit findings is to work closely with the Christy White audit team to bolster your internal control systems and discuss best practices for staying compliant with applicable federal and state laws and regulations. Should a material finding arise, let us help you seek solutions to reduce the fiscal impact on your LEA.