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What the State Auditor is Looking for... and Findings (Part 1 - Cities)


January 17, 2013 by Tracy Burrows
Category: Accounting

What the State Auditor is Looking for... and Findings (Part 1 - Cities)

The Washington State Auditor's Office website has a nifty audit report search that allows you to search reports and findings. In the interest of identifying common issues that appear in the state auditor's findings, I decided to take a look at the local government audit findings in the State Audit Reports from January 2010 to December 2012. 

This Part 1 blog post looks at findings that were in the audit reports for cities. Over that period of time, there were 225 separate findings in the 185 city audit reports that had findings. In a future post, I'll have information about audit findings for counties and special districts.

The table below summarizes the common issues identified in the audit findings for cities:

Summary of Findings - SAO Audit Reports for Cities
 
Issue Number of Findings Percent of Total
Lack of Adequate Internal Financial Controls   74  33%
Lack of Adequate Controls to Ensure Compliance with Federal Grant Requirements   71  32%
Decline in Financial Condition   Due to Lack of Monitoring or Failure to Reduce Costs   26  12%
Misappropriation of Funds   14    6%
Irregularities in Purchasing, Bidding, Contracting   12    5%
Issues Related to Allocation of Internal Service Costs   10    4%
Assets and Equipment -   Inadequate Reporting or Controls     7    3%
Irregularities in Interfund Loans or Transfers     7    3%
Other     4    2%
     
Total 225 100%

In reviewing these audit reports, a few key issues stand out. Below you will find a more in-depth look at the findings and some resources to help you avoid audit issues in the future.

Pay Attention: Transitions in Key Finance Staff

In the local government response to the audit findings, a surprising number cite a changeover in key staff as contributing to the problem identified by the auditor.
  • Prepare for transitions by thoroughly documenting procedures for internal financial controls.
  • Make sure finance staff who are new to local government get proper training in local government accounting principles.

Lack of Internal Financial Controls – Top Issues

Lack of internal financial controls was the most common cause of audit findings, and this category contains a wide range of issues. The most common problems related to lack of independent review and other safeguards to ensure accuracy of:
  • Financial statements
  • Cash receipts
  • Utility billing
  • Payroll
  • Payments for goods and services
  • Annual leave cash-outs


Federal Grants – Top Issues

Federal grant requirements can be tricky, especially if your finance and public works staff don't typically work on projects that include federal funding. Make sure staff has proper training and that there is a high level of coordination between the finance staff and project managers. Here are the issues that were consistently cited in auditor's findings:
  • Failure to check whether contractors selected were suspended or debarred from doing business with the federal government
  • Failure to ensure payment of prevailing wages
  • Failure to enforce the submission of weekly payroll reports
  • Inadequate schedule of expenditures
  • Unallowable costs charged to the grant

Resources: MRSC’s Purchasing and Contracting webpages have examples of local government documents related to these issues. Mike Purdy’s Public Contracting Blog is also an excellent resource on all issues related to federal grant administration and contracting in general.

More Really Helpful Resources

Look for MRSC’s new Contracting for Services publication due out in early spring. The most frequently cited problems that I saw within the audit findings on cost allocation were 1) the lack of adequate documentation of the cost allocation methodology; and 2) the reliance on budgeted amounts rather than actuals when calculating cost allocations.

About Tracy Burrows

As MRSC’s Executive Director, Tracy seeks out innovations in local government, tracking trends in management and technology that impact your work. She has over 20 years of local government and non-profit experience, specializing in growth management, transportation, and general city management issues.

VIEW ALL POSTS BY Tracy Burrows

Comments

"[...] Well, it would likely help to know what the auditor’s office is looking for in their review. My Part 1 post summarized 225 separate findings from 2010–2012 in State Audit Reports for cities. This Part 2 [...]"

What the Auditor is Looking for…and Findings (Part 2) | MRSC Insight on Feb 25, 2013 2:02 PM

"Concise and very helpful - thank you for the abbrievated heads up."

Nancy on Feb 12, 2013 8:57 AM

2 comments on What the State Auditor is Looking for... and Findings (Part 1 - Cities)

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