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%|
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
- 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.
MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.