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Prepare for Your Audit! Step 4: The Main Audit.

By EdTec Staff

August 8, 2018

You’ve selected an auditor, communicated with them frequently, and completed the pre-audit steps. Now it’s time for The Main Audit. This phase involves all information as of the fiscal year close and occurs between August and November. During this stage the audit firm will perform fieldwork at your school and request sample financial transactions from the school administration.

What Happens?

During the pre-audit or interim audit, most audit firms do as much as possible for items not dependent on the fiscal year being closed. Now is the time to tackle the information as of fiscal year close.

Pay close attention to:

  • Financial activity immediately following the close of fiscal year
  • Information and how it has or has not changed from the unaudited actuals
  • Subsequent events, all important financial or relevant school events that occur after year end

School administrators should be prepared for the auditors to test financial information by selecting a sample of transactions and requesting back-up (invoices, receipts), as well as perform procedures on financial statement balances. The auditors will ask for specific documentation to provide evidence that the school is following all necessary policies. Take the time and effort to organize all your financial information and back-up ahead of time so that everything is readily available upon request.

You should expect your auditor to do fieldwork during late Summer or Fall either at your school or at the office of your back office provider (such as EdTec), if you are using one. The in-person work usually takes around 2-4 days. Nowadays, with a lot of information being stored on internet accessible platforms the need for fieldwork is beginning to diminish. Confirm the plan with your auditor and establish when and how the fieldwork will take place.

How Do You Facilitate?

During the pre-audit, you should have created a plan that outlines how you will provide information to the audit firm. Stick to that plan. If possible, try to create an electronic share space to place your school’s financial information and make it available to the audit firm. This ensures an organized and expedient way to share information.

If your audit team is coming to your school location, a dedicated physical space for the auditors is crucial. Take the time to set aside a room or space and confirm that it will be available when the auditors visit.

The audit firm will generate requests for more information as they are conducting testing. It’s important to be responsive to prevent holding up the process or requiring them to stay on site longer than necessary.

Example for CA Charters: Auditing the LCAP

The auditors will begin by selecting an action or service from the LCAP that your school (LEA) has identified as having expenditures.

You will then be responsible for guiding the auditor as to how they can find those certain expenditures in the general ledger.

Having all your documentation and back-up clearly organized and accessible will ensure the main audit runs as smoothly as possible.

Auditor’s Next Steps

Even when fieldwork is over, there’s still a lot of work for the auditors to complete. They need to follow up with outstanding items or tests being conducted after the main fieldwork and organize audit work and documentation. They also need to prepare a list of audit adjustments, if any are required, double-check all work, and conduct peer and partner review of work papers. Lastly, the auditors will provide a draft of the financial statements for your review.

When discussing timeline with the contracted audit firm, it’s important to make sure this time-frame is discussed and included in planning.

Conclusion

If you have done a good job communicating with your auditor during the pre-audit and have your files ready to share for testing, the main audit should take place without any unexpected setbacks. Be prepared to discuss any changes from the unaudited actuals and explain financial activity following the fiscal year close. Remember to have a space dedicated for your auditors and work hard to response to their requests quickly. The faster the main audit can be completed, the easier for all parties involved and the less likelihood of having issues.

Stay tuned for our next and final article on the audit cycle, the Audit Report Review and Submission!

Prepare for Your Audit! Step 3: The Pre-Audit

By the EdTec Client Management Team 

March 22, 2018

In our last blog post, we covered the first two phases of the audit cycle: Auditor Solicitation and Auditor Engagement. In this post, we’ll take a deeper dive into the third phase, the Pre-Audit. This phase occurs between April and June, and involves the auditor’s first visit to the school and frequent communication between the auditor and school leaders.

Once your charter school board has selected an auditor, the first step will be working with the auditor to establish a timeline for the final report. Keep in mind that you’ll want to leave enough time to conduct a thorough review of the audit report, so the earlier you can begin the pre-audit, the better.

During the pre-audit phase, it’s important to ask questions as they come up. Remember, your auditor is a resource, not an adversary, and they want a clean audit just as much as you do. The pre-audit phase is designed to prepare the school for the main audit, so now is the time to clear up any confusion about the process, test internal controls and compliance, and remediate any issues before the end of the fiscal year.

As you prepare for the auditor’s first visit, there are a few things you’ll want to get in order so the visit runs smoothly. It is helpful to have reviewed the segregation of financial duties, prepare an explanation for significant or complex transactions, and gather key documents. These documents include internal controls policies and procedures, paperwork related to pending legal matters, as well as copies of significant transaction such as leases and loans, new contracts with service providers, and new grant agreements. Your auditor may also ask for financial documents such as trail balances and check registers.

In addition to making sure your financial house is in order, the auditor will need proof that the school has been keeping up with state reporting compliance. Well in advance of the first visit, start compiling copies of all state compliance records and supporting documentation, as this process can be quite time consuming. This documentation includes:

  • Student records, bell schedules, calendar, instructional minutes
  • CALPADS Fall I reports (1.17, 1.18 and 8.1)
  • English Learner, Free/Reduced Lunch Program records
    • CELDT or ELPAC scores for EL/RFEP students
    • NSLP or alt. income form for all students reported as FRL
    • Direct Certification reports (3 reports pulled throughout the year)
  • Teacher credentials
  • ASES attendance reports and supporting documentation
  • Attendance records
    • Copy of P2 and all supporting documentation
    • Detail and Summary for testing month
    • Teacher signed verification for testing month

Whenever possible, provide your auditor with electronic documentation to keep everything organized, and try to fulfill their requests in a timely manner to avoid delays; remember, delays now mean you will have to rush during the main audit phase later. If you have any concerns about being able to produce certain documents, share them with your auditor as soon as possible so you can work together toward a solution. Lastly, remember to share major new developments with your auditor as they occur; your auditor will need to know about plans to open a new school or take out new loans, or expectations of new funding sources, as this will impact your school’s financial situation.

Once it’s time for the actual visit, make sure you set aside ample time to meet with the auditors to provide an overview of the school’s operations and review their questions about the school’s policies and procedures. This will set the stage for a smooth and efficient visit.

The pre-audit phase is designed to prepare your school for a successful main audit. Treat your auditor like a true partner; don’t hold back any information, be clear and timely in your communication, be open to suggestions regarding how to improve processes, and ask questions as they come up! And stay tuned for our next blog post about the next phase of the audit cycle, the Main Audit!

Prepare for Your Audit! Steps 1 & 2: Choose an Audit Firm and Engage

By the EdTec Client Management Team 

December 12, 2017

An audit is an official, independent review of your charter school’s financial statements by an approved CPA. An annual audit is required of charters in most states.  

There is much preparation required before the annual audit.  The timeline below breaks up the charter school audit cycle into multiple phases and includes suggested dates. In today’s blog post, we’re going to focus on the first and second phases: Auditor Solicitation, which all schools should ideally start preparing for in September, and Auditor Engagement, which should be completed by April 1. If you’re not there yet, there’s still time – but you should start now!  

Charter schools must select an auditing firm at a publicly noticed board meeting, and contract with the selected audit firm by April 1 of the current fiscal year (e.g. you need to select an audit firm for the fiscal year ending June 30, 2018 by April 1, 2018).  Before this can be done, a charter school’s board must issue a request for proposal (RFP) from auditing firms. You can find sample RFPs for audit services online, or ask your local charter schools association or peers at other charter schools. A school’s letter to auditors should include the school’s legal name, address, and contact person; years of operation of the school; history of prior audits; status of 501c (3) application; fiscal year to be reviewed; enrollment and ADA data for fiscal year to be reviewed; if the school is site-based or independent study; if federal expenditures will exceed $750K; if the school also requests tax filing services.  Remember that you should only reach out to auditors listed on your authorizer’s approved vendor list. You might want to ask peers at other charter schools for auditor recommendations, as this can be helpful advice.   

Once you have proposals in hand, it’s time to bring them to the board for review and voting action. There are a few key qualities that are important for board members to look for in an audit firm.  Preferably, the auditing firm will have experience working with charter schools and understand how they operate; if your school is in its first year of operations, you’ll want to work with a firm that has experience working with first-year charters. An ideal firm will also be responsive to questions and proposal requests, as this is an indication that there will be good communication during the auditing process when pressing questions arise and the school requests feedback and support. It’s also important to select a firm that seems to have a reasonable, fair mentality.  

Many districts and county offices of education require some sort of notification of the selected audit firm, along with cost information and certification that the firm is authorized to conduct school audits, and some may require notification prior to April 1, so be sure to check with your authorizer. And be on the lookout for our upcoming blog post about the third phase of the audit cycle, the Pre-Audit!