External Audit , Questions and Answers
Last Updated August 25, 2006
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Audits of Financial Statements
1. BOCES and School districts are already required to have an external (or independent) audit of the financial statements. What is new?
The Education Law already requires each BOCES and school district with eight or more teachers to have an annual audit of their records. The new law changes the way the external auditors are selected, the terms the auditors may serve, the due date of the annual audit report, and the reporting requirements for the external auditors.
2. Who is required to perform the external audit?
BOCES and school district management and staff are responsible for engaging a qualified and competent independent certified public accountant or a public accountant to perform the annual audit of the financial statements.
3. Are there minimum qualifications the external auditor should have?
Yes. The external auditor should:
- be registered and licensed to practice public accountancy in New York State,
- meet the qualifications requirement including the completion of at least 80 hours of continuing professional education every two years,
- have an appropriate internal quality control system in place and undergo an external quality review at least once every three years,
- possess experience in audits of governmental entities and federal Single Audits,
- meet government auditing standards,
- possess sufficient staff to complete the audit in a timely manner, and
- be independent in fact and appearance.
4. The new law has a request for proposals requirement (“RFP”) for the procurement of external audit services. When must BOCES and districts conduct their first RFP?
Beginning July 1, 2005, every BOCES and school district outside New York City that is required to complete an audit must use a competitive request for proposals (RFP) process to hire external auditors for the annual audit.
- If a BOCES or school district had an existing multi-year engagement prior to the effective date of the legislation (July 19, 2005), does it need to use an RFP to secure audit services?
If a BOCES or school district had an existing multi-year engagement (no more than five years), it may continue to sign contracts for the duration of the engagement without issuing an RFP. After expiration of this engagement period, BOCES and school districts must issue an RFP for independent audit services. Districts without an existing multi-year engagement must issue an RFP before signing any new contract.
6. In addition to the RFP, does a BOCES or school district need to change audit firms or partners within a firm every five years?
No. A district may permit an auditor that is engaged under an existing contract to submit a proposal and can award a contract to that auditor. However, boards should consider the appropriateness of changing the audit firm or partner to help ensure independence and provide a fresh perspective.
7. Are sample RFPs available for the audit of the financial statements?
Yes. NYSASBO and SED have sample RFPs on their websites, and the Office of the State Comptroller (OSC) has general guidance for RFPs on its website.
8. Is there guidance available concerning the audit of the financial statements?
Yes. There is a variety of information available from different sources. The Department, in conjunction with the OSC and some members of the Public School Accounting Committee of the New York State Society of CPAs annually publishes a Reference Manual for Audits of School Districts. The Manual provides information for board members, school officials, and CPAs regarding the requirements for the audits of the financial statements as well as current issues with school district finances. It is available at http://www.p12.nysed.gov/mgtserv/accounting.shtml.
9. Who must receive a copy of the audit of the financial statements?
A draft independent audit report must be provided to the audit committee. Final copies of the audit must be provided directly to the board of education by the independent auditing firm. The audit report must also be filed with the Department by October 15.
10. Was the deadline to file the audit report with SED extended?
Yes. The audit report must be filed with the Commissioner of Education by October 15 following the fiscal year end. The prior due date was October 1.
11. When does the change in the audit filing date take effect?
The extension of the audit filing date with the Department from October 1 to October 15 is effective for audits of district and BOCES financial statements for the year ending June 30, 2005.
12. How must a board respond to the audit report?
A corrective action plan must be prepared in response to any finding in an independent audit or management letter. The plan must be prepared within 90 days of receipt of the audit report or letter and filed with the Department and OSC. To the extent practicable, the board must begin implementation of the corrective action plan as soon as possible and prior to the end of the next fiscal year.
13. Are BOCES and districts required to make the report available for inspection?
Yes. Section 35 of the General Municipal Law requires that the district clerk give public notice that the audit report and the management letter are available for public inspection.