Financial statement audits are crucial to any organization’s financial health, and government entities are no exception. A financial statement audit provides an independent assessment of an organization’s financial statements, which in turn ensures transparency, accountability, and a strong foundation for future planning. Preparation is key to ensuring a smooth audit process and avoiding delays. Here are some ways municipalities can prepare for a financial statement audit.
Create an audit committee.
An audit committee, made up of members of the governing body, oversees the audit process. The committee acts as the primary point of contact between the auditor, the governing board, and the appropriate staff or departments. The committee also reviews audit findings and assists in recommendations for improvement. The Government Finance Officers Association (GFOA) makes certain recommendations for the establishment of audit committees, which can be found under the “Best Practices” section of their website.
Know the regulations and requirements.
The audit committee should be familiar with the various regulations governing financial reporting for municipalities. The Generally Accepted Accounting Principles (GAAP) and Governmental Accounting Standards Board (GASB) guidelines lay out the rules for financial reporting for government entities. This guidance is frequently updated, so municipalities must stay up to date with the latest updates and revisions to these standards.
Understand the audit process.
The audit committee should understand the scope of the audit (what will be assessed), the timeline, and the roles and responsibilities of everyone involved. The audit committee should also understand that audit-ready means that all supporting documentation should reconcile to the trial balance before the auditor’s review. The auditor’s role is to verify accuracy, not to make adjustments. Any necessary corrections should be identified and addressed before the audit begins to ensure a smooth and efficient process.
Gather all necessary documentation.
The municipality must request, collect, and organize documentation and information from the appropriate departments and staff, per the audit requirements. This includes general ledgers, detailed schedules of account balances, bank statements, invoices, receipts, payroll records, purchase orders, contracts, and other financial documents. The documentation should be easily accessible for the auditor, and all financial records should be reviewed for accuracy prior to an audit.
Review internal controls.
Regular internal control assessments help to strengthen the mechanisms for preventing fraud and abuse within an organization. Internal controls include procedures for authorization, record keeping, reconciliations, and auditing. These processes must be periodically reviewed to ensure that they are achieving their objectives in preventing risk to the municipality.
Review prior year’s audit findings.
Ensure that corrective actions have been taken for any deficiencies identified in the prior year’s audit. This will not only reduce the likelihood of repeated findings but also demonstrate your commitment to improving your financial management practices.
Communicate with your auditor and prepare for questions.
It’s important to keep an open line of communication with your auditor, maintaining transparency throughout the audit process. Make sure you disclose any changes to your financial systems or operations. Be prepared to answer questions regarding your municipality’s financial procedures and processes, internal controls, documentation, operations, and personnel.
A financial statement audit can be a daunting and sometimes stressful event, but through preparation, the opportunity for error and disorganization can be reduced. Municipalities can follow the guidelines above to ensure the audit process runs as smoothly and efficiently as possible. If you have any questions about the audit process for municipalities—or if you need any other audit, accounting, tax, or advisory support, please know RBT CPAs is here for you. We’ve been proudly serving municipalities, businesses, non-profits, and individuals in the Hudson Valley for over 50 years. Please don’t hesitate to give us a call and find out how we can be Remarkably Better Together.
