Question:
One of our districts anticipates a ‘qualified’ audit report this year and is wondering what the repercussions are (they were ‘unqualified’ last year). I know that several of our districts used to receive a qualified audit before they booked their fixed assets. And in our office’s review of districts’ audits we have varying levels of concern over each type of audit report issued and the reason for the designation. Can you please tell me where to find these audit definitions and what are their respective repercussions?Response: Assembly Bill 3627, Chapter 1002, Education Code 41020, outlines the County Office of Education (COE) and District responsibilities with regard to the audit findings identified by the districts’ independent auditors.
The following timelines are what many counties use in accordance with this legislation.
·
December 15 Audit reports, including the corrective action or plan for correction on each finding, shall be submitted to the COE by the districts.·
January 31 On or before this date, the district board shall review at a public meeting the annual audit, any audit finding, recommendations and any description of or plans for correction.·
February 25 The COE will respond to the districts regarding the adequacy of the districts’ audit finding corrections or plans for correction, identifying the areas that require further explanation, corrective action or a plan for correction.·
March 15 Districts must respond, as necessary, to the COE’s request for further explanation or completion of corrective action.·
April 1 School district and ROP governing boards must provide for a 20XX-XX audit by this date and submit certification of auditor selection to the county superintendent of schools. If the district or ROP does not provide for an audit by April 1, the county superintendent of schools must make audit arrangements by May 1 of each fiscal year.·
April 15 The COE will respond in writing to the districts regarding the adequacy of the audit finding corrections or plans for correction, identifying the areas that require further explanation, corrective action or a plan for correction.·
May 15 The COE shall certify to the Superintendent of Public Instruction (SPI) that all district audits were reviewed and corrections were made, except as noted, or an acceptable plan was submitted. The COE shall also identify to the SPI the attendance-related findings that have a fiscal impact on the State.Education Code Section 41020 requires school districts to address audit exceptions identified in the annual district audit report. Each district superintendent is responsible for reviewing the audit exceptions noted in the following areas to determine whether the exceptions have been corrected or a plan of action to resolve corrections has been developed by the district:
• Attendance (code 10000)
• Inventory of Equipment (code 20000)
• Internal Control (code 30000)
• Miscellaneous Issues (code 60000)
Education Code Section 41020(g) (2) provides that, to the extent possible, descriptions of corrections taken (or plans of correction to be taken) shall be incorporated in the audit report for problems identified by the District’s auditors. The descriptions of specific actions to be taken or that have been taken shall not solely consist of general comments such as "will implement"; "accepted the recommendation"; or "will discuss at a later date." County offices should review all district audit reports and:
• Notify districts when audit exception corrective action descriptions in the audit report are not adequate or do not include the specific corrective action taken or planned to be taken, and;
• Follow-up on district audit exceptions related to: attendance, inventory of equipment, internal control, issues and other miscellaneous issues (E.C. Section 41020(i)).
• Beginning in Fiscal Year 2004-05, the county superintendent of schools audit reviews will also include those audit exceptions related to use of instructional materials program funds, teacher mis-assignments pursuant to Section 44258.9, information reported on the school accountability report card required pursuant to Section 33126 and shall determine whether the exceptions are either corrected or an acceptable plan of correction has been developed.
In accordance with Education Code 41020(m), the Superintendent of Public Instruction (SPI) shall be responsible for assuring that school districts have either corrected or developed a plan of correction for any or all of the following:
(a) All federal and state compliance audit exceptions identified in the audit.
(b) Any exceptions the county superintendent certifies as of May 15 that have not been corrected.
(c) Any repeat audit exceptions. In accordance with Education Code Section 410209n), the Controller annually shall select a sampling of county superintendent of schools and perform a follow-up of the audit resolution process of those county offices and report the results of that follow-up to the SPI and the county offices that were reviewed.
As to your specific question, there are four different opinions that can be issued by independent auditors. Auditors must follow Generally Accepted Auditing Standards (GAAS) in issuing an opinion on a report. A qualified opinion suggests that the information provided was limited in scope and/or the organization audited has not maintained GAAP accounting principles. A qualified opinion also advises whoever is reading the document that the information within the audit is not complete or that the accounting methods used by the company do not follow GAAP.
Given this information, the auditor in charge of the questioned report should be able to identify and communicate the specifics as to why a qualified opinion is being issued. That way, the details of why the qualified opinion was issued are known and the COE should then be able to follow up, if it falls to the COE responsibility.
11/21/07
