Ensuring compliance, accurate reporting, and effective fund management are critical to maintaining your school district’s financial health and accountability. Here, we outline some frequently encountered audit issues and provide guidance on how to address them effectively.
Key Areas of Focus:
1. Audit Submission Deadlines and Responsibilities. Timely audit submission is crucial. Audits are typically required to be submitted to the relevant state or federal education departments by a specified deadline each year. The deadline for Michigan school districts is November 1. Missing these deadlines can result in penalties, such as the withholding of state aid payments. To avoid delays, districts should confirm that their auditors have submitted the audit on time and keep track of submission receipts.
2. Understanding Financial Reports. Accurate interpretation of financial reports, such as the Grant Auditor Report (GAR) and Processed Allocation Logs (PAL reports), is essential. These reports track grants and commodity entitlements. Your auditor must verify that final statements are accurately reported on the Schedule of Expenditures of Federal Awards (SEFA) and ensure compliance with federal guidelines.
3. Managing Food Service Fund Balances. Proper management of food service fund balances is important. Excess fund balances should be monitored and managed according to regulatory requirements. The allowable fund balance can be calculated by subtracting capital outlay from total program costs, dividing by nine months, and multiplying by three months. Regular review of the fund balance can help identify and address any potential issues early. If the fund balance is over the allowable limit at the end of the fiscal year, the district can work with the Michigan Department of Education (MDE) Nutritional Services division on a spend-down plan.
4. Compliance with the Davis-Bacon Act for Federal Funds. The Davis-Bacon Act requires that prevailing wage rates be paid for contracts over $2,000 involving laborers and mechanics. This includes payments for minor remodeling, renovation or construction contracts. Compliance with this act is especially relevant for projects funded by federal programs like the Elementary and Secondary School Emergency Relief (ESSER) funds. Your auditor must ensure that contracts include required clauses and that contractors submit certified payrolls weekly. Noncompliance can lead to significant deficiencies or material weaknesses and may necessitate repayment of funds.
5. Reporting Fraud, Illegal Acts, and Abuse. Your auditor is obligated to report any known or likely fraud, illegal acts, or violations that materially affect government funds’ financial statements. This includes notifying relevant governance bodies and external regulatory agencies. Effective and timely reporting helps maintain transparency and accountability within the education sector.
6. Compliance with the Uniform Budgeting and Accounting Act. Adhering to the Uniform Budgeting and Accounting Act (UBAA), or its equivalent in various jurisdictions, is mandatory. School districts are required to approve budgets for general funds and all special revenue funds. The original budget must be approved prior to the beginning of the fiscal year (7/1), while the final amended budget must be approved prior to the end of the fiscal year (6/30). Any variance that impacts the budgeted ending fund balance can trigger follow-up actions from oversight bodies. Your auditor should review final approved budgets, identify violations, and assess the severity of noncompliance, ranging from minor issues to material weaknesses.
7. Importance of Corrective Action Plans. Corrective Action Plans (CAPs) are essential for addressing audit findings. According to the Uniform Guidance, CAPs should be separate documents detailing the planned actions to address each finding, the anticipated completion dates, and the responsible contact persons. Reviewing prior CAPs ensures that progress is being made and corrections are implemented within the appropriate timeline.
Take a Proactive Approach
Educational institutions can maintain financial integrity and transparency by ensuring timely submissions, accurate reporting, proper fund management, and strict compliance with regulations. Regular audits and corrective actions help meet regulatory requirements and contribute to the overall effectiveness and trustworthiness of your school district’s financial management.