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All about audits

Kentucky School Advocate

January 2017

By Matt McCarty

Staff writer

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Some school districts will be choosing a new auditor in the upcoming months for their district’s annual audit and, according to certified public accountant Denise Keene (right), it’s important to choose a firm with experience in school district audits.

“If you get an auditor that has absolutely no experience and their staff has no experience, your school district staff will be miserable before the audit is over,” she told board members attending KSBA’s Winter Symposium. Her clinic is a new offering in finance training for board members.

Keene said it is recommended that districts change auditors every five years. When a district is selecting an auditor, it will send out a request for proposals. It is similar to a bid process but, because it is considered to be a professional service, it’s actually a quote that allows the district to consider more than just the cost.

“The RFP should really cover things that you want to know, things that will help you decide which auditing firm is best for your district,” she said. “Ask about their experience, ask about their continuing education, ask about their last peer review.”

Keene said districts can go to the state auditor’s website for reviews of other audits performed by auditors being considered. Districts can also contact the Kentucky Department of Education to ask if the firm has filed previous audit reports on time.

Audits are due to KDE by Nov. 15 of each year and if firms are typically late “you probably don’t want to consider them,” she said.

Auditing contracts are due to KDE in May and are approved in June.

Districts should have an auditor hired prior to May, but Keene recommends having someone hired earlier. “Most years I have all the audit contracts I can handle by the end of March,” she said.

The process
Once an auditor is selected, the firm schedules the time for its work and lets the district know what information it needs. Keene said auditors don’t look at every transaction.

“There’s no way we could do that. We would literally have to live in the district,” she said. “We test transactions and that means there may be some things going on there that you want to know about, that probably I want to know about that I many never see. By testing, we try to hit specific areas each and every year.”

Keene said she encourages board members to be proactive and let the auditor know if there is an area of concern. “We can do some additional tests in that area to see whether or not we really should have a concern and maybe make some recommendations to improve in that area.”

Auditors are required to get a statement from each board member, which is “a statement to attest that you have no knowledge of any conflict of interest or nepotism,” she said.

After an audit is concluded, the auditor holds an exit conference with the district to discuss findings. Keene said if board members are interested in attending, they should let the superintendent know.

“That is an excellent way to understand that report because it is very important and really is a tool that you can use as a board member to better understand how your finances operate and to understand what kind of financial position you’re actually in,” she said.

Fraud management
Keene said auditors are required to ask about fraud and that there are two types of fraud: the misstatement of the financial statements and actual theft from the district.

There isn’t really an incentive to misstate the statements, she said, which means the area of fraud most often seen at the school level is employee theft.

Keene said she sends a questionnaire to board members to determine what fraud risks a district might have.

Among the questions, she asks if the board member has any knowledge of any fraud or suspected fraud affecting the district; if they are aware of any allegations of fraud affecting the district; and what programs and controls the district has established to mitigate specific fraud risks.

The questionnaire is confidential and allows board members to share any concerns they might have.

She said some warning signs that an employee might be attempting fraud are lifestyle changes, behavioral changes or refusal to take vacation or sick leave “because they can’t continue to hide what they’re doing.”