Bowman's Blog

The Annual Audit:  Five Keys for Success

Posted by Maryann Holloway, CPA, RMA, PSA, Senior Manager

Posted: Aug 02, 2017

Holloway.jpgThe fiscal year has ended and we have reached that time of year when each charter school in the State of New Jersey will undergo an annual audit as required by New Jersey School Statutes.  For some charter schools, this audit may also include a state and/or federal single audit.  For newly established charter schools, this will be your first audit after the completion of your first operating school year.  Does this make you stressed?  It does not have to be a stressful situation.  Your independent auditor can be a resource in your success.  It is never too late to make changes that improve your operations and the audit process.  Here are some keys for success.

Develop written documentation of your internal controls and review it periodically

In accordance with the Committee of Sponsoring Organizations of the Treadway Commission (COSO), information and communication are an important element of an organization’s internal control structure.  A successfully functioning system of internal controls is one where all persons involved in carrying out the controls know the controls and why they are necessary.  Here is a summary of the elements of internal control defined by COSO with a focus on a charter school:

Control Environment – The charter school demonstrates a commitment to integrity and ethical values.  The Board of Trustees demonstrates independence from management and exercises oversight of the development and performance of internal control.  Management establishes, with board oversight, structures, reporting lines, and appropriate authority and responsibilities in the pursuit of objectives.  The charter school demonstrates commitment to attract, develop, and retain competent individuals in alignment with objectives.  Individuals are held accountable for their internal control responsibilities in the pursuit of objectives.

Risk Assessment – The charter school specifies objectives with sufficient clarity to enable the identification and assessment of risk relating to the specific objectives.  It identifies risks to the achievement of the charter school’s objectives across the entity and analyzes risks as a basis for determining how the risks should be managed.  The potential for fraud is considered in assessing risks to the achievement of objectives.  The charter school identifies and assesses changes that could have a significant influence on the system of internal control.

Control Activities – The charter school selects and develops control activities that contribute to the mitigation of risks to the achievement of objectives to acceptable levels.  It selects and develops general control activities over technology to support the achievement of objectives.  Control activities are deployed through policies that establish what is expected and procedures that put policies into place.

Information & Communication – The charter school obtains or generates and uses relevant, quality information to support the functioning of internal control.  Information, including objectives and responsibilities for internal control, necessary to support the functioning of internal control is internally communicated.  The charter school communicates with external parties regarding matters affecting the functioning of internal control.

Monitoring Activities – The charter school selects, develops, and performs ongoing and/or separate evaluations to ascertain whether the components of internal control are present and functioning.  Internal control deficiencies are evaluated and communicated in a timely manner to those parties responsible for taking corrective action, including senior management and the board, as appropriate.

The above elements were abstracted from a PowerPoint presentation entitled Internal Control-Integrated  Framework, © May 2013, Committee of Sponsoring Organizations of the Treadway Commission (COSO).  All rights reserved.  Used with permission.  More information can be found on COSO’s website https://www.coso.org/Pages/guidance.aspx

Download and review the New Jersey Department of Education’s publication, Financial Accounting for New Jersey School Districts, Charter Schools and Renaissance School Projects

This audit program is issued annually by the New Jersey Department of Education and is available on their website at http://www.state.nj.us/education/finance/fp/audit/.  Although the information contained is an audit program, it is not just for use by the independent auditor.  There is a significant amount of relevant information to help your charter school be successful.

Understand compliance requirements

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Individuals assigned, in the charter school, the responsibility to implement and monitor compliance with statutory, federal, and state laws should understand the requirements.  Have members of your staff attend important seminars, review documentation available online, and ask questions.  Here are some online resources:

Compliance supplements for the commonly received New Jersey grants and state aid for schools can be found with the audit program (link above)

New Jersey Department of Education Administrative Code and New Jersey Statutes Annotated:
http://www.state.nj.us/education/code/

New Jersey Department of Education’s Office of Grants Management webpage:
http://www.state.nj.us/education/grants/

Electronic Code of Federal Regulations - Uniform Guidance:
https://www.ecfr.gov/cgi-bin/text-idx?node=2:1.1.2.2.1&rgn=div5

Navigating the Uniform Grant Guidance, a Guide for New Jersey School Districts:
http://www.state.nj.us/education/grants/ugg/NavigatingUGG.pdf

New Jersey Circular OMB 15-08:
http://www.state.nj.us/infobank/circular/cir1508_omb.pdf

Receive and distribute important communications from the State Department of Education (NJDOE)

The NJDOE Broadcasts are available online and are searchable by key word or by target audience at this link https://homeroom5.doe.state.nj.us/broadcasts/

Communicate with your independent auditor throughout the fiscal year

Chances are your independent auditor has several years of experience serving New Jersey School Districts and, specifically, Charter Schools.  They should be able to answer your questions or point you in the right direction to find the answers you need.  Let your independent auditor be another key for your success.