Annual Financial Audit Reports
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Once the books are closed for the school year, an independent auditor must conduct a final audit of the district’s financial records. The report must be presented at a public meeting along with any audit exceptions, recommendations or findings identified and a description of the actions that will be taken to address them. The audit provides important information with which to evaluate a district’s operations and its future financial health. Our office is responsible for reviewing the district’s audit, including audit exceptions, to ensure that adequate corrective plans have been developed.
Audit Report Filing
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In accordance with EC 41020(h), school districts and joint powers agencies (SELPA) are required to file the annual financial audit report for the preceding fiscal year with the Santa Barbara County Education Office (SBCEO), the State Controller’s Office (SCO), and the California Department of Education (CDE) by Dec. 15.
In accordance with EC 47605(m), charter schools are required to submit a copy of their annual financial audit report for the preceding fiscal year to the chartering authority, SCO, CDE, and SBCEO by Dec. 15, of each year. This subdivision does not apply if the audit of the charter school is encompassed in the audit of the chartering entity pursuant to EC 41020 (EC 47605.6(m)).
Audit Extension Request: An extension of the annual audit report filing deadline may be granted only with the consent of the CDE and the SCO under extraordinary circumstances.
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Timeline/Procedures for Extension Request
Requests for an extension of the audit report filing deadline must be submitted for processing to SBAS no later than Dec. 1. To request an extension, please complete an Audit Extension Request Form and attach a letter stating the circumstances that require an extension. The letter should be addressed to Denice Cora, SBAS, and signed by the district's superintendent. We will obtain the required county signature and transmit your request directly to the SCO and CDE by Dec. 15.
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Extraordinary Circumstances
Extensions are only granted where circumstances leading to the delay of the report are considered extraordinary. Extension requests have been denied in prior years when documents were not received by the SCO and CDE by Dec. 15 or when the reason provided for the extension was not found to be extraordinary.
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Charters
SBAS does not process audit extension requests for charter schools. There is no provision in law for an extension of a charter school audit as there is a school district. Since the State Controller’s Office (SCO) does not grant extensions for charter school audits, the extension must be obtained through the chartering entity (sponsoring school district), and the chartering entity should notify SBCEO, SCO and CDE of the extension.
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Failure to Submit
If an annual audit report is not filed on time, the county superintendent may investigate the cause of the delay and take action to obtain the annual audit report in the most effective manner.
- Audit Extension (EC 41020.2(a)(1)): Granting an extension for the audit, after consultation with the district’s governing board and the auditors, and with the consent of the SCO and the SPI. The CDE’s guidelines state that extensions will be granted only under extraordinary circumstances. The request must be received by both the SCO and the CDE no later than Dec. 15. The SCO and CDE will review the request and accompanying justification and provide notification as to whether the extension is granted or denied.
- Contracting with Another Firm (EC 41020.2(a)(2)): Contracting with another audit firm to complete the audit, after consultation with the district’s governing board, the auditors, and the SCO. If the county superintendent contracts with another firm, the county superintendent should, to the extent possible, help the district initiate action to avoid payment to the original contracted audit firm.
- SCO Investigation (EC 41020.2(a)(3)): Requesting that the SCO investigate the situation and initiate action.
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Penalties for Delinquent Audit Reports
If a report is delinquent, the superintendent of public instruction has the authority to withhold payment of any stipend, expenses, or salaries to the superintendent or members of the governing board until the delinquent reports have been submitted. (EC 42129)
Forms & Templates
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Audit Extension Request (Due Dec. 1)
Auditor Selection Form (Due Apr. 1)
Charter School Auditor Selection Form (Due Apr. 1)
Financial Audit Certification (Due Jan. 31)
Charter School Audit Review (Due Jan. 31)
Information
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Audit Opinion
When an auditor issues a report, there are four ways they can express an opinion on the audited financial statements: unqualified, qualified, disclaimer, and adverse (see below). The auditor is required to state in the opinion whether generally accepted accounting principles (GAAP) have been followed and applied consistently.
- Unmodified opinion — this is the desired opinion, and means there are no reservations about the financial statements. This opinion is often called a clean opinion, meaning that the financial statements are presented fairly.
- Qualified opinion — this means that the auditor has found some exception(s) to the accounting applications, or that misstatements, individually or in the aggregate, are material to the financial statements but not pervasive.
- Adverse opinion — this means that the auditor, having obtained sufficient audit evidence, concludes that misstatements, individually or in the aggregate, are both material to the financial statements and pervasive. The financial statements do not fairly present the financial position, results of operations, and changes in financial position, and thus are not in conformity to GAAP.
- Disclaimer of opinion — this means that the auditor was unable to obtain sufficient appropriate audit evidence on which to base an opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive. The auditor is not allowing their name to be associated with financial statements that could not be examined in accordance with GAAP.
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Audit Exit Conference
The purpose of an exit conference with your auditor is to discuss the results of the audit before the report is issued.
- Type of opinion
- Management discussion and Analysis
- Audit Adjustments
- Get transaction detail from auditor (adjusting JE)
- Audit Findings
- Does auditor have all of the information?
- Consult with auditor to develop a sufficient plan
- Obtain/review/understand auditor prepared schedules, entries, etc.
- Other concerns/comments/non-standard financial statement notes
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Audit Adjustments
District Board Review
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The governing board of each school district shall review the following at a public meeting: 1) the annual audit report, 2) audit exceptions, recommendations, or findings identified by the auditor, (including any management letters issued, and 3) a detailed written description of actions that have been (or will be) taken to correct audit exceptions and management letter issues, if applicable by Jan. 31 (EC 41020.3(a)). Review of the annual audit report shall be placed on the board agenda of the meeting pursuant to EC §35145.
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Annual Financial Audit Certification
Please submit the Financial Audit Certification to evidence the board’s review and acceptance of the audit report along with the detailed corrective plans for each exception identified.
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Charter School Audit Certification
The sponsoring agency should review the charter school’s annual financial audit report to assess the fiscal condition of the charter school, to monitor compliance with rules and regulations, and to ensure that sufficient policies and procedures are employed.
If the charter school has engaged an auditor to issue a separate independent audit, please complete the Charter School Audit Review for each charter school you sponsor by Dec. 15. If the charter school is included in the district’s audit report, you do not need to complete a certification.
Corrective Actions
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Our office reviews the audit exceptions in the annual LEA audit report along with any supplemental information presented to the board and determines whether each audit exception has been corrected or whether the LEA has developed an acceptable plan of correction. If a description of the correction or the plan of correction has not been provided as part of the audit, or is not adequate, our office will notify the LEA and request the governing board to provide additional information by Mar. 15 pursuant to EC 41020(j)(2).
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Audit Adjustments
Financial information presented in the audit report may differ from the information reported in the district’s Unaudited Actuals. These differences are presented as a schedule in the audit report, Reconciliation of Annual Financial and Budget Report with Audited Financial Statements.
Reconciling items identified for each fund must be posted in the district’s financial accounting records to ensure that the current year beginning balances are correctly stated.
In order to post the district’s audit adjustment, the district will need to identify the specific revenue, expenditure, or balance sheet accounts that require adjustment. Please contact your auditor to obtain this information if it was not provided at the time of the auditor’s exit conference. Once you have this coding information, please contact our office if you would like assistance preparing the adjusting journal entries.
Audit adjustments should be posted in the Escape financial system by each district no later than Jan. 30. This will ensure that the adjusted beginning fund balances are correctly stated in preparation for the Second Interim Budget.
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Audit Exceptions
Corrective plans must be prepared for all audit exceptions. The district’s external auditor can provide recommendations for resolution of your findings. District financial advisors are also available to assist with developing comprehensive corrective plans for any findings identified in the annual financial audit and management letter.
A corrective plan is a detailed, action-oriented procedure that will be implemented to correct the audit finding and resolve the underlying cause of the condition. If properly developed, a corrective plan will prevent future findings and promote a strong, cost-effective system of internal controls. Well-developed procedures, coupled with strong internal controls, reduce financial risks to the district and promote compliance with applicable rules, regulations, and policies.
The district’s response to the audit finding should include the following components:
- finding number and title,
- a detailed description stating who, what, when, and how the particular finding will be corrected,
- implementation timeline or date of completion,
- titles of persons responsible for implementing the corrective plan, and
- evidence of implementation (i.e., board minutes, amended reports, revised procedures, agendas, staff training, etc.), if applicable.
When preparing corrective plans, it is important that the district provide complete and detailed information. A corrective action should include:
- What process and controls will be put in place to prevent this from occurring?
- Who is accountable to perform/authorize/oversee this process?
- When and how frequently is this process/function performed?
- Where is this process documented and where are supporting records maintained?
- How is this process documented/performed/reviewed?
To the extent possible, comprehensive corrective action plans should be included in your audit report. Plans should never include general comments such as “will implement,” “accepted the auditor’s recommendation,” or “will discuss at a later date.” If inadequate explanations are provided, EC 41020(j)(3) requires the district resubmit to our office that portion of its response that is not adequate.
Implement new procedures as soon as possible and prepare and file amended reports promptlly. It is important that the district continue to monitor implementation and evaluate effectiveness.
Audit Contract
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EC 41020(b)(3) requires that LEAs file their annual financial audit contracts for the upcoming fiscal year with our office by Apr. 1. To file your audit contract, please complete the Auditor Selection Form or Charter School Auditor Selection Form and submit to SBAS along with a copy of your LEA’s current audit contract. If the governing board of an LEA is unable to make satisfactory arrangements for the annual financial audit prior to Apr. 1, the Education Code requires that our office provide for the audit and charge the district.
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Auditor Rotation Requirement
LEAs are required to comply with certain guidelines and limits with respect to the length of time an audit firm and/or audit partner can provide annual audit services. Specifically, EC 41020(f)(2) states the following:
"Except as provided in subdivision (d) of Section 41320.1, it is unlawful for a public accounting firm to provide audit services to a local educational agency if the lead audit partner, or coordinating audit partner, having primary responsibility for the audit, or the audit partner responsible for reviewing the audit, has performed audit services for that local education agency in each of the six previous fiscal years. The Education Audits Appeal Panel may waive this requirement if the panel finds that no otherwise eligible auditor is available to perform the audit."
We recommend that LEAs check with their audit firm to ensure that the firm is in compliance with the rules concerning auditor rotation.
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Required Audit Provisions
All audit contracts must contain the following provision:
"A provision to withhold 10 percent of the audit fee until the [state] controller certifies that the audit report conforms to the reporting provisions of subdivision (a) of Section 14503." (EC 14505(a))
In addition, all multi-year audit contracts must contain the following:
"A provision to withhold 50 percent of the audit fee for any subsequent year of a multiyear contract if the prior year’s audit report was not certified as conforming to reporting provisions of subdivision (a) of Section 14503. This provision shall include a statement that a multiyear contract will be null and void if a firm or individual is declared ineligible pursuant to subdivision (c) of Section 41020.5. The amount withheld is not payable unless payment is ordered by the California Board of Accountancy or the audit report for that subsequent year is certified by the Controller as conforming to reporting provisions of subdivision (a) of Section 14503." (EC 14505(b))
