By Mary Taylor, CPA - Ohio Auditor of State
Smaller units of government in Ohio – including many villages, townships, public libraries and other entities with budgets less than $1 million a year – may benefit from important cost savings through a new audit procedure now offered to eligible clients by the Auditor of State’s office.
Any one of the above “cannots” is disqualifying. See Auditor of State Bulletin 2009-012 for complete information.
Financial audits, conducted by my staff or by private-sector audit firms under our review, are required by law for every unit of government in Ohio, including all cities, villages, schools, universities, counties, townships, state agencies, boards and commissions. An independent, transparent audit is a valuable financial-management tool and an essential safeguard against fraud, waste and abuse involving public dollars.
But the conventional audit process also creates a necessary expense for cash-strapped governments in Ohio, at a time when many public officials struggle to balance their budgets and provide basic services for the communities they serve. Knowing this, I am committed to finding ways to make the audit process more efficient – and therefore less expensive – for the clients we serve.
One important cost-reduction strategy we recently introduced involves the use, in appropriate situations, of the audit process known as an Agreed Upon Procedure (AUP). For those governments that qualify and then choose to proceed with this option, an AUP can be an effective, less-costly alternative to a conventional audit.
Late last year, I was pleased to announce a new policy [Auditor of State Bulletin 2009-012] allowing AUPs to be used alternately with conventional financial audits for certain government clients demonstrating a good audit history. In the past, my office has successfully conducted AUPs for some convention/visitors bureaus and certain other small-scale entities in Ohio. Under our new policy, we have significantly expanded the list of those eligible to request an AUP.
AUPs offer a high level of accountability for the client and the community, but because they are less time-consuming, eligible clients will see lower audit costs. It is important, however, to understand the differences between a financial audit and an AUP. For example, in a traditional financial audit, the auditor expresses a formal opinion on the fair presentation of the financial statements, while an AUP results in a less-formal “presentation of findings.” The AUP covers high-risk areas and still ensures financial accountability. If problems appear in the course of conducting an AUP, the client and auditor can make the decision to engage in a conventional financial audit.
Because AUP engagements are limited in scope, they will not be appropriate in every setting and not all clients will be eligible for this type of review. There also may be circumstances in which a client that qualifies for an AUP review will decline this option and choose to continue receiving a conventional financial audit. That is an important feature to note in our new policy: a government agency is in no way required to engage in an AUP.
Only government entities with a good audit history and the ability meet certain other specified requirements will be eligible for this type of audit. For eligible clients and their communities, AUPs offer a high level of accountability. And because of the nature of the work required to complete an AUP engagement, eligible clients will see lower audit costs.
Contact my office if you have any questions about AUPs or related issues. To access Auditor of State bulletins, publications and information regarding this or other government finance issues, visit www.auditor.state.oh.us. We can also be reached by letter, phone or e-mail.
Of course, not every government in Ohio will qualify for the AUP alternative, which is limited to those with a $1 million annual budget or less in addition to other requirements. But public entities of every size can be assured that my staff and I are working to increase audit efficiency – and thus reduce audit costs – for governments of all types and sizes in Ohio. Working with input from statewide organizations representing our various client categories, as well as the Auditor of State’s regional advisory boards, we continue to seek new and innovative efficiencies that help control audit costs without compromising the accountability and transparency that all Ohio citizens – and public officials who serve them – insist upon and deserve.