By Laurie De Armond
The Government Accountability Office (GAO) released a revised edition of the “Yellow Book” on Generally Accepted Government Auditing Standards this Summer, marking the first update in nearly a decade.
For government auditors at the federal, state, and local level, this new guidance contains several significant changes to everything from independence requirements to addressing waste and abuse. It’s critical that auditors and the organizations they serve review these updates to maintain a focus on the quality of single audits.
At the American Institute of Certified Public Accountants (AICPA) Not-for-Profit Industry Conference, I addressed the attendees on this topic, and offered best practices for sustaining quality audits throughout this time of change.
My top tips for maintaining single audit quality include:
- Bring your “A Team”: For both nonprofits and their auditing firms, it’s critical to engage well-trained individuals who understand government compliance requirements when performing an audit. Failure to do so could leave the organizations and the audit firm at risk.
- Start with the end in mind: Single audits are designed to test internal controls over compliance and compliance itself. To complete these tests effectively, auditors and organizations need to review and document what could go wrong if these controls fail. This will help focus in on critical controls for testing.
- Maintain independence: Government auditing standards independence rules need to be considered, particularly when a firm is also performing non-audit services like the preparation of financial statements, which could be considered a significant independence threat. Be sure to identify if non-audit services are being performed, whether a threat to independence exists, and, if necessary, what the safeguards are relative to those threats.
- Don’t ignore SEFA: The Schedule of Expenditures of Federal Awards (SEFA) is often overlooked in the audit process. It’s imperative to test both the controls and compliance around the SEFA in order to maintain the highest level of audit quality.
- Remember, the devil is in the details: When Uniform Guidance compressed and reduced the compliance requirements, many hailed the changes as a blessing for nonprofits and a step toward lightening the administrative burden. But the reality is, many of those compliance requirements moved into special tests and provisions and still need to be addressed. During the audit, closely examine grant agreements and test controls over compliance for special tests and provisions.
- Document, document, document: Have written documentation every step of the way. You should be able to thoroughly address any questions about the audit, including how you’re reaching conclusions about internal controls and compliance findings, and the impact those findings have on the final recommendations.
With these rules of the road and a commitment to audit quality at the forefront of their work, nonprofit audit practitioners will be well-equipped to navigate the updated GAO guidance.
This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” newsletter (August, 2018). Copyright© 2018 BDO USA, LLP. All rights reserved. www.bdo.com