Current through Register Vol. 39, No. 6, September 16, 2024
(a) The Secretary
may promulgate a standard audit contract designed to include the specific
requirements in Paragraph (c) of this Rule. The Secretary may revise the
standard audit contract provided that the contract continues to include the
requirements of this Section. The requirements may be included in the contract
either specifically or by reference to this Section.
(b) Government units and their independent
auditors may submit contracts on their own forms provided that the form
includes all requirements, either specifically or by reference, in Paragraph
(c) of this Rule.
(c) The following
requirements and conditions shall be included in all contracts for government
units:
(1) The scope of the audit shall
include all funds and ledgers of the government unit, and the requirement that
the audit shall be conducted in accordance with generally accepted auditing
standards and shall include such tests of the accounting records and such other
procedures (including direct confirmation of tax, utility and other
receivables) as are considered by the auditor to be necessary in the
circumstances. Exceptions to the scope of the audit may be made only by
specific approval of the Secretary or a deputy secretary and only for reasons
that are explained as to the circumstances of the particular
situation.
(2) The audit shall
include a review of the internal control system of the government unit as
provided by generally accepted auditing standards. The auditor shall forward a
management letter to the government unit, detailing the auditor's findings and
recommendations for improvement. The auditor shall forward a copy of the
management letter to the Secretary.
(3) All audit engagement terms shall be
stated, and all audit engagement fees shall be stated and show the amounts and
calculations necessary to compute the final fee.
(4) The auditor shall, after completion of
his or her examination, submit to the governing body a report of the audit with
as many copies as requested in the contract. The report shall include all funds
and ledgers included in the scope of the audit, and an expression of opinion on
the financial statements included therein. If the expression of opinion is in
any way modified or if an opinion is disclaimed or not included for any reason,
the reason therefor shall be included in the report of audit. Copies of the
audit report and any special reports issued as a result of the audit engagement
shall be transmitted forthwith to the Secretary.
(5) The auditor shall present the audited
financial statements including any compliance reports to the government unit's
governing body or audit committee in an official meeting in open session as
soon as the audited financial statements are available but not later than 45
days after the submission of the audit report to the Secretary. The auditor's
presentation to the government unit's governing body or audit committee shall
include:
(A) the description of each finding,
including all material weaknesses and significant deficiencies, as found by the
auditor, and any other issues related to the internal controls or fiscal health
of the government unit as disclosed in the management letter, the Single Audit
or Yellow Book reports, or any other communications from the auditor regarding
internal controls as required by current auditing standards set by the
Accounting Standards Board or its successor;
(B) the status of the prior year audit
findings;
(C) the values of
Financial Performance Indicators based on information presented in the audited
financial statements; and
(D)
notification to the governing body that the governing body shall develop a
"Response to the Auditor's Findings, Recommendations, and Fiscal Matters," if
required under Rule .0508 of this Section.
The Secretary shall verify auditors' compliance with the
presentation requirement of Subparagraph (c)(5) of this Rule.
(6) Information based on the
audited financial statements shall be submitted to the Secretary for the
purpose of identifying Financial Performance Indicators and Financial
Performance Indicators of Concern.
(7) The auditor shall notify the governing
body and the Secretary if circumstances disclosed during the audit call for an
expanded scope of work by the auditor beyond that indicated by the auditor's
audit planning and risk assessment.
(8) No agreement(s) relating to the audit
engagement but not attached to and referenced in the audit contract shall be
enforceable by any party to said agreement(s).
(d) Form LGC-205 (standard audit contract)
shall be provided for the convenience of those auditors and government units
who wish to use the form.
(e) For
purposes of this Section, the following definitions apply:
(1) "Financial Performance Indicators" are
values derived from information included in the audited financial statements
that assist the Secretary in improving the comparability of reporting a given
government unit's financial condition and financial performance. These criteria
include adequacy of a government unit's fund balance; liquidity or the ability
to meet short-term obligations; solvency or the ability to meet long-term
obligations; debt service coverage; leverage; and such other indicators of
financial condition and financial performance as the Secretary may
establish.
(2) "Financial
Performance Indicators of Concern" are Financial Performance Indicators with
values which may indicate inadequate financial conditions or fiscal management
concerns within the government unit.
