Auditing Tools

My own first experience with municipal auditing came about as a result of the resignation of our township’s longtime accounting firm.  That first year, I was one of three township residents asked to assume the position of auditor.  In addition to auditing, we received a crash course in the reality of municipal governance.

As a consummate note-taker, I kept a running list of tips and links to help in our task.  I’ve decided to share them online in the hope that someone else might benefit from them.  One caveat, my experience has been auditing a second-class township but auditors in first-class townships and boroughs are welcome to modify and use what they will.  Feel free to share if you have modified them or if you have other helpful documents or tips and I’ll post them for others to use.  We’re all in this together!!

 

Municipal Auditors Quick Start Reference

Legislation re: Municipal Governance in Pennsylvania

1st Class Township Code

  • Auditors specifically: Article X

2nd Class Township Code

PA Sunshine Act

_____________________________________________________

Audit Committee Fast Facts

  • Comprised of 3 elected auditors serving 2, 4, or 6-year terms (need a minimum of 2)
  • Work can be done with a quorum, in this case 2 members
  • Vacancies are filled by governing body
  • Must sign an oath of office in front of a notary, district justice, or judge
  • Compensation is mandated by PA Township Code
    • $10/hour for 2nd class townships
      • For populations of 10,000 or less: max of $1,000
      • For populations over 10,000: max of $2,000
  • One time prior to your first audit
    • The audit committee chairman needs to create an account for the DCED website. Then download and print the municipal statistics e-filer authorization form, have it signed by chairman of supervisors and sealed with municipality’s seal, and fax it to the DCED at 717-783-1402.
    • Once approved, you will receive a confirmation email
    • The DCED website also has a tutorial available

_____________________________________________________

Audit Timeline

Prior to meeting:

Day after Supervisor’s organizational meeting in January:

  • Conduct Auditors organizational meeting

January-March:

  • Perform Audit

When audit done:

By April 1:

  • Submit audit online to DCED

_____________________________________________________

THE AUDITORS’ ORGANIZATIONAL MEETING

  • Must be the day after the township’s organizational meeting which is the 1st Monday in January unless it’s a holiday then it’s held the next day
  • Must be advertised in newspaper, per Sunshine Law, Section 707(c)
  • Choose chair of audit committee, vice-chair, and secretary
  • Decide on working supervisor salary for current year
    • Can get survey of salaries from PSATS 717-763-0930
  • Set next meeting date and time

_____________________________________________________

THE AUDIT

Collect necessary documents from Treasurer, Tax Collector
(Chair of auditors may need to send a letter to the secretary/treasurer asking for all pertinent documents.  Not all of these will be relevant to your municipality.)

  • Year-end Revenue and Expenditure Report for each fund (Sometimes referred to as Profit and Loss)
  • Year-end Balance Sheet for each fund
  • General ledger (transaction detail) for each fund
  • Treasurer’s and tax collector’s bonds (verify these are on file and up to date)
  • Copies of tax levies (ordinance or resolution)
  • Copy of official/amended budget
  • Official minute book (kept locked up so ask for this the same day you plan on reviewing it)
  • Copy of all ordinances or resolutions
  • Copy of chart of accounts (or use one in Tab XII of student handbook)
    • To verify correct number classification in accounts
      • For example: building permits recorded as 362.41, Marcellus Shale Royalties recorded as 355.09
  • Monthly bank reconciliations
  • Cancelled checks
  • Bank statements
  • Record of all investment transactions for each fund
  • Insurance records- insurers, coverage, claims, losses, and premium costs
  • Inventory of fixed assets (To cross check with insurance records)
  • Compensation verification-e.g. resolutions, collective bargaining agreements, payroll records, salary ordinances
  • Payroll tax records-payments to local, state, and federal agencies
  • Employee time sheets, leave schedules, overtime records
  • New borrowing, debt, and repayment schedules
  • Lease purchase agreements for equipment
  • Copies of Legal Advertisements, bid documents, specifications, and contracts
  • Tax anticipation note paperwork
  • Paid invoices, purchase orders, vouchers, and receiving slips
  • Petty cash logs, receipts
  • Treasurer and other fidelity bonds
  • Reconciliation of real estate tax duplicates
  • Payments for professional services- legal, engineering, etc
  • Act 13 Use of funds report
  • Audit trails available on Quickbooks:
    (Click: Reports, Accountant & Taxes, Audit Trail)

    • Payroll flow chart
    • Permits and fee flow chart
    • Real estate tax flow chart

Financial audit

  • Develop written plan for audit
  • Divide work fairly and efficiently (e.g. payroll audit, tax audit, etc)
  • Send letters to banks to verify account balances and to township attorney regarding litigation that might impact finances
  • Compare bank statement, transaction detail printout, and receipts/checks for each bank account.
  • Compare monthly expenditures and revenue with transaction detail printout for each account.
  • Reconcile letter received from bank(s) regarding ending balances
  • Produce legal notice (include all funds)
    • Jan 1 balance + revenues +other financing sources = total available minus expenditures + other financing uses = ending cash/investments balance Dec 31
    • Here’s the sample legal notice from the Auditor’s Handbook as a pdf.

Tax Audit (Act 50: Section 26B)

  • Evaluate process (issuing of tax bills, handling of payments, deposit by 10th of each month, exoneration & settlement, efficiency of collection goal of 90% collected, if not put recommendations in findings, report sent to DCED)
  • Tax duplicates (secretary/treasurer also has copy)
  • Send tax confirmation letter, if desired
  • Review tax rate levy, DCED monthly tax collector form, exoneration lists, calculation of refunds, meeting minutes (if pertinent), taxes refunded, special tax levies and assessments
  • Record Status of Tax Duplicate as of 2/10/XX
  • Property tax duplicate + interim tax duplicate +penalties -discounts x levied tax mils =total to be accounted for
  • Taxes collected + discounts + exonerations + returns to county = total to be accounted for

Payroll audit

  • Compare cancelled checks with payroll fund, time sheets
  • Compare individual earnings with authorization of employment and rate of pay and W-4 or W-9 withholding exemption
  • Verify changes in rates, employment, and dismissal of personnel by reference to official minutes
  • Review payroll taxes
  • Verify payments made to pension funds, health insurance, or other agencies for payroll deductions

Compliance audit

  • Verification of internal controls:
    • E.g. Cash receipts received, recorded, and reconciled by different people if possible. If not, due to limited number of employees, this must be noted in the management letter.
  • Verify access to assets
  • Review Treasurer’s and Tax Collector’s Bonds (verify that they are current)
  • Using minute book, verify that employment changes, bills, and major expenditures were approved by governing body
  • Verify State Liquid Fuels funds used only for approved expenditures (streets, bridges, storm water, anything related to streets)
  • Verify that special taxes levied are used for their purpose
  • Audit of outside collectors, e.g. tax collector
  • Audit of District Justice or verification of audit performed by otherS, e.g. county

Online Audit Submission to DCED

  • All information must be entered into DCED website
  • If desired, print paper copy of audit from DCED website.
  • E-filing works from Microsoft Edge, Internet Explorer (9 or later), or Google Chrome only (as of November 2017 tutorial)
  • If you reach a red flag, you must address it before submitting. If you get a yellow one, it is enough to explain it in the attached notes and move on

End product:

  • Work papers (kept but not usually included with audit report)
  • Audit report to municipality
    • Management letter (sample p. 31 student handbook)
      • Include findings (condition, criteria, cause, effect, recommendation)
    • Legal notice
    • Printed copy of online audit