Interim Audit Procedures: Why We Perform Them and What to Do

While each firm has their own methods, of course, commonly, interim procedures will be consistent from firm to firm. With this article, we’ll discuss generally what to expect, why we perform the procedures we do, and most importantly, how you can plan ahead.

As auditors, we feel as though we just completed the fiscal year (FY) 2021 audit and now we’re beginning to prepare for the FY 2022 interim audit. At times, it may seem as though the audit process is more of an ongoing process, and in many ways it is. Depending on how long you (management) have been with the District, you may be very familiar with the audit process, or it may be your first year in a position to handle your financial statement audit. While each firm has their own methods, of course, commonly, interim procedures will be consistent from firm to firm. With this article, we’ll discuss generally what to expect, why we perform the procedures we do, and most importantly, how you can plan ahead.

Interim fieldwork (typically occurs in the Spring or Summer months) allows us to focus on internal control and compliance testing. Year-end fieldwork (after you close the fiscal year) focuses on auditing the balances and transactions as of and for the year ended June 30 or August 31.

One purpose of the interim audit is to identify key internal controls pertaining to significant transaction cycles.

  • Nonpayroll transactions (accounts payable and purchasing)
    • Separation of duties within the financial system between individuals that are responsible for adding vendors and changing vendor information are separate from those individuals that pay vendors.
    • Purchase orders are properly approved.
    • A three- way match between purchase orders, invoices and receiving documents is performed prior to paying vendors.
    • Transactions are recorded in the appropriate general ledger accounts as it relates to fund, function, object and program intent code,
    • Proper competitive procurement procedure was used depending on the funding source and dollar amount.
  • Purchasing card use and approvals (if applicable)
    • User agreements exist for all card holders
    • Review and approval of transactions
    • Analytical review of transaction to ensure there is no split purchases to circumvent transaction and/or daily limits.
    • Procurement procedures cover purchasing card transactions
    • Sales tax appropriately excluded.
  • Payroll transactions (payroll and human resources)
    • Separation of duties in the financial system between payroll and human resources so that those that pay employees are not also adding employees and making changes to their pay
    • Personnel files exist and contain the required forms and documents for all employees
    • Contracts and rates are approved and agree to the District’s pay schedule and are in accordance with State statute
    • Time sheets reviewed and approved
    • Withholding amounts are appropriate
    • Gross pay is recorded in the appropriate account.
    • Stipends, supplemental pay, etc. are properly approved and documented
    • Semi-annual certifications and time and effort exist for Federally-funded employees
  • Significant revenues (i.e. Child Nutrition, Property Taxes, if your District collects its own taxes, and daycare or event centers
    • Receipts are issued so that District personnel can determine if collections are complete and the cash received is safeguarded.
    • Cash counts are done by at least two people and evidence of the count is documented
    • Cash is deposited timely
    • A three-way match is performed to ensure that the amounts collected per the point of sale system, the bank statements and the general ledger all agree.
  • Controls over federal program compliance are also key. Transactions are tested for allowability in accordance with federal program requirements and are approved by an individual with program oversight. Indirect cost calculations and other applicable compliance requirements will also be tested.
  • Attendance reporting – a sample of attendance changes made as it relates to funded codes will be tested to ensure that changes are properly supported and in compliance with State statutes.

Federal and State compliance is also important. Here is a list of a few compliance tests that will be performed in FY 2022.

We will also review the District’s compliance with the Public Funds Investment Act (PFIA). Procedures include:

  • Review of investment officer training certificates
  • Investment policy
  • Quarterly investment reports

Procedures performed as it relates to financial reporting include the following:

  • Review of the interim trial balance to ensure fund balance and net position roll forward from the prior year.
  • Obtain current bank reconciliations to ensure the District is completing them in a timely manner.
  • Review of debt issued, if applicable, to ensure the transaction is properly recorded in the general ledger. This is especially important when refunding bonds are issued since journal entries related to refundings can be more complex.
  • Review of the interim Schedule of Expenditures of Federal Awards to ensure completeness and accuracy. Doing so, will help us determine the federal programs that are required to be tested as major programs.
  • Status of implementation of new standards such as GASB No. 87 Leases, which is effective in FY 2022.

Now that you have read through all of the procedures, or potential procedures, I can only imagine that you are now dreading the receipt of the Prepared By Client (PBC) list from your auditors. Once you receive this list you will know it’s time to gather all of the information requested and answer all questions asked. However, preparing in the Spring or Summer months is much more manageable than trying to do this during year-end field work.

I hope that this will help as a guide for your interim audit, as well as relieve some of the stress of gathering the information by understanding the reason behind the procedures.

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