Small government bodies like the Lincoln County School Board arepreparing for future deficiencies in their yearly audits due to anational revamp in auditing standards.

After commending the board for a spotless audit of its 2006/2007financial records, Certified Public Accountant Charles L. Shiverswarned that new auditing standards geared toward areas of risk setby the American Institute of Certified Public Accountants wouldalmost certainly result in red flags in future audits.

“A planned set of procedures to auditing is gone,” he said.”There is no formula. If I run into a high-risk assessment, theprocedures I perform must be directly linked to that high-riskassessment.”

Shivers said the new procedures would identify areas offinancial risk and focus on those areas, with the auditing methoddictated by the situation. In the past, he said, auditors weresimply required to gain an understanding of an organization’saccounting controls, but the new risk assessment formula requiresin-depth examination of how a body’s personnel manage finances.

The accounting controls – any personnel or procedures involvedin accounting – are where the problem lies for smaller governmentbodies like the board, in which staff size may be too small to meetthe accounting control standards and avoid audit deficiencies.

“It can be caused by a lack of segregation of duties,” Shiverssaid. “One person performing too many incompatible duties. It’s notnecessarily a good practice for someone who does accountreconciliation to be the same one who makes accounting journalentries into the system.”

Shivers said he and other CPAs will be working closely withtheir boards in the coming years to help rectify the almost-certaindeficiencies, but there is little that can be done in smallerbodies except to shift duties around.

“In small districts, there’s not enough staff, and the auditoris gonna write it up,” he said.

District Business Manager Cheryl Shelby, who handles all of thedistrict’s accounting needs, said the hiring of a second accountantmight be prudent for the district in the future, but extrapersonnel are difficult to fund. State law mandates that only 4percent of a district’s budget can be spent on administrativesalaries.

“Generally, districts keep that administrative staff as small asthey can to stay under the cap,” Shelby said. “The downside of thatis you can’t have the best designed internal control system.”

There is little that can be done to prepare for the forthcomingaudit findings, Shelby said, because by the time risk factors arediscovered for a current audit, the accountant will be well intothe next year’s review.

One possible method for combating audit deficiencies is toinvolve a third party, Shelby said. A compensating control, such assubmitting bank reconciliations to CPAs for review, could lower therisk during assessments.

Penalties for findings in future audits are no cause for concernfor school boards, however.

“This will affect every district in the state,” Shelby said.”There’s probably not a big percentage of districts that won’t havefindings. It shouldn’t affect funding levels.”