Reviewed Date: 12/01/2022
The audit is the last phase of the budget cycle. As mentioned earlier, the audit is prepared after the fiscal year ends but usually before the end of the calendar year. Steps involved in acquiring an audit include creating a request for proposal, accepting proposals, selecting a firm or accountant to conduct the audit, agreeing to a contract, having the contract approved by the state, doing audit preparation work for the auditor, hosting the auditor at city hall during their field work, responding to any findings, and having the governing body receive and accept the audit report.
If you have done an adequate job of budget execution, the audit should go very smoothly with few or no findings. The GAAFR states a finding is a “published communication of an internal control weakness or instance of noncompliance … ” This is where your auditor tells you that you have room for improvement.
The basic components of an Annual Comprehensive Financial Report (ACFR) are the introductory, financial, and statistical sections. The introductory section usually consists of a report cover, title page, table of contents, list of principal officials, an organizational chart, and a letter of transmittal. The financial section includes the independent auditor’s report, management’s discussion and analysis (MD&A), basic financial statements, notes to the financial statements, required supplementary information (RSI), and other supplementary information. Finally, the statistical section comprises trend data (over the previous 10 years) and other non-financial information that is useful in determining a city’s credit worthiness.
While municipalities are encouraged to prepare an ACFR, a less detailed report is permitted. The minimum reports as required by the Governmental Accounting Standards Board (GASB) are required by the state. Additional statements and schedules are required by the State and can be found in the Audit Manual and Internal Control and Compliance Manual for Tennessee Municipalities. This publication is available on the Comptroller’s website (https://comptroller.tn.gov/office-functions/la/resources/manuals.html).
Many city officials and employees will refer to the audit only when they are preparing the next year’s budget. However, the audit also may be pulled off the shelf when a credit ranking agency calls, when the city is interested in issuing debt, and when fund balance is discussed as a funding source.