Most Michigan municipalities are required to undergo audits. Below we’re answering some of the most common questions related to municipal audits. The more you know about the process, the more prepared your organization will be.
What are the types of municipal audits often performed?
The term “audit” usually brings thoughts of an auditor pouring over financial records, but there are several types of audits. Obviously, financial audits are the most common. However, there are also information systems audits, performance (efficiency) audits or formal investigations into possible fraud.
Fraud risk is always a consideration. Not all audits, though, are designed to specifically detect fraud. Working with an accounting firm can help determine if an audit is needed beyond the financial audit required each year for most cities, which leads to the next question.
When is an audit required for your city?
According to Michigan’s Department of Treasury, “If the local unit has a population of 4,000 or more, an audit is required every year. Local units with a population less than 4,000 are required to have an audit every other year” (p. 1). And if an area is applying for charter township, it must undergo an audit.
What are the benefits of undergoing a financial audit?
It may seem odd to say that financial audits can be beneficial. But there are several advantages to being audited. First, audits are helpful in finding areas of concern that can be fixed before they negatively impact the organization. Also, credit rating agencies are interested in municipal audit results. Lastly, practices for internal controls can be reviewed and strengthened, making your municipality less susceptible to fraud in the future.
What does a municipal audit review?
To reiterate, the type of audit being performed affects the kind of information to provide for auditor review. For example, a municipal financial audit means examining financial transactions of your city government and analyzing the accounting practices to ensure compliance with policies and regulations. A financial audit also looks at internal controls.
How should a municipality prepare for an audit?
Start early by setting up a team to prepare records and to handle audit requests. This team ensures that your organization’s financial records are accurate and complete. And if they’re not, the team has time to complete items. (A side note – preparing financial records properly throughout the year and not right before an audit is best practice. See here and here for more details on preparation.)
Do you need help preparing for a municipal audit?
If your organization needs help readying for an audit or wants to learn if other audits would be beneficial, then the team at Morgan & Associates is available to assist you. We have years of experience with municipalities and look forward to meeting with you.
Complete the form below and one of our team members will reach out to help your organization.