Are You Getting the Most Out of Your Audit?

By Jerry W. Conaty – August 11, 2016
Are You Getting the Most Out of Your Audit?

Governmental entities across the state of New Jersey have some of the most lenient filing deadlines when it comes to their annual audit report. Why is it, then, that so many have such a hard time filing by the statutory deadline? For far too many entities, the annual audit is an afterthought and necessity one can check off a box to say that they completed the audit. Organizations that think like this have lost sight of some of the importance of the annual audit and the pitfalls associated with failure to complete annual audit reports in a timely manner. 

  1. Reliability

    One of the key qualities of audit reports is reliability. Although municipalities are required to file unaudited annual financial statements with the Division of Local Government Services, these statements all too often require adjustments that appear during the course of the audit. Failure to have an audit performed in a timely manner could lead to the governing body or administration making financial and budgetary decisions based on information that is not reliable. 

  2. Decision Making

    Would negative reviews impact your decision on whether to buy a car if they weren’t told to you until after the purchase? Of course not. How could you make informed decisions when you don’t have all of the facts? This is no different when it comes to financial statement audits. The results of an audit could have a significant impact on decisions the governing body makes, but without putting an emphasis on having these done in a timely manner, the governing body is making these decisions without all of the facts. 

  3. Credit Rating

    In determining the credit rating of an entity, rating agencies review the covenants included in bond issues. One of those covenants generally includes the entity’s agreement that they will provide certain financial, operational and demographic information, including the annual audited financial statements. You must submit these items by the deadline set forth in the Continuing Disclosure Agreement. An entity that does not complete and submits their audited financial statements in compliance with the established deadlines could find themselves in default, resulting in a significant negative impact on future debt issuances. 

  4. Corrective Action

One of the results from an audit is the potential for recommendations. Recommendations assist management with correcting problems the audit identified. You may even find yourself in the unenviable spot of having a fraud uncovered. Failure to have audits performed in a timely manner could lead to problems going unresolved for far longer than necessary. 

You’ve undoubtedly heard Mahatma Gandhi’s quote, “Be the change you want to see in the world.” If you want to get the most out of your annual audits, you must put an emphasis on it starting at the top. Governing bodies should require compliance with statutory deadlines in its requests for proposal and audit contracts and meet with the auditors prior to acceptance of the audit report to discuss the results of the audit and to better understand the financial statements and any recommendations. Employees should know the importance of financial reporting. These reports should be available to help expedite the audit process. When the governing body demonstrates the importance of the annual audit, it sends a strong message to the rest of its employees — greatly improving the effectiveness of the audit.

Jerry W. Conaty

Jerry W. Conaty

Jerry serves as a manager in the Audit & Attestation and Forensic departments with Holman Frenia Allison, P.C., a regional certified public accounting firm serving the greater Philadelphia and New York City markets. Jerry has over 12 years of experience in municipalities, school districts, utility and housing authorities, governmental agencies, construction and real estate development, H.U.D. funded projects and non-profit entities. Mr. Conaty’s areas of expertise include auditing, forensic accounting and financial statement audits.