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  • 2019 Ohio Compliance Supplement Implementation Guide Table of Contents

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    IMPLEMENTATION GUIDE FOR LEGAL COMPLIANCE AUDITING IN OHIO

    Table of Contents IMPLEMENTATION GUIDE FOR LEGAL COMPLIANCE AUDITING IN OHIO ........................................................... 1

    Introduction .......................................................................................................................................................................... 2 Compliance Risk and Controls ............................................................................................................................................. 7 Organization of the OCS .................................................................................................................................................... 10 Home Rule Powers ............................................................................................................................................................. 12 Reporting ............................................................................................................................................................................ 15 Audit Findings .................................................................................................................................................................... 17

    Noncompliance Citations ............................................................................................................................................... 17 Auditee Responses to Findings ...................................................................................................................................... 18 Findings for Abuse ......................................................................................................................................................... 19 Findings for Adjustment ................................................................................................................................................. 22 Findings for Recovery .................................................................................................................................................... 27 Additional Policies for Findings for Recovery for Auditor of State Audits ................................................................... 31 Sample NOTICE OF (PROPOSED) FINDING ............................................................................................................. 34 Finding for Recovery Procedures for Independent Public Accountants (IPA) ............................................................... 39

    Referring Audit Reports ..................................................................................................................................................... 44 Referrals to the Ethics Commission, Other State Agencies, and the IRS ........................................................................... 45 Appendix A – Budgetary and Certain Related Requirements (Applies to Chapter 1 Section A) ...................................... 47

    APPENDIX A-1 Transfers and Advances (Applies to Chapter 1 Section A) ................................................................ 49 APPENDIX A-2 Direct Charges (Applies to Chapter 1 Section A) ............................................................................... 53

    APPENDIX B – Contracts and Expenditures (Applies to Chapter 2 Section B) ............................................................... 55 APPENDIX C – Debt (Applies to Chapter 1 Section C) .................................................................................................... 56

    APPENDIX C-1 Tax and Revenue Anticipation Notes (Applies to Chapter 1 Section C) ............................................ 57 APPENDIX D – Reporting (Applies to Chapters 1 & 2 Section D) .................................................................................. 68 APPENDIX E – Deposits and Investments (Applies to Chapter 2 Section E) ................................................................... 69

    APPENDIX E-1 Federal Agencies (Applies to Chapter 2 Section E) ............................................................................ 70 APPENDIX E-2 GASB No. 40 (Applies to Chapter 2 Section E) ................................................................................. 71

    Exhibit 1 – Citation Format ................................................................................................................................................ 74 Exhibit 2 – Public Officers’ Bond ...................................................................................................................................... 78 Exhibit 3 – Compliance ACE Form ................................................................................................................................... 83 Exhibit 4 – Elected Officials’ Compensation ..................................................................................................................... 87 Exhibit 5 – Legal Matrices ................................................................................................................................................. 89 Exhibit 6 – Entities Not Included ..................................................................................................................................... 112 Questions and Comments ................................................................................................................................................. 114

  • 2019 Ohio Compliance Supplement Implementation Guide Introduction

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    Introduction The Auditor of State has audited public offices’ compliance with legal requirements since 1902. Audits of Ohio public offices have been subject to Ohio Rev. Code Chapter 117, or its predecessor, since that time. Ohio Rev. Code § 117.11 (A) states in part that when auditing Ohio public offices:

    . . . [i]nquiry shall be made into . . . whether the laws, rules, ordinances, and orders pertaining to the office have been observed, and whether the requirements and rules of the auditor of state have been complied with.

    Although a literal interpretation of Ohio Rev. Code § 117.11 (A) would require testing all applicable legal requirements during an audit, the Auditor of State has determined that it is appropriate to limit the compliance requirements subject to audit to (1) the requirements included in the Ohio Compliance Supplement (OCS), plus (2) other direct and indirect compliance requirements not included in this Supplement, but required by AU-C 250 (discussed below). AU-C 250 Consideration of Laws and Regulations in an Audit of Financial Statements clarifies the auditor’s responsibility regarding OCS tests: “.02 . . . The provisions of some laws or regulations have a direct effect on the financial statements in that they determine the reported amounts and [required] disclosures in an entity's financial statements. . .” Conversely: “.A13 Many laws and regulations relating principally to the operating aspects of the entity do not directly affect the financial statements (their financial statement effect is indirect) and are not captured by the entity's information systems relevant to financial reporting. Their indirect effect may result from the need to disclose a contingent liability because of the allegation or determination of identified or suspected noncompliance.” • Based on the above (and AU-C 250.A9 – .A11), “direct and material compliance” refers only to

    laws a government’s information system (which includes its accounting system) must “capture” to determine financial statement amounts and required disclosures1. Therefore, we have classified a law as direct in this OCS if noncompliance has the potential to materially misstate the financial statements. Chapter 1 of this compliance supplement includes “direct” laws.

    o As one example, GAAP requires governments to present budgetary comparisons as basic statements or as RSI.

    o GAAP also requires these presentations to follow the government’s legal budget basis.  In Ohio, a “5705 government’s” information system must capture information using

    the accounting basis Ohio Rev. Code Chapter 5705 (via GASB Cod. 2400) prescribes to compile budget and actual amounts and budget variances GAAP requires.

    1 Few Ohio GAAP governments’ have “formal” systems to compile most balance sheet assets or liabilities. Therefore, GAAP governments’ “information systems” include trial balances, other spreadsheets or any other material used to compile GAAP amounts or disclosures. Cash / AOS basis governments’ information systems include documents used to prepare / support notes to the statements.

  • 2019 Ohio Compliance Supplement Implementation Guide Introduction

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     Ohio Rev. Code Chapter 5705 generally prescribes a cash + encumbrance accounting basis, which a compiler must understand and follow to satisfy GAAP.

    AU-C 250.06 b requires more limited audit responsibilities for indirect laws, such as those:

    i. fundamental to the operating aspects of the “business” (i.e. a government’s operations), ii. fundamental to an entity's ability to continue its business, or iii. necessary for the entity to avoid material penalties

    Chapter 2 includes “indirect” laws. Chapter 2 also includes laws that statutes mandate auditors to test during an audit.

    In addition to the “