Getting prepared for the audit story
By Debbie Lowe Staff writer
The management and use of public money is on the minds of Carroll County taxpayers more and more. The financials of the City of Delphi and the county underwent a routine audit this summer. Results are expected to be made public within a few weeks.

Fisher

Some may wonder what an audit tells a community. How are results interpreted and used? What information is audited and what does an audit really mean?

One quasi-governmental group the community is becoming increasingly interested in, the Twin Lakes Regional Sewer District, recently received audit results for 2005 and 2006. That document contains information and answers that could be valuable as a learning tool for Carroll County residents.

According to "Auditing - An Integrated Approach" by Alvin A. Arens and James K. Loebbecke, an audit is "a process by which a competent, independent person accumulates and evaluates evidence about quantifiable information related to a specific economic entity for the purpose of determining and reporting on the degree of correspondence between the quantifiable information and established criteria."

Derek Fisher of Fisher and Associates in Flora explained that one can substitute the word "standards" for "criteria" in the book definition.

"It is the comparison of what is to what should be," he said.

Fisher reviewed the TLRSD audit results, which can be found and downloaded by visiting and clicking report filings. He said auditors look at source documents, perform tests for standard compliance and look at internal controls.

Fisher said words like "reportable conditions," "deficiencies" and "material weaknesses" are disturbing to find in audit reports. He said if they re-occur, it is a sign of sloppy bookkeeping practices. All of those terms are found in the TLRSD audit report document.

"Material weakness is not good language," Fisher said. "Material means major. It means the audited entity fell short of established business standards."

"An audit provides a level of assurance on the integrity of the data in the financial picture," he continued. "There are different types, levels and degrees of audits. Three to four dings in an audit are quite a few."

Fisher referred specifically to the findings 2006-1, 2006- 2, 2006-3 and 2006-4 of the sewer districts' 2006 audit as areas of concern.

Finding 2006-1 stated, "The Twin Lakes regional Sewer District does not maintain a detailed record of capital assets… Failure to properly establish and maintain an accurate record of capital assets could result in the loss or misappropriation of fixed assets."

Finding 2006-2 - "Controls over the recording and accounting for the financial activities of the Twin Lakes Sewer District were insufficient. There were a number of posting errors to various general ledger (G/L) accounts...."

Finding 2006-3, about equipment and real property management stated, "The Twin Lakes Regional Sewer District does not maintain a detailed record of capital assets... Failure to follow program requirements of the Grant could delay or forfeit future grant funding...."

Finding 2006-4 - "The Twin Lakes Regional Sewer District did not have accurate financial statement information available to accurately report financial activity to the oversight agency. The audit report said TLRSD did not qualify as a "low risk auditee" which Fisher explained was one way of calling the entity high risk.

Fisher called findings #1,2,3 and 4, "a smoking gun."

"An audit is about accountability," as Fisher continued to explain why a community would be interested in these and other audit results.

"This audit report (TLRSD) isn't saying they are in terrible shape," he said. "But it does say there is some accountability missing in their bookkeeping practices. A privately held business probably wouldn't stay in business if they had books like these. An audit report is a way of giving the reader a level of assurance on the integrity of the data provided."

Fisher noted it was important to put an audit report in perspective. He said if this was the report for a first audit and these types of concerns were not noted previously, then steps could be taken to assure the necessary accepted bookkeeping standards are adhered to. But if concerns listed were noted in previous audits, that situation tells a story of continued non-compliance with the integrity of the data.

A review of the sewer district's 2003-2004 audit report provides a historical perspective. Eight areas of concerns were noted, which included issues with internal controls (how money is managed) and the absence of a detailed record of capital assets. "The district did not compile adequate records to verify the recording of capital assets" were among similar concerns noted in the current audit report.

"More work needs to be done with reports that read this way," Fisher explained. "There is room for improvement in the way things are reported to the GAO."

"If this was a privately-held corporation, I wouldn't consider investing in it until the data was coming to me in a much better form," Fisher concluded.

Fisher said citizens need to do their homework to understand how their money is being managed.

Carroll County residents will soon be able to read about the county's current financial situation. When made public, audit results can be obtained by visiting www.in.gov/sboa/resources.