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Is Your School Audit Ready? How to Research & Prepare for Your 2022 School Audit.

Whether you are facing a school audit for the first time or you have been undergoing a school audit every year, making sure that your school is audit ready might feel overwhelming. Here are a few tips to help you prepare for a first, or just the next, school audit. This article will guide you on how to be audit ready, how to appoint a school audit firm, and how to prepare for your school auditor.

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Whether you are facing a school audit for the first time or you have been undergoing a school audit every year, making sure that your school is audit ready might feel overwhelming. Here are a few tips to help you prepare for a first, or just the next, school audit. This article will guide you on how to be audit ready, how to appoint a school audit firm, and how to prepare for your school auditor.

Firstly, what is a school audit.. and what is it not?

The purpose of an audit, as defined by the International Auditing and Assurance Standards Board (IAASB), is “to provide financial statement users with an opinion by the auditor on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. An auditor’s opinion enhances the degree of confidence that intended users can place on the financial statements.” In the case of schools, the stakeholders are parents, the Department of Education, donors, SARS (in instances where taxes are payable), and the South African public.

In layman’s terms, a school audit provides reasonable assurance—not absolute assurance—that the financial statements are correct (not materially misstated) within a defined threshold. The IAASB provides a set of standards that your school auditor firms are required to follow to achieve the appropriate level of assurance to issue the opinion.

But a school audit is not just a generic set of checklists. The school auditor creates a tailored set of procedures based on a gained understanding of your school, designed to mitigate the risk of material misstatements within the financial statements.

being school audit ready school auditor

Is your school required to undertake a school audit?

All schools are required to be audited in terms of S43 of the South African Schools Act (SASA) of 1984.

How do you appoint the right school auditor?

The South African Schools Act (SASA) requires that only a person registered as an auditor in terms of the Auditing Profession Act 26 of 2005 may audit the records and financial statements of a public school. Where this is not reasonably practicable, SASA provides that the governing body of a public school must appoint a person to examine and report on the records and financial statements who is qualified to perform the duties of an accounting officer in terms of section 60 of the Close Corporations Act 69 of 1984), or is approved by the MEC for this purpose.

Therefore, only school Auditors approved in terms of the Audit Profession Act as regulated by the Independent Regulatory Board for Auditors are authorised to audit the financial statements of public schools. In instances where the MEC has approved an exemption from the audit requirement, members of the following bodies and recognised professions qualify to perform the examination of the annual financial statements:

  1. The South African Institute of Chartered Accountants (SAICA)
  2. Auditors registered in terms of the provisions of the Auditing Profession Act, 2005
  3. The Southern African Institute of Chartered Secretaries and Administrators (ICSA
  4. The Chartered Institute of Management Accountants (CIMA
  5. The South African Institute of Professional Accountants (SAIPA
  6. The IAC who have obtained the Diploma in Accountancy (IAC)
  7. The Association of Chartered Certified Accountants (ACCA
  8. The Chartered Institute of Business Management (MCIBM
  9. The South African Institute of Business Accountants (SAIBA
  10. The South African Institute of Government Auditors (SAIGA

Being Audit Ready: How are School Accountants and School Auditors Different?

We are often asked by our clients what the difference between accountants and auditors is. The two are very similar in function and an auditor’s qualifications are likely to be the same as those of an accountant. However, the following insights on differences can provide clarity into how audits can be helpful for your school.

Being Audit Ready: The Role of a School Auditor vs. a School Accountant

An accountant aims to give the client a financial picture of their trading year and highlight any areas of opportunity or weakness in the business whilst complying with the elected financial reporting framework for the current period.

Whereas an external auditor’s role is to add value and confidence to a set of accounts by testing areas of financial risk and uncertainty. They will review the financial statements and test their accuracy, searching for errors that would fundamentally alter a user’s perception of the accounts.

Audit risks may have been highlighted to us by clients themselves or may be apparent when we review the draft accounts for the period. As financial auditors, we aim to eliminate risk and give as much confidence in a set of accounts as possible.

The Financial Reporting Framework for a School Audit

The South African Schools Act provides that this be at the discretion of the School Governing Body and the MEC. i.e. Every province makes its own guidelines. In practice, these guidelines are not issued consistently and most schools’ financials are prepared according to either ordinary GAAP, IFRS for SMEs, or in a few cases, an entity-specific framework.

The School Governing Body has discretion in this regard but it is important that a framework be chosen prior to engagement with a School Financial Statement Auditor.

In our experience, most public schools apply the International Financial Reporting Standards for Small and Medium Enterprises (IFRS for SMEs) as a default rather than as a result of adequate consideration of the Framework. This is mostly a consequence of a lack of knowledge of bursars and a high turnover of accountants assisting schools with the compilation of financial statements.

School Audit : Timelines for the Publication of the Annual Financial Statements

According to SASA, section 42(b) annual financial statements of all public schools must be drawn up (compiled) as soon as possible but not later than three months after the end of the financial year.

School Audit : Timelines for the Submission of the Audited or Examined Annual Financial Statements

SASA, section 43(5) also requires that a copy of the audited or examined annual financial statements be submitted to the Head of Department within six months after year-end. (Republic of South Africa,1996).

While some departments do give extensions, these are reportable by the Registered School Auditor.

In order to get your school audit ready, we recommend that you follow the 9 Step Approach outlined below to ensure you are prepared for your school audit.

  • Gather all your school’s documents and significant contracts into one central location (preferably electronically), including:
    • All school policies, financial and non financial
    • All significant contracts (school fees/grants/leases/vendor/pledge agreements/donations etc)
    • Minutes of all governance structures from the year(s) under audit
    • Insurance policies where applicable
    • Legal titles for property owned

  • Document your financial statement processes and policies (if not already documented). During the documentation process consider if your school has proper internal controls and if the performance of those controls is adequately documented. Remember to consider your controls and policies over information technology systems that support your accounting records.

  • Review your accounting records and ensure that reconciliations are available for any balance sheet account as necessary to reconcile sub-ledger data (or any data maintained outside of the ledger) to the trial balance.

  • Organise transactional data from the period under audit (e.g., proof of expenses, school fee income, other income, government grants or payroll records) is organised and available for testing, as requested. It is also imperative that the resource spending is in line with your Provincial Circulars and guidelines per Resource Target Table (RTT), SASA Section 21 Functions allocation, and the National School Nutrition Programme (NSNP) allocations where appropriate.

  • Avail a full schedule of all property and equipment, and related depreciation is available.

  • Engage the services of an independent accountant to compile your financial statements to comply with your elected financial reporting framework.

Once you have hired your school audior of choice (and before any recurring engagement) you should:

  • Facilitate a meeting with the audit team and those individuals you have designated as your financial committee (FINCOM) to set expectations and discuss specific risks related to your school.

  • Hold a meeting with the audit team and your management to discuss timing and specific items that you will need to prepare based on the tailored approach prepared by the auditor. Finalise the timeline of all deliverables to ensure that your financial statements will be issued by the date required.

Once you have received the specific list of items to be prepared by the school, hold an internal meeting to assign responsibility for each task and consider how the information will be prepared and reviewed prior to delivery to the auditor if necessary.

  • If your school has inventory, ensure that you invite the audit team to the year-end count or the next scheduled count.

With careful consideration of these steps and allowing adequate time for your team to gather and organise this information, even a first-year school audit should run smoothly.

Being Audit Ready: Preparing for your Recurring School Audit

In addition to Tips 7-9, make it a practice to stay organised! Create a logical electronic filing system to ensure you can the information that has been requested and any materials your team has prepared. Then, easily locate the files until at least the following year for reference.

Being Audit Ready: Is a Remote School Audit an Option?

The COVID-19 pandemic required many organisations to allow office employees to work remotely and many firms have chosen not to bring the full team back into the office at this time. Thus, it’s likely that a portion, if not all, of your audit in the coming months will be handled remotely.

The keys to managing a successful audit under COVID-19 restrictions are communication and flexibility. Here are some additional considerations as you prepare for a remote school audit:

➔ Review what, if any, changes have occurred in the internal control processes to accommodate remote working. Are there changes in the cheque writing or depositing process? Are there changes to approval controls? Discuss these changes with your auditor ahead of the scheduled audit.

➔ Discuss with your auditor what file repository system will be used for the remote sharing of data from your school to your auditors in a secure manner. Ensure that the filing system will meet any cybersecurity requirements of your school.

➔ Discuss the timeline with your auditor well in advance this year. Consider if additional time may be required for your team to transfer physical files into electronic copies.

➔ Consider using video technology to allow for the auditor to observe processes through the digital environment and allow for “in-person” meetings and interviews throughout the audit. An auditor could potentially even use digital methods to conduct a physical assets verification.

➔ Consider safety protocols that your school and the auditor’s firm will require if in-person work or meetings are deemed necessary. Ensure that each team understands the legal and school requirements for protective equipment and social distancing protocols.

The word “audit” can often be a source of fear and dread. However, following these guidelines can help your school be audit ready. For well-prepared schools, the audit process can be a helpful tool for assessing financial health rather than an exhaustive exercise in pulling data.

Communicating with your auditors has always been important, but the challenges of the pandemic have made open collaboration and flexibility between schools and businesses and their auditors more critical than ever.

Kettle Consulting has significant experience in assisting clients with the audit of annual financial statements, compilation of the annual financial statements to comply with the financial reporting framework and legal requirements, and assisting with audit readiness if required. We take a structured approach to enable clients to achieve and sustain compliance in an efficient and cost-effective manner.

At Kettle Consulting, our solutions help schools to assess the impact of the South African Schools Act (SASA) and other legislation on their operations, as well as design and implement the changes required to ensure ongoing compliance.

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