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The 2020-2021 final audit report for year-end June 30, 2021, for North Wasco County School District 21 was presented during the Jan. 20 virtual school board meeting by CPA and shareholder A.J. Olson of Friend & Regan P.C., as well as district chief financial officer Kara Flath.
“Our responsibility as auditors is to perform our audit testing and give an opinion on whether we think that the financial statements themselves are accurately stated,” said Olson in his presentation. “We give an unmodified or plain opinion on the financial statements, so it means we think the financial statements are accurately stated.”
According to Olson, “pretty common” budget violations were noted, including an over expenditure in the state grants fund, as well as a budget change that created a new appropriations line, which would have required a public hearing that had not been held.
“No other non-compliance,” said Olson. “Budget violations are almost always what you’re going to see here, and pretty common normally to have one or two as you go through.
“We did have two either significant deficiencies or material weaknesses this year,” said Olson. “The first one was a material weakness … a material weakness could be something in internal control that may lead the financial statements to be materially misstated if the weakness in internal control wouldn’t be caught.”
According to the district’s corrective action plan, the material weakness deficiency was found as “inadequate monitoring of Capital Outlay Classification,” revealing “a material understatement in capital outlay expense and a corresponding overstatement in repairs and maintenance expense.”
“What it was, was when we did our testing, it looks like it was about, in total, about $500,000 of seismic grant expenditures, and irrigation I think it was, that got reported as repairs of maintenance,” said Olson.
“We just want to make sure that if it’s a major purchase that’s going to last more than a year, that it’s classified as capital outlay of the financial statements,” he said.
“The reason for that is because, if it’s not classified as capital outlay, potentially we might not see it and we might not add it to the capital outlay schedule, (it) wouldn’t be depreciated over time,” said Olson.
“We give a clean opinion because we believe everything is correct. In this case there was an adjustment that we proposed as auditors while we were doing our testing, that Kara agreed with and made the journal entry, and so the financial statements all ended up being correct,” Olson said, “but since it was a material change, we considered a material weakness in internal controls.”
“(It is) something we want to make sure, get(s) close inspection of it going forward and making sure that’s all classified as capital outlay, if it meets the definition,” said Olson.
In the school district’s proposed corrective action plan to address the deficiency, Flath will “approve all payments before they are issued for coding errors.”
The second deficiency found in the report was identified as an internal control weakness, having to do with financial statement preparation, regarding the use of independent auditors to prepare the district’s financial statements.
“Normally when the auditor prepares the financial statements, there’s just a danger that there can be too much reliance on the auditor to prepare them,” said Olson. “There’s a lot that goes into it and if the auditor’s preparing it, management potentially might not be doing a thorough review, and making sure they are taking responsibility for them … generally we’re going to consider that an internal control weakness.”
Despite being considered an internal weakness, the contracting of auditors to put together financial statements of districts of North Wasco County’s size is not an uncommon practice, according to Olson and Flath. “All our clients have this,” said Olson. “We really prepare the financial statements for all our clients.”
According to the district’s plan of action, “the finance department staff is competent, capable and performs daily and monthly functions very well. Their expertise is limited, however, in the area of financial statement preparation in accordance with generally accepted accounting principles, specifically with actuarially determined pension and OPEB accruals now required by GASB 68 and GASB 75.”
“We still want, you know, obviously a good review to happen, that’s why it’s important to kind of point this deficiency out, is just to bring it to attention and really stress the importance of a good review of the financial statements before they’re finalized,” said Olson. “We don’t have a recommendation for any changes, (we) really want to stress the importance of a good review, and being aware of that.”
“It’s a fairly common practice for districts this size and smaller, assuming you meet the single audit act requirement, to have your auditors do that because of the complexities,” said Flath. “We still do all of our own books, we still review it, we still are responsible for that, they’re taking that and putting it into our financial report for us, but I still go through and check it.
“A.J. and the team over there have been great to work with, and I ask them questions all the time and I really appreciate their help,” said Flath. “Thank you, we’re always going to aspire to do better, so thank you.”
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