While most individual taxpayers want to avoid an audit at all costs, an audit is a very important management and oversight tool for local governments. State law requires all municipalities, regardless of size, to have an annual audit conducted by an independent auditor. State law also requires agencies funded in whole by the municipality to have an annual audit of its financial records and transactions.
An audit is a systematic review of financial records, using testing procedures designed to ensure Generally Accepted Accounting Procedures were used to prepare the financial statements. The independent auditor examines the municipality's internal control procedures to ensure the municipality properly received, recorded and spent public funds. In addition, the audit ensures the financial statements are fairly presented and can be relied upon to be correct.
According to state law, only a certified public accountant or public accountant who has no direct or indirect personal interest in the fiscal affairs of the municipality may conduct the audit.
"While state law allows a city to select an auditor without competitive bidding, we strongly recommend municipalities use a request for proposals process to solicit formal proposals from interested auditors," advised Eric Budds, deputy executive director of the Municipal Association of South Carolina.
By using an RFP, the municipality can define the council's expectations of the auditor and compare uniform information such as the auditor's qualifications, governmental audit experience in South Carolina, knowledge of governmental auditing standards, local government references and availability to perform the audit within the desired time frame.
Municipalities spending more than $500,000 in federal funds in a fiscal year must comply with the federal Single Audit Act, which requires expanded audit procedures. These municipalities commonly request fee quotes for the standard audit and single audit.
In addition to following the city's procurement ordinance, the Government Finance Officers Association recommends local governments take certain factors into account when selecting an auditor.
Look at the firm's qualifications and reputation. With larger firms, request information on the personnel who will be handling the city's audit.
Request information on current and former clients of the firm and check references.
Request information on the firm's audit process. Councils may even request a breakdown of the estimated number of hours by staff level assigned to the audit to ensure the involvement of experienced auditors.
Consider the price quoted. While price should not be the first factor considered, it may be useful in making the final decision between firms of equal reputation.
State law requires council to select an auditor within 30 days of the beginning of the fiscal year. The municipality can contract with an auditor for as little as one year but no more than four consecutive years.
Council should request an engagement letter each year before the start of the audit work to define the audit's scope, responsibilities of both parties and timeline for completion.
Periodically rotating audit firms is a best practice to ensure the independence of the audit and to allow a fresh set of eyes to review municipal financial procedures and records.
Municipal governments must send a copy of each year's audit to the state treasurer within 13 months of the end of the fiscal year. Failure to submit the audit will result in the treasurer withholding all of the municipality's state aid. Audits are public information, and city officials should make them readily available to the public.