DAR File No. 41844

Auditor, Administration

Rule R123-5

Audit Requirements for Audits of Political Subdivisions and Nonprofit Organizations

Notice of Proposed Rule

(Amendment)

DAR File No.: 41844
Filed: 06/22/2017 04:21:16 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

During the five-year review process, the auditors office found language that needed to be updated and made to match current practice. This amendment will make a few technical changes but also remove audit guide specifications and expand the definition of "political subdivisions" to include special service districts and municipalities.

Summary of the rule or change:

This amendment will make a few technical changes but will also remove audit guide specifications and clarify the definition of "political subdivisions" to include special service districts and municipalities.

Statutory or constitutional authorization for this rule:

• Section 51-2a-201

Anticipated cost or savings to:

the state budget:

This amendment will cause a negligible increase to the state budget because the state auditor's office will now review budgets and financial statements of governmental nonprofit organizations.

local governments:

This amendment will affect local governments (governmental nonprofits) who were not previously required to adopt budgets and have compliance audits performed. The office is unable to anticipate the cost to governmental nonprofits because it is unknown how many entities will be affected by the change, and there is not a system to track these entities at this time.

small businesses:

This will not affect small business because the changes only affect local government and governmental nonprofit corporations.

persons other than small businesses, businesses, or local governmental entities:

This will not affect other persons because the changes only affect local government and governmental nonprofit corporations.

Compliance costs for affected persons:

Costs for affected persons may include the cost of a state compliance audit and costs associated with adopting a budget, including notification of and holding a public hearing. The office is unable to anticipate the cost to affected persons because it is unknown how many entities will be affected by the change, and there is not a system to track these entities at this time.

Comments by the department head on the fiscal impact the rule may have on businesses:

After conducting a thorough analysis, it was determined that this proposed rule will not result in a fiscal impact to business.

John Dougall, State Auditor

The full text of this rule may be inspected, during regular business hours, at the Office of Administrative Rules, or at:

Auditor
Administration
Room E310 EAST BUILDING
420 N STATE ST
SALT LAKE CITY, UT 84114-2310

Direct questions regarding this rule to:

• Phalin Flowers at the above address, by phone at 801-538-1361, by FAX at , or by Internet E-mail at pflowers@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

08/14/2017

This rule may become effective on:

08/21/2017

Authorized by:

Phalin Flowers, Administrative Assistant

R123. Auditor, Administration.

R123-5. Audit Requirements for Audits of Political Subdivisions and Governmental Nonprofit [ Organizations ] Corporations .

R123-5-1. Authority.

1. As required by Section 51-2a-301, this rule provides the guidelines, qualifications criteria, and procurement procedures for audits required to be made by Section 51-2a-201.

 

R123-5-2. Definitions.

1. "Auditor" means a certified public accountant licensed to conduct audits in the state and includes any certified public accounting firm as defined by Section 58-26a-102.

2. "Political subdivision" means all [cities]municipalities, counties, school districts, local and special service districts, interlocal organizations, and any other entity established by a local governmental unit that receives tax exempt status for bonding or taxing purposes.

3. " Governmental n[N]onprofit [organization]corporation" means any governmental nonprofit corporation [created under Chapter 16-6a]as that term is defined by Section 11-13a-102.

 

R123-5-3. Audit Standards and Requirements.

1. The audits of all entities required to have an audit made by Section 51-2a-201 shall be performed in accordance with Government Auditing Standards most recently published and issued by the Comptroller General of the United States.

2. The State Auditor shall adopt and maintain a [legal ]compliance audit guide containing those fiscal laws and compliance requirements for state funds distributed to, and expended by, political subdivisions and governmental non[ ]profit [organizations]corporations. This [legal ]compliance audit guide may specify:

[a. which grants and programs shall be considered major grants, and the compliance requirements which must be tested by the auditor,]

[b.]a. the general compliance requirements applicable to all political subdivisions and governmental nonprofit corporations, and the audit requirements applicable to general compliance requirements,

[c.]b. the format for the auditor's statement expressing positive assurance with state fiscal laws identified by the State Auditor, and

[d.]c. those items related to internal controls and other financial issues which shall be included in the auditor's letter to management that must be filed with the [audited financial statements]Independent Auditor's Report in accordance with the State Compliance Audit Guide.

3. The audits of all entities required to have an audit made by Section 51-2a-201 shall be performed in accordance with the [legal ]compliance audit guide maintained by the State Auditor.

 

R123-5-4. Audit Procurement.

The decision to retain an entity's auditor rests with the governing body of the entity. However, the auditor performing the audit must meet the peer review and continuing education requirements of Government Auditing Standards issued by the Comptroller General of the United States. If the governing body rebids the audit of its financial statements, it shall comply with the following audit procurement requirements:

a. Proposals will be obtained from any interested and qualified certified public accountant licensed to perform audits in the state, which may include the auditor currently performing the entity's audit. Notice may be given to potential auditors either through invitation or by notice published in a newspaper of general circulation. To promote competition it is recommended that at least three auditors be invited to participate in bidding for the audit.

b. The entity shall distribute a "request for proposal" to all auditors who meet the qualification criteria set by the procuring organization interested in bidding for the audit. As a minimum, the request for proposal shall contain the following:

(i) the name and address of the entity requesting the audit and its designated contact person,

(ii) the entity to be audited, the scope of services to be provided, and specific reports, etc. to be delivered,

(iii) the period to be audited,

(iv) the format in which the proposals should be prepared,

(v) the date and time proposals are due, and

(vi) the criteria to be used in evaluating the bid.

c. The entity may select the auditor or audit firm that the governing body desires to perform its audit and may reject any bid.

 

R123-5-5. Responsibility for Audit Quality.

1. The governing body of each political subdivision or governmental nonprofit corporation is responsible to ensure that the political subdivision or governmental nonprofit corporation obtains a quality audit of its financial records.

2. The governing body may appoint an audit committee with the responsibility of making recommendations to the governing body for selection of an auditor, ensuring that the auditor meets qualification requirements, and ensuring that the auditor complies with professional standards.

3. If the governing body appoints a separate audit committee, then the governing body shall review the recommendations of the audit committee and make the selection of the auditor.

4. The audit committee will report its assessment of the auditor's compliance with professional standards to the governing body.

5. The auditor shall report the results of the audit to the governing body.

6. The governing body shall respond to the specific recommendations included in the auditor's letter to management. This response shall be remitted with the audited financial statements to the state auditor.

 

KEY: auditing, governmental non[ ]profit [organizations ]corporations

Date of Enactment or Last Substantive Amendment: [1990]2017

Notice of Continuation: July 18, 2012

Authorizing, and Implemented or Interpreted Law: 51-2a-201