Common deficiencies found in school district financial statements
Outdated language among findings from the task force
Michelle Hoffman, CPA, manager, CliftonLarsonAllen LLP | August 2018 Footnote
The Minnesota Society of CPAs School District Audit Review Task Force recently completed its examination of 40 audit reports and the related financial statements of school districts, charter schools and other special districts for the fiscal year ending June 30, 2017. Of the reports selected, four were reselections because of significant deficiencies found during the prior year's examination.
The task force's purpose is to conduct reviews of financial statements to increase member awareness and understanding of accounting principles and reporting standards. The task force provides specific constructive and confidential feedback on financial statement presentation, disclosures and use of professional standards.
Volunteer task force members examined audit reports on their own, and then met as a group to discuss common financial reporting deficiencies.
Findings from this year's examination included:
- Language in the audit opinion letter was not updated for the changes noted in the AICPA Audit Guide: Government Auditing Standards and Single Audits 2017.
- Narratives in the Management's Discussion and Analysis (MD&A) were not updated to include deferred outflows and deferred inflows as components of the statement of net position.
- Net pension liabilities were not properly noted as being a long-term liability on the statement of net position and, instead, appeared to be included with current liabilities.
- The statement of activities had a functional expense category labeled "Capital Outlay" rather than properly allocating the noncapitalized capital outlay back to the respective functions.
- Incorrect fund balance terms, such as unrestricted fund balance, were used in the MD&A narratives.
- Negative amounts were shown in restricted fund balance categories in the basic financial statements.
- The term net assets was used for fiduciary funds rather than net position.
- Capital asset disclosures noted that donated capital assets are valued at fair value rather than acquisition value per the requirements of GASB 72.
- Incorrect terminology was used for the type of statement being referenced, such as expenses for general fund activity rather than expenditures.
- Inconsistencies were noted with the disclosures related to cash and investment as to how investments are valued.
- Cash and investments footnote only included amounts on the statement of net position rather than including amounts from the entity as a whole, including cash and investments from the fiduciary funds statement of net position.
- Depreciation expense associated with the entity's buildings appeared to be allocated to sites and buildings. Depreciation is based on the usage of the asset rather than where the asset was purchased from, so we would expect most of the depreciation expense to be allocated to instruction-related functions as the vast majority of buildings are used for educational purposes.
- Footnotes were missing the disclosure for the cost and accumulated depreciation of capital assets associated with capital leases.
- The net pension liability is included in the summary of changes in long-term liabilities footnote, but GASB 34 notes it should not be included in the table as it has its own separate footnote.
- The pension plan footnote should include a disclosure of the total pension expense for all pension plans in which the entity participates as it is not apparent in the basic financial statements.
- The measurement used in the RSI table for the schedules of contributions and schedules of the proportionate share of net pension liability should be covered payroll rather than covered-employee payroll, as modified by GASB 82.
- RSI tables were missing the state's share of the net pension liabilities associated with the school/district.
- Pension footnote disclosures were missing the amount recognized as pension expense and corresponding revenue for the state's contribution to the plan on behalf of the school/district.
- Single audit findings included the corrective action plan, which should instead be issued in a separate document on school/district letterhead per the Uniform Guidance.
- The RSI schedule of funding progress for OPEB only included the current and one preceding actuarial valuation rather than the current and two preceding actuarial valuations.
Review your entity's financial statements and compare to the common issues listed to improve your overall financial reporting and ensure you avoid any similar mistakes.
Michelle Hoffman is a manager in the public sector group at CliftonLarsonAllen LLP. She has 10 years of experience in public accounting serving state and local governments. You may reach her at email@example.com or
Want to join the task force?
Please contact Chandany McDermott with the MNCPA at 952-831-2707, or sign up to volunteer.