Minnesota Legal Compliance Audit Guide for Local Government - Section 8
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LEGAL COMPLIANCE MANUALUNIFORM FINANCIAL ACCOUNTING AND REPORTING STANDARDS (UFARS)FOR MINNESOTA SCHOOL DISTRICTS AND CHARTER SCHOOLSIntroductionMinnesota law requires that the audits of all school districts, all governmental unitsformed by joint powers agreements entered into by school districts, and all servicecooperatives and education districts must include a determination of compliance withuniform financial accounting and reporting standards (UFARS). Minn. Stat. §§ 6.65;123B.77, subd. 5 (1998). This requirement applies to charter schools under Minn.Stat. § 124D.10, subd. 8.Minn. Stat. § 6.65 states (emphasis added):The st ate auditor shall prescribe minimum procedures and the audit scope forauditing the books, records, accounts, and affairs of local governments inMinnesota. The minimum scope for audits of all counties and localgovernments must include financial and legal compliance audits. Audits of allschool districts must include a determination of compliance with uniformfinancial accounting and reporting standards. The state auditor shallpromulgate an audit guide for legal compliance audits, in consultation withrepresentatives of the state auditor, the attorney general, towns, cities,counties, school districts, and private sector public accountants.Minn. Stat. § 123B.77, subd. 3, states (emphasis added):On November 30 of the calendar year of the submission of the unauditedfinancial data, the dist rict must provide t o t he commissioner ...
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LEGAL COMPLIANCE MANUAL
UNIFORM FINANCIALACCOUNTING AND REPORTING STANDARDS (UFARS) FOR MINNESOTASCHOOL DISTRICTS ANDCHARTER SCHOOLS
Introduct ion
Minnesot alaw requiresthat the audits ofall school district s,all governmental units f ormedby joint powers agreements entered into by school districts, and all service cooperat ivesand education districts must include a determinat ionof compliance wit h uniform financial accounting and reporting standards (UFARS).Minn. Stat .§§ 6.65; 123B.7 7 ,subd. 5 (1998). Thisrequirement appliest ocharter schools under Minn. Stat. §124D.10, subd. 8.
Minn. Stat. §6.65 states (emphasis added):
The stat eaudit orshall prescribe minimum procedures and the auditscope for audit ingt hebooks, records, accounts, and aff airsof local governments in Minnesot a.The minimumscope for audits ofall counties and local governments mustinclude financial and legal compliance audits. Auditsof all school district smust includea determinat ionof compliance wit huniform f inancialaccount ingand reporting standards. Thestat eauditor shall promulgat ean audit guide for legal compliance audits, in consultation wit h represent at ivesof the state auditor, the attorney general, tow ns,cit ies, count ies,school district s,and private sector public accountant s.
Minn. Stat. §123B.7 7,subd. 3, states (emphasis added):
On November 30 oft hecalendar year oft hesubmission of the unaudited f inancialdat a,t hedist rictmust provide to the commissioner audited financial dat af ort hepreceding fiscal year.The auditmust beconducted in compliance w it hgenerally accepted governmental auditing standards, the federal Single Audit Act, and the Minnesota legal compliance guide issued by the off iceof t hestat eauditor. Anaudit edf inancialstatement preparedin a form which will allow comparisonw it hand correction ofmat erialdif f erencesin the unaudited f inancialdat ashall be submitt edt ot hecommissioner and the state auditor by December 31.The audited financial statement must also provide a statement of assurance pertaining to uniform financial accounting and reporting standards compliance and a copy oft hemanagement lett ersubmit t edt ot he district by the school district’ sauditor.
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Unif ormFinancial Accounting and Reporting Standards (UFARS)
The uniform financial accounting and reporting standards to be used by school districts f oraut omat edst at ereport ingpurposes are described in the UFARS Manual and in School Business Bulletins issued by the Minnesota Department of Education.The UFA RSManual and School Business Bulletins provide an accountcode struct ureand guidance on application of accounting principles.At any point in time, parts of the UFA RSManual may have been superseded by legislative, program, and accounting principle changes.The School Business Bulletins serve as updates to the UFARS Manual for such changes.It is theaudit or' sresponsibility to stay abreast of current development s.
UFARS Compliance
In order to determine compliance wit hUFARS, the auditor should consider the f ollow ingit ems.
Account Coding Conformance w it h UFARS includes t he classif icat ionof revenues and expenditures int oappropriate UFARS codes.UFARS revenue and expenditure codes consistof 17 digits organized into six dimensions.Chapt erTen of the UFARS Manual def ineshow the six dimensions may be combined into valid 17digitcodes for st atereport ingpurposes. 1. Revenueand expenditure accountcodes that havebeen developed by school dist rictsf ort heirint ernaluse mustbe linked (crosswalked) to the appropriate 17digit UFARS codes.In some cases, the internal district codebears litt le resemblance to the UFARS code.The underlying UFARS codes, nott he dist rictcodes, areused for automat edreport ingt ot hest at e. 2. Auditprocedures should be developed to ensure that revenuesand expendit ureshave been recorded in the proper UFARS codes. A. Such procedures must include tests of controls as described in Statements on Auditing Standards 55, 78, and 94 on the consideration of internal control in a financial statement audit. Samplingmay be used t odet erminet hereasonableness of recorded UFARS amounts and classif icationsbased on an examination of source documentation. B. Suchaudit procedures may include thef ollow ing: SVerify appropriate UFARS coding as part of a test of transact ions (individual revenue and expenditure transact ions). Saccount codes tof internal use(crossw alk)Test linkageheo t appropriat e17digit UFARScodes. S Obt ain" UFARSChapt er10 Edit Report" andreview for exceptions. 11/03 82
SVerify appropriate UFARS coding as part of test ingof revenueand expenditure account tot alsfor the year. Sconsidered necessary.that aretest sOt her Auditors should use their judgmentin determining the nature, timing, and extent of t est ingnecessary to provide a statementof assurancepert ainingt oUFARS compliance. Audit Reporting
The Auditor’ sReport on Complianceshould indicate that the auditw asconduct edt o det ermineconf ormancew it hUFARS standards. Chapter Six oft hisaudit guide includes suggested wording for Auditor’ sReport son Compliance.
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