New York State Education Department Charter School Audit

New York State Education Department Charter School Audit Guide Training Presented by: Michelle Cain, CPA Jackie Lee, CPA Kate Welc, CPA

Introduction Background on NYSED o Office of P-12 Education oversees pre-K through 12 th grade programs including: accountability; state assessment; curriculum assessment and educational technology; school operations; special education; information and reporting services; school innovation; implementation of the Regents Education Reform Plan and NYS’s Race to the Top initiatives o The Charter School Office was established to create and sustain excellent educational options for NYS’s families and K-12 students. They do this by authorizing high quality charter schools, overseeing charter schools and disseminating innovative school designs and practices Background on MMB o Certified Public Accounting Firm located in Rochester, NY o Extensive experience serving the non-profit industry and, specifically, charter schools o Member of the AICPA Government Audit Quality Center o Contracted by NYSED to provide assistance with: • Standardizing audit procedures to assure quality control • Communicating nuances of charter schools compared to other non-profit entities 2

Introduction Education law guides charter schools o Methods to obtain a charter: • NYS Board of Regents • Board of Trustees of the State University of New York • Local Boards of Education have the authority to approve conversion charters and monitor charters that they authorized prior to 2010 o NYS Education law requires an annual audit in accordance with: • Generally Accepted Auditing Standards (GAAS) • Generally Accepted Government Auditing Standards (GAGAS) 3

Introduction Purpose of the Guide o Developed in response to factors impacting the NYS charter school arena: • • Increase in the cap on the number of charter schools in NYS to 460 Award of $697 million of additional Federal funding to NYS schools “Race to the Top” Award of $113 million under Federal Charter School Program (CSP) grant Differences found in audit quality and auditor understanding of the charter school environment o To provide assistance to auditors of charter schools in the following ways: • To understand the requirements of charter schools and provide guidance on matters specific to those authorized by NYSED • To provide guidance on form and content of reports and testing required • To improve overall audit quality statewide o To educate school officials on areas of focus during an annual audit 4

Introduction Important reminders o The auditor should not consider the guide to be all-inclusive or a substitute for professional judgment o The auditor needs to follow professional standards that are referenced but not repeated as part the guide 5

What’s New for 2013 o Guidance on Agreed-Upon Procedures for NYSED CSP Grant recipients o Guidance on Agreed-Upon Procedures on Initial Statement of Controls for NYSED-Chartered Schools o Guidance on financial statement disclosures and presentation in accordance with NYSED standards o Guidance on charter compliance testing performed as part of the financial statement audit in accordance with NYSED standards 6

Agreed-Upon Procedures Report on CSP Grant Background o NYSED was awarded $113 million in Federal CSP funds o NYSED is required by the Federal Government to monitor the charter schools’ use of those funds o NYSED was looking for a way to most efficiently monitor those funds and provide the least burden on the recipient charter schools o AUP engagement allows charter schools to utilize the same auditor as they are using for their financial statement audit to perform certain monitoring procedures for NYSED. This should eliminate duplicative work and the interruption of an additional audit for charter school personnel. 7

Agreed-Upon Procedures Report on CSP Grant Determining the need for an Agreed-Upon Procedures report for the CSP Grant 8

Agreed-Upon Procedures Report on CSP Grant Description o Auditor will look at overall expenditures for reasonableness and test a sample of expenditures to determine if expenditures are in accordance with grant purposes, are applied to the correct budget category, and are recorded in the proper fiscal period. o Auditor will also review FS-25 form(s) submitted to NYSED and tie sample of expenditures into requests for reimbursement. Deadlines o Report must cover the same fiscal period as the audit. o Due to NYS by November 1 st with audited financial statements for the period. 9

Initial Statement of Controls Deadlines o NYSED requires the charter school to provide an Initial Statement of Controls to NYSED no later than 120 days from the date the charter was issued by the Board of Regents o Must address the 10 controls listed in the following slides o Must be reviewed and ratified by the charter school’s Board of Trustees prior to submission. 10

Initial Statement of Controls Initial Statement of controls – must address whether the charter school has documented and implemented adequate controls relating to: o Preparing and maintaining financial statements and records in accordance with GAAP o Payroll procedures o Accounting for contributions and grants o Procedures for the creation and review of interim and annual financial statements o Existence of appropriate internal financial controls and procedures o Safeguarding of assets including cash and equipment 11

Initial Statement of Controls, Continued: o Compliance with applicable laws and regulations o Ensuring that the purchasing process results in the acquisition of goods/services at the best price o Following appropriate guidance relating to budget development and administration o Following appropriate guidance relating to a code of ethics and cash management and investments 12

Agreed Upon Procedures on the Initial Statement of Controls Deadlines o Engagement letter – engaging CPA firm to perform Agreed Upon Procedures on Initial Statement of Controls - due within 120 days from the date the charter was issued by the Board of Regents o Agreed Upon Procedures on the Initial Statement of Controls Engagement must commence within 60 days of receiving and disbursing more than $50, 000 o Due date for Agreed Upon Procedures on the Initial Statement of Controls Engagement– must be submitted within 45 days from commencement of engagement o Any deficiencies need to be remedied by the charter school no later than 45 days from date of report and a statement must be submitted to NYSED that states this is complete. 13

Agreed Upon Procedures on the Initial Statement of Controls Deadline Timeline Maximum of 120 days Initial Statement due to SED Engagement letter due to SED Issuance of Charter Maximum of 60 days Date Charter School receives and disburses $50, 000 Maximum of 45 days Auditor must begin work on AUP report Maximum of 45 days AUP report due to SED Any deficiencies noted in the AUP report must be corrected and communicated to SED 14

Presentation of Charter School Financial Statements o Charter school financial statements should be prepared in accordance with GAAP o FASB Accounting Standards Codification 958, Not-for-Profit Entities, requires the following statements be included: • • • Statement of Financial Position as of the end of the reporting period Statement of Activities for the reporting period Statement of Cash Flows for the reporting period Required footnote disclosures Supplemental schedule of Functional Expenses – See Appendix D o Typically shown as a basic financial statement instead of supplemental information o Allocation methods must be fair and reasonable. Review of allocation methods and percentages should be reviewed at least annually by both management and the Board of Trustees. o Supplementary Information – For Charter Schools operating multiple schools under the same charter (for example, both a middle and an elementary school) a supplemental statement of activities can be included showing activity of each school separately. 15

Presentation of Charter School Financial Statements o “Friends of” organizations: “Friends of” organizations need to be evaluated for consolidation with the charter school for financial statement purposes • Do the entities have a shared economic interest? • Does the “friends of” organization have more than 50% board members that are also members of the charter school’s Board of Trustees? • Do the two entities have overlapping members of management and/or individuals charged with governance? • FASB ASC 958 -810 provides more guidance in this area o Contributed Goods or Services: Contributions must be recognized as revenues or gains in the period received and as assets, decreases of liabilities, or expenses depending on the form and type of contribution. Contributed Items could include: • Materials and supplies, including curriculum materials • Pro-Bono legal services • Property and equipment 16

Presentation of Charter School Financial Statements o Required Footnote Disclosures • For contributed services provided by the local district, if a value can be determined, it should be recorded in the Charter School’s financial statements. If a value cannot be determined, that fact should be disclosed. In either case, the contributed services received should be disclosed. • For space provided to the Charter School at no charge, the footnotes should describe the current facility arrangement. If a value for this space has been recorded in the financial statements, the amount should also be disclosed. To aid in comparison of charter schools, an approximate square footage of space should also be disclosed. o Sample footnote disclosure: • The Charter School is located in a New York City Department of Education facility and utilizes approximately _____ square feet at no charge. In addition, the Charter School received donated transportation, food service and special education services from the local district. The Charter School was unable to determine a value for these services. 17

Compliance with Laws, Regulations, Contracts & Grants Responsibilities of the School o o Compliance with mission established Abide by a code of ethics Establish a board of trustees Operate pursuant to by-laws of the charter school 18

Compliance with Laws, Regulations, Contracts & Grants Responsibilities of the Auditor o Obtain and review charter o Review compliance with age, grades, and number of students established by charter application o Review compliance with lottery procedures o Compliance with hiring procedures o Certificate of occupancy and fire inspection o Ensure insurance coverage is in place 19

OMB A-133 Single Audits Typical Federal funds received by a charter school include: o o o o Charter School Program (CSP), including replication and expansion grants Title I, Part A Title III, Part A Race to the Top National School Breakfast, Lunch and Snack Program Summer Food Service Program When is a Single Audit required? o Charter school expends $500, 000 or more in federal awards during fiscal year o Funding received from USAC Schools & Libraries Program (E-Rate) and IDEA (Special Education) do not “count” toward reaching the $500, 000 threshold o Funding received for Breakfast, Lunch, Snack program should not be net of expenses o Current proposal in place at the Federal level to increase threshold from $500, 000 to $750, 000 20

Recap of Required Financial Reports & Related Deadlines o Initial Statement of Controls – 120 days from issuance of charter – to NYSED o Engagement letter for Agreed upon procedures Report on Initial Statement of Controls – 120 days from issuance of charter – to NYSED o Agreed upon procedures Report on Initial Statement of Controls – must commence within 60 days after date school has received and disbursed more than $50, 000 and be submitted to NYSED within 45 days from commencement o Audited Financial Statements – November 1 st of each fiscal year – to NYSED o Report on Internal Control over Financial Reporting and on Compliance with Provisions of Laws, Regulations, Contracts and Grant Agreements– November 1 st of each fiscal year – to NYSED o OMB Circular A-133 Report – November 1 st of each fiscal year – to NYSED and Federal Government, only if applicable o Agreed upon procedures report on Charter School Program (CSP) Grant – November 1 st of each fiscal year – to NYSED, only if applicable 21

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New York State Education Department Charter School Audit Guide Training Presented by: Michelle Cain, CPA Jackie Lee, CPA Kate Welc, CPA

Topics Covered in this Session o Auditing Charter School Financial Statements o Auditing Compliance with Laws, Regulations, Contracts and Grants o Agreed-Upon Procedures on the Initial Statement of Controls o Agreed-Upon Procedures on the CSP Grant o Requirements of GAGAS for Auditors o OMB A-133 Single Audits, including proposed changes 24

Auditing Charter School Financial Statements o The Audit Guide was designed to provide guidance to Charter School auditors as to auditing considerations specific to the charter school industry. o Goal is to provide higher quality audits of Charter Schools. o Guide does not cover standard audit procedures required under GAAS, it is assumed the auditor is familiar with these requirements. o Topics covered include: • • • Escrow account required under charter agreement Accrued payroll and benefits Funding streams and related revenue recognition Co-located schools Management fees Fraud considerations 25

Auditing Charter School Financial Statements The following suggested procedures are in addition to audit requirements required under GAAS and GAGAS: o Cash: • Escrow account established to cover legal and accounting costs associated with dissolution • Confirm account is funded at minimum level determined by NYSED in Section 8. 5 of charter school’s charter agreement o Accrued Payroll and Benefits: • 10 or 11 month vs 12 month employees • Auditor should ensure that payroll and other related costs are being expensed over the appropriate period based on staff/teacher contracts or other available information • Be alert for required retirement contributions, health insurance, or other benefits already earned by the employees as of year-end that will be paid subsequent to year-end (typically in the summer months). These expenses should be accrued at year-end. 26

Auditing Charter School Financial Statements Suggested Audit Procedures continued: o Per pupil funding: Major source of charter school revenues. Revenue is calculated on full time equivalent (FTE) basis multiplied by a set rate. o Audit of per-pupil revenue generally consists of the following: • Testing of student existence, enrollment, and verification of attendance to recalculate FTE o Auditor selects a sample of students from the FTE roster and tests for proof of existence by reviewing student files containing birth certificates, passports, or equivalent o Auditors verify the reported dates per the FTE report through review of attendance records, report cards, or other evidence of student enrollment. This is particularly important for students transferring in or out during the year who have less than 1 FTE. o Recalculate FTE (number of days attended between admission date and discharge date divided by total length of school year) o FTE Calculator available on NYSED website under State Aid / Attendance and Enrollment / FTE Calculator 27

Auditing Charter School Financial Statements Suggested Audit Procedures continued: o Per pupil funding: Audit of rate used • Verification of funding rate per student (generally determined by the student’s resident district – not necessarily the district in which the charter school is located) o The Charter School should have valid proof of residency on file (lease, utility bill or other evidence). o Verify the rate used is correct based on district and school year (basic tuition rate available on NYSED website under tuition by year) o Calculate the core aid in total • Multiply the rate by the number of full time equivalents and compare to total core pupil aid recorded for fiscal year being audited o Vouch payments received from the funding source (local districts) to bank statements • Reconcile to total core pupil aid for fiscal year being audited • Include any amounts due or from funding source at previous year end • Recalculate any payable or receivable at year-end agree to amount recorded 28

Auditing Charter School Financial Statements Suggested Audit Procedures continued: o Special Education (SPED) students • SPED students participate in Individualized Education Programs (IEP) • 3 levels of service as defined by Education Law o o 0 -20% service required (no additional funding provided) 20 -60% service required (. 9 x SPED rate additional funding allowed) More than 60% service required (1. 65 x SPED rate additional funding allowed) Percentages are based on hours of SPED services divided by hours in the local DOE school day (not the Charter School’s school day) • Auditors test that student’s services are billed to local district at appropriate level based on IEP • If local district is provided the Special education services, the charter school should not be billing for those services. o Revenue calculation is similar to non-SPED funding • SPED FTE multiplied by SPED rate • SPED FTE is the portion of the year the student was receiving SPED services, which may not be the same as the portion of the year they were enrolled • Verify appropriate special education funding rate is used (spreadsheet to determine the rate is available on NYSED website under Special Education Aid Information) 29

Auditing Charter School Financial Statements Example Calculations Assumptions: Charter School Year: 9/4/12 – 6/21/13 Student dates of enrollment: 9/4/12 – 4/30/13 therefore FTE =. 821 Student receives SPED services for 60% of the school day = Factor of 1. 65 Student receives SPED services for entire time of enrollment Student resides in NYC – Tuition rate of $13, 527, SPED Rate of $11, 544 Regular Education Tuition FTE x Tuition Rate =. 821 x $13, 527 = $11, 106 SPED Excess Cost Aid SPED FTE x SPED Tuition Rate x Applicable Factor. 821 x 11, 544 x 1. 65 = $15, 638 NOTE: Rates used are for example purposes only 30

Auditing Charter School Financial Statements Suggested Audit Procedures continued: o Auditors should obtain support for additional funding via NYSED website • Information arranged by county and school and is available for prior 5 years • Includes No Child Left Behind Funding, IDEA Allocation, Agency Summary Report • Information should be reconciled to the amounts recognized on the general ledger for the fiscal year being audited • Approved budget information is available on the website, however the Charter School may not have expended the full grant award, so expenditure reports should be reviewed to ensure the appropriate amount of revenue has been recognized • Website also includes details of payments made to the charter school broken down by year and grant award 31

Auditing Charter School Financial Statements Suggested Audit Procedures continued: o Co-locations: • Charter schools can be permitted to use space that is deemed to be empty or underutilized by the District’s DOE. In this case, the charter school must disclose the following items in their financial statements: o o o Any agreement they have with the DOE to utilize such space Rent paid to DOE, if any Fees charged for after-school or weekend usage, if any Payments related to utilities and maintenance of these facilities, if any Note disclosure should include square footage of space being used by school • Charter schools may co-locate in the same building as other charter schools o Expenses should be allocated between the schools and auditor should review allocation to determine that method of allocation appears reasonable o Allocation of expenses could be made based on: • • • FTE students Square footage Other mutually agreed upon methods 32

Auditing Charter School Financial Statements Suggested Audit Procedures continued: o Management Fees: • Many Charter Schools utilize a third party management company to provide support to the school o Charter Management Organizations (non-profit organizations) o Education Management Organizations (for-profit organizations) • Auditor should obtain a copy of the agreement between the organization and the charter school • Auditors should consider the materiality of the expense to determine whether recalculation of the expense is necessary and disclosure is required in footnotes • Auditor should determine if the school’s authorizer has approved the agreement 33

Auditing Charter School Financial Statements Suggested Audit Procedures continued: o Fraud Considerations: • General procedures: o Make inquiries of management and others to obtain views about the risks of fraud and how they are being addressed o Consider unusual/unexpected relationships that have been identified in performing analytical procedures in planning the audit o Consider whether one or more fraud risk factors exist o Consider other information that may be helpful in identifying risks of material misstatement due to fraud 34

Auditing Charter School Financial Statements Suggested Audit Procedures continued: o Fraud Considerations: • US GAO provides the following recommendations on conditions that might indicate heightened risk of fraud: o Economic, programmatic, or entity operating conditions threaten the entity’s financial stability, viability or budget; o Nature of the entity’s operations provide opportunities to engage in fraud; o Management’s monitoring of compliance with policies, laws, and regulations is inadequate; o The organizational structure is unstable or unnecessarily complex; o Communication and/or support for ethical standards by management is lacking; o Management is willing to accept unusually high levels of risk in making significant decisions; 35

Auditing Charter School Financial Statements Suggested Audit Procedures continued: o Fraud considerations, continued: • • • Operating policies and procedures have not been developed or are outdated; Key documentation is lacking or does not exist; Asset accountability or safeguarding procedures is lacking; Improper payments; False or misleading information; A pattern of large procurements in any budget line with remaining funds at year end, in order to “use up all of the funds available”; • Unusual patterns and trends in contracting, procurement, acquisition, and other activities of the entity or program. 36

Auditing Charter School Financial Statements Suggested Audit Procedures continued: o Fraud Considerations specific to charter schools: • Heightened risk of misappropriation of assets due to high use of credit cards o Auditor should be cognizant of the risk and develop audit steps to test appropriateness of expenses • Auditor should consider additional testing related to expense reimbursements including proper approval of expenses and authorized signatures on checks • Auditor should inquire regarding the existence of transactions with related parties, as well as review board minutes, conflict of interest statements and other significant agreements to identify related party transactions. o Identified related party transactions should be audited if material o For material related party contracts, was the Board aware of the conflict of interest at the time the contract was entered? 37

GAGAS Report and Compliance Items to be Audited Audits performed under GAGAS require issuance of a separate report on internal control over financial reporting and on compliance with provisions of laws, regulations, contracts, and grant agreements that could have a material effect on the financial statements (the “Yellow Book” report). o Internal control over financial reporting • Auditor must describe scope of their consideration of internal control over financial reporting as part of the audit of the financial statements. • Auditor need not provide an opinion on internal control over financial reporting. • Material weaknesses or significant deficiencies in internal control over financial reporting identified during the audit, or continuing from previous year, must be included in Yellow Book report. 38

GAGAS Report and Compliance Items to be Audited o Compliance with Provisions of Laws, Regulations, Contracts and Grant Agreements • The auditor must determine whether the entity is in compliance with material provisions of laws, regulations, contracts and grant agreements that could impact financial statements • Evidence of fraud or noncompliance found throughout the audit should be evaluated to determine if a finding is necessary in the Yellow Book report. Examples include: o Indications of fraud o Noncompliance with provisions of laws or regulations o Noncompliance with provisions of contracts or grants that could have a material effect on the financial statements o Abuse that is material, either quantitatively or qualitatively 39

GAGAS Report and Compliance Items to be Audited Reporting a Finding: Findings should include the following elements: o o o Criteria Condition Cause Effect or potential effect Recommendation Management response 40

GAGAS Report and Compliance Items to be Audited **Flow chart obtained from the AICPA Audit Guide, Government Auditing Standards and Circular A 133 Audits, Copyright AICPA. Used with Permission 41

GAGAS Report and Compliance Items to be Audited Compliance items to be audited: General requirements o The charter school must: • • Operate under the mission statement as set forth in the application Abide by a Code of Ethics Establish a board of trustees Operate pursuant to the by-laws of the charter school set forth in the application for the charter o The auditor must: • Obtain the charter agreement and ensure the charter school is abiding by policies and procedures set forth • If discrepancies are identified, the auditor should consider including findings in Yellow Book report and communicating with those charged with governance 42

GAGAS Report and Compliance Items to be Audited Compliance items to be audited: Age, grades, number of students o In the charter school application, the charter school is required to establish grade levels and enrollment goals o Charter school has limited flexibility on enrollment from year to year assuming changes in enrollment do not alter the school’s educational design o Written approval is required from NYSED prior to: • Enrolling any student who would cause the charter school to exceed total maximum enrollment as set forth in the application • Commencing or continuing instruction where the total number of students enrolled is less than 85% of the projected enrollment for a given year or if the total enrollment is less than 50 students o See guidance on enrollment and retention targets at http: //www. p 12. nysed. gov/psc/enrollment-retention-targets. html 43

GAGAS Report and Compliance Items to be Audited Compliance items to be audited: Discussion of lottery system Under the Education law, school is responsible for: o Education Law states that charter schools may not discriminate against any students on the basis of: • • • Ethnicity National origin Gender Disability Other ground that would be unlawful if done by a non-charter public school o Applications for admissions to a charter school are submitted on a uniform application form created by NYSED. o Enrollment preference provided to pupils returning to the school in the second or subsequent year of operation, those residing in the school district in which the charter school is located, and those with siblings already enrolled in the charter school. o The commissioner shall establish regulations to require that the random selection process is conducted in a transparent and equitable manner. 44

GAGAS Report and Compliance Items to be Audited Compliance items to be audited: Discussion of lottery system Cont’d – School is responsible for: o The commissioner shall also require that the random selection process be open to the public and abide by the requirements of NYS Public notice requirements consistent with the public notice requirement of Section 104 of the NYS Public Officers Law. 45

GAGAS Report and Compliance Items to be Audited Compliance items to be audited: Discussion of lottery system Auditor is responsible for: o Auditor should obtain procedures for the charter school in regard to enrollment and retention. o Auditor should obtain procedures documenting the system for the lottery and inquire of management if those procedures are being followed. o If the auditor finds that there are not adequate procedures documented or that procedures are not being followed, the auditor should consider observing the next live lottery and/or review the applications received and those selected. o Discrepancies between documented procedures and those being performed should potentially be documented in the Yellow Book report and communicated to those charged with governance. 46

GAGAS Report and Compliance Items to be Audited Compliance items to be audited: Hiring Procedures o Auditor should verify following procedures: • Fingerprinting of all prospective members/new hires • Consent to obtain applicants’ criminal history records search • Criminal history report Insurance coverage o Auditor should obtain evidence that proper insurance is obtained: • Liability • Property loss • Personal injury of students Certificate of Occupancy and Inspections o Auditors should verify the following: • The charter school has obtained a certificate of occupancy for facilities to be used prior to commencement of instruction at the school; • The existence of an up-to-date fire inspection report. 47

Agreed Upon Procedures on the Initial Statement of Controls Procedures required for Independent Accountants’ Report: Auditors will obtain a copy of the Financial Policies and Procedures Manual (“FPPM”) of the School and read it to ascertain whether it includes the following: o Accounting procedures for the preparation of the School’s financial statements in o o conformity with accounting principles generally accepted in the United States of America. Payroll procedures for the School and determine whether the School has hired an outside vendor to process the payroll. Procedures for accounting for contributions and grants. Procedures for ensuring the School has procedures for cash management and investments, if applicable. Auditors will obtain a copy of the School’s code of ethics. Procedures for ensuring the purchasing process results in the acquisition of necessary goods and services at the best price. 48

Agreed Upon Procedures on the Initial Statement of Controls Procedures required for Independent Accountants’ Report (continued): o Auditors will read the available trial balance and documentation supporting cash receipts, cash disbursements and payroll expenses on a sample basis to observe the status of implementation of the accounting procedures. o Auditors will interview the person(s) responsible for financial management of the School regarding the existence and understanding of appropriate internal financial controls and procedures, including procedures related to ensuring that transactions are properly authorized, assets are safeguarded against unauthorized or improper use, and transactions are properly recorded and reported. o Auditors will interview the person(s) responsible for financial management of the School regarding compliance with applicable laws and regulations and how they stay current with all laws and regulations. We will also obtain a copy of the School’s code of ethics. 49

Agreed Upon Procedures on the Initial Statement of Controls Procedures required for Independent Accountants’ Report (continued): o Auditors will interview the person(s) responsible for financial management of the School regarding the existence of procedures for budget development and administration to determine if the School is following appropriate guidance. Auditors will obtain a copy of the most recent budget to determine if the budget was approved by the Board of Trustees of the School. o Auditors will identify and interview the person(s) responsible for financial management of the School regarding the existence and understanding of procedures for the creation and review of interim and annual financial statements. Sample Report available at Appendix A of the Audit Guide 50

Agreed-Upon Procedures Report on CSP Grant Deadlines o Submissions due to NYSED by November 1 st with the audited financial statements for that year o Report must cover the same fiscal period as the audit Procedures required: o Procedure 1: Auditor will obtain the detail of expenditures incurred for the period under review relating to the CSP grant from the Charter School’s accounting software and reconcile to the grant revenue recorded by the Charter School. If the CSP grant revenue does not equal the grant expenditures, auditor will investigate the differences; o Procedure 2: Auditor will obtain the NYSED approved CSP grant award information, including the budget and any amendments, to determine if the revenue and expenditures recorded for the period appear reasonable; 51

Agreed-Upon Procedures Report on CSP Grant Procedures required (continued): o Procedure 3: Auditor will select a sample of expenditures from the detail obtained in procedure 1. • Payroll – auditor will select 10 items or 10% of the total number of payroll items charged to the grant, whichever is less • Other expenses – auditor will select 10 items or 10% of the total number of non-payroll items charged to the grant, whichever is less • Using the above selected items, auditor will: o Determine if the expenditure is in accordance with the purpose of the grant and that pre-opening expenditures are charged to pre-opening periods o Determine if the expenditure falls into an approved budget category o Determine if the expenditure was charged to the appropriate fiscal period 52

Agreed-Upon Procedures Report on CSP Grant Procedures required (continued): o Procedure 4: Auditor will obtain FS-25 form(s) submitted to NYSED during the period under review and perform the following: • Trace expenditures selected in Procedure #3 to requests for reimbursement. o Determine that items requested for reimbursement had previously been expended or were expended within a month following the request for reimbursement. o If items have not yet been requested for reimbursement, inquire of responsible charter school officials as to the plan for requesting reimbursement o Determine if a receivable is recorded, if appropriate • If FS-25 forms included amounts on Line 4 (Cash Expenditures Anticipated During Next Month), auditor will select one FS-25 and determine if funds were expended within 1 month following the date of the request. Sample Report available at Appendix B of the Audit Guide 53

Requirements of Government Auditing Standards Yellowbook availability o Generally Accepted Government Auditing Standards (GAGAS) are available on the Government Accountability Office website http: //www. gao. gov/yellowbook Independence requirements o GAGAS requires that auditors comply with independence guidelines and require documentation regarding any threats to independence o Government Audit Quality Center of the AICPA has published a comparative guide between the AICPA and GAQC independence rules for non-audit services (available on GAQC website) 54

Requirements of Government Auditing Standards CPE Requirements o Auditors performing the following tasks in accordance with GAGAS are required to complete a minimum of 24 hours of CPE every two years directly related to government auditing or the government environment • Planning, directing, or performing audit procedures • Reporting on an audit conducted in accordance with GAGAS o Auditors performing the following tasks in accordance with GAGAS are required to complete a minimum of 80 hours of CPE every two years and a minimum of 20 hours each year that will directly enhance their professional proficiency to perform audits • Planning, directing, or reporting on GAGAS • Auditors who are not directly involved in the above activities but charge 20%+ of their annual time on GAGAS audits o Auditors hired or initially assigned to GAGAS audits after the beginning of the firm’s 2 -year CPE period is required to complete a prorated number of CPE hours 55

Requirements of Government Auditing Standards Peer review requirements o Required every 3 years for firms performing audits under GAGAS o Must be performed by independent peer reviewer 56

OMB A-133 Single Audits Additional reports required when performing a Single Audit: o Internal control over compliance with compliance requirements that could have a direct and material effect on a major program o An opinion on compliance with requirements that could have a direct and material effect on a major program o An opinion on the Schedule of Federal Expenditures (SEFA) Findings on lack of compliance with direct and material requirements of the program, or if controls over compliance are not operating effectively, these issues must be reported in A-133 report o Findings can be categorized as: • Deficiencies • Significant deficiencies • Material weaknesses Auditors should refer to OMB Circular A-133 and the most recent compliance supplement when performing single audits 57

OMB A-133 Single Audits Proposed Changes to Single Audits o Threshold requiring Single Audit would increase from $500, 000 to $750, 000 o Type A Program threshold would increase from $300, 000 to $500, 000 o Types of compliance requirements to be tested reduced from maximum of 14 to 6 • The remaining six compliance requirements would be: o o o Activities allowed/unallowed and allowable costs/cost principles Cash management Eligibility Reporting Subrecipient monitoring Special tests and provisions o Increase in questioned cost threshold from $10, 000 to $25, 000 o Consolidation of multiple OMB Circulars (A-87, A-110, A-122, etc. ) into one document o More detail would be required in auditor findings 58

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