State and local government auditors are critical to ensuring transparency, efficiency, effectiveness, and accountability in government. The importance of government auditors was highlighted by the Washington, D.C., Auditor, Kathleen Patterson, who spoke at the spring 2024 meeting of the AICPA’s Government Performance and Accountability Committee (GPAC). This article reviews common audits performed by government auditors and offers some high-level best practices to keep in mind.
Government auditors are often embedded in the legislative branch of government and commonly perform a variety of audits, attestation engagements, and other services in accordance with their statutory authority and in response to requests from legislators and citizens. Common examples include the following:
Financial audits provide an independent opinion about whether the financial statements are presented fairly, in all material respects, in conformity with generally accepted accounting principles (or other accounting and reporting standards a government may be required to follow).
Attestation engagements include examinations, reviews, and agreed-upon services that are intended to provide various levels of assurance on other financial or nonfinancial matters, such as internal control, compliance, management discussion and analysis (MD&A) presentation, allowability and reasonableness of proposed contract amounts, final contract costs, and reliability of performance measures.
Performance audits provide independent assessments of the performance and the management of the entity, program, service, or activity. This includes assessing the effectiveness and results, economy and efficiency, and internal controls.
Special reports are designed to address specific interests and concerns of legislators regarding use of public resources by a particular entity or in a specific program.
Investigative reports typically involve examination of bank accounts, invoices, deposits, disbursements, and other transactions to detect misappropriation of public funds.
Audits can expose sensitive accounting, financial, operational, compliance, and accountability issues in an already highly scrutinized political context. For example, audits may shed light on accounting errors, fraud, waste, abuse, and mismanagement. As a result, it is critical for auditors to allocate resources in an effective manner and conduct high-quality audits in accordance with the required standards, such as generally accepted auditing standards or generally accepted government auditing standards (the Yellow Book).
The following are some important considerations related to conducting high-quality audits:
Stakeholder engagement
Engage with a broad range of stakeholders, including legislators and the public, to understand their concerns and priorities.
Foster collaborative relationships with auditees to facilitate the implementation of audit recommendations.
Risk-based audit planning
Develop an audit plan that prioritizes high-risk areas and allocates resources efficiently.
Use risk assessments and stakeholder engagement to identify and focus on areas with the greatest potential impact.
Independence and objectivity
Maintain independence in fact and appearance from the entities being audited to ensure objectivity and impartiality.
Avoid real or perceived conflicts of interest that could compromise the integrity of the audit process.
Professional standards and training
Maintain competencies in professional standards, such as those established and maintained by the AICPA, Governmental Accounting Standards Board, Financial Accounting Standards Board, or Government Accountability Office.
Invest in the professional development and training of audit staff to stay ahead of evolving professional standards, organizational structures, and technologies.
Establish and maintain a system of quality control.
Professional judgment
Apply professional judgment in all aspects of the audit process.
Exercise professional judgment to ensure that sufficient and appropriate audit evidence is obtained and that audit opinions, findings, conclusions, and recommendations are based on such evidence.
Use of technology
Leverage advanced data analytics and other technologies to enhance audit efficiency and effectiveness.
Stay informed about emerging technologies — such as artificial intelligence — and their potential applications in auditing.
Effective communication
Maintain clear and open communication with stakeholders throughout the audit process.
Present findings and recommendations in a clear, concise, and actionable manner.
Follow-up and monitoring
Implement robust follow-up procedures to ensure that audit recommendations are acted upon.
Monitor the progress of corrective actions and provide updates to relevant stakeholders.
Ethical conduct
Uphold the highest ethical standards in all audit activities.
Promote a culture of integrity and accountability within the audit organization and the entities being audited.
By adhering to these best practices, government auditors can best position themselves and their organizations to effectively contribute to the transparency, efficiency, effectiveness, and accountability of government operations, ultimately serving the public interest.