PURPOSE: This rule establishes a comprehensive policy for school audits. New federal audit requirements have prompted a review of audit requirements and audit review procedures. This policy outlines the purposes of audits, the responsibilities various parties have in the audit and the audit review process, relationships in this process, minimum audit requirements and procedures the Department of Elementary and Secondary Education will follow in resolving any ques- 5 CSR 30-4

tion or problem which may be disclosed by the audit.

Editor’s Note: The secretary of state has determined that the publication of this rule in its entirety would be unduly cumbersome or expensive. The entire text of the rule has been filed with the secretary of state and is summarized here by the agency adopting it. The entire text of the rule may be found at the headquarters of the agency and is available to any interested person at a cost established by state law.

1. (1) Audits of school districts are primarily intended to express an auditor’s opinion on the fairness of presentation of the financial statements. Audits also provide an independent review of financial operations for local boards, verify selected data used to apportion state funds, review systems of internal control made as a part of the financial audit, make recommendations for improvements and determine compliance with relevant state and federal laws and regulations.

2. (2) Responsibilities in the audit process are shared by the local board of education, the independent auditor contracted by the board, and the Department of Elementary and Secondary Education (DESE).

   1. (A) Each local board of education is responsible for defining an appropriate scope of audit, which as a minimum, must meet the requirements of this rule. Each local board also is responsible for selecting an independent auditor who is licensed according to state law and meets the qualifications regarding continuing professional education, peer review, and independence in accordance with government auditing standards. Upon receipt and review of the audit report, the local board is responsible for transmitting one (1) copy of the report; the related management letter, if provided by the independent auditor; and a copy of the board minutes or a board resolution, indicating approval of the audit report to the DESE and other copies of the audit report as required by federal laws and regulations to the appropriate agency(ies). Each local board is also responsible for ensuring implementation of audit recommendations as appropriate and resolving any questions or discrepancies disclosed by the audit or noted by the DESE.
   2. (B) The independent auditor is responsible for conducting the audit in accordance with generally accepted auditing standards, government auditing standards, federal audit requirements, and DESE audit guidelines as contained or referenced in this rule; submitting the audit report to the client board of education; and may be requested to assist in resolving any questions or problems which may be disclosed by the audit. Depending on the contract or agreement the district has with their independent auditor, this assistance may require additional compensation paid to the auditor.

   3. (C) The DESE has the general responsibility to receive and review audits; to verify that minimum audit requirements have been met; and with the district and/or the district’s independent auditor, to resolve any questions or discrepancies. Specific responsibilities within the department are assigned as follows:

      1. 1. The School Finance Section, within

the Division of School Services, is the primary point of contact with school districts and their independent auditors regarding audit requirements and audit reports. The School Finance Section will also be responsible for reviewing the audit reports for general acceptability in accordance with state and federal guidelines; and

1. 2. The program sections, both federal

and state, are responsible for addressing relevant portions of the audit including follow-up with school officials and their independent auditors to resolve any questions, discrepancies or audit findings.

1. (3) The DESE has an advisory and supervisory relationship with the local board of education through its administrative staff. Questions regarding audit reports and any audit problems, discrepancies or findings will generally be resolved by the department directly with administrative staff at the district. However, in some cases, due to their nature of the item, department staff may communicate directly with the district’s auditor. Department staff will communicate with the federal cognizant agency (usually, the U.S. Department of Education) regarding compliance with various federal requirements. The cognizant agency has the authority to make periodic contacts with school district officials and their auditors regarding specific questions, audit deficiencies or review of the audit process.
2. (4) State requirements for school district audits are contained in section 165.121, RSMo. In addition to these requirements, the schedule of selected statistics as specified annually by the DESE must be included in the audit report submitted to the DESE by the school districts. The auditor must express an opinion regarding the district’s conformance to the budgetary and disbursement requirements of Chapter 67, RSMo, and the auditor must express an opinion as the whether attendance and transportation records are so maintained by the district as to disclose accurately average daily attendance and average daily transportation of pupils during the period of the audit.

3. (5) State law provides for the acceptance of federal acts and funds and for their necessary administration and supervision. Audit requirements are a part of federal acts and the implementing regulations adopted by the administering federal agencies. The requirements of the Single Audit Act, as amended by The Single Audit Act Amendments of 1996, Office of Management and Budget (OMB) Circular A-133 (OMB Circular A-128 has been rescinded) and Government Auditing Standards, issued by the Comptroller General of the United States, are included in this audit policy and requirement, by reference. Specific application of these requirements shall be as follows:

   1. (A) All school districts that expend a total amount of federal awards equal to or in excess of three hundred thousand dollars ($300,000) (from all sources) or such other amount specified by the federal director of the Office of Management and Budget (Director-OMB) (see (5)(E) below) in any fiscal year shall have either a single audit or a program-specific audit made for such fiscal year in accordance with the requirements of The Single Audit Act Amendments of 1996
   2. (B) All school districts that expend a total amount of federal awards of less than three hundred thousand dollars ($300,000) or such other amount specified by the director-OMB in any fiscal year shall be exempt for such fiscal year from compliance with The Single Audit Act Amendments of 1996. However, these school districts shall be required to have an audit performed in accordance with Government Auditing Standards (a “Yellow Book” Audit).
   3. (C) Audits conducted biennially shall cover both years within the biennial period and may be reported in the aggregate. However, the schedule of selected statistics must clearly depict the information by the appropriate school year.
   4. (D) The audit, regardless if Single Audit or “Yellow Book” Audit, shall be conducted by an independent auditor in accordance with Generally Accepted Auditing Standards (GAAS) and Government Auditing standards (GAS).
   5. (E) Every two (2) years, the director-OMB shall review the amount for requiring audits and may adjust such dollar amount, provided the director-OMB does not make such adjustment below three hundred thousand dollars ($300,000).
4. (6) The audit report, accompanying management letter (if provided), and a copy of the board minutes or a board resolution indicating approval of the audit report must be submitted to the DESE by school officials not later than October 31 of each odd numbered year unless an extension is requested and authorized by the DESE prior to that date. Extensions shall be requested in accordance with section 165.121.4, RSMo. The audit will be stamped with the “received date” by the School Finance Section. If audits are not received, all aid may be withheld until the audit is received. The School Finance Section will make a preliminary review to determine if the audit generally conforms to state and federal requirements referenced in this rule.
5. (7) School districts which receive an audit in accordance with subsection (5)(A) above and who have federal findings and questioned costs shall submit the school district’s Corrective Action Plan prepared in accordance with OMB Circular A-133 with their audit reports and management letter in accordance with section (6) above.
6. (8) School districts which receive an audit with an adverse opinion or disclaimer of opinion shall institute corrective measures to ensure that the subsequent audit does not contain either an adverse opinion or disclaimer of opinion. If such an opinion is rendered on the subsequent audit, the audit shall be deemed unacceptable and all aid may be withheld until such time as the district demonstrates to the DESE that the problems surrounding the adverse opinion or disclaimer of opinion or disclaimer of opinion have bee corrected by the district.

7. (9) Audits will be reviewed by the School Finance Section via a formal desk review for adherence do the appropriate audit requirements (The Single Audit Act Amendments of 1996; OMB Circular A-133; Government Auditing Standards, as well as the state requirements) included or referenced in this rule.

   1. (A) Any deficiencies with the audit, during this phase, will be communicated to school district officials and/or the independent auditor depending on the severity and type of deficiency noted. Resolutions of desk review items will be expected within thirty (30) days of communication with the school district or the independent auditor. Failure to resolve these deficiencies may result in the withholding of funds distributed by the DESE to that school district. Severe deficiencies and/or inaction by the district’s independent auditor may result in the reporting of the independent auditor to the Missouri State Board of Accountancy.

8. (10) For audits conducted in accordance with OMB Circular A-133, federal findings and questioned costs and the related Corrective Action Plan (see section (7) above) will be circulated to the appropriate program sections for follow-up with the school districts.

   1. (A) The appropriate program section shall issue a written management decision to the district indicating approval/disapproval of the Corrective Action Plan of the district. This must take place within six (6) months from the receipt of the audit.

9. (11) When the program section reviews suggest questions or disclose discrepancies, the individual program sections will correspond directly with the school district. This correspondence initiates a procedure for resolving program audit questions and discrepancies which is outlined below—

   1. (A) Personnel of the various program sections will advise the school district officials of the findings and the nature of any discrepancy found in the audit report:
   2. (B) Within thirty (30) days, school district officials will be expected to respond with clarifying information and, as appropriate, correct data or a corrected pay of the audit report issued by the independent auditor who conducted the original audit. DESE staff will assist in every reasonable way to help a school district and/or its independent auditor find a solution to audit problems; and
   3. (C) If a discrepancy cannot be resolved, the DESE may recover or withhold state funds from the affected program.
10. (12) Review of the independent auditor’s working papers may be conducted by the DESE as deemed appropriate to ensure appropriate work has been performed to support statements, opinions, findings, etc. of the independent auditor.

AUTHORITY: sections 165.121, 167.201 and 178.430, RSMo 1994.* Original rule filed April 28, 1982, effective Sept. 12, 1982. Amended: Filed Oct. 12, 1982, effective Jan. 14, 1983. Amended: Filed March 7, 1985, effective Sept. 3, 1985. Amended: Filed Jan. 30, 1989, effective May 25, 1989. Emergency amendment filed June 21, 1995, effective July 1, 1995, expired Oct. 28, 1995. Amended: Filed May 11, 1995, effective Dec. 30, 1995. Emergency amendment filed May 1, 1997, effective May 11, 1997, expired Nov. 8, 1997. Amended: Filed April 29, 1997, effective Nov. 30, 1997. *Original authority 1963.