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Audit Requirements

State Government

State Requirements

State law requires state agencies to be audited once in a two-year period. The statewide audit approach provides for an annual audit covering all state agencies. The scope of audit coverage for individual state agencies will vary, depending on materiality, complexity, legislative interest and risk.

Seven state agencies and one non-profit organization are audited annually and separate audit reports are issued, as required by state law. The audit reports of the seven state agencies are incorporated into the South Dakota statewide audit report.

Federal Requirements

The United States Congress passed the Single Audit Act that requires states to audit federal awards. The U. S. Office of Management and Budget adopted Circular A-133, Audits of States, Local Governments and Non-Profit Organizations, which establishes the regulations for implementing the Single Audit Act. The Circular provides criteria for determining the federal awards to be audited and suggested audit procedures to be followed when testing state agencies’ compliance with federal regulations.

State Agency Requests

State agencies request audits of funds for various purposes. Annual audits of the Revolving Economic Development Initiative Fund and Economic Development Finance Authority are performed at the request of the Governor. Audits relating to frauds are conducted at the request of the Attorney General. Comfort letters relating to bond issues are prepared at the request of the Board of Regents. Arbitrage reports relating to bond issues are performed at the request of the Building Authority. Constitutional officers sometimes request audits of their offices when they are first elected to office.

Executive Board of the Legislative Research Council

The Executive Board directs the DLA to perform specific reviews or audits of state agencies or specific issues relating to state agencies. Recent examples are the fiscal reviews conducted at the University of South Dakota in 1997 and South Dakota State University in 1998.

Auditor Judgment

In addition to the consideration of materiality and risk, DLA schedules audits of state agencies or programs within state agencies based on when the last audit was conducted. Our objective is to perform audits of specific programs or funds of state agencies that do not fit other audit criteria, on a three-year cycle.

Audits are scheduled based on special circumstances. State operations of special interest to the Legislature may receive increased audit coverage. Examples of these state operations are the State Fair and Unclaimed Property.

Allegations of Impropriety

A legislator, state agency official, private citizen, etc. may provide DLA with information that would indicate a potential problem at a state agency. The information is reviewed to determine if the allegation has merit.

 

 

Local Government

 

State Requirements - SDCL 4-11-4

Counties - All 66 counties are required to be audited at least once every two years. Therefore, most of the counties receive two-year audits every other year. Several of the larger counties have opted to receive annual audits because of their size.

Municipalities - There are approximately 65 audits completed each year from the total of 309 municipalities. Audit requirements vary depending upon the total revenues of a municipality as follows:

Total Revenues Number of Municipalities Requirement
$600,000 and greater 85 Audits (at least once every two years)
$100,000 to $600,000 101 Internal Control Reviews (once every five years)
Less than $100,000 123 Annual Report Filing

Schools - Each of the roughly 190 schools, cooperatives and multi-districts must receive an audit at least once every two years. As a result, there are approximately 155 school district audits performed each year. Most of the districts receive annual audits with a number of the smaller districts opting for two-year audits.

Federal Requirements

OMB Circular A-133 requires entitywide single audits of all local governments that spend $750,000 or more of federal funds in a fiscal year. This requirement will trigger several audits each year of mid-sized municipalities that normally would not be required to have an audit.

Requested by the Governing Board

Pursuant to SDCL 4-11-4, an audit may be performed of any local government at the request of the governing board. These requests would normally come from smaller municipalities, townships or special districts that have no audit requirements. Many of the concerns of these governing boards can be handled by phone, fax or onsite assistance without incurring an audit cost.

Initiated by Petition of 20% of Resident Taxpayers

Occasionally, DLA will receive a petition for an audit from a small town or township. As outlined in SDCL 4-11-5, DLA performs the audit and works with the entity on any problems that may have surfaced.

Initiated by Auditor General if Special Reasons Exist

SDCL 4-11-4 authorizes the Auditor General to perform an audit of any local government if special reasons, such as fraud, exist. These audits generally originate from an informant that may be a taxpayer or employee of a local government entity. The number of these audits varies from year to year.

Internal Control Reviews

Designed specifically for smaller municipalities, the reviews verify if a proper control system is in place rather than primarily focusing on the financial statements. They are required by SDCL 4-11-4.1 once every five years for municipalities with $100,000 to $600,000 in annual revenues. These reviews usually take only a couple of days to perform, which makes them a very cost-effective tool to assist in the establishment of controls to safeguard public assets and the maintenance of a proper accounting system in small municipalities.