State of Rhode Island
GUIDELINES FOR AUDIT BIDS AND SPECIFICATIONS
FOR MUNICIPALITIES AND REGIONAL SCHOOL DISTRICTS

JUNE 2011

ISSUED BY THE AUDITOR GENERAL
State of Rhode Island
General Assembly
Office of the Auditor General

Guidelines for Audit Bids and Specifications – Municipalities and Regional School Districts

Instructions

The Rhode Island General Law 45-10-4 requires that municipalities and regional school districts obtain the approval of the Auditor General prior to the employment of private auditors. The Auditor General issues these guidelines for audit bids and specifications in order to provide for consistency in the approval process. These are only guidelines. Municipal and regional school district officials should consult their city/ town solicitor or legal counsel to ensure compliance with state and local laws regarding procurement of services and the issuance of bid specifications.

As part of the approval of a municipality’s or regional school district’s selection of an independent auditor, the Auditor General will consider several factors, including but not limited to the following:

• the municipality’s or regional school district’s basis for selecting an audit firm;
• the audit firm’s qualifications and responses relative to the RFP;
• the audit firm’s capacity and track record for meeting required deadlines (e.g. staffing levels and other government engagements with similar due dates); and
• the audit firm’s cost proposal for the engagement relative to the other proposals.

By approving the municipality’s or regional school district’s selection of an audit firm, the Auditor General is not ensuring that the audit firm will (1) meet all contractual terms including the municipality’s or regional school district’s deadline for completion of the audit or (2) comply with professional standards in the conduct of the audit.

Approval of a firm to conduct the audit does not limit our authority to review, make further inquiries, and/or reject the audit report.

APPROVAL PROCESS

1. The municipality or regional school district shall submit audit specifications along with the completed "Request for Approval of Municipality Audit Bid Specifications” (Appendix 1) to the Auditor General at least sixty (60) days in advance of solicitation of bids from independent public accountants. Both documents will be reviewed and, if necessary, recommendations for modifications will be sent to the municipality or regional school district. When approved, the municipality or regional school district will be sent a copy of the "approved" forms so that it can proceed with the bid process.
2. When the municipality or regional school district has completed the bid process as outlined under "BIDS" (below), it shall submit to the Auditor General a comparative analysis of all audit firms that have responded to the RFP which must contain the key elements included in Appendix 3 as well as any other pertinent information considered by the municipality or regional school district in making its selection. In addition to this comparative analysis, the municipality or regional school district must submit to the Auditor General for review and approval, the complete response package from the professional firm for which approval is requested along with the "Request for Approval of Selection of Auditor" (Appendix 2). The municipality or regional school district will be contacted should there be any question concerning the selection of auditors.
3. When approved, a copy of the "approved" forms will be sent to the municipality or regional school district so that it can notify the auditors selected.

BIDS

1. Written audit specifications, drafted by the municipality or regional school district and approved by the Auditor General, shall be prepared for distribution to prospective bidders. The specifications should be tailored in accordance with these guidelines.
2. Professional auditing firms shall be invited to submit a proposal to complete an audit in accordance with the approved specifications. Sealed proposals shall be delivered directly by interested firms to the municipality or regional school district and shall be opened, at the time and place specified, in the presence of representatives of the bidders and the municipality or regional school district.
3. A pre-bid conference may be scheduled, depending on the complexity of the audit, to familiarize interested professional firms with the audit requirements.
4. The municipality or regional school district may reserve the right to reject the lowest bidder if it deems that it does not possess the personnel, experience and other resources to complete the audit in accordance with the audit specifications. It may also reject all bids. In either case, the reason for its action shall be documented.

FEDERAL AWARDS

An audit of a municipality or regional school district, which expends federal awards, must also meet the requirements of the Single Audit Act and OMB Circular A-133. These guidelines are designed for municipalities or regional school districts that must follow the audit requirements of OMB Circular A-133. Please refer to OMB Circular A-133 Subpart B – Audits and Subpart C Auditees regarding applicability of OMB A-133 and its requirements. If you determine that OMB Circular A-133 is not applicable to your municipality or regional school district, please make the necessary modifications to the audit bid specifications. Please note that circumstances could change between fiscal years regarding the expenditure of federal awards and therefore the applicability of OMB A-133 must be made each fiscal year.

Please refer to the definitions below in determining whether your municipality or regional school district expends federal awards.

OMB Circular No. A-133 – Subpart A.105 - Definitions:

“Federal awards” means Federal financial assistance and Federal cost-reimbursement contracts that non-Federal entities receive directly from Federal awarding agencies or indirectly from pass-through entities.  It does not include procurement contracts, under grants or contracts, used to buy goods or services from vendors.  Any audits of such vendors shall be covered by the terms and conditions of the contract.  Contracts to operate Federal Government owned, contractor operated facilities (GOCOs) are excluded from the requirements of this part.

“Federal financial assistance” means assistance that non-Federal entities receive or administer in the form of grants, loans, loan guarantees, property (including donated surplus property), cooperative agreements, interest subsidies, insurance, food commodities, direct appropriations, and other assistance, but does not include amounts received as reimbursement for services rendered to individuals as described in Subpart B.205 (h) and Subpart B.205 (i).

UNIFORM CHART OF ACCOUNTS (UCOA) – SCHOOL DISTRICTS

Section 16-2-9.4 of the Rhode Island General Laws required the Office of Auditor General and the Department of Elementary and Secondary Education to promulgate a uniform system of accounting, including a chart of accounts and required all accounts of the school districts, regional school districts, state schools and charter schools to be kept in accordance with the chart of accounts.

Based upon this statute, the bid specification submitted by a municipality or regional school district shall include the following:

• The School Department will be implementing a new Uniform Chart of Accounts for the fiscal year ending June 30, _____, as promulgated by the Auditor General and Commissioner of Education in accordance with Rhode Island General Law 16-2-9.4.  This may require additional testing for the fiscal year ending 20__.

Related to the above statement, the following statement shall be included in the bid specifications, however, your City/Town Solicitor or legal counsel may adjust the wording, if deemed appropriate:

• Any amendments to the contract for additional work will be negotiated in good faith.  Provided, however, in the event that the parties cannot mutually agree on additional work to be performed and the cost for said work, then the city/town or regional school district, as its option may rescind the option period.

Guidelines for Audit Bids and Specifications – Municipalities and Regional School Districts

Audit Specifications

Due Dates for Completion of Audit and Delivery of Reports

1. An annual audit shall be completed and final audit reports (inclusive of all audit communications) related to the financial statements shall be delivered to the municipality, State Auditor General and State Director of Revenue within six months after the close of the fiscal year for each year (as required by Section 45-10-5 of the General Laws). For example, for a municipality with a fiscal year ending June 30, the reports must be filed by December 31 of each year.

Qualifications of Auditor

1. The firm selected for the audit shall be a firm of certified public accountants holding a valid certification in the State of Rhode Island or from another state having equal professional standards.
2. The private auditor must meet the independence requirements of the American Institute of Certified Public Accountants including the provisions of Interpretation 10 of Rule 101 of the AICPA Code of Professional Ethics and the independence requirements of Government Auditing Standards.
3. The senior accountant in charge of the fieldwork shall be a certified public accountant.
4. The audit organization and the individuals responsible for planning, directing, conducting substantial portions of the fieldwork, or reporting on government audits shall meet the continuing educational requirements of Government Auditing Standards issued by the Comptroller General of the United States.
5. The audit organization shall have an appropriate internal quality control system in place and participate in an external quality control review program as required by Government Auditing Standards.
6. The audit organization shall provide a copy of their most recent external quality control review report and letter of comment to the municipality engaging the auditor.

Audit Contract

1. The audit contract may cover one, two or three fiscal years. Each year must be treated as a separate audit. The contract period shall not exceed three years.
2. Audit contracts covering more than one year shall specify an audit fee for each year. The audit fee shall be inclusive of all expenses.
3. Continuation beyond the initial fiscal year of the three-year contract will be at the discretion of the municipality or regional school district.
4. Any representations made with the submission will be relied upon and if proven to be false will be grounds for termination of the contract, if awarded. False representations will also be grounds for forfeiture of all payments under the contract. This will not limit the municipality or regional school district from seeking any other legal or equitable remedies.

Audit Standards

1. The audit specifications shall require that the audit be conducted in accordance with generally accepted auditing standards established by the American Institute of Certified Public Accountants.
2. The audit specifications shall also require that the audit be conducted in accordance with the standards for financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. If a single audit is required then the standards contained in the amended (July 1996) Single Audit Act of 1984 and the provisions of revised OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations, must also be followed.

Audit Scope

1. The scope of the audit shall be clearly defined.
2. The financial statements to be presented, audited and reported upon by the private auditor shall be identified, for example:
   • Basic financial statements - government-wide financial statements, fund financial statements and notes to the financial statements;
   • Supplementary financial statements, schedules and information;
   • Management’s Discussion and Analysis; and
   • Supplementary Schedule of Expenditures of Federal Awards with auditor’s opinion thereon, if applicable.
3. Major Federal Programs: If applicable, an audit of major programs in accordance with criteria outlined in OMB Circular A-133 shall be performed.

Audit Reports

1. Draft copies of all audit report(s) and the management letter shall be submitted to the (insert required recipient, e.g.: chief executive officer, chief finance officer, City or Town Council, members of the audit committee, etc.) of the municipality or regional school district prior to the exit conference so that there will be adequate time for review.
2. Reports to be submitted, depending on the scope of the engagement, may include:
1. Reports on:
1. basic financial statements including management’s discussion and analysis, based on an audit performed in accordance with generally accepted auditing standards and Government Auditing Standards.
2. supplementary financial statements, schedules and information.
3. compliance and on internal control over financial reporting based on an audit of financial statements performed in accordance with Government Auditing Standards.
2. Reports required under trust agreements, loan agreements, etc.
3. Reports and summaries related to federal financial assistance (as appropriate in the circumstances) as required by OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations.
4. Other reports requested by the municipality or regional school district and/or the Director of Revenue and/or the Auditor General or as required by the applicable section of the general laws.

Management Letter

1. The audit specifications shall provide for the submission of a management letter upon completion of the audit to (insert required recipient, e.g.: chief executive officer, chief finance officer, City or Town Council, members of the audit committee, etc.) of the municipality or regional school district, with copies to the Director of Revenue and the Auditor General.
2. The management letter should include comments, and/or recommendations beyond those included in the reports described above, on such matters as:
1. policies, procedures and practices employed by the municipality or regional school district.
2. control deficiencies that are not significant deficiencies or material weaknesses.
3. use of resources to provide a governmental service in a reasonable, judicious, economical, and efficient manner.
4. compliance with state laws pertaining to the municipality or regional school district and with rules and regulations established by the municipality or regional school district.

Additional Information To Be Provided To the Municipality or Regional School District

The following information must be contained in a written representation by the audit firm to the municipality or regional school district:

• the current status of the professional license of the firm, partner-in-charge, and senior accountant in charge of the fieldwork;
• staffing information including:
• firm size,
• number of staff allocated to the audit job,
• relevant qualifications and experience of each person assigned to the audit job;
• the amount and type of professional liability coverage;
• list of any professional complaints pending or resolved against the firm or any of its partners with the state boards of accountancy, or any self regulatory, professional or government authority including but not limited to the AICPA, or Rhode Island Board of Accountancy;
• information regarding any lawsuits or claims against the firm, pending or resolved;
• a statement of relevant experience including a list of municipal or other governmental audits performed in the last five years;
• expected time budget and completion date for the audit;
• a statement that there exist no client conflicts which would inhibit the ability to perform the audit in accordance with professional standards;
• representation that the private auditor is independent under the requirements of the American Institute of Certified Public Accountants including those in Interpretation 10 of Rule 101 of the AICPA Code of Professional Ethics and Government Auditing Standards;
• representation that the private auditor of a municipality meets the continuing educational requirements of Government Auditing Standards;
• representation that the private auditor has an appropriate internal quality control system in place and has participated in an external quality control review program as required by Government Auditing Standards. The firm will provide the Auditor General with a copy of its most recent external quality control review report including letter of comment or a representation that a letter of comment was not issued; and
• representation that the private auditor is familiar with generally accepted accounting principles for state and local government units and with the generally accepted auditing standards promulgated by the American Institute of Certified Public Accountants; Government Auditing Standards issued by the Comptroller General of the United States; the Single Audit Act of 1984 as amended in July 1996 and the provisions of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations and will conduct the audit and will report in accordance with those standards.

Access to Audit Information and Audit Documentation by Auditor General:

It is understood that the contract between the municipality or regional school district and the audit firm shall require the auditor or the audit firm to release any and all information obtained in the course of the engagement to the Rhode Island State Auditor General (or his designee). This information includes but is not limited to financial data, analysis, audit documentation, and memorandum. Audit documentation of the independent auditors shall be made available to the Auditor General (or his designee) upon request. The request for such information by the Auditor General shall be responded to promptly. Failure to provide this information shall constitute a breach of contract, and the contract shall give the Auditor General standing in a court of competent jurisdiction to enforce this provision.

Other

The audit specifications should include such other provisions as may be deemed appropriate, e.g., terms of payment, representations concerning federal nondiscrimination, supplementary services, number of reports, access to records, availability of specifications, delivery and opening of bids, etc.