There’s no question that annual financial statement audits are sometimes considered a “necessary evil”. However, the feeling is often eased with familiarity of the process, familiarity with your Agency’s operations, and familiarity with your auditors. We (the auditors) like to think of them as even enjoyable! Unfortunately, when the aforementioned variables are removed, they can turn to not as enjoyable in a rapid fashion. This has become the case with the new fiscal year 2023 Los Angeles County Safe Clean Water Program (SCW) compliance audit requirements that are required to be submitted to the County by March 31, 2024. These requirements encompass three fiscal years’ worth of activity for 2021, 2022, and 2023 and lack specific and concrete guidance regarding the process. We hope this blog can assist and shed some light on common questions and confusion that we have experienced during these engagements thus far.
1. Time is of the Essence
Contrary to what Mick Jagger and the Rolling Stones covered in 1964, time is not on our side. The SCW compliance audits are required to be submitted to the County by March 31, 2024. Coupled with the fact that there has been no explicit correspondence regarding applicability to you, the onus is on the Agencies to determine whether this compliance audit is applicable to them. It is imperative to review any Measure W funding received and expended from fiscal years 2021-2023, contact your Department of Public Works officials, and contact your external auditors as soon as possible to begin the process if not done so already.
2. Organize the Information
Organizing the three fiscal years’ worth of activity into one easily comprehensible document is crucial. Expenditure details with the approved spending plans of SCW funding for each year subject to audit is the crux of the compliance requirements and will be the root information that is requested by your external auditors. However, there is a retroactive component that may allow eligible expenditures incurred prior to November 6, 2018, to be included. Ensure the details of those items are also a part of your document as separately designated expenditures.
3. Other Important Items to Note
There are other items required by the County to satisfy in order to be deemed in compliance with the funding requirements. Ensure that copies of your Agency’s agreement to receive SCW Program funds are available, copies of each year’s annual Progress/Expenditure Reports submitted for fiscal years 2021, 2022, and 2023 are available, and any public informational materials prepared and posted by your Agency containing up-to-date information regarding budgeted and actual usage of SCW funding is available. Be aware that at least 70% of the SCW funds are required to be spent on eligible expenses for projects or programs implemented after November 6, 2018.
4. Less can be More
At the end of the day, the only goal is to have a “clean” compliance opinion available for issuance to the County by March 31, 2024. There has been little guidance on what form of deliverable is required. A dated and official audit compliance opinion letter from your external auditors should suffice in lieu of a formal financial report and statement regarding the funding. It is likely that further guidance will be released for subsequent SCW audits and reporting. For now, to minimize the risk of a reduction or cease of funding, timely submission is key.
Conclusion
Audits can be stressful and overwhelming if not properly prepared for. Unfortunately, many Agencies were unaware until recently that these audit requirements pertained to them. On a positive note, the scope of the engagement is not as thorough as a financial or single audit, and the month of March should allow sufficient time to have your report submitted in a timely fashion. There is likely an additional fee in addition to your annual audit fee for this report, however, the audit fee is a future allowable use of Program funds. It is absolutely crucial to contact your external auditors if your Agency has received the SCW funding to ensure your compliance is submitted prior to the County deadline.
Contact us today with any questions!
