Frequently Asked Questions

Auditor’s Reports

  1. What is the proper format for the opinion on audits of School Activity Funds?

    Because of the nature of School Activity Fund reporting, as prescribed in the Tennessee Internal School Uniform Accounting Policy Manual, certain required financial presentations are not made. As a result, the auditor’s opinion on the financial statements must be modified. For additional information, please review documents disseminated by the Division of Municipal Audit in February 2007. (SAMPLE OPINION – CITY SCHOOLS , SAMPLE OPINION – COUNTY SCHOOLS, MEMO RE CHANGE IN SCHOOL REPORTING)

    Audits of Day Care Facilities

  1. What is the State of Tennessee median income?

    For purposes of the agreed upon procedures contract for day care providers, the median income (based on information from the US Department of Commerce, Bureau of Economic Analysis, Regional Accounts Data, Annual State Personal Income) for Tennessee can be located at:

    http://www.bea.gov/

    http://www.bea.gov/bea/regional

    Use the most recent information available for the period under audit. That is, if the audit period is for the 2004 fiscal year, use the 2004 median income information. If the audit is for the 2005 fiscal year, use the 2005 information if it is available (do not use preliminary information), use the 2004 if it is not available.

    The most recent median income (per capita personal income) information at the above site on October 12, 2006 was:

    2001 $26,870 (updated from $26,864 at 9-15-05 and $26,808 at 12-29-03)
    2002 $27,490 (updated from $27,678 at 9-15-05 and $27,378 at 12-29-03)
    2003 $28,352 (updated from $28,440 at 10-16-06 and $28,641 at 9-15-05)
    2004 $29,648 (updated from $29,844 at 10-16-06)
    2005 $30,952
    2006 (1)

    (1) As of January 11, 2007, no information was available for 2006; therefore, the 2005 amount should be used. The next state annual personal income release is scheduled for March 27, 2007.

  2. How do you present salary information when one individual is paid by two or more facilities and only one is being audited?

    For purposes of the agreed upon procedures contract for day care providers, the schedule of salaries should be modified to include a column for the amount of salaries paid by the facility under audit, a column for the amount paid by other facilities, and a total column.

    EXAMPLE
    Employee Name/Position Payment Period Salary paid by this facility Salary paid by other facilities Amount to be reported on W-2 per payroll records Base Pay Period of Employment Traced to W-2 Traced to Supporting Documentation Variances
    Jane Doe/Director Monthly 15,000 20,000 $35,000 $2,916.667 7-1-92 thru current X 12 Pay not approved in minutes
    Sam White/Board Chairman Monthly 5,000 0 $5,000 $416.67 7-1-94 thru current X 12  
    Jennie Moore/Child Care Worker Weekly $15,000 0 $15,000 $7.20/hr 1-1-03 thru 12-22-03   1 Timesheet not approved by Director
    Mattie Doll/Child Care Worker Weekly $14,200 0 $14,200 $6.80/hr 1-1-03 thru current   1  
    Rita Roe/Child Care Worker Weekly $14,200 0 $14,200 $6.80/hr 1-1-03 thru current   1  
    Betty Right/Child Care Worker Weekly $14,200 0 $14,200 $6.80/hr 1-1-03 thru current   2 1 Timesheet did not foot to total hours paid. Difference $42.
    Jimmy Like/Child Care Worker Weekly $14,200 0 $14,200 $6.80/hr 1-1-03 thru current      
    Total 284 pay periods $91,800 $20,000 $111,800 NA NA 2 29  

  3. When tracing payroll information to the W-3 when there are multiple facilities but only one is being audited, how would you modify the presentation of the payroll schedule?

    If you want to display total wages reported on the W-3 on the schedule and total salaries per the accounting records, you may want to include all employees. The relevant employees for individual analysis will be clearly presented using the format in question number 2.

  4. How should we report earnings for partnerships, sole proprietorships, limited liability corporations and the like when there is no “salary” and no W-2 form is issued?

    The auditor should include each person (i.e., owners, partners, members) on the schedule of salaries and wages. A footnote should be added to the schedule explaining why the amount was not traced to a W-2 form and describing what other type of supporting documentation the earnings were traced to.

Contacting the Department

  1. Who do I contact to communicate changes in mailing addresses, phone numbers, contact person, email address, etc.?

    This information can be communicated to our office via the Information Change Form.

  2. Who do I contact to discuss delinquent audit contracts and/or delinquent audit reports?

    The initial contact person is Tammy Steele. You may or may not be redirected to the audit manager or director. Contact information for Tammy can be found at Audit Contacts.

Contract to Audit Accounts

  1. Is it permissible for an accountant to execute a contract to audit accounts with an organization if, at the outset, there is reasonable evidence to question whether the accountant can meet the independence criteria established the GAO in the Yellow Book (Government Auditing Standards)?

    No.  A contract to audit accounts should not be submitted to the Division of Municipal Audit if the auditor believes he will not be able to issue an opinion on the financial statements due to a lack of independence.   If a contract has already been executed and the auditor discovers that he will not meet the independence criteria established in Government Auditing Standards, the auditor should cease work immediately and notify both the client and the Division of Municipal Audit of the lack of independence, preferably in writing.  Personnel with the Division of Municipal Audit will provide additional guidance regarding the audit based on the relevant facts on a case-by-case basis.

  2. We are completing contracts to audit for our Charter School and our student activity funds. Since there will be two different sets of audited financial statements (one for the school and one for the activity funds), are we required to submit two separate contracts?

    Yes, separate contracts should be submitted for (1) the general operations of the charter school at the board level, including centralized cafeteria operations and (2) student activity funds.

  3. How many copies of the report are required to be submitted to the Division of Municipal Audit?

    Requirements are addressed in section 8 of the uniform contract to audit accounts.

    Municipalities and Emergency Communications (E-911) Districts: Two printed copies

    All Other Governmental Units and Grant Recipients: One printed copy

    Note: An electronic copy may accompany but not replace a printed copy.
    Printed copies should also be filed directly with appropriate officials of granting agencies as well as any other interested parties.

Financial Reporting

  1. I am auditing a municipal board of education. What should the financial statements look like?

    This is a very complex situation and as a result an official memorandum was emailed to all parties known to be impacted. This memo was subsequently revised on October 18, 2005 and again on October 27, 2006.   Please click here to see a copy of the revised memo.

  2. I am preparing separate fund financial statements which will be audited separately from our primary government. Which financial statements are required to be presented? Additionally, are we required to prepare Management's Discussion and Analysis (MD&A)?(NOTE: This question does not address reporting for departments and component units, including any Board of Education). Click here to see related memo

    The financial statements would only include the fund financial statements described in GASB Statement 34 (AICPA Audit and Accounting Guide: State and Local Governments, Section 14.63 through 14.66). MD&A should be included as required supplementary information (RSI) for such audits in accordance with AICPA Audit and Accounting Guide - State and Local Governments, Section 14.65, which states: “…in developing an opinion on the separately issued GAAP-based financial statements for one or more individual funds, the auditor considers whether the financial statements include all relevant GAAP financial statements, note disclosures, MD&A topics, and other RSI.” Should the GASB or the AICPA issue further guidance related to this in the future, that guidance will prevail.

  3. How do you account for inventory in the fund financial statements issued for noncentralized cafeteria funds?

    At the onset of the single inventory method for accounting for purchased inventory and commodities, certain costing assumptions were not defined by either the US or TN Department of Agriculture.  As a result, certain conventions have been established by the Division of Municipal Audit until the funding agencies set final policies.  The easiest approach is to assume that all commodities are used before purchased inventory is used.  This will generally result in ending inventory representing only purchased inventory and commodities inventory will by $-0-.  Disclosure of the total commodities received and used should be disclosed in the notes to the financial statements.

  4. What is considered the enforceable legal claim date for property taxes in Tennessee?

    Recently there has been some confusion regarding when the enforceable legal claim arises to the taxable property in Tennessee. We have consulted with GASB and they have indicated that the date of the enforceable legal claim may be interpreted differently by each individual state. Tennessee interprets this date to be the lien date of January 1. (Tennessee Code Annotated 67-5-2101)

  5. How should property taxes be accounted for in the government-wide financial statements?

    Asset
    Governments should recognize assets from imposed nonexchange revenue transactions in the period when an enforceable legal claim to the assets arises or when the resources are received, whichever occurs first. For property taxes, the date when an enforceable legal claim to the taxable property arises generally is specified in the enabling legislation (e.g., lien date). (Codification of Governmental Accounting and Financial Reporting Standards, Section N50.114)

    Municipalities should record a receivable and related deferred revenue at the lien date (see question 4 above). Generally on this date, municipalities may not have information available to record the actual levy and therefore, an estimate is used.

    Revenue
    Governments should recognize revenues from property taxes, net of estimated refunds and estimated uncollectible amounts, in the period for which the taxes are levied, even if the enforceable legal claim arises or the due date for payment occurs in a different period. Resources received or recognized as receivable before that period should be reported as deferred revenues. (Codification of Governmental Accounting and Financial Reporting Standards, Section N50.115)

    Generally the tax levy occurs in the fiscal year for which the property tax revenue is intended to fund. In this case, property tax revenue should be recorded (Example City A). If the tax levy were to occur prior to the fiscal year for which the property tax revenue is intended to fund, the levy should be recorded as deferred revenue (Example City B).

    Example City A:

    Current fiscal year end: June 30, 2005
    Lien Date: January 1, 2005
    Levy Date: October 1, 2005
    Fiscal year end for which tax is levied: June 30, 2006

    Receivable and deferred revenue would be reported for the entire lien in the June 30, 2005 financial statements.

    Revenue would be reported for the entire lien in the June 30, 2006 financial statements.

    Example City B:

    Current fiscal year end: June 30, 2005
    Lien Date: January 1, 2005
    Levy Date: May 1, 2005
    Fiscal year end for which tax is levied: June 30, 2006

    Receivable and deferred revenue would be reported for the entire lien in the June 30, 2005 financial statements.

    Revenue would be reported for the entire lien in the June 30, 2006 financial statements.

  6. How should property taxes be accounted for at the fund level?

    Basic guidelines for accounting for property taxes can be found at http://www.comptroller.state.tn.us/ca/gasb3336.pdf.   Please note that revenue amounts reported at the government wide reporting level will not be the same at the fund level, since much of the property tax revenue reported will not meet the availability test at the fund level.

  7. How should the fee related to the sexual offenders registry be accounted for?

    A memo from the Comptroller's Office dated September 23, 2005, addresses how Municipalities should account for these funds. This memo replaces the one dated September 29, 2004. Separate guidelines for Counties can be obtained from the Division of County Audit. (Memo)

  8. Which reporting standards should we follow when preparing financial statements for a charter school?

    Charter School General Operations

    Because charter schools are authorized by Tennessee Code Annotated they are subject to the reporting requirements of the Governmental Accounting Standards Board for a special purpose government. This includes any centralized cafeteria operations.

    Charter School Student Activity Funds

    The reporting requirements for activity funds are set forth in the Tennessee Internal School Uniform Accounting Policy Manual. The financial statements are presented on an other comprehensive basis of accounting and should be issued in a separate report.

  9. How should State Street Aid be reported in the government-wide financial statements and how should the reserve be calculated?

    State Street Aid funds should be reported as program revenue (operating grants and contributions) in the government wide financial statements. Because the tax is not derived from the municipalities’ taxing authority and is not restricted to capital acquisition, the revenue represents an operating grant/contribution.

    If state street aid funds are reported in the general fund, the reserve calculation should be based on the revenues and expenditures recognized at the fund level (modified accrual basis of accounting). That is, expenditures include capital outlays but do not include depreciation expense. At the government wide financial statement level, restricted assets should be recorded based on the reserve established in the general fund or the ending fund balance in the separate special revenue fund established to account for state street aid funds. Please refer to the Codification of Governmental Accounting and Financial Reporting Standards, Section 2200, and GASB Comprehensive Implementation Guide – 2004, Question and Answer 7.208, for applicable reporting guidance.

Subrecipient Payments

  1. I am reviewing subrecipient information provided by your office and there are certain payments listed that I can not tie to the entity's records?

    Check the trans code for the amounts.  If the trans code is other than 103 or 102, then the amount presented may be something other than a payment.  If the trans code is 450, the amount is the accrual recorded by the State of Tennessee.  There may or may not have been a subsequent payment and if there was a payment the amount may have been different than the amount accrued.  Other trans codes will need to be discussed with the grantor to determine if the amount was actually remitted to the entity.

 

 
 

Last revised: 3/21/07