Is Your School Audit Ready?

There is often a perception that an external authority is infiltrating the school to examine its records, processes and people, looking for something wrong – which is far from the truth.

Many see audits as just another time-consuming interruption and increase to their workload that causes stress on finance teams.

However, like any employee performance review, the auditing process can be a positive experience - reinforcing the school’s direction and providing guidance on areas for improvement and future growth.

In this blog, we look at both sides of the picture and talk with professional auditors McConachie Stedman and education accounting consultants Cole School Experts about the auditing process, what to look out for, how to prepare and how the auditing process can be a positive experience for any school.

What does an audit look like, and why are schools audited?

It is a government requirement that non-government schools, colleges, charities, and not-for-profit organisations are audited to ensure they comply with their obligations for receiving Commonwealth Government education grants.

The objective of an audit is to ensure the school’s financial reports portray a true reflection of the financial position of the school.

To establish this, auditors will conduct:

• a review of systems and internal controls
• an audit of the balance sheet to ensure figures are true and fair
• a check of financial reports to ensure they are presented according to accounting standards.

At the end of this process, an auditor can provide assurance that the figures that are being reported are compliant and free from material misstatement.

When talking to Ben Horner, Audit Director at McConachie Stedman, he explained how their audit methodology is risk-based. They individually tailor their audit plan and strategy around areas of business and operational risk for each school. 

“In our first visit, we work to understand the finance team's existing processes and review transactional information relating to revenue, expenditure (operational and capital), and payroll.

The second site visit focuses on the balance sheet, analytic review and the review of financial statements.

Following these visits, our team will approve statements and issue a governance letter detailing areas of risk identified and potential improvements to existing processes.”

What are some common challenges schools experience when being audited?

Ben expresses how, in his experience, preparation is often the biggest challenge for schools:

“Auditors are required to look at a large volume of financial information, so it’s no surprise that preparing this information can be very time consuming without having an effective system in place.

If you don’t have a month end process or simply aren’t up-to-date, the rush to get organised prior to your auditor's visit can be a challenge.”

He also added that:

“Accounting standards are also frequently changing. Keeping up with these changes and understanding how to apply them is a constant challenge for school financial teams.”

One of the ways that schools can stay up to date is by subscribing to industry news channels to ensure they receive timely notifications and guidance when things change.

Kenton Newall, Business Relationship Manager at Cole School Experts, also shares some common issues that can be addressed by an audit:

What can schools do to make the auditing process easier?

Both McConachie Stedman and Cole School Experts reiterated the importance of being organized, informed, and prepared. The key takeaway is that the more information you can provide upfront, the more efficient the audit process will be and the more you will gain from the experience.

Some other things to consider could be:

• Scheduling audit visits with staff workloads and schedules in mind as much as possible.
• Asking your auditors in advance what their plan of approach is, such as: 
  1. the length and frequency of their visits
  2. what they will be looking at and what they are looking for
  3. which staff they may need to spend time with.
• Holding an audit planning meeting with your Finance Team so that everyone is prepared and on the same page.
  
• Ensuring auditors have appropriate supervised access to the school’s systems and records (preferably online wherever possible), including logins and VPN details if required.
• Reminding staff that the purpose of an audit is to express an opinion on the financial statements and systems of the school, not to review and report on them (i.e. any findings are not “personal”).
• Conducting an interim audit mid-year.
• Outsourcing financial tasks and audit preparation to an independent consultancy firm 

Ben also suggests collating key documents such as lease and loan agreements, meeting minutes and key contracts, and adding them to a shared cloud folder periodically throughout the year.

To help you prepare your school for audit time, McConachie Stedman have provided a checklist containing an overview of financial information generally required to complete an audit.

The main take away from this blog should be that audits are not just there to find flaws. It is important to take a positive and proactive approach to the audit visit and focus on the benefits the process provides.

An audit report can promote a feeling of confidence within the school leadership that the financial operations of the school are being run effectively, or, highlight areas of financial and operational risk that may need to be addressed and proactively used in the school’s cycle of continuous improvement.

Kenton says:

“Independent verification of the accuracy and reliability of school reported annual results promotes confidence in the non-government school sector.

It should always be viewed as an added value certification for the school’s financial operations and governance - and be promoted to school stakeholders as a tool for internal control review and risk management”.

Special thanks to McConachie Stedman, whose team of experienced accountants, auditors, and financial planners has been helping businesses achieve financial success for over 70 years, and Cole School Experts, which has vast educational industry experience and specialises in professional accounting and consulting services.