Government Boards and Councils: Are You Meeting Your Financial Oversight Responsibilities?

Key Takeaways

• Government board and council members are responsible for direct financial oversight. Failing to meet reporting requirements can lead to audit findings, funding losses, and regulatory scrutiny.
• Boards and councils oversee management, select the auditor, and review audit reports and financial statements to confirm that management is meeting its obligations.
• Common government reporting obligations include adherence to GASB standards (GAAP for state and local governments), Municipal Securities Rulemaking Board filings, and Federal grant reporting.
• Warning signs of weak oversight include unreviewed financial statements, recurring audit findings or material weaknesses, internal control deficiencies, delayed reporting, and insufficient oversight of auditor selection.
• Boards can strengthen oversight by forming a finance or audit committee, implementing an internal audit function, implementing a whistleblower or fraud reporting process, requesting financial updates throughout the year, reviewing management's written policies, and engaging knowledgeable advisors for readiness assessments or training.
• Weak financial oversight can expose board and council members to legal liabilities or charges, making a proactive approach essential.

Who Is Responsible for Government Financial Reporting?

Varying degrees of responsibility lie with different stakeholders. Management, employees, the chief executive, and the financial officers generally bear the responsibility of meeting regulatory requirements and program deadlines and documenting financial decisions and processes thoroughly. Other management responsibilities include preparing financial statement reports and designing and implementing effective internal controls.

Government boards and councils oversee management in the execution of responsibilities, maintaining visibility into their processes and decision-making to confirm operational, mission, and regulatory alignment. The level of oversight can vary depending on the facts, circumstances, and management’s capabilities. Discretion is warranted and those charged with governance should take care to avoid disruptive actions construed as micromanagement or interference. Excessive oversight can be viewed as disruptive and dysfunctional. Conversely, relaxed oversight, especially when warning signs have surfaced, can result in a number of avoidable problems. If a council or board suspects that management is failing to perform their outlined responsibilities effectively, strong and decisive remedial action may be needed.

Boards and councils also decide who performs audits. They review audit reports, financial statements, and their findings to determine whether management has adequately executed responsibilities. Ongoing communication with the external auditor keeps those charged with governance informed and enables timely action, if needed, before a problem becomes a greater risk.

What the Reporting and Audit Obligations Actually Require

Generally, management is required to meet many reporting requirements, and boards and councils must confirm they are complying. Let’s walk through some of these requirements by way of a few frequently asked questions:

What Are Generally Accepted Accounting Principles (GAAP) for governments?

Set by the Governmental Accounting Standards Board (GASB), GAAP is often the accounting standard for state and local governments to follow when preparing financial statements.

What Is EMMA?

The Municipal Securities Rulemaking Board's (MSRB) Electronic Municipal Market Access (EMMA) system is the official online repository for municipal bond disclosures. Governments that have issued municipal debt are often required under continuing disclosure agreements to submit annual financial information, audited financial statements, and notices of certain material events through EMMA.

Who Is Responsible for Interim Financial Reports and Budgets?

Management is responsible for preparing and presenting accurate and complete financial information to boards and councils throughout the year, commonly including annual budgets for adoption, budget-to-actual comparisons, revenue and expenditure summaries, cash flow information, and updates on significant financial risks or trends.

Who Is Responsible for Contracts and Procurement?

Management is responsible for administering procurement processes, evaluating bids, negotiating contracts, and verifying that purchases comply with applicable laws, regulations, and organizational policies. Boards and Councils approve the purchases and authorize the contracts.

What Are Annual Financial Statement Audits?

The annual financial statement audit is a cornerstone of government accountability and transparency, and most state and local governments are required by state law or grant agreements to have their financial statements audited annually by an independent auditor. Management is responsible for preparing the financial statements in accordance with applicable accounting standards, maintaining supporting records, and establishing effective internal controls.

What Is a Single Audit Under the Uniform Guidance?

Under the Uniform Guidance, a single audit is a broad audit of how an organization spends federal funds. This is required once an organization's spending exceeds a set threshold, typically $1 million or more.

Where Boards and Councils May Fall Short: Red Flags to Watch For

When government boards and councils take a hands-off approach to management oversight, it is easier for compliance, financial, or process gaps to permeate. To mitigate those risks, boards and councils should be aware of the key red flags to watch for:

• Late, incomplete, or lack of financial reporting to the Board or Council.
• Recurring audit findings or material weaknesses
• Deficiencies in internal controls or processes
• Inconsistent or delayed financial reporting
• Significant increases in the number of vendors, contracts, or employees

Five Steps Your Board Can Take Now

Boards and councils should not wait to verify management’s fiscal responsibility and regulatory compliance. To enhance oversight and maintain continuous accountability, government boards and councils should take the following five steps.

1. Establish a finance or audit committee with defined responsibilities
2. Obtain consistent financial updates throughout the year
3. Review the written policies that were designed and drafted by management to confirm sound financial governance
4. Establish a whistleblower or fraud reporting hotline or other mechanism
5. Select knowledgeable advisors to conduct audit readiness assessments or training sessions

How EisnerAmper Supports Financial Governance

For boards and councils, responsible financial governance is a core duty. By selecting and hiring an experienced external auditor, boards and councils can help managers use funding responsibly and maintain thorough documentation to fulfill their missions and protect public trust. Failing to maintain proper oversight could result in members facing charges of malfeasance, fines, or legal liability.

EisnerAmper’s government assurance team works alongside boards and councils to strengthen financial oversight and meet audit and reporting requirements. Our team serves as diligent, dedicated advisors to help boards and councils carry out responsibilities, interpret financial data to inform decision-making, and communicate effectively with all relevant stakeholders. Together, we can help you meet your regulatory requirements and enhance financial transparency. Contact us today.