Types of Audits Performed by the OAG
Financial audits are designed to provide reasonable assurance about whether the financial statements and/or financial schedules of an audited entity are presented fairly in all material respects in conformity with generally accepted accounting principles. Other objectives of financial audits, which provide for different levels of assurance and entail various scopes of work, may include providing special reports for specified elements, accounts, or items of a financial statement and/or financial schedule.
Single audits, which are financial audits performed in accordance with the Single Audit Act Amendments of 1996, are designed to meet the needs of all financial report users, including an entity’s federal grantor agencies. Single audits require the assessment of compliance with requirements that could have a direct and material effect on a major federal program and the consideration of internal control over compliance in accordance with the U.S. Office of Management and Budget Compliance Supplement and the federal government’s Uniform Guidance.
Performance audits provide findings or conclusions based on an evaluation of sufficient, appropriate evidence against criteria. Performance audits provide objective analysis to assist management and those charged with governance and oversight in using the information to improve program performance and operations, reduce costs, facilitate decision making by parties with responsibility to oversee or initiate corrective action, and contribute to public accountability. The OAG also follows up material audit findings from its performance audits to determine whether agencies complied with OAG recommendations.
We use a risk-based approach when selecting activities to be audited. This approach results in our audit effort being focused on operational areas having the greatest probability for needing improvement as identified through our preliminary review, hence limited audit effort is devoted to reviewing operational areas that appear relatively effective or efficient. By design, our limited audit resources are used to identify where and how improvements can be made and consequently our audit reports are prepared on an exception basis. To the extent practical, we add balance to our audit reports by presenting noteworthy accomplishments for exemplary achievements identified during our audit.
Investigative audits take place as a result of a reported allegation of fraud, waste, or abuse involving State government officials, State employees, or entities receiving State money or other support. These audits are designed to detect and deter the misappropriation of public assets. As such, these audits consist primarily of inquiries and the examination of selected financial records and other documentation, the scope of which is typically significantly less than that of financial or performance audits as defined by Government Auditing Standards.
OAG financial and performance audits are performed in accordance with the following professional standards:
Generally accepted auditing standards of the American Institute of Certified Public Accountants
Government Auditing Standards issued by the Comptroller General of the United States
The federal Single Audit Act Amendments of 1996 and implementing regulations
Value of Audit Reports
To the Legislature
OAG reports provide objective, unbiased, and independently developed information that members of the Legislature can use in making informed decisions with confidence. The OAG also responds directly to requests from any member of the Legislature to review activities, programs, or funds not included in the scope of scheduled audits. Annually, OAG reports contain hundreds of recommendations that identify opportunities for improving effectiveness and efficiency in State operations and provide information needed by the Legislature to make decisions regarding the continuation of programs and levels of funding. These recommendations have historically identified potential annual financial savings of tens of millions of dollars.
To the Auditee
OAG reports provide objective, unbiased, and independently developed information about the auditee’s operations that can be used by management to improve its methods of operating. OAG recommendations, when implemented, frequently result in more effective, efficient, and economical programs.
To Third Parties
Investors and creditors obtain OAG reports and use them as a source of information that they can rely on to make decisions. For example, the State of Michigan Comprehensive Annual Financial Report, which includes the Auditor General’s opinion regarding fair presentation in conformity with generally accepted accounting principles, is relied on by the financial community in setting bond ratings for State-issued debt. This report consistently qualifies for the annual Certificate of Achievement for Excellence in Financial Reporting presented by the Government Finance Officers Association.
Also, OAG Single Audit reports satisfy the federal government’s demand for accountability of federal funds allocated to the State of Michigan.
In addition, investigative audit reports provide a basis, where applicable, for prosecutorial or administrative agencies to pursue criminal, civil, and/or administrative actions.
To the Citizens of the State of Michigan
The citizens have confidence in knowing that the Legislature is aggressive in its oversight and accountability of money paid to the State in the form of taxes, fees, and other revenue and prudent in expending funds in accordance with statutes and regulations.
To Whom Audit Reports Are Issued
Audit reports issued by the Office of the Auditor General (OAG) are typically addressed to the audited entity’s chief executive officer and/or to the chair of its governing board or commission. Audit reports are typically forwarded via e-mail.
On the day prior to the official release date of an audit report, e-mail notifications are sent to the following:
The audited entity’s chief executive officer and/or the chair of its governing board or commission.
House and Senate Quadrant Leadership.
Relevant House and Senate Standing Committee members.
Office of the Governor.
The legislator(s) who requested the audit (if applicable).
All others who have specifically requested a copy of the report being issued
On the official release date, copies of the audit report are also sent to the following:
House and Senate Fiscal Agencies.
The Office of Financial Management, Department of Technology, Management, and Budget.
All others who have specifically requested a copy of the report being issued.
The OAG does not issue press releases on any audit report. However, a copy of each audit report is sent to the Capitol pressroom and the OAG responds to media inquiries relative to issued reports.
Reaction And Response To An Audit Report
Section 18.1462 of the Michigan Compiled Laws and the State of Michigan Financial Management Guide (Part VII, Chapter 4, Section 100) establish requirements for following up audit findings and recommendations for executive branch departments and subunits. The audited departments are required to develop formal responses to the Office of the Auditor General (OAG) audit findings and recommendations. This follow-up is in addition to the agency’s preliminary response that is included in each OAG audit report.
Audited agencies must develop a plan to address the audit recommendations and submit it within 60 days after release of the audit report to the Office of Internal Audit Services, State Budget Office. Within 30 days of receipt, the Office of Internal Audit Services is required to review the plan and either accept the plan as final or contact the agency to take additional steps to finalize the plan.
Each plan must indicate (1) the audit recommendations the agency complied with, (2) the audit recommendations the agency agrees with and will comply with, and (3) the audit recommendations the agency disagrees with.
When the OAG performs an audit of a university or a community college, the annual appropriations acts require the principal executive officer of the audited institution to submit a written response to the audit to the OAG, the House and Senate Fiscal Agencies, and the State Budget Director. Community colleges are also required to respond to the House and Senate Appropriations Committees and to the Workforce Development Agency. The response is due within 60 days after the audit report has been issued and should specify the action taken by the institution regarding the audit report’s recommendations.
OAG Follow-Up On Material Findings
Audit reports that contain material findings and recommendations are routinely followed up with a limited scope review approximately six months after the auditee has indicated compliance. In this way, the OAG can review the extent of the compliance with the recommendations and provide users of the audit report with timely information.
The preparation for subsequent audits begins with a preliminary survey, which includes reviewing the disposition of prior audit recommendations. The audited entity’s official response to the prior OAG audit includes information explaining how it plans to comply with the OAG findings and recommendations. Therefore, the OAG is able to review the status of all of the prior audit findings and recommendations. For most recommendations, compliance will have been satisfactorily achieved. However, when compliance has not been achieved and the facts are substantially the same as before, the OAG will repeat the audit finding and recommendation(s) in the current report.