Analysis of an Audit

Understanding the Audit Process

Analysis of an Audit

The OAG’s audit process is independent, objective, and transparent. We develop an audit plan using an approach based on assessments of risk and opportunities for improvement. Auditing identifies where and how improvements can be made; therefore, reports are written on an exception basis. We conduct audits in three main phases: planning, audit fieldwork, and report preparation.
The Three Phases

👥 Planning

Sets the foundation for the audit. Among other activities, auditors conduct a preliminary survey, develop the audit scope and objectives, and set the audit’s time frame.

🏢 Audit Fieldwork

Begins the strategic audit activities. Auditors interview agency personnel, sample and analyze data, validate evidence, determine the materiality of potential findings, communicate with the agency, and issue draft audit findings.

📚 Report Preparation

Report drafting is ongoing throughout the audit. Once fieldwork is completed, the team compiles a preliminary report, ensures compliance with standards, provides a draft to the agency, obtains its preliminary response, meets with the agency if there are concerns, and finalizes the report.

OAG Reports

Financial audits are designed to provide reasonable assurance about whether the basic financial statements and/or financial schedules of an audited entity are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.

Follow-Ups describe the results of our limited testing to determine if previous performance audit report recommendations were addressed by an agency.

Performance audits provide findings, recommendations, and conclusions based on an evaluation of sufficient, appropriate evidence against criteria.

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.

Outcomes

📂 Findings

In OAG performance audit reports, findings are classified depending on their severity. Material conditions are more severe matters that could impair the ability of management to operate a program in an effective and efficient manner and/or could adversely affect the judgment of an interested person concerning the program’s effectiveness and efficiency. Reportable conditions are less severe deficiencies or opportunities for improvement.

In financial audits, the terms are material weakness and significant deficiency.

✅ Corrective Action

After each recommendation, OAG reports include a preliminary agency response (the agency’s initial response) in which the agency indicates if it agrees or disagrees with the recommendation.

By State law, upon completion of the audit, the agency is required to submit its plan to comply with OAG recommendations to the State Budget Office.

OAG BAO, Rev. 05/10/2023

Financial Audit Reports
Our two main financial audits are mandated by State and/or federal laws. They are:
    State of Michigan Annual Comprehensive Financial Report Audit
    Statewide Single Audit
Financial audits are designed to provide reasonable assurance about whether the basic financial statements and/or financial schedules of an audited entity are presented fairly, in all material respects, in conformity with generally accepted accounting principles.

Performance Audit Reports
Most of our discretionary, nonmandated, audit hours each year are focused on performance auditing. Performance audits provide recommendations and conclusions based on an evaluation of the audited entity’s activities compared with applicable criteria, such as laws, policies, procedures, and best practices.

We conduct performance audits based on the potential for improving the effectiveness and efficiency of State government operations.

Follow-Up Reports
We perform limited testing related to findings reported in previously issued performance audit reports to assess the entities' compliance with prior audit recommendations.

Investigative Audit Reports
Investigative audits take place based on reported allegations 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.

Preliminary Survey Summaries
If the results of a preliminary survey do not identify significant potential program improvements and/or risks of deficiencies that could impair management’s ability to operate a program effectively or efficiently, we terminate the performance audit and release a summary report of our preliminary survey.

We develop our audit plan using an approach based on assessments of risk and opportunities for improvement.

We focus audit efforts on the activities identified through a preliminary survey that we believe have the greatest probability for improvement and/or the most significant consequences if proper execution does not occur.

Auditing identifies where and how improvements can be made; therefore, audit reports are written on an exception basis. Stated another way, we typically do not continue audits if the program appears to function as intended; our resources are more impact-driven if we focus on areas for improvement.

Generally, we conduct audits in three main phases:

    Planning Phase
    This phase sets the foundation for the audit and includes conducting a preliminary survey, brainstorming, conducting research, developing the audit scope and objectives, setting the audit’s time frame, and performing many other activities. In this phase, we:
    • Review organization structure.
    • Review applicable State and federal laws.
    • Research legislation impacting the audited program.
    • Understand how the auditee strives to reach its mission, goals, policies, and procedures.
    • Review agency-produced reports.
    • Identify relevant criteria to audit against, such as best practices, benchmarks, and audits of similar entities and from other states.

    Audit Fieldwork Phase
    This phase begins the strategic audit activities. During audit fieldwork, we will:
    • Interview agency personnel.
    • Sample and analyze data.
    • Issue surveys if applicable.
    • Validate evidence.
    • Determine materiality of potential findings.
    • Communicate with the agency.
    • Issue draft audit findings.

    Report Preparation Phase
    This phase is the final stage of the audit. At this time, we:
    • Draft the preliminary report.
    • Ensure compliance with auditing standards.
    • Ensure compliance with internal quality standards.
    • Provide the agency with draft report.
    • Obtain the agency preliminary response.
    • Meet with the agency to address its concerns.
    • Finalize the report.
    • Release the report.

Agency Preliminary Response
In each audit report containing findings, we include the agency's initial response (i.e., agency preliminary response) in which the agency indicates if it agrees, partially agrees, or disagrees with the recommendation(s) and its plan to comply.

Corrective Action Plan
By State law, upon completion of an audit, the agency is required to submit its plan to comply with the recommendations to the State Budget Office, which either accepts the plan as final or contacts the agency to take additional steps to finalize it. Our website includes the final plan to comply following each audit report.

Generally accepted auditing standards of the American Institute of Certified Public Accountants.
Government Auditing Standards issued by the Comptroller General of the United States.
Title 2, U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance)

Article IV, Section 53 of the Michigan Constitution.
Section 13.101 of the Michigan Compiled Laws

Yes, the Government Auditing Standards requires a triennial peer review of our operations . The peer review is performed by a multi-person National State Auditors Association external quality control review team. We have received thirteen consecutive unmodified “clean” opinions. This is the highest level of opinion.

The Auditor General for the State of Michigan is appointed by the Legislature, as prescribed by Article IV, Section 53 of the Michigan Constitution.  Doug Ringler, CPA, CIA, was reappointed Auditor General by the Michigan Legislature on May 26, 2022 for a second eight-year term by the Senate Concurrent Resolution No. 27 of 2022.

Yes, the Auditor General is nonpartisan and independent. Article IV, Section 53 of the Michigan Constitution organized the OAG in the legislative branch of State government to conduct audits of State government operations.

The Auditor General conducts post-audits of State government agencies and operations per the Michigan Constitution. See also the Audits and Examinations Act and Attorney General Opinion 6749.

The OAG cannot audit local governments, school districts, private businesses, or individual taxpayers. This limit is set forth by the Michigan Constitution and Attorney General Opinion 6225, Attorney General Opinion 6970, and Attorney General Opinion 7158.

If you have a concern about an entity that we cannot audit, you may find the following resources helpful:

• Department of Treasury Bureau of Local Government
• Michigan Municipal League

The OAG has no enforcement authority for corrective action. The OAG provides the information to the audited agency, the Legislature, and the public. The auditee is required to establish a corrective action plan. The Legislature may request the OAG to present an audit report at a public meeting and request the agency to present its response and corrective actions. The executive branch has the authority to make changes through policy, procedure, or rule, and the Legislature has the authority to effect change through State law or State appropriations.

The OAG may follow up on the status of previously reported findings and issue a Follow-Up Report on Prior Audit Recommendations to the public with the results. Follow-ups are often performed for material findings within an 18-month window at the discretion of the Auditor General based on resources and other factors, such as the amount of time that an agency may reasonably need to make changes.

The Work in Progress tab of our website contains the audit objective(s) and estimated report release dates for all ongoing audits. The tab is located at the top of our website home page.

Yes, you may sign up here and receive an e-mail for every report issued by the Auditor General. The OAG also notifies interested parties when projects begin and when a date has been established for a report release. In addition, the OAG includes links to the reports once released via X (formerly known as Twitter), LinkedIn, and Facebook. You may choose to follow us on one or more of those mediums and receive our posts.

Reports are issued to the audited agency, to all legislators, and to the public. Anyone can find the reports on our website, ask to be on our e-mail distribution list, and follow us on X (formerly known as Twitter), LinkedIn, or Facebook, where we post all report links at the time of release.

To contact the OAG with a concern, you can use the Contact Us or or the Fraud/Waste/Abuse Allegation Form links located to these forms can be found at the bottom of our website home page.