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Code of Federal Regulations (Last Updated: May 6, 2024) |
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Title 7 - Agriculture |
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Subtitle B - Regulations of the Department of Agriculture |
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Chapter XVIII - Rural Housing Service, Rural Business-Cooperative Service, Rural Utilities Service, and Farm Service Agency, Department of Agriculture |
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SubChapter H - Program Regulations |
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Part 1930 - General |
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Subpart C - Management and Supervision of Multiple Family Housing Borrowers and Grant Recipients |
Exhibit A-1 to Subpart C of Part 1930 - Audit Report Review Guide
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I
Purpose. To present a general guide for use of Farmers Home Administration (FmHA) or its successor agency under Public Law 103-354 staffs in the review of independent accountants' audit reports in order to obtain maximum benefit from these audits. The procedures are designed to provide uniformity in the audit review, improve loan program servicing, and help to promote better independent audits.II
General. FmHA or its successor agency under Public Law 103-354 guidelines for independent auditors are detailed in the booklet, “U.S. Department of Agriculture, Farmers Home Administration or its successor agency under Public Law 103-354—Audit Program” (hereinafter called Audit Program and available in any FmHA or its successor agency under Public Law 103-354 office). This Audit Program, along with other instructions, is designed to protect the security of Government loans. The review of the financial and financially related information in the audits must be performed from a technical standpoint in a prompt manner so that the facts and conclusions are readily available for analysis; only then can results be used effectively for management purposes and help to insure improved audit practices.III
Scope. The review should include:AA determination of the adequacy of the audit in relation to FmHA or its successor agency under Public Law 103-354 regulations and the Audit Program.
BInterpretation of information included in the audit.
CPreparing a letter to the borrower on any missing or adverse audit data.
DInforming appropriate FmHA or its successor agency under Public Law 103-354 offices of review results and recommendations.
IV
Review Procedures To Be Followed. A
General. The individual professional judgment of the reviewer should be used at all times. Considerations and decisions requiring the exercise of judgment should be used in the following:1Circumstances peculiar to the borrower.
2Degree of importance attached to each item questioned.
3Number of exceptions.
4Whether the exceptions relate to the auditor's work or the borrower's records and operations.
5If specific action is to be requested of the borrower.
6Whether or not the report, as a whole, is acceptable.
B
Review and Procedure. 1
Specific. aDetermine if the audit was performed by a Certified Public Accountant (CPA) or a Licensed Public Accountant (LPA) who was licensed on or before December 31, 1970.
bDetermine if the audit was conducted in accordance with Government Auditing Standards (1988 Revision), often referred to as generally accepted government auditing standards (GAGAS).
cDoes the audit cover the most recent 12 months since the previous audit?
dWas the audit received within 90 days after the borrower's year end, or was an extension of up to an additional 30 days authorized by the Servicing Official, and if so, was it met?
2
Evaluation checklist for audit reports. The “Evaluation Checklist for Audit Reports” which is attachment 1 of this exhibit is designed to systematically record and reveal the audit findings. Information tallied on this form is a good indication of whether or not additional contact(s) need to be made with the borrower.3
Previous audits and correspondence. Reference to the prior audit and any correspondence concerning it can be most helpful in the current review. Determine whether corrections requested in the previous year have been made, and whether the borrower has complied with previous suggestions for improvement in the audit report.C
Preparing the audit review letter. After completion of the “Evaluation Checklist for Audit Reports” (attachment 1 of this exhibit) and applying personal judgment, a decision must be made on whether or not to prepare an audit review letter similar to that shown as attachment 2 of this exhibit.1If the audit fully complies with the Audit Program and instructions, a letter is not necessary.
2If the audit substantially meets the requirements and is lacking in only a few points, ask the borrower to have the auditor furnish this additional information.
3Audits which are unacceptable should be returned to the borrower for full compliance, indicating the reasons and a timetable for resubmitting.
Attachment 1—Evaluation Checklist for Audit Reports State County Name of Borrower Address Case No. Name of Auditor Project No. Date of Audit Report Period Covered Yes/no - ____
- ____
- ____
1. Auditor's Opinion. (section G-1*). - (a) Unqualified.
- (b) Qualified.
- (c) No Opinion.
- ____
- ____
- ____
- ____
- ____
2. Financial Statement. (section J-1*). - (a) Balance Sheet.
- (b) Results of Operations.
- (c) Statement of Cashflow (Changes in Financial Position).
- (d) Statement of Changes in Retained Earnings.
- (e) Notes to the Financial Statements.
- ____
3. Statement on Auditing Standards. (section J-2*). - Audit Report contains a statement that the audit was made in accordance with Generally Accepted Government Auditing Standards (GAGAS).
- ____
4. Report on Compliance. (section J-3*). - The auditor should prepare a written report on the tests of compliance with applicable laws, regulations, loan covenants and agreement and grant agreements. List significant compliance findings:
__________ __________ __________ - ____
5. Report on Internal Controls. (Section J-4*). The auditor's report should assess the borrower's control risk including discussion on the scope of the auditor's assessment, significant internal controls assessed, and any material weaknesses of internal control noted. List significant internal control findings: ___________ ___________ ___________ ___________ - ____
6. Reporting Instances of Indication of Illegal Acts. (Section J-5*). List any noted: ___________ ___________ - ____
7. Uncorrected Prior Audit Findings. (Section J-6*). List: ____________ ____________ - ____
8. Was report received within 90 days after the end of the borrower's operating year or within a 30 day extension? - ____
9. Was audit performed and signed by a CPA or LPA? If by an LPA, verify that the LPA was licensed on or before December 31, 1970. *References to “Sections” indicate the appropriate section in the FmHA or its successor agency under Public Law 103-354 Audit Program booklet.
Attachment 2—Example Audit Review Letter Dear Borrower (or Borrower Representative): We have reviewed your audit report for the period ______ to ______, prepared by __________ on ______. This review was made in accordance with current Farmers Home Administration (FmHA) or its successor agency under Public Law 103-354 regulations and the Audit Program entitled “U.S. Department of Agriculture, Farmers Home Administration or its successor agency under Public Law 103-354-Audit Program.” Based on this review, your audit:
1. () Is acceptable. However, the auditor's recommendations concerning ______ should be implemented prior to next year's audit.
2. () Is acceptable but did not include comparative-type financial statements as indicated in Section J-1 of the Audit Program. Please inform the auditor to prepare such statements next year.
3. () Is acceptable but was not submitted within 90 days or an authorized delay of ______ days after the end of the borrower's fiscal year. Please insure that next year's audit is forwarded before ______.
4. () Substantially meets all the requirements. However, the following items were omitted as detailed in the Audit Program, Section J, “Reporting Standards.” Please have your auditor comment on the item(s) circled and forward a copy to us. The circled numbers correspond to the 6 items listed in Section J of the August Program.
J-1J-2J-3J-4J-5J-6 5. () Is returned as unacceptable for the following reason(s). Please have the auditor prepare your audit in accordance with the Audit Program.
a. [] It was prepared without audit.
b. [] The following financial statements were omitted: (Audit Program, Section J-1)
[] Balance Sheet.
[] Results of Operations.
[] Statement of Cash Flow.
[] Statement of Changes in Retained Earnings, or
[] Reconciliation of Owner's or Partner's Equity.
[] The auditor's opinion of Compliance. (Audit Program, Section J-3).
[] The auditor's opinion of internal control. (Audit Program, Section J-4).
Servicing Official This letter will be prepared in the Servicing Office. A copy of the audit and the approval memorandum will be sent to the State Office.