Chapter 11 - Auditing Chapter 12 - Budgeting

ACCY 161 – Fall 2013 

Auditing Governmental Entities (and Nonprofit Entities) Week of Nov 11th 

I. Class Notes 

1. Projects – start this weekend on BlackBoard and handouts on class web page – to be 

completed by the last day of class. 

II. 

a. #1 CAFR review 

b. #2 Service Efforts and Accomplishment review 

c. #3 Not-for-Profits 

d. #4 Federal Government 

e. #5 Careers 

GAAP Hierarchy Summary – “Compliance with GAAP” 

1. Statements and Interpretations 

2. Technical Bulletins and Industry Guides 

3. Emerging Issues and Practice Bulletins 

4. “Q’s and A’s” and industry practices 

III. Governmental Auditing Standards – GAGAS: Generally accepted government auditing 

standards set forth in the “yellow book:” 

“The concept of accountability for public resources is key in our nation’s governing process 

and a critical element for a healthy democracy. Legislators, government officials, and the 

public want to know whether government services are being provided efficiently, 

effectively, economically, and in compliance with laws and regulations. They also want to 

know whether government programs are achieving their objectives and desired outcomes, and 

at what cost. Government managers are accountable to legislative bodies and the public for 

their activities and related results. Government auditing is a key element in fulfilling the 

government’s duty to be accountable to the people. Auditing allows those parties and other 

stakeholders to have confidence in the reported information on the results of programs or 

operations, as well as in the related systems of internal control. Government auditing 

standards provide a framework to auditors so that their work can lead to improved 

government management, decision making, oversight and accountability.” 

A. Include Generally Accepted Auditing Standards (GAAS) – see Notes 18a 

1. Expanded for specific needs of governmental and not-for-profit entities – 

2. Note the “*” on the illustration on that page indicating that the AICPA does not 

have standards for performance audits but does have standards for consulting 

services. 

B. Essentially set by the Governmental Accountability Office (GAO) – a federal agency 

– you will visit this page on the Federal project. 

ACCY161_Fa13_Week_10_Budgeting_Auditing_Chpt11_12 Page 1 of 9

ACCY 161 – Fall 2013 

IV. Types of “normal” audits 

A. Financial audits 

B. Attestation Engagements 


C. Performance audits – defined by the GAO, not GASB or AICPA 

1. No auditing or performance standards 

2. No opinion, but an independent determination of: 

a. Efficiency 

b. Effectiveness 

c. Economics 

3. Examples: http://www.gao.gov/docsearch/pastweek.html 

D. Investigations – not covered by auditing standards Investigations – not covered by auditing 

standards but often done by audit agencies or audit units. In the State of California done by: 

1. BSA – Bureau of State Audits 

2. DoF – Department of Finance 

3. SCO – State Controller’s Office 

4. CHP – California Highway Patrol 

5. DMV – Department of Motor 

Vehicles 

6. BoE – Board of Equalization 

7. FTB – Franchise Tax Board 

8. IG – Various inspector generals 

9. Various internal audit departments 

Generally has potential for criminal as well as civil actions as a result of the process. 

So evidential matter is very important in both content and process of acquisition an 

presentation. If you are interested in this area you should think about taking a Criminal 

Justice class. 

E. Some comments on objectives: 

1. For performance audits: more directed towards “waste.” 

2. For investigations: more directed towards “fraud and abuse.” 

F. Performance and Accountability Reports in the Federal Government 

1. Not the same as the ad-hoc approach found at the state and local level: 

2. But a formal reporting process primarily at the federal level: Performance and 

Accountability Reports 

Example: U. S Department of Treasury 


ACCY 161 – Fall 2013 

V. Single Audit – Part of Project #1 


A. Established by Congress and administered by the Office of Management and Budget (not GAO) 

and provides for an organization-wide audit rather than a grant-based audit. 

B. Referenced to OMB-133 – Office of Management and Budget Circular No. 133. 

C. Essentially a compliance audit tagged on to a financial audit 

1. Internal controls, reportable conditions, questioned costs, corrective actions, disallowed costs 

2. Three parts to the total package 

a. Financial audit – GAAS/GAGAS 

b. Internal controls and compliance audit – GAGAS 

c. Program-specific audit – Single audit guidelines 

3. Then a schedule of findings and questioned (but not disallowed) costs 

4. Sort of a Sarbanes-Oxley for governmental and nonprofit entities 

5. Cognizant agency. 

D. Example from search above “Single Audit” 


ACCY 161 – Fall 2013 


Budgeting 

I. Budget Officer Example 

A. Job Description 

Staff Services Manager I (Specialist), Budget Officer – Information Technology 

& Management Services Division - Salary: $5079 - $6127 California Public 

Utilities Commission Information Technology & Management Services Division 

B. How To Apply: Interested candidates must submit an online job application 

along with a resume, statement of qualifications (soq) and a completed 

questionnaire. The SOQ must address the candidate’s experience and 

qualifications: 

as they relate specifically to bullet items in the Required Experience/Qualifications 

section of this bulletin. 

The SOQ shall be in: 

11 point, 

Arial font, 

no longer than three (3) typewritten pages 

and should be in a narrative format. 

Candidates will be rated on the content of their statements as well as their 

written communication skills. 

If a candidate submits more than three pages, only the first three pages of the SOQ 

will be evaluated. 

The content of the SOQ should provide the reviewers with sufficient details for 

each topic area to demonstrate the candidate’s ability to serve as a Staff Services 

Manager I (Specialist) in the capacity of Budget Officer. The Questionnaire 

requires responses to the questions listed below in writing. The response should 

be typed and no more than three (3) pages in length. Please do not state “see 

application or see resume” in your responses. 

In the ONLINE JOB APPLICATION, please enter responses to your Questionnaire 

in the same field as the SOQ. 

1. Briefly describe a situation that demonstrates your ability to maintain good 

relationships with a diverse (all program/operational/administrative 

levels/technical and non-technical) customer base in a complex environment. 

2. Describe a project you've managed including a) number of team members on 

project b) work with vendors, agencies & the public c) level of responsibility 

d) degree of autonomy e) project outcome f) what you learned from the 

experience. 

3. Describe your experience in the preparation and development of budgets. 

Specifically, describe the methodology used to develop them, your role and 

responsibilities, staff and their responsibilities, evaluation and monitoring, 

and effective controls. 

4. Describe your experience leading teams through difficult situations. Explain 

the situation, what specifically made that situation difficult, how you managed 

the team through that situation, and the final outcome. 


ACCY 161 – Fall 2013 


C. DUTIES AND RESPONSIBILITIES: The Budget Officer will be responsible for 

the Budget Office and report to the Chief of Management Services, who reports to 

the Director of the Division. The Budget Officer will be responsible for the 

development, adoption and administration of the Commission’s budget. This 

position is also responsible for directing and managing complex, distributed 

analytical projects of significant impact to the Commission. Based on a thorough 

understanding of the organization and its strategic and business planning goals, 

this position will be responsible for the provision of budgetary and analytical 

support to a broad range of internal and external stakeholders. The budget and 

analysis function serves as a business partner for internal customers, providing a 

high level of customer service. 

This position will also be responsible for planning, organizing and reviewing the work 

of staff that support the portfolio of projects assigned to this position. 

The Budget Officer plans, oversees and has direct responsibility for all strategy, 

policymaking/implementation, budgetary, operational, and personnel planning for 

the Budget Office. S/he will be responsible for the effective resolution of a broad 

range of governmental, fiscal, supervisory, and/or managerial issues. 

In addition, s/he will conduct and review analytical studies and surveys; formulate 

procedures; policies; program alternatives; make recommendations on a broad 

spectrum of administrative and program-related problems; review and analyze 

legislation, statutes, regulations, and policy guidelines and advise management on its 

impact or potential impact; and represent the Commission. 

The Budget Officer will be responsible for planning, reviewing, managing, 

directing, assigning tasks, and establishing priorities based on Commission needs. 

Oversee, develop, and implement processes and procedures in order to streamline 

and improve efficiencies within the Office. Prepare management memos and 

reports. 

D. REQUIRED EXPERIENCE/QUALIFICATIONS: Knowledge, skills and ability must 

be demonstrated in the following areas: 

Thorough understanding of public budgeting and fund accounting; knowledge 

of Generally Accepted Accounting Principles (GAAP); Government Accounting 

Standards Board (GASB) Statements, Guidelines, and Standards; 

California State financing and budgeting practices, calendar, and legislative 

procedures. 

Working knowledge of budgeting and accounting software; and federal, state 

and local laws, regulations relating to the assigned areas of responsibility. 

Strong leadership and program management skills and political astuteness. 

Knowledge of effective change management, planning, organizing, directing 

and engaging staff. Excellent written and communication skills. Strong 

interpersonal, team building, and customer service skills. 

Experience with a variety of computer systems and tech savvy. Experience 

collecting and using data to drive management decisions. Excellent analytical 

skills, including the ability to use good judgment when analyzing data and 

situations, draw sound conclusions, and take effective actions. Flexibility and 

willingness to thrive in an environment of change. 


ACCY 161 – Fall 2013 


E. DESIRABLE EXPERIENCE/QUALIFICATIONS College graduation with a 

Bachelor’s or Master’s degree in accounting, finance, public administration or a 

closely related field; and three years of progressively responsible professional 

experience in a combination of the following areas; public accounting, budgeting, 

financial management; financial planning; or an equivalent combination of training and 

experience. 

II. Some broader comments on budgeting related to public policy and public administration 

1. Growth of government in from the late 1800’s to now 

a. More demands for public goods – primarily education 

b. The special case of the public good of national defense in response to globalization 

c. Regulations of a more complex economy and society 

d. Social equity issues seen in redistribution of income or wealth 

e. A situation issue of the “baby-boom” generation 

2. One of the points that has been recognized at the beginning of modern public 

administration was an article written by Woodrow Wilson before he became the 28th 

Ppresident of the United States. Here are some excerpts from that article written in 1887 

(from “The Study of Administration” by Woodrow Wilson, Political Science Quarterly (June 

1887)) 

There is scarcely a single duty of government which was once simple which is not 

now complex; government once had but a few masters, it now has scores of 

masters. Majorities formerly underwent government; they now conduct 

government. 

…. 

If an explanation be sought why a science manifestly so susceptible of being made 

useful to all governments alike should have received attention in Europe, where 

government has long been a monopoly, rather than England or the United States, 

where government has long been a common franchise , the reason will doubtless 

be twofold: 

 

first that in Europe, just because government was independent of popular 

assent, there was more government to be done; and, 

second, that the desire to keep government a monopoly made the 

monopolists interested in discovering the least irritating means of 

governing. … 

We have enthroned public opinion; and it is forbidden us to hope during its reign 

for any quick schooling of the sovereign in executive expertness or in the 

conditions of perfect functional balance of government. The very fact that we have 

realized popular rule in its fullness has made the task of organizing that rule just so 

much more difficult. In order to make any advance at all we must instruct and persuade 

a multitudinous monarch called public opinion – a much less feasible undertaking than 

to influence a single monarch. 


ACCY 161 – Fall 2013 


3. Public administration or a more modern term the “new public management” (NPM) 

a. Legal aspect 

b. Managerial aspect 

c. Political aspect 

d. The political-administrative dichotomy issue 

4. Public policy – this is what we want the government to do 

5. A good comment on the role of the public administrator: from “Introduction to Part I” by 

Jay M. Shafritz and Albert C. Hyde in Classics of Public Administration (2008) Wadsworth 

Cengage Learning 

Rome, like Egypt, Persia, and other empires before it, conquered the ancient 

world because it had an organizational doctrine that made its soldiers far more 

effective than competing forces – and because its legions were backed up by a 

sophisticated administrative system of supply based on regular if not equitable 

taxes. The Roman Empire only fell when its legions degenerated into corps of 

mercenaries and when its supply and tax bases were corrupted. Napoleon was 

wrong. Armies do not "…march on their stomachs;' as he said; they march on the 

proverbial backs of the tax collectors and on the roads built by administrators. 

Regular pay allows for discipline. Strict discipline is what makes a mob an army. 

And a disciplined military, obedient to the leaders of the state, is a precondition for 

civilization. This is the classic chicken and egg problem. Which comes first---- 

effective public administration or an effective military? The rise and fall of 

ancient Rome proved that you could not have one without the other. Early 

bureaucrats in ancient Rome and modern Europe literally wore uniforms that 

paralleled military dress. After all, the household servants of rulers 

traditionally wore livery. It indicated that the wearer was not free but the 

servant of another. Government administrators are still considered servants in 

this sense; they are public servants because they, too, have accepted 

obligations, which mean they are not completely free. Indeed, until early in the 

twentieth century many otherwise civilian public officials in Europe-most 

notably diplomats-had prescribed uniforms. Both victorious soldiers and 

successful managers tend to be inordinately admired and disproportionately 

rewarded as risk takers. True, the specific risks and rewards are different; but 

the phenomenon is the same. They both may have to put their careers, and 

sometimes significant parts of their anatomy as well, "on the line" to obtain a goal 

for their state or organization. Notice again the military language for "the line" 

originally referred to the line of battle where you faced the enemy. This is why line 

officers today are still those who perform the services for which the organization 

exists. This is the direct link between the roman centurion and the fire captain, chief 

of detectives, or elementary school principal. Life on the line is still a daily struggle. 


ACCY 161 – Fall 2013 

6. Implementation example: 


a. So: “between the idea and deed is the valley of action” 

b. Here is an example of a policy-public administration disconnect :From 1966 to 1969 

the Economic Develop Administration of Oakland California was to administer a $23 

million demonstration grant to improve employment and quality of life. Here are some 

comments from the article: 


ACCY 161 – Fall 2013 


Budgeting from the Textbook 

I. Budgeting Review from Prior Lectures 

A. Comments 

1. Budgets and budgetary accounting and reporting are supported by the GASB principles 

(#10 for example) – See Chapter Two Appendix 

2. Budgetary accounting is used only in the governmental funds – see Illustration 2-2 – 

and not in the proprietary or fiduciary funds or in the government-wide accounting 

3. But budgets should be used in all governmental entities for accountability reasons. 

4. The budget process is not determined by GASB, only that a budget is used in the 

governmental funds 

5. There can be some statutory requirements – such as formal policies or public laws – that 

require the use and form of the budget that operationally will supplement the GASB 

budgeting requirements. 

B. Budget Objectives 

1. Compliance with laws 

2. Prospectively: Communicate policies, priorities, operational plans, financial plans 

3. Retrospectively: Communicate performance, effectiveness and efficiency 

4. Compliance with GASB standards 

II. Budget Types 

1. Capital budget 

2. Current budget – this is the one we use in our governmental accounting class 

3. Cash receipts and disbursements budget 

4. Prospective budget – 3 to 5 year budget - this where the budget officers and budget 

analyst earn their keep. 

III. Budget Types and Processes 

A. Types of current operating budgets 

1. Object of expenditure 

2. Zero-based budgeting 

3. Performance budgets 

4. Program budgets 

B. Budgeting processes 

1. Timetables 

2. Level of detail 

3. Objective is to make the budgeting process efficient and effective 

IV. Budgetary Reporting – Related to General Financial Reporting in Chapter Nine 

1. Original budget 

2. Final or revised budget 

3. Actual amounts 

4. Difference or variance 

5. Interim reporting until the actual final amounts are determined 

Interview Comment: “Budgeting is about savings, planning is about spending”

Chapter 11 - Auditing Chapter 12 - Budgeting

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