Violations of Mandatory Professional Standards for Conducting Audits

Auditors from the Office of the State Comptroller found problems with the quality of audit work by Coughlin, Foundotos, Cullen & Danowski for at least three mandatory standards:

1. State auditors found that the firm failed to comply with professional standards that require the firm to account for in its planning of the audit to consider the possibility of fraud occurring. The firm did not consider the risk of district management overriding accounting controls such as paying claims without proper documentation, changing vendor payments or authorizing bank transfers. GAGAS incorporate the AICPA’s fieldwork and reporting standards and the related statements on auditing standards for financial audits unless specifically excluded. GAGAS 4.03a: The work is to be adequately planned, and assistants, if any, are to be properly supervised. Statement of Auditing Standards (SAS) 99: The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.
2. State auditors found that the firm did not meet professional standards regarding internal controls over information technology. State auditors found this particularly disturbing because their assessment of the district’s information technology internal controls identified a number of significant weaknesses including the lack of written policies and procedures, inappropriate access rights to the computing system and the capacity to perform overrides such as make vendor changes with little or not audit trail. GAGAS 4.03b: A sufficient understanding of the internal controls is to be obtained to plan the audit and determine the nature, timing and extent of tests to be performed.
3. State auditors found that the firm did not complete planned testing of fixed assets. While the CPA’s audit program required that four audit procedures be completed to test the district’s fixed asset inventory, the firm only conducted one of these four procedures. The firm did not raise any questions about the district’s lax controls over assets, even though the firm was aware of serious problems with the district’s accounting and knew that the district had not updated its asset database. GAGAS 4.03c: Sufficient competent evidential matter is to be obtained through inspection, observation, inquiries and confirmations to afford a reasonable basis for an opinion regarding the financial statements.

Source: Government Auditing Standards – 2003 Revision (Yellow Book)

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