2021 Audit Contract Forms and Administrative Code Changes

Tuesday, November 10, 2020

Audit Contract Forms and InstructionsHands of two people sitting in front of computers looking at a sheet with charts and graphs on a clipboard

Audit contract forms for FY2021 audits are now available. Please see our website for:

  • 2021 standard contract form (for all units other than charter schools)
  • 2021 charter school contract form
  • 2021 contract form instructions
  • 2021 amended contract form (no changes from 2020)
  • 2021 amended contract form instructions

The audit contract form provided by LGC Staff is intended to standardize the submission of contract information and reduce the amount of time required for contract review and approval. All auditors and units are encouraged to use the LGC-205 form.  Units and their auditors who use the audit contract form provided by LGC Staff must use the 2021 audit contract forms for all new contracts (regardless of fiscal year).

Since units and their auditors may occasionally need to submit contracts for prior fiscal years, the 2021 contract form includes effective dates for contract items that may not be applicable to audits for prior fiscal years. Please see the Audit Instructions on our website for details.

Recent changes to North Carolina Administrative Code led to several important changes to the contract forms and the audit contract, review, and invoice processes. Please see below for details.

 

Administrative Code Changes

The following changes to the North Carolina Administrative Code were effective November 1, 2020. We encourage all units and their auditors to read the full text of the rules. Highlights of the changes to the rules that affected the audit contract form and process are described below.

  1. 20 NCAC 03 .0505 AUDIT BILLINGS
    • This rule was modified to set the maximum amount of invoices that can be approved prior to final submission requirements at 75% of the billings submitted to the LGC staff for approval for the previous year’s annual audit. There is no longer a distinction between “fixed fee” and “variable fee” contracts – the interim invoice cap is now 75% of the billings for the last audit for all contracts.
      • This change was implemented in the contract via changes in item 3 on the fees page.
         
  2. 20 NCAC 03 .0502 AUDIT CONTRACTS
    • This rule was modified to include a new requirement (see item (c)(6) in Rule .0502) that the auditor present the audit to the governing body of the unit in a public meeting. The auditor’s presentation to the unit’s governing body must include a description of each finding, including all material weaknesses and significant deficiencies and any other issues related to the internal controls or fiscal health of the unit, the status of the prior year audit findings,  the values of Financial Performance Indicators based on information presented in the audited financial statements, and notification to the governing body that the governing body shall develop a "Response to the Auditor's Findings, Recommendations, and Fiscal Matters," if required under Rule .0508. *Please see the rule for details and specific requirements. The “Financial Performance Indicators” noted in the rule are specific values that will be automatically generated when data is entered into the 2021 Data Input Workbook. No calculations are required by auditors or their units to determine or obtain these numbers.
      • This change was implemented in the contract via a new item 28 and is applicable only for audits with fiscal year ends June 30, 2021 and later.
    • Another change to this rule ((c)(6)) requires that “Information based on the audited financial statements shall be submitted to the Secretary for the purpose of identifying Financial Performance Indicators and Financial Performance Indicators of Concern.”  This item formalizes the requirement for units to provide data based on the audited financial statements via the Data Input Workbook provided by LGC Staff. No additional reporting requirements are intended.
      • This change was implemented in the contract via a new item 29.
         
  3. 20 NCAC 03 .0508 RESPONSE TO THE INDEPENDENT AUDITOR'S FINDINGS, RECOMMENDATIONS, AND FISCAL MATTERS
    • .0508 is a new rule that will replace the “Unit Letter” process that has been used by LGC Staff to notify units and their auditors of concerns that Staff finds during the review of audit reports. Under this rule, if a unit is notified by its auditor of significant deficiencies, material weaknesses, or other findings; or if the auditor determined that Financial Performance Indicators of Concern were identified, then the governing body shall develop a "Response to the Auditor's Findings, Recommendations, and Fiscal Matters” and submit the response to the LGC within 60 days of the auditor's presentation. This rule change does not impact the content of the audit contract form but is noted here since it modifies the audit review process and is referenced in item 28 in the contract body. We will provide information, guidance, and other details on this change in the coming months.
      • This change will be applicable for all audits with fiscal year ends June 30, 2021 and later.

As always, please contact us with any questions on audit contracts, invoices, review, approval, etc. email LGC.Contract@nctreasurer.com  or call 919-814-4299.