THE MUNICIPAL AUDIT By JAY HEDGES, Director Illinois Department of Commerce and Community Affairs

As the end of the fiscal year approaches, many Illinois municipalities are beginning to prepare for their annual audit. It is the responsibility of the corporate authorities to make arrangements for the audit and comply with the requirements of the Municipal Auditing Law. (Ill. Rev. Stat. 1985, Ch. 24 par. 8-8-1 et seq.)

An "audit" is a systematic examination of the sources and uses of municipal funds. A Certified Public Accountant (CPA) is required to perform an examination of all funds of the municipality if:

(a) the municipal population is 800 or more;
(b) the municipality has bonded debt; or
(c) the municipality owns or operates a public utility.

An "audit report" is then prepared by the auditor covering the audit or investigation of management's financial data and internal controls. The report should include:

(a) a statement as to the scope of the audit;
(b) a statement as to exceptions concerning the application of generally accepted auditing standards;
(c) the auditor's opinion;
(d) a statement on the verification procedure;
(e) the financial statements and accompanying schedules;
(f) supplemental data and comments where necessary.

The report should conclude with an opinion on the financial position and results of operations of the municipality, thus providing public accountability on the part of the public officials.

The audit must be filed with the Comptroller of the State of Illinois. For those municipalities required to have an annual audit, they must also file an annual financial report with the Comptroller. The reporting forms are prepared and provided by the Comptroller. Those municipalities that are not required to have an annual audit performed are required to file only the annual financial report with the Comptroller.

The annual audit and/or Comptroller's annual financial report must be completed and submitted within six months after the close of the fiscal year. In the event of non-compliance, the Comptroller will notify the municipality. The municipality may request an extension of time, which may be granted, or the Comptroller may order the audit to be completed at the local government's expense.

The quality of the municipal annual audit can be no better than the quality of the independent auditor selected to conduct the audit. Whenever the governing authority seeks to hire the services of a CPA, care should be taken to select the most competent firm, preferably one with expertise in governmental accounting. In order to locate a qualified auditing firm, you may want to inquire with other governments in your area, Office of the Comptroller and/or the Illinois CPA Society for a list of potential firms. The municipality would then issue a request for proposals to prospective CPA firms.

The request for proposals is the municipality's solicitation to the auditing firms for specific services and qualifications. It should include, but not be limited to, information about:

(a) persons responsible for the audit;
(b) scheduling of the audit;
(c) scope of the audit;
(d) standards and procedures to be used in conducting the audit;
(e) the audit report;
(f) qualifications of the firm; and