News & Insights

Audits are designed to improve accountability, strengthen internal controls, and reduce risk. Yet year after year, many municipalities continue to receive the same findings during financial statement audits.   

But why is that?   

Audit findings are rarely caused by a single mistake. Repeated findings often point to underlying weaknesses in processes, oversight, documentation, staffing, or internal controls. The good news is that recurring findings are preventable when management focuses on sustainable corrective actions rather than temporary fixes.   

While audit findings vary, several issues consistently appear across municipalities of all sizes, from small villages and townships to larger cities.   

Lack of Segregation of Duties   

One of the most common audit findings (from the smallest to largest municipalities) is related to inadequate segregation of duties. This typically occurs when one employee controls multiple phases of a transaction, such as authorizing, processing, and reconciling. Auditors will always  be on the lookout for this. Anytime duties are concentrated with one individual, the hair on your auditor’s neck will stand up, as the risk of fraud, error, or unauthorized activity increases significantly.   

One of the most common responses to this finding is, “We’ll hire additional staff.” Unfortunately, not everyone can just hire additional personnel.    

One effective solution is implementing compensating controls, such as having board members or management review reconciliations, disbursements, or supporting documentation. Another option is to restrict system access based on employees’ job responsibilities to better separate financial functions.   

Management should clearly document all compensating controls, especially in smaller municipalities with staffing limitations. If segregation of duties is a hot topic at your municipality, Maner has an excellent consulting team that can perform a process review, which, if you missed last month’s article, can be found here.  

Inadequate Documentation   

Another common audit finding is improper or inadequate documentation. This occurs when auditors cannot verify that transactions were properly approved, policies were followed, or compliance requirements were met because supporting documentation is missing or incomplete. Even when employees are performing processes correctly, insufficient documentation will create audit risks.  

Common examples include missing approval signatures, unsupported journal entries, and a lack of monitoring evidence.  

Municipalities should focus on standardized processes and retention practices. An example for employee reimbursements, the municipality should have a documentation checklist that each employee is required to complete prior to submitting an expense report, as well as train their employees on the expectations as to what is acceptable for proper documentation.   

A good rule of thumb is simple: if someone outside the process cannot understand or verify the transaction from the documentation provided, the documentation is likely insufficient.   

While documentation issues may appear administrative in nature, they can raise broader concerns about accountability, transparency, and public trust.   

Material Journal Entry Findings   

Material journal entry findings are arguably amongst the most serious issues identified during financial statement audits because they directly affect the reliability of a municipality’s financial statements.    

The auditor will closely examine journal entries (especially year-end entries) because they reflect management’s ability to manipulate the municipality’s financial data. The most common material journal entry finding usually occurs during the audit process, which requires the auditor to propose significant adjustments to the year-end financial data, whether that be from miscalculations or posting to improper accounts.  

Some of the more effective corrective actions include: 

• Strengthening year-end review procedures 

• Improving staff understanding of financial reporting requirements 

• Automating controls where practical 

Municipalities that establish strong financial reporting practices throughout the year generally experience fewer audit adjustments, fewer findings, and greater confidence in the accuracy of their financial information.  

Get Support From Governmental Audit Experts  

Repeat audit findings should not simply be viewed as audit issues. Over time, they can affect operational efficiency, board confidence, grant compliance, and overall trust in the municipality’s financial management practices.   

Again, these are just a few findings that consistently appear across municipalities of all sizes. While auditors are present during the annual audit, they can also serve as a resource throughout the year by answering questions to help municipalities strengthen processes, improve controls, and reduce risk before issues become recurring findings.   

Municipalities that proactively address findings throughout the year typically experience smoother audits, stronger internal controls, and more reliable financial reporting.   

If your municipality is experiencing recurring audit findings and general questions, struggling with internal controls, or simply looking to strengthen financial processes, Maner’s governmental accounting and consulting team can help. From process reviews and internal control assessments to accounting support and operational consulting, we work with municipalities to develop practical solutions that reduce risk and improve long-term financial operations. Contact our team to learn how we can assist your municipality.