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What is the MD&A Report in a Local Government Audit?
Reading and understanding a local government financial statement can be overwhelming and confusing. Although the Uniform Budgeting and Accounting Act may mandate the audit, board members often miss the opportunity to leverage this document’s value in effectively managing their local government.
The better you understand the elements and information within the audit, the more effectively you can use it to ensure financial transparency, make informed decisions, and uphold your fiduciary responsibilities to your community.
What is a Local Government Audit?
Local government audits help ensure accurate and complete financial statements and compliance with laws and regulations, such as state charts of accounts and federal grants. Although not a primary goal, audits can reveal potential fraud, asset misuse, or weak internal controls. Additionally, audits help increase transparency and foster public trust by allowing citizens, investors, and other stakeholders to review and better understand the government’s financial management and stewardship.Where Does the Information in an Audit Come From?
It is easy to think that the audit is the auditor’s document, but it is essential to remember that the auditor is simply presenting their opinion on your financial statements. While they provide an opinion on the fair presentation of the financial statements, all the information in the document is yours.Your Audit’s MD&A Report
One section that is easy to overlook is the Management’s Discussion and Analysis (MD&A). For the convenience of the local government, most auditors draft this section and ask that the client review it. A local unit may not understand the purpose of this section, so they accept what the auditor provides.What is the MD&A?
The MD&A provides additional context, analysis, and explanations of the financial statements and other key information outlining the government’s fiscal decisions and rationale. A well-written MD&A presents the entire story, and the remainder of the financial statements support the themes written in the MD&A. The document provides an opportunity to communicate with stakeholders. It is the government’s chance to tell its financial story, justify its budgetary choices, and present its economic outlook. Your MD&A should help achieve the following objectives:- Enhancing understanding by providing a narrative that complements the numerical data in the financial statements, offering insights into significant events, trends, and financial indicators.
- Providing interpretation and analysis to explain the reasons behind the changes in financial position, highlighting notable achievements or challenges, and explaining variations in revenue, expenditures, and fund balances.
- Assessing the local unit’s financial condition, including its ability to meet its obligations, fund ongoing operations, and invest in necessary infrastructure or services.
- Providing forward-looking information that the financial statements do not provide about future projects or potential risks that may impact the local government’s financial position.