Where a Management Letter Ends and a Process Review Begins

Municipalities face increasing public scrutiny, tighter budgets, and complex compliance requirements. Financial statement audits are required for municipalities in Michigan and provide essential oversight – but they’re designed to say what happened, not why it happened or how to fix it.   

That often leaves municipalities with unanswered questions and the need for an additional step after receiving their audit results. Moving beyond your management letter to a process review can help you determine the next step and how to move forward.  

What is a Management Letter?  

During the financial statement audit, external auditors may issue a management letter summarizing identified material weaknesses, significant deficiencies, and/or other comments noted during testing. These comments focus on compliance with accounting standards and requirements.   

For example, if there were material journal entries proposed by the auditor during the audit, the municipality may have a material weakness in the management letter that says: “Bank reconciliations were not performed on a timely basis during the course of the fiscal year. Material audit adjustments were proposed by the external auditor, accepted, and recorded by the client to reconcile the accounts.”  

While this comment does exactly what is required by addressing what went wrong, it doesn’t help the municipality fix the issue. It doesn’t identify that bank reconciliations weren’t done on time because they were done in Excel rather than the accounting system, or that twenty bank accounts are being reconciled when the municipality only needs four.   

We know that these comments are important, but putting together a plan to address them can be confusing. That’s where a process review comes in.  

What is a Process Review?  

A process review is designed to identify the root cause of audit findings, bottlenecks, manual data entry, internal control gaps, and duplicative work. It starts by gaining an understanding – from start to finish – of all your financial processes and internal controls through staff interviews and a review of current policies and procedures.   

Once that information is gathered, the Maner team identifies the underlying drivers of issues and creates a customized report highlighting specific concerns, areas for improvement, and, most importantly, practical steps to address them.     

What is Included in a Process Review Report?  

The process review report offers detailed, realistic suggestions that may include:  

• Leveraging technology for electronic invoice approval  
• Streamlining the bank reconciliation process  
• Developing a reporting dashboard for clear, digestible board reports   
• Creating templates for policies, customized for the staff’s needs  

Every municipality is unique, so our recommendations are always tailored to your specific situation.       

In addition to the narrative in the report, we include Maner’s risk and efficiency matrix. Because complete overhauls rarely succeed, these visual tools make it easier to prioritize what steps will be most impactful. We also provide detailed process maps that highlight both your current processes and the streamlined future-state workflows.   

When Should a Municipality Start a Process Review?  

While there’s never a bad time for a process review, there are times when it’s especially important:    

• New or recurring audit findings: A process review can help the municipality find effective ways to address these comments and make the audit process smoother.     
• Upcoming retirements: One of the best ways to ensure continuity of activity and capture institutional knowledge is through a process review.    
• Recent finance staff departures: When budgets are tight and vacant positions go unfilled, it’s an ideal time to streamline without sacrificing internal control.  

If any of these apply to your municipality, or if you just need some time back in your day, the consulting team at Maner Costerisan is here to guide you.

Reach out to us at maner@manercpa.com or call us directly at 517.323.7500 for more information.