Avoid Illegal Audits

Does your municipality routinely check all professional licenses to ensure the compliance of every service provider? The answer to that question must be “Yes,” particularly if the license is for municipal audit services. The consequences can be serious.
Michelle Day is the Deputy State Auditor and General Counsel of the State Office of Accountancy (SAO), where Oklahoma statutes require municipal audits to be filed. Ms. Day reports several municipalities have been contacted because their audits failed when it was discovered their auditor was not licensed. She explains that many of the municipalities contacted had been audited by the same unlicensed auditor. In other cases, a trusted long-time auditor will allow his/her license to lapse, rendering those audit services illegal. Day would not speculate on why an auditor would perform audit services without a license except to say someone is not following the law.
When an auditor files a municipal audit with the SAO as required by statute, the license of the auditor is checked for good standing. If the license is discovered to be invalid, two things immediately happen:
1)      The State Auditor & Inspector’s Office will reject the audit; and
2)      The municipality receives an automatic disqualification of any state or federal grants it may have pending.
Other repercussions also result. The municipality is still required to file a correct and valid audit at the SAO, which rubs salt into the wound because the costly audit appropriation has already been expended. Whether your municipality can retrieve monies from an unlicensed auditor would depend heavily on protections in the contract which was signed upon obtaining auditor services. 
Don Powers, a CPA in the SAO, explains that sometimes the auditor does not even file the audit. Whether the municipal audit is filed, or filed and declined, it will result in the loss of the municipality’s gasoline tax.  
A check of credentials and licensure to ensure the good standing of your auditor is the first step to protecting your municipality from an immediate disqualification of its audit. The Accountancy Board posts a list of licensed auditors on its website where city and town officials may check the auditor’s credentials and licensing to determine whether that auditor is in good standing. That website may be found at www.ok.gov/oab.

Please Note:  This summary is not a substitute for legal advice.  You should consult your city or town attorney prior to taking any action based on this document.

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