| Yellow
Book: The Gold Standard
Working Toward Better Government Audits in
New York State
MAY 2008
- Most nonprofits and all government agencies that accept federal
money are required to have their audits performed in accordance
with Government Auditing Standards—the “Yellow Book,”
arguably the most rigorous auditing standards in existence. These
standards, set by the comptroller general of the United States,
apply to both mandatory financial audits and to voluntary audit
services that are subject to standards for performance audits.
 New
York State’s school districts, fire districts, and public
transportation are supported in part by the federal government.
Federal funding also pays for the lion’s share of New York
residents’ Medicaid benefits. Yet, audits for the majority
of New York State government–funded entities can’t
lay claim to meeting even the less-rigorous generally accepted
auditing standards (GAAS) issued by the AICPA. New York’s
taxpayers deserve better accountability for how their money is
spent. Implementing Yellow Book standards for all New York State
programs would increase accountability without having to reinvent
the wheel.
Benefits
of the Yellow Book
Yellow Book
standards require auditors to undergo peer review and receive
specialized continuing professional education. Applying the standards
to all local and state government agencies in New York would establish
a foundation for a future single audit requirement and include
definitions that all auditors can use. A floor of $500,000 in
state funding per fiscal year could be used to exempt smaller
entities. Currently, municipally funded programs administered
by local governments and not-for-profit organizations in New York
do not have a clear single set of audit requirements for the state
funding they receive. Consequently, a nonprofit that receives
funding from multiple agencies at the state and local levels is
required to file different reports with each agency, with no uniform
reporting standard and many unclear or contradictory definitions.
The Society’s
task force on governmental audit quality recognized the need to
expand the scope of Yellow Book standards. The task force identified
two sets of problems. First, there is no assurance to New York
State agencies that fund these programs and ultimately New York
State taxpayers that sufficient audit coverage is obtained. Second,
when recipients of money for multiple New York State–funded
programs, particularly not-for-profit organizations, are subjected
to audits of each program, this often results in resources being
strained when the organization must simultaneously meet the needs
of multiple auditors.
Building
to the Single Audit
Well-functioning
local government entities and nonprofit organizations are vital
to the public. A lack of oversight in financial accountability
by local government officials, as well as the board members of
nonprofit organizations, underscores a serious problem. Part of
the problem is inadequate auditor training, the lack of peer review
for auditors, and the lack of a single audit. Too many public
entities appear to take audits lightly and seem unwilling to pay
for a proper audit.
Citizens
should not be taking risks when they pay their taxes. If Yellow
Book standards were required for New York State–funded entities,
taxpayers would benefit from those standards’ independence,
continuing education, and peer review requirements. Broader implementation
of the Yellow Book would improve the quality of audits of government
and not-for-profit organizations. It would also promote audit
economy and efficiency, and ensure professional competence.
Many other
states have already adopted Yellow Book standards. In implementing
them, New York would have the benefit of learning from those other
states that have successfully raised the bar of audits of their
publicly funded programs. Once higher standards are in place,
a single audit requirement of publicly funded programs and entities
would be one step closer to reality.
Louis
Grumet
Publisher, The CPA Journal
Executive Director, NYSSCPA
lgrumet@nysscpa.org
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