Testing Procedures for Contract/Agreement True-Up

Note: While these steps apply to all entity types, we most often see this in schools related to FTE/foundation adjustments. These steps are applicable beginning with Fy 2016 FTE Adjustments (which occurred during Fy 2017). For most schools this will be their Fy 2017 audit. However for any school whose FY 2016 audit fieldwork is not yet complete, these procedures should be performed in their Fy 2016 audit. Only with Chief Deputy Auditor approval can this testing be delayed until the Fy 2018 audit.

Inquire if the entity had any contracts / agreements paid on a % of participants, % or number of ADM / FTE, students, revenues, etc. (i.e. anything that may change after the payment is made).

  1. Request such contracts / agreements, the entity’s written true-up policy, true-up calculations, related legal consultations, & repayment plans (if not paid in full).
  2. Test the true-up calculations and assess if a reasonable conclusion was reached (amount due to/from the entity).

o  Consult with CFAE regional specialist (for community schools consult with CFAE Community School Specialist) or regional legal consultant via Spiceworks, if necessary/questions arise.

  1. Follow-up on prior year repayments to determine if repayment agreements/schedules are being followed.
  2. Determine if a Finding for Recovery should be issued. Auditors will likely issue FFR’s when:

o  The true-up calculation(s)/evaluation(s) have not been performed and the auditor determines an amount is due, OR

o  An unreasonable legal evaluation/determination has been relied on, OR

o  The amount due has not been repaid, or is not in the process of being repaid under the terms of a reasonable and enforceable repayment agreement.

  1. If a GAAP audit, determine if a receivable/payable was reported on the financial statements, if necessary.
  2. Determine if a contingency footnote (foundation footnote for schools) was included, if necessary. For schools, see example contingency footnote on the AOS Community School internet page.

If auditing a community school and the sponsor contract / agreement was tested in the OCS Section 2-13 testing, hyperlink to testing in the Record of Work Done. Also hyperlink to related testing done in OCS Section 1-27 for community schools.

For further information see November 2017 webinar titled ‘Community School Overpayments Webinar’ - for Auditors. While this webinar is specific to community schools, the evaluation / calculation would be similar for any such contracts.