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Evidence from Town and Village Audits
Towns and villages account for more than 1,400 municipal government entities in New York State. They constitute a part of the client base for many CPAs, who may serve them as auditors or consultants. Some CPAs may serve as members of town or village boards, and all CPAs are among the most informed citizens to informally monitor the financial operations of town and village governments and participate in public forums.
The passage of the Sarbanes-Oxley Act of 2002 (SOX) and the subsequent section 404 audits for public corporations sensitized all playere - preparers, auditors, analysts, and usere - to the importance of governance and internal controls. The Committee of Sponsoring Organizations of the Treadway Commission's (COSO) framework addresses the objectives of internal control. A recent COSO project emphasizes the importance of the monitoring function in achieving internal control. Audits are a common form of monitoring. Towns and villages in New York State are not required to have an independent audit though many do. Where there is no independent audit the governing board should perform that function, though many boards are neither particularly well qualified nor inclined to do so. The Office of the State Comptroller (OSC) also provides monitoring in the form of audits, but it is only able to cover approximately 3% of all towns and villages annually. As might be expected in such an environment, compliance with good control practices often suffers.
This study focuses on toe internal control issues identified in an extensive, ongoing series of audits of towns and villages undertaken by the New York State Comptroller's Office. These are not financial statement audits, but examinations of selected governance and control issues. A review of the findings of more than 300 town and village audits conducted between 2003 and 2009 showed that all but a handful of these public entities exhibited numerous governance and control deficiencies. The major issues found in this extensive sample of audits are summarized and discussed below. The results show mat there is much room for improvement. Small entities have several inherent control limitations; small size limits toe number and quality of personnel, and the extent and quality of oversight. These limitations are evident in several of the weaknesses reported.