Yellow Book Audit: Frequently Asked Questions


April 1, 2024
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Yellow Book Audit: Frequently Asked Questions

 

In the following guide, we have compiled frequently asked questions about Yellow Book audits for preschools. We hope this resource will provide insight into Yellow Book audits for your childcare organization. Keep reading to learn more. 

What is a Yellow Book audit?

A Yellow Book audit is an external audit of an organization in compliance with the Government Auditing Standards (Yellow Book). As such, a Yellow Book audit offers the highest standards for total compliance with all applicable laws and regulations for a childcare organization. You can read more about Yellow Book audits here. (Link to: “What Is a Yellow Book Audit?”

Do I need a Yellow Book audit for my preschool? 

If you receive at least $750,000 in federal or state funding programs for your preschool, then your Yellow Book audit is required. 

How can I prepare for an audit?

Sufficient preparation is key to helping the audit process go smoothly for your childcare organization. There are a number of steps you can take to prepare for an audit, including educating and briefing your employees, reviewing internal controls, and organizing documentation for your external auditors. You can read more about preparing for an audit here. (Link to: “10 Ways to Prepare for an External Audit”)

What can I expect during an audit?

During the planning stage of an audit, you can expect to receive an engagement letter from the auditors, meet with the audit team to discuss preliminary questions and define objectives, and review all company policies and procedures, internal controls, and required documentation with the auditors. 

During the fieldwork stage of an audit, you can expect the auditors to work through the account balance, test transactions, review year-end account balances and supporting documentation, compare account balances against the prior year and against the current year’s budget, make inquiries of your staff as needed, and propose adjustments to accounts, as needed. 

During the completion stage of an audit, you can expect the auditors to draft an audit report to present to your organization’s leadership, detailing any findings and making recommendations for addressing the findings. 

You can read more about what to expect during an audit here. (Link to: “What to Expect During a Financial Audit”)

What are the rights of the external auditor? 

Here are the generally accepted rights of the external auditor during the financial audit process:

  • Use your childcare organization’s facilities and equipment appropriate to the audit
  • Ask questions of any employee for purposes of the audit and gain factual answers to their questions 
  • Review and examine any topics within the scope of the auditor’s agreed-upon plan
  • Access to any and all records pertaining to the audit topics being reviewed and examined 
  • Conduct the audit work in a conducive and cooperative environment during typical business hours 

What type of access does the external auditor have?

In accordance with the Government Auditing Standards, an external auditor will have complete access to all functions, records, property, and personnel required to carry out the engaged audit, subject to accountability for confidentiality, as well as the safeguarding of records and information except where restricted by law. 

What documents and data must my preschool provide for the audit? 

You will need to provide a variety of records and data ahead of time for review by the auditors. You can access a complete list of documents you will need for a Yellow Book audit of your preschool here. (Link to: “Yellow Book Audit Preparation Checklist”) We have also included a printable version of the checklist to help you keep track of documents you need. 

What are common audit findings for childcare organizations? 

There are a number of audit findings that are common to childcare organizations we serve. These findings include, insufficient documentation, inadequate internal controls, lack of segregation of duties, incorrect classification of revenue or expenses, non-compliance with regulations, gaps in employee training, failure to reconcile accounts, and outdated software. You can read more about common audit findings and how to prevent them here. (Link to: “Common Audit Findings and How to Prevent Them”)  

Who receives the audit report?

The audit report is addressed to the head of the childcare organization and the appropriate administrators. 

How should my childcare organization respond to audit findings? 

When it comes to writing a formal response to an audit report, you can provide an agreement response, disagreement response, or no response. In general, an agreement response accompanied by a plan of corrective action is the most appropriate response. You can read more about how to respond to audit findings here. (Link to: “How to Respond to Audit Findings”)

How does the external auditor follow up on the audit report? 

After the auditee provides an agreement response with a plan of corrective action, including the deadlines for addressing audit findings, the auditors will conduct a follow-up assessment within the agreed-upon timeframe to determine whether management has sufficiently implemented corrective action. Once approval of corrective measures has been given, the audit is considered closed. 

I am ready to move forward with a Yellow Book audit. What are my next steps? 

If you are ready to schedule your Yellow Book audit with Honest Buck Accounting, reach out to our team of experts today. We provide Yellow Book audits for preschools and childcare organizations just like yours. Contact our accounting experts to schedule a free consultation.  


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