Question

Government and Not for Profit Accounting Even programs involving relatively subjective judgments can readily be audited.

A Department of Housing and Urban Development (HUD) program is aimed at conserving and rehabilitating blighted but salvageable urban areas. One element of the program provides that HUD will make rehabilitation grants and low-interest loans to property owners to help them finance the repairs needed to bring their properties into compliance with housing codes.

When Congress authorized the program, it did not establish specific criteria as to what constitutes a "blighted but salvageable" area; it left that up to HUD.

A preliminary survey by the GAO has indicated that HUD is directing funds to areas that were far too deteriorated for conservation and rehabilitation to work.

Suppose that you are assigned to the engagement. Outline an approach that you would take to support (or reject) the findings of the preliminary survey.

Answer 1

COMPLIANCE TESTING MAY NEED AUDITOR INGENUITY.....

The certified public accountant firm of which you are a manager has placed you as in charge of the audit of the Thornburg School District. The district receives substantial financial support from the State Education Agency. The state needs aid recipients to have annual single audits conducted by independent certified public accountants. The firms are responsible for verifying that recipients have complied with the provisions of all financial awards from the state.

From your preliminary survey you learn that the district needs a fund of $3 million to provide free hot lunches to elementary school children of low-income families.

The award declares that only children from families with incomes under $30,000 are eligible to participate in program. The state needs districts to determine eligibility, it does not provide any guidance on how they are to do.

Based on the available information, it is obviously not possible to develop a specific audit program to ensure that the district has complied with the eligibility provisions. Therefore before you even meet with district officials to discuss the audit, you wish to have a preliminary strategy.