Choosing An Auditor For Your School

Posted on April 6, 2021 by Oozle Media

Not every accounting firm is qualified to perform a student financial aid audit for a beauty school. Of the well over 100,000 accounting firms in the U.S., you can narrow the field by asking whether a firm performs audits at all, whether it is qualified to perform Yellow Book (government) audits, and whether it specifically performs student financial aid audits. From there, the right fit depends on fees, firm size, communication style, industry knowledge, and personality. Lightheart, Sanders and Associates specializes in audits for beauty school clients and can walk you through what to look for before you choose a firm.

Who can perform a student financial aid audit?

There are well over 100,000 accounting firms in the U.S. However, not every firm is qualified to perform a student financial aid audit.

First, some firms do not perform audits at all. The main reason a firm avoids performing audits is the additional cost, liability, and scrutiny involved. The audit world is full of standards to ensure firms are performing the necessary tasks to meet the expected quality of a CPA firm. These standards focus on how an audit is performed, what auditors say in their report, and general requirements of training, proficiency, independence, and due professional care. Those standards are promulgated by the Auditing Standards Board, and firms that perform audits are required to participate in the Peer Review Program, in which another firm reviews their work to determine whether the audit was performed according to the standards. This additional work, cost, and reporting to governing bodies can be overwhelming for a firm without a focused audit team, so you can narrow your list by asking firms whether they perform audits at all.

Second, student financial aid audits are government audits. In addition to the general requirements to perform audits, government audits carry additional rules and regulations commonly referred to as the “Yellow Book”, and an audit prepared using those rules is called a “Yellow Book audit.” The standards focus on independence, due care, continuing education, supervision, and quality control. Because of these additional requirements, CPA firms often will not perform this type of audit unless they do enough of them for it to make economic sense, so the follow-up question is whether a firm is qualified to perform Yellow Book audits.

Third, even within CPA firms that perform Yellow Book audits, expertise varies widely. Yellow Book covers all aspects of government entities, including cities, schools, state agencies, and federal programs, each with its own rules and regulations. Some firms specialize across several of these areas, and some have found areas that are similar enough to balance together, but many require significant time and effort to understand with little crossover between them. That makes it worth asking directly whether a firm performs student financial aid audits specifically.

How do you choose the right firm once you have narrowed the list?

Once you have narrowed your choices down to firms qualified with the necessary knowledge and understanding to perform the audit, the standards are specific enough, and the audit guide dictates the procedures firms take, that the report itself and the steps to produce it look similar across firms. Even so, there are real differences between firms.

Choosing the right firm for your school is like choosing the right shoe: you have narrowed the choices down to shoes that can do the job, but now it is time to figure out which one fits best. That means evaluating what you are looking for in the relationship and which aspects of a firm matter most to your needs.

What should you weigh when comparing firms?

• Fees: often the first question asked, but not always the most important one for the relationship. Some schools are simply looking for the most cost-effective way to obtain a required financial and compliance audit and do not mind if steps are skipped, support is limited, or the firm does not invest in staying current, which are the areas that are often reduced to compensate for lower fees. Other firms bring significant value to the relationship, but that value might not be useful to every school.
• Size: a two-edged sword. Larger firms tend to have more internal resources for complex issues and more staff to handle larger audits, but that size can also mean higher fees, since work goes through more layers of review, and it can mean the person doing the bulk of the work does not have authority over critical decisions. Larger firms also tend to see more staff turnover from promotions and departures. A smaller firm will have fewer people involved in the audit and more hands-on involvement from management and ownership.
• Communication: it is easy to assume that as the client you should dictate exactly how information is communicated and delivered, but pushing firms outside of their designed approach tends to cause delays, problems, and hiccups in the audit process, which leads to frustration on both sides. Understanding how a firm prefers to receive and perform certain procedures, and how much it leverages technology to safely exchange information and deliver reports, is critical to outlining a workable relationship.
• Industry knowledge: even among firms that know student financial aid audits, focus varies. A beauty school and an allied health school have different needs, as does a single-location school compared with a nationwide entity of 50 campuses. The different characteristics of proprietary schools create different needs and expectations of firms.
• Personality: firms have a personality, often shaped by their leadership. Finding a firm you feel comfortable talking to about difficult issues matters. Consider how easy it is to talk to your audit team, whether your auditor can explain complex accounting or auditing issues in a way you can understand, and whether they take the time to help you understand problems and issues as they come up.

What questions should you ask a prospective audit firm?

There are two key things to evaluate when choosing an audit firm: the firm’s skills, knowledge, and expertise in performing the audit and understanding the beauty industry, and the firm’s approach and methodology, which shapes the relationship between the school and the audit firm. Selecting the right firm can be a major tool in successfully meeting your regulatory requirements. Consider asking:

• Do you perform audits?
• Are you Yellow Book qualified?
• How many, or how well, do you know the student financial aid audits?
• What percent, or how many, beauty schools do you have as clients?
• How many people will be involved in my audit?
• Whom will I have the most contact with?
• How is information exchanged between us?
• How are findings handled?
• How often are auditors changed from client to client?
• Describe your ideal school client.
• What are the most important aspects of the relationship between the school and the audit firm?

Lightheart, Sanders and Associates specializes in audits for beauty school clients. When you work with us, you can be certain you are partnering with a firm that understands the importance of the audit process, both technically and in the relationship it takes to get through it smoothly.

Next step: If you want a partner who will have your back throughout the audit process, we are here for you. Contact us today to learn more about our CPA firm and our experience, knowledge, and technological savvy in beauty school audits.

Frequently asked questions

What is a Yellow Book audit?

A Yellow Book audit is a government audit performed according to the standards in the Government Accountability Office’s “Yellow Book,” which focus on independence, due care, continuing education, supervision, and quality control. Student financial aid audits fall under these rules.

Why do some accounting firms not perform student financial aid audits?

Performing audits carries additional cost, liability, and scrutiny, and Yellow Book audits add further rules and regulations on top of that. Many CPA firms will not take on this work unless they perform enough of it to make it economically worthwhile.

Is a bigger accounting firm always the better choice for a school audit?

Not necessarily. Larger firms often have more internal resources for complex issues, but can also mean higher fees, more staff turnover, and less decision-making authority for the person doing the bulk of the work. Smaller firms typically offer more hands-on involvement from management and ownership.

What should I ask a firm before hiring them for a student financial aid audit?

Ask whether they perform audits at all, whether they are Yellow Book qualified, how many beauty schools they serve, how many people will be involved in your audit, and how communication and findings are typically handled.

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