Lasting Audit Reform Takes More Than Short-Term Solutions

Marty Green, Esq. Senior VP and Legislative Counsel, Illinois CPA Society
The Latest on Advocacy and Legislation

With budget uncertainties and anticipated cutbacks of federal revenues and reimbursements for ongoing programs, the state’s financial gaps are front and center at this year’s spring legislative session. Despite Gov. J.B. Pritzker and the Illinois General Assembly being able to pass state operating budgets without general tax increases, areas of tinkering have narrowed, and tough choices remain ahead.

Because of these fiscal pressures, members in the General Assembly and Chicago Mayor Brandon Johnson have again called for a millionaire’s tax to fund programmatic and governmental options. While these calls aren’t new, the Illinois CPA Society (ICPAS) takes these rumblings seriously and remains poised to aggressively respond to any efforts to extend the sales tax base to professional services.

HB 5391: ADDRESSING THE COMPLEXITIES OF LOCAL GOVERNMENT AUDITS

Beyond a potential professional services tax, ICPAS has also been focused on improving the structural framework of local government audits.

For the past three years, ICPAS has been working with the Illinois Comptroller Local Government Division, Township Officials of Illinois (TOI), and the Illinois Municipal League to address systemic challenges facing local government financial compliance reporting. As part of this effort, ICPAS and TOI funded a research project that included field work and extensive analysis of small, medium-sized, and large units of local governments’ compliance rates. From this research, ICPAS produced “Examining the Sustainability of Local Government Audits: Special Report to the Illinois General Assembly,” to educate lawmakers and stakeholder organizations on the challenges shaping the current local government audit landscape, including Illinois’ large number of units of local government, lack of financial training for local government officials, increasing complexity of government audit standards, and the limited pool of certified public accountants (CPAs) providing government audit services.

Aside from educational purposes, the report was intended to facilitate discussions by policymakers and inspire legislation to consolidate the state’s multitude of layered audit statutes into one statute. At the request of ICPAS and TOI, Rep. Natalie Manley, CPA (D-98), introduced House Bill (HB) 5391, the Government Reporting Enhancement and Transparency Act, which does just that. The bill will consolidate the Government Account Audit Act and other layered audit acts into one statute with consistent requirements for financial accountability of taxpayers’ funds.

The central premise of HB 5391 is based on local governments’ financial transactions and compliance. The financial piece is premised on annual revenues with scaled reporting requirements. The compliance piece is satisfied by reporting on the Open Meetings Act, Freedom of Information Act, local government records retention requirements, capital asset recordkeeping, and compensation of officials. The legislation also directs the comptroller to adopt administrative rules tailored to the needs of the state’s many different types of local governments, including fire protection districts, library districts, and other special districts.

Overall, HB 5391 aims to modernize the state’s local government audit processes and make them more efficient by matching the level of review to the size and complexity of each government unit. For example, smaller units of local government may only need an independent elector audit committee inspection reported to the comptroller, while the next category of slightly larger units of local government may need to adhere to more stringent agreed-upon procedures that still alleviate the need for a full financial statement audit. 

Importantly, these changes could provide some relief to units of local government while still holding them accountable and increasing transparency to taxpayers. This also encourages CPAs and CPA firms to provide these services without having to undergo a rigorous peer review. Instead, those resources can be focused on the government units with greater risks who still must undergo a financial statement audit following the AICPA’s Codification of Statements on Auditing Standards and the Government Accountability Office’s Yellow Book.

RELIEF REQUIRES THE LONG GAME

While previously introduced legislation brought remedial relief to local governments, including raising audit thresholds and other tweaks, these efforts merely assuage symptoms and don’t solve the root problem of the outdated basis of local government audits. That’s why ICPAS is trying to facilitate larger discussions on a comprehensive long-term strategy and highlighting the downstream unintended consequences and disruption caused by the current state of government audits, including non-staggered filing deadlines, compressed auditor workloads, and resource and knowledge retention strain.

Aside from the legislative piece, ICPAS has made significant outreach to governmental stakeholder organizations, including the Illinois County Treasurers’ Association, Government Finance Officers Association, and Illinois Association of Park Districts, to name a few, along with 2026 Illinois comptroller candidates, seeking cooperation and buy-in for a long-term solution.

Of note, the aforementioned field work and research also revealed the need for financial and audit preparation training for local government officials beyond what’s currently provided. Discussions on addressing this have even raised reinstituting statewide annual regional training, which could be essential to aiding CPA firms and governments in completing their compliance filings.

As with anything involving the General Assembly, coming to a resolution on this big issue isn’t going to be an easy sprint but rather a marathon. ICPAS is steadfast in believing a realignment of statutory audit requirements is necessary for the sustainability of local government audits. The enormity of the issue, and the resetting of legacy practices, will require an enterprise perspective by the profession. Evading the issue only puts the profession at risk of a disagreeable legislative solution—or worse, losing the franchise on audits all together.