1. Characteristics of Auditors Reporting Material Weaknesses in Internal Control over Compliance for Federal Grants
Julie C. Hyde, Ph.D., CPA

2. Overview Research Question Motivation Literature Review Hypotheses
Sample and Empirical Results
Conclusions

3. Research Question
Are auditor characteristics associated with the reporting of a material weakness in internal control over compliance for federal grants?

4. Over $645 billion
Federal grant outlays to state and local governments for fiscal year 2011
Budget of the United States Government, Fiscal Year 2011
Not including awards to non-profits Ex. Private colleges

5. Motivation
Interest to county administrators, grantor agencies, and auditors
Increased understanding of internal controls for federal grants
Addition to material weakness literature

6. Prior Research
Jakubowski (1995) examines material weaknesses in compliance after Single Audit Act of 1984 and finds:
More weaknesses for counties than cities
Government auditors report more weaknesses
Also, Brown and Raghunandan (1995)
Lopez and Peters (2010) find large CPA firms are more likely to report material weaknesses. 6

7. Hypotheses Material Weakness Reported
Auditor characteristics associated with reported material weaknesses:
PCAOB
Registered
Material
Weakness
Reported
AICPA
GAQC
F/S
Weakness
New
Auditor

8. Sample Selection Federal Audit Clearinghouse
4,560 counties with 459 material weaknesses in internal control over compliance
2006 (153 MW of 1,555)
2007 (165 MW of 1,534)
2008 (141 MW of 1,471)
Electronic sources 8

9. Material weakness is a f(x):
PCAOB registration
Firm membership with AICPA Governmental Audit Quality Center
Material weakness on the financial statements
Initial auditor
Government auditor
High-risk auditee
Size of federal expenditures
Number of firm’s county audit clients
Client risk portfolio
Material weakness reported in prior year
Year

10. Univariate Statistics

11. Logistic Regression Results

12. Logistic Regression Results Partitioning of Counties by Total Federal Expenditure Mean Amounts

13. Conclusions
Contribution to the  body of literature related to auditor changes and reported internal control weaknesses (Ashbaugh-Skaife et al. 2007; Zhang et al. 2007) and adds a governmental setting.
Relation between material weaknesses on both internal controls over financial statements and over compliance for federal grants 

14. Limitations
Instances where material weaknesses in internal controls over compliance were present but were unreported
Generalizability of results

15. Future Research
Include entity types such as municipalities, school districts, universities, and nonprofit organizations
Longer time frame 15

16. Thank you for your feedback!

19. Descriptive Statistics (n = 4,560)