The Washington state auditor’s office is tightening its requirements for financial reports and even schools are feeling the pinch.

Under new standards developed by the American Institute of Certified Public Accountants, state auditors found fault with Sequim School District’s notes to its financial report from September 2006-August 2007.

The auditor’s findings, released on May 27, details “deficiencies in the design or operation of internal control over financial reporting” and calls them “significant deficiencies,” based on the Statement on Auditing Standards or SAS 112.

Brian Lewis, Sequim’s district business manager, said the auditor’s findings are accurate but seem to be the growing pains of the new auditing standard.

In Sequim’s case, state auditors found that while the school district’s financial report was in order, the notes that accompany them had some minor errors. The notes do not reflect the district’s change of calculating paid vacation and sick leave and do not reconcile the district’s schedule of federal awards spending.

State auditors also expressed concern that Sequim’s schools used only one person to prepare and review the financial notes, but Lewis noted that’s not an uncommon practice.

“This is the first time in nine years I’ve had a finding on one of my reports,” said Lewis, who worked on similar reports from 15 different school districts while an employee for the Office of Educational Service District that serves Clallam, Jefferson, Kitsap and Mason counties.

Lewis began working for

Sequim schools last August.

“It’s not something I take lightly,” Lewis said. “This is becoming a statewide issue.”

Officials from the state’s Office of Financial Management further Lewis’ sentiment.

“The general consensus on a national level is that very likely SAS 112 will result in more findings,” according to a state OFM report.

SAS 112, the state’s Office of Financial Management notes, finds that agencies such as schools trigger “significant deficiencies” much easier than in years past and that those errors trigger an automatic written report from the auditor to the agency.

Lewis said the new accounting standard is going to be an issue for small school districts with just one or two business employees. They may have to hire out to an outside accountant to avoid similar reports of significant deficiencies.

Serious violations of financial reports, Lewis said, could mean a school district forfeiting funds or, in the case of fraud by an employee or employees, a criminal investigation and/or charges. But that’s clearly not the case with Sequim’s report, he said.

Each of Washington’s 296 school districts has to file financial reports and accompanying notes to the state auditor’s office for the fiscal year.