The MUD Board's Annual Audit Preparation Checklist

Your annual audit is not a surprise inspection. It is a scheduled, structured review of records your district has been maintaining all year. If the audit feels stressful, the problem is almost always in the months before the auditor arrives — not in the audit itself.

Start with bank reconciliations. Every account should be reconciled through the last day of the fiscal year, with no open items older than 60 days. An unreconciled account is the single most common audit finding in Texas MUDs. If your bookkeeper cannot produce a clean reconciliation for every account within one week of fiscal year-end, that is your first warning sign.

Next, verify that all checks, ACH payments, and wire transfers issued during the year have been formally approved by the board. The approving resolution should reference the specific check run or disbursement schedule. Auditors look for disbursements made without board authorization — even small ones create findings.

Pull your investment report for the full fiscal year. Every purchase and redemption of an investment instrument should be documented with a confirmation statement. If the district held any instrument not explicitly authorized by its investment policy, document the board action that approved it or note it for the auditor now rather than later.

Confirm that all grant funds, bond proceeds, and restricted revenues are held in properly titled accounts and that expenditures from those accounts match the permitted uses. Commingling restricted funds with operating accounts is a material finding and, in the case of bond proceeds, can create legal liability.

Finally, prepare a schedule of all contracts executed during the year — construction, professional services, operations — and confirm that each one was competitively bid or that the board documented an exception. Texas water code competitive bidding requirements apply to most MUD contracts above $50,000.

SafeGov Financial clients enter audit season with a completed pre-audit binder: reconciled accounts, approved disbursement resolutions, investment confirmations, and a contract schedule, all organized by audit section. The auditor's first request list is answered before it arrives.