Transcript What to Expect When the Auditors Come

What to Expect When the
Auditors Come
Leslie Schmidt
Assistant VP for Research
MSU Office of Sponsored Programs
Lynne Yorita
Audit Manager – Advisory Services
UCLA Audit & Advisory Services
Types of Audits
• Internal
– Performed by your own institution’s Internal
Audit Department
• Planned based on an annual risk assessment
• Problem-reactive
• Management/Regental request
– Reporting is within the University system
– May be subject to Public Records
Requests
Types of Audits
External
– Regularly scheduled (state/private/federal)
• Office of Naval Research
– Contractor Purchasing System Review (CPSR)
– Property Control System Analysis (PCSA)
– Special Request
• Office of the Inspector General
– Desk audits vs. On-site
Types of Audits
• Programmatic – Focused on the Scope
of Work/Science
• Fiscal/Financial
• Compliance
• Any combination
The Typical Audit Process
• Notification
– A letter of engagement or notice
– A phone call
• May be to:
– the PI
– Contract & Grant Officer
– Accounting Fund Manager
• Should be followed by a letter
• Consider designating one point of contact at
the University for the auditors
The Typical Audit Process
• A site visit will be scheduled
• Documents will be requested
– A questionnaire may be provided and responses
requested in advance of the visit
• The auditors will arrive
– An entrance interview is held
– Visits may last a few hours, days or weeks
– Requested documents will be examined
The Typical Audit Process
• Meetings may be held with the PI or
others
• Exit Conference is held to inform the
University of any findings or areas of
concern
– A draft report may be available for discussion
• The auditors depart
The Typical Audit Process
• An audit report is received
– If the audit is being conducted at agency
request, the report may be issued only to the
agency
– The agency will inform the University of any
consequences or issues and request
corrective action
• The University responds to the report
within the timeframe allowed by the
agency
You Know They’re Coming…
• Determine the intent of the audit
(financial/compliance/programmatic)
• Verify the details of the engagement
and familiarize yourself with :
– Scope of Work
– Period of the award
- Budget detail
- Award amount
You Know They’re Coming…
• Notify:
– Contract & Grant Officer
• Pull your OSP files in advance, if you know which
ones they will be reviewing.
– Accounting
• Determine whether all financial reporting is up-todate
– Internal Audit
– Confirm that the files are complete and contain
all necessary documents
You Know They’re Coming…
• Prepare and notify the PI and support
staff
– Depending on the nature of the project,
notify lab personnel and students
• Hold a pre-audit meeting to discuss:
– What to expect
– Any items of concern/exposure
– How to behave
Behavior
• Be truthful.
• Answer the question asked.
– Qualify your answer, if appropriate.
– Avoid straight “yes” or “no” responses unless
there can never be an exception.
• Put yourself in the shoes of the auditors and
anticipate where the line of questioning may
be headed – but don’t offer the answer until
the question is asked.
Behavior
• Don’t over elaborate.
• Always treat auditors as professionals and
with the utmost respect (not buddies,
friends or adversaries).
– Make sure your staff does the same.
Managing the Audit
• Gather documents/reports needed in
advance of the visit and review carefully!
• Create and keep an audit file that contains:
– all audit correspondence
– notes of all conversations with the auditors
– a copy of every document provided to the
auditors
Why Keep an Audit File?
• This step is critical as it serves several
purposes:
– Straight-forward way to document the review
– Know exactly what documents and
information they have
– The details are easily accessible if the
auditors contact you at a later date with
follow up questions
– In the event of a finding, you can review the
source data or transactional detail that led to
the finding
What are the auditors
looking for?
• Expenditure in accordance with the
approved proposal and budget
• Solid documentation
• Compliance with OMB Circulars,
particularly A-21, and the institution’s
own Disclosure Statement (DS-2), if
applicable
Tips and Pointers
• At the time of proposal preparation, build a three
ring binder of financial reports and reference
material used in developing the budget
Salaries/Wages
Supplies/Expenses
Consultants
F&A Costs
Patient Care Costs
Alteration & Renovation
Animal Care and Purchase
Cost Sharing
Benefits
Travel
Equipment
Subawards
Tuition, Fees and Stipends
Space Rental
Fabrication
Program Income
What items need special
monitoring?
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Salary Limitations
Effort Reporting
Cost Sharing/Matching
Program Income
F&A Costs
Fabrication
Patient Care Costs
Alterations/Renovations
Payment to Students and Fellows
Managing the Audit
• Work diligently to make sure they have
everything they’ve requested prior to their
departure – much easier to discuss in
person.
• Prepare upper management as you move
through the audit process. Keep key
personnel informed.
• Be cooperative!
Tips and Pointers
• Use the “buddy system” – typically with
two people in the room with the auditors.
• Help them understand your “business,” as
it provides perspective.
• If you are wrong and/or errors are
discovered, admit them.
– Don’t try to argue or justify unless you are
absolutely sure you are correct.
Tips and Pointers
• If the auditors are incorrect, point out the
error and move on – don’t gloat.
• Clarify questions and issues prior to their
departure.
• Make sure they understand what they
have asked for as well as the documents
you provide for them.
Tips and Pointers
• Give “grey” areas the “front page of your
local paper” test
What to Do Once Draft
Audit is Received
• Read the document very carefully and make
sure the facts and assertions are correct.
• Include your Internal Audit Department in the
review of your responses.
• Make sure upper management is aware of
any audit findings.
• Follow through on the audit action plan
especially if there is an ongoing commitment.
Things to Remember
• Try not to let the auditors give you
vague answers in the exit conference.
• Be prepared for anything – audits can
change directions rapidly – what may
start as a program review may move
into a financial/compliance audit quickly!
Things to Remember
• Be honest!
• Keep an audit perspective when you are
doing your job by leaving a clean audit trail.
• Develop processes that make it easy for an
auditor to see that you have implemented the
federal circulars.
• Know the levels of risk that are acceptable to
your office and institution. Stay true to them.
Things to Remember
• Be nice and pleasant
• Ask for clarification or explanation from the
auditors
– Allows you to get inside their heads
– Demonstrates a desire to understand and a
willingness to learn and be flexible
• Do things right in the first place and you’re
already prepared.
Questions?
Thank you!