What to Expect When the Auditors Come Leslie Schmidt



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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
  • 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
  • The auditors will arrive

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 - Budget detail
    • Period of the award - Award amount

You Know They’re Coming…

  • Notify:
    • Contract & Grant Officer
    • Accounting
      • Determine whether all financial reporting is up-to-date
    • Internal Audit
    • Confirm that the files are complete and contain all necessary documents

Prepare and notify the PI and support staff

  • Prepare and notify the PI and support staff
  • Hold a pre-audit meeting to discuss:
    • What to expect
    • Any items of concern/exposure
    • How to behave
  • You Know They’re Coming…

Behavior

  • Be truthful.
  • Answer the question asked.
  • 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

  • Salaries/Wages Benefits
  • Supplies/Expenses Travel
  • Consultants Equipment
  • F&A Costs Subawards
  • Patient Care Costs Tuition, Fees and Stipends
  • Alteration & Renovation Space Rental
  • Animal Care and Purchase Fabrication
  • Cost Sharing Program Income

What items need special monitoring?

  • 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?

  • Questions?
  • Thank you!


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