Preparing for a State Audit
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Preparing for a State Audit November 4, 2008 North Carolina State Education Assistance Authority Dr. Steve Brooks Executive Director. Preparing for a State Audit. Contact Information Cheryl Sauls Quality Assurance Manager North Carolina State Education Assistance Authority P.O. Box 14103

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Preparing for a state audit

Preparing for a State Audit November 4, 2008 North Carolina State Education Assistance Authority Dr. Steve BrooksExecutive Director


Preparing for a state audit

Preparing for a State Audit

Contact Information

Cheryl Sauls

Quality Assurance Manager

North Carolina State Education Assistance Authority

P.O. Box 14103

Research Triangle Park, NC 27709-4103

Phone:(919) 248-4637

Fax:(919) 248-6637

Email:[email protected]


Preparing for a state audit1

Preparing for a State Audit

What words come to mind when you learn the Auditor will be arriving to conduct an on-site program review?

Anxiety

Fear

Investigation

Money

Pulling documentation

Record Retention

Review


Preparing for a state audit2

Preparing for a State Audit

Partnership


Preparing for a state audit3

Preparing for a State Audit

Objective

Define Audit

Disclose the Purpose of a State Audit

Discuss the Types of Audits and Reviews

Discuss the Possible Programs to Review

Discuss Frequently Cited Audit Findings & Observations

Discuss Best Practices

Discuss How to Guard Against Findings & Observations

Wrap Up


Preparing for a state audit4

Preparing for a State Audit

What is an Audit?

Audit originated from the Latin word auditus, “a hearing,” referring to the hearing of oral evidence as one official would verify records with those of another.

Audit is a formal, often periodic examination and testing of accounts or financial records of an individual, business, institution, organization, or government entity to verify the accuracy and completeness of the records or their compliance with another set of standards.


Preparing for a state audit5

Preparing for a State Audit

Purpose

To provide verifiable information to management as to whether or not their goals and objectives are being met.


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Preparing for a State Audit

Why the Emphasis?

WorldCom

files largest bankruptcy ever

Results of the Emphasis:


Preparing for a state audit7

Preparing for a State Audit

Sarbanes-Oxley Act

Applies mainly to SEC companies

Purpose is to rebuild trust in America’s corporate sector

Some aspects would benefit nonprofits

Audit committee composed of persons knowledgeable about accounting

Code of ethics policy

Whistleblower policy

Records retention policy


Preparing for a state audit8

Preparing for a State Audit

North Carolina G.S. 143C-6-23

G.S. 143-6.2 Effective 7/1/2005

G.S. 143C-6-23 Effective 7/1/2005

Includes non-profit and for profit non-governmental entities

Exempts local government agencies and state entities

Requires

Conflict of interest policy

Funding agency to identify reporting requirements

Funds must be spent for appropriate purposes

Incorporates cost principles for first time

Establishes Oversight Committee

OSBMOSCDHHS

OSAAG


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Preparing for a State Audit

Roles of Oversight Agencies

Office of State Budget and Management

Responsible for rules administration

Office of the State Auditor

Compile report to OSBM for all funds granted to non-government entities

Review financial/audit data from grantees

Audit of agency monitoring practices


Preparing for a state audit10

Preparing for a State Audit

Roles of Oversight Agencies

Office of State Controller

Oversee agency disbursement

Office of the Attorney General

Assist with recovery of funds, as needed

Oversight committee

OSBM, OSC, OSA, Attorney General, Agency Representative


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Preparing for a State Audit

New Rules – Summary

Rules administration – OSBM

Establishes authoritative guidance in North Carolina Administrative Code

Designed to increase consistency of reporting

Applicable to grants

Grantee and subgrantee responsibilities

Establishes new reporting thresholds

State agency responsibilities


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Preparing for a State Audit

Grantee & Subgrantee Responsibilities

Spend state funds for specified purpose

Comply with reporting requirements to funding agency and/or OSA

Maintain adequate records

Open to examination by funding agency and OSA

Hold subgrantee accountable


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Preparing for a State Audit

State Agency Responsibilities

Notify grantee of applicable reporting requirements

Register with OSBM’s Community Resources Information System (state grant database)

Follow disbursement procedures established by OSC and OSBM

Provide list of grantees receiving state funds to OSA and OSBM

Perform monitoring and oversight functions to assure accountability

Stop disbursements to those in non-compliance


Preparing for a state audit14

Preparing for a State Audit

Types of Audits

GAAP Audit

Generally accepted accounting principles audit

General purpose audit

Yellow Book or GAGAS Audit

Required for grantees receiving more than $500,000

A-133 Federal Compliance Audit

Required if $500,000 in federal expenditures

Can be substituted for “yellow book” audit under G.S. 143-6.2


Preparing for a state audit15

Preparing for a State Audit

“Yellow Book” Audit

Government Auditing Standards

Requires auditor to issue opinion concerning

Internal Controls

Compliance

Requires schedule of awards

Federal and state funds should be identified separately


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Preparing for a State Audit

A-133 Federal Compliance Audit

The OMB A-133 Compliance Audit is a large and extensive circular guide created by the Office of Management and Budget (OMB) which sets forth standards for obtaining consistency and uniformity among Federal agencies for the audit of States, local governments, and non-profit organizations expending Federal awards.


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Preparing for a State Audit

Types of Reviews

Compliance

Guaranty Agency

Investigative

Lender/Servicer

Program


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Preparing for a State Audit

Programs to Review

Board of Governor’s Dental Scholarship Loans

Board of Governor’s Medical Scholarship Loans

Future Teacher’s of North Carolina

Golden LEAF

Health, Science, and Mathematics Loans

North Carolina Education Lottery

Millennium Teacher Scholarship Loans

North Carolina Legislative Tuition Grants

North Carolina Reach Program

North Carolina Student Incentive Grant Program


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Preparing for a State Audit

Programs to Review

Nurse Education Scholarship Loans

Nurse Educators of Tomorrow Scholarship Loans

Nurse Scholars Program – Masters

Nurse Scholars Program – Undergraduate

Penn Family Scholarship

Physical Education – Coaching Scholarship Loan

Prospective Teacher Scholarship Loan

Principal Fellows Program

State Contractual Scholarship Fund

Teacher Assistant Scholarship Program


Preparing for a state audit20

Preparing for a State Audit

Programs to Review

Increasing Medical Educational Opportunities Grant

John B. McLeandon Scholarship

Optometry Scholarship Loan Program

Social Workers Educational Loan Fund

UNC Campus Scholarship

UNC-Need Based Grant Program

Etc.

This list may not be all inclusive.


Preparing for a state audit21

Preparing for a State Audit

Program Review Reference Sources

Common Review Initiative Guide

Guaranty Agency Review Guide

Lender / Servicer Review Guide

Program Audit Compliance Guide

Program Rules & Regulations

Statutes

Etc.


Preparing for a state audit22

Program Records

Academic Transcript

Account Reconciliation

Applications

Award Letter     

Certification Date

Cost of Attendance

Data Sheet

Disclosure Statements

EFT Procedures

High School Transcript

Organizational Chart

ISIR

Payment Roster

Promissory Note

SAP

Student’s Account Record

Refund Procedures

Additional Documents as Required to Verify Information Submitted on an Application, Timely Processing of Disbursements, etc.    

This list may not be all inclusive.

Preparing for a State Audit


Preparing for a state audit23

Preparing for a State Audit

Contracts and Monitoring

Contracts that

Define specifics: expected outcomes, source of funds, accounting information

Requires reversion of unexpended funds upon termination

Spells out audit oversight

Granting agency must perform monitoring and evaluations

Obtain performance measurements

Evaluate program results

Determine whether to continue

Implement sanctions for noncompliance


Preparing for a state audit what is monitoring

Preparing for a State Audit What Is Monitoring?

Internal Control System

Operating activities

Regular

Activities

Regular

Activities

On-going monitoring

  • Progress check

  • Performance improvements

On-going monitoring

  • Observations

  • Recording

Regular

Activities

Regular

Activities

Operating activities

Internal Control System


Preparing for a state audit24

Preparing for a State Audit

Monitoring

Done on regular and consistent basis

Typically every two years

Policies and processes should

Ensure grant and scholarship terms adhered to

Ensure grants and scholarships are handled appropriately

Ensure records show source of funds

Allow management to evaluate operational effectiveness

Identify and report deficiencies

Include third party evaluations

Based upon assessment of risks

Effectiveness of on-going monitoring


Preparing for a state audit25

Preparing for a State Audit

Monitoring Benefits

Analyzes progresses

Determines whether inputs are well utilized

Identifies problems

Assists in identifying solutions

Ensures activities are carried out

Assesses performance

Identifies areas of concerns or process weaknesses

Improves accountability


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Preparing for a State Audit

Noncompliance

State agency must:

Take action if grantee is in noncompliance

Communicate corrective action prior to suspension of payments

Report unauthorized use of funds

Attorney General will assist in recovery of state funds


Preparing for a state audit27

Preparing for a State Audit

Findings vs. Observations

Findings:

Material problems supported by regulations, rules or statutes

Results in Citation and Required Action

Observations:

No authority in regulations, rules or regulations for enforcement

Make Recommendation


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Preparing for a State Audit

Common Findings

Applications completed after the Certification Date

140 (110%) Hour Rule

Funds expended after the end of the fiscal year

Lack of supporting documentation


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Preparing for a State Audit

Common Observations

Failure to reconcile program records

Lack of supporting documentation


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Preparing for a State Audit

Best Practices

Account Reconciliation

Timely Posting of Funds

Records Administration

Integrity of program records


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Preparing for a State Audit

Control ActivitiesSeven Basic Control Activities

Documentation

Approvals and authorization

Transactions accurately recorded

Appropriate reporting of transactions

Segregation of duties

Ensuring assets are safeguarded

Tracing accountability


Preparing for a state audit32

Preparing for a State Audit

Wrap Up

Review internal processes and procedures

Ensure pre-review work is timely and track progress

“Self-scrub”

Disclose known deficiencies to Lead Reviewer

Ensure post-review work is timely and track progress

Discuss issues discovered internally and implement necessary processes and procedures to address the issues

Keep Lead Reviewer abreast of progress


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Preparing for a State Audit

QUESTIONS?


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Preparing for a State Audit

RESOURCES

Federal Student Aid Conference Guaranty Agency & Lender Sessions Handouts

The IIA CIA Learning System

http://www.ncauditor.net/pub2

http://www.ncauditor.net/NonProfitSite/training/2006/InternalControl/Basics%20of%20Internal%20Control.ppt#51

http://www.ncauditor.net/NonProfitSite/training/2006/InternalControl/Basics%20of%20Internal%20Control.ppt#52

http://news.bbc.co.uk/2/hi/business/2756345.stm

http://www.whitehouse.gov/omb/circulars/a133/a133.html

http://www.yourdictionary.com/audit


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