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 - Budget detail • Period of the award - 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-to-date • 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 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 • At the time of proposal preparation, build a three ring binder of financial reports and reference material used in developing the budget
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? Thank you!