Surviving an Audit

Jeffrey SilberCornell UniversityMarch 14, 2013

• Introduction and Background– Audits can be little, audits can be big. Regardless of the

size, though, the most important thing is to be prepared to survive an audit.

– Audits involve all project participants from pre-award to the project team to the post-award office

• What is an audit?– An entity with some sort of oversight authority wants to

take a look at your project, typically but not always the financial aspects, to ensure compliance with laws, rules, regulations, standards, scope of work

• Types of audits– Pre-award– Financial Statement– OMB A-133 – Program Specific– Subrecipient– Special Review (specific topic, OEO, Small

Business, etc.)– F&A Cost Proposal and Disclosure Statement – Business System (one or all of accounting,

procurement, property, etc.) Review

• Who are some of the auditors– Sponsor– OIG for Federal Agency– Cognizant Agency– Independent Audit Firm– Internal Audit– Other financial groups

• Who do you need to get involved (and soon)– Central Offices (Institutional liaison for audit

usually in a central office)– Departmental Offices– PIs– Senior Administration– Sometimes General Counsel or Consultants

• Before the letter arrives:– Fine-tune Institutional Policies and Procedures– Have clearly defined Roles and Responsibilities– Be aware of audit environment around you (i.e.

what is on the governments agenda – area of concerns)

– Make sure training programs hit the “red flags” of audits

• After the letter arrives:– Do your homework: identify areas impacted– Appoint an Audit Liaison (Point of Contact)– Brief central and departmental personnel– Develop a plan and identify who needs to be

involved

• Definition of Scope – Determine extent of the audit– Make sure the scope of the audit is clearly

understood by all those to be involved– Keep Senior Management informed and up to

date on audit – magnitude and potential impact

• Preparation – Pull together all files and data impacted by review– Review all aspects of the area to be reviewed– Do a risk assessment – are there any problems or

does everything appear to be in order– Document, document, document• Start a book, folder, electronic volume, etc.• Consider establishing a separate e-mail address

• Entrance Conference– Develop a shared understanding of the scope and

process– Get clear guidance from the auditors on their game

plan to conduct the audit– Find out what the timeline will be– Ask what will be the end product – will it be a

report– Inquire as to how and when the institution will have

opportunities for input

• Fieldwork: Meeting with the auditors:– Arrange the on-site logistics and escorts as

appropriate– Only provide information requested– Answer questions calmly and with confidence– Be honest– Manage any expansion of original scope– Be organized and as timely as possible with

requests

• Fieldwork: Managing Internal Expectations and Concerns– Assess any problems or red flags with internal team

as they come up– Keep central and departmental stakeholders

apprised of the status of the audit– Raise concerns of questioned costs or criminal

matters to senior management as soon as detected– Remain calm and begin to prepare response to any

problems uncovered

• Exit Conference/Draft Report or Findings– Make auditors clearly communicate their findings

to you (in some instances there may not be an official report given to the institution)

– Confirm the protocol and timeframe for the institutions response to the audit

– Get clear understanding of what are the steps to be taken to bring closure to the audit

• Management Responses– Agree? Disagree?– Be aware of the posture and tone taken– Negotiate – Keep audit resolution in mind when drafting your

response– Obtain Institutional approval of response– Officially respond to the auditors

• Audit Complete– Audit Report Issued– Audit Resolution Phase Begins– Follow-up with all parties involved– Identify the Lessons Learned– Get ready for the next audit

• Opportunities for Improvement:Refine Practices– Use audit findings to help guide the institution in

developing better practices– Capture and document the things to do so you are

better prepared for the next audit when it happens

– Close the gap on any weaknesses in day to day process that were detected during the audit

• Opportunities for Improvement: Develop/Update Training Materials– Use audit findings to guide the development of new

or refinement of current training materials– Real examples are worth gold when trying to make

believers on your campus – use them!– The audit can hand you a road map for where training

may need to be strengthened – Use that leverage to increase understanding about the proper management of sponsored programs on your campus.

• Opportunities for Improvement: Validate Policies – Use audit findings to guide the development of new

or refinement of current policies as appropriate– Assess your policies to ensure they provide the right

guidance to your campus when managing sponsored programs

– Make sure your campus is aware of policies– Develop or update Roles and Responsibilities Matrix

to ensure clear understanding at all levels

Case: “The Letter”

This letter is to confirm a conversation between you and a member of my staff on January 10, 2011, that the Office of the Inspector General, National Science Foundation (NSF) is initiating an audit of labor costs claimed on NSF grants at your University. Our audit objective is to evaluate whether the university's internal controls are adequate to properly manage, account for, and monitor salary and wage charges to NSF grants in accordance with OMB and NSF grant requirements. Specifically, we will determine if salary and wage charges are allowable, allocable, and reasonable in accordance with Federal cost principles and NSF award terms and conditions. The audit will include all of the university's salaries and wages claimed on NSF grants during your fiscal year (FY) 2010. To help us start the audit, we need the following information:

1. Summary of costs claimed by major cost categories by each NSF award ;2. Detailed listing of all charges by NSF award (See Attachment);3. A list of account codes classified under the salary cost category including account codes and description of the code; an4. A chart of accounts describing the cost categories included in the accounting system.

As discussed, we intend to have a CPA firm conduct the audit for us. We will have the CPA firm coordinate with your office to identify the best time for our visit to your university. The CPA firm will contact you directly to make the arrangements and to schedule an entrance conference with cognizant university personnel to further discuss our audit objectives and scope.We would appreciate receiving the above detailed financial information on FY 2010 NSF grant charges in an electronic format no later than January 31, 2011. We have found its best for our staff to work with your IT staff or someone from your office that can assist us in obtaining the financial data in a suitable format. Your assistance would be appreciated in providing us contact information to start this process.

• Links to Federal Audit Plans and Reports• OIG Audit Work Plans

– https://oig.hhs.gov/reports-and-publications/archives/workplan/2013/Work-Plan-2013.pdf

– http://www.nsf.gov/oig/FY13auditworkplan.pdf • OIG Audit Reports

– https://oig.hhs.gov/reports-and-publications/index.asp– http://www.nsf.gov/oig/pubs.jsp – http://www.dodig.mil/pubs/index.cfm?office=Audit– http://energy.gov/ig/calendar-year-reports – http://www.usda.gov/oig/releasandreport.htm – http://oig.nasa.gov/audits/reports/FY13/index.html `

• Links to Sample Audits– General: http://

www.costaccounting.org/files/pdfs/07_2012_audit_summary.pdf – Administrative Costs: http://oig.hhs.gov/oas/reports/region4/40501014.pdf

– Recharge Centers: http://oig.hhs.gov/oas/reports/region9/99204020.pdf – Sample NSF Labor Audit – Summer Salary, etc.: http://

www.nsf.gov/oig/10-1-003_UNR.pdf – Sample NSF Labor Audit – “Suitable Means”: http://

www.nsf.gov/oig/09_1_008_cornell.pdf – Monitoring: http://

www.nsf.gov/oig/07-1-020_University_of_Maryland_Baltimore_County.pdf – Cost Sharing: http://www.nsf.gov/oig/06-1-020_University_Of_Hawaii.pdf

Contact Information:

Jeffrey SilberCornell University

341 Pine Tree RoadIthaca, NY 14850(607) 255-2016

silber@cornell.edu