What to Expect When the Auditors Come

Leslie SchmidtAssistant VP for Research

MSU Office of Sponsored Programs

Lynne YoritaAudit 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

• 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

The Typical Audit Process

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

• 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

You Know They’re Coming…

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 BenefitsSupplies/Expenses TravelConsultants EquipmentF&A Costs SubawardsPatient Care Costs Tuition, Fees and Stipends Alteration & Renovation Space RentalAnimal Care and Purchase FabricationCost 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?

Thank you!