Presentation on theme: "Bill Harrison Chief Internal Auditor October 10, 2012"— Presentation transcript:
1Bill Harrison Chief Internal Auditor October 10, 2012 Auditing 101Bill HarrisonChief Internal AuditorOctober 10, 2012
2Learning OutcomesUnderstand the internal and external audit environmentKey playersPurpose and structure of the Office of Audit ServicesAudit processUnderstand internal control concepts and standardsUnderstand practices/procedures to ensure a “clean” audit
3Definition of Auditing An unbiased examination and evaluation of financial information, operational processes, or compliance with laws and regulations in an organization. It can be done internally (by employees of the organization) or externally (by an outside firm).An IRS examination of a taxpayer's return or other transactions.Work performed in accordance with standards. Source: Investopedia.com
4What do Auditors Do?For the most part, audits are conducted by independent public accounting firms, federal, state, and local government auditors, or internal auditors. In addition to financial statement audits, the professional literature describes other types of audits such as attestation engagements and performance auditsWhen complete, auditors generally issue a written report with a conclusion that confirms or denies management’s adherence to an existing set of criteria such as generally accepted accounting principles, government laws and regulations, or internal policies and procedures.
5Criteria Condition Effect Cause Recommendation(s) Audit FindingsCriteria Condition Effect Cause Recommendation(s)
6Audit Organizations Government Accountability Office – GAO Offices of Inspector General – OIGVermont State AuditorInternal Auditors – Office of Audit ServicesFinancial Statement/A-133 AuditorsOther Independent Auditors
9Tip #1 Understand the environment: Visit agency and OIG web sites Read OIG semiannual reports/audit reports at those agencies dealing with colleges and universities:NSF, HHS, DoED, DoD, NASA, USDAJoin a professional societyAttend UVM Audit Committee meetingsRead meeting minutes
10Tip #2Read and understand UVM’s Government Reviews Protocol, an official University Operating Procedure.Always remember: there are a number of departments on campus to help you deal with external requests for information including Sponsored Project Administration, Audit Services, Compliance Services, and General Counsel.
11Office of Audit Services Organizational StructureAudit CharterAudit standardsAudit Selection, Planning, Reporting and Follow-up Processes
15Audit CharterThe Office of Audit Services is an independent and objective assurance and consulting activity within the University of Vermont (UVM) that provides the Board of Trustees and management with observations, recommendations and advice designed to add value and improve the effectiveness of the University's risk management, control, and governance processes.
16Audit Charter, cont… Provide a comprehensive audit program Access to all university employees and recordsAllocate resources, set frequencies, select subjects, determine scopes of all internal auditsObtain assistance from UVM personnel
17Audit Charter, cont… Can’t perform any operational duties for UVM Initiate or approve any accounting transactions outside of the Office of Audit ServicesDirect activities of any UVM employees
18Audit StandardsThe IIA Red Book provides standards for independence and ethical conduct, planning, reporting, and closing audit projects.
20The Audit Process Planning and Risk Assessment Fieldwork Reporting Follow-up
21The Audit Process Planning Communication with management Initial data requestA detailed understanding of the organization is developed by reviewing relevant policies, procedures, and records and interviewing or surveying University employeesFollow-up Data Request
22The Audit Process Risk Assessment We can’t look at everything! Determines the scope of the audit
23The Audit Process Fieldwork After finalizing the audit plan and risk assessment, the auditor begins the fieldwork phase. Fieldwork typically consists of testing transactions for conformity with applicable university policies and procedures, and assessing the adequacy of internal controls.
24The Audit Process Reporting After the fieldwork is completed, the auditor prepares a report. The report generally consists of several sections and includes: the distribution list, background information, summary of results, detailed presentation of results and recommendations, management response, and the objectives, scope, and methodology followed.Discussion Draft, Final Draft, Final Report
25The Audit Process Audit Follow-up The purpose of the follow-up is to verify that any agreed- upon corrective actions have been completed. The auditor will interview staff, reperform tests, or review new procedures to perform the verification.
26How to Ensure a “Clean” Audit Opinion COSO Internal Control FrameworkControl Activities
27COSO Internal Control Framework Adopted by UVM Board of TrusteesFive Essential ElementsControl EnvironmentRisk AssessmentControl ActivitiesInformation and CommunicationMonitoring
28Control EnvironmentThe control environment sets the tone of an organization. It is the foundation for all other components of internal control. Control environment factors include the integrity, ethical values, management's operating style, delegation of authority systems, as well as the processes for managing and developing people in the organization.Source: Wikipedia
29Risk AssessmentEvery entity faces a variety of risks from external and internal sources that must be assessed. Risk assessment is a prerequisite for determining how the risks should be managed.The starting point is business objectives.Source: Wikipedia
30Risk Assessment-Example Occurrence — the transactions actually took placeCompleteness — all transactions that should have been recorded have been recordedAccuracy — the transactions were recorded at the appropriate amountsCutoff — the transactions have been recorded in the correct accounting periodClassification — the transactions have been recorded in the proper accounts
31Control ActivitiesControl activities are the policies and procedures that help ensure management directives are carried out.They include a range of activities as diverse as approvals, authorizations, verifications, reconciliations, reviews of operating performance, security of assets and segregation of duties.Source: Wikipedia
32Information and Communication Information systems play a key role in internal control systems as they produce reports, including operational, financial and compliance-related information, that make it possible to run and control the business.In a broader sense, effective communication must ensure information flows down, across and up the organization.Source: Wikipedia
33MonitoringInternal control systems need to be monitored. This means that there is a process that assesses the quality of the system's performance over time. This is accomplished through ongoing monitoring activities or separate evaluations.Source: Wikipedia
34Control Activities for a “Clean” Audit AuthorizationPreparationReview and ApprovalSegregation of DutiesDelegation of AuthorityRecordkeepingTrainingPeriodic Monitoring
35AuthorizationPrior to initiation, transactions should be authorized by a person with budget approval authority, knowledge of institutional policies and procedures, and a clear understanding of the business purpose of the proposed transaction.
36PreparationAssistance in using systems or preparing forms should be provided by business or administrative professionals; however, all payment requests should be signed and dated by the individual who incurred the expense or received the service. All requests should include a detailed description of the business purpose underlying the transaction when it is not readily discernible from the supporting documentation.
37Review and ApprovalRequests for reimbursement or payment should be reviewed and approved by the requestor’s supervisor. Review and approval of transactions by the supervisor generally provides for adequate segregation of incompatible activities and reinforces employee awareness of a sound control environment.
38Separation of DutiesDuties (roles) are assigned to individuals in a manner so that no one individual can control a process from start to finish. Separation of duties provides a system of checks and balances by other individuals. It allows an opportunity for someone to catch an error before a transaction is fully executed and/or before a decision is made based on potentially erroneous data. In addition, having adequate separation of duties reduces the ‘opportunity’ factor that might encourage an employee to commit fraud or to embezzle.
39Delegation of Authority Authority to approve expense transactions should only be delegated to those who have sufficient authority and responsibility over the initiator of the transactions. The specific delegation of authority should be documented.
40RecordkeepingSufficient and appropriate records should be created and retained for each transaction to provide evidence of authorization and/or approval, business purpose, adherence to university policy and procedures, and external requirements. Business purpose should be stated such that someone with no prior knowledge of the transaction could reasonably determine the benefit to the University.
41Tip #3 Read and understand our Record Retention policy Sufficient, appropriate records as required by University policy and external requirements.For the period required.
42Information and Communication COSO SummaryMonitoringInformation and CommunicationControl ActivitiesRisk AssessmentControl EnvironmentAuthorizationPreparationReview and ApprovalSeparation of DutiesDelegationRecordkeeping
43Tip #4UVM promotes ethical values – Our Common Ground, Statement of Commitment and Expectation in the Workplace, Code of Business Conduct.There is no perfect systemReport questions or issues that may involve violations of our code of business conduct or other policy standards or legal requirements
44The Bottom Line Really just common sense Become familiar with University policies and any external requirements in your area of responsibilityIf you think business practices may be too informal, talk with your unit management or contact usReport incidents or situations that may involve violations of the University's Code of Business Conduct or other policy standards or legal requirementsIf you’re contacted by an external auditor, follow the procedures described in our Government Reviews Protocol
45ContactsOffice of Audit Services Bill Harrison John Copoulos Jennifer Sheridan Kyle Sowles Tom Leene Amy Vile