1. MISSION, PURPOSE and STRUCTURE for Leander ISD
Internal Audit in LISD
MISSION, PURPOSE and STRUCTURE for Leander ISD

2. Agenda Legal Requirements Mission & Purpose of Internal Audit
Structure & Responsibilities
Risk Assessment Process and Audit Plan
Fraud Hotline
Board Communications and Updates
Internal vs External Audit

3. International Requirements
Institute of Internal Auditors (IIA) - A Global Institution recognized authority on Internal Auditing around the world
International Professional Practices Framework (IPPF)
Core principles for the profession
Definition of Internal Auditing
Code of Ethics
International standards

4. Legal Requirements
The Board shall select the internal auditor if a district employs an internal auditor. The internal auditor shall report directly to the board. Texas Education Code

6. Legal Requirements
An audit working paper of an audit performed by the district auditor, including any audit relating to the criminal history background check of a public school employee, is excepted from public disclosure. If information in an audit working paper is also maintained in another record, that other record is not excepted.
Texas Government Code

7. Mission & Purpose of Internal Audit (IIA)
To enhance and protect organizational value by providing risk-based and objective assurance, advice, and insight.
Purpose:
The Institute of Internal Auditors (IIA) defines Internal Audit as:
“An independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. The Internal Audit activity helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.”
Institute of Internal Auditors, International Professional Practices Framework (IPPF), Revised 2016

8. Purpose of Internal Audit (TEA)
Consideration of Fraud
According to AU section 316, school districts’ auditors are expected to perform procedures to assess the risk of fraud. The management of a school district is responsible for implementing appropriate administrative systems and policies that will sufficiently diminish the risk of fraud..
It is recommended that school districts that have an enrollment of 5,000 and larger perform a periodic self-assessment of the risk for fraud. If a school district does not have an internal audit department, the self-assessment may be obtained through a contract with a public accounting firm.
Texas Education Agency’s Financial Accountability School Resource Guide (April 2012)

9. The Three Lines of Defense

10. Internal Audit Responsibilities
Internal Audit Charter
Risk Assessment & Audit Plan
Assurance Services
LISD Fraud Hotline
Control Self-Assessment Services (CSA)
Consulting Services
Assurance Service:
Financial
Compliance
Operational
Efficiency Reviews

11. Internal Audit Charter
Standard 1000 – Purpose, Authority, and Responsibility
The purpose, authority, and responsibility of the internal audit activity must be formally defined in an internal audit charter, consistent with the Definition of Internal Auditing, the Code of Ethics, and the Standards. The chief audit executive must periodically review the internal audit charter and present it to senior management and the board for approval.
Interpretation:
The internal audit charter is a formal document that defines the internal audit activity's purpose, authority, and responsibility. The internal audit charter establishes the internal audit activity's position within the organization, including the nature of the chief audit executive’s functional reporting relationship with the board; authorizes access to records, personnel, and physical properties relevant to the performance of engagements; and defines the scope of internal audit activities. Final approval of the internal audit charter resides with the board.
Copyright © 2017 by The Institute of Internal Auditors, Inc. All rights reserved.

12. Internal Audit Structure
Standard 1110 – Organizational Independence
The chief audit executive must report to a level within the organization that allows the internal audit activity to fulfill its responsibilities. The chief audit executive must confirm to the board, at least annually, the organizational independence of the internal audit activity.
Interpretation:
Organizational independence is effectively achieved when the chief audit executive reports functionally to the board. Examples of functional reporting to the board involve the board:
Approving the internal audit charter.
Approving the risk-based internal audit plan.
Approving the internal audit budget and resource plan.
Receiving communications from the chief audit executive on the internal audit activity’s performance relative to its plan and other matters.
Approving decisions regarding the appointment and removal of the chief audit executive.
Approving the remuneration of the chief audit executive.
Making appropriate inquiries of management and the chief audit executive to determine whether there are inappropriate scope or resource limitations.
Copyright © 2017 by The Institute of Internal Auditors, Inc. All rights reserved.

13. Risk Assessment & Audit Plan
Annual process performed in late spring
Management completes risk matrix
Audit reviews and makes adjustments
Draft audit plan created
Risk assessment results provided to Executive Management for review & additional input
Audit plan adjusted (in necessary)
Risk Assessment results and proposed Audit Plan presented to Board of Trustees
Board of Trustees approves annual Audit Plan in August/September

14. Risk Factors: District
Financial Impact
Frequency/Complexity/Volume of Transactions
Regulatory/Legal Impact
District Image/Reputation or Market/Customer Impact
Changes in Area/Management/Systems or Processes
Quality of Internal Control System
Availability & Reliability of Computer Systems
Importance/Integrity of Data & Reports
Opportunity of Fraud/Waste or Abuse
Safety & Security
Time Since Last Audit

15. Risk Factors: Campus Enrollment Budget Turnover in critical functions
Activity Funds
Time Since Last Audit
Note: All LISD campuses have been audited at least once

16. Internal Audit Projects
Employee Leave
Purchasing / Procurement Card
State Assessment
Construction Projects
ITS General & Security
Fueling Process
Disaster Recovery/Business Continuity
Athletics Department
PEIMS
Contract Management
IMA / Textbooks
Payroll
Fixed Asset/Controllable Inventory
Accounts Payable CSA
Consulting Projects:
EPR Phase I - Finance
ERP Phase II – HR/Payroll

17. LISD Fraud Hotline Anonymous reporting available 24/7
English and Spanish options
Supports Leander ISD’s 10-Ethical Principals and Policies
Communication to organization
Review committee

18. Board Communications & Updates
Internal Audit Management reports
Audit Observation Status Reports
Assurance Reports – audit projects, confidential areas and follow-ups
Board of Trustee Liaison

19. Audit Observation Status Reports
This report is developed from the Campus/Corrective Action Plans (CAPs) created to address audit observations identified in audit reports. Updates of this report are provided to the Board usually on a quarterly basis.
Status Definitions:
IN PROCESS – District/Campus implementation or resolution in process, Internal Audit will follow- up later to confirm
AFFIRMED – Management declares task resolved; Internal Audit will verify at a later time
COMPLETE – Internal Audit has confirmed that the task is fully resolved and closed at this time
RISK ACCEPTED - District has accepted current or residual risk of this task
NOT ON TRACK – Task estimated completion date has lapsed; District/Campus is currently not in process of resolution

20. Internal Audit vs. External Audit (continued)
Internal Audit
External Audit
Purpose
Analyze and improve controls and
performance
Express an opinion on the financial condition
Reporting relationship
Board of Trustees, works closely with management
Shareholders via Board & Chief Financial Officer (CFO)
Focus
Enhance and protect organizational objectives and values
Fair representation of financial statements
Standards
The IIA’s International Standards for the
Professional Practice of Internal Auditing
Generally Accepted Auditing Principles,
Generally Accepted Auditing Standards
Primary Audience
Board, executive management
Investors, public interests
Timing
Past/Present/future, ongoing
Past, point in time
Copyright © 2017 by The Institute of Internal Auditors, Inc. All rights reserved.

21. Internal Audit vs. External Audit (continued)
Internal Audit
External Audit
Approach
Sufficient work undertaken to provide insight and give informed assurance to the Board
Sufficient work completed to form an opinion on the financial statements
Scope
Organizational operations
Fiscal financial records
Skills
Interdisciplinary
Accounting, finance, tax
Employment Relationship
An organization’s employee, Independent of Management
A contracted third party
Copyright © 2017 by The Institute of Internal Auditors, Inc. All rights reserved.

22. Internal Audit is… NOT the police
Part of the District’s control structure
Not responsible for implementation or oversight of the district’s controls
A resource to assist in developing or evaluating operational processes and systems
Not something to be afraid of, we are on the same side

23. The legal requirements and the financial performance of lisd
Annual Audit Report
The legal requirements and the financial performance of lisd

24. Key Areas of External Review
Board minutes
Budget and cash management
Compliance with all laws
Grant management
Maintenance of effort
Procurement
Use of taxpayer funds
Financial statement accuracy
Internal controls
Payroll accuracy / coding
Questionnaires
Board
Management
Related party transactions
State aid reconciliation
Recording of settle-up
Spending requirements
Third party confirmations
Litigation
Tax collections

25. Differences in Types of External Audits
Annual Financial Report (AFR)
Comprehensive AFR (CAFR)
Minimum requirement for school districts
Basic financial statements
Required supplementary information
Highest level of transparency in financial reporting
Includes everything in an AFR along with the following:
Combining & individual statements
Schedules & statistical tables

26. Leander ISD 2016/2017 Audit

27. Key Points of LISD Audit
General Fund
$ 11,681,286 surplus
$148,888,849 in fund balance
Debt Service Fund
$ 6,725,053 deficit
$ 28,544,170 in fund balance
Unmodified opinion
Highest level of assurance
Clean audit report
Satisfies highest reporting standard
ASBO Award
GFOA Award

28. What is the Purpose of Fund Balance?
Covering cash flow deficits in the fall until property taxes are collected in January
Legislative cuts and unfunded mandates
Lower interest rates on district bonds
Ongoing support for educational programs
Unforeseen expenditures and disasters

29. Fund Balance Guidelines
The State provides guidance to schools that each district should have two months of cash disbursements to cover any cash flow deficits – no focus is given to the debt service fund.
The foresight of the LISD Board includes the following expectations of administration for fund balance:
Maintain two months of operating funds in reserve
Goal shall be to have three months of operating funds in reserve
Maintain at least 20 percent of the next year’s interest & sinking requirements
Goal shall be to have 30 percent of next year’s interest & sinking requirements

30. Questions?
Answers