NCURA Region VI & VII Spring Meeting Pitfalls and Advice from the Trenches on How to Survive Your Internal Audit Susan Phillips Moskowitz Department of Geophysics Stanford University

What to expect in this session What goes through your mind when you hear “internal audit”? How do you prepare for the audit? What is the scope of an audit? (about Internal Audit at Stanford) Historical perspective of Stanford’s indirect cost rate hearings (movie) Examples of documents requested during the audit Share your examples of the audit experience

What do you think when you hear “internal audit”? Terror Fear Oh my files are a mess! What will happen to my job

How do you prepare for the audit? Prepare for your audit from day one – Look at other institutions Hot topics: sub recipient monitoring and cost sharing When you first receive your Notice of Award read it carefully. Then read it again: The award comes with terms & conditions and responsibilities Refer to your Notice of Award frequently Establish a good relationship with your OSR contract officer and ask questions Talk to your PI and alert him/her about details – PI effort, budget, reporting requirements and deadlines, etc.

How do you prepare for the audit? Review retention times – When requirements for long-term retention of records overlap, the responsible office should retain records for the maximum period needed to meet legal and audit requirements: – Direct Charges to Contracts and Grants: Stanford’s requirements 3 years following the date of the OSR closeout (longer if circumstances such as an audit or litigation require it) – Accounts included in Indirect Cost Rate: 3 years following the final sign-off for that year by the federal government Business transaction records: (not contract or grant-related) 4 years

How do you prepare for the audit? Monthly expenditure reports – Review carefully and look for Correct burden (indirect cost rate) Was the rate calculated correctly? – Ex: $6,000 scientific computer – Do you need to complete a cost transfer? » New regulations on cost transfer policy

The Audit Department’s Role The work includes examining, evaluating, and as necessary, recommending improvements to the University’s internal controls. Internal controls encompass the policies, procedures, activities, and information systems through which University schools and departments ensure: – Reliability, integrity, and security of information; – Compliance with laws and regulations; – Compliance with University policies and procedures, including the Code of Conduct; – Safeguarding of assets; – Economical and efficient use of resources; and – Accomplishment of established objectives and goals for operations or programs.

The Department Responsibilities The Department responsibilities include examining and evaluating the policies, procedures and systems which are in place to ensure: – Reliability and integrity of information; – Compliance with policies, plans, procedures, laws and regulation; – Safeguarding of assets; – Economical and efficient use of resources; and – Accomplishment of established objectives and goals for operations or programs

How are internal audits scheduled? Periodically performs assessments of University operating units and control functions to identify areas of potential institutional risk. – Red flags: Food Travel

What does a typical audit include? Scheduling an opening conference to discuss audit objectives, timing, and intended report format and distribution (usually via to department manager) Evaluating internal control systems Testing to ensure proper operation of internal control systems Developing conclusions based on test results Reviewing audit issues and draft audit reports with management and staff Preparing and distributing an audit report which generally include management’s responses to the issues raised Following up to ensure all issues raised in audit reports have been addressed – Example

How to work with auditors? Each audit engagement has a defined scope and objectives. Any auditor requesting information from you should be able to explain the audit’s purpose and objectives so you can understand the reasons for questions being asked and provide accurate answers. (Review the scope) – Work with your Department Manager – Ensure you/staff are well trained on current procedures – Pull selected files and coordinate with all parties: PI’s, department administrators, etc. – Provide the relevant information. Show your manager first before faxing documents (transactions). Be sure you have ALL backup materials

Examples from the “trenches” Reimbursement procedure at Stanford – Oracle IOU – Foreign Air Carrier “Fly America Act” – Calculating per diem while attending conference with meals included in the registration – Save your documentation and teach your PI to save all receipts

Other important information Stay cool, calm and truthful during the audit Review your source documents (what do you remember) Be sure to certify the expenditure statements on time and your PI’s effort is recorded accurately Check expenditure types are accurate – Coded for research or non research – Pcard transactions: Is your business purpose accurate? Did you use the word “party” in the business purpose? (Example) Spend carefully and don’t buy equipment at the end of the grant just because you have extra money etiquette Remember the AARC: – Allowable, Allocable, Reasonable and Consistent

Stanford 1991 High indirect cost rate Indirect cost controversy Internal audit was expanded Movie

Results from 1991 Auditors recommended more training for staff New University President Office of Sponsored Research Training Program established – ABC’s quarterly meetings – Cardinal Curriculum

Summary Documentation Follow the terms and conditions Is it Allowable, allocable, reasonable and consisitent Ask your manager for help/training

Resources Office of Sponsored Research NCURA – NCURA Broadcast Workshop Series DVD: Audits & the Audit Process aired Jan. 13, 2009 Special thank you to: Patti McCabe and Lisa Teresi-Forgatsch in the Office of Research Administration for assistance in this presentation Susan Phillips Moskowitz Project Coordinator Department of Geophysics

Questions???