1. Audits & Assessments: What are the Differences and How Do We Learn from the Results? Brown Bag March 12, 2009 Sal Rubano – Director, Office of the Vice President and General Counsel, Enterprise Risk Management Salvatore.rubano@yale.edu 432-54949 Tammy Raccio – Associate Director, Audit Department tammy.raccio@yale.edu 432-7830 Julia Janowick – Deputy University Research Compliance Officer, Office of Research Administration, julia.janowick@yale.edu 432-6977

2. Agenda Terminology and principles Common objectives Enterprise risk management Audits Assessments Q&A

3. Terminology and principles Risk: the potential for a scenario in which an individual or situation fails to adhere to a regulation, policy or procedure that applies to the activity in which they are engaged, and/or the failure of an internal control to prevent adherence to a regulation, policy or procedure Risk is generally measured by likelihood and impact: –How likely is it that the risk will occur? –What is the impact if the risk does occur? How do we handle risks once identified and measured? –Accept –Manage –Transfer –Eliminate Internal Controls: policies and procedures for preventing and detecting the failure of adherence to a regulation, policy or procedure

4. Common objectives of audits, enterprise risk management & assessments Protect the University and University community from liability and risk Enable management to act proactively and avoid “unwanted surprises” Identify and correct non-compliance Identify gaps in process and understanding in order to determine: –What policies and procedures need to be clarified and/or created? –Where there are opportunities for increased training and education?

5. Enterprise Risk Management (ERM) What is ERM ? Process of planning, organizing, leading, and controlling the activities of the University in order to minimize the effects of risk to its operations. Expands risk management beyond the traditional concept of insurable risks associated with accidental losses to include reputation, health & safety, operational, compliance, financial and other risks. Views University’s operations as a portfolio of activities with attendant risks. Focuses on identifying and managing University risks in a proactive and anticipatory manner

6. Enterprise risk management goals Foster a risk-aware culture Anticipate institutional risks Escalate major institutional risks Develop information and provide recommendations to Officers in prioritizing risk areas for special attention and resources Report status of institutional risks to Trustees

7. Enterprise risk management focus

8. Enterprise risk management outcomes Most important risk exposures to the University are identified and addressed proactively Risk awareness is embedded into day-to-day business decisions

9. Internal Audit Department’s Risk Based Auditing Analyzes financial data to identify high risk areas or high risk transaction types –Identify specific period of review –Identify greatest areas of exposure –Determine areas deserving a specific risk review

10. Internal Audit Department’s Risk Based Auditing Assess the internal controls utilized to reduce risks to an acceptable level or eliminate risks altogether Document internal controls employed to obtain reasonable assurance that goals and objectives can be met for areas identified as high risk –Through various methods (inquiry, observation, review) document the processes in place to achieve an effective control environment –Sample transactions to verify documented internal controls are working properly

11. Internal Audit Department’s Risk Based Auditing Auditors Evaluate Internal Controls related to high risk areas Examples of Internal Controls include (proactive and detective controls) Creation of an Environment of Control Awareness Separation of Duties Authorizations/Approval Reviews Reconciliations Monitoring Asset Security Information and Communication

12. Internal Auditing Department’s Risk Based Auditing Not designed to: Detect fraud or collusion Find transactions not in compliance with policies and procedures Increase technical competence Assess staffing Any one of these may happen in our audits however, our audits are not designed to find or test for these. We are not the transaction police but are governance partners with management!

13. Research compliance assessments What is a research compliance assessment? A review of a particular process or work area to determine conformance with federal regulations and University policies and procedures related to research –What are the applicable requirements? What should we be doing? –What is our practice? What are we actually doing? –Where are there gaps between requirements and practice? Is there a disconnect between what we should be doing and what we are doing? –Where are there opportunities for improvement? What strategies can we develop to close any gaps between requirements and practice and ensure compliance?

14. Research assessment goals Identification and measurement of risks –Take a proactive approach to identifying and managing research compliance risks –Identify, classify, quantify and prioritize risks Elimination or management of risks –Identify and correct non-compliance –Make recommendations for process improvements which will minimize liability and risk –Partner with the research community in innovative and effective ways to minimize and manage risks –Better identify and target the most useful and effective training and education

15. Research assessment focus

16. Research assessment process Discussions and interviews with process owners Process reviews Information and data review

17. Research assessment outcomes Identification, prioritization and elimination or managment of real and potential research compliance risks –Enhance and clarify existing policies, procedures and guidance and/or create new policies, procedures and guidance to address non-compliance, operational deficiencies and/or gaps in knowledge and understanding –Recommendations for process improvements –Identify and target necessary training and education –Correct non-compliance –Develop self-assessment tools for process owners to regularly assess their own activities

18. Recap: commonalities and differences in our general processes ERMAuditsAssessments Identification of risks and risk management strategies √√√ Discussions with process owners √√√ Escalation of key risk issues √√√ Process reviews √√ Information and data review √√ Transaction sampling √ Fiscal focus √ Research compliance focus √

19. Conclusion: we are all in this together! Our offices work together, complementing each other’s methods to mitigate risks to the University –We meet regularly to: Share ideas and information Avoid duplication of effort Cover more ground

20. 20 You too can help with identification of risks – “if you see something, say something!”

21. Questions?