Preparing for an OIG Audit

1
Preparing for an OIG Audit

• Walker Co. Financial Management Training
• March, 2006

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Audit Readiness

• Session Objectives
• To familiarize participants with the Inspector
  General audit process
• To better prepare participants for an audit by
  providing them with information to develop strong
  financial management systems
• Inform participants of common audit findings and
  discuss how to mitigate

3
Audit Readiness

• Begins with having systems, policies and
  procedures in place to ensure the organization
  operates within the rules of the Federal
  assistance
• Grantees should know the rules under which the
  grant operates
• Grantee should set up its systems to record
  operating costs separately from grant costs and
  record costs separately for each grant.

4
Office of Inspector General (OIG) Mission

• Conducting and supervising audits and
  investigations relating to Corporation programs
  and operations
• Providing leadership and coordination and
  recommending policies for activities designed to
  prevent and detect fraud, waste, and abuse, and
  to promote economy, efficiency and effectiveness
  of Corporation programs and operations
• Keeping the Corporations CEO and Congress
  informed about problems and deficiencies in
  programs and operations, as well as the need for
  implementing corrective action.

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Office of Inspector General Audits

• Performed by an OIG Auditor
• OR
• Performed by an OIG-selected Independent Public
  Accountant Firm (IPA)

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Office of Inspector General Audits

• OIG Audit Managers are involved, whether the
  audit is performed by an OIG auditor under the
  Audit Managers supervision or the Audit Manager
  serves as the Task Monitor for an IPA.

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Audit Process

• Definition of Audit
• Independent corroboration of management
• assertions (such as Financial Status
• Reports)
• Verification of factual representations by
  grantee (for example member or volunteer
• information, or Financial Cash Transaction
• Reports)
• Confirmation of grant expenditures (these
• are costs claimed on Financial Status
• Reports and authorized in the budget)

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What is an OIG Audit?

• An audit examines a Corporation program or
  activity, and recommends solutions to issues
• The OIG conducts both financial and performance
  audits.
• a) financial, examination of cost
• reported or claimed
• b) Performance audits measure
• achievement of results or benefits
• Both types of audit can also include compliance
  with program provisions.

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How are Subjects for OIG Audits Selected?

• Auditing is a risk-based process where specific
  audits are determined by a range of factors.
• Each year the OIG Audit Section develops an
  Annual Audit Plan that identifies the audits
  scheduled for the coming year.
• The plan includes all legislatively mandated
  audits and a number of discretionary audits,
  including Corporation requested audits.

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What are the Steps in the OIG Audit Process?

• Notification Letter The OIG will notify the
  auditee in writing, prior to the scheduled start
  date.
• Entrance Conference Its purpose is to provide
  auditee management with information and a
  description of the audit scope and objectives.
• Survey Phase Also called the planning phase, is
  to gain an understanding of the program by
  obtaining background information on the auditees
  mission, resources, responsibilities, key
  personnel, operating systems and controls.

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What are the Steps in the OIG Audit Process? Cont

• Developing the Audit Program A plan of the work
  to be done during the audit also establishes a
  set of procedures specifically designed for each
  audit.
• Fieldwork Consists of applying the audit
  procedures described in the audit program and
  reviewing the work performed. This is also
  referred to as the testing phase.

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What are the Steps in the OIG Audit Process? Cont

• Exit Conference This is conducted at the end of
  audit fieldwork. It provides Corporation and
  auditee officials with an opportunity to confirm
  information, ask questions, and provide
  clarifying data.

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What are the Steps in the OIG Audit Process? Cont

• Draft Report This report will normally be issued
  to auditee and Corporation officials with a
  request that they provide written comments within
  30 days. The Draft Audit Report is a
  work-in-progress and is not a public document.

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What are the Steps in the OIG Audit Process? Cont

• Final Report At the end of the 30-day response
  period, and after incorporating and commenting on
  the responses to the Draft Report, the OIG issues
  the Final Audit Report for resolution of the
  recommendations.

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What is the Audit Resolution Process?

• The OIG and Corporation management agree on
  proposed corrective actions needed.
• Corporation management takes action to improve
  operations or correct deficiencies identified in
  the Final Audit Report.

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The Auditors are Coming, What Should I Do?

• Have grants and A-133 reports available
• Be familiar with the grant provisions and
  regulations
• Check financial and program records to ensure
  there is support for all costs and compliance
  with all of the provisions and regulations

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Some AmeriCorps Self-Checks

• Do member files contain all required eligibility
  documentation?
• Do member contracts comply with grant
  requirements?
• Have required mid-term and exit evaluations been
  prepared, discussed, signed and filed?
• Do the hours reported in the Web-Based Reporting
  System agree with the member timesheets?
• Were living allowances paid per grant
  requirements and was 15 of member support paid
  with cash match?

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Some Senior Corps Self-Checks

• Is there documentation that the volunteer
  received their annual physical?
• Is eligibility (age and income) documented?
• Are written volunteer assignment plans available
  for the auditors?
• Is there documentation to support travel
  reimbursements?

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Match and In-Kind Self-Checks

• Are match and in-kind donations documented?
• Are they allowable?
• Do the match and in-kind donations support the
  grant (are they necessary for the grant)?

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Regulatory Reminders
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What are the OMB Circulars?
All Corporation grants are governed by the Office
of Management Budget (OMB) circulars. In
cooperation with Federal agencies and non-federal
parties, OMB establishes government-wide grants
management policies through circulars and common
rules. Each grantee must comply with three
specific circulars related to Cost List
Principles, Administrative Requirements, and
Audit Requirements.
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Summary of Relevant OMB Circulars
Each of the specific circulars can be downloaded
from the internet at the following address
Http//www.whitehouse. gov/OMB/circulars/index.htm
l
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Uniform Administrative Requirements

• Set standards for obtaining consistency and
  uniformity among Federal agencies in managing
  grants and cooperative agreements
• Pre-award requirements
• Post-award requirements for financial and program
  management
• Property standards
• Procurement standards
• Reports and records
• Close-outs

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Cost Principles

• Establish cost principles and standards for
  Federal funds
• Establishes principles and standards to provide a
  uniform approach for determining costs and to
  promote effective program delivery, efficiency,
  and is designed to ensure that the Federal
  government provides only its fair share of costs.

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Factors affecting allowability of costs

• To be allowable under an award, costs must meet
  the following general criteria
• Be accorded consistent treatment
• Be determined in accordance with generally
  accepted accounting principles (GAAP)
• Not be included as a cost or used to meet cost
  sharing or matching requirements of any other
  Federally-financed program in either the current
  or a prior period
• Be adequately documented
• Be ordinary and necessary for the operation of
  the organization or the performance of the grant.

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Reasonable Costs

• A cost is reasonable if it does not exceed
  that which would be incurred by a prudent person
  under the circumstances prevailing at the time
  the decision was made to incur the cost. The
  question of the reasonableness of specific costs
  must be scrutinized with particular care in
  connection with organizations or divisions which
  receive most of their support from awards made by
  Federal agencies.

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OMB A-133 Audit

• All A-133 audits shall be performed annually
• Applicable to non-profit organizations and state
  and local governments that expend 500,000 or
  more in a year in Federal awards
• Audit must be performed by an independent
  Certified Public Accountant
• Cost of audit should be constructed as part of
  administrative cost

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Grant Provisions

• Financial Management Responsibilities
• Reporting Requirements
• Matching Requirements
• Budget and Programmatic Changes
• Retention of Records
• Legislative and Regulatory
• Authority

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1. Regulatory Requirements
2. Written Policies Procedures
10. Internal Controls
3. Documentation of Expenses
9. Reporting
EFFECTIVE FINANCIAL MANAGEMENT
8. Matching Requirements In-kind Contribution
4. Managing Cash
5. Efficient Accounting System
7. Time Activity Documentation
6. Budget Controls
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Efficient Accounting System

• System must be capable of
• Distinguishing grant versus non-grant related
  expenditures
• Identifying costs by program year
• Identifying costs by budget category
• Differentiating between direct and indirect costs
  (administrative costs)

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Efficient Accounting System

• An Efficient Accounting System (Cont.)
• -Accounts for each award/grant separately
• -Maintains Federal/non-Federal matching
• funds separately from grant funds
• -Records in-kind contribution as both
• revenues and expenses
• -Allows management to easily obtain financial
• reports at both the summary or detailed
• levels
• -Accounting information and documents
• correlate to financial reports

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Common Audit Findings

• Types of findings
• Questioned Cost
• Compliance
• Internal controls
• Comments for management (Corporation or grantee)
  consideration

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Common Audit Findings
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Common Audit Findings

• Internal controls
• Lack of written policies and procedures
• Lack of segregation of duties

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Common Audit Findings

• Time Activity Reporting
• Finding
• Claimed salaries are based on budgeted amounts
  instead of actual after-the-fact time reported on
  timesheets
• What is missing
• Lack of proper timekeeping systems
• No timesheets or activity reports
• No reconciliation between estimates and actual
  time
• How can this be mitigated?

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Common Audit Findings

• Time Activity Reporting A-87 (State or Local
  Government)
• If an employee works on a single Federal award,
  support for salary can be periodic certifications
  by the employee (at least semi-annually)
• If an employee works on multiple cost
  objectives/activities, support must be 1) after
  the fact, 2) account for total hours worked 3) be
  prepared at least monthly and 4) signed by
  employee and supervisor

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Common Audit Findings

• Time Activity Reporting A-122 (Nonprofit
  Organizations)
• Reports reflecting the distribution of activity
  of each employee must be maintained for all those
  whose compensation is charged (in whole or in
  part) to awards. The reports must reflect an
  after the fact determination of the actual
  activity of each employee. Budget estimates do
  not qualify as support.
• Activity reports must be signed by the employee
  and supervisor.

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Common Audit Findings

• Proper Documentation of Match
• Finding
• Match is not sufficiently supported, claimed
  match activity is not in the approved budget and
  claimed match is not reasonable and necessary
• What is missing
• Lack of proper documentation for time and
  activity
• Match activity not included in approved budget
• Match activity not necessary to operate the grant
  and amounts matched not reasonable
• How can this be mitigated?

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Common Audit FindingsAmeriCorps Member Related
Issues

• Failure to get background checks for members
  working with children or vulnerable populations
• Incomplete or non-existent evaluations (mid-year
  or final)
• Insufficient member records (eligibility, I-9 not
  sufficient unless you also use passport/State
  birth certificate)
• Inadequate tracking of member hours, hours on
  timesheets do not agree with hours entered into
  WBRS
• How can these issues be mitigated?

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Common Audit Findings

• Accounting Documentation
• Accounting records do not identify expenditures
  by grant or costs to run the grantee organization
• Costs claimed dont line up with budgeted amounts
• Financial Status Reports Not Reconciled to the
  General Ledger
• Misclassification of Expenses (between budget
  categories)
• How can these issues be mitigated?

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QUESTIONS