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Who Are MIT’s Auditors and the Audit Committee and What Are Their Roles and Responsibilities?. Accounting Group April 2, 2009 Bush Room. What is the definition of “audit”?.
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Who Are MIT’s Auditors and the Audit Committee and What Are Their Roles and Responsibilities? Accounting Group April 2, 2009 Bush Room
What is the definition of “audit”? • Noun – professional, independent inspection / examination / review / verification to evaluate one or more of the following: • Financial statement representation • Compliance • Soundness and integrity of financial and operational internal control environment • System controls • Efficiency and effectiveness • Verb – to conduct an audit (see above) • Alternative – to attend a class / lecture as a participant to review material; does not receive credit • Audit work is conducted against an appropriate set of standards Accounting Group - April 2, 2009
Auditors Recently in National Headlines Accounting Group - April 2, 2009
What groups perform audits at MIT? • External auditors – independent of Institute • Independent Public Accountant – PricewaterhouseCoopers (PwC) • Institute financial statements (annually in accordance with GAAP) • Basic pension plan • Supplemental retirement - 401K plan • Retiree health and welfare benefits plan • A-133: Student financial aid • A-133: Federally funded fellowships • Investment Fund of Funds • SMART • Cognizant Audit Agency - Defense Contract Audit Agency (DCAA) • A-133: Research and development • Other auditors and inspectors (e.g., OSHA) • MIT Internal Audit – independent in practice Accounting Group - April 2, 2009
PwC Audit Calendar @ MIT Overall Institute Basic Pension Plan 401k Pension Plan Retiree Health and Welfare Plan A-133/Student Financial Aid Investment Fund of Funds SMART Accounting Group - April 2, 2009
PwC Areas of Audit Emphasis • Observations and Recommendations – Review status of prior year comments and report current year findings • Office of the VPF – Reassess and test key general controls over balance sheet accounts • Investment Management – Review and test operations and control structure surrounding investment management and treasury functions, as appropriate • Development and Major Gifts – Test to ensure gifts and pledges are reported and recorded in proper period • Federally Sponsored Research – Ensure federally sponsored research activity is appropriately reflected in financial statements Accounting Group - April 2, 2009
PwC Areas of Audit Emphasis • Tax Matters – Review compensation policies, related party transactions, and related disclosures • Pending or Threatened Claims / Litigation – Assess accruals, and/or disclosures, and related exposure • Information Technology – Update assessment of monitoring controls over financial systems • Compliance – Review programs that monitor compliance with federal regulations • SAS 99 – Consideration of Fraud – Identify risks of material misstatement Accounting Group - April 2, 2009
Who is the DCAA? • Defense Contract Audit Agency • Under the Dept of Defense (DOD) • Mission: audit military grants and contracts • Full-time DCAA team assigned to MIT to perform various types of audits of DOD awards (approx. 6 auditors) • Resident on campus and at Lincoln Lab Accounting Group - April 2, 2009
Role of the DCAA at MIT • Performs financial audits of the Institute’s books and records • Primarily in relation to federally sponsored research • Much of their effort is in reviewing the Institute’s “cost study” – the F&A rate • DCAA also performs part of the A-133 Audit • Other areas of focus (audits) are: • Property • Cost Allowability • Effort Reporting • Other Accounting Group - April 2, 2009
Office of Management and Budget (OMB) Circular A-133 Audit • Established under Single Audit Act of 1984 • Annual audit requirement • Applicable to non-profit entities receiving in excess of $500,000 in federal awards annually • Typically A-133 audit is performed by the entity’s financial statement auditors • MIT is unique: A-133 is split between DCAA (R&D) and PwC (student fin aid and federally funded fellowships) Accounting Group - April 2, 2009
MIT Internal Audit Mission, Scope, and Guidance • Independent and objective assurance and consulting activity • Scope of services equal to full extent of Institute’s auditable activities (includes Lincoln Lab) • Responsible for ensuring adequacy of controls over financial operations, safeguarding of assets, and compliance with laws and regulations • Guided by philosophy of ensuring achievement of the Institute’s business objectives and adding value to improve the Institute’s operations • Strive to conduct audit work in accordance with the International Standards for the Professional Practice of Internal Auditing • Systematic and disciplined approach to evaluate and improve effectiveness of risk management, control and governance processes Accounting Group - April 2, 2009
MIT Internal Audit Services • Assurance engagements • Business process reviews • Assess functionality of processes and determine whether business objectives are being achieved • Test adequacy and effectiveness of internal controls across traditional Institute boundaries • Frequently encompass IT focus • Targeted reviews • Limited scope • Focus on distinct controls within an area or sub-process • Advisory services • Non-attestation • Provide advice and guidance on strong controls; assist management in decision making • Largely research admin. compliance & construction contract reviews Accounting Group - April 2, 2009
MIT Internal Audit Stakeholders and Customers • Audit Committee • Senior management • Line management in departments, labs, and centers • External auditors Accounting Group - April 2, 2009
MIT Internal Audit Org Chart Accounting Group - April 2, 2009
MIT Internal Audit – Examples of Key Findings / Output • Need for improved data governance • Need for strengthened controls over revenue recording • Weakness in operational processes • RACP completion of site visits to “Top 40” federally funded DLCs • Reviews of alleged malfeasance when requested by management • Assessment of contracted third party capacity and viability • Construction recovery and cost avoidance Accounting Group - April 2, 2009
Who / What is the Audit Committee of the MIT Corporation? • Oversight body • Governed by Bylaws of the Corporation • Audit Committee is comprised of 5 members • 3 members on 5 yr. terms; 2 members on 3 yr. terms • Chosen from members of the Corporation • Chaired by A. Neil Pappalardo (elected annually) • Appoints external auditors (PwC) for financial statement audit annually • Meets three times per year Accounting Group - April 2, 2009
The MIT Audit Committee - bylaws “Subject to the approval of the members of the Corporation, the Audit Committee shall employ public accountants to examine the books of MIT for the next fiscal year, and such other financial and investment records as the Audit Committee deems appropriate from time to time. The public accountants shall report thereon to the Audit Committee, which shall in turn present the report of audit, including the scope of the examination, to the members of the Corporation at their next annual meeting with such recommendations as the Audit Committee shall deem appropriate.” Accounting Group - April 2, 2009
What should customers expect? • Requests for supporting documentation, often prior to commencement of fieldwork • Financial statement auditors, in particular, need full cooperation • Tight turnaround time • Filing deadlines • For attestation engagements conducted, a report containing an opinion and any related findings will be issued to the appropriate member of senior management or business process owner • For advisory engagements (Internal Audit), a report may be issued, containing a statement of audit scope and results of audit work performed Accounting Group - April 2, 2009