Preparing for a State Audit

1. Preparing for a State Audit November 4, 2008 North Carolina State Education Assistance Authority Dr. Steve BrooksExecutive Director

2. Preparing for a State Audit Contact Information Cheryl Sauls Quality Assurance Manager North Carolina State Education Assistance Authority P.O. Box 14103 Research Triangle Park, NC 27709-4103 Phone: (919) 248-4637 Fax: (919) 248-6637 Email: csauls@ncseaa.edu

3. Preparing for a State Audit What words come to mind when you learn the Auditor will be arriving to conduct an on-site program review? Anxiety Fear Investigation Money Pulling documentation Record Retention Review

4. Preparing for a State Audit Partnership

5. Preparing for a State Audit Objective Define Audit Disclose the Purpose of a State Audit Discuss the Types of Audits and Reviews Discuss the Possible Programs to Review Discuss Frequently Cited Audit Findings & Observations Discuss Best Practices Discuss How to Guard Against Findings & Observations Wrap Up

6. Preparing for a State Audit What is an Audit? Audit originated from the Latin word auditus, “a hearing,” referring to the hearing of oral evidence as one official would verify records with those of another. Audit is a formal, often periodic examination and testing of accounts or financial records of an individual, business, institution, organization, or government entity to verify the accuracy and completeness of the records or their compliance with another set of standards.

7. Preparing for a State Audit Purpose To provide verifiable information to management as to whether or not their goals and objectives are being met.

8. Preparing for a State Audit Why the Emphasis? WorldCom files largest bankruptcy ever Results of the Emphasis:

9. Preparing for a State Audit Sarbanes-Oxley Act Applies mainly to SEC companies Purpose is to rebuild trust in America’s corporate sector Some aspects would benefit nonprofits Audit committee composed of persons knowledgeable about accounting Code of ethics policy Whistleblower policy Records retention policy

10. Preparing for a State Audit North Carolina G.S. 143C-6-23 G.S. 143-6.2 Effective 7/1/2005 G.S. 143C-6-23 Effective 7/1/2005 Includes non-profit and for profit non-governmental entities Exempts local government agencies and state entities Requires Conflict of interest policy Funding agency to identify reporting requirements Funds must be spent for appropriate purposes Incorporates cost principles for first time Establishes Oversight Committee OSBM OSC DHHS OSA AG

11. Preparing for a State Audit Roles of Oversight Agencies Office of State Budget and Management Responsible for rules administration Office of the State Auditor Compile report to OSBM for all funds granted to non-government entities Review financial/audit data from grantees Audit of agency monitoring practices

12. Preparing for a State Audit Roles of Oversight Agencies Office of State Controller Oversee agency disbursement Office of the Attorney General Assist with recovery of funds, as needed Oversight committee OSBM, OSC, OSA, Attorney General, Agency Representative

13. Preparing for a State Audit New Rules – Summary Rules administration – OSBM Establishes authoritative guidance in North Carolina Administrative Code Designed to increase consistency of reporting Applicable to grants Grantee and subgrantee responsibilities Establishes new reporting thresholds State agency responsibilities

14. Preparing for a State Audit Grantee & Subgrantee Responsibilities Spend state funds for specified purpose Comply with reporting requirements to funding agency and/or OSA Maintain adequate records Open to examination by funding agency and OSA Hold subgrantee accountable

15. Preparing for a State Audit State Agency Responsibilities Notify grantee of applicable reporting requirements Register with OSBM’s Community Resources Information System (state grant database) Follow disbursement procedures established by OSC and OSBM Provide list of grantees receiving state funds to OSA and OSBM Perform monitoring and oversight functions to assure accountability Stop disbursements to those in non-compliance

16. Preparing for a State Audit Types of Audits GAAP Audit Generally accepted accounting principles audit General purpose audit Yellow Book or GAGAS Audit Required for grantees receiving more than $500,000 A-133 Federal Compliance Audit Required if $500,000 in federal expenditures Can be substituted for “yellow book” audit under G.S. 143-6.2

17. Preparing for a State Audit “Yellow Book” Audit Government Auditing Standards Requires auditor to issue opinion concerning Internal Controls Compliance Requires schedule of awards Federal and state funds should be identified separately

18. Preparing for a State Audit A-133 Federal Compliance Audit The OMB A-133 Compliance Audit is a large and extensive circular guide created by the Office of Management and Budget (OMB) which sets forth standards for obtaining consistency and uniformity among Federal agencies for the audit of States, local governments, and non-profit organizations expending Federal awards.

19. Preparing for a State Audit Types of Reviews Compliance Guaranty Agency Investigative Lender/Servicer Program

20. Preparing for a State Audit Programs to Review Board of Governor’s Dental Scholarship Loans Board of Governor’s Medical Scholarship Loans Future Teacher’s of North Carolina Golden LEAF Health, Science, and Mathematics Loans North Carolina Education Lottery Millennium Teacher Scholarship Loans North Carolina Legislative Tuition Grants North Carolina Reach Program North Carolina Student Incentive Grant Program

21. Preparing for a State Audit Programs to Review Nurse Education Scholarship Loans Nurse Educators of Tomorrow Scholarship Loans Nurse Scholars Program – Masters Nurse Scholars Program – Undergraduate Penn Family Scholarship Physical Education – Coaching Scholarship Loan Prospective Teacher Scholarship Loan Principal Fellows Program State Contractual Scholarship Fund Teacher Assistant Scholarship Program

22. Preparing for a State Audit Programs to Review Increasing Medical Educational Opportunities Grant John B. McLeandon Scholarship Optometry Scholarship Loan Program Social Workers Educational Loan Fund UNC Campus Scholarship UNC-Need Based Grant Program Etc. This list may not be all inclusive.

23. Preparing for a State Audit Program Review Reference Sources Common Review Initiative Guide Guaranty Agency Review Guide Lender / Servicer Review Guide Program Audit Compliance Guide Program Rules & Regulations Statutes Etc.

24. Program Records Academic Transcript Account Reconciliation Applications Award Letter      Certification Date Cost of Attendance Data Sheet Disclosure Statements EFT Procedures High School Transcript Organizational Chart ISIR Payment Roster Promissory Note SAP Student’s Account Record Refund Procedures Additional Documents as Required to Verify Information Submitted on an Application, Timely Processing of Disbursements, etc.     This list may not be all inclusive. Preparing for a State Audit

25. Preparing for a State Audit Contracts and Monitoring Contracts that Define specifics: expected outcomes, source of funds, accounting information Requires reversion of unexpended funds upon termination Spells out audit oversight Granting agency must perform monitoring and evaluations Obtain performance measurements Evaluate program results Determine whether to continue Implement sanctions for noncompliance

26. Preparing for a State Audit What Is Monitoring? Internal Control System Operating activities Regular Activities Regular Activities On-going monitoring • Progress check • Performance improvements On-going monitoring • Observations • Recording Regular Activities Regular Activities Operating activities Internal Control System

27. Preparing for a State Audit Monitoring Done on regular and consistent basis Typically every two years Policies and processes should Ensure grant and scholarship terms adhered to Ensure grants and scholarships are handled appropriately Ensure records show source of funds Allow management to evaluate operational effectiveness Identify and report deficiencies Include third party evaluations Based upon assessment of risks Effectiveness of on-going monitoring

28. Preparing for a State Audit Monitoring Benefits Analyzes progresses Determines whether inputs are well utilized Identifies problems Assists in identifying solutions Ensures activities are carried out Assesses performance Identifies areas of concerns or process weaknesses Improves accountability

29. Preparing for a State Audit Noncompliance State agency must: Take action if grantee is in noncompliance Communicate corrective action prior to suspension of payments Report unauthorized use of funds Attorney General will assist in recovery of state funds

30. Preparing for a State Audit Findings vs. Observations Findings: Material problems supported by regulations, rules or statutes Results in Citation and Required Action Observations: No authority in regulations, rules or regulations for enforcement Make Recommendation

31. Preparing for a State Audit Common Findings Applications completed after the Certification Date 140 (110%) Hour Rule Funds expended after the end of the fiscal year Lack of supporting documentation

32. Preparing for a State Audit Common Observations Failure to reconcile program records Lack of supporting documentation

33. Preparing for a State Audit Best Practices Account Reconciliation Timely Posting of Funds Records Administration Integrity of program records

34. Preparing for a State Audit Control ActivitiesSeven Basic Control Activities Documentation Approvals and authorization Transactions accurately recorded Appropriate reporting of transactions Segregation of duties Ensuring assets are safeguarded Tracing accountability

35. Preparing for a State Audit Wrap Up Review internal processes and procedures Ensure pre-review work is timely and track progress “Self-scrub” Disclose known deficiencies to Lead Reviewer Ensure post-review work is timely and track progress Discuss issues discovered internally and implement necessary processes and procedures to address the issues Keep Lead Reviewer abreast of progress

36. Preparing for a State Audit QUESTIONS?

37. Preparing for a State Audit RESOURCES Federal Student Aid Conference Guaranty Agency & Lender Sessions Handouts The IIA CIA Learning System http://www.ncauditor.net/pub2 http://www.ncauditor.net/NonProfitSite/training/2006/InternalControl/Basics%20of%20Internal%20Control.ppt#51 http://www.ncauditor.net/NonProfitSite/training/2006/InternalControl/Basics%20of%20Internal%20Control.ppt#52 http://news.bbc.co.uk/2/hi/business/2756345.stm http://www.whitehouse.gov/omb/circulars/a133/a133.html http://www.yourdictionary.com/audit