Beyond the A-133 Audit: Expanding the Focus (part 3 fo3)

By : Kathleen Hall and Marilyn Surbey

This article is the last in a series of three addressing some of the questions auditors are currently asking when auditing non-salary costs. Please refer to the July/Aug 2005 and Sept/Oct 2005 issues for the previous two articles.

FILING

When purging or destroying files, make sure that you are not destroying documentation that might be needed in an audit. Everything needed may not be available from the central system repositories. All appropriate individuals should be knowledgeable about which departmental documents are considered original source documents for the purpose of audit. Where are the bits and pieces that would document all aspects of prior approval, authorities, post review, etc.? Can you find everything for every transaction to provide a “complete” picture of the transaction and all oversight functions? For documents going to Accounts Payable (AP) or Purchasing (or for E-journals), attach any/all information that would justify the purpose and allowability of the transaction and will help document an appropriate approval/review process. This could include copies of emails or a note to the file that outlines who, why, what. The AP/Purchasing/E-journal source documents may have been scanned or are otherwise available from central systems. If your documentation is with a centralized source, this will prevent the need to retrieve it at a later date from your own files.

GENERAL AUDIT OBSERVATIONS

For all transactions, how do you provide documentary proof that your department conducted a timely post-review of transactions on your account and that a knowledgeable individual with appropriate authority either approved or questioned and removed the transactions? For all transactions, program auditors are interested in the internal review and approval process by individuals who are “knowledgeable” about the program terms/conditions. The issue of review and approval by “knowledgeable” individuals is separate from whether or not that individual is recognized for “processing” in the departmental or central systems. How are grant-related authorities established and documented? If the post-review process is essentially an accounting validation (check off), not conducted by an individual with an appropriate level of knowledge about the grant needs and terms/conditions, then the prior approval documentation must substantiate that an appropriate grant-related review occurred. Budget availability is never an appropriate reason for allocation of costs, except when the cost is split between a grant account and an unrestricted account. In such an instance, the explanation must justify that the purpose of the allocation is to reduce or limit costs to the grant. Auditors want to see written departmental policies and procedures. They want to see departmental procedures that are in addition to those published at the institutional level. They want to see that the

department is aware of the institutional policies and that they understand their own responsibilities and have established their own quality control mechanisms that assure compliance with both institutional policies and grant requirements. Audits are often conducted years after the transaction occurred. If you do not have the documentation or ready access to the documentation that “proves” appropriate approval procedures, including programmatic and financial oversight and controls, costs can be questioned or disallowed, even if the cost would otherwise have been allowable. Even if costs are not disallowed, weak or inadequate system procedures could lead to management comments that might require extensive and expensive corrective action or might lead to more restrictions in future funding. Auditors express a “strong” concern about late cost transfers, especially when they are provided information about appropriate quality control procedures. They don't understand why you would have late transfers if you were following your procedures. Does this mean you are not following your procedures or that your procedures need to be rewritten? Auditors express a “strong” concern about cost transfers for transactions that clearly have multiple opportunities to get allocated correctly (e.g., travel, P-Card). Why are there additional transfers after multiple reviews? Does this mean reviewers are not following procedures or are not actually reviewing? Are you ready for your next audit?