About me. How To Survive A Governmental Audit Ken Schroeder 2

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Erik Cannon
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2 About me Certified Internal Auditor (CIA) Certified Information Systems Auditor (CISA) Certified in Risk Management and Assurance (CRMA) Bachelor of Business Administration in Accounting -- Baylor University Held positions in public and private companies, serving several capacities: Audit, Corporate Controller of Operations and Chief Financial Officer June of from industry to higher education, currently serving as the Internal Audit Director for University of Texas at Arlington Member of the Association of College and University Auditors (ACUA), the Texas Association of College and University Auditors (TACUA) and the Institute of Internal Auditors (IIA) Fort Worth Chapter Ken Schroeder 2

3 Objectives of this session Learn about UT Arlington s approach to audits Gain an understanding of audits from an auditee s perspective Review selected audits what worked, what did not Gain suggestions on how to have a successful audit Ken Schroeder 3

4 So how DO you survive a governmental audit? Answer: You run real fast weaving and bobbing so you are harder to aim for! * And that concludes my presentation.* Ken Schroeder 4

5 TRIVIA TIME! Q: How many institutions are included with the University of Texas system? Ken Schroeder 5

6 TRIVIA TIME! Q: How many institutions are included with the University of Texas system? A: 15 nine academic universities and six medical institutions Ken Schroeder 6

7 About UT System Fall 2012 enrollment roughly 216,000 Confers more than 1/3 of the state s undergrad degrees, educates 2/3 of the state s health care professionals annually 70% of all research funds awarded to public universities in Texas Annual operating budget of $13.9 billion (FY 2013) $3.1 billion in sponsored programs funded by federal, state, local and private sources More than 87,000 employees (one of the largest employers in the state) Ken Schroeder 7

9 About UT System ENROLLMENT Fall 2010 Fall 2011 Fall 2012 UT Arlington 32,975 33,439 33,259 UT System 211, , ,000 PERSONNEL Faculty Support Staff Total UT Arlington 1,464 2,119 3,583 UT System Academic 10,409 24,771 35,180 UT System Medical 8,690 42,971 51,661 Ken Schroeder 9

10 About UT System Internal Audit Function is decentralized in its organization Composed of 120 auditors including 12 support personnel (plus or minus) Average number of auditors per institution is about 7 UT System Chief Audit Executive Reports to the University of Texas Board of Regents Ken Schroeder 10

11 About UT Arlington UT Arlington has 180-plus departments Five auditors and an Audit Project Coordinator Campus Chief Audit Executive reports to Chief Executive Officer (President) and to the UT System Chief Audit Executive Work Plan Audits Risk Assessed Financial 14% Operational 10% Compliance 32% Information Technology 16% Projects and Follow-Up 28% Ken Schroeder 11

12 UT Audit Governance Each UT System Institution has its own Audit Committee. UT Arlington s Audit Committee meets quarterly and is made up of the President (who serves as Chair of the Committee), three senior executives, one faculty member, and one outside member. Ken Schroeder 12

13 Governmental Audits 510 U.S. Government Departments and Agencies ( GOVERNMENT MADE EASY Office of Inspector General: 12 offices in 1978, and has grown to 73-plus in 2013 Ken Schroeder 13

14 Reasons to be concerned about a governmental audit Lack of attention to sponsoring agency requirements Poor internal controls Lack of training Lack of appropriate staffing You failed to implement prior audit recommendations, and now they are here again to audit and follow-up on those prior audit recommendations Lack of knowledge of A-21 Rules & Regulations Ken Schroeder 14

15 UT Arlington s Most Common Governmental Agencies Office of Inspector General (OIG) State Auditor s Office (SAO) Department of Education(DoE) National Institute of Standards and Technology (NIST) National Science Foundation (NSF) Department of Health and Human Services (DHHS) Texas Higher Education Coordinating Board (THECB) Ken Schroeder 15

16 UT Arlington - Other Audit Coverage State Auditor s Office and KPMG audits of Student Financial Aid (A-133) State Auditor s Office audits of the Research Cluster (A-133) > Internal Audit performs limited scope reviews in these areas so as to not duplicate work done by these third parties, yet considers these audits in setting work plans. > As the Internal Audit Director, I work closely with management and third party auditors as part of my job responsibility. Ken Schroeder 16

17 Trivia time again! Who said: If we knew what it was we were doing, it would not be called research, would it? Ken Schroeder 17

18 Trivia time again! Who said: If we knew what it was we were doing, it would not be called research, would it? Answer: Albert Einstein Ken Schroeder 18

19 Trivia time again! Who said: Research is what I'm doing when I don't know what I'm doing. Ken Schroeder 19

20 Trivia time again! Who said: Research is what I'm doing when I don't know what I'm doing. Answer: Wernher von Braun Ken Schroeder 20

21 UT Arlington Total Research Expenditures $80.00 $70.00 $63.6 $66.0 $71.4 $60.00 $55.6 In $ Millions $50.00 $40.00 $50.3 $30.00 $20.00 $10.00 $- FY 2008 FY 2009 FY 2010 FY 2010 FY 2012 Ken Schroeder 21

22 Free Applications Student Financial Aid ,000 From the Title IV Federal Student Aid Data Center 75,080 70,000 60,000 59,455 50,000 40,000 30,000 24,047 20,000 10,000 - UT Austin UT Dallas UT Arlington Ken Schroeder 22

23 Sources of Aid To Students From the Texas Higher Education Coordinating Board Financial Report FY 2011 Ken Schroeder 23

24 Ken Schroeder 24

25 OIG Audit of the MEP What is MEP? MEP (Manufacturing Extension Partnership) NIST program - works with small and mid-sized manufacturers Nationwide network of partners providing a variety of services Objectives: To put small manufacturers in position to expand manufacturing and increase jobs etc. Ken Schroeder 25

26 OIG Audit of the MEP What is TMAC? TMAC (Texas Manufacturing Assistance Center) a local Texas resource to address the challenges of today's hyper-competitive business environment offers services aimed at efficiency, cost reduction, profitability, technical assistance, and training for the small to medium size business Ken Schroeder 26

27 OIG Audit of the MEP OIG audit focused on: Cost sharing Cost share Harvesting Added value of Subrecipient Program Income Subrecipient Monitoring Ken Schroeder 27

28 TMAC Agreement Structure University-Based: UT Arlington (lead Holds MEP Cooperative Agreement) 6 Subrecipients +1 Sub-internal partner +1 2 nd tier Sub: UT Pan American UT El Paso Texas Tech University of Houston Texas Engineering Extension Service (A&M System) ESTI TEEX Intra Agency Memorandum BMC 2 nd tier subrecipient (TEEX Subrecipient) Southwest Research Institute (Private Non-Profit) Ken Schroeder 28

29 Texas Manufacturing Assistance Center El Paso El Paso Hansford Lipscomb Dallam Sherman Ochiltree Hartley Oldham Hutchinson Hemphill Moore Roberts Carson Potter 40 Gray Wheeler Randall Donley Deaf Smith Armstrong Collingsworth Castro Briscoe Parmer Swisher Childress Hall Hardeman 27 Bailey Lamb Motley Cottle Wilbarger Hale Floyd Foard Wichita Lubbock Clay Hockley Cooke Red Cochran Crosby King Knox Baylor Archer Montague Fannin Lamar Dickens River Grayson 35 Delta 30 Lubbock Stonewall Throckmorton Franklin Bowie Yoakum Terry Lynn Garza Kent Young Jack Morris Haskell Wise Denton Collin Hunt Hopkins Titus Cass Ft. Worth Camp Borden Scurry Shackelford Palo Rockwall Marion Stephens Pinto Dallas Rains Wood Gaines Dawson Fisher Jones Parker Upshur Tarrant Dallas Van Harrison Howard Hood Kaufman Nolan Erath Zandt Gregg Andrews Martin Johnson Ellis 20 Mitchell Taylor Eastland Callahan Somervell Henderson Smith 20 Rusk Panola Navarro Ector Midland Sterling Comanche Hill Anderson Loving Winkler Coke Glasscock Runnels Bosque Brown Cherokee Coleman Hamilton Freestone Nacog- Shelby Ward McLennan Culberson doches San Crane Tom Mills Limestone Augustine Hudspeth Upton Reagan Green Coryell 45 Irion Concho Houston Angelina Sabine Reeves McCulloch San Lampasas Falls 35 Leon Saba Robertson Trinity 10 Bell Jasper Crockett Schleicher Menard Milam Madison Burnet Walker Polk Tyler Jeff Davis Pecos Mason Llano Brazos Williamson San 10 Kimble College Station Burleson Jacinto Sutton Austin Travis Grimes Newton Gillespie Lee Montgomery Hardin Blanco Washington Terrell Liberty Orange Presidio Edwards Val Verde Kerr Bastrop Kendall Hays Fayette Waller Harris Brewster Real Comal Caldwell Austin Houston Bandera Jefferson Bexar Guadalupe 10 Colorado Fort Chambers San Antonio Gonzales Bend Kinney Uvalde Medina Lavaca Galveston Wharton Wilson Brazoria DeWitt Frio Jackson Zavala Atascosa Karnes Victoria Matagorda Maverick 35 Goliad Live Metroplex UT-Arlington Dimmit La Calhoun Oak Bee Salle Refugio McMullen West Texas Texas Tech 37 San Aransas Jim Patricio Paso del Norte - UTEP Webb Wells Nueces Duval Kleberg Statewide - TEEX South Central - SwRI Gulf Coast Univ. of Houston South Texas UT-Pan American Jim Hogg Brooks Zapata Kenedy Edinburg Starr Hidalgo Willacy Cameron Ken Schroeder 29

30 OIG Audit of the TMAC Timeline March 2007 OIG initiated audit of TMAC. Reviewed $21 mill in claimed costs Focus on Cost Share Harvesting Subrecipient Accounting Program Income May 2007 Exit conference August 2008 OIG issued Draft Report questioned $1.6 million in cost June 2009 OIG issued Final Report July 2009 UTA sends Final Report response to NIST June 2010 UTA submits additional documentation to NIST February 2012 Final resolution was received from NIST no refund from primary was necessary Ken Schroeder 30

31 OIG Preparation and Handling Centralized all staff and documents in one place. Coordinated communication between all staff and administration. Responded consistently and directly to OIG for the specific auditor requests. Reviewed and acknowledged risks in advance and during the audit. Provided timely detail responses to report recommendations with appropriate support. Knowledge of A-21 Rules & Regulations. Ken Schroeder 31

32 OIG Questioned Costs $1.3 million of the $1.6 million in questioned costs involved the harvesting issue. In the Draft Report: The OIG questioned 2 subrecipients because they were providing services they were already providing or would have continued to provide had there been no connection to the MEP. They questioned all of their costs in their entirety. The OIG did not reference a violation to any term or condition. The questioning of these costs was removed at one point and later added just before exit interview. At exit interview reasonableness was mentioned Ken Schroeder 32

33 OIG Questioned Costs Harvesting continued; OIG final Report: The OIG, in their opinion did not think 2 subrecipients added value to the MEP. They continued to question all costs in their entirety. UTA referred to original audit scope. Programmatic issue in nature Provided Client survey documentation for documenting the value of subrecipient services provided (3 rd party confirmation) Ken Schroeder 33

34 OIG Questioned Costs Leveraging and partnerships is the heart of issue. UTA s response: A-21 Communication with Federal agency and performing organization Referred to meeting the criteria to determine allowable costs. Support by Proposal, Project Reports, Program Reviews, Business Plan etc. Referenced CFDA, Statute, legislation, Sponsor announcements etc. Ken Schroeder 34

35 OIG Questioned Costs ~$300K Sub-recipient level ($250K): Support documentation of subrecipient costs Subrecipient transfer of budgeted indirect costs to direct costs without MEP approval (Draft OIG report) UTA response to Draft: There is one approved Prime Budget with UTA and UTA did not transfer budget to or from indirect costs. OIG Final report continued to question the cost Contacted NSF and DOC program officers for similar situation. Result MEP clarified Subs need to have approval from the Prime not Federal Sponsor. Ken Schroeder 35

36 OIG Questioned Costs ~$300K Duplication of claimed costs for events held and attended between sub-recipients and prime awardee (e.g. conferences) UTA identified and corrected this error during the audit. OIG still included in their report. UTA level ($50k): OIG identified a vendor and wanted documentation for all payments made. They did not comment or explain the request until the exit conference stating the vendor was primarily a lobbying agency. UTA provided support that the invoices paid by UTA was for non-lobbying activities of the organization. OIG wanted records from the vendor showing they separately accounted for lobbying activities Vendor provided Ken Schroeder 36

37 OIG Validation Liability Reduction In-kind Donations were originally questioned, however, the OIG agreed TMAC s Non-Cash Contribution Form contained all of the necessary information identified by the MEP General Terms & Conditions. TMAC Sub-recipient Monitoring helped to alleviate financial related costs at Subrecipients Program Income. Ken Schroeder 37

38 The Good, The Bad and the Ugly. The Good Ultimately did not have to reimburse for the $1.3 million in questioned cost related to the harvesting issue Proactive preparation and handling of the audit while the auditors were onsite Brought focus and attention to subrecipient processes and procedures improved monitoring plans and checklists Attorney was not involved in the audit and audit resolution Preparedness for onsite visit Ken Schroeder 38

39 The Good, The Bad and the Ugly. The Bad Length of time from start to finish Pre-conceived notions by the audit team regarding the harvesting issue Seemed like the auditors were going to try and make a harvesting case regardless of the facts It seemed like the situation turned political within NIST and the OIG The Ugly A subrecipient had to repay approximately $250K in questioned costs Ken Schroeder 39

40 OIG Reports in brief -- Disallowed Questioned Costs Florida $12.6 million Massachusetts -- $5.1 million Ohio -- $6.8 million California -- $11.4 million Arlington -- $1.6 million Recover excess federal funds Florida -- $2.9 million Massachusetts -- $1.3 million Ohio -- $2.1 million California -- $3.8 million Arlington -- $94K Ken Schroeder 40

41 OIG Reports in brief -- Florida was required to correct and refile financial status reports Ohio required to deduct $1.4 million in program income over permissible limits Ken Schroeder 41

42 Clery Act Clery requires colleges and universities across the United States to disclose information about crime on and around their campuses. The law is tied to an institution's participation in federal student financial aid programs. Requirements include: Publishing an annual security report Maintaining a public crime log Disclosing of crime statistics in 7 categories an sub-categories Timely warning system to everyone on campus Devising an emergency response, notification and testing policy Compiling and reporting of fire safety data Policies and procedures to handle reports of missing students Ken Schroeder 42

43 Clery Act Audit was not initiated because of complaints or allegations of non-compliance Timeline spanned 3 years and 5 months March 2010: Notice of audit received in March of 2010 (audited calendar year 2008) December 2010: Preliminary findings report issued February 2011: UT Arlington responded December 2011: Federal Student Aid investigation ended and a Final Program Review Determination Report was issued. January 2012: What can you do letter? was issued to each UT System Institution. April 2012: Notice of intent to assess a fine of $82,500 April 2013: Hearing was requested by UT Arlington May 2013: Fine was assessed as $82,500 June 2013: Appeal brief was prepared August 2013: Settlement Made lowering fine to $49,500 Ken Schroeder 43

44 Clery Act The Good Three auditors very experienced in Clery Act (Federal Student Aid, School Participation Dallas) Extensive interviews with key Campus Security Authorities (CSA s) Brought focus and attention to campus processes and procedures UT System Attorney Involvement early in the process Preparedness for onsite visit The Bad Length of time from start to finish The Ugly The fine of $49,500 Ken Schroeder 44

45 SAO s A-133 Audits SAO conducts this annual audit. 5-6 auditors on site for two weeks (around July), but not completed until February-March the following year 600-plus page audit report My audit rating on a scale of 1 to 10: 8 ( - ) Communication of approach to audit scope and methods and understanding of findings ( + ) Relative low amounts of questioned costs Relative quick completion of the audit and resolution process Ken Schroeder 45

46 How could the SAO audit results have been better? Improve communication and training Implement follow-up and monitoring of key compliance areas Hire additional staff Get early clarification on any A-133 rules and DoE rules that may be interpreted as contradictory Ken Schroeder 46

47 What about you? Do you have an experience from a governmental audit to share? Ken Schroeder 47

48 Take-Away How to Ensure a Successful, Meaningful Governmental Audit (1) (1) Axium 411 Source for Best Practices Ken Schroeder 48

49 Take-Away Remember the 3 Ps Preparedness Persistence Patience Ken Schroeder 49

50 THANK YOU! Ken Schroeder The views and opinions expressed in this presentation are my own and do not necessarily reflect the views and opinions of the University of Texas at Arlington, University of Texas System, or the State of Texas. Ken Schroeder 50

Texas. Number of Army Reserve Members Deployed to OIF/OEF since 9/11/2001 by Home of Record County. Number of Service Members.

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