Preparing for an Audit

Risk Audits
Special audits by federal or state agencies are unusual unless an institution is known to have problems administering external funds. Special audits are also conducted when requested by the District Governing Board or a highly vocal constituency to determine whether a program is being improperly administered.

The State Auditor General's auditors review the financial procedures and expenditures of grant funds as part of an annual audit. These audits use auditing standards established by the funding agencies. Copies of these financial audit reports are made available to the funding agency. So unless the auditors find some significant problems, or the agency receives other requests, an agency-initiated financial audit only rarely occurs.

Single Audits
The single audit is required by law and by OMB Circular A-133. CCC’s single audit is conducted annually by the State Auditor General's Office.

Single audits are always conducted in a tight time frame. Therefore, information and answers to questions are needed on a timely basis. Questions about a transaction may come up eighteen months after the transaction occurred. Written documentation helps answer auditor questions.

Programmatic audits examine whether you completed the project's stated objectives, particularly the number to be served. Should the objectives not be met, the programmatic audit would determine how much of the authorized award is available for return to the funding agency If a grant budget is spent but no objectives achieved, the recipient institution would have a very serious problem.

In such a case, part of the funds may need to be repaid to the funding agencies. Even if the recipient institution doesn't have to repay any of the funds, its reputation within that funding agency has plunged into a black hole! And some funding agencies have very long memories and are unforgiving.

Audit findings of disallowed costs have a history of making news headlines ... to the great embarrassment of all involved. Unfortunately, the resolution of disallowed costs to the satisfaction of auditors never makes the news. So being prepared for an audit is a wise course of action.

Programmatic Audits
Make sure that the files contain documentation showing the College achieved each objective. If the scope of the project changed after the initial negotiation, be sure that you have written documentation approving the change(s) available. Use the grant work or management plans as an easy way to organize the documentation. Auditors usually study the work plans prior to a campus visit.

What happens if an objective has not been completed? Do not panic ... but make sure that the files contain a written explanation from the Project Director describing the circumstances. This written explanation should appear in the project's final report to the Program and Grant Officers.
Typical examples of reasons why objectives have not been met include:

loss of a faculty member or other staff member on the project team
changing needs of those to be served
changes in technology caused delay
commitment of private sector company disappeared as a result of bankruptcy or move out-of-state
baseline evaluation tools have changed

Financial Audits
Preparing for a financial audit can be more difficult because the Project Director may not have copies of all the documentation of expenses. Fortunately, the College has a Grants Accountant who works with the external auditors in supplying requested information, explaining procedures and answering fiscal questions. Thus, financial audits begin in the College’s Accounting Office where the "official" grant records are kept.

There are some problem areas to which the Grants Manager and the Project Director need to be especially alert. Local definitions of what constitutes supply expenditures, equipment expenditures, or contracted services frequently do not match the federal definitions on which you are being audited. If CCC classifies something as “equipment” that the funding agency would classify as “supplies,” and the grant prohibits use of agency funds to purchase equipment, then a written explanation is needed for the files both at the Grants Manager’s Office and the College’s Accounting Office.

You need to be prepared to verify that all expenditures of federal funds were in compliance with Office of Management and Budget and agency guidelines. If agency guidelines prohibit use of its funds for equipment, foreign travel, official functions, construction, recruiting, or student stipends, you do not want an auditor to find such expenditures charged to your grant budget. Your first line of defense as a Project Director or Grants Manager is to make sure that you don't authorize use of grant funds for prohibited expenditures. Secondly, if you find such expenditures charged to your account, you need to get such items cleaned up with your Grants Accountant before the auditors arrive on your doorstep. If a prohibited expenditure remains charged to the account, it serves as prima facia evidence against those responsible.

The stickiest problem in a financial audit is documenting the "matching" contributions of the College or a private sector partner. Auditors are particularly sensitive to the issue of "supplanting" e.g. if an administrator is supposed to be devoting 25% of his or her time on the project, but hasn't been relieved of 25% of his or her regular duties. If the recommended time cards are not kept, (and they usually aren't) what do you do?

The Grants Manager should record the percentages of time each administrator is supposed to spend working on the project, and a budget project matching number. Supervisors are responsible to see that participating administrators or faculty members actually spend the stated amount of time on the project.