audit management a practical approach july 2010apipa2010.pitiviti.org/files/audit_management.pdf ·...

Audit Management – A Practical Approach July 2010

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AUDIT MANAGEMENTA PRACTICAL APPROACH

Presented by William Allen1

AAUDITUDIT MMANAGEMENTANAGEMENTAA PPRACTICALRACTICAL AAPPROACHPPROACH

Presented byWilliam Allen, CPA (retired)


International InstituteGraduate School

900 Fort Street, Suite 1540Honolulu, HI 96813

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www.graduateschool.edu

Expectations

Course Goals

Course Objectives

Ground Rules

My Reward

3Audit Management – A Practical Approach

AUDIT MANAGEMENT - A PRACTICAL APPROACH

www.graduateschool.edu


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Expectations -What do you expect to get fromthis course?

• CPE

• Audit Tools

• Both

• Other?

Audit Management – A Practical Approach

AUDIT MANAGEMENT - A PRACTICAL APPROACH

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COURSE GOALS

•• To provide one or more techniques toenable more effective and efficient auditmanagement

• To provide one or more techniques toenable less stressful audit management


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COURSE OBJECTIVES

1. Describe what each audit phasecontributes to finding development;

At course end, you will be able to:


&&


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CCOURSEOURSE OOBJECTIVESBJECTIVES2. Describe -

a. The decisions that need to be madeat each phase, and

b. The role that story conferences playin making those decisions;


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3. Illustrate how well-stated objectivesform the basis for:• field work• monitoring the ongoing conduct

of the audit, and• reporting


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CCOURSEOURSE OOBJECTIVESBJECTIVES

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4. Describe -• the purpose and anticipated

product of the audit phases, and

• which team members shouldattend and what their roles are


CCOURSEOURSE OOBJECTIVESBJECTIVES


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Presented by William Allen

Audit management expertise leads toskillfully managing audits that are –

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WHY REPEAT THE BASICS?

1. successful

2. efficient

3. noteworthy


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SUCCESSFUL AUDITS -benefit users through-

• Management improvements

• Future operating economies

• Program integrity

• Recoveries of misspent funds


Enable the auditorganization toprovide greateraudit coverage bystretching existingaudit resources.

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EFFICIENT AUDITS-



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Lead to:

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SUCCESSFUL AUDITS -

recognition

less stress

Success


change

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COURSE SECTIONS

Section 1 - Audit Selection Methods -What to Audit

Section 2 - The Role of Surveys -Where to Begin

Section 3 - Audit Design Considerations -What to Include

Section 4 - Formulating an Audit Plan -How to Proceed


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AUDIT SELECTION METHODS

1. Define the five phases (stages) ofreport development

2. Define the timing of story conferencesduring the course of the audit

3. Describe and practice audit selectionmethods


Section 1 - Objectives


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FIVE PHASES OF A PERFORMANCE AUDIT

1. Audit Selection

2. Survey

4. Fieldwork

5. Reporting

3. Audit Planning


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EACH OF THE 5 AUDIT PHASES HAS ANIDENTIFIABLE PRODUCT THATADVANCES THE ASSIGNMENT

TOWARDS THE GOAL OF APUBLISHABLE REPORT.


INTERNAL AUDIT PRODUCTS

STORY CONFERENCES

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Conferences/Meetingsat key phases in theaudit move the processforward toward thatfinal goal -

A Publishable Report



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1. Pre-Survey

2. Post-Survey

3. Field Work Verification

4. Report Planning

Used to aid the Audit Team indeveloping a product at each stage(phase) of the assignment

Results


STORY CONFERENCES

AUDIT SELECTION

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3 - Requests

Three different sources for identifyingwhat to audit -

2 - Ad Hoc Selection

1 - Annual Plan


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ANNUAL PLAN

Popular approach

Essentially “qualitative”

Generally “quantifiable”


Audit selection using a formalassessment is:


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POPULAR APPROACH

Issue assessment isan accepted andgenerally effectiveapproach for makingselections in annual(or strategic) workplanning.


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QUALITATIVE SELECTION

The Annual Plan approach isessentially qualitative.

It is based on theexperience andjudgment of seniormembers of the auditstaff.


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QUANTITATIVE SELECTION

For consistency inmaking selections, andfor incorporating the

input of variousmembers of the staff,

selections may be“quantified” using a

Rating Form



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Using a Rating Form, the audituniverse is stratified into“manageable audit units” (e.g.programs) and selection factors areapplied to assess and rate each unit interms of problems, opportunities,concerns, and risk. The factors arethen rated on a scale.



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Possible Rating Form ExampleSelection FactorsAuditable

Units BudgetAmount

PublicConcern

Legis.Concern

Mgmt.Concern

PreviousAudit

MaximumTotal Score

Weight25% 20% 20% 20% 15% 100%

Activity A

Activity B

Activity C

Activity D



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auditors to gain anunderstanding of the Natureand Profile of the Program andUser Needs

Generally AcceptedGovernment AuditingStandards

REQUIRE




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AUDIT SELECTION


Audit Selection MethodsExercise&Break

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Possible Solution(s)


AUDIT SELECTION

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SURVEY STAGES

1. Describe the role surveys play inplanning

2. Define three kinds of survey

3. List survey design considerations

&Audit Management – A Practical Approach



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4. Describe and compare the Pre-Survey and Post-SurveyConferences

5. Follow an agenda to conduct ameaningful Pre-SurveyConference

6. Describe and produce a SurveyPlan


SURVEY STAGES

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THE ROLE OF SURVEYS

The audit survey is used toconfirm the choice(s) made inthe Audit Selection process.


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An overridingpurpose is to

provide the basis forformulating audit

objectives

Go Decision

No-Go Decision

Modify Objective


THE ROLE OF SURVEYS


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1. Strategic Survey

2. Problem Identification

3. Design Survey

THREE TYPES OF SURVEY


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Surveys Provide a FundamentalBasis to Demonstrate Adherence to

Planning as Required byGenerally AcceptedGovernment Auditing

Standards[GAGAS]

SURVEY DESIGN CONSIDERATIONS


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GAGAS states that -

“Auditors must adequatelyplan and document theplanning of the worknecessary to address theaudit objectives to meet theneeds of users.”

[Sec. 7.06][Sec. 7.06]


SURVEY DESIGN CONSIDERATIONS


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“GO“GO –– NO GO”NO GO”DECISIONS CANDECISIONS CANBE DIFFICULT FORBE DIFFICULT FORTHETHE AUDITEEAUDITEEWHENWHENINDEPENDENCE ISINDEPENDENCE ISCOMPROMISED!COMPROMISED!

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• Permit Team Based Decisions

• Promote Information Sharing

• Builds Consensus on AuditDirection

• Builds Consensus on Audit Product

STORY CONFERENCES


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Pre-Survey Post-SurveyPurpose To prepare for the survey To plan the auditProduct Survey plan Audit programPlayers Assignment maker Assignment maker

Audit manager Audit managerAuditor-in-charge Auditor-in-chargeAuditors assigned Auditors assigned

Preparation Only what can be done in the office:consult directories, budget, website,report archive, or make telephonecalls, etc.

Conduct survey [optionalfor large staffs; prepareand circulate summary]

PRE- & POST-SURVEY CONFERENCES



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PRE-SURVEY CONFERENCE AGENDA

1. Assess the Assignment

2. ID Known Areas of Concern

3. ID Questions to Answer

4. Decide Type of Surveyto Perform


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ASSESS THE ASSIGNMENTUsed to share information, availableprior to conducting the survey, with teammembers in order to plan the job.

-Requestor’s Interests- Auditee Position

- Customer Concerns- Stakeholder Interests

- Public’s PerceptionAudit Management – A Practical Approach

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• When did the concern(s) firstsurface?• How has this issue been

defined?

Pre-Survey Conferences are used todetermine an assignments direction byidentifying known Areas of Concern

AREAS OF CONCERN



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Organizational Mission?Intended/Desired Outcomes?

Services Provided Results?Outcomes Measures?

Organizational Outputs?

Pre-Survey Conferences are used toidentify the Questions to Answer inthe survey.

SURVEY QUESTIONS


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Outcomes - Purpose of the activity,Population to be served...

Outputs - What is to be done.Operations/Process - How and Who is to do it.

Effort/Resources - How much can be spent,Spent on what...

Determine the laws and regulationsthat govern the organization,program, or function?


SURVEY QUESTIONS

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What is the nature of goods and servicesprovided?

MEASURED OUTPUTS INCLUDE...

How are Outputs measured?

How & Where is the program operated?

How is efficiency measured?

What effort or resources are used?



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During the Pre-Survey Conference,the Audit Team determines the typeof survey to perform as determinedby the information shared in theconference

TYPE OF SURVEY TO PERFORM

• Strategic Survey• Problem Identification• Design Survey


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Determine what should be completed by& schedule next meeting.

PLAN THE SURVEYIdentify: Survey data to obtain, and

From whom to obtain it;Determine survey elapsed days:

When is our report needed? Why is that the date? What will the report be used for?

Determine survey staff days.


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SAMPLE Survey Data FormSurvey Data Form

Formulating Assignment Objectives

1. What is the audit subject? __________________________________________________________

2. What is the nature of the issue? ______________________________________________________

3. Who is the recipient of our report? ___________________________________________________

4. Who are the stakeholders? __________________________________________________________

5. What is the auditee’s position ________________________________________________________

6. Do views of program consumers need to be considered (check v) Yes No

7. What performance aspect(s) is at issue? ________________________________________________

Is focus on (check v) Processes Accomplishments Impact

8. What finding elements are we asked or do we expect to develop (check v)?

9. How will the information we produce be used; what effect do we expect? ______________________________________________________________________________________________________

10. What criteria/impact design might be used? _____________________________________________

11. Date our report is needed? ___________________________________________________________



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SAMPLE SURVEY PLAN MATRIX

Questions/Issuesto Address

Sources ofInformation

SurveyActivities

Staff Deadline


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SURVEY PLAN MATRIXDesign Matrix

Researchablequestion(s)

Informationrequired

Informationsource(s)

Overall designstrategy

Data collectionmethods

Data analysismethods Limitations What the analysis will allow you to say

Is contractorperformance inaccordancewithcontract terms?

--Contract;

--Individual taskorders;

--System life cycledocumentation ofsystem performancemeasures, e.g., aperformancemeasurement plan,acquisition programbaseline document,etc;

--Documentation ofcontractorperformance, todate;and

--Documentation ofcontractor chargesand PBO paymentsmade to date.

--PBO,

--Arthur AndersenConsulting; and

--possibly, OIGsystems audit group.

Interview appropriatePBO and AndersenConsulting officialsand review applicabledocumentation toobtain criteria(contract terms andany establishedperformancemeasures) andcondition (contractorperformance).Compare condition tocriteria (i.e.performance tocontract terms andavailableperformancemeasures) to assesswhether contractorperformance Is inaccordance withcontract terms.

Interviewdepartment andcontract officialsand obtain relevantdocumentation.

Review contractor’sreported status of effortsand compare to theinformation included inreports to the PBO, anyestablished performancemeasures, and paymentsreceived, to date.

Determine what, if anythingPBO is doing to managethe contract, specifically;

--what, if anything, hasbeen done to validate/testthe status of contractorperformance.

--what, if anything, hasbeen done priortoapproving any paymentsmade, to date (i.e. whatinformation is required toverify payments are earnedand due to the contractorand how does it equate tocontract performance).

Contract performancemay vary, meaning thatsome performance ofthe contractmay not bein tangible, verifiableproducts and mayrequire judgement(both departmental andauditor) as to the levelof performance inrelation to the contractterms and/orestablishedperformance measures.

May require technicalassistance from ourOIGsystems auditgroup to assess thecontractor’sperformance in relationto the contract terms.

Contractor performance is or is not in accordancewith contract terms. Specifically, why or why notand an assessment of whether it does or does notequate to dollars.



Surveys Exercise&Break

SURVEY STAGES


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SURVEY STAGES REINFORCEMENT QUESTIONS

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AUDIT DESIGN CONSIDERATIONS

1. Define and use a formula for objectivesthat promotes development of findingelements

2. Explain the relationship betweenobjectives and findings

&Audit Management – A Practical Approach


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3. Demonstrate how the objectivesprovide a basis for planning.

4. Define the role of sub-objectives inplanning the audit data collection andanalysis steps.

Section 3 - Objectives (continued)




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Well-Stated Objectives Identify and Promotethe Development of Finding Elements

FORMULA FOR OBJECTIVES

1. A set of objectives starts with a “yes/no”question that sets up a condition compared tocriteria -

For example:For example:Was the subject’s performance up to standard forthe designated aspect of performance?

Did the auditee comply with the terms of itsaward?


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2. If the performance was not up to standardfor that performance aspect, what are theconsequences?

For example:For example:Did the failure to meet the standards add to the costof the activity?

Was the intended population for the activity/servicesadversely affected?

Were the consequences significant?


FORMULA FOR OBJECTIVES [CONT.]

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3. If the consequences are significant, what arethe causes of not performing up tostandard for that aspect of performance?

For example:For example:Was the failure to meet the standard(s) isolated orsystemic?

Was the failure to meet the standard(s) anorganizational issue or a regulatory issue?


FORMULA FOR OBJECTIVES [CONT.]


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PERFORMANCE ASPECTSProcess Productivity, Correctness, Competition

Time Timeliness, Promptness, Duration

Quantity Amount, Number, Frequency,Sufficiency

Quality Eligibility, Accuracy, Completeness,Safety, Security, Satisfaction

Cost Opportunity Cost, Direct Cost, IndirectCost


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FINDING ELEMENTSFindings are the answers to well stated

audit objectives!

Criteria What should be happening...Condition What is happening...Effect What are the consequences...Cause What are the reasons this occurred...Recommendation What will correct the cause...


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Objectives SubobjectivesAudit Steps

[Data Collection& Analysis]

Staff Due Date


EXAMPLE WORKSHEET

Objectives & Subobjectives


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Survey Exercise&Break



EXERCISE SET OF OBJECTIVES

• Are workers’ compensation medical paymentsmade on time by the State General Fund incompliance with state law?

• If not, how does the late payment affect thestate, the client, and the medical vendor?

• If significant consequences to state, client, andmedical vendors, why were payments not madewithin the 30 days required by statute?

What are some possible SubWhat are some possible Sub--objectives to theobjectives to thefollowing Objectives?following Objectives?

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FORMULATING AN AUDIT PLAN

1. Describe the role a Post-SurveyConference can play in audit planning

2. Follow an agenda to conduct an effectivePost-Survey Conference

3. Explain the basis for “Go/No Go”decision


SECTION 4 - OBJECTIVES


The Post-Survey Conference builds the auditplan by consensus. Audit plans using thistechnique are more likely to –

• develop findings that the whole teamagrees on – “buy-in”

• produce a minimum of irrelevant data• lead to a report draft that requires fewer

major review changes• pays off in the end in more reliable results

POST-SURVEY CONFERENCE


1. Make a go/no go decision about proceedingwith the audit:

• ID the primary customer and/or user’sinterests

• ID secondary customers and theirinterests

Consider: What users want to know.What we want them to know.How will the information be used.

POST-SURVEY CONFERENCE AGENDA


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2. Specify the subject of the audit.

Consider where the issue or risk resides

• Entity, including external organizations

• Function and/or program

• Activity



3. Decide whether to focus on process or results.

Consider:

Primary objective – What condition to pursue?

Results focus – Are procedures, controls,methods, etc., likely to providean opportunity for correction orimprovement?



4. ID the performance aspect.

It identifies some measurable area ofresponsibility associated with the mission ordefinition of the activity.

An issue will have one or more performanceaspects at its core.



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5. Formulate a condition questions that can beanswered “yes” or “no.”

6. Formulate supplementary questions foreffect and cause, if appropriate

7. Decide whether to go forward with the job –

Consider:Consider: Is the customer interested?Is the issue significant?Is the issue measurable?


If it is a “Go” decision – develop the AuditPlan:

• Develop subobjectives to ID findingelements

• Audit scope & time period• Audit steps• Cite constraints & limitations• ID staff assignments• Set due dates

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Objectives SubobjectivesAudit Steps

[Data Collection& Analysis]

Staff Due Date

“Go” Decision = Develop An Audit Plan




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Formulating an Audit PlanReinforcementQuestions&Break

FORMULATING AN AUDIT PLAN

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FORMULATING AN AUDIT PLANREINFORCEMENT QUESTIONS

NETWORK


Contact me at –[email protected]

Audit Management Reinforcement Questions

Audit Selection Methods

1. Each of the 5 audit phases has an identifiable product that advances an assignmenttowards its goal?

• True

• False

2. The requirement that auditors to gain an understanding of the nature of theprogram to be reviewed and user needs is found in –

a. GAAP

b. GAGAS

c. CFRs

d. FAR

3. When an audit selection method is referred to as quantitative, it means that it isbased on the experience and judgment of senior members of the audit staff.

• True

• False

4. Audit Plans that are developed using sound planning techniques seldom requireon-going modification –

• True

• False

5. The review and assessment of internal controls is not a specific component ofgaining an understanding of the nature of the program to be audited -

• True

• False

Survey Stages

1. Which of the following is a type of survey used in planning audit assignments?

a. Strategic Survey

b. Problem Identification

c. Design Survey

d. All of the above

2. Pre-Survey Conferences are used to determine an assignments direction byidentifying known Areas of Concern.

• True

• False

3. Which of the following is a matter for resolution by attendees at a Pre-SurveyConference?

a. ID Known Areas of Concern

b. ID Questions to Answer

c. Decide Type of Survey to Perform

d. All of the above

4. When little is known about an entity, issue, and/or sources for information, whichis the preferred choice for the type of survey to perform?

a. Strategic Survey

b. Design Survey

c. Problem Identification Survey

d. None of the above

5. Which of following is not generally the function of an Audit Survey –

a. To provide the basis for formulating audit objectives

b. Identify known areas of concern

c. To confirm the choice(s) made in the audit selection process

d. To determine the effect of identified areas of concern

6. What are some possible Sub-objectives to the following Objectives?

• Are workers’ compensation medical payments made on time by the StateGeneral Fund in compliance with state law?

• If not, how does the late payment affect the state, the client, and themedical vendor?

• If significant consequences to state, client, and medical vendors, whywere payments not made within the 30 days required by statute?

Formulating an Audit Plan Reinforcement Questions

1. Audit Objectives define what the audit is to accomplish and Audit Scope & AuditMethodology define how to accomplish the work.

• True

• False

2. Audit Scope describes the work in data gathering while Audit Methodologydefines the boundary of the audit.

• True

• False

3. Audit Scope is concerned with the breadth of audit coverage while AuditMethodology covers the extent of the audit procedures.

• True

• False

4. Which of the following is NOT an Audit Constraint -

a. Time

b. Staff expertise

c. Cost

d. Design

Audit Management Reinforcement Questions

Audit Selection Methods

1. Each of the 5 audit phases has an identifiable product that advances an assignmenttowards its goal?

• True

• False

2. The requirement that auditors to gain an understanding of the nature of theprogram to be reviewed and user needs is found in –

a. GAAP

b. GAGAS

c. CFRs

d. FAR

3. When an audit selection method is referred to as quantitative, it means that it isbased on the experience and judgment of senior members of the audit staff.

• True

• False

4. Audit Plans that are developed using sound planning techniques seldom requireon-going modification –

• True

• False

5. The review and assessment of internal controls is not a specific component ofgaining an understanding of the nature of the program to be audited -

• True

• False

Survey Stages

1. Which of the following is a type of survey used in planning audit assignments?

a. Strategic Survey

b. Problem Identification

c. Design Survey

d. All of the above

2. Pre-Survey Conferences are used to determine an assignments direction byidentifying known Areas of Concern.

• True

• False

3. Which of the following is a matter for resolution by attendees at a Pre-SurveyConference?

a. ID Known Areas of Concern

b. ID Questions to Answer

c. Decide Type of Survey to Perform

d. All of the above

4. When little is known about an entity, issue, and/or sources for information, whichis the preferred choice for the type of survey to perform?

a. Strategic Survey

b. Design Survey

c. Problem Identification Survey

d. None of the above

5. Which of following is not generally the function of an Audit Survey –

a. To provide the basis for formulating audit objectives

b. Identify known areas of concern

c. To confirm the choice(s) made in the audit selection process

d. To determine the effect of identified areas of concern

6. What are some possible Sub-objectives to the following Objectives?

• Are workers’ compensation medical payments made on time by the StateGeneral Fund in compliance with state law?

• If not, how does the late payment affect the state, the client, and themedical vendor?

• If significant consequences to state, client, and medical vendors, whywere payments not made within the 30 days required by statute?

Formulating an Audit Plan Reinforcement Questions

1. Audit Objectives define what the audit is to accomplish and Audit Scope & AuditMethodology define how to accomplish the work.

• True

• False

2. Audit Scope describes the work in data gathering while Audit Methodologydefines the boundary of the audit.

• True

• False

3. Audit Scope is concerned with the breadth of audit coverage while AuditMethodology covers the extent of the audit procedures.

• True

• False

4. Which of the following is NOT an Audit Constraint -

a. Time

b. Staff expertise

c. Cost

d. Design

audit management a practical approach july 2010apipa2010.pitiviti.org/files/audit_management.pdf ·...

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