CONTRACTS AND GRANTS

AUDIT PROGRAM

2007

Members, Committee on Audit

XXX, Chair

XXX, Vice Chair

XXX XXX

XXX XXX

XXX

Office of the University Auditor

University Auditor: XXX

Senior Director: XXX

Acting Audit Manager: XXX

BOARD OF TRUSTEES

TABLE OF CONTENTS

  1. DRAFT AUDIT REPORT
  1. SUMMARY OF FINDINGS AND REPORT ABSTRACT
  1. FORMAL EXIT CONFERENCE/FOLLOW-UP
  1. BACKGROUND INFORMATION, GENERAL AUDIT OBJECTIVES AND SCOPE
  1. AUDIT SURVEY/PREPARATION/CAMPUS ENTRANCE AND EXIT
  1. PROGRAM ADMINISTRATION
  1. PROJECT INTEGRITY AND REGULATORY COMPLIANCE
  1. GRANTS MANAGEMENT
  1. FISCAL ADMINISTRATION
  1. PROCUREMENT AND PROPERTY MANAGEMENT

Abbreviations

AICAuditor-In-Charge

AMAudit Manager

CCRCalifornia Code of Regulations

CBACollective Bargaining Agreement

DHHSDepartment of Human Health Services

DOEDepartment of Education

EOExecutive Order

GPSGrants Policy Statement

OPERAOffice of Policy for Extramural Research Administration

SAMState Administrative Manual

SDSenior Director

SRDSponsored Research Department

SUAMState University Administrative Manual

Contracts & Grants Audit Program10/10/18

OFFICE OF THE UNIVERSITY AUDITOR

CONTRACTS AND GRANTS AUDIT PROGRAM

D. BACKGROUND INFORMATION, GENERAL AUDIT OBJECTIVES AND SCOPE

The Committee on Audit has directed the Office of the University Auditor (OUA) to review the audit subject Contracts and Grants.

The proposed scope of the audit as presented in Attachment B, Audit Agenda Item 2 of the
January 23, 2007 meeting of the Committee on Audit stated that the review include:

Review of solicitation activities and project approval;contract/grant budgeting and financial planning; cost accounting, allocation, and transfer processes; and award administration. The latter would include proposal development(faculty assistance, funding information, pre-award resource material), proposalpreparation and review of compliance issues (human and laboratory animal use,certifications, other regulatory requirements), award negotiation and acceptance(negotiation, award and project initiation), closeout and audit (final reporting, auditissues, project conclusion), and post-award administration (management systems, agencyliaison, accounting, fiscal and reporting issues).

Contracts and Grants was previously audited in 2001 and was performed at ten campuses: Bakersfield, Fullerton, Humboldt, Los Angeles, Northridge, Sacramento, San Diego, San Francisco, San Jose, and San Luis Obispo.

The Office of Management and Budget (OMB) has promulgated the following government-wide policies to ensure proper stewardship of federal research funds:

OMB Circular A-21, Cost Principles for Educational Institutions, establishes principles for determining costs applicable to grants, contracts, and other agreements with educational institutions. These principles are designed to provide that the federal governments bear its fair share of total costs, determined in accordance with generally accepted accounting principles, except where restricted or prohibited by law.

OMB Circular A-110, Uniform Administrative Requirements for Grants and Agreements With Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations, sets forth the standards for obtaining consistency and uniformity among federal agencies in the administration of grants to and agreements with the institutions of higher education, hospitals, and other non-profit organizations.

OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, was issued pursuant to the Single Audit Act of 1984, Public Law 98-502, and the Single Audit Act Amendments of 1996, Public Law 104-156. This circular sets forth consistency and uniformity among federal agencies for the audit of states, local governments, and non-profit organizations expending federal awards.

The National Institutes of Health (NIH) Grants Policy Statement (last revised December 2003) and the National Science Foundation (NSF) Grant Policy Manual (last revised July 2005) have also delineated policy requirements to serve as terms and conditions of awards granted.

Executive Order (EO) 890, Administration of Grants and Contracts in Support of Sponsored Programs, dated January 7, 2004, superseded a prior EO issued in 1973 which promulgated systemwide policies in the sponsored programs area and set forth requirements that auxiliary administration activities be performed in a manner which enables the Board of Trustees to satisfy its responsibilities to the State of California, federal agencies, public and private sponsors, the campuses, and the auxiliaries. EO 890 sets policy to be followed by each campus and any auxiliary administering sponsored programs to ensure that the university or auxiliary maximizes the benefits of sponsored programs and supports faculty, students, and administrators in effectively securing and carrying out sponsored programs. EO 890 requires that each campus establish a written policy on the management of sponsored programs that incorporates the components of: proposal submission, review, and approval; performance of grants and contracts; human resources policies; academic policies; fiscal administration; and work product and records.

The primary objective in this audit will be to ensure the proper management of sponsored programs, special projects, and activities involving external funding sources (outside of continuing/extended education). The audit scope will include a review of controls in place from project inception to final closeout. Applicable federal and state regulations, Trustee policy, chancellor's office directives, and campus policies and procedures will be reviewed for compliance. The fiscal years 2005/06 and 2006/07 will be the primary periods under review, as our review will focus on procedures currently in effect and related records from January 1, 2006 to date.

Contract & Grants Audit Program10/10/18

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OFFICE OF THE UNIVERSITY AUDITOR

CONTRACTS AND GRANTS AUDIT PROGRAM

E. AUDIT PROGRAM/PREPARATION/MEETINGS/WRAP-UP

Name &
Date / W/P
Ref

OBJECTIVES

Determine engagement protocol and ensure that the campus is properly notified. (1, 2)
Determine fieldwork and entrance conference requirements and ensure that appropriate actions are taken. (3, 4)
Determine audit program objectives and ensure that all relevant resource materials are gathered, reviewed, and understood. (2, 5, 6, 7, 9)
Determine that relevant conference data and agreed upon report changes are recorded. (8, 10, 11, 18, 19, 20, 21)
Determine whether the draft report and workpapers have been properly reviewed, completed, and filed. (12, 13, 15, 16, 17, 22)
Determine whether revisions to the audit program, ICQ and/or request for documents are warranted. (14, 23)

AUDIT STEPS

Audit Office Preparation

  1. Review the engagement protocol for the campus.
  1. Contact the campus to arrange an entrance conference. (AM/SD)
  1. Prepare an engagement letter for issuance to the campus president, and ensure AIC receives a copy. (AM/SD)

  1. Review with the auditee as much information as possible about the audit. Provide the auditee, in advance, with an ICQ and a Request for Documents (ICQRFD) indicating the records, documents, and other information that will be needed and which can be reasonably anticipated. Set a due date to receive the completed ICQRFD in advance. (AM/SD)

  1. Review the last two years of the A-133 audit report for each campus engagement. The website that contains the A-133 audits is: The requirement is that the campus had received federal funds greater than $500,000 per year. Note if the same finding occurs three years in a row; the federal government could send the Office of the Inspector General to the campus and it could jeopardize future federal funding. (Campus: Q11, D9; Auxiliary: Q11, D9)

  1. Research compliance websites under these categories for additional guidance on Animal Care and Human Subject Research:
►US Department of Health & Human Services (DHHS)
►National Institute of Health (NIH)
►Office of Laboratory Animal Welfare (OLAW)
►Office of Human Research Protections (OHRP)
  1. Complete travel arrangements (if required), obtain directions to the campus, determine whether a separate campus-parking pass will needed, and confirm your computer support requirements with the auditee. (AIC)

  1. Obtain the approved audit program and prepare the PowerPoint entrance meeting documents. (AIC)

  1. Become familiar with the audit program, attachments, pertinent State, Federal and Trustee policy, Office of the Chancellor directives, SAM and SUAM sections, contents of the document binder, and other relevant data including the completed ICQRFD when received in advance. (AIC)

  1. Review prior reports, recommendations, and working papers of pertinent audits, including the most recent FISMA. Also, access the campus website and review any data pertaining to the administration of contracts and grants. (AIC)

  1. Identify and review reports and management letters from other auditors or inspectors from Federal or State regulatory agencies (the most likely location of these will be at the campus). (AIC)

Campus

  1. Assure that the entrance conference discussion includes at least the following: reason, authority, and audit scope and objectives; the audit period; records needed; specific issues (if applicable); estimated time for fieldwork; the final product; management response requirements; and any other items (e.g., fraud, abuse, or other problems). Also, determine how, when, and to whom audit results should be communicated. (AIC)

  1. Using the campus responses to the ICQRFD (Campus: D10, 16 & 18; Auxiliary: D12, 18 & 21), immediately make your sample selections of 20 contracts as follows so that the campus can pull the required documents:

  1. Federal Awards – Judgmentally select high-dollar contracts and grants awarded by a variety of federally funded organizations from the 2005/06 FY as well as FY 2006/07. Select approximately 70% your sample from federal awards.

  1. Non-Federal Awards – Judgmentally select high-dollar contracts and grants awarded by a variety of non-federally funded organizations from the 2005/06 FY as well as FY 2006/07. Select approximately 30% of your sample from non-federal awards.

  1. Document the date, location, attendees and titles, discussion that occurred at the entrance conference, resolution of disputed issues, and disposition of any audit suggestions made by the auditee. (AIC)

  1. Document the date, location, attendees and titles, tentative findings reviewed, and auditee comments for the informal exit conference. (AIC)

Post Fieldwork and Report Draft

  1. Finalize workpapers and place in appropriately labeled 2” black binders. (AIC)

  1. Prepare draft report, ensure that items on the Report Writing Checklist have been considered, and submit with workpapers to AM/SD. Place all computerized workpapers in a folder and add the folder to the corresponding audit/campus folder on the server. (AIC)

  1. Submit proposed revisions to the audit program and ICQRFD, if applicable. (AIC)

  1. Review workpapers and report draft, and as applicable prepare clear sheets and report comments. Pass to the AIC for clearance. (AM/SD)

  1. Ensure that all audit review points have been adequately considered and that documentation of cleared points is clearly indicated in the workpapers. (AIC, AM/SD)

  1. Pass DRAFT version of the report to the support staff together with the workpapers and the names of three individuals who should be invited to the formal exit conference. (AM/SD)

Formal Exit Conference

  1. Immediately prior to the formal exit conference date, contact audit management to ascertain if there is a need for clarification of items noted in the report or for correction of errors/omissions. (AIC)

  1. At end of the formal exit conference determine who should receive the client satisfaction survey and forward it to the campus via e-mail or fax. (AIC)

Post-Exit Conference and Wrap-Up

  1. Document the date, time, location, attendees and titles, and agreed upon report changes that occurred during the formal exit conference and submit the workpapers to the AM/SD. All documentation related to this step should be placed in Audit Program Section C, which should be entitled Formal Exit Conference/Follow-Up. (AIC)

  1. Based on the results of the formal exit conference, revise the audit report (Save the Pre Sent draft as an Inc, turn on track changes, and transcribe agreed upon changes), and draft management letter for informal audit issues (Use a recent letter, do file save as, and customize for current audit), as applicable. Also, send an email to the university auditor indicating that the agreed upon changes have been made and are ready for his review. (AM/SD)

  1. Ensure that workpapers are complete, properly organized, cross-referenced, and ready for filing. File the workpapers. (AIC)

  1. If applicable, revise audit program and/or ICQRFD based on recommendations/observations during the audit process. (AM/SD)

Contract & Grants Audit Program10/10/18

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OFFICE OF THE UNIVERSITY AUDITOR

CONTRACTS AND GRANTS AUDIT PROGRAM

F. PROGRAM ADMINISTRATION

Name &
Date / W/P
Ref

OBJECTIVES

Determine whether contracts and grants activities incorporate an effective internal control environment that includes clear lines of organizational authority and responsibility and documented policies and procedures. (2,3, 10)
Determine that delegations of authority for contracts and grants activities have been established, documented, approved, and communicated to campus constituents. (4)
Determine that individuals involved with contracts and grants have been provided initial and ongoing training. (5)
Determine that effort reporting systems ensure accurate and properly documented evidence of work performed on sponsored projects. (6)
Determine that a viable records retention system has been established for award documents. (7)
Determine that the campus complies with governmental auditing requirements with respect to its federal programs. (8)
Determine whether access to personal computers and/or automated contracts and grants processing systems is controlled and limited to authorized users, data backup procedures exist, and physical security over system hardware is adequate. (9)

AUDIT STEPS

  1. Review pertinent background data and information requested in advance.

2.Gain an understanding of (and briefly describe) how the contracts and grants program is administered at the campus. Obtain relevant organizational charts, job descriptions, mission statement and goals, operating policies, procedures manuals, relevant websites, and brochures. .(Aux & Campus:Q1-3, D1-4)
a.Briefly describe the scope of the contracts and grants program, how it is administered, and the various departments (e.g., Sponsored Research Department (SRD), academic colleges, Foundations) involved.
b.Based on the above, determine if the roles and responsibilities of the various departments are clear and if necessary, documented in a Memorandum of Understanding or other similar agreement.
  1. Assess the comprehensiveness of existing campus/department policies and procedures related to contracts and grants and describe how systemwide/campus specific policies, rules, regulations and procedures are communicated to campus/department personnel and kept current. (A-133 §300; SAM §20050; EO 890) (Aux & Campus: Q5, D7)
  1. Determine if the campus has written policies and procedures for contracts and grants. Examples of important areas where written policies and procedures should exist include pre-award and post-award processes, fiscal administration, indirect costs,cost sharing/matching, effort reporting, sub-recipient monitoring, regulatory compliance, conflicts of interest, human subject testing, and use of laboratory animals in research activities.

  1. Review and evaluate how the departments ensure that new employees and other personnel involved in contracts and grants activities (e.g., student assistants, contract employees), become familiar with all existing rules, regulations and policies, and existing personnel familiar with new and revised orders.

  1. Verify that procedures exist to review policies, rules, regulations and procedures on a periodic basis to determine if they should be cancelled, revised, or continued in their present form. Determine if responsibility for these activities has been defined.

  1. Ascertain that the delegations of authority have been established for all contract and grant activities in accordance with XXX and Foundation policy. (E.O. 890; E.O. 392; E.O. 409: E.O. 644; E.O. 669; E.O. 750; A-133 §300). (Aux & Campus: Q4, D5-6)
  1. Verify that the campus president has established and documented formal delegations of authority for significant activities such as program requests/proposals, contracts, certifications and assurances to sponsoring agencies, approval of financial transactions and activities (e.g., cost-sharing, matching funds), and the sale or exchange of personal property belonging to the XXX. Review the delegations for appropriateness and proper assignment (e.g., individuals at appropriate levels).

b.Confirm that properly signed delegations of authority have been provided to all employees/departments (including the Foundation) involved in contracts and grants.
  1. Review and evaluate the controls that ensure all persons involved in contracts and grants have been properly trained. (SAM §20000) (Aux & Campus: Q5, D7)

  1. Confirm that the campus has established and documented a formal training program for Private Investigators/Project Directors and other individuals with responsibility for contracts and grants.

  1. Select a sample of 10 employees from various areas (e.g., Private Investigators, Project Directors, SRD) and verify that initial and ongoing training in contract and grants (including regulatory compliance) was completed and supported by documentation. (e.g., training sign-in roster). NOTE: Sample selection can coincide for contracts and grants tested in Section H, #3.

  1. Ascertain whether the campus has viable effort reporting system in place. If so, evaluate the system for adequacy and effectiveness and proper support of work expended on sponsored projects. (SAM §20050) (Campus: Q6-10, D8; Auxiliary: Q6-9, D7)

  1. Review and evaluate the controls over the retention of award documents. (OMB Circular A-133; NSF GPM §350; NIH GPS, p.II-79) (Campus: Q14, D12; Auxiliary: Q15, D14)

  1. Confirm if the campus’ and Foundation’s records retention policies ensure that financial records, supporting documents, statistical records, and all other records pertinent to an award are retained for a period of three years from the date of submission of the final expenditure report or, for awards that are renewed quarterly or annually, three years from the date of submission of the quarterly or annual financial report.

  1. Confirm whether the campus and/or Foundation has assigned responsibilities for the retention and disposal of records. Determine if a records custodian(s) has been identified and if so, interview such individual(s) for understanding of federal and campus retention requirements and determine if such records are properly protected from unauthorized use or removal.

  1. Confirm that procedures are in place for the retention and/or disposition of records containing information of a proprietary, confidential, or highly sensitive nature.

d.Confirm that procedures are in place regarding the retention of technical records pertaining to sponsored projects. Determine that such procedures do not allow policy members to dispose of and/or personally retain these records without written permission from the campus.
  1. Review and evaluate controls that ensure audits are performed in accordance with federal regulations. (Single Audit Act 31 USC
§7501-7507; OMB Circular A-133) (Campus: Q11, D9; Auxiliary: Q9, D8)
  1. Ascertain whether the campus received a federal single audit for the prior two fiscal years. Review the reports for completeness, discuss noted issues with responsible campus individuals, and confirm that follow-up and corrective action is performed for all audit findings.

  1. Verify that the campus prepared a summary schedule of prior audit findings and a corrective action plan for current year audit findings. (A-133 §315)

  1. Confirm that the audit, data collection forms, and other documentation (e.g., financial statements, summary schedule of prior findings) are submitted within the earlier of 30 days after the receipt of the auditor’s report(s), or nine months after the end of the audit period unless a longer period is agreed to in advance by the cognizant or oversight audit agency. (A-133 §320(a))

  1. Confirm that the campus submitted to the Federal clearinghouse designated by OMB, the data collection form and one copy of the reporting package noted in #c. above. (A-133 §320(d))

  1. Review and evaluate access controls, data backup procedures and physical security for any personal computers and/or automated contracts and grants processing system(s). (SAM §4840, §4840.3, §4841.2 thru §4841.7, §4989.7 & §20050) (Aux: Q3; Campus Q3)

  1. Ascertain whether the campus had adequately organized/centralized the administration of sponsored projects to reduce the risk of non-compliance with programmatic grant requirements and to ensure the existence of adequate polices, procedures, and controls as required by EO 890 such as budgeting, account management, fiscal reporting, cost recovery, cost sharing; work product and records policy, and record retention. Specifically, ensure that no other departments or campus entities submit proposals and/or administer programmatic grants without direct involvement by the designated sponsored programs administration. (EO 890) (Aux: Q35; Campus Q29)

  1. Summary and Conclusion
  1. Ensure that all workpapers are indexed and completed, including
identification of the scope, source, and purpose;
appropriate initials/dating by the preparer and reviewer;
resolution of all clearance/supervisory review sheets; and
preparation of an index for each program section to be placed directly in front of the program for that section.
  1. Ensure that all adverse audit findings are identified on the FINDING SUMMARY in workpaper Section B.

  1. Discuss tentative audit findings with department management.

  1. Evaluate each audit program section by use of a SECTION SUMMARY. The evaluation should include a listing of the objectives, audit findings and conclusions. This document should be placed in the workpapers directly after the audit program for that section.

Contract & Grants Audit Program10/10/18