The most successful audit projects are those in which the client and Internal Audit have a constructive working relationship.
Our objective is to have your continued involvement at every stage, so that you, our client, understand what we are doing and why.
Although every audit project is unique, the audit process is similar for most engagements and normally consists of four stages: Preliminary Review, Fieldwork, Audit Report, and Follow-up Review. Your involvement is critical at each stage of the audit process. As in any special project, an audit results in a certain amount of time being diverted from your unit's usual routine. One of our key objectives is to minimize this time and avoid disrupting your ongoing activities.
During the preliminary review portion of the audit, we notify you of the audit, discuss the scope and objectives of the examination in a formal meeting with your organization's management, gather information on your important processes, evaluate existing controls, and plan the remaining audit steps.
The client is informed of the audit through an announcement letter from the Internal Audit Director. This letter communicates the scope and objectives of the audit team assigned to the project.
During this meeting, the client describes the unit or system to be reviewed, the organization, available resources (personnel, facilities, equipment, funds), and other relevant information. The internal auditor(s) meets with the senior officer directly responsible for the unit under review and any staff members s/he wishes to include. It is important that the client identify issues or areas of special concern that should be addressed.
In this phase the auditor gathers relevant information about the unit in order to obtain a general overview of operations. S/He talks with key personnel and reviews reports, files, and other sources of information.
Internal Control Review
The auditor will review the unit's internal control structure, a process which is usually time-consuming. In doing this, the auditor uses a variety of tools and techniques to gather and analyze information about the operation. The review of internal controls helps the auditor determine the areas of highest risk and design tests to be performed in the fieldwork section.
Preparation of the audit program concludes the preliminary review phase. This program outlines the fieldwork necessary to achieve the audit objectives.
The fieldwork concentrates on transaction testing and informal communications. It is during this phase that the auditor determines whether the controls identified during the preliminary review are operating properly and in the manner described by the client. The fieldwork stage concludes with a list of significant findings from which the auditor will prepare a draft of the audit report.
After completing the preliminary review, the auditor performs the procedures in the audit program. These procedures usually test the major internal controls and the accuracy and propriety of the transactions.
Advice & Informal Communications
As the fieldwork progresses, the auditor discusses any significant findings with the client. Hopefully, the client can offer insights and work with the auditor to determine the best method of resolving the finding. These communications are usually by e-mail. An audit observation form is sent via e-mail to ensure full understanding by the client and the auditor of the potential finding. In the response section on the form, the client should explain how findings will be resolved and include an implementation timetable. Our goal: No surprises.
Upon completion of the fieldwork, the auditor summarizes the audit findings, conclusions, and recommendations necessary for the audit report discussion draft.
Our principal product is the final report in which we express our opinions, present the audit findings, and discuss recommendations for improvements. To facilitate communication and ensure that the recommendations presented in the final report are practical, Internal Audit discusses the rough draft with the client prior to issuing the final report.
At the conclusion of fieldwork, the auditor drafts the report. Audit management thoroughly reviews the audit working papers and the discussion draft before it is presented to the client for comment. This discussion draft is submitted to the client for review before the exit conference.
Internal Audit meets with the unit's management team to discuss the findings, recommendations, and text of the discussion draft. At this meeting, the client comments on the draft and the group works to reach an agreement on the audit findings.
The auditor then prepares a formal draft, taking into account any revisions resulting from the exit conference and other discussions. When the changes have been reviewed by audit management and the client, the final report is issued.
Internal Audit distributes the final report electronically to the unit's operating management, the unit's reporting supervisor, the university Chief Financial Officer, the university Chief Accountant, the university President, the Board of Trustees, and other appropriate members of senior university management. This report is primarily for internal university management use.
Finally, as part of Internal Audit's self-evaluation program, we ask clients to comment on Internal Audit's performance. This feedback has proven to be very beneficial to us, and we have made changes in our procedures as a result of clients' suggestions.
Internal Audit will perform a follow-up review to verify the resolution of the report findings after the expected completion dates.
The client response letter is reviewed and the actions taken to resolve the audit report findings may be tested to ensure that the desired results were achieved. All unresolved findings will be discussed in the follow-up report and reported to the university President.
The review will conclude with a follow-up report which lists the actions taken by the client to resolve the original report findings. Unresolved findings will also appear in the follow-up report and will include a brief description of the finding, the original audit recommendation, the client response, the current condition, and the continued exposure to Indiana University. A discussion draft of each report with unresolved findings is circulated to the client before the report is issued. The follow-up review results will be circulated to the original report recipients and other University officials as deemed appropriate.
Internal Audit Annual Report to the Board of Trustees
In addition to the distribution discussed earlier, a summary of all audits performed during the fiscal year, including follow up reports, are communicated to the Indiana University Board of Trustees as part of the Internal Audit Annual Report.
The Process: A Collaborative Effort
As we have pointed out, during each stage in the audit process--preliminary review, field work, audit reports, and follow-up--clients have the opportunity to participate. There is no doubt that the process works best when client management and Internal Audit have a solid working relationship based on clear and continuing communication.Many clients extend this working relationship beyond the particular audit. Once we have worked with you on a project, we have an understanding of the unique characteristics of your unit's operations. As a result, we can help evaluate the feasibility of making further changes or modifications in your operations.