What is the function of the Internal Audit Department?

The Internal Audit Department is a service organization dedicated to assisting management at all levels in the effective discharge of their duties. It has no “line” responsibilities, no day-to-day or month-to-month commitments or duties in the ongoing business of the district.

The summary below will provide information concerning the function of the Internal Audit Department, the audit process, and the auditee’s role within the school district.

If you have questions about the Internal Audit Department, or if our department can ever be of assistance to you, please call (956) 273-1460.

Elizabeth G. Henry, BA, MBA

What is the function of the Internal Audit Department?

The Internal Audit Department conducts independent and objective reviews of the Laredo Independent School District operations and procedures and reports findings and recommendations to management, the Superintendent, and the Board of Trustees.

In order to accomplish our objectives, we must perform the following on a continual basis:

 Evaluate the adequacy of the internal control structure;
 Assess compliance with written policies and procedures, and state and federal laws and
regulations;
 Evaluate the reliability and integrity of accounting, reporting systems, and procedures;
 Verify the existence of assets and ensure proper safeguards for their protection;
 Review the effectiveness and efficiency of the district’s resources;
 Make appropriate constructive suggestions; and
 Investigate reported occurrences of fraud, embezzlement, theft, waste, etc. and
recommend controls to prevent or detect such occurrences.
In performing these activities, the auditor is authorized to have full, free, and unrestricted access to all property, personnel, and records relevant to the subject matter under review.

Types of Audits

Economy, Effectiveness and Efficiency: These audits are conducted to determine whether allocated resources are managed and used in the most economical, effective and efficient manner.

Financial: These audits determine whether financial operations are conducted properly and whether financial reports are presented fairly.

Compliance: These audits determine whether operations have been carried out in compliance with applicable laws, regulations, and established policies.

Special Reviews: These reviews are conducted upon request by the Superintendent, Board of Trustees, and Management. Such reviews/investigations are based on information obtained from various sources. Included in this category are the following:

Advisory Reviews- conducted upon request for the purpose of advising/assisting management;
Specific Compliant Reviews- performed in situations which arise from specific complaints and or anonymously;
Random Records Reviews- entails a review of documentation on a random basis for all types of transactions;
Fraud Audits- performed where there is primary evidence of fraud or at least a strong possibility that fraudulent activity has occurred.

The Audit Process

Although every audit project is unique, the audit process is similar for the most part. It usually consists of four stages: Planning, Preliminary Review, Field Work and Audit Report. The auditee’s involvement is critical at each stage of the audit process. One of our key objectives is to minimize any disruption of ongoing activities. Therefore, communication is important throughout all stages of the audit.

LET’S WORK TOGETHER

In order to have a successful audit, the auditee and Internal Audit need to have a constructive working relationship. One of our objectives is to have you involved at every stage, so that you, the auditee, understands what we are doing and what our objective is.

The following process will occur once a department, area, function, or other activity is selected for audit.

I. PLANNING

During this phase, Internal Audit will obtain a basic understanding of the audit project through research and data gathering related to the audit project. Data may include files of prior audits in your area (if any), from either the Internal Audit Department or other regulatory agencies as well as board policies, administrative regulations, policies and procedures manual, financial reports (payroll and non-payroll transactions), shared audit programs, board of education, relevant communications (electronic and other), internet sites, data related to professional/consulting services, organizational charts, job descriptions, sample documents, official district forms, and other applicable information.

We conduct a preliminary evaluation of the existing internal control structure and begin to develop the audit scope and objectives. The auditor may contact you to discuss and agree upon audit scope and objective. Based on the information gathered, an audit program is drafted, if one is not available. These are basically a list of steps to be performed during the audit as well as relevant self-assessment and internal control questionnaires.

Notification Letter
With few exceptions, the auditee is informed of the audit project through a formal letter from the Internal Auditor. Due to the nature of some audit work, we may give little or no advance notice. This letter communicates the scope and objectives of the audit that have been initially developed and is usually submitted with a list of requested information the auditee should make available to the auditor. The auditee may provide any additional information they feel is relevant or may be of use to the audit
Entrance Conference (Initial meeting)
This is a meeting between applicable personnel of the area being audited and Internal Audit. This meeting introduces the auditee to what will occur during the audit and allows the auditee the opportunity to share any concerns. The Internal Auditor meets with the individual directly responsible for the area under review and any staff members he/she wishes to include. It is important that those present identify issues or areas of special concern so that they may be addressed at this time. During this meeting, relevant information such as the area/system to be reviewed, available resources (personnel, facilities, equipment) and other information are discussed.

II. PRELIMINARY REVIEW

The auditor reviews and evaluates the existing internal control structure and make any necessary modifications to the drafted audit scope, objectives, audit program and questionnaires. We take into consideration any discussions during the Entrance Conference and incorporate your suggestions to the audit steps and questionnaires, if appropriate.

Internal Control Review
The auditor will review the department’s internal control structure, a process that 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 designs tests to be performed in the fieldwork section.

III. FIELDWORK

During this phase, Internal Audit will perform tests of transactions, analytical reviews, and analyses of any other applicable data pertinent to the audit. Internal audit will also interview employees of the audit area to inquire about their duties and/or request further clarification on procedures or documentation. This work is generally performed on site at the area being audited and/or in the Internal Audit Department. 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 department personnel and/or policy and procedures manuals, regulations, board policies, etc.

As fieldwork progresses the audit program is reviewed to ensure that procedures described within are appropriate to meet the audit objectives. At times, fieldwork may be expanded to meet the objectives or further confirm findings. Any significant changes are discussed with the auditee. As such, any additional findings identified during the review will be also be documented.

The duration of an audit will vary depending upon the scope, objectives and availability and accessibility of information and personnel. The level of cooperation received from the auditee also has a bearing on the duration of the audit. Access to personnel and records is vital for the completion of our work.

Surveys
In some cases, the auditor may consider it necessary to issue surveys to gather relevant information about the department or function. This is primarily done so to obtain a general overview of operations. The auditor talks with key personnel and reviews reports, files and any other relevant sources of information.

Advice & Informal Communications
As field work progresses, the auditor will verbally discuss significant findings with the auditee. Hopefully, the department can offer insights and work with the auditor to determine the best method of resolving the finding. Usually these communications are oral. In complex situations a memo is issued in order to ensure full understanding by management and the auditor. Upon completion of the fieldwork, the auditor summarizes the audit findings, conclusions, and recommendation(s) necessary for the draft audit report discussion during the exit conference.

IV. AUDIT REPORT

Our main product is the final audit report in which we present the audit findings and discuss recommendations for improvements. Once the fieldwork is completed, Internal Audit will draft a report to include the result(s) of the audit including recommendations for improvement. After the draft report is completed, it will be forwarded to department management for review and discussion. This discussion takes place at the Exit Conference.

Exit Conference
The exit conference is a meeting between internal audit, management and applicable personnel to review and discuss the draft internal audit report. This meeting will be scheduled ahead of time so that all can make plans to attend. Depending on the audit project, the Superintendent, may be invited to attend the exit conference as well. The exit conference provides an opportunity to resolve any questions or concerns the auditee may have about the observations and to resolve any other issues before the final report is released. The audit observations and/or recommendations are discussed and any changes are agreed to during this time. If necessary, changes may be made to the draft report and reissued to management to be used in preparing a response for corrective action.
Responding to Audit Reports
After changes, if needed, are made resulting from the exit conference, the report is then reissued to management to be used in preparing a response for corrective action. The Internal Audit Department will require that management’s response be completed using the provided format/template. A copy of this format/template will be provided, however is also located in our website as well. In some cases, management may choose to respond with a decision not to implement an audit recommendation and accept the risks associated with an audit finding and/or indicate how they choose to take action to the finding. A transmittal memo addressed to the Internal Auditor from the director taking action should accompany the template.
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Timeline
The response will be due within 10 working days of the issuance of the final draft report (exit conference.) Should additional time be needed, the Internal Audit Department should be contacted (ext. 1460) to arrange for an extension of time.
The Internal Audit Department also sends reminders to the department reminding them of their deadline.
Timeline Non-Compliance
Failure to submit the response with corrective action steps and/or communicate with Internal Audit Department will result in notifying such to the Superintendent. With approval, the final draft report will be issued to the Superintendent, Board of Trustees and corresponding administrators.
Final Report
Internal Audit will receive the response of corrective action and print and distribute the final report to the Board of Trustees, Superintendent and other corresponding administrators as needed for final report distribution. This report is primarily for internal management use and intended to benefit and improve the Laredo Independent School District.

THE PROCESS: A JOINT EFFORT

As it has been pointed out during each stage in the audit process—planning, preliminary review, fieldwork, and audit report—management has the opportunity to participate. There is no doubt that the process works best when management and the Internal Audit Department have a solid working relationship based on clear and continuing communication. Many departments will extend this working relationship beyond the particular audit. Once we have worked with you on a project, we will then have an understanding of the unique characteristics of your operations. As a result, we can help evaluate and provide assistance in an advisory capacity of the feasibility of making decisions in your operations that would help mitigate operational risks in your area. We look forward to adding value to the Laredo Independent School District as a whole.