STATEMENT OF AUDITING STANDARDS 112 (SAS112) STATEMENT OF AUDITING STANDARDS 112 (SAS112) Communicating Internal Control Matters Identified in an Audit Communicating Internal Control Matters Identified in an Audit UC Riverside June 2007 UC Riverside June 2007 1
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STATEMENT OF AUDITING STANDARDS 112 (SAS112)STATEMENT OF AUDITING STANDARDS 112 (SAS112)Communicating Internal Control Matters Identified in an AuditCommunicating Internal Control Matters Identified in an AuditUC Riverside June 2007UC Riverside June 2007 1
" Today's audit environment encourages transparency and
accountability. Therefore, an integrated
campuswide effort is needed to effectively
steward the funds entrusted to UCR.”
Chancellor Córdova
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1- Why SAS1121- Why SAS1122- What is SAS1122- What is SAS1123- Impact of 3- Impact of SAS112 SAS112 4- Internal Control4- Internal Control5- Minimizing risk5- Minimizing risk -Sponsored -Sponsored Project AdminProject Admin -Dept. operations-Dept. operations6- What to do?6- What to do?
AGENDAAGENDA
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WorldCom WorldCom Enron Enron
- American Institute of Certified - American Institute of Certified Public AccountantsPublic Accountants
For non-profit organizations For non-profit organizations (UCR)(UCR)
- SAS 112- SAS 112
Why SAS112?Why SAS112?
- United States Federal Law and SEC- United States Federal Law and SEC For Public CompaniesFor Public Companies
conducting an conducting an assessment of the assessment of the effectiveness of effectiveness of internal controls internal controls by management, by management,
to be audited and to be audited and approved by the approved by the company’s company’s independentindependent accountantsaccountants
SAS112 is our SOXSAS112 is our SOX
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Northwestern University (2003). Fine = $5.5m
Harvard University (2004). Fine = $2.6m
Florida International University (2005). Fine= $11.5m
University of Alabama Birmingham (2005). Fine =$3.4 m
What is SAS112?What is SAS112?Establishes standards for communicating internal Establishes standards for communicating internal control issues relating to:control issues relating to:
-integrity of financial reportingintegrity of financial reporting-compliance with applicable laws and regulationcompliance with applicable laws and regulation
Establishes standards that classifies Establishes standards that classifies communicated control issues as:communicated control issues as:
- control deficiencies- control deficiencies - significant deficiencies - significant deficiencies - material weaknesses- material weaknesses
SAS112 standards have been adopted SAS112 standards have been adopted by the federal agencies and the by the federal agencies and the Government Audit Standards has been Government Audit Standards has been updated to incorporate SAS112updated to incorporate SAS112
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Impact of SAS 112 on UCRImpact of SAS 112 on UCR
Due to significant changes in the evaluation of control exceptions
and more stringent audit standards, UCR is more likely to encounter
control issues being identified and reported
- - Increased scrutiny- Larger audit samples
- More evidence and documentation required during audits
-Lower audit materiality thresholds
SAS 112 requires disclosure of deficiencies to Regents and
others7
Impacts of deficiencies and weaknesses disclosures:Impacts of deficiencies and weaknesses disclosures:
-negative impact on reputation -negative impact on reputation -increased internal and external audits-increased internal and external audits-audit disallowances, fines and penalties-audit disallowances, fines and penalties-potential impact on resource allocation-potential impact on resource allocation-negative impact on sponsored project funding-negative impact on sponsored project funding
State Agencies $5,788,019 $5,985,849 $4,950,031 -17% -14%
Total $58,670,150 $69,831,094 $74,160,292 6% 26%Source: 2005-06 Annual Report on Contract & Grant ExpendituresSource: 2005-06 Annual Report on Contract & Grant Expenditures
Growth in Direct Contract and Grant ExpendituresGrowth in Direct Contract and Grant ExpendituresFiscal Year 2003/04 to Fiscal Year 2005/06
(a)
(a) 26% increase from FY03/04 13
UCR’s Challenge
Increasing extramural support while managing risk
Our GoalFacilitating Faculty Success!
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efforteffortreportingreporting
cost transfers
overdraft
review of monthly
statements
cost sharing
physical inventory
sub-recipientmonitoring
award close-out
POTENTIALPOTENTIAL RISKS RISKS IN C&GIN C&GAREAAREA
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FALL 2006
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C&G Risk: Effort Reports
Symptoms of deficiencies Incomplete or missing reports Late reporting
Major area of concern for Federal Government
Current Efforts New on-line system coming
Resolution of deficiency Remove unsubstantiated costs
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C&G Risk: Cost Transfers Symptom of Deficiency
High volume Late transfers (may require revised effort reports)