OFFICE OF INSPECTOR GENERALUnderstanding the Audit Process In DOL
- Foreword
- Background
- Selection Of Audits
- Definition of an Audit
- Types of Audits
- The DOL Audit Process
- Audit Notification
- The Entrance Conference
- Performing Audits
- Keeping Management Informed
- Preliminary Results and Exit Conference
- The Audit Report
- Audit Resolution
- Conclusion
This document explains the process we call "Audit" in the Department of Labor OIG. It describes:
- how programs, projects and functions are selected for audit;
- how audits are done;
- how the audit reporting process works; and
- how audit recommendations are processed.
The purpose of an audit is not to rehash past mistakes but to look at past events with a view toward improving future performance. Findings from an audit can be used as a basis for adjusting policies, priorities, structure or procedures in order to make operations as efficient, economical and effective as possible.
The Office of Management and Budget requires an audit to be an integral part of the management process and responsive to the needs of management. A healthy audit program promotes good program, administrative and financial management and is critical to ensuring integrity in the programs of the Department of Labor. The end result of the audit process, the audit report, is a joint product of both the auditee and auditors.
Enacted on October 12, 1978, the Inspector General Act established OIG's in major executive agencies of the Federal Government. Under the provisions of the Act, the Inspector General has broad duties and responsibilities to provide leadership in promoting economy, efficiency, and effectiveness while preventing and detecting fraud and abuse, as well as to audit DOL's programs and operations nationwide. Audit work must meet standards specified in various applicable statutes, regulations, and executive orders, including the Government Auditing Standards issued by the Government Accountability Office.
The IG keeps DOL agency heads and the Congress informed about problems, deficiencies and corrective actions. The goal of the OIG is to ensure overall integrity as well as economic, efficient, and effective management of DOL programs and operations.
The IG's audit priorities, which are documented in the Annual Audit Workplan, are determined by a combination of factors including a program's dollar value, vulnerability to fraud, waste and abuse, and prior audit coverage, as well as suggestions from senior-level DOL managers and the Congress. In the audit planning process, DOL activities and programs are considered in light of:
- statutory and regulatory requirements;
- the sensitivity of the organization, program, activity or function, including susceptibility to fraud, waste and abuse;
- newness or changed conditions;
- the dollar magnitude, Federal resources involved or duration of the program;
- the results of prior audits, reviews and program evaluations; and
- agency and Congressional requests.
The term "audit" is used by the Federal Government to describe not only work done to examine financial operations, but also encompasses work to:
- review compliance with applicable laws and regulations,
- evaluate economy and efficiency of operations, and
- evaluate effectiveness in achieving program results.
An audit is a look at the past performance of an entity, program or function to determine whether funds were properly administered and whether the projects have met or fallen short of program intent and expectations.
All audits begin with objectives which determine the type of audit to be conducted and the audit standards to be followed. The Government Accountability Office classifies government audits. The Department of Labor OIG conducts and supervises financial and performance audits, and attestation engagements.
Financial audits determine whether the financial statements of an audited entity fairly present the results of operations. Performance audits include economy and efficiency, program effectiveness and results, internal controls, and compliance objectives. Attestation engagements concern reporting on specific subject matters or management assertions.
The OIG is also responsible for determining whether financial audits arranged for by non-federal DOL grantees satisfy the requirements of the Single Audit Act of 1984.
The audit process, as conducted or supervised by DOL auditors, is designed to maintain a channel of communication between the auditors and management officials. Under the Inspector General Act of 1978, as amended, the Inspector General has access to all records, reports, audits, reviews, documents, papers, recommendations or other materials related to the audit. Accordingly, auditees are responsible for ensuring that employees at all levels cooperate with the OIG by making available all documents and information deemed necessary for the conduct of the audit.
The OIG will usually notify the auditee, in writing, prior to the scheduled start date of an audit; however, there are circumstances where no advance notification will be provided.
At the beginning of each audit, the auditors hold an entrance conference. The purpose is to provide management officials responsible for the function or activity being reviewed with a description of the audit scope and objectives. Other areas usually covered include the time frames for completing the audit; access to required records, information and personnel; and introduction of the audit team members. Normally, management designates a convenient working area for audit staff and an audit liaison official for audit matters. The audit team will consider management's suggestions on additional areas to include in the audit, as well as identification of potential areas which may warrant special review.
Early in the process, the auditors survey program activities or organization functions to obtain background information such as mission, resources, responsibilities, and identification of key accounting and programmatic systems of operation and their controls.
The detailed examination or audit verification phase of an audit is normally a comprehensive review of selected areas of a program, activity or function. The auditors use an audit program developed specifically for this program, activity or function.
Audit field work consists of interviewing auditee staff, observing operations, and reviewing, analyzing and documenting relevant information.
During the audit, OIG staff keeps management advised of findings as they are developed. OIG communicates in the following ways:
Discussions/Meetings --For routine audit findings, OIG will usually inform management through informal discussions or meetings which serve two purposes. First, they provide an opportunity for the auditors to clearly understand the facts and circumstances surrounding the finding(s) and to correct misunderstandings and inaccuracies. Second, they provide the auditee early notice of deficiencies so management can take immediate corrective action, when possible.
Briefings --During the audit, when important issues arise, the auditors may schedule formal briefings with management. The significance of the issues determines the level of management asked to participate.
Preliminary Results and Exit Conference
The OIG will schedule an exit conference to go over the preliminary results of the audit. The purpose of the exit conference is to communicate audit results to auditee management and to obtain management's comments on proposed findings and recommendations before the formal draft audit report is issued. In many instances, the issues presented by OIG at the exit conference were previously discussed with management. This is management's opportunity to impact the findings and recommendations prior to issuance of the draft report. Management's input is important to ensure that the audit results are fairly presented, audit recommendations are reasonable and feasible, and any errors or misrepresentations are corrected.
Draft Report - After field work is completed and management's comments on the discussion draft at the exit conference have been considered, a draft audit report is prepared. The draft report will normally be issued with a request that management provide written comments within a specified time on the facts and conclusions of each finding and recommendation presented in the report. The draft report is officially a "work-in-progress" and is not a public document.
Final Report - At the end of the response period, after reviewing and assessing the auditee's written response to the draft report, OIG issues the final audit report to the DOL agency for resolution of the recommendations in the report. The final audit report aims to provide a fair, complete and accurate picture of the audited area during the audit period.
Usually, the report includes a description of the scope, objectives, and methodology of the audit, a statement that the audit was made in accordance with generally accepted government auditing standards, and a description of the findings and recommendations for corrective action. It also includes management's written response to draft report. If the OIG disagrees with any of management's comments on the draft report, the reasons will be explained in the final report.
Response to the Final Audit Report --The correspondence transmitting the final audit report will outline suggested actions to resolve or close its recommendations. An audit recommendation is resolved when the DOL agency and the OIG agree on the action that will correct the problem or deficiency that produced the recommendation. An audit recommendation is closed when the agreed-upon corrective action has been completed.
OMB Circular A-50, "Audit Followup," requires resolution of audit recommendations within 6 months (180 days) of issuance of a final audit report or, in the case of audits performed by non-Federal auditors, 180 days after receipt of the report by the Federal Government.
The DOL agency management decisions may propose corrective actions on monetary and non-monetary recommendations in accordance with applicable laws, regulations and administrative policy. Corrective actions occur between the DOL funding agency and the audited entity, with OIG having oversight responsibility for ensuring that corrective actions are appropriate.
Where recommendations cannot be resolved because of disagreement between the DOL agency and the OIG, the matter will be referred to the DOL Audit Followup Official, who determines what corrective measures are appropriate.
Reporting to the Congress --Semiannually, the Inspector General must report on OIG activities of the immediately preceding 6-month period. This report includes:
- a description of significant problems, abuses and deficiencies relating to the Department's programs and operations disclosed as a result of OIG activities;
- the corrective actions recommended by the OIG on those significant problems, abuses, and deficiencies;
- any significant recommendations described in previous semiannual reports which are still not resolved; and
- any disagreement with the DOL Audit Followup Official's settlement of differences between the OIG and the DOL funding agency.
The audit process should be viewed as an opportunity for an objective, skilled and impartial review of program operations which can result in recommendations for improvement. In most instances, implementing audit recommendations can lead to better program operations and resource savings.
