Internal Audit An Effective Governance Tool Presented By: Program - PowerPoint PPT Presentation

1 Internal Audit An Effective Governance Tool Presented By: Program Partner of

Introductions 2  Jim Rice – Audit Committee Chair, Fort Bend ISD  Grayle James – Board of Trustees Member, Fort Bend ISD  Greg Gibson, CPA –President, Gibson Consulting Group, Inc.  Cheyanne Rolf, PMP – Internal Audit Program and Project Manager, Gibson Consulting Group, Inc.

Topics for Today 3  Fort Bend ISD history  What is internal audit anyway?  What would internal audit look like for us?  What do results look like?  How do I implement an internal audit program?

Fort Bend ISD History 4

Fort Bend ISD History 5  Had an internal audit department that audit committee was responsible for but in practical terms could not manage on a daily basis  Audit Committee of 2013‐14 recommended termination of this department and retained outside consultant  Audit Committee felt we should have a single Internal Auditor on staff to retain institutional knowledge and coordinate with outside consultant  Hired district Director of Internal Audit  Tried a blend of internal auditor and outside consultant  Now have 100% outsourced this effort

What is Internal Audit Anyway? 6

Internal Audit: Defined 7  Independent, objective assurance and consulting activity ― Assurance tells managers how well the systems and processes are working ― Consulting helps improve systems and processes where necessary  Examination, monitoring, and analysis of activities related to an organization’s operation  Identifies potential threats to an organization’s goals and makes suggestions for mitigating the risks

Internal Audit vs. External Audit 8  External Audit ― Expresses an opinion on the accuracy of financial statements within materiality limits ― Auditor’s management letter may include observations made during the audit

Internal Audit vs. External Audit 9  External Audit ― Expresses an opinion on the accuracy of financial statements within materiality limits ― Auditor’s management letter may include observations made during the audit  Internal Audit ― Looks beyond finances to consider wider issues such as processes, security of assets, and regulatory compliance – 360 view of operational performance ― Higher level of rigor and scrutiny ― Not required to be conducted

Who’s the Boss? 10  Historically under the Superintendent or Business Office

Who’s the Boss? 11  Historically under the Superintendent or Business Office  Now must report directly to the Board ― Texas Education Code, Section 11.170 (enacted 2006) If a school district employs an internal auditor: (1) the board of trustees shall select the internal auditor (2) the internal auditor shall report directly to the board

What Would Internal Audit Look Like for Us? 12

What’s in an Audit… 13

Audit Universe Academic 01 Operational 02 Administrative 03

Internal Audit Life Cycle 15 Risk Assessment Annual Update Special Audit Plan Needs Audit Audit Audit Audit Audit Projects Projects Projects Projects Projects Follow ‐ up

What’s in an Internal Audit Report? 16  Policy and regulatory framework  Description of operations, processes, systems, and organization  Key operating statistics and performance measures  Analysis: ― Transaction testing ― Data analytics ― Organizational, efficiency, process, internal controls, and compliance analysis  Audit findings and recommendations

Benefits of Internal Audit Helps ensure compliance with Identify risks before applicable laws, they become regulations, and headlines board policy A D Demonstrate continuous district improvement B Ensure funds are used efficiently; streamline internal operations so that Ensure that district staff can work more assets are effectively safeguarded C F 17

What do Results Look Like? 18

Human Resources 19  Selected for audit because personnel costs represent 80% of district budget  New leadership; new HR strategic plan  Major audit findings: ― Personnel file management largely manual and not well controlled ― Opportunities exist for additional automation and for integration of information systems ― Minor TRS compliance exceptions noted

Human Resources 20 Audit Commendation : Average Number of Days from Recommendation to Offer Significantly Reduced 80 70 60 50 40 30 20 10 ‐ Jun‐14 Jul‐14 Aug‐14 Sep‐14 Oct‐14 Nov‐14 Dec‐14 Jan‐15 Feb‐15 Mar‐15 Apr‐15 May‐15 Jun‐15 Jul‐15 Aug‐15 Sep‐15

Human Resources 21 Recommendation Chart – Color Indicates Priority Priority No. Recommendation 1 Clarify HR department titles so that they generally reflect their individual functions. Add more specificity to the HR strategic plan by establishing priorities for completing projects for 2 the most immediate needs with detailed steps in action plans that establish lead person(s) responsible, deadlines, and completion dates. 3 Implement performance measures and establish performance targets for HR. Update Board Policies DIA (LOCAL) Freedom from Discrimination, Harassment, and Retaliation and 4 FB (LOCAL) Equal Education Opportunity to list the names and other requirements of the two coordinators who have been designated. Post EEO and ADA posters in conspicuous work locations within both the Fort Bend ISD 5 administration building and the HR Division in accordance with federal EEO and ADA laws and board policies. Place EEO and ADA statements on each opening page of the district’s website. 6 Secure immediately and protect the confidentiality of personnel folders and files in the files room.

Construction Management 22  Unique because audit was pre‐emptive – evaluated district readiness for bond program before it started  District selected program manager  Major recommendations included: ― Improved management reporting ― Reconsider construction management approaches ― Enhanced safety and security standards for schools  Follow‐up study conducted following year to ensure implementation

Results Implementation Tracking 23  As more audits are conducted, difficult for Board to to keep up with  Increased accountability  Ensure that you are good stewards of taxpayer investments  Spreadsheets are ok for superintendent and staff tracking

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How do I Implement an Internal Audit 25 Program?

Fort Bend ISD Process 26  Audit Committee approves an audit to commence.  Auditor meets with department to be audited to establish rules of the road.  Auditor conducts audit.  Auditor meets with department and administration to review results of audit. Provides an opportunity for administration to respond.  Auditor and department/administration meet with Audit Committee to review audit.

Fort Bend ISD Process (continued) 27  Once Audit Committee is satisfied with the audit, auditor makes presentation to the full board.  Auditor performs a follow up 10 months later to ensure all recommendations have been implemented.  Auditor then meets with department/administration and Audit Committee to report on results.  Audit committee continues to monitor administration efforts going forward and then establishes a timeline for the next audit of this same department.

Investing in Internal Audit 28  Investment commensurate with district size  Both the Board and Superintendent need to be “invested”  A visible commitment to continuous improvement

QUESTION S

Contact Us 31 Greg Gibson, President Cheyanne Rolf, Project Manager ggibson@gibsonconsult.com crolf@gibsonconsult.com (512) 328‐0885 (512) 685‐2679