- Internal Audits
- External Audits
- Annual Federal Audit (formerly A-133)
- Special Audits
- Best Practices for Audit Preparedness
- Charge Direct Costs Correctly
- Avoid Cost Transfers
- Manage Equipment Well
- Maximize Effort Reporting Accuracy and Timeliness
- Submit Technical and Financial Reports on Time
- Monitor Subrecipients
- Exert Correct Internal Controls Over Payables
- Follow Harvard's Service Center Policy
Audits are a fact of life. Often regarded as a distraction from the business of research, they do serve as an early-warning system, pointing out areas where practice may need to be fine-tuned to keep the university/sponsor relationship healthy. Adverse public exposure and financial penalties for non-compliance can cause considerable damage, and we all have an obligation to avoid them.
Harvard’s auditing department, Risk Management and Audit Services (RMAS), conducts audits of departments, research centers, service centers, software packages, etc., on a rotating basis, focusing on financial and operating controls, business processes, management effectiveness, and information systems controls and security. Audits are done cooperatively with the management of each unit, and results and suggestions are shared with affected employees. RMAS is also available as a resource for consultations on compliance with all the federal, state, and local regulations to which we are subject.
Annual Federal External Audit (formerly A-133)
The most frequent and visible audit is the audit mandated by OMB Uniform Guidance Subpart F that requires an annual external audit of non-profits receiving federal funds., "Audits of States, Local Governments, and Other Non-profit Organizations." This audit is conducted annually on behalf of the federal government by PricewaterhouseCoopers LLP (PwC). PwC selects federal awards to audit, typically from large research-intensive departments on a two-year rotation and smaller departments less frequently, usually auditing three FAS departments and one service center per year. They examine several areas, among them cost allowability and allocability, appropriateness of cost transfers, controls over equipment management, timeliness of effort reporting, financial reporting, processes for subrecipient monitoring, internal controls over payables, and billing rate processes for service centers. Over the course of the summer and fall, the FAS departments and service centers submit answers to a detailed questionnaire about their policies and procedures and provide backup paperwork supporting individual transactions that PwC selects for audit. Potential problem transactions are scrutinized even more carefully, and PwC issues "findings" on unresolved items. In the winter, FAS writes a "corrective action plan" that responds to PwC's findings, and a final document including both the findings and the response is submitted by PwC to DHHS, our cognizant agency, in the spring. After a short break, the process begins again.
Each large federal agency has an Inspector General’s office and/or other auditing arm, which performs audits as the office deems necessary. Several federal agencies have been on-campus recently, investigating specific programs or departments or looking more broadly at policies and procedures. These audits typically involve reviews of grant files and paper or electronic files supporting individual transactions, as well as interviews of staff and faculty.
Auditors will always find things to put in their reports, especially at an institution as large and decentralized as Harvard. However, there are ways to minimize audit exposure, and doing so is a responsibility that is shared among all members of the research community. Here are a few helpful reminders:
Ask for Help
The Office for Sponsored Programs and FAS Research Administration Services should be contacted any time you are informed of an impending audit, especially if it seems to be a special external audit.
Charge Direct Costs Correctly
Remember the three criteria for charging items to sponsored projects: allowability, allocability, and reasonableness If an expense is allowable and benefits more than one project, apportion it among the benefitting projects according to an equitable, pre-determined allocation scheme. More details may be found in the Managing Awards section of Managing Your Research.
Avoid Cost Transfers
The best way to avoid cost transfers is to plan ahead. Expenses should not be posted to particular sponsored accounts unless they actually belong there. Communication between administrators and PIs is key in deciding the appropriate account(s) to charge for each expense. Allocation schemes should be set up in advance, if appropriate. Appointments for personnel should be planned as far in advance as is practical. FASSPAR has a Projection Spreadsheet that can serve as a powerful planning tool, even allowing projections beyond the current funding period, for personnel and all other types of expenditures.
Manage Equipment Well
The FAS maintains a centralized database of capital equipment, and the auditors expect the information in that database to be accurate and up-to-date. Individual pieces of equipment are referenced by “tag number,” and tags should be attached to equipment items in a timely fashion. Location information is particularly important—if a piece of equipment is moved, loaned out, or decommissioned, the database must be updated. Forms are available for certain other important changes—see Section VIII.F for details.
Maximize Effort Reporting Accuracy and Timeliness
PIs are responsible for attesting, via quarterly reports for employees and stipendees and annual reports for themselves, that payments were appropriate to the effort expended on sponsored projects. Auditors look for timeliness, completeness, and assurance that the signer is either the PI or, (rarely) an approved designee who is even more directly involved in supervision of the research than the PI.
Submit Technical and Financial Reports on Time
Auditors look for timeliness and accuracy in submission of final financial reports for sponsored awards. Since resubmissions of reports are taken as evidence of poor grants management, it is important that all closing transactions for grant accounts be posted before or soon after the end of the award period.
Harvard’s subrecipient-monitoring policy is in two parts. Under Part 1, OSP takes care of ensuring that subcontractors’ own federal annual audits have not returned results that affect subcontracts under our awards. PIs and their administrators are responsible for Part 2, which involves collecting progress reports from subcontractors; verifying that invoices from subcontractors are sufficiently detailed, reasonable, and in keeping with budgets; performing occasional visits to subcontractors’ sites; and (rarely) commissioning audits of subcontractors’ policies, procedures, and internal controls. Progress reports, approved-for-payment copies of invoices, and reports of site visits should be kept on file for examination by auditors.
Exert Internal Controls Over Payables
Traditionally, the control of payables is documented by demonstrating that requisition or purchase order, invoice, and packing slip all match for each purchase. In departments that use HCOM for receiving and invoice payment, this matching is accomplished electronically. In other departments, copies of these three items should be filed for audit purposes.
Follow Harvard's Service Center Policy
Harvard’s Service Center Policy lays out all of the procedures that must be followed in setting rates and monitoring income and expense for service units whose annual expenditures exceed certain thresholds. As a matter of good practice, even smaller facilities should be managed within many of these guidelines. Auditors look closely at the financial aspects of service center and specialized service center operation, since there are regulations in OMB Uniform Guidance (2 C.F.R. §200), Subpart E (§200.468), that must be adhered to. Departments with service units must set rates annually, document the rate-setting process carefully, maintain backup data on file for auditors’ inspection, and vet their rates with FAS RAS and the University-wide Service Center Committee.