who are mit’s auditors and the audit committee and what are their roles and responsibilities?

Who Are MIT’s Auditors and the Audit Committee and What Are Their Roles and Responsibilities?

Accounting Group

April 2, 2009

Bush Room

What is the definition of “audit”? Noun – professional, independent inspection /

examination / review / verification to evaluate one or more of the following: Financial statement representation Compliance Soundness and integrity of financial and operational internal

control environment System controls Efficiency and effectiveness

Verb – to conduct an audit (see above) Alternative – to attend a class / lecture as a participant to review

material; does not receive credit

Audit work is conducted against an appropriate set of standards

2Accounting Group - April 2, 2009

Auditors Recently in National Headlines


What groups perform audits at MIT? External auditors – independent of Institute

Independent Public Accountant – PricewaterhouseCoopers (PwC) Institute financial statements (annually in accordance with GAAP) Basic pension plan Supplemental retirement - 401K plan Retiree health and welfare benefits plan A-133: Student financial aid A-133: Federally funded fellowships Investment Fund of Funds SMART

Cognizant Audit Agency - Defense Contract Audit Agency (DCAA) A-133: Research and development

Other auditors and inspectors (e.g., OSHA)

MIT Internal Audit – independent in practice


PwC Audit Calendar @ MITJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Overall Institute

Basic Pension Plan

401k Pension Plan

Retiree Health and Welfare Plan

A-133/Student Financial Aid

Investment Fund of Funds

SMART


PwC Areas of Audit Emphasis Observations and Recommendations – Review status of

prior year comments and report current year findings Office of the VPF – Reassess and test key general

controls over balance sheet accounts Investment Management – Review and test operations

and control structure surrounding investment management and treasury functions, as appropriate

Development and Major Gifts – Test to ensure gifts and pledges are reported and recorded in proper period

Federally Sponsored Research – Ensure federally sponsored research activity is appropriately reflected in financial statements


PwC Areas of Audit Emphasis Tax Matters – Review compensation policies, related

party transactions, and related disclosures Pending or Threatened Claims / Litigation – Assess

accruals, and/or disclosures, and related exposure Information Technology – Update assessment of

monitoring controls over financial systems Compliance – Review programs that monitor

compliance with federal regulations SAS 99 – Consideration of Fraud – Identify risks of

material misstatement


Who is the DCAA?

Defense Contract Audit Agency Under the Dept of Defense (DOD) Mission: audit military grants and

contracts Full-time DCAA team assigned to MIT to

perform various types of audits of DOD awards (approx. 6 auditors) Resident on campus and at Lincoln Lab


Role of the DCAA at MIT Performs financial audits of the Institute’s books

and records Primarily in relation to federally sponsored research

Much of their effort is in reviewing the Institute’s “cost study” – the F&A rate

DCAA also performs part of the A-133 Audit Other areas of focus (audits) are:

Property Cost Allowability Effort Reporting Other


Office of Management and Budget (OMB) Circular A-133 Audit Established under Single Audit Act of 1984 Annual audit requirement Applicable to non-profit entities receiving in

excess of $500,000 in federal awards annually

Typically A-133 audit is performed by the entity’s financial statement auditors

MIT is unique: A-133 is split between DCAA (R&D) and PwC (student fin aid and federally funded fellowships)


MIT Internal Audit Mission, Scope, and Guidance

Independent and objective assurance and consulting activity Scope of services equal to full extent of Institute’s auditable activities

(includes Lincoln Lab) Responsible for ensuring adequacy of controls over financial

operations, safeguarding of assets, and compliance with laws and regulations

Guided by philosophy of ensuring achievement of the Institute’s business objectives and adding value to improve the Institute’s operations

Strive to conduct audit work in accordance with the International Standards for the Professional Practice of Internal Auditing

Systematic and disciplined approach to evaluate and improve effectiveness of risk management, control and governance processes


MIT Internal Audit Services Assurance engagements

Business process reviews Assess functionality of processes and determine whether business objectives are

being achieved Test adequacy and effectiveness of internal controls across traditional Institute

boundaries Frequently encompass IT focus

Targeted reviews Limited scope Focus on distinct controls within an area or sub-process

Advisory services Non-attestation Provide advice and guidance on strong controls; assist management in

decision making Largely research admin. compliance & construction contract reviews


MIT Internal Audit Stakeholders and Customers

Audit Committee Senior management Line management in departments,

labs, and centers External auditors


MIT Internal Audit Org Chart


MIT Internal Audit – Examples of Key Findings / Output Need for improved data governance Need for strengthened controls over revenue recording Weakness in operational processes RACP completion of site visits to “Top 40” federally

funded DLCs Reviews of alleged malfeasance when requested by

management Assessment of contracted third party capacity and

viability Construction recovery and cost avoidance


Who / What is the Audit Committee of the MIT Corporation? Oversight body Governed by Bylaws of the Corporation Audit Committee is comprised of 5 members

3 members on 5 yr. terms; 2 members on 3 yr. terms Chosen from members of the Corporation Chaired by A. Neil Pappalardo (elected annually)

Appoints external auditors (PwC) for financial statement audit annually

Meets three times per year


The MIT Audit Committee - bylaws“Subject to the approval of the members of the

Corporation, the Audit Committee shall employ public accountants to examine the books of MIT for the next fiscal year, and such other financial and investment records as the Audit Committee deems appropriate from time to time. The public accountants shall report thereon to the Audit Committee, which shall in turn present the report of audit, including the scope of the examination, to the members of the Corporation at their next annual meeting with such recommendations as the Audit Committee shall deem appropriate.”


What should customers expect? Requests for supporting documentation, often prior to

commencement of fieldwork Financial statement auditors, in particular, need full

cooperation Tight turnaround time Filing deadlines

For attestation engagements conducted, a report containing an opinion and any related findings will be issued to the appropriate member of senior management or business process owner

For advisory engagements (Internal Audit), a report may be issued, containing a statement of audit scope and results of audit work performed


who are mit’s auditors and the audit committee and what are their roles and responsibilities?

Documents

accounting group ap

accounting groupapril

audit committee

definition of audit

bush roomaccounting

pwc audit calendar

audit military grants

integrity of financial