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Appendix C.Sample Audit Documents From Case Studies OHIO DEPARTMENT OF TRANSPORTATION DIVISION OF FINANCE & FORECASTING OFFICE OF AUDITS RURAL TRANSIT FTA SECTION 5311 PROGRAM OVERSIGHT AUDIT PROGRAM The audit shall be conducted in accordance with the provisions contained in Federal Regulations and Generally Accepted Government Auditing Standards (GAGAS) and will cover the entire financial operation of the entity. The agreed upon procedures to be performed may include various combinations of those described in this document. The specific procedures performed for each sub-recipient will be determined based upon an assessment of perceived risks. Audit Preparation Includes: Review the sub-recipient's financial statements. Review the previous program billings and correspondence. Determine the necessary level of on-site documentation review and what (if any) personal observations will be necessary. To Determine Adequacy and Reliability of the Sub-Recipient's General Internal Controls: Review the sub-recipient's budget preparation process. Determine if a system is in place to compare actual to budget to prior years' expenditures and significant variances are reported to upper management. Determine if the responsibility for reviewing and approving financial reports is segregated from the responsibility for their preparation. Determine if there is a system in place to monitor the progress of large or lengthy contractual agreements and to limit payments made to vendors for work per- formed where appropriate. Review cash receipt and disbursement processes for proper segregation of duties. Review revenue and expenditure processes for accuracy. Review the sub-recipient's invoices/requests for payments to determine if they were properly authorized and documented. Determine if the authority for sub-recipient purchases was restricted to author- ized employees, initiated by purchase orders and coded to the proper accounts. Review the monitoring process and verify that actual performance is compared with budgeted and identify corrective actions taken by management. Review the sub-recipient's communication process - what financial reports are prepared (identify and evaluate frequency and distribution). 25

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To Determine Adequacy and Reliability of the Sub-Recipient's Internal Controls over Personnel: Review sub-recipient's explanation of the payroll process. - The procedure should begin with the tracking of the individual's time and end with that individual's paycheck. Review time sheets, or their equivalent, which record each federally funded individual's time and activity (including, but not limited to program managers, web administrators and clerical support). Review job cost sheets which summarize payroll costs by activity. Obtain and review each federally funded individual's compensation, qualifications, responsibilities and time spent on Federal projects. Obtain and review each federally funded consultant's compensation, qualifications, responsibilities and time spent on Federal projects. To Determine Adequacy and Reliability of the Sub-Recipient's Internal Controls over Program Revenue: Identify the sources of the contract revenue by reviewing the sub-recipient's contracts. Compare the contractually obligated amounts with revenues reported to ensure all revenue billed is accurate, complies with the contract, and has been received. Sample fare-box revenue through the process - from the dispatcher's log, driver's log, receipting process and recording and depositing process. To Determine Adequacy and Reliability of the Sub-Recipient's Internal Controls over Cash Flow: Summarize the sub-recipient's cash receipts and disbursements to determine the adequacy of the sub-recipient's cash flow. Is the sub-recipient utilizing short term loans to cover expenses? To Determine Adequacy and Reliability of the Sub-Recipient's Internal Controls over Physical Inventory: Review the sub-recipient's inventory controls. Conduct a spot check of sub-recipient's inventory or equipment purchased with Rural Transit Funds. Document vehicle miles. Identify the last time the physical inventory was updated. Verify that vehicle usage is in compliance with program guidelines. Identify the sub-recipient's procedure for adding/deleting inventory. Check for the existence and use of a preventive maintenance schedule. Identify the person responsible for maintaining the inventory. To Determine Adequacy and Reliability of the Sub-Recipient's Internal Controls over Petty Cash: Review sub-recipient's executive committee/ board minutes to ensure proper authorization and amount. Verify that cash and receipts equal the amount authorized. Test expenditures for compliance with federal guidelines. 26

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To Determine Adequacy and Reliability of the Sub-Recipient's Internal Controls over Agency Credit Cards: Determine whether there are any agency credit cards. If so, verify from the minutes that they are authorized and for what use. Select transactions to test for compliance with agency, state and federal guidelines. Review the sub-recipient's assignment and physical control of the cards. To Determine Adequacy and Reliability of the Sub-Recipient's General Program Compliance: Determine if compliant with 49 CFR Part 18, Uniform Administrative Requirements for Grants and Agreements with States and Local Governments. Compare actual sub-recipient activities with those contractually obligated. Test sub-recipient's compliance with federal regulations by reviewing large and/or unusual transactions. Determine if costs claimed were allowable, allocable, reasonable and necessary to the program in accordance with 2 CFR Part 225 [OMB Circular A-87], Cost Principles for State, Local and Indian Tribal Governments and program specific regulations. (Note: applicable OMB Circular may differ if entity is not a local government.) Determine if costs claimed were treated consistently and if net of all applicable credits To Determine Adequacy and Reliability of the Sub-Recipient's Cost Accounting System: Obtain and review a complete description of the sub-recipient's cost tracking system. Determine if compliant with 49 CFR Part 18, 18.20 Standards for financial management systems. Obtain and review sub-recipient's copies of the current and prior years' detailed budget (including direct labor, materials and equipment, consultant cost and overhead). Obtain and review sub-recipient's explanation of how expenses are reported by activity and access to the accounts payable file. Review detail general ledgers which support current and prior years' expenditures Test for accuracy by tracing selected detailed ledger accounts through the general ledger to the published financial statements. Test for proper coding by reviewing the vendors and amounts that support selected general ledger accounts. Determine if sub-recipient's cost representations are financially and legally proper. Determine if a process is in place which segregates costs as either allowable or unallowable. Determine if individual transactions were properly classified and accumulated. Determine if activities are charged correctly- as either direct or indirect and if there is a cost allocation plan it is properly and accurately calculated. Obtain and review sub-recipient's revenue recording process and explanation how federal funds and administrative fees are applied to Federal programs. 27

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To Determine Adequacy and Reliability of the Sub-Recipient's Cost Allocation Plan: Determine if compliant with 2 CFR Part 225, Cost Principles for State, Local and Indian Tribal Governments. Obtain and review explanation of the sub-recipient's cost allocation plan including identification of direct and indirect costs - to include method for excluding costs which are unallowable for Federal reimbursement. Review copies of the current year's cost allocation plan in relation to the budgeted amount. (This is to include entity's assignment of consultant fees, insurance and rent expense.) Verify the relationship between the sub-recipient's actual financial performance and that projected in the cost allocation plan. Test direct and indirect costs for consistent treatment. Verify in-kind /local contributions and donated services. Sample in-kind/local non-cash expenses and associated revenues. Verify the proper application of the sub-recipient's overhead rate. To Determine Adequacy and Reliability of the Sub-Recipient's Financial Reporting: Determine whether the financial statements of the entity are presented fairly in all material respects in conformity with Generally Accepted Accounting Principles. Review the current and prior year audit reports - to include financial statements, management letters (including corrective action, if any), opinions, and findings. Review the most recent audit report for comments and/or findings and any appropriate corrective action. Determine if compliant with OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. 28

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Oregon Department of Transportation Public Transit Division PRE-AWARD AUDIT QUESTIONNAIRE FOR NEW SUB-RECIPIENT Page 1 of 3 Preaward program questionnaire July.doc OMB Circular A-133 requires monitoring of sub-recipients receiving Federal financial assistance to carry out a program under prime awards to the Oregon Department of Transportation Public Transit Division (PTD). Your organization is new to the PTD grant program. The purpose of this questionnaire is to help us assess your agency's ability to comply with the requirements which follow Federal assistance funds. Name of Agency _________________________________________________________ Address ___________________________ City_____________ Zip_________________ Contact_________________________________________________________________ Phone___________________Email_________________Website___________________ THRESHOLD QUESTIONS 1. Does your organization have a cognizant Federal agency for A-133 purposes? Yes No If yes, please indicate the cognizant agency. GENERAL INFORMATION 2. Does your organization have its financial statements reviewed by an independent public accounting firm? Yes No If so, please enclose a copy of your most recent audited financial report with your response. 3. What was the dollar volume of Federal awards from all federal sources to your organization during the last fiscal year? ___________________________ 4. Are duties separated so that no one individual has complete authority over an entire financial transaction? Yes No 5. Does your organization have controls to prevent expenditure of funds in excess of approved, budgeted amounts? Yes No 6. Other than financial statements, has any aspect of your organization's activities been audited within the last two years by a governmental agency or independent public accountant? Yes No If yes, please explain. 29

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Oregon Department of Transportation Public Transit Division PRE-AWARD AUDIT QUESTIONNAIRE FOR NEW SUB-RECIPIENT Page 2 of 3 Preaward program questionnaire July.doc CASH MANAGEMENT 7. Are Federal funds deposited in a separate bank account or accounted for through grant-loan fund control accounts? Yes No 8. Are all disbursements properly documented with evidence of receipt of goods or performance of services? Yes No 9. Are all bank accounts reconciled monthly? Yes No COST TRANSFERS 10. How does the organization ensure that all cost transfers are legitimate and appropriate? INDIRECT COSTS 11. Does the organization have an indirect cost allocation plan or a negotiated indirect cost rate approved by the cognizant agency? Yes No Explain. 12. Does the organization have procedures which provide assurance that consistent treatment is applied in the distribution of charges to all grants? Yes No COST SHARING 13. How does the organization determine that it has met cost-sharing goals? COMPLIANCE 14. Does your organization engage in any lobbying or partisan political activity which is charged, directly or indirectly, to a federally-assisted program? Yes No 15. Does your organization have a formal policy of nondiscrimination and a formal system for complying with Federal civil rights requirements? Yes No 16. For the period of the past three fiscal years and to date, has your agency had any civil rights compliance reviews? Yes No 30

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Oregon Department of Transportation Public Transit Division PRE-AWARD AUDIT QUESTIONNAIRE FOR NEW SUB-RECIPIENT Page 3 of 3 Preaward program questionnaire July.doc If YES, attach a description of the issue, including: explain why the review was performed, the date of the review, who performed the review, the findings and recommendations of the review and the status or disposition of the findings. 17. For the period of the past three fiscal years and to date, has your agency received any written complaints or lawsuits alleging civil rights violations? Yes No If YES, attach a description of the issue, including: the date of the complaint, a summary of the allegation, and a report of the status or disposition of the complaint or lawsuit, including whether the parties entered into a consent decree or mediation. PROCUREMENT 18. Does your agency maintain records of all procurements greater than $5000, including copies of bid/proposal specifications, bid/proposal selection and award procedures, sole-source justification, contract and contract amendments, payments, contract management and closeout procures? Yes No If NO, Explain: 19. Does your agency maintain an inventory of all capital equipment with an original purchase value greater than $5000 and purchased with state and/or federal funds? Yes No If NO, Explain: 20. Does your agency conduct all procurements in a manner providing full and open competition? Yes No If NO, Explain: ________________________________________________________________________ Name and title of person completing questionnaire: ________________________________________________________________________ Signature Date___________________________________ 31

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Michigan DOT Audit Manual AUDIT GUIDE FOR TRANSPORTATION AUTHORITIES AND AGENCIES IN MICHIGAN Topics covered in the Audit Guide include the following: Introduction and auditor's responsibility Authority for audit Performing the audit Audit program and objectives Scope and extent of testing State operating programs Federal capital and operating programs Contract payments and the public transportation management system (PTMS) Audit due dates Single Audit Act due date Distribution of audit report State and federal resources Local public transit revenue and expense manual (R&E Manual) Non-financial information Financial information Examples of transit notes to the financial statements Bureau of Passenger Transportation (BPT) schedules, detailed in appendixes organized by year-end target dates and covering Local revenues Expenditures of federal and state awards Federal and state awards (operating revenue only) Operating and contract expenses Operating expenses by program OAR schedules (urban and nonurban, regular service revenue and expense reports) OAR schedules (urban and nonurban, regular service non-financial reports) OAR schedules (other operating programs, e.g., JARC service revenue reports) Operating assistance calculation Comments and recommendations This list of topics is based on the Audit Guide for Transportation Authorities and Agencies in Michigan (revised July 2007), available at: http://www.michigan.gov/documents/treasury/Audit_Guide_202115_7.pdf (accessed August 25, 2011). 35

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Transportation Research Board 500 Fifth Street, NW Washington, DC 20001 ISBN 978-0-309-21394-3 90000 Subscriber Category: Public Transportation 9 780309 213943 These digests are issued in order to increase awareness of research results emanating from projects in the Cooperative Research Programs (CRP). Persons wanting to pursue the project subject matter in greater depth should contact the CRP Staff, Transportation Research Board of the National Academies, 500 Fifth Street, NW, Washington, DC 20001. COPYRIGHT Information Authors herein are responsible for the authenticity of their materials and for obtaining written permissions from publishers or persons who own the copyright to any previously published or copyrighted material used herein. Cooperative Research Programs (CRP) grants permission to reproduce material in this publication for classroom and not-for-profit purposes. Permission is given with the understanding that none of the material will be used to imply TRB, AASHTO, FAA, FHWA, FMCSA, FTA, or Transit Development Corporation endorsement of a particular product, method, or practice. It is expected that those reproducing the material in this document for educational and not-for-profit uses will give appropriate acknowledgment of the source of any reprinted or reproduced material. For other uses of the material, request permission from CRP.