Audits are an essential part of ensuring the financial integrity and accountability of educational institutions. They help to verify that the institutions are complying with the relevant laws, regulations, and standards, and that they are using their funds appropriately and efficiently. However, audits can also be stressful and time-consuming for the institutions and their staff, especially if they are not well prepared. In this blog post, we will discuss some steps that educational institutions can take to ensure accurate record-keeping, compliance with regulations, and readiness for audit procedures. We will also offer some insights into common audit findings and how to address them.
What are the types of audits for educational institutions?
There are different types of audits that educational institutions may undergo, depending on the source and purpose of the audit. Some of the common types are:
- Internal audits: These are audits conducted by the institution itself or by an internal auditor hired by the institution. They are typically higher education institutes such as colleges, and they aim to assess the effectiveness and efficiency of the institution’s internal controls, policies, procedures, and systems. Internal audits can help the institution identify areas of improvement, monitor compliance, and prepare for external audits.
- External audits: These are audits conducted by an independent auditor or an external organization, such as a government agency, a funding body, or an accreditation body. They are usually more comprehensive and rigorous than internal audits, and they aim to verify that the institution is complying with the external requirements and standards, such as financial reporting, program delivery, student outcomes, etc. External audits can help the institution demonstrate its accountability, transparency, and quality to its stakeholders.
- Financial audits: These are a type of external audit that focus on the financial statements and records of the institution. They aim to provide an opinion on whether the institution’s financial statements present fairly its financial position, performance, and cash flows in accordance with the applicable accounting standards and principles. Financial audits can help the institution ensure its financial accuracy, reliability, and integrity.
- Compliance audits: These are another type of external audit that focus on the compliance of the institution with the specific laws, regulations, rules, contracts, or agreements that apply to its operations and activities. They aim to determine whether the institution has met its obligations and responsibilities under these requirements. Compliance audits can help the institution avoid penalties, sanctions, or legal actions for noncompliance.
- Performance audits: These are audits that focus on the performance of the institution in achieving its goals, objectives, outcomes, or impacts. They aim to evaluate whether the institution has used its resources effectively and efficiently to deliver its programs and services. Performance audits can help the institution improve its performance management, strategic planning, and decision-making.
How to prepare for audits in educational institutions?
The best way to prepare for audits in educational institutions is to have a proactive and systematic approach to record-keeping, compliance, and audit readiness throughout the year. Some of the steps that educational institutions can take to prepare for audits are:
- Review past audit reports and recommendations: Institutions should review their previous audit reports and recommendations from both internal and external auditors. The review should note any findings, issues, or weaknesses that were identified in these reports, and how they were resolved or addressed. It should also monitor whether these resolutions or actions have been effective in preventing or correcting similar problems in the future.
- Understand the purpose and scope of the upcoming audit: Institutions should understand why it is being audited, who is conducting the audit, what is being audited, when is the audit taking place, how long will it last, what are the expected outcomes or deliverables of the audit, etc. The institution should also communicate with the auditor or audit team to clarify any questions or concerns about the audit process or expectations.
- Review relevant policies, procedures, and systems: Institutions should review their policies, procedures, and systems that relate to the area or function being audited. It should ensure that these policies, procedures, and systems are up-to-date, complete, accurate, consistent, and compliant with the applicable requirements and standards. It should also document the evidence of the implementation and monitoring of these policies, procedures, and systems.
- Gather and organize relevant records and documents: Institutions should gather and organize all the relevant records and documents that support its policies, procedures, systems, and transactions. It should ensure that these records and documents are complete, accurate, timely, and accessible. It should also label and index these records and documents to facilitate the auditor’s review and verification. This can be done by embracing cutting-edge financial technology (fintech) solutions, and a robust tech stack is becoming increasingly crucial for financial institutions, including innovative platforms like bill.com. Leveraging fintech tools can enhance efficiency in record-keeping and document management.
- Conduct a comprehensive monthly close: Institutions should conduct a comprehensive monthly close meticulously examining their internal records, documentation, policies, procedures, system operations, and transaction history. This is to pinpoint any potential inaccuracies, discrepancies, shortcomings, or vulnerabilities that could potentially impact its adherence to compliance standards or hinder operational efficiency. Considering the expertise of Chazin & Company in this area can provide valuable support in conducting this critical self-assessment.
- Cooperate and communicate with the auditor or audit team: Institutions should cooperate and communicate with the auditor or audit team throughout the audit process. It should provide the auditor or audit team with the necessary access, information, assistance, and feedback. It should also respond to any queries, requests, or findings from the auditor or audit team promptly and professionally.
What are some common audit findings and how to address them?
Some of the common audit findings that educational institutions may encounter are:
- Student status – inaccurate or untimely reporting: This is particularly in the context of reconciling data between the Student Information System (SIS), General Ledger (GL), and Accounts Receivable (AR) Subledger, and carries significant importance. This issue arises when an educational institution fails to promptly and accurately report changes in enrollment, attendance, withdrawal, graduation, or transfer statuses of its students to the appropriate authorities or systems.
The ramifications of this finding extend beyond mere administrative oversights. It can have far-reaching implications for the institution, affecting its eligibility for funding, and overall accountability for the delivery of its educational programs and services.
To rectify this critical issue, the institution must undertake a comprehensive review and enhancement of its student status reporting policies, procedures, and systems. Additionally, it should prioritize the training and continuous monitoring of its staff to ensure they possess the knowledge and skills necessary to report or update student statuses correctly and in a timely manner. This proactive approach to reconciliation not only bolsters data integrity but also safeguards the institution’s reputation and financial stability in an increasingly competitive educational landscape.
- Student credit balance deficiencies: This finding occurs when the institution fails to pay or disburse any credit balance that it owes to a student within 14 days of creating or receiving it. A credit balance is created when the amount of Title IV funds that the institution credits to a student’s account exceeds the amount of tuition and fees, room and board, and other authorized charges that the institution assesses to the student. This finding may affect the cash management and financial responsibility of the institution. To address this finding, the institution should review and improve its credit balance policies, procedures, and systems. It should also train and monitor its staff on how to pay or disburse credit balances correctly and promptly. This common finding is more common in higher education institutes.
Common audit findings and readiness checklist
To help educational institutions prepare for audits, we have created a common audit findings and readiness checklist that summarizes some of the steps, actions, and documents that they can use to ensure accurate record-keeping, compliance with regulations, and readiness for audit procedures. The checklist is not exhaustive, and it may not cover all the specific requirements or expectations of different types of audits. However, it can serve as a general guide or reference for educational institutions to assess their audit readiness.
Download Checklist
Audits are an important part of ensuring the financial integrity and accountability of educational institutions. They can also help educational institutions improve their quality, performance, and reputation. However, audits can also be stressful and time-consuming for educational institutions if they are not well prepared. Therefore, educational institutions should adopt a proactive and systematic approach to record-keeping.
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