1. Why are there audits?

Any department or unit at the University expending sponsored program funds is subject to audit by the third party providing the funding. Third parties want assurance that their rules and regulations are being complied with as the research is executed. They want assurance that processes and policies at the University limit the probability that fraud, waste and abuse will occur.

2. Consequences of Noncompliance/Public Demand For Improved Control

• Fines and penalties
• Additional oversight/monitoring by the government
• Loss of Expanded Authorities (e.g. permissions granted by Federal agencies)
• Potential reduction in Federal funding
• Professional integrity compromised
• Suspension, debarment, exclusion of individuals or the University as a whole

In recent years, major universities and medical centers have felt the impact of the public demand for improved control. Examples include:

• $15.5 million assessment against New York University Medical Center for inflated research grant costs
• $32 million fine against University of Minnesota for misuse of federal grants
• $650,000 fine against University of Chicago for research fraud and abuse

As these examples show, maintaining compliance with the rules and regulations applicable to the federal research funding received by the University is of extreme importance.

3. Type of Auditors

A department expending third party research funds may be contacted by several types of auditors-federal auditors, state auditors, auditors from industry sponsors, representatives from the University's external independent accounting firm (Pricewaterhouse Coopers LLP), and Office of University Audit (OUA).

OUA's mission statement is to provide audit and advisory services to the University Community by assessing risks, analyzing controls, and ensuring that business practices are effective, efficient, and compliant with University and regulatory policies.

4. Types of Audits

As a PI, you are most likely to be contacted in connection with either a preaward audit or a claimed cost audit.

Sponsors conduct preaward audits to verify the estimated costs submitted in proposals for large sponsored research projects.

Claimed cost audits focus on expenses actually charged to the sponsored research. These audits are concerned with the allowability and allocability of the expenditures. By their nature, these audits are typically conducted near completion of a sponsored program.

5. Audit Protocol

If you are contacted by an external auditor, it is important that you determine the legitimacy and purpose of the request. Ask the inquirer what audit organization he/she represents, what type of audit they are conducting, and the purpose of the audit. It is important to inform the Office of Research Accounting and Costing Standards (ORACS) of the impending audit and assistance should be sought from this office. One person in the department/unit should be identified as the liaison for auditors.

Responses to auditor questions should be clear and concise. Answer truthfully. Do not provide the answer that you think the auditor wants to hear. Remember that auditors typically look at documentation and relationships among data. Any "guesses" or false statements are destined for discovery. If you are unsure of an answer, or need time to provide a well-informed response or explanation, tell the auditor.

For virtually any question that can be asked by an auditor, it will be beneficial to have a statement from the PI related to each month's subsidiary ledger and payroll reports, that indicates the PI has reviewed the financial activity and does not have any requested changes.

6. Record Retention

Financial records, supporting documents, statistical records, and all other research pertinent to an award shall be retained for a period of 3 years from the date of submission of the final expenditure report. There are exceptions, such as if any litigation, claim, or audit is started before the 3-year period is complete. Refer to the ORPA Manual (currenlty under revision).

The University's policy for record retention is that documentation must be retained for three years from the date of close-out of a project. For a multi-phased project spanning 15 years, this means that documentation for all 15 years must be retained.