Effective Audit Committees in State and Local Government

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Effective Audit Committees inState and Local
Government

• The University of Texas System
• A State Educational System

Charles G. Chaffin Director of Audits
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The University of Texas System
A public university system with 9 academicand 6
health institutions.

• 9.6 billion annual operating budget
• 32 billion total assets
• 183,000 students (3k to 50k per campus)
• 90,000 employees
• 5 billion construction program

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UT Programs

• 1.5 billion in Research
• 5 Division I NCAA Programs
• National Champions in Football
• 4 Medical and 3 Dental Schools
• 6 Hospitals
• 2.1 million acres with almost 10,000 wells
• 6 Physician Practice Plans

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Historical Audit Activities

• Part of State Auditors opinion on financial
  statements of the State of Texas
• Part of A-133 federal audits of the State of
  Texas
• Student Financial Aid
• Research
• Internal auditors at each institution (130 total)
• Risk-based audit plans approved by the Board of
  Regents (BOR)
• Significant findings presented to the BOR
• Internal Control Actions Plans 1994-96
• Institutional Compliance Program 1998

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Higher Education Compliance Issues

• Physician and hospital billings
• Research expenditures and rules
• NCAA
• Endowment spending
• Student Financial Aid
• Environmental Health Safety
• Human Resources

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Initial Responses to SOX

• Created 5-member Audit, Compliance and Management
  Review Committee (ACMR) February 2003
• National Association of College and University
  Business Officers (NACUBO) drafted an Advisory
  Report titled The Sarbanes-Oxley Act of 2002
  Recommendations for Higher Education - July 2003
• Hosted national conference for higher education
  on SOX October 2003
• Developed Action Plan to implement the spirit of
  SOX November 2003
• Approved ACMR Charter, Responsibilities
  Checklist, and Meeting Planner February 2004
• Determined SOX goals to be strengthen
  governance, accountability, and on-going
  assurance February 2004

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Unique Issues for Government Education System

• Nine board members (regents) appointed by
  governor
• Board members are not compensated
• Board members serve 6-year terms (3 appointed
  every other year)
• All meetings are public, attended by media and
  broadcast on web
• Audit reports are open records
• Agenda and materials posted in advance on web
• Members serve on several other committees

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Audit Committee Accomplishments

• Established governance structure
• Chair and four other members
• Four regularly scheduled meetings and two special
  meetings per year
• Standard agenda using checklist
• Private session with audit directors, compliance
  officers, and external auditors
• Hired first external auditors for the UT System
  for 2005 financial statements (Deloitte)
• Adopted Code of Ethics and Mandated Compliance
  training
• Began reporting hotlines issues
• Developed whistle-blower and non-retaliation
  policies

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Audit Committee Accomplishments(cont)

• Sixteen (16) Institutional Audit Compliance
  Committees (report to ACMR)
• Executive management and at least one outside
  member
• Quarterly meetings
• Approve internal audit compliance plans
• Review reports from internal and external
  auditors
• Oversee audit and compliance functions
• Oversee financial reporting

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Keys to ACMR Effectiveness

• Strong Chair who is willing to support audit and
  compliance functions
• General knowledge of audit committee
  responsibilities
• Strong support of executive management

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Internal Audits Role in SOX

• Gather information on SOX and provide support for
  implementation
• Document anti-fraud programs
• Develop certification process
• Validate the certifications and
  sub-certifications
• Stay abreast of new developments
• Train management and board

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Unique Issues forAudit Committee Meetings

• Public sessions with the press
• One hour-long meeting per quarter
• 250 audit reports per year
• External Auditors (Deloitte State)
• Federal Auditors grants
• Extremely active compliance function
• Private sessions limited by law

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Ways in which we haveSolved these Restrictions

• Communicate frequently with committee Chair
• Lengthy pre-meeting to review all materials
• Frequent meetings between committee Chair,
  internal audit directors, external auditors, and
  state auditors
• Use Friday mailers to Regents for sensitive
  information
• Color-code internal audit findings red are
  important
• Highlight one compliance topic per meeting
• Legal issues are discussed in private

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UT Benefits of New Audit Committee

• Improved Governance
• Stronger Audit Committee
• Stronger Internal Audit Committees
• Stronger Compliance Committees
• Increased Accountability for Financial
  Information
• First system-wide financial audit
• Re-emphasized importance of
• External Audit
• Internal Audit
• Compliance

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Thank You!

• cchaffin_at_utsystem.edu
• [phone]
• www.utsystem.edu/aud