- What is an audit?
- What is the difference between an audit and an inspection?
- How does an investigation differ from an audit or an inspection?
- What value do audits add? What can we offer the Department of State?
- How is the audit office organized?
- What types of audit reviews do we conduct?
- What is the audit process? What can I expect during the process?
- Do I have to provide auditors access to my files and reports?
- How can I, a manager whose operations are being audited, be involved in the audit process? Do I have any input?
- What is the report process and timing?
- What is the compliance process and timing?
- How can I submit a suggestion for an audit?
- How do I contact the Office of Audits?
Glossary
Terms frequently used in audit reports
Audits examine the methods employed by agencies, bureaus, overseas posts and contractors in carrying out essential programs or activities. In general, an OIG audit, review, or evaluation involves an examination and analysis of an organization, program, function, or activity. The auditor may inspect, analyze, and verify records and obtain information by interviews, questionnaires, and physical inspections.
Audits are used to evaluate whether established goals and objectives are achieved and resources are used economically and efficiently; to assess whether intended and realized results are consistent with laws, regulations, and good business practice; and to test financial accountability and the reliability of financial statements. An audit is a management tool that recommends a course of action upon which management may progress to accomplish its goals and objectives in a more efficient and effective manner.
Audits are performed in accordance with the generally accepted government auditing standards prescribed by the Comptroller General of the United States. click here for more information on the audit process
What is the difference between an audit and an inspection?
There is a unique split of responsibilities between auditing and inspecting within the Office of Inspector General at the Department of State. The table below compares some of the general aspects within each type of review. (Note: The information in the table represents general or average conditions. Each audit and inspection is planned based on its scope and objectives.)
| Audits | Inspections |
Focus | One program or issue area | Many issue areas |
Scope | Global recommendations | Post specific recommendations |
Issues | Department-wide | Post-specific |
At Post | 1 to 4 auditors | 3-10 inspectors |
Report | Directed to Bureau management | Directed to post managment |
Expertise | Process and control experts | Program officer experience |
Source of Credibilty | Independent perspective | Working knowledge of post operations |
click here for more information on the Office of Inspections
How does an investigation differ from an audit or an inspection?
The Office of Investigations conducts investigations of criminal, civil, and administrative misconduct related to organizational programs and operations. Investigations examine specific allegations, reports, or other information indicating possible violations of law or regulation.
Investigations conducted by OIG criminal investigators usually are the result of allegations received from Department or agency management or employees, other OIG units, Inspectors General of other agencies, the Congress, or the public. As necessary, the assistance of auditors, inspectors, and other experts may be enlisted in investigative operations.
OIG conducts investigations according to investigative procedures established by the professional community, which include reviews of relevant files and documentation and interviews with and written statements from complainants, witnesses, technical experts, and subjects of inquiries. click here for more information on the Office of investigations
What value do audits add? What can we offer the Department of State?
Government auditing is a key element in fulfilling the government's duty to be accountable to the people.
Credibility. We strive to enhance the Department's credibility by helping to minimize the risk of material misstatements in financial reports. Our audits give stakeholders confidence in the Department's programs and operations, as well as in the related systems of internal control.
Independence. We remain independent, yet responsive to the needs of the public, management, and the Congress. As such we are objective and fair in our reporting.
Expertise. Our auditors and analysts are experts in financial and performance auditing and are drawn from all levels of government, private enterprise, public accounting, and academia. Many of our auditors have extensive credentials including MBAs, CPAs, and CGFMs.
In 2002 and 2003, the Office of Audits reported more than $26 million in Questioned Costs and Funds Put to Better Use. The office recovered $1.2 million as the result of one audit alone. The Office of Audits goes beyond testing transactions and balances to providing insights that help the Department carry out its mission.
How is the Office of Audit organized?
The Office of Audits is organized into six functional divisions. These are:
- Contracts and Grants (CG)
- Financial Management (FM)
- Property and Procurement (PP)
- International Programs (IP)
- Security and Intelligence (SI)
- Policy, Planning, and Quality Assurance (PPQA)
For more information on each division, click on the division name.
What types of audit reviews do we conduct?
The Office of Audits provides auditing services that reflect the diversity of responsibilities in the foreign affairs community, including financial management; contracts and grants; property management, procurement, and departmental support activities; human resources; and other international programs and activities.
For example, financial audits ensure the integrity of the Department's financial systems; audits of grants and contracts have identified millions of dollars in unauthorized or unsupported costs; audits of procurement operations have identified inefficient solicitation, bidding, and contract oversight procedures; audits of human resource operations have identified the need to establish longer tours of duty for some posts, and more effective use of language incentive pay; audits of international programs, such as the drug eradication in Colombia, have identified opportunities for improving the accomplishment of program objectives.
What is the audit process? What can I expect during the process?
The audit process involves the following steps:
Formal notification. We will send a formal memo or cable to the entity to be audited (the bureau or post within the Department of State or an external entity). A point of contact will be requested at this time.
Entrance conference. At the beginning of each audit, we will hold an entrance conference with the management of the entity being reviewed. At the entrance conference, we will discuss the objectives, scope, and timing of the audit; make specific arrangements for our access to records, information, and personnel relating to the review; and make plans for OIG working space, telephone usage, photocopying facilities, and other administrative matters.
Field work. The audit can be conducted at domestic or overseas locations or both. During the fieldwork stage, auditors gather information to understand fully the entity's operations, activities, internal controls, and risk spectrum. We obtain and review laws and regulations, prior audit reports, organization charts, mission statements, activity reports, and policy and procedure directives. We interview personnel (staff and management) to understand the flow of and controls over documents and data. We perform walk-throughs of processes, and we conduct objective tests and analytical reviews of files, data, and systems, where appropriate.
Exit conference. We arrange exit conferences to formally advise management officials of the audit results and obtain their comments on our tentative findings and recommendations. Management input is vital prior to the issuance of our draft report in order to ensure that issues and conditions are fairly reported, correct any factual errors, and resolve disagreements.
Audit report. When we review similar programs, activities, or functions at several locations, we issue a consolidated report to top management. We may also issue a report when conditions at a single location have significant policy implications or require top-level management attention to influence timely improvements or corrective actions. We will provide a draft report for management's review and formal comments that will be incorporated into the final formal report. The final audit report indicating the results of the audit along with applicable findings and recommendations will be issued to Department management and posted on this web site. (link to Audit Reports Page)
Compliance. Once an audit report has been issued, management must indicate whether it agrees with the recommendations and should report on actions planned or taken in response to the recommendations. For the Department to realize the maximum benefit from OIG's audits, management should ensure that adequate corrective action is taken on the recommendations in the report.
Do I have to provide auditors access to my files and reports?
The findings, conclusions, and recommendations contained in audit reports must be supported by the best evidence available. This requires Department bureaus and offices, overseas posts, and contractors and grantees performing services or providing goods under the Department's authority to make available to OIG/AUD representatives records, documents, and other material generated by the entity or entities subject to review or audit.
Section 6 of the Inspector General Act of 1978, as amended, provides that each Inspector General, in carrying out the provisions of the act, is authorized:
to have access to all records, reports, audits, reviews, documents, papers, recommendations, or other material available to the applicable establishment which relate to programs and operations with respect to which that Inspector General has responsibilities under this Act.
The Office of Audits' policy is to obtain prompt access to all records, reports, documents, and such other material necessary for the efficient completion of audits, reviews, and other inquiries.
How can I, a manager whose operations are being audited, be involved in the audit process? Do I have any input?
During the course of an audit, we strive to keep management advised of the results of our review. We work closely, yet independently, with management and encourage open communication. A manager whose operations are being audited could expect the following types of communication.
At the entrance conference, we will discuss our scope and objectives with you. At this time (or at any time during our review), if you are aware of control weaknesses or areas that are not functioning as you would like, please bring them to our attention. We will try to address these along with our planned work, where possible. If you are aware of any upcoming changes, planned improvements, or best practices, please also bring these to our attention as we make every effort to provide balanced and fair reporting.
During our field work, we will discuss issues and concerns we observe with you as they arise. This gives you an opportunity to voice any concerns so that misunderstandings or inaccuracies can be rectified. It also provides you with the earliest possible notice of deficiencies, enabling you to take prompt corrective action.
At the exit conference described above and in developing our draft findings and report, we request your comments on each finding. This is one of several ways to ensure that your issues and concerns are addressed.
What is the reporting process and timing?
An audit report contains the results of our work and any findings and recommendations. An audit finding contains four elements: the condition, criteria (i.e., the basis for the finding), the cause(s) for the condition, and the effect of the condition. Recommendations are made to address the causes of the condition in each finding. Reports are read by a diverse audience, which can include the Secretary, Department officials, Congress, other agencies, and the general public.
After the exit conference, we will prepare a draft report for your formal comment. At this time, we will request your formal comments stating whether you agree or disagree with each finding and whether there is any other information that we should consider before issuing our final report. To provide timely reporting, we generally request comments within 15 days.
After we receive management's comments on the draft report, our final audit report will be issued. Your comments will be presented in their entirety in an appendix and pertinent portions will be included in the body of the text. If we agree with your comments, we may revise our recommendation or finding. If we disagree with any of the comments, we will clearly explain the reasons for disagreement in the report. If no comments are received, we will note this also.
We want our reports to provide a complete and accurate picture of the specific areas we audited at the time the reviews were performed. We also strive for fairness and balance in our presentations of the conditions reported. Therefore, your timely comments are appreciated.
What is the compliance process and timing?
Obtaining a management decision or final action and following up on audit report recommendations are integral parts of auditing and have a direct bearing on audit effectiveness. This is a shared responsibility between management and OIG.
For some audits, findings are resolved (i.e., agreement is reached) between management officials and our auditors by the time the report is issued. However, for both resolved and unresolved findings, Department management must provide a response to OIG within 30 days of the audit report date. This response should indicate whether management agrees with the recommendations and should report on actions planned or taken in response to the recommendation.
OIG will then review the response and, if the response indicates agreement with the recommendation, will accept the response and consider the finding resolved. In cases of further disagreement, the recommendations will be elevated to the Under Secretary for Management for resolution.
Once the finding has been resolved, OIG tracks and reports on the status of all audit report recommendations, ensures that final actions on recommendations are taken by the Department within six months of the date of report issuance, and follows up on the impact of actions taken in response to recommendations. To do this, OIG will periodically follow up with appropriate officials to determine and verify whether corrective actions have been implemented. When OIG has verified that the corrective action has been implemented, OIG will close the recommendation.
How can I submit a suggestion for an audit?
We are very interested in hearing audit suggestions from managers in the Department. You know your programs very well and thus are in the best position to observe when processes and/or systems do not function well. We believe that management's suggestions for areas to be audited are vital to the development of an annual audit plan that will best suit the Department's needs.
Audit planning is an ongoing process, and potential areas of audit can be obtained from any number of sources. To identify additional potential audit areas, we review congressional hearing transcripts, budgets, hotline complaints, proposed legislation, changes to regulations, applicable public concerns, and areas identified in other work. Your suggestions are added to these potential audit areas and final selections are made after ranking these areas based on materiality, vulnerability, sensitivity, mandates, and other considerations.
Please send your audit suggestions to Mark W. Duda, Assistant Inspector General for Audits (click here to email or call (202) 663-0372). We will then contact you for clarification.
How do I contact the Office of Audits?
- Telephone: 703-284-2600
- Fax number: 703-284-2622
Glossary of frequently used terms in audit reports
- Depreciation. The allocation of the cost of an asset over a period of time for accounting purposes. A decline in the value of a property due to general wear and tear or obsolescence; opposite of appreciation.
- Disallowed costs represent items that should not have been charged to the applicable program. They are questioned costs associated with an audit finding that Department management has agreed should not be charged to the Government.
- Funds put to better use are funds that could be used more efficiently and include: reductions in outlays; deobligation of funds from programs or operations; withdrawal of interest subsidy costs on loans or loan guarantees, insurance, or bonds; costs not incurred by implementing recommended improvements related to the operations of the Department, a contractor, or a grantee; avoidance of unnecessary expenditures noted in preaward reviews of contract or grant agreements; or any other savings that are specifically identified.
- NICRA. Negotiated Indirect Cost Rate Agreement. A method of charging costs which cannot be directly identified.
- Questioned costs are costs that are questioned by the OIG because of an alleged violation of a provision of a law, regulation, contract, grant, cooperative agreement, or other agreement or document governing the expenditure of funds; a finding that, at the time of the audit, such costs are not supported by adequate documentation; or a finding that the expenditure of funds for the intended purpose is unnecessary or unreasonable.
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