Who Are MIT’s Auditors and the
Audit Committee and What Are
Their Roles and Responsibilities?
Accounting Group
April 2, 2009
Bush Room
What is the definition of “audit”?
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Noun – professional, independent inspection /
examination / review / verification to evaluate one or
more of the following:
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Verb – to conduct an audit (see above)
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Financial statement representation
Compliance
Soundness and integrity of financial and operational internal
control environment
System controls
Efficiency and effectiveness
Alternative – to attend a class / lecture as a participant to review
material; does not receive credit
Audit work is conducted against an appropriate set of
standards
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Auditors Recently in National Headlines
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What groups perform audits at MIT?
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External auditors – independent of Institute
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Independent Public Accountant – PricewaterhouseCoopers
(PwC)
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Cognizant Audit Agency - Defense Contract Audit Agency
(DCAA)
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Institute financial statements (annually in accordance with GAAP)
Basic pension plan
Supplemental retirement - 401K plan
Retiree health and welfare benefits plan
A-133: Student financial aid
A-133: Federally funded fellowships
Investment Fund of Funds
SMART
A-133: Research and development
Other auditors and inspectors (e.g., OSHA)
MIT Internal Audit – independent in practice
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PwC Audit Calendar @ MIT
Jan
Feb
Mar
Apr
May Jun
Jul
Aug
Sep
Oct
Nov
Dec
Overall Institute
Basic Pension Plan
401k Pension Plan
Retiree Health and
Welfare Plan
A-133/Student
Financial Aid
Investment Fund of
Funds
SMART
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PwC Areas of Audit Emphasis
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Observations and Recommendations – Review status of
prior year comments and report current year findings
Office of the VPF – Reassess and test key general
controls over balance sheet accounts
Investment Management – Review and test operations
and control structure surrounding investment
management and treasury functions, as appropriate
Development and Major Gifts – Test to ensure gifts and
pledges are reported and recorded in proper period
Federally Sponsored Research – Ensure federally
sponsored research activity is appropriately reflected in
financial statements
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PwC Areas of Audit Emphasis
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Tax Matters – Review compensation policies, related
party transactions, and related disclosures
Pending or Threatened Claims / Litigation – Assess
accruals, and/or disclosures, and related exposure
Information Technology – Update assessment of
monitoring controls over financial systems
Compliance – Review programs that monitor
compliance with federal regulations
SAS 99 – Consideration of Fraud – Identify risks of
material misstatement
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Who is the DCAA?
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Defense Contract Audit Agency
Under the Dept of Defense (DOD)
Mission: audit military grants and
contracts
Full-time DCAA team assigned to MIT to
perform various types of audits of DOD
awards (approx. 6 auditors)
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Resident on campus and at Lincoln Lab
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Role of the DCAA at MIT
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Performs financial audits of the Institute’s books
and records
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Primarily in relation to federally sponsored research
Much of their effort is in reviewing the Institute’s
“cost study” – the F&A rate
DCAA also performs part of the A-133 Audit
Other areas of focus (audits) are:
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Property
Cost Allowability
Effort Reporting
Other
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Office of Management and Budget
(OMB) Circular A-133 Audit
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Established under Single Audit Act of 1984
Annual audit requirement
Applicable to non-profit entities receiving in
excess of $500,000 in federal awards
annually
Typically A-133 audit is performed by the
entity’s financial statement auditors
MIT is unique: A-133 is split between DCAA
(R&D) and PwC (student fin aid and federally
funded fellowships)
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MIT Internal Audit Mission, Scope,
and Guidance
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Independent and objective assurance and consulting activity
Scope of services equal to full extent of Institute’s auditable activities
(includes Lincoln Lab)
Responsible for ensuring adequacy of controls over financial
operations, safeguarding of assets, and compliance with laws and
regulations
Guided by philosophy of ensuring achievement of the Institute’s
business objectives and adding value to improve the Institute’s
operations
Strive to conduct audit work in accordance with the International
Standards for the Professional Practice of Internal Auditing
Systematic and disciplined approach to evaluate and improve
effectiveness of risk management, control and governance processes
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MIT Internal Audit Services
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Assurance engagements
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Business process reviews
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Targeted reviews
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Assess functionality of processes and determine whether business objectives
are being achieved
Test adequacy and effectiveness of internal controls across traditional
Institute boundaries
Frequently encompass IT focus
Limited scope
Focus on distinct controls within an area or sub-process
Advisory services
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Non-attestation
Provide advice and guidance on strong controls; assist management
in decision making
Largely research admin. compliance & construction contract reviews
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MIT Internal Audit Stakeholders and
Customers
Audit Committee
 Senior management
 Line management in departments,
labs, and centers
 External auditors
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MIT Internal Audit Org Chart
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MIT Internal Audit – Examples of
Key Findings / Output
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Need for improved data governance
Need for strengthened controls over revenue recording
Weakness in operational processes
RACP completion of site visits to “Top 40” federally
funded DLCs
Reviews of alleged malfeasance when requested by
management
Assessment of contracted third party capacity and
viability
Construction recovery and cost avoidance
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Who / What is the Audit Committee
of the MIT Corporation?
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Oversight body
Governed by Bylaws of the Corporation
Audit Committee is comprised of 5 members
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3 members on 5 yr. terms; 2 members on 3 yr. terms
Chosen from members of the Corporation
Chaired by A. Neil Pappalardo (elected annually)
Appoints external auditors (PwC) for financial
statement audit annually
Meets three times per year
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The MIT Audit Committee - bylaws
“Subject to the approval of the members of the
Corporation, the Audit Committee shall employ
public accountants to examine the books of MIT
for the next fiscal year, and such other financial
and investment records as the Audit Committee
deems appropriate from time to time. The public
accountants shall report thereon to the Audit
Committee, which shall in turn present the report
of audit, including the scope of the examination,
to the members of the Corporation at their next
annual meeting with such recommendations as
the Audit Committee shall deem appropriate.”
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What should customers expect?
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Requests for supporting documentation, often prior to
commencement of fieldwork
Financial statement auditors, in particular, need full
cooperation
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Tight turnaround time
Filing deadlines
For attestation engagements conducted, a report containing
an opinion and any related findings will be issued to the
appropriate member of senior management or business
process owner
For advisory engagements (Internal Audit), a report may be
issued, containing a statement of audit scope and results of
audit work performed
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