Internal Audit and Higher Education: Survey of ACUA Members Reveals Interesting Relationships
June 21, 2019
Internal auditors are an important resource to university administrators as they seek to meet the challenge of greater cost effectiveness while maintaining or improving quality. Nevertheless, ACUA members are burdened with copious mandates for compliance-type audits from federal and state regulatory agencies, which often leaves little time for audits that focus on culture and operational improvement (herein referred to as “higher-level audits”). In fact, over 20 years ago a similar survey found that almost half of ACUA member institutions performed no performance or operational audits. After the accounting scandals of Enron and WorldCom, the audit profession began to recognize the importance of governance and culture. How has the utilization of auditors and the mix of audits changed since then?
ACUA members are now performing a greater percentge of higher-level audits than they performed 20 years ago.
To answer that question, ACUA emailed a survey to 356 member institutions. Survey results indicated that ACUA members are now performing a greater percentage of higher-level audits than they performed 20 years ago. Furthermore, respondents believe they gained respect and independence over time. These results identified a relationship between the amount of higher-level audits performed and the level of esteem with which auditors believe they are held.
Survey Results
Types of Audits Perfomed
Survey results show that a greater percentage of today’s ACUA members are involved in these higher-level audits than they were over 20 years ago. As shown in Table 1, all respondents, both private and public institutions, are now engaging in operational and/or performance audits (31.5% and 30.7% of audit hours, respectively), which was previously not the case.
Compliance vs. Operational Audits
After the WorldCom and Enron accounting scandals, the importance of evaluating the control environment, including management’s operating philosophy, became more prevalent throughout the internal audit profession overall. However, a majority of survey respondents (79.5%) still report that they are not conducting formal culture assessments. Table 2 illustrates that the greater the proportion of higher-level audits conducted (i.e., operational/performance, governance) to lower-level audits (i.e., compliance, financial), the greater the ability an auditor has to influence resource allocations.
Relationship with Governing Boards
Because many compliance-type audits are mandated, ACUA members may sacrifice higher-level audits due to resource constraints. However, the ability to influence resource allocations, which may be an informal indicator of respect within the university, negatively correlates with compliance audits. This suggests that the greater the mix of compliance audits, the less the internal auditor feels that they can influence resource allocations. In contrast, the greater the mix of operational audits, the greater the auditor’s influence on resource allocations. Furthermore, these relationships indicate that governance audits and culture assessments are positively linked to operational audits and the ability to influence resource allocations.
Independence is necessary for auditors to perform their duties in an unbiased manner. The reporting relationship of the auditor, as well as their unrestricted access to records, are two signs of independence. Less than 6% of survey respondents reported being restricted in their access to records, which is an improvement from 20 years ago. Consequently, the more independence an auditor has, the higher level of respect the auditor feels they have within their university. Respect is also measured by the frequency of meetings with the governing board or audit committee. About 40% of survey respondents that have governing boards, now meet quarterly or monthly. About 80% of ACUA members that are part of a university system meet monthly or quarterly with their audit committees. These results are improvements from the previous survey where only 30% of respondents held such meetings.
Efficacy of Audit Recommendations
About half of respondents report that the board/committee either always or quite often acts upon their recommendations. This represents an improvement over the previous survey, in which auditors responded that the board/committee always acted upon their recommendations about 30% of the time and never acted upon their recommendations about 30% of the time as well. It is notable that the percentage of respondents that never have their recommendations acted upon by the board/committee improved significantly from the previous survey, which suggests that the esteem with which auditors are held is improving.
Table 4 illustrates the frequency with which others (i.e., management) act upon recommendations. About three-quarters of the time, auditor recommendations are always or quite often acted upon by others in the institution. In the previous survey, only about half of auditor recommendations were acted upon. Interestingly, survey responses indicate that almost two-thirds of respondents believe they can influence resource allocations, which was not asked in the previous survey.
Selecting Discretionary Audits
It is also important that auditors have the freedom to determine which audits will be performed. Table 5 shows that about 80% of ACUA members responding to the survey now have the ability to determine more than 40% of the audits they perform. This question was not asked in the previous survey.
Conclusion
The current survey results, when compared to a similar survey conducted over 20 years ago, illustrate that respect towards ACUA members is increasing within their universities. The more that operational, performance, governance, and culture audits are performed, the greater the esteem held by the auditors. While many compliance and financial audits are mandatory and necessary, ACUA members may wish to press for a greater number of higher-level audits, which would appear to be a win/win situation–auditors can gain respect and esteem while having a greater impact on the university.
About the Authors
Gus Gordon
Gus Gordon, DBA, CPA, CIA, CLSSS is a Professor of Accounting at the University of Texas at Tyler. He teaches Managerial and Cost Accounting.
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Mary Fischer
Mary Fischer, PhD, CGFM is a Professor of Accounting at The University of Texas at Tyler. She teaches Intermediate and Advanced Accounting, Theory and Government and Nonprofit Accounting.
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