TDOT Office of Internal Audit - Annual Report
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TDOT Office of Internal Audit - Annual Report

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TDOT Office of Internal Audit ANNUAL REPORT For the year ended June 30, 2007 Suite 1800 James K. Polk Bldg. Nashville, TN 37243 615-741-1651 TDOT Internal AuditAudit DirectorNancy Bernstein CPA, CISA, CGFM Audit Investigations Manager ManagerDaniel PorterPhil McGovern CPA, CFE, MACC CFEAuditor 2Auditor 1Transportation (Currently Transportation Transportation flex 2 Transportation Auditor 1Auditor 3 Investigatormismatched Investigator InvestigatorInvestigatorflex 2w/ Auditor 3(Vacant -(Vacant) Danny Hall Rhonda Coleman (Vacant –position)Kesha ThomasTy Decker WorkingCFE CFEReady to fill)to fill)Cindy WalinskiTo add value by partnering with management to improve effectiveness and efficiency of department operations and resourcesby promoting internal controls LINES OF BUSINESS Audit Services Audits are designed to review departmental processes using a systematic and disciplined approach. Audits are selected through a risk-based annual audit planning process and are conducted in accordance with the International Standards for the Practice of Internal Auditing promulgated by the Institute of Internal Auditors. Audit Follow Up Review Services Audit Folllow-Up Reviews are limited reviews performed on outstanding audit issues to determine whether management has resolved the issues identified in the audit report. These are performed on ...

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TDOT Office of Internal Audit ANNUAL REPORT For the year ended June 30, 2007
Suite 1800 James K. Polk Bldg. Nashville, TN 37243 6157411651
Auditor 2 (Currently mismatched w/ Auditor 3 position)
Cindy Walinski
Audit Manager
Phil McGovern CPA, CFE, MACC
Auditor 1 flex 2
Ty Decker
TDOT Internal Audit
Auditor 3
(Vacant)
Audit Director
Nancy Bernstein CPA, CISA, CGFM
Auditor 1 flex 2
(Vacant  Working to fill)
Transportation Investigator
Danny Hall CFE
Investigations Manager
Daniel Porter CFE
Transportation Investigator
Rhonda Coleman CFE
Transportation Investigator
Kesha Thomas
To add value by partnering with management to improve effectiveness and efficiency of department operations and resources by promoting internal controls
Transportation Investigator
(Vacant – Ready to fill)
Audit Services
LINES OF BUSINESS
Audit Follow Up Review Services
Investigative Services
Consulting Services
Special Projects
Audits are designed to review departmental processes using a systematic and disciplined approach. Audits are selected through a riskbased annual audit planning process and are conducted in accordance with the International Standards for the Practice of Internal Auditing promulgated by the Institute of Internal Auditors. Audit FolllowUp Reviews are limited reviews performed on outstanding audit issues to determine whether management has resolved the issues identified in the audit report. These are performed on an annual basis until the issues are all resolved. Investigations are performed in response to allegations of fraud, waste, or abuse and provide management with facts to better enable them to address the situation. Investigations are performed on an “as needed” basis. Consulting Services provide a resource to assist management in developing and implementing changes to continuously improve the Department. From time to time the Commissioner or members of management request our assistance with special projects of various types.
Integrity – Accountability – Consistency  Communication
3
BUSINESS RESULTS Number of Audits CompletedThe Audit Section completed 3 scheduled Audits this year over various areas within the Department. Dollar Value of Audit IssuesIdentified:$922,383 Number of FollowUp Reviews CompletedThe Audit Section completed 21 scheduled Follow Up Reviews this year, mostly at various Construction Offices across the state. Dollar Value of FollowUp Review $822,797 Issues Identified:Of the 21 Follow Up Reviews performed, Number of Follow Up Reviews with all management had corrected the issues Audit Issues resolvedidentified in all but 5 of the original audits. Number of InvestigationsThe Investigations Section (with some assistance from the Audit Section) completed 8 Investigations this year. The Investigations Section closed 23 Number of NotificationsNotifications this year. (Notifications represent allegations received that are reviewed and limited work is performed, but an investigation is not performed. This occurs for various reasons including referring the allegations to management to look into, referring the allegations to other investigative entities, or closing out the notifications because it is determined there is not enough credible information to perform an investigation.) Consulting ProjectsFinancial Integrity Act The Internal Audit Office met with each Division and Region to discuss this self assessment process and assist management in identifying risks as well as considering controls to mitigate these risks.
Integrity – Accountability – Consistency  Communication
4
Special ProjectsThe Office performed a special review at the request of the Comptroller this year. The Office also performed a Follow Up Review of the Comptroller’s February 2007 Audit Report at the Commissioner’s request. RECOVERABLE AMOUNTS Investigations performed by the Office resulted in$707,340recoverable in Department dollars and/or equipment. QUALITY RECOGNITION Peer Review– The Audit Section received a Quality Assurance Review (Peer Review) by AASHTO this year. This review was performed in accordance with theInternational Standards for the Professional Practice of Internal Auditingpromulgated by the Institute of Internal Auditors and resulted in no findings.See attachment.Having the IIA’s and AASHTO’s “stamp of approval” on operations certifies that they are conducted appropriately.& ACC Certifications Obtained Three members of the Office of Internal Audit became Certified Fraud Examiners (CFE) during FY 2007. The CFE is the most highly regarded and widely recognized professional certification for fraud investigators. Continued 
Integrity – Accountability – Consistency  Communication
5
ADDITIONAL ACCOMPLISHMENTS 9The Office hired one great new investigator during this year to assist with our investigative services. The Office also hired a new Audit Manager who is a Certified Public Accountant (CPA) with both government and corporate experience. Furthermore, the Office hired an outstanding new auditor to assist the audit team. 9The Audit Manager spoke on Internal Auditing at Travecca Nazarene College in order to present a “real world view” of the internal auditing profession as well as meet possible prospective employees. 9The Investigations Manager spoke at Middle Tennessee State University in order to present a “real world view” of the investigation profession as well as meet possible prospective employees. 9The Office restructured the Department’sFinancial Integrity Actinitiative to make it a more meaningful Control Self Assessment process. The Internal Audit Office met with each Division and Region to discuss this self assessment process and assist management in identifying risks as well as considering controls to mitigate these risks. 9The Audit Section revamped its riskbased audit planning process to be more inclusive of all business functions within the Department and more strategically focused. 9Each Auditor in the Office received at least 40 hours of training this year. Each Investigator in the Office received at least 20 hours of training this year. The training is required by the Office, and has been established to align with the requirements of the State Board of Accountancy (applicable to Certified Public Accountants – CPAs) and the Association of Certified Fraud Examiners (applicable to Certified Fraud Examiners – CFEs).
Integrity – Accountability – Consistency  Communication
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AASHTO Peer Review of the Tennessee Department of Transportation – Office of Internal Audit Review Period from November 6, 2006 through November 9, 2006 FINAL REPORT Peer Review Team Members
Donna Roberts, CIA, Team Leader Texas Department of Transportation
Johnny Alexander, CIA, Team Member Oregon Department of Transportation
Dean Harr, CIA, Team Member Michigan Department of Transportation
(Draft) AASHTO Peer Review, Tennessee Department of Transportation Internal Audit Office November 9, 2006 Page 2 of 3 November 9, 2006 Nancy A. Bernstein, CPA, CISA, CGRM, Director of Internal Audit Tennessee Department of Transportation – TDOT Suite 1800 James K. Polk Bldg. 505 Deaderick St. Nashville, TN 37243 Ms. Bernstein, We have completed a peer review of the Tennessee Department of Transportation’s Internal Audit Office. Summarized below are the results of our review. Objective and Purpose The primary objective was to perform a peer review of the quality control system in effect for the Tennessee Department of Transportation Internal Audit Office for the period March 1, 2005 through August 31, 2006. Professional auditing standards require a periodic external assessment of audit operations to determine if audit activities are independently and effectively performed. Consistent with this requirement, the objectives of our review were to: Assess the efficiency and effectiveness of the TDOT Internal Audit Office; Identify opportunities for improving internal audit operations; and Determine if the Office of Internal Audit’s operating policies, procedures and practices are in compliance with professional audit standards. The purpose of this peer review is to provide the Office of Internal Audit’s management, organization management and outside users of the audit group’s work, reasonable assurance that the Tennessee Department of Transportation Office of Internal Audit’s internal quality control system is in compliance with applicable auditing standards, applicable organizational operating policies and procedures, as well as assess the efficiency and effectiveness of the internal audit activity. Scope The peer review team used theInternational Standards for the Professional Practice of Internal Auditing (2004 version)by the Institute of Internal Auditors (IIA) promulgated to assess the TDOT audit function. Our review was conducted in conformity with the Peer Review Bylaws and other guidelines of the American Association of State Highway and Transportation Officials Standing Committee on Administration, Administrative Subcommittee on Internal and External Audit.
(Draft) AASHTO Peer Review, Tennessee Department of Transportation Internal Audit Office November 9, 2006 Page 3 of 3 The scope of the review included: Questionnaires completed by the Internal Audit Director, Internal Audit Staff and select members of Senior and Operating Management Interviews held with the Commissioner of Transportation, Chief Engineer, Internal Audit Director, Internal Audit Staff and select members of Senior and Operating Management. Review of Internal Audit’s internal control system and the policies, procedures, practices and information used for managing the audit group. Examination of a sample of audit files completed during the review period March 1, 2005 through August 31, 2006. Fieldwork was conducted at the Tennessee Department of Transportation from November 6, 2006 through November 9, 2006. Opinion The Tennessee Department of Transportation Office of Internal Audit generally complies with theInternational Standards for the Professional Practice of Internal Auditing. This implies that the Office of Internal Audit’s quality control system was adequate and the quality control policies and procedures were being complied with to provide the audit organization with reasonable assurance of conforming to applicable professional standards. Opportunities form improvement identified as a result of the peer review, but not considered to be of sufficient significance to affect the opinion expressed in this report, have been presented in a separate Management Letter. It should be noted that because there are inherent limitations in the effectiveness of any system of quality control, departures from the system may occur and not be detected. Also, projection of any evaluation of a system of quality control to future periods is subject to the risk that the system of quality control may become inadequate because of changes in conditions, or because the degree of compliance with the policies or procedures may deteriorate. Closing Comments We wish to thank the Tennessee Department of Transportation Internal Audit Office Staff and other representatives for their assistance and cooperation during our peer review.