Stanford University

News Service


NEWS RELEASE

08/22/91

CONTACT: Stanford University News Service (415) 723-2558

Revamping of internal audit department under way

STANFORD -- Stanford University's internal audit department is undergoing a fundamental reorganization, shifting its focus from management and operational auditing to a financial and compliance role.

The revamping was mandated by the Board of Trustees' audit committee in late 1990. Its aim is to perform in-house as many high- quality audits as possible to satisfy government and other outside auditors.

The change, which will include layoffs, was announced Thursday, Aug. 15, to the department's dozen employees by Reed N. Brimhall, Stanford's new director of internal audit. Brimhall had alerted the staff to the probability of reorganization in July.

As reformulated, the department will need certified public accountants, certified internal auditors and others with accounting expertise. Brimhall is the only certified public accountant on staff; two department employees are certified internal auditors.

The shift is one of several changes -- outlined in a widely circulated July 18 document, "A Program to Reform Financial Controls" -- that Stanford is making in response to the indirect cost controversy of the past year.

Despite the advance signals, the extent of the reorganization surprised some department employees. Although they knew internal audit's role was changing, staff members had not expected the unit to be totally overhauled, one employee said.

The staff member nevertheless praised Brimhall for "doing as humanely as he can" a task "he doesn't like having to do."

Brimhall, who joined Stanford in April, acknowledged that the unit has taken some heat in the indirect cost controversy.

"The department did what it was asked to do, and it did a good job," he said. "But now what's happening is that the criteria are changing, and as a result we're looking for people with different qualifications."

He predicted that some, but not all, current employees would qualify for the newly defined positions.

For the past decade, Stanford's internal auditors have focused on operational studies intended to improve controls and efficiency in administrative and management systems.

But in late fall, the trustees' audit committee and President Donald Kennedy transformed that fundamental emphasis, spelling out a new mission for Brimhall when he was hired: to "assist in the assurance of the fiscal integrity of the university."

Trustee James F. Dickason, who chairs the audit committee, said the changed direction follows a business trend he's seen over the past 15 years in which the internal audit function has grown in importance.

Internal audit departments in most educational institutions have been modest, Dickason said, but now "things are tightening up, and particularly when you deal with the government."

"We want to have confidence in the figures we give them, and that can only be done by sampling the work of the accounting people and verifying that the entries are accurate," he said. Dickason is the retired chief executive officer of Newhall Land and Farming Co. in Valencia, Calif.

Although employed by an institution or business, internal auditors should independently produce work of the same professional quality as outside public accountants, he said.

In a staff memorandum about the reorganization, Brimhall wrote of two other factors driving the Stanford change: the need for a positive response to criticisms of the university's accounting procedures, and requirements of Circular A-133 of the federal Office of Management and Budget.

Circular A-133 is the latest in a series of regulations intended to establish uniform accounting and auditing standards for nonprofit organizations that receive federal grants. For the sake of efficiency, the government is encouraging a single-audit process.

"Simply described," Brimhall wrote, "it means that all auditors with significant presence to the institution coordinate together to assure that audit risks are adequately addressed, while minimizing overlapping audit procedures."

The new organization should perform financial and compliance audits that other agencies can rely upon, Brimhall said.

Five agencies regularly perform audits at Stanford:

  • Coopers & Lybrand - Financial statements, indirect cost audits, single audits.
  • Arthur Andersen & Co. - Stanford University Hospital financial statements audit.
  • Defense Contract Audit Agency - Regulatory audits.
  • Department of Energy Inspector General - Stanford Linear Accelerator Center regulatory audits.
  • Stanford University Internal Audit.

In recent months, as many as 26 federal auditors have been on campus poring over Stanford's books.

The Defense Contract Audit Agency (DCAA), the government agency that has ongoing audit responsibility at Stanford, is allowed to rely on others for some, but not all, types of audits.

To encourage DCAA to rely on in-house audits, Stanford must convince the agency "that the department has the skills and experience in government grant and contract auditing to perform such audits to their satisfaction," Brimhall wrote.

To promote this cooperation, audit liaison responsibility formerly in the Controller's Office has been moved to Brimhall's organization. The audit liaison supervisor coordinates relationships between external auditors, and the university and Stanford University Hospital.

-kb-

910822Arc1221.html


This is an archived release.

This release is not available in any other form. Images mentioned in this release are not available online.
Stanford News Service has an extensive library of images, some of which may be available to you online. Direct your request by EMail to images@news-service.stanford.edu.

© Stanford University. All Rights Reserved. Stanford, CA 94305. (650) 723-2300. Terms of Use | Copyright Complaints