The Audit Process
Audits of FlexCard purchases may be conducted at several levels: your department, FlexCard Administration, Audit & Advisory Services, and various external auditors.
Your department should conduct two types of audits:
1. Transaction Pending Allocation Self-Audit
As noted in the section on the FlexCard Purchasing Process, the Cardholder should audit each new transaction in order to verify that s/he made the purchase: this self-audit is the first line of defense against fraudulent misuse of the FlexCard.
2 . Departmental Self-Audits
Your department should conduct periodic self-audits of its FlexCard purchasing. It should review a sample of transactions to ensure that all necessary documentation has been assembled and retained for each purchase: generally, a request for delivery/order approval (if appropriate) and a dated and initialed itemized packing slip/pro forma invoice/cash register receipt. Each transaction should be reconciled to a U.S. Bank Memo Statement and to the General Ledger.
FlexCard Administration conducts two types of audits:
1. Annual Departmental Audits
FlexCard Administration emails the department a list of transactions from the previous year, then meets with department personnel (usually the Department Administrator and/or Reviewer and Cardholder) to review the documentation and discuss any issues. Departments can use the occasion of the visit to ask questions, and any findings can be discussed and policy and procedures issues clarified. An official results memo is emailed to the Department Administrator after the audit has been completed.
FlexCard Administration conducts annual audits of new departments joining the program, until at least two consecutive clean audits (ones with at most very minor findings such as unsigned receipts) have been achieved. It then exempts the department from future Annual Departmental Audits, conducting Monthly Transactional Audits.
2. Monthly Transactional Audits
FlexCard Administration emails the department a request to audit one or more transactions from the previous month. The department provides the documentation to FlexCard Administration via email, fax or campus mail. The official results are emailed to the Department Administrator after the audit has been completed.
The number of times that a department is audited each year varies according to the volume of transactions and the number that trigger audit parameters. FlexCard Administration strives not to be burdensome. By policy, must audit each department at least once each year, no matter how few or how innocuous its transactions.
3. Audit Selection Criteria
The selection criteria for both Annual Departmental and Monthly Transactional Audits are the same, and include transactions that:
- are placed by new Cardholders, during their first several months with FlexCard
- are placed with Merchants from whom restricted commodities may be purchased (food and beverages, services and rentals, etc.) or which seem out of place given the Cardholder's department
- indicate possible gift card purchases, or membership payments
- are over the Cardholder's per transaction limit when use tax has been added (unless authorized by a purchase order)
- appear to have been split (including between Cardholders) to evade the per transaction limit
- have questionable use tax modification, or for which Reason Code 0 has been entered
- have been paid on Federal Funds for more than $3,000 (price reasonableness form required)
Audit & Advisory Services
FlexCard purchases, like all other purchases and financial transactions, are subject to audit by UCSB Audit & Advisory Services as part of their routine audits of campus departments.
External (Non-UC) Auditors
All University financial transactions (FlexCard purchases included) are regularly audited by several external agencies:
1. State Board of Equalization
The California State Board of Equalization conducts a rigorous annual Sales and Use Tax Audit. Any FlexCard purchase is subject to audit and, as the Office of Record, your department must be able to produce complete documentation if one or more of its purchases is selected. All requests for FlexCard purchase documentation related to a Sales and Use Tax Audit will be relayed to your department by Accounting Services & Controls, the campus liaison for the State Board of Equalization.
2. University of California External Auditors
The University of California contracts with an external audit service (currently PriceWaterhouseCoopers) to conduct annual audits of all aspects of its financial systems and transactions. The FlexCard program is included as part of the review process and your department may be requested to produce purchase documentation. All requests for FlexCard purchase documentation related to a PWC Audit will be relayed to your department by Accounting Services & Controls.
3. Federal Contract Compliance Audits
All Federal contracts, grants and cooperative agreements are subject to audit as part of Federal Contract Compliance Audits. Any FlexCard purchase made with Federal funds could be selected for review during an audit by a Federal agency. All requests for FlexCard purchase documentation related to a University of California External Audit will be relayed to your department by the Extramural Funds unit of Accounting Services & Controls.
The purpose of all audits is not to punish your department or any individual but rather to assist you in the operation of a departmental FlexCard program that maintains all mandated controls and retains all necessary documentation, in order to minimize your department’s (and the University’s) exposure to risk and loss.