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STATE OF NORTH CAROLINA COUNCIL OF INTERNAL AUDITING
Mailing Address: 20320 Mail Service Center
Raleigh, NC 27699-0320
www. osbm.state.nc.us 919-807-7000 ** FAX: 919-733-0640
An EEO/AA Employer
Office location: 5200 Administration Building
116 West Jones Street
David T. McCoy
State Controller, Chair
Andy Willis
State Budget Director
Moses Carey Jr.
Secretary of Administration
Roy Cooper
Attorney General
David W. Hoyle
Secretary of Revenue
Beth Wood
State Auditor
Agenda
October 10, 2012
Reading of Ethics Awareness Reminder
A. Approval of Minutes – April 11, 2012 (Action item)
B. Staff Updates
C. Objectives
1. Award of Excellence
2. Training
3. Quality Assurance Review
4. Audit Plan (Action item)
5. Annual Activity Report (Action item)
D. Council Reports
1. Obstruction (Action item)
2. External Audit Services
COUNCIL OF INTERNAL AUDITING ETHICS AWARENESS
AND CONFLICT OF INTEREST REMINDER It is the duty of every Council member to avoid both conflicts of
interest and the appearances of conflict.
If any Council member has any known conflict of interest or is
aware of facts that might create the appearance of such conflict, with
respect to any matters coming before the Council today, please identify
the conflict or the facts that might create the appearance of a conflict to
ensure that any inappropriate participation in that matter may be
avoided. If at any time, any new matter that raises a conflicts issue
arises during the meeting, please be sure to identify it at that time.
STATE OF NORTH CAROLINA COUNCIL OF INTERNAL AUDITING
Page 1 of 3
David T. McCoy
State Controller, Chair
Andy Willis
State Budget Director
Moses Carey, Jr.
Secretary of Administration
Roy Cooper
Attorney General
David W. Hoyle
Secretary of Revenue
Beth Wood
State Auditor
Minutes
April 11, 2012
Call to Order
The Council of Internal Auditing held its regular meeting, Wednesday,
April 11, 2012 in the Commission Room, Administration building.
Director Willis presiding.
The following Council of Internal Audit members were present:
Andy Willis, State Budget Director
Nels Roseland representing Roy Cooper, Attorney General
Beth Wood, State Auditor
David Hoyle, Secretary of Revenue
Moses Carey, Jr., Secretary of Administration
Director Willis called the meeting to order at 9:08 a.m. and read the Ethics
Awareness and Conflict of Interest Reminder. Members had no conflicts.
Chairman David T. McCoy was absent from the proceedings.
A. Approval of Minutes
On a motion by Secretary Hoyle, seconded by Mr. Roseland, the
Council unanimously approved the minutes of January 11, 2012.
Secretary Carey recommended making spell check corrections to the
minutes.
B. Staff Update
Barbara Baldwin gave a brief update on the new employees within the
office which are:
Peggy Gill-Started 3-1-2012 is a Race to the Top auditor
Jeani Allen is an ITS auditor
Jenny Addison is an ITS auditor
Both Jeani and Jenny worked for OSBM as ARRA auditors
in the past. ITS is supporting these positions through a
memorandum of understanding.
OIA has one (1) vacant position for Race to the Top ARRA. OIA is
conducting interviews this week.
Page 2 of 3
C. Objectives
Training
OIA is offering two training opportunities. Quality Assurance Review Workshop
held on May 14, 2012. This is a 1 day; 8 CPE hours workshop.
Performance Measurement in Government Workshop held on May 17, 2012.
This is a 6 CPE hours workshop.
D. Council Reports
Council Meeting Schedule FY 2012-13
Barbara Baldwin discussed a schedule for the 3rd
quarter council meeting from
January 9, 2013 to January 23, 2013. This change occurred four years ago due to
Government election changes. On a motion made by Secretary Carey and
seconded by Secretary Hoyle, the Council unanimously approved the schedule
change.
External Audit Services
Barbara Baldwin worked with the Division of Purchase and Contract which
suggested establishing a work group to develop a request for information for
external audit service. Director Willis recommended assigning someone from the
State Auditor’s office to the group. Director Willis requested Barbara Baldwin to
continue working with P& C, set-up a work group, and notify the Council
members of the individuals serving on the workgroup.
Compliance Report
Barbara Baldwin presented the draft of the Internal Audit Compliance and
Challenges Report to the council.
Director Willis recommended Barbara Baldwin draft a transmittal letter for
Chairman McCoy to sign. This transmittal letter should be circulated to each
council member for review. State Auditor Wood suggested including an
executive summary in the report. Director Willis requested the report be
completed and submitted to legislature before the short session begins on May 16,
2012.
Interference Amendment
An amendment to the Act for interfering with an internal audit was presented.
Discussion was held to determine the penalty attached to obstructing an audit. A
discussion was made to attach a class II misdemeanor penalty. On a motion by
Secretary Carey and seconded by Director Willis, the Council unanimously
Page 3 of 3
approved the amendment. Mr. Roseland said Department of Justice will support
the package with all the approved amendments, but does not agree with the
confidential work papers amendment. Barbara explained how Chairman McCoy
submits each amendment separately to the legislature not as a package.
There being no further business, at 9:45a.m., a motion to adjourn was made by
Secretary Carey and seconded by Mr. Roseland. The meeting was adjourned.
This is to certify that the foregoing comprises the minutes of the Council of
Internal Auditing at the meeting held April 11, 2012.
Witness my hand, this ______ day of _____________________.
____________________________
David T. McCoy, Chair Secretary
State Budget Director
Council of Internal Auditing Internal Audit Director
Research Assistant Coordinator
Internal Auditor
Internal Auditor
Information System Auditor
Internal Auditor(Race to the Top ARRA)*
Internal Auditor(Race to the Top ARRA)*
Internal Auditor(Early Learning Challenge)**
Internal Auditor (ITS)***
* Time limited positions term August 31, 2012** Time limited positions term December 31, 2012*** Receipts supported position through a MOU with ITS
The Council of Internal Auditing is seeking nominations for the
2013 AWARD of EXCELLENCE
To express its appreciation for excellence in the field of internal auditing, this award is presented annually to honor a State internal auditor or a group of internal auditors who has made extraordinary contributions that promotes excellence in internal auditing Eligible individuals are full-time, part-time, or time-limited current or past (retired or deceased) State employees. Nominations may be made for an individual or a group. If you know of an internal auditor or group of internal auditors that goes above and beyond normal expectations of their job requirements to improve, or promote internal auditing they would qualify for nomination. This may include but is not limited to:
Dedication going beyond the normal requirements of an internal auditor’s job responsibilities. This could include internal auditors that perform duties outside of their job requirements, mentoring or assisting junior internal auditors, or performing at a level above and beyond expectations.
Contribution to promoting the internal audit profession. This could include participation with professional organizations, promoting the profession of internal auditing to individuals including students, or educating others as to the benefits of internal auditing within an organization.
Innovation to improve the processes related internal audit functions. This could include improvements to better administer audits, reduce auditing time, or improve communication of audit results.
Attached is the nomination form you can complete and return to donald.crooke@osbm.nc.gov by October 1, 2012. If you have any questions, please call Donald Crooke at 919-807-4729 or Barbara Baldwin at 919-807-4721.
Participants
Agencies 16 162
Universities 10 37
City Government 7
County Government 3
Community College 2
Other* 4
Total Number of Participants 26 215
Total Cost 1,290.52$ 2,710.41$
Cost per Participant 49.64$ 12.61$
CPE hours 8 5
Training Information
* Rex Healthcare, Biotech Center, Licensing Board
Quality Assurance
Review
May 14, 2012
Performance Measures
in Government
May 17, 2012
Participants 26
Response Received 21
Response Rate 81%
Questions Excellent Very Good Average Fair Poor No Response
Were the facilities appropriate? 6 13 1 0 1 0
Were audio and technological equipment effective? 8 11 2 0 0 0
Were the stated learning objectives met? 10 8 2 1 0 0
If, applicable, were prerequisite requirements appropriate? 3 7 2 1 0 8
Were program materials accurate? 5 12 3 0 0 1
Were materials relevant and contributed to the achievement of learning objectives? 4 12 4 0 0 1
Was time allotted to the learning activity appropriate? 4 14 3 0 0 0
Was the instructor effective? 5 10 5 1 0 0
Were the handout and/or advance preparation materials satisfactory? 4 12 3 0 0 2
Average Response 5.4 11.0 2.8 0.3 0.1 1.3
Quality Assurance Review ResponsesTraining Held May 14, 2012
26%
52%
13%
2%
1%
6%
Quality Assurance Review Training
Average Survey Response
Excellent
Very Good
Average
Fair
Poor
No Response
Participants 215
Response Received 128
Response Rate 60%
Questions Excellent Very Good Average Fair Poor
No
Response
Were the facilities appropriate? 70 46 12 0 0 0
Were audio and technological equipment effective? 75 48 2 0 0 0
Were the stated learning objectives met? 71 50 6 0 0 1
Were program materials accurate? 66 47 11 0 0 3
Were materials relevant and contributed to the achievement of learning objectives? 69 51 5 0 0 2
Was time allotted to the learning activity appropriate? 67 51 8 1 0 0
Was the instructor effective? 80 43 4 0 0 0
Were the handout and/or advance preparation materials satisfactory? 70 45 5 0 3 2
Average Response 71.0 47.6 6.6 0.1 0.4 1.0
Preformance Measures in Government ResponsesTraining Held May 17, 2012
56%
38%
5%
1%
Performance Measures in Government Training
Average Survey Responses
Excellent
Very Good
Average
No Response
Quality Assurance Program
North Carolina State University
Review underway
There were two individuals on the review team
Completed review and finalized the report
Remaining step: OIA must review all work papers and report
Estimated completion date early October
Fayetteville State University
Requested a review
Selected two individuals for the review team
Remaining: Execute MOU and conduct review
Estimated completion date late fall
Type/Audit Area Agency Risk Score Fiscal
Year
Hours
Risk Assessments
Department of Administration DOA N/A FY2012 160
Department of Commerce COM N/A FY2012 180
Department of Labor DOL N/A FY2012 160
Office of the State Auditor OSA N/A FY2012 20
Governor's Office/State Budget and Management GOV/OSBM N/A FY2012 40
Wildlife Resource Commission WRC N/A FY2012 160
RttT Risk Assessment DPI State Initiative N/A FY2012 40
Department of Administration DOA N/A FY2013 40
Department of Commerce COM N/A FY2013 40
Department of Labor DOL N/A FY2013 40
Governor's Office/State Budget and Management GOV/OSBM N/A FY2013 20
Office of the State Auditor OSA N/A FY2013 20
Wildlife Resource Commission WRC N/A FY2013 40
RttT Risk Assessment LEAs/Charter Schools N/A FY2013 40
ELC Risk Assessment GOV/OSBM N/A FY2013 200
Department of Administration DOA N/A FY2014 40
Department of Commerce COM N/A FY2014 40
Department of Labor DOL N/A FY2014 40
Governor's Office/State Budget and Management GOV/OSBM N/A FY2014 20
Office of the State Auditor OSA N/A FY2014 20
Wildlife Resource Commission WRC N/A FY2014 40
RttT Risk Assessment LEAs/Charter Schools N/A FY2014 40
RttT Risk Assessment DPI State Initiative N/A FY2014 40
ELC Risk Assessment DCD & Early Ed N/A FY2014 40
ELC Risk Assessment Office of Early Learning N/A FY2014 40
ELC Risk Assessment ECAC N/A FY2014 40
ELC Risk Assessment Public Health Div. N/A FY2014 40
Total time on Risk assessments 1,640
Efficiency &/or Effectiveness (Operational) Audit
Efficiency & Effectiveness of Centralized Purchasing WRC 1.88 FY2012 500
UI Billing Analysis-Fiscal Management DOA 2.19 FY2012 80
Mail Service Center Rate Analysis DOA 1.15 FY2012 320
Review of Procurement Transformation Project Progress DOA 2.28 FY2014 160
Workforce Solutions-Subrecipient Monitoring DOC 4.26 FY2013 400
CDBG-Subrecipient Monitoring DOC 1.15 FY2014 300
Pisgah Educational Center WRC 1.62 FY2014 400
Total Efficiency &/or Effectiveness (Operational) Audit 2,160
Internal Control
Fiscal Management -- (EAGLE - test key internal controls) DOA 2.19 FY2012 240
Budget & Management (EAGLE testing) DOL 1.89 FY2012 240
Budget (EAGLE testing) OSBM/GOV 2.18 FY2012 80
Fiscal (EAGLE) COM 3.02 FY2012 250
RCS IC Assessment DOC/DHHS 3.80 FY2012 Contracted
Fiscal Management -- (EAGLE - test key internal controls) DOA 2.19 FY2013 220
Budget & Management (EAGLE testing) DOL 1.89 FY2013 180
Budget (EAGLE testing) OSBM/GOV 2.18 FY2013 80
Fiscal (EAGLE) COM 3.02 FY2013 200
Fiscal Management -- (EAGLE - test key internal controls) DOA 2.19 FY2014 240
Budget & Management (EAGLE testing) DOL 1.89 FY2014 240
Budget (EAGLE testing) OSBM/GOV 2.18 FY2014 80
Fiscal (EAGLE) COM 3.02 FY2014 200
Total Internal Control Testing 2,250
Compliance Audit
RttT Charter Schools Expenditure Desk Review Charter Schools 3.02 FY2012 40
Woman Against Violence CCPS 3.56 FY2012 280
LEAs\Charter Schools Region 1 RttT 3.78 FY2012 200
LEAs\Charter Schools Region 2 RttT 3.78 FY2012 200
LEAs\Charter Schools Region 3 RttT 3.78 FY2012 200
Interagency Internal Audit Program
Audit Plan
July 1, 2011 to June 30, 2014
Type/Audit Area Agency Risk Score Fiscal
Year
Hours
LEAs\Charter Schools Region 4 RttT 3.78 FY2012 200
LEAs\Charter Schools Region 5 RttT 3.78 FY2012 200
LEAs\Charter Schools Region 6 RttT 3.78 FY2012 200
LEAs\Charter Schools Region 7 RttT 3.78 FY2012 200
LEAs\Charter Schools Region 8 RttT 3.78 FY2012 200
ARRA Complaince/Monitoring Professional Development RttT DPI State Initiative 3.78 FY2012 360
Teacher and Principal Evaluation Tool RttT DPI State Initiative 3.78 FY2012 140
Instruction Improvement System RttT DPI State Initiative 3.78 FY2012 140
Indian Affairs Commission-Section 8 Housing Choice Vouchers DOA 2.19 FY2013 320
State Aid Contracts From DENR DOC 2.29 FY2013 300
LEAs\Charter Schools Region 1 RttT 3.78 FY2013 200
LEAs\Charter Schools Region 2 RttT 3.78 FY2013 200
LEAs\Charter Schools Region 3 RttT 3.78 FY2013 200
LEAs\Charter Schools Region 4 RttT 3.78 FY2013 200
LEAs\Charter Schools Region 5 RttT 3.78 FY2013 280
LEAs\Charter Schools Region 6 RttT 3.78 FY2013 200
LEAs\Charter Schools Region 7 RttT 3.78 FY2013 200
LEAs\Charter Schools Region 8 RttT 3.78 FY2013 200
STEM RttT DPI State Initiative 3.78 FY2013 Contracted
Technology Infrastructure RttT DPI State Initiative 3.78 FY2013 Contracted
Effective Teachers via Virtual/Blended Courses RttT DPI State Initiative 3.78 FY2013 Contracted
RttT Induction Support Program for New Teachers in High Need Schools RttT DPI State Initiative 3.78 FY2013 350
RttT RttT Management RttT DPI State Initiative 2.52 FY2013 350
ELC Compliance/Monitoring DCD and Early Ed 4.92 FY2013 310
ELC Compliance/Monitoring Office of Early Learning 4.00 FY2013 250
ELC Compliance/Monitoring ECAC 3.87 FY2013 240
ELC Compliance/Monitoring Divison of Public Health 3.35 FY2013 200
LEAs\Charter Schools Region 1 RttT 3.78 FY2014 200
LEAs\Charter Schools Region 2 RttT 3.78 FY2014 200
LEAs\Charter Schools Region 3 RttT 3.78 FY2014 200
LEAs\Charter Schools Region 4 RttT 3.78 FY2014 200
LEAs\Charter Schools Region 5 RttT 3.78 FY2014 200
LEAs\Charter Schools Region 6 RttT 3.78 FY2014 200
LEAs\Charter Schools Region 7 RttT 3.78 FY2014 200
LEAs\Charter Schools Region 8 RttT 3.78 FY2014 200
RttT Teach for America Expansion RttT DPI State Initiative 2.52 FY2014 Contracted
RttT Evaluation of RttT Initiatives RttT DPI State Initiative 2.52 FY2014 Contracted
RttT Regional Leadership Academics RttT DPI State Initiative 2.52 FY2014 Contracted
RttT North Carolina Teacher Corps RttT DPI State Initiative 2.52 FY2014 350
RttT Turning Around the Lowest Achieving Schools RttT DPI State Initiative 2.52 FY2014 350
RttT Performance Incentives: Low Achieving Schools,Teacher,Principal Effectiveness RttT DPI State Initiative 2.52 FY2014 350
RttT Strategic Staffing Incentives RttT DPI State Initiative 2.52 FY2014 350
ELC Compliance/Monitoring DCD and Early Ed 4.92 FY2014 310
ELC Compliance/Monitoring Office of Early Learning 4.00 FY2014 250
ELC Compliance/Monitoring ECAC 3.87 FY2014 240
ELC Compliance/Monitoring Divison of Public Health 3.35 FY2014 200
Total Compliance Audit 10,560
Information System Audit
General Control DOA 1.41 FY2012 180
General Control DOC 1.97 FY2012 180
General Control DOL 1.44 FY2012 180
General Control WRC 1.53 FY2012 180
General Control OSBM 1.95 FY2013 200
General Control OSA 1.65 FY2014 200
Total Information System 1,120
Audit Follow-Up
Teacher and Principal Evaluation Tool RttT DPI State Initiative N/A FY2013 50
LEAs\Charter Schools Region 1 RttT N/A FY2013 50
LEAs\Charter Schools Region 2 RttT N/A FY2013 50
LEAs\Charter Schools Region 3 RttT N/A FY2013 50
LEAs\Charter Schools Region 4 RttT N/A FY2013 50
LEAs\Charter Schools Region 5 RttT N/A FY2013 50
LEAs\Charter Schools Region 6 RttT N/A FY2013 50
LEAs\Charter Schools Region 7 RttT N/A FY2013 50
LEAs\Charter Schools Region 8 RttT N/A FY2013 50
Teacher and Principal Evaluation Tool RttT DPI State Initiative N/A FY2013 50
Type/Audit Area Agency Risk Score Fiscal
Year
Hours
Instruction Improvement System RttT DPI State Initiative N/A FY2013 50
ELC Follow-up GOV N/A FY2013 160
Audit follow-up for IIAP agencies FY11 &FY12 projects N/A FY2013 140
IS follow-up DOL and WRC DOL & WRC N/A FY2013 80
ITS Follow-up ITS N/A FY2013 120
Follow-up for work conducted in FY2013 N/A FY2014 50
ELC -- DCD and Early Ed DCD and Early Ed N/A FY2014 50
ELC -- Office of Early Learning Office of Early Learning N/A FY2014 50
ELC -- Early Childhood Advisory Council ECAC N/A FY2014 50
ELC -- Divison of Public Health Divison of Public Health N/A FY2014 50
RttT ARRA N/A FY2014 80
Total Audit Follow-Up 1,380
Contingency for Consulting Services/Special Requests/Invesigations
Early Childhood System Building GOV N/A FY2012 120
Gaston Community Action Group Weatherization DOC N/A FY2012 80
Community Development Block Grant Investigation-Hobbs DOC N/A FY2012 40
US Dept of Labor/ESC audit follow-up DOC N/A FY2012 80
ESC/DOC Merger (rapid response) OSBM N/A FY2012 25
Statewide Compliance with IIA Standard 1321 Statewide N/A FY2012 35
WSSU/UNC-GA Employee OERI N/A FY2012 50
Contract Discrimination DOC N/A FY2012 80
Public Safety DPS N/A FY2012 8
Occupational Boards OSBM N/A FY2012 10
Use of State Resources investigations DOA N/A FY2012 150
P&C Contract Monitoring Guide DOA N/A FY2012 20
OSA Performance Audit of ITS ITS N/A FY2012 100
Hosting/No Match ITS N/A FY2012 300
Network Services ITS N/A FY2012 300
ITS Fiscal Unit Staff Analsyis ITS N/A FY2012 25
Hoke County Domestic Violence OSBM N/A FY2012 80
ITS Complaint review ITS N/A FY2012 80
E-Procurement ITS N/A FY2012 250
Billing procress ITS N/A FY2012 250
Employee Time Allocation by Cost Center ITS N/A FY2013 280
DES Staffing Analysis/OSBM Mgmt Study OSBM N/A FY2013 400
QAR NCSU NCSU N/A FY2013 120
QAIP self assessment OSBM N/A FY2013 80
QAR OSBM-OIA Internal audit function OSBM N/A FY2013 600
CIA RFP Audit Service CIA N/A FY2013 200
Consulting DPI Internal Audit with EAGLE DPI N/A FY2013 10
Weatherization Assistance Program DOC N/A FY2013 100
ELC Monitoring Plans ELC N/A FY2013 80
ELC Expenditure Tracking Tool ELC N/A FY2013 80
Contingency for Consulting/Special Requests/Investigations N/A FY2013 600
RttT ARRA Consulting Services/Special Requests/Investigations DPI, OSBM, GOV N/A FY2013 210
ITS consulting services/special request/investigations ITS N/A FY2013 900
ELC consulting services/special request/investigations GOV, DHHS, DPI N/A FY2013 500
QAIP self assessment OSBM N/A FY2014 120
ITS consulting services/special request/investigations ITS N/A FY2014 1,300
Contingency for Consulting/Special Requests/Investigations N/A FY2014 800
ELC consulting services/special request/investigations GOV, DHHS, DPI N/A FY2014 300
RttT ARRA consulting services/special request/investigations DPI, OSBM, GOV N/A FY2014 210
Total Consulting Services/Special Requests/Invesigations 8,973
Total FY2012 7,833
Total FY2013 10,930
Total FY2014 9,320
Grand Total Hours 28,083
STATE OF NORTH CAROLINA
COUNCIL OF INTERNAL AUDITING
INTERNAL AUDIT
ACTIVITY REPORT
As Required by G.S. 143-747(c)(12)
October 2012
Prepared By:
Office of Internal Audit
Office of State Budget and Management
DRAFT
Table of Contents
Introduction ..........................................................................................................................1
Council of Internal Auditing ................................................................................................1
Membership, Programs and Staff ...............................................................................1
Efforts and Accomplishments .....................................................................................3
Proposed Legislative Changes ....................................................................................4
State Agency Internal Audit Functions ................................................................................5
Audit Resources ..........................................................................................................5
Efforts and Accomplishments ...................................................................................10
Compliance ...............................................................................................................12
Appendices
Appendix A – North Carolina Internal Audit Act ....................................................15
Appendix B – Fiscal Year 2011 Staffing Recommendation .....................................19
Appendix C – Legislative Amendments ...................................................................23
DRAFT
1
INTRODUCTION
The North Carolina Internal Audit Act1 (the Act) was signed into law on August 31, 2007. The
Act established the Council of Internal Auditing (Council) and required State agencies and
universities (agencies) to establish a program of internal auditing. The Council of Internal
Auditing is mandated to report on service efforts and accomplishments of these programs and
propose legislation for consideration by the Governor and General Assembly. This report
documents the service efforts and accomplishments from July 2011 through June 2012, of State
agencies and the Council of Internal Auditing in fulfilling the mandates of the legislation.
COUNCIL OF INTERNAL AUDITING
Membership, Programs and Staff
The Council membership is set by statue as shown in Table 1. The Council meets quarterly to
provide guidance, set policies, and assess progress of internal auditing efforts within State
government.
The Council is mandated to administer programs and activities which:
Promulgate guidelines, develop technical manuals and suggest best practices;
Conduct statewide internal audit staffing analysis;
Provide training and professional development opportunities;
Report on statewide internal audit service efforts and accomplishments;
Develop and administer a peer review program;
Develop and administer an internal audit recognition program;
Develop and administer a shared internal audit program; and
Maintain a report and audit plan repository.
The Office of State Budget and Management (OSBM) support the Council and established the
Office of Internal Audit (OIA) to house the staff to the Council. The organizational structure of
the OIA is shown in Exhibit 1 on page 2. There are five permanent positions and five time-
limited positions. The time-limited positions focus their efforts on the programs/agency that
funds the position. The professional credentials held by the internal audit staff include:
Three Certified Public Accountants;
Three Certified Internal Auditors;
Two Certified Internal Control Auditors;
Two Certified Fraud Examiners;
One Certified Government Auditing Professionals; and
One Certified Government Financial Manager.
1 Entire Internal Audit Act is located in Appendix A.
Table 1 Council of Internal Auditing
Members
David T. McCoy, Chair State Controller
Andy Willis State Budget Director
Moses Carey Jr. Secretary of Administration
Roy Cooper Attorney General
David Hoyle Secretary of Revenue
Beth Wood State Auditor (nonvoting)
DRAFT
2
The Office of Internal Audit had a 15% reduction in expenditures during FY2011-12 compared
to the prior year. The decrease is related to the loss of State Fiscal Stabilization Funds which
terminated September 30, 2011. The federal funds were used to hire six internal auditors whose
primary purpose was to audit and provide technical assistance to agencies receiving ARRA
funds. In addition, two different federal grants fund three auditor positions which are: two Race
to the Top (RttT) and one Early Learning Challenge (ELC) auditors. These positions are strictly
for auditing RttT and ELC funds. Finally, two auditor positions are funded through a
memorandum of understanding (MOU) to provide audit services to Information Technology
Services (ITS). The combined general and federal funds expenditures for FY2007-08 through
FY2011-12 are shown in Table 2 on the next page.
Exhibit 1
Office of Internal Audit
Organizational Structure
June 30, 2012
State Budget Director
Council of Internal Auditing Internal Audit Director
Research Assistant
Coordinator
Internal Auditor
Internal Auditor
Information System Auditor
Internal Auditor
(Race to the Top ARRA)*
Internal Auditor
(Race to the Top ARRA)*
Internal Auditor
(Early Learning
Challenge)**
Internal Auditor
(ITS)***
Internal Auditor
(ITS)***
* Time-limited positions term August 31, 2014
** Time-limited position term December 31, 2015
*** Receipt supported through MOU with ITS
DRAFT
3
As the economic downturn prolonged, the Office diligently continued to reduce spending. The
Office of Internal Audit general fund reduction was 31% between FY2008/09 and FY2011/12.
The effect of the reduction was elimination of the program administrator position, delays in
filling vacant positions, reduction in training, postponement of audits requiring travel and delays
in purchasing professional materials and software.
Efforts and Accomplishments
Over the last five years the Council complied with all the mandated requirements in the Act.
Guidelines and manuals were published in May 2008 and communicated to all internal auditors.
The peer review, internal audit recognition, and shared internal audit programs are developed and
operating. The staffing analysis is conducted every three years (See Appendix B for details) and
annual activity report is published every year. Below is specific accomplishment during
FY2011-12.
Training and Professional Development Opportunities
To maintain proficiency, audit standards require internal auditor participate in professional
development. During May 2012, two training sessions were conducted. The, one day, Quality
Assurance Review training session educated 26 internal auditors on how to conduct a quality
assurance review. These internal auditors agreed to participate in the peer review program. The
Performance Measures in Government training session was opened to employees in State
government, licensing boards, and local government. There were 215 attending this one day
training session.
In addition to the two training sessions, throughout the year, other free or low cost training is
identified and communicated to all internal auditors. Communication takes place via email and
Table 2
FY2011/12 FY2010/11 FY2009/10 FY 2008/09 FY 2007/08
Expenditures
Personal Services 718,992 867,475$ 562,759$ 466,451$ 161,526$
Purchased Services
Central Database Dev. & Maintenance - - 96,215 -
Training & Development 14,460 7,662 3,760 11,205 24,500
Information Technology Services 13,272 10,720 1,415 40,545 6,000
Travel, Telephone, Miscellaneous 12,743 8,327 923 996 543
Total Purchased Services 40,475 26,709 6,098 148,961 31,043
Supplies 100 710 1,232 129 2,425
Property, Plant, & Equipment 550 580 872 516 10,042
Other - - 60 110 358
Total Expenditures 760,117 895,474 571,021 616,167 205,394
Carry Forward - - - - 200,985
Grand Total Expenditures 760,117 895,474 571,021 616,167 406,379
BREAKDOWN BY FUND SOURCE
General Fund 425,146 429,948 469,126 616,176 406,379
ARRA State Fiscal Stabilization Fund 116,832 443,483 101,895
ARRA Race to the Top Fund 150,079 22,042
Early Learning Challenge 8,479
Information Technology Services 59,583
Office of Internal Audit
Expenditures
DRAFT
4
posting on OSBM website. Over the past year, approximately 50 professional development
opportunities were identified and communicated.
Peer Review Program
The Peer Review program is a cooperative effort to establish a method to comply with the
Institute of Internal Auditor’s external quality assurance requirement. All internal audit functions
are required to have an external quality assurance review every five years. This program enables
agencies and universities to obtain their external assessment in a cost-effective method. North
Carolina State University requested a peer review during FY2012. The process started in late
June 2012 and is estimated to be completed by October 2012.
Internal Audit Recognition Program
The recognition program consists of two activities. First, in the quarterly newsletter an internal
auditor or audit group is profiled. Second, the Award of Excellence is bestowed upon an internal
auditor or group of internal auditors that goes above and beyond normal expectations of their job
requirements to improve or promote internal auditing. The first award was presented to James
Bruce Dillard Department of Transportation, Inspector General, Retired.
Shared Internal Audit Program
The internal audit program provides audit services to small State agencies. The guideline for
State agencies to use the internal audit program for compliance with the Act is:
1. Has an annual operating budget exceeds ten million dollars but is less than seventy
million dollars; or
2. Has less than 100 full-time equivalent employees; or
3. Receives and processes more than ten million dollars but less than seventy million
dollars in cash in a fiscal year; or
4. Is deemed appropriate by the Council of Internal Auditing.
In addition, the program will provide audit assistance to small2 internal audit functions upon
request. Services are dependent upon resource availability of the program.
For accomplishment of this program see the State Agency Internal section titled Efforts and
Accomplishments on page 10.
Report and Audit Plan Repository
Audit reports are submitted to the office throughout the year. Also, by September 30th of each
year, agencies must submit their audit plans. For more details on compliance with requirements
and the number and types of reports see the State Agency Internal section titled Efforts and
Accomplishments on page 10.
Proposed Legislation Changes
The Council has approved four separate amendments to the Internal Audit Act. The most recent
amendment relates to the obstruction of an audit. The other three amendments have been
provided to the Governor and General Assembly in prior years. Amendments include:
2 Small internal audit functions is define as one or two auditor positions.
DRAFT
5
1. Technical Correction. Major changes included: adding a University System
representative to the Council; expanding the reporting requirement of the internal audit
director; and allowing the Office of State Personnel to develop auditor qualification.
2. Confidential Work Papers. Provides consistency within the General Statute regarding
audit work papers. The Offices of the State Auditor and Controller, and the Department
of Health and Human Service Internal Audit function has full confidential work paper
law. The University system law provides work paper confidentially on a time-limited
basis. All other internal audit functions have no confidential laws.
3. Subject to the Act. Provides consistency by requiring all Executive Branch and Council
of State agencies to comply with the requirements in the Act. There are five agencies not
subject to the Act.
4. Obstruction of Audit. Stipulates the penalty for willfully attempting to hinder, interfere
or obstruct an audit.
Amendments can be seen in their entirety in Appendix C.
STATE AGENCY INTERNAL AUDIT FUNCTIONS
Audit Resources
Personnel Resources
As shown in Table 3, on page 7, there are 139.25 internal auditor positions, which are spread
across 34 State agencies. There was a net loss of one position throughout the State over the past
year. Significant changes over the last year included:
Department of Transportation gained five positions but still has taken a 29% reduction in
positions over five years;
Department of Public Safety has three less positions compared to the Departments of
Correction, Crime Control and Public Safety, and Juvenile Justice and Delinquency
Prevention combined positions before consolidation;
OSBM lost six SFSF3 time-limited positions and gained one ELC
4 and two positions
funded by the Office of Information Technology Services.
There are twelve agencies with no internal auditor positions. Four of these agencies use the
OSBM’s Office of Internal Audit as their internal audit program and five agencies are not subject
to the Internal Audit Act. Three university contract for audit service as follows:
North Carolina School of the Arts contracts with Winston-Salem State University for
audit services;
North Carolina School of Science and Math contracts with the University of North
Carolina General Administration; and
Fayetteville State University utilizes contracted auditors.
The information in Table 3, on page 7, provides data on positions regardless of filled or vacant
status.
3 Federal State Fiscal Stabilization Fund grant supported these positions.
4 Federal Early Learning Challenge grant funds this position and terminates December 31, 2015.
DRAFT
6
Internal auditors can demonstrate proficiency by obtaining professional certification and advanced
degrees. Overall, internal auditors hold 111 professional certifications in 15 different audit areas;
78% of these being either Certified Public Accountants, Certified Internal Auditors, Certified
Information Systems Auditors or Certified Fraud Examiners. The number and type of professional
certifications held by the agency’s internal auditors are shown in Chart 1on page 8.
In addition, Chart 2, on page 8, shows advanced degrees held by the agency’s internal auditors.
Combined, the auditors hold 49 advanced degrees with 73% of these being Masters in Business
Administration, Accounting or Accounting and Finance Management.
DRAFT
7
Table 3
2012 2011 2010 2009 2008 2012 2011 2010 2009 2008
Administrative Office of the Courts 4
3 3 3 3 3 Office of Administrative Hearings4
0 0 0 0 0
Community College System Office 1 1 1 0 0 Office of Lieutenant Governor4
0 0 0 0 0
Department of Administration1
0 0 0 0 0 Office of State Controller4
0 0 0 1 1
Department of Agriculture & Consumer Services 1 1 1 1 1 Office of the Governor/Office State Budget and Management1, 3
8 11 10 4 0
Department of Commerce2
3 0 0 0 2 Office of the State Auditor1
0 0 0 0 0
Department of Commerce, Employment Security Division2
N/A 2 2 1 0 State Board of Elections4
0 0 1 4 4
Department of Cultural Resources 1 1 1 1 1 Wildlife Resources Commission1
0 0 0 0 0
Department of Environment and Natural Resources 2 2 2 2 1 Appalachian State University 4 5 4 5 5
Department of Health and Human Services 8 8 8 8 8 East Carolina University 7 7 7 6 6
Department of Insurance 1 1 1 1 0 Elizabeth City State University 2 2 2 2 2
Department of Justice 1 1 1 1 0 Fayetteville State University5
0 2 2 2 2
Department of Labor1
0 0 0 0 0 North Carolina Agriculture and Technical State University 5 4 4 4 4
Department of Public Instruction 1 2 1 1 1 North Carolina Central University 3 3 3 3 4
Department of Public Safety9
19 N/A N/A N/A N/A North Carolina School of Science and Math7
0 1 1 1 1
Department of Correction9
N/A 18 18 18 19 North Carolina School of the Arts6
0 0 1 1 1
Department of Crime Control and Public Safety9
N/A 1 1 1 1 North Carolina State University 6.25 4.25 6 7 7
Department of Juvenile Justice and Delinquency Prevention9
N/A 3 3 3 4 University of North Carolina Hospitals 5 4 5 5 5
Department of Revenue 2 2 2 2 2 University of North Carolina - Asheville 1 1 1 1 1
Department of Secretary of State 1 1 1 1 1 University of North Carolina - Chapel Hill 6 6 6 6 6
Department of State Treasurer 3 2 2 1 1 University of North Carolina - Charlotte 4 4 4 4 4
State Health Plan8
N/A 0 0 0 0 University North Carolina - General Administration 1 1 1 1 1
Department of Transportation 22 17 25 31 31 University of North Carolina - Greensboro 2 2 2 3 2
Housing Finance Agency4
0 0 0 0 0 University of North Carolina - Pembroke 1 1 1 1 1
Indigent Defense Services4
1 1 1 1 1 University of North Carolina - Wilmington 4 4.5 4 4 4
Information Technology Services4
2 3 2 2 1 Western Carolina University 2 2 2 2 2
North Carolina Education Lottery4
2 2 2 2 2 Winston-Salem State University 4 4 3 3 3
Total 139.25 140.75 148.00 151.00 146.00
Positions
AgencyAgency
Statewide Internal Auditor Position Level Comparison
1. Utilizes the Interagency Internal Audit program
2. The Employment Security Commission merged with Department of Commerce in FY2012, Division of Employment Service has federal funded internal audit position and the remaining Department of Commerce is utilizes the
Interagency Internal Audit program
3. Council of Internal Auditing Interagency Internal Audit Program, housed in the Office of State Budget and Management
4. Agency is not subject to the Internal Audit Act
5. Uses contract auditors
6. Contracts with Winston-Salem State University
7. Contracts with UNC-General Administration
8. State Health Plan merged with Department of State Treasurer in FY2012
9. Departments of Correction, Crime Control and Public Safety, and Juvenile Justice and Delinquency Prevention consolidated as of January 1, 2012
Positions
DRAFT
8
Chart 1
CPA, 38
CIA, 18CFE, 17
CISA, 14
CICA, 7
CGFM, 5
CPM, 2
CGAP, 2
CISSP, 2 Other, 6
Agency Internal Auditors
Professional Certifications
CPA/Certified Public Accountant
CIA/Certified Internal Auditor
CFE/Certified Fraud ExaminerCISA/Certified Information Systems Auditor
CICA/Certified Internal Controls Auditor
CGFM/Certified Government Financial ManagerCGAP/Certified Government Audit Professional
CPM/Certified Public Manager
CISSP/Certified IT Security
Other:
CBA/Certified Business Analyst
CBRM/Certified Business Resilience ManagerCEH/Certified Ethical Hacker
CHC/Certified Healthcare Compliance
CProjM/Certified Project ManagerITIL-F/Information Technology Infrastructure
Library-Foundation
Chart 2
MBA, 25
MAC, 8
MAFM, 3
M.Ed., 2
MEA, 2
MPA, 2
MSA, 2
Other , 5
Agency Internal Auditors
Advanced Degrees
MAC/Masters of Accounting
MBA/Master of Business Administration
MAFM/Masters of Accounting & Financial Mgmt.M.Ed./Master of Education
MEA/Master of Agricultural Economics
MPA/Master of Public AdministrationMSA/Master of Science/Accounting
Other:
MTAX/Masters of Taxation
MAM/Masters of Accounting/ManagementMIS/Master of Information Sciences
MS/Masters of Science
MSIE/Masters of Science Industrial Engineering
DRAFT
9
Computer Assisted Audit Tools
In addition to personnel, internal audit functions use computer assisted audit tools (CAATs) to
improve the efficiency and effectiveness of administrative and audit tasks. Automated tools
range from basic office productivity software such as spreadsheet, word processors and text
editing programs to more advanced software packages involving the use of statistical analysis and
business intelligence tools.
The advanced software products are typically productivity tools or generalized audit software.
Productivity tools aid with the administrative and management of the audit processes such as
Teammate and SharePoint. Generalized audit software tools assist with data extract and analyze
such as ACL, IDEA and SAS.
Table 4 shows all internal audit functions use the Microsoft Office products to enhance
productivity through automation. In addition, fifteen agencies use generalized audit software
tools for data extraction and analysis; and six agencies use productivity tools to automate work
papers and work flow processes.
Table 4
State Agency
Spreadsheet or
Word Documents1
Generalized
Audit Software2
Productivity
Tools3
Community College Central Office
Department of Agriculture and Consumer Services
Department of Commerce-Division of Employment Services
Department of Cultural Resources
Department of Environment and Natural Resources
Department of Health and Human Services
Department of Insurance
Department of Justice
Department of Public Instruction
Department of Public Safety
Department of Revenue
Department of Secretary of State
Department of State Treasurer
Department of Transportation
Office of the Governor/Office of State Budget and Management
Appalachian State University
East Carolina University
Elizabeth City State University
North Carolina Agriculture and Technical State University
North Carolina Central University
North Carolina State University
University of North Carolina - Asheville
University of North Carolina - Chapel Hill
University of North Carolina - Charlotte
University of North Carolina - General Administration
University of North Carolina - Greensboro
University of North Carolina - Pembroke
University of North Carolina - Wilmington
University of North Carolina Hospitals
Western Carolina University
Winston-Salem State University
Computer Assisted Audit Tools Usage
3. Streamline process to managing audits through electronic work papers and work flows. Some products are Teammate and SharePoint.
2. Perform routine task for data extract and analysis. Some products are ACL, IDEA, and EZ-R Stats.
1. Microsoft Office products.
DRAFT
10
Efforts and Accomplishments
Internal audit functions conduct various activities designed to add value and improve a State
agency’s operations. For the period July 1, 2011 through June 30, 2012, the majority of activities
conducted by the internal auditors were compliance audits. Chart 3 shows the percentage of
internal audit reports prepared by type. In addition to the audit work shown here, most internal
audit functions provide technical assistance throughout the year. During the same time period,
internal auditors provided assistance to their agency’s management on 578 different activities
which did not result in report issuance.
The audit projects by State agency are shown in Table 5 on the next page. The Table depicts the
efforts of each internal audit function. Efforts are directly related to the size of the audit function.
There are many State agencies that have one internal auditor which limits the number of audits
that can be accomplished throughout the year.
Chart 3
Agency Engagements
July 1, 2011 through June 30, 2012
Compliance
51%
Special Review
12%
Internal Controls
Assessment
8%
Investigative
7%
Follow Up
6%
Financial
5%
Risk Assessment
4%
Performance/
Operational
3%
Special
Projects
2%
Information
Systems
2%
DRAFT
11
Table 5
Agency
Financial
Performance/
Operational Investigative Compliance
Internal
Controls
Assessment
Information
Systems
Risk
Assessment
Follow
Up
Special
Review
Special
Projects
Community College Central Office 1 3
Department of Agriculture & Consumer Services 8 2 8 2
Department of Commerce-Division of Employment Security 3 41 1 1 32
Department of Cultural Resources 4
Department of Environment & Natural Resources 5 3 3 2 1
Department of Health & Human Services 1 2 35 3 1
Department of Insurance 1 2 1 2 1
Department of Justice 1 1 1 1
Department of Public Instruction 1 1 1
Department of Public Safety2
3 2 10 53 12 38 24 74 4
Department of Revenue 6 12 1 49
Department of Secretary of State 1 6
Department of State Treasurer 2 2 3 1 9
Department of Transportation 33 37 740 1 3
OIA's Interagency Internal Audit Program1
2 2 14 5 4 8 5 12
Appalachian State University 6 5 3 4 37 12 1 2 4
East Carolina State University 5 20 2 2 2 14 4
Elizabeth City State University 1 2 1
Fayetteville State University 1 3 1 1 1 1 1
North Carolina Agriculture & Technical State University 5 1 3 3 1 1 1
North Carolina Central University 2 2 2 2 4 1 1 5
North Carolina School of Science & Math 2 4 9
North Carolina School of the Arts 1 1 1 1
North Carolina State University 10 1 1 9
University North Carolina - Asheville 1 1 1 1 1 1 5 1
University of North Carolina - Chapel Hill 1 3 2 4
University of North Carolina - Charlotte 4 2 1 4 1 2 1 3
University of North Carolina - General Administration 1 1 1
University of North Carolina - Greensboro 2 4 4 1 2
University of North Carolina - Pembroke 2 1 1 2 4
University of North Carolina - Wilmington 1 3 4 3 3 1 7 4
University of North Carolina Hospitals 2 17 4 14 6 6 1 5 2 2
Western Carolina University 4 1 4 1 1 1 15 1
Winston-Salem State University 2 5 2 1 2 3
Totals 86 55 123 894 145 31 64 103 219 38
1. Using OIA Interagency Internal Audit Program: Department of Administration, Department of Commerce, Department of Labor, Department of State Auditor, Wildlife Resource Commission,
Office of the Governor, and OSBM
2. Departments of Correction, Crime Control and Public Safety, and Juvenile Justice and Delinquency Prevention consolidated as of January 1, 2012
Agency Engagements
July 1, 2011-June 30, 2012
D
RAFT
12
Compliance
Internal Audit Act and Council Requirements
The Internal Audit Act and the North Carolina Internal Audit Manual require internal audit
functions to submit the following documents and reports to the Office of Internal Audit: internal
audit charter, organizational chart, audit plan and engagement reports. Table 6 shows compliance
with document submission and overall compliance rates for all 35 internal audit functions.
Table 6
Community College System Office
Department of Agriculture & Consumer Services
Department of Correction
Department of Crime Control and Public Safety
Department of Juvenile Justice and Delinquency Prevention
Department of Public Safety1
N/A
Department of Cultural Resources
Department of Environment and Natural Resources
Department of Health and Human Services2
Department of Insurance
Department of Justice
Department of Public Instruction3
Department of Revenue
Department of Secretary of State3
Department of State Treasurer3
Department of Transportation
OIA's Interagency Internal Audit Program4
Appalachian State University3
East Carolina University
Elizabeth City State University
Fayetteville State University
North Carolina A&T State University
North Carolina Central University
North Carolina School of the Arts
North Carolina School of Science and Math
North Carolina State University
University of North Carolina - Asheville
University of North Carolina - Chapel Hill
University of North Carolina - Charlotte
University of North Carolina - General Administration
University of North Carolina - Greensboro
University of North Carolina - Pembroke
University of North Carolina - Wilmington
University of North Carolina Hospitals
Western Carolina University
Winston-Salem State University
TOTAL 35 36 29 30
Compliance rate 97% 100% 81% 83%
Compliance with Internal Audit Act and Statewide Internal Audit Manual
1. The Departments of Correction, Crime Control and Public Safety and Juvenile Justice and Delinquency Prevention consolidated on January 1, 2012.
2. Follows Government Auditing Standards which does not require an audit charter.
3. Internal audit position was vacant.
4. Using OIA Interagency Internal Audit Program: Department of Administration, Department of Commerce, Department of Labor, Office of State
Auditor, Wildlife Resources Commission, Office of the Governor, and Office of State Budget and Management.
ReportsAgency Charter Org Chart
Annual
Plan
DRAFT
13
Internal Audit Director
The Internal Audit Act requires State agencies to appoint a Director of Internal Audit (Director)
who must report to the head of the agency. The Act defines head as Governor, Council of State
member, Cabinet Secretary, the President of the University System or the Superintendent of
Public Instruction. Table 7 shows all State agencies have appointed a director but only 39% of
the director’s report to the head of the State agency as defined in the Act. The low reporting
compliance rate is most likely due to the strict definition of ‘agency head’ which has lead to one
of the proposed legislative changes located on page 27.
Table 7
Community College Central Office Yes
Department of Administration Yes
Department of Agriculture and Consumer Services Yes
Department of Commerce No
Department of Cultural Resources Yes
Department of Environment and Natural Resources Yes
Department of Health and Human Services Yes
Department of Insurance Yes
Department of Justice Yes
Department of Labor No
Department of Public Instruction Yes
Department of Public Safety No
Department of Revenue Yes
Department of State Treasurer Yes
Department of the Secretary of State Yes
Department of Transportation Yes
Office of the Governor/Office of State Budget and Management Yes
Office of the State Auditor Yes
Wildlife Resources Commission No
Appalachian State University No
East Carolina University No
Elizabeth City State University No
Fayetteville State University No
North Carolina Agriculture and Technical State University No
North Carolina Central University No
North Carolina School of Science and Math No
North Carolina School of the Arts No
North Carolina State University No
University of North Carolina - Asheville No
University of North Carolina - Chapel Hill No
University of North Carolina - Charlotte No
University of North Carolina - General Administration No
University of North Carolina - Greensboro No
University of North Carolina - Pembroke No
University of North Carolina - Wilmington No
University of North Carolina Hospitals No
Western Carolina University No
Winston-Salem State University No
Compliance rate 100% 39%
Compliance with Internal Audit Director Appointment and Reporting
Agency
Director
Appointed
Meets Reporting
Requirement
DRAFT
14
External Quality Assurance Review (Peer Review)
Quality assurance reviews are required either every three or five years, depending on which audit
standard is followed. Thirteen internal audit functions are currently being developed and are not
required to have a review. Of the 23 internal audit functions established, only two have received
external quality assurance reviews within the required time period as shown in Table 8. It can
take 6 months to prepare for an external quality assurance review. North Carolina State
University’s peer review began June 2012 and should be completed in October 2012.
Fayetteville State University completed the self-assessment and requested a peer review. This
review is expected to begin in November 2012.
Table 8
Agency/University
Agency
Establishment Date Date of Last QAR
Deadline For First
Required QAR
Compliant
University of North Carolina - Wilmington 1983 June 2011
East Carolina University May 2011
Non-Compliant
Department of Agriculture & Consumer Services 1969 None
Department of Health and Human Services 1994 March 2004
Department of Transportation December 2002
Appalachian State University 1965 None
Elizabeth City State University 1994 None
Fayetteville State University 1998 None
North Carolina A&T State University 1969 July 1997
North Carolina Central University 1997 None
North Carolina School of the Arts 2004 None
North Carolina State University 1963 None
University of North Carolina - Asheville 2001 None
University of North Carolina - Chapel Hill 1963 None
University of North Carolina - Charlotte 1973 None
University of North Carolina - Greensboro 1984 None
University of North Carolina - Pembroke 1984 None
University of North Carolina Hospitals 1988 None
Western Carolina University 1975 None
Winston-Salem State University 1992 None
Not Required
North Carolina School of Science and Math November 2007 None November 2012
Department of Public Safety1
None December 2012
Department of Cultural Resources January 2008 None January 2013
Department of Insurance June 2008 None June 2013
Department of Secretary of State July 2008 None July 2013
OIA Internal Audit Interagency program2
September 2008 None September 2013
Department of Environment and Natural Resources October 2008 None October 2013
Department of Revenue October 2008 None October 2013
Department of Justice February 2009 None February 2014
Department of State Treasurer April 2009 None April 2014
Department of Public Instruction June 2009 None June 2014
Community College System Office September 2009 None September 2014
University of North Carolina - General Administration August 2010 None August 2015
Agency Establishment Date and
Compliance with Quality Assurance Review (QAR) Requirement
1. Departments of Correction, Crime Control and Public Safety, and Juvenile Justice and Delinquency Prevention consolidated on January 1,
2012. Council allowed the new Department until the end of the year to comply with this requirement.
2. Using OIA Interagency Internal Audit Program: Department of Administration, Department of Commerce, Department of Labor, Office
of State Auditor, Wildlife Resources Commission, Office of the Governor, and Office of State Budget and Management.
DRAFT
17
Appendix A
Internal Audit Act
Article 79.
Internal Auditing.
§ 143-745. Definitions; intent; applicability.
(a) For the purposes of this section:
(1) "Agency head" means the Governor, a Council of State member, a cabinet
secretary, the Chief Justice of the Supreme Court, the President of The
University of North Carolina, and the Superintendent of Public Instruction.
(2) "State agency" means each department created pursuant to Chapter 143A or
143B of the General Statutes, the Judicial Branch, The University of North
Carolina, and the Department of Public Instruction.
(b) This Article applies only to a State agency that:
(1) Has an annual operating budget that exceeds ten million dollars
($10,000,000);
(2) Has more than 100 full-time equivalent employees; or
(3) Receives and processes more than ten million dollars ($10,000,000) in cash in
a fiscal year. (2007-424, s. 1.)
§ 143-746. Internal auditing required.
(a) Requirements. – A State agency shall establish a program of internal auditing that:
(1) Implements an effective system of internal controls that safeguards public
funds and assets and minimizes incidences of fraud, waste, and abuse.
(2) Ensures programs and business operations are administered in compliance
with federal and state laws, regulations, and other requirements.
(3) Reviews the effectiveness and efficiency of agency and program operations
and service delivery.
(4) Periodically audits the agency's major systems and controls, including:
a. Accounting systems and controls.
b. Administrative systems and controls.
c. Electronic data processing systems and controls.
(b) Internal Audit Standards. – Internal audits shall comply with current Standards for the
Professional Practice of Internal Auditing issued by the Institute for Internal Auditors or, if
appropriate, Government Auditing Standards issued by the Comptroller General of the United
States.
(c) Appointment and Qualifications of Internal Auditors. – Any internal auditor employed
by a State agency shall at a minimum have a bachelor's degree from an accredited college or
university and:
(1) Certification or licensure as a certified public accountant, certified internal
auditor, certified fraud examiner, certified information systems auditor,
professional engineer, or attorney; or
(2) A minimum of five years' experience in internal or external auditing,
management consulting, program evaluation, management analysis,
economic analysis, industrial engineering, or operations research.
(d) Director of Internal Auditing. – The agency head shall appoint a Director of Internal
Auditing who shall report to the agency head and shall not report to any employee subordinate to
the agency head. (2007-424, s. 1.)
DRAFT
18
§ 143-747. Council of Internal Auditing.
(a) The Council of Internal Auditing is created, consisting of the following members:
(1) The State Controller who shall serve as Chair.
(2) The State Budget Officer.
(3) The Secretary of Administration.
(4) The Attorney General.
(5) The Secretary of Revenue.
(6) The State Auditor who shall serve as a nonvoting member. The State Auditor
may appoint a designee.
(b) The Council shall be supported by the Office of State Budget and Management.
(c) The Council shall:
(1) Hold its first meeting before November 1, 2007, and thereafter at the call of
the Chair or upon written request to the Chair by two members of the
Council.
(2) Keep minutes of all proceedings.
(3) Promulgate guidelines for the uniformity and quality of State agency internal
audit activities.
(4) Recommend the number of internal audit employees required by each State
agency.
(5) Develop internal audit guides, technical manuals, and suggested best internal
audit practices.
(6) Administer an independent peer review system for each State agency internal
audit activity; specify the frequency of such reviews consistent with
applicable national standards; and assist agencies with selection of
independent peer reviewers from other State agencies.
(7) Provide central training sessions, professional development opportunities, and
recognition programs for internal auditors.
(8) Administer a program for sharing internal auditors among State agencies
needing temporary assistance and assembly of interagency teams of internal
auditors to conduct internal audits beyond the capacity of a single agency.
(9) Maintain a central database of all annual internal audit plans; topics for review
proposed by internal audit plans; internal audit reports issued and individual
findings and recommendations from those reports.
(10) Require reports in writing from any State agency relative to any internal audit
matter.
(11) If determined necessary by a majority vote of the council:
a. Conduct hearings relative to any attempts to interfere with,
compromise, or intimidate an internal auditor.
b. Inquire as to the effectiveness of any internal audit unit.
c. Authorize the Chair to issue subpoenas for the appearance of any
person or internal audit working papers, report drafts, and any other
pertinent document or record regardless of physical form needed for
the hearing.
(12) Issue an annual report including, but not limited to, service efforts and
accomplishments of State agency internal auditors and to propose legislation
for consideration by the Governor and General Assembly. (2007-424, s. 1.)
DRAFT
21
Appendix B
Staffing Recommendation
Agency
Total Internal
Audit Positions
Needed
Current Internal
Audit Positions
Recommended
Number of New
Positions
Estimated Cost of
New Internal
Audit Positions
Department of Administration 3 0 3 279,000
Department of Agriculture and Consumer Services 3 1 2 186,000
Department of Commerce 5 0 5 465,000
Department of Correction 18 18 - -
Department of Crime Control & Public Safety 5 1 4 372,000
Department of Cultural Resources 2 1 1 93,000
Department of Environment and Natural Resources 8 2 6 558,000
Department of Health and Human Services 19 8 11 1,023,000
Department of Insurance 2 1 1 93,000
Department of Justice 3 1 2 186,000
Department of Juvenile Justice and Delinquency Prevention 3 3 - -
Department of Labor Shared Pool 0 - -
Department of Public Instruction 3 1 2 186,000
Department of Revenue 2 2 - -
Department of State Treasurer 2 2 - -
Department of the Secretary of State Shared Pool 1 - -
Department of Transportation 31 25 6 558,000
Office of Administrative Hearings n/a 0 - -
Office of Lieutenant Governor n/a 0 - -
Office of the Governor /Office of State Budget and Management Shared Pool 4 - -
Office of the State Auditor Shared Pool 0 - -
Wildlife Resource Commission Shared Pool 0 - -
North Carolina Community College Central Office 3 1 2 186,000
Appalachian State University 4 4 - -
East Carolina University 7 7 - -
Elizabeth City State University 2 2 - -
Fayetteville State University 2 2 - -
North Carolina A&T State University 4 4 - -
North Carolina Central University 3 3 - -
North Carolina School of Science & Math 1 1 - -
North Carolina School of the Arts 1 1 - -
North Carolina State University 7 6 1 93,000
University of North Carolina Hospitals 7 5 2 186,000
University of North Carolina-Asheville 1 1 - -
University of North Carolina-Chapel Hill 8 6 2 186,000
University of North Carolina-Charlotte 4 4 - -
University of North Carolina-General Administration 3 1 2 186,000
University of North Carolina-Greensboro 3 2 1 93,000
University of North Carolina-Pembroke 1 1 - -
University of North Carolina-Wilmington 4 4 - -
Western Carolina University 2 2 - -
Winston-Salem State University 3 3 - -
Subtotal 179 131 53 4,929,000
Agencies Not Subject to Legislation
Administrative Office of the Courts 6 3 - -
Employment Security Commission 10 2 - -
Housing Finance Agency Shared Pool 0 - -
Information Technology Services 3 2 - -
North Carolina Education Lottery 6 2 - -
Office of State Controller Shared Pool 0 - -
State Board of Elections Shared Pool 1 - -
State Health Plan 18 0 - -
Subtotal 43 10 0 0
Grand Total 222 141 53 4,929,000
2 - Six time-limited positions within the Office of Budget and Management are not included. The positions terminate September 30, 2011 and
are only used to audit American Recovery and Reinvestment Act funds through State government.
Council of Internal Auditing
State Agency Internal Audit Staffing Level Recommendation
October 2010
1 - Agencies with an established internal audit function with one position may utilize the shared pool for support.
DRAFT
25
Appendix B
Proposed Legislation
The Council of Internal Auditing voted to propose four amendments to the Internal Audit Act,
one being a revision and the other an addition to the Act.
AMENDMENT 1: Revisions to the Internal Audit Act
The Council of Internal Auditing successfully introduced House Bill 393 (see below) during the
2011-2012 General Assembly Session. House Bill 393 passed the House of Representatives and
the Senate sent the Bill to the Program Evaluation Committee receiving a favorable vote, then to
the Committee on Finance where no action was taken.
GENERAL ASSEMBLY OF NORTH CAROLINA
SESSION 2011
HOUSE BILL 393
Short Title: Modify Internal Auditing Statutes. (Public)
Sponsors: Representatives Hastings and McGee (Primary Sponsors).
For a complete list of Sponsors, see Bill Information on the NCGA Web Site.
Referred to: Government.
March 17, 2011
A BILL TO BE ENTITLED
AN ACT TO MODIFY THE INTERNAL AUDITING STATUTES APPLICABLE TO LARGE
STATE DEPARTMENTS AND THE UNIVERSITY SYSTEM.
The General Assembly of North Carolina enacts:
SECTION 1. Article 79 of Chapter 143 of the General Statutes reads as rewritten:
"Article 79.
"Internal Auditing.
"§ 143-745. Definitions; intent; applicability.
(a) For the purposes of this section:
(1) "Agency head" means the Governor, a Council of State member, a cabinet
secretary, the President of The University of North Carolina, and the
Superintendent of Public Instruction.
(2) "State agency" means each department created pursuant to Chapter 143A or
143B of the General Statutes, The University of North Carolina, and the
Department of Public Instruction.
(b) This Article applies only to a State agency that:
(1) Has an annual operating budget that exceeds ten million dollars
($10,000,000);
(2) Has more than 100 full-time equivalent employees; or
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(3) Receives and processes more than ten million dollars ($10,000,000) in cash
in a fiscal year.
"§ 143-746. Internal auditing required.
(a) Requirements. – A State agency shall establish a program of internal auditing that:
(1) Implements Promotes an effective system of internal controls that safeguards
public funds and assets and minimizes incidences of fraud, waste, and abuse.
(2) Ensures Determines if programs and business operations are administered in
compliance with federal and state laws, regulations, and other requirements.
(3) Reviews the effectiveness and efficiency of agency and program operations
and service delivery.
(4) Periodically audits the agency's major systems and controls, including:
a. Accounting systems and controls.
b. Administrative systems and controls.
c. Electronic data processing Information technology systems and
controls.
(b) Internal Audit Standards. – Internal audits shall comply with current Standards for the
Professional Practice of Internal Auditing issued by the Institute for Internal Auditors or, if
appropriate, Government Auditing Standards issued by the Comptroller General of the United
States.
(c) Appointment and Qualifications of Internal Auditors. – Any internal auditor
employed by a State agency shall at a minimum have a bachelor's degree from an accredited
college or university and:Any state employee who performs the internal audit function shall meet
the minimum qualifications for internal auditors established by the Office of State Personnel.
(1) Certification or licensure as a certified public accountant, certified internal
auditor, certified fraud examiner, certified information systems auditor,
professional engineer, or attorney; or
(2) A minimum of five years' experience in internal or external auditing,
management consulting, program evaluation, management analysis,
economic analysis, industrial engineering, or operations research.
(d) Director of Internal Auditing. – The agency head shall appoint a Director of Internal
Auditing who shall report to (i) the agency head and shall not report to any employee subordinate
to the agency head. head, (ii) the chief deputy or chief administrative assistant, or (iii) the agency
governing board, or subcommittee thereof, if such a governing board exists. The Director of
Internal Auditing shall be organizationally situated in a manner that avoids impairments to
independence as defined in the auditing standards referenced in subsection (b) of this section.
"§ 143-747. Council of Internal Auditing.
(a) The Council of Internal Auditing is created, consisting of the following members:
(1) The State Controller Controller, who shall serve as Chair.
(2) The State Budget Officer.
(3) The Secretary of Administration.
(4) The Attorney General.
(5) The Secretary of Revenue.
(6) The President of The University of North Carolina, who may appoint a
designee.
(7) The State Auditor Auditor, who shall serve as a nonvoting member. The State
Auditor may appoint a designee.
(b) The Council shall be supported by the Office of State Budget and Management.
(c) The Council shall:
(1) Hold its first meeting before November 1, 2007, and thereafter meetings at
the call of the Chair or upon written request to the Chair by two members of
the Council.
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(2) Keep minutes of all proceedings.
(3) Promulgate guidelines for the uniformity and quality of State agency internal
audit activities.
(4) Recommend the number of internal audit employees required by each State
agency.
(5) Develop internal audit guides, technical manuals, and suggested best internal
audit practices.
(6) Administer an independent peer review system for each State agency internal
audit activity; specify the frequency of such reviews consistent with
applicable national standards; and assist agencies with selection of
independent peer reviewers from other State agencies.
(7) Provide central training sessions, professional development opportunities,
and recognition programs for internal auditors.
(8) Administer a program for sharing internal auditors among State agencies
needing temporary assistance and assembly of interagency teams of internal
auditors to conduct internal audits beyond the capacity of a single agency.
(9) Maintain a central database of all annual internal audit plans; topics for
review proposed by internal audit plans; internal audit reports issued and
individual findings and recommendations from those reports.
(10) Require reports in writing from any State agency relative to any internal audit
matter.
(11) If determined necessary by a majority vote of the council:
a. Conduct hearings relative to any attempts to interfere with,
compromise, or intimidate an internal auditor.
b. Inquire as to the effectiveness of any internal audit unit.
c. Authorize the Chair to issue subpoenas for the appearance of any
person or internal audit working papers, report drafts, and any other
pertinent document or record regardless of physical form needed for
the hearing.
(12) Issue an annual report including, but not limited to, service efforts and
accomplishments of State agency internal auditors and to propose legislation
for consideration by the Governor and General Assembly."
SECTION 2. This act is effective when it becomes law.
AMENDMENT 2: Confidential Work Papers
The Council approved the following amendment to the Internal Audit Act.
N.C. Gen Stat. § 143-748
An internal auditor shall maintain, for 10 years, a complete file of all audit reports and reports of
other examinations, investigations, surveys, and reviews issued under the internal auditor’s
authority. Audit work papers and other evidence and related supportive material directly
pertaining to the work of that internal auditor’s office shall be retained in accordance with
Chapter 132 of the General Statutes. To promote intergovernmental cooperation and avoid
unnecessary duplication of audit effort, audit work papers related to issued audit reports shall be,
unless otherwise prohibited by law, made available for inspection by duly authorized
representatives of the State and federal government in connection with some matter officially
before them. Except as provided above, or upon subpoena issued by a duly authorized court or
court official, audit work papers shall be kept confidential. Audit reports shall be public records
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to the extent they do not include information which, under State laws, is confidential and exempt
from Chapter 132 of the General Statutes or would compromise the security of a State agency.
AMENDMENT 3: Not Subject to the Act
There are five State agencies not subject to the Internal Audit Act. The Council approved the
following amendment of the Internal Audit Act.
Article 79.
Internal Auditing.
§ 143-745. Definitions; intent; applicability. (a) For the purposes of this section:
(1) "Agency head" means the Governor, a Council of State member, a cabinet
secretary, commissioner, director, executive director, the President of The
University of North Carolina, the State Controller, the Chief Information
Officer, Executive Administrator and the Department of Public Instruction.
(2) "State agency" means each department or entity created pursuant to Chapter 143A, or 143B of
the General Statutes, The University of North Carolina, the North Carolina State Board of
Election, the State Health Plan for Teachers and State Employees, the Office of Information
Technology Services, Employment Security Commission of North Carolina, North Carolina
Housing Finance Agency, North Carolina Education Lottery, and the Department of Public
Instruction.
AMENDMENT 4 OBSTRUCTION
To be inserted
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Approved Option
143-748 Interference with an Internal Audit or Investigation
(a) Any member of any State agency, any officer, agent, servant, or State employee of
any State agency, who interferes with or prevents, or attempts to prevent, any State
agency Internal Auditor as define under Article 6 79 of Chapter 143 that:
(1) Interferes or impedes with selection of audits, reviews, engagements, or
projects for inclusion in the audit plan;
(2) Neglects or refuses to immediately permit access to the Internal Auditor to
examine or have access to the books, accounts, reports, vouchers, papers,
documents, or electronic data, or to the cash drawer, or cash from the officer's or
employee's department;
(3) Refuses to immediately permit access to the Internal Auditor to any personnel;
(4) Interferes or obstructs with an examination, in any manner, conducted by the
Internal Auditor; or
(5) Interferes or impedes with the publication of final results of any audit, review,
engagement, or project.
(b) An offense under this section is a Class 2 misdemeanor.
Modified Option
143-748. Obstruction of audit.
Any officer, employee or agent of a state agency subject to the provisions of Chapter 143 Article
79, who shall willfully make or cause to be made to a State agency internal auditor or his
designated representatives any false, misleading, or unfounded report for the purpose of
interfering with the performance of any audit, special review, or investigation, or to hinder or
obstruct the State agency internal auditor or his designated representatives in the performance of
their duties, shall be guilty of a Class 2 misdemeanor.
External Audit Services
Workgroup
Barbara Baldwin OSBM
Garey Graham DOA
Kenneth Barnette OSA
Nels Roseland DOJ
Eric Boyette DOT
Jeff Henderson UNC-GA
Cecile Hinson NCSU
Ben McLawhorn OSC
Workgroup meetings
April 27, 2012
June 8, 2012
September 17, 2012
Progress
Drafting RFP
Convenience contract
3-year with two 1-year renewal options
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