Supervision During the Audit Process

60.13 – Supervision During the Audit Process (Rev. 107, Issued: 09-22-06; Effective: 10-01-06; Implementation: 10-02-06) The Government Auditing Standards related to performance of audits state that: "Staff are to be properly supervised." and "Supervision involves directing the efforts of auditors and others who are involved in the audit to determine whether the audit objectives are being accomplished. Elements of supervision include instructing staff members, keeping informed of significant problems encountered, reviewing the work performed, and providing effective on-the-job training." A. Staff Supervision Direct supervision of staff during the audit by a qualified supervisor is necessary to ensure that the audit is completed in accordance with the audit work plan. Proper supervision must be a constant activity during the desk review process, planning and completion of the audit, preparation of the audit report, and settlement of the cost report. Supervision is required so that each member of the audit team understands the objective of each desk review/audit procedure, how to perform and document the completion of the audit procedure in the working papers, and how to evaluate the audit evidence. Establish procedures for supervision that are distinct from responsibilities of individuals to adequately plan and supervise the work on a particular audit. Assure that the policies and procedures for planning, performance, and supervision of audits meet the GAS standards of quality. You must provide procedures for planning individual audits in accordance with Medicare instructions, such as: • The development of proposed audit programs; • The determination of staffing requirements and the need for specialized knowledge; and • The development of estimates of time required to complete the audit. You must also provide guidelines for maintaining standards of quality for work, such as: • Guidelines for the form and content of working papers; • Procedures for resolving differences of professional judgment among members of an audit team; and • Standard forms, checklists, and questionnaires appropriate to assist in the performance of audits. Furthermore, you must provide procedures for reviewing audit working papers and reports. B. Hiring Prepare staff job descriptions and policies and procedures for hiring to provide reasonable assurance that those employed are able to perform audits competently. You must: • Plan for staffing needs at all levels; • Establish quantified hiring objectives based on current workload, anticipated changes in workload, staff turnover, individual advancement and retirement, and current Medicare budget; and • Establish qualifications and guidelines for evaluating potential hires at each professional level. C. Supervisory Review Standards for Working Papers The audit working papers and associated files (e.g., permanent file) are the only evidence of the audit procedures you performed to support your decision on the accuracy of the final settled Medicare cost report. An element of supervision is a thorough supervisory review of the audit working papers. This may require several levels of review, depending on the size and configuration of the audit organization. For example, in a larger organization, the in-charge auditor is responsible for reviewing the work of other auditors on the team, and an independent supervisor reviews all work performed during the audit. While the ideal situation would have this second level review performed by an audit supervisor, the individual performing that function need not have that title. Rather, the individual may be a highly qualified senior auditor who is not part of the team performing the audit. In addition, a manager may also perform a subsequent higher- level review of the completed work. Your responsibility to review the audit working papers includes audits performed by all your employees and by individuals who are not your employees (i.e., subcontractors) regardless of the arrangements under which they perform the audits. You cannot delegate the responsibility to perform independent review of a subcontractor even if the subcontractor is another fiscal intermediary. The supervisory review also satisfies the audit standards requirement for due professional care in performing the audit. The first level of defense to ensure the quality of the working papers is the on-site supervision of the audit staff. The second level of defense to ensure the quality of the working papers is the supervisory review. No improvement in the quality of the audit work will occur unless management recognizes the importance of the working paper review, as the second most important line of defense in maintaining quality working papers. Proper supervisory review: • Ensures that the audit is completed in accordance with the audit plan; • Minimizes contradictions within the audit working papers; • Minimizes inappropriate or inaccurate interpretation of Medicare policies; and • Assists in the evaluation and development of staff. Give the supervisory reviewer adequate time to complete a competent review. No matter how knowledgeable the reviewer is, the effectiveness of the review is directly proportionate to the time spent on the review. The reviewing supervisor must have sufficient knowledge and understanding of the following: • Medicare laws, regulations, and payment policies; • Medicare cost reporting requirements; • GAS and the AICPA SAS; and • Provider accounting procedures. D. General Approach to Supervisory Review of Audit Working Papers The reviewing supervisor must: • Be critical and not perfunctory; • Be methodical, careful, and thorough; • Ensure that the working papers support the audit objectives; • Question the stated conclusions and be able to arrive at the same conclusions, based on the evidence presented on the working papers; and • Have a clear understanding of materiality and spend proportionately more time on material issues. E. Specific Points in the Supervisory Review of Audit Working Papers While the following points are not all-inclusive, the reviewing supervisor should: • Obtain an overall understanding of the provider by reviewing its correspondence file, permanent file, financial statements, and as-filed cost report; • Understand the audit work plan as determined by the desk review and the resulting scope of audit, as detailed in the audit program; • Discuss the in-house or field audit with the in-charge auditor to determine areas in which the auditors had problems; • Ensure that the audit work plan is completed; • Ensure that decisions to defer audit steps identified in the initial audit scope are adequately documented; • Ensure that the working papers meet the mechanical and analytical requirements for quality working papers (see §60.8 of this chapter); • Ensure that Medicare payment policies are properly interpreted; • Ensure that conclusions are supported by sufficient, competent, and relevant evidential matter; • Ensure that conclusions drawn from the audit procedures are supported by the work performed; • Ensure that the provider has been advised of proposed adjustments and given sufficient time to respond; • Ensure that all the retained adjustments are incorporated in the adjustment report; • Ensure that the aggregate of all adjustments passed as immaterial do not have a significant impact on Medicare payment; • Test calculations which have a direct impact on Medicare payment; • Look for areas which require more in-depth audit in subsequent audits and determine how they were addressed; • Ensure that notes for future audits are prepared and included in the permanent reference file; • Prepare review notes; • Make a final check of the working papers after the review notes are cleared; • Ensure that unnecessary papers are deleted from the working paper file; Retain supervisory review notes in the working papers.