Updated on July 06, 2024 11:46:10 PM
The Education Industry is a complex and dynamic sector that plays a vital role in society. Educational institutions are responsible for educating and preparing students for future workforce, and are entrusted with managing significant public funds.
Internal audit in the Education Industry is an important tool that educational institutions can use to ensure that they are operating efficiently and effectively, and that they are in compliance with all applicable laws and regulations. Their review of the institution's financial statements involves identifying any potential fraud or other irregularities. Go through the page to know everything about
Parameters on which internal audit takes place in an educational institution are as follows:
According to standard on Internal Audit (SIA) 130, ‘Risk Management’ states that the role of an internal auditor in relation to risk management is to provide assurance to management for the effectiveness of risk management.
Some common risks in educational institution are as follow:
Regulatory Risk: These risks usually arise due to non-compliance with various laws, regulations and standards that are necessary to govern educational institutions. Regulatory risks can vary based on various factors such as:- type of Institution (schools, colleges, universities, etc.), the geographic location, specific regulatory environment, etc.
Institution wise risk: A certain type of risk that affects the institution e.g. there is a lack of information due to enrollment growth, additional capital requirements, and unavailability of funds for operational activities, high turnover of key staff, parental reputational risk, significant financial issues, competition, etc.
Reputational Risk: Damage that occurs to an organisation when it fails to meet the expectation of stakeholders i.e, anything that can possibly harm the perceptions of public regarding the organisation for e.g, it may includes poor administration practices, decreased funding, lack of motivation amongst staff, rise in complaints from students or low academic result.
Intellectual Property Risk: Intellectual property risk refers to the analysis of what an institution needs to be prepared while deciding the protection of intellectual property.
The products of faculty, staff, and student research and scholarship at colleges and universities are the most important sources of intellectual property (IP).
Cybersecurity Risk:Related to loss of confidentiality, integrity, or loss of information, data or control systems and reflect the potential adverse impacts to organisational operations and assets.
The objectives and scopes of internal auditing in the education industry remains the same as for the IT environment. However, the internal control system and procedure might get affected by the changes due to computer processing, storage, retrieval and communication of financial information, etc.
An Internal auditor should consider the following aspects in an information technology environment:
Main source of revenue in any educational institution is from the students. The control of student’s and records is the key control mechanism for ensuring that the revenue is recorded completely and correctly.
Budgetary control:- The budgetary control serves as a tool for controlling and planning an organisation's finances.Budgetary control also means pre approval of expenses.
Another crucial aspect to be taken in account in preparation of budgets is the provision contained in section 11 of the Income Tax Act, 1961, which requires an institution to utilise a prescribed percentage of its funds for charitable purposes so as to be eligible for exemption from income tax.
The lapse of funds would result in taxation on the unused portion.
Framework of compliance refers to the whole structure, systems and processes put in place to organise the various compliance activities and to integrate them seamlessly into the organisation.
Non-compliance with law, in the case of educational institutions, could be non-compliance with the terms and conditions under which affiliations, registrations,etc. were granted to the entity to operate as an educational institution.
The regulatory environment in India is designed to ensure that educational institutions are managed solely by non-profit organisations.Non-compliance with these laws can result in serious consequences, such as the withdrawal of affiliations, loss of tax benefits, and financial penalties.
Furthermore, failure to comply with these laws can result in financial penalties, legal action, and even the closure of the institution.
To prevent fraud and errors, an internal auditor examines the internal controls for payments to ensure their adequateness. The auditor will examine the procedures for authorization, record and document maintenance, asset accountability, and independent checks.
Some key points to remember while verification:-
During auditing, certain expenses are considered:
The systems and procedures relating to generation of revenue include authority to fix fee structure, offer scholarships/fees and concessions and other terms of collection, an Internal Auditor should evaluate the system of internal control relating to revenue in an educational institution, particularly following aspects:
Receipt book: A receipt must be issued in lieu of the payment received to prevent fraud, as it provides a record for the transaction.
Billing Control: The system of billing should be secure and efficient in educational institutions and should ensure that bills are raised to each and every student at the end of the term.
Discount/ Scholarships: The educational institution may develop a policy that allows for discounts for poor students or scholarships for deserving students.
Verification of records: The Internal Auditor subsequently verifies the accuracy and completeness of revenue records. This includes examining selected entries in the receipt records, as well as supporting documentation such as students enrollment records and scholarship approval letters.
Tuition fees: The major revenue generation in educational institutions is contributed by tuition fees collected from students. The total tuition fee collected by students can be verified by verifying the number of students on the roll.
Registration fees: Registration fees are typically lower than tuition fees but it still represents a significant source of revenue. The Internal auditor should ensure that registration fees are being collected in accordance with the institution's policies.
Fines: Educational institutions may charge fines for late payments, lost books, and other infractions. The auditor should ensure that these payments are being collected in a fair and consistent manner.
Canteen Income: In order to verify the canteen income in internal audit procedures, an internal auditor must ensure the following aspects:
An institution may have different fund balances. The internal auditing aspects to be kept in mind in respect of each of these elaborated as under:
Some common types of frauds, errors, irregularities and illegal acts are commonly found in educational institution:-
In conclusion, implementing strong internal audit parameters within the education industry is key to ensuring accountability, transparency, and continuous improvement.
By systematically evaluating processes, financial transactions, and compliance with regulatory standards, educational institutions can identify the areas of strength and areas requiring enhancement.
Internal auditing in the education industry helps in managing risk,optimising resources and the overall inflation of educational quality. As the landscape of education evolves, a well-defined internal auditing framework serves as a guiding light, fostering excellence, maintaining stakeholder’s trust and fostering an environment of continual advancement.
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Special audits in educational institutions refer to specific audits conducted for particular purposes or events, such as a special financial audit to investigate irregularities or a special program audit to evaluate a specific academic initiative.
Integrity, objectivity, confidentiality, and transparency are four of the guiding principles of the Institute of Internal Auditors (IIA).
nternal audits in educational institutions are typically conducted by internal auditors or auditing teams that are independent from the areas being audited. They provide an biassed evaluation of the institution’s operations.
The frequency of internal audits varies, but institutions typically perform audits annually or on a periodic basis to ensure ongoing monitoring and improvement..
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