Enforcement How Audits are Conducted
Overview of How Audits are Conducted
The Commission prepares an annual audit plan that identifies the audit topics for the upcoming fiscal year. Most audits are planned and prioritized using a risk-based approach. Audit topics and candidates included in the plan come from many sources including, but not limited to:
- Information from a monitoring activity;
- Internally developed screens that considers various risk factors;
- Input from program offices and agency officials;
- Information gleaned from ongoing and completed audits;
- Referrals from investigation activity; and
- Commission orders.
Risk assessment continues to be an important aspect of DAAís audit program because a significant majority of audits are initiated without any allegation of wrongdoing. The overall objective of the audit is to evaluate whether a jurisdictional company is in compliance with the Commissionís statutes, orders, rules and regulations. If noncompliance is discovered during the course of an audit, then the Commission will require jurisdictional companies to undertake recommended corrective measures to come into compliance with Commission requirements. The Commissionís audit approach is proactive, and the audits usually will focus on compliance areas of material interest such as the reliability, affiliated transactions, gas and electric tariff matters, market-based rate authority, and accounting, financial reporting, and record retention compliance.
Once a company is selected for audit, they will receive a public commencement letter describing (1) the purpose and scope of the audit, (2) authority to conduct the audit, and (3) staff and management contact information. During the course of the audit fieldwork, staff collects evidence to satisfy the audit procedures using several techniques such as: observations, process walk-thru, data requests, interviews, and analytical testing. Potential audit findings and areas of improvement are usually vetted with the company during the course of the audit fieldwork.
When staff completes the audit fieldwork, staff meets with company officials (exit conference) and discusses potential audit findings and areas for improvements. Shortly thereafter, staff provides the company with a draft audit report for written comment and staff discusses any matters with company officials to ensure that the report is fair, accurate, complete, and objective. Then the Commission would issue either a Commission order or letter order pursuant to the Director delegated authority to issue the final audit report with the company's response attached. If the audited company disputes any of the findings, it may follow the procedures set forth in the Commission's regulations (Order No. 675 ).