Educational Industry

Internal Audit Procedure in Education Industry

The Educational Industry is a complex and dynamic sector that plays a vital role in society. Educational industry are responsible for educating and preparing students for future workforce, and are entrusted with managing significant public funds.

 Educational Industry is an important tool that educational institutions 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

Standards of Internal Audit Control in the Educational Industry

• Standards on Internal Audit (SIA) 120, Internal audit control designing, maintaining, and documenting an internal system is on the management internal audit examine the effectiveness.
• According to Standard on Internal Audit (SIA) 130, “Risk Management”, the role of the internal audit in relation to risk management is to provide assurance to management on the effectiveness of risk management
• Standard Internal Audit (SIA) 140, ‘Governance’, Governance is define as a set of relationships between company and stakeholders (both internal and external) and provides the structure through which a company’s objectives are achieve.
• As per guidelines of Standard on Internal Audit (SIA) 150, ‘Compliance with laws and regulations’, Compliance is used to describe the process of following and maintain the listed laws and regulations.
• Non- compliance with these regulations intentionally or unintentionally  result in fine, penalty, litigation or other such consequences.
• Standard on Internal Audit (SIA) 220, ‘Conducting overall Internal Audit Planning’, deals with the Internal audit responsibility to prepare an overall internal audit plan, also called the Annual Internal audit plan.
• SIA 230, ‘Objectives of Internal Audit’, referred to establish the operating parameters with the overall internal audit agenda.
• The Standard on Internal Audit (SIA) 310, ‘Planning an Internal Audit Assignment’, explains the planning process to be follow by an internal audit before the start of an internal audit. But While preparing for educational institutions, the internal auditor give consideration to the accounting system and the internal control system in place.
• Standards on Internal Audit (SIA) 320 ‘Internal Audit Evidence’ lays that the Internal Audit obtains evidence by performing one or more of the following procedures:
• Inspection
  Observation
  Inquiry and confirmation
  Computation
  Analytical Review

Standards on Internal Audit (SIA) 330, ‘Internal Audit Documentation’, states that the internal audit document matters, which are crucial in demonstrating that the internal audit was executed in accordance with the Internal audit standards.

Standards on Internal Audit (SIA) 370, ‘Reporting Results’, after the performance of Internal Audit procedures, the internal audit summarises the audit findings, conclusions, suggestions and issues the report to the appointing authority.

Parameters of Internal Auditing in the Educational Industry

Parameters on which internal audit takes place in an educational institution are as follows:

Risk Assessment and Internal Controls

According to standard on Internal Audit (SIA) 130, ‘Risk Management’ states that the role of an internal audit 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  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 possibly harm the perceptions of public regarding the organisation for e.g, it 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 prepare while deciding the protection of intellectual property.

The products of faculty, staff, and student research and scholarship at colleges and university 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.

Information Technology and its Controls:

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 get affect by the changes due to computer processing, storage, retrieval and communication of financial information, etc.

An Internal audit consider the following aspects in an information technology environment:

• The degree to which the IT environment is used to compile, record, process and analyse information.
• Determining the availability of data, source documents and computer files.
• The complexity of each computer processing in significant applications.

Management Control Aspects

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 record complete and correctly.

Budgetary control:- The budgetary control serves as a tool for controlling and planning an organisation’s finances.Budgetary control also means  approval of expenses.

Another crucial aspect to be take in account in preparation of budgets is the provision contain in section 11 of the Income Tax Act, 1961, which requires an institution to utilise a prescribe percentage of its funds for charitable purposes so as to be eligible for exemption from income tax.

The lapse of funds result in taxation on the used portion.

Statutory and Legal Compliance in Educational Industry

Framework of compliance refers to the whole structure, systems and process put in place to organise the various compliance activity and to integrate them seamlessly into the organisation.

Non-compliance with law, in the case of educational institutions, non-compliance with the terms and conditions under which affiliations, registrations,etc. were grant to the entity to operate as an educational institution.

The regulatory environment in India is design to ensure that educational institutions are manage by non-profit organisations.Non-compliance with these laws  result in serious consequences, such as the withdrawal of affiliations, loss of tax benefits, and financial penalties.

Furthermore, failure to comply with these laws result in financial penalties, legal action, and even the closure of the institution.

Expenses Management and Controls

To prevent fraud and errors, an internal audit examines the internal controls for payments to ensure their adequateness. The audit will examine the procedures for authorization, record and document maintenance, asset accountability, and independent checks.

Some key points to remember while verification:-

• Examining the sequence of cheques issue during the specify period
• Review unusual items in the cash book or cash payment summary sheets.
• Assess the overall reason of the record payment through appropriate analytical procedures.
• Examining the financial statements to determine if the payments properly classify and disclose under the appropriate account heads.

During auditing, certain expenses are considered:

• Operational Expenses – includes costs related to daily activity and functions such as faculty maintenance, instructional materials, and administrative services.
• Educational Resources – expenses related to textbooks, mid-day meals, digital learning platforms, laboratory equipment, teaching aids, technology, infrastructure and curriculum development.
• Administration Expenses – encompasses salary of non – teaching staff, office supplies, software licensing, facility upkeeps, insurance and communication costs. These expenditures facilitate administrative operations, support student services and manage records.
• Technology Expenses – associate with integrating and maintaining technology solutions for learning. The expenditures include hardware (computers, tablets, etc.), software (educational applications, management systems), networking infrastructure, cybersecurity measures and IT support services.
• Marketing and recruitment – This covers costs involve in promoting educational programs and attracting students. These include expenditures on advertising campaigns, digital marketing efforts, print materials, events and promotional materials.
• Scholarship and financial aid – In education these expenses cover scholarship grants and other financial aid packages provide to eligible students based on merits, needs or specific criteria.

Revenue Assessment in Educational Industry

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 Audit evaluate the system of internal control relating to revenue in an educational institution, particular following aspects:

Receipt book: A receipt issue in lie of the payment received to prevent fraud, as it provides a record for the transaction.

Billing Control: The system of billing  secure and efficient in educational institutions and ensure that bills to each and every student at the end of the term.

Discount/ Scholarships: The educational institution develop a policy that allows for discounts for poor students or scholarships for deserving students.

Verification of records: The Internal Audit subsequently verify the accuracy and complete of revenue records. This includes examining select entry 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 contribute by tuition fees collected from students. The total tuition fee collected by students  verify by verifying the number of students on the roll.

Registration fees: Registration fees are typically lower than tuition fees but it represents a significant source of revenue. The Internal audit ensure that registration fees collect in accordance with the institution’s policies.

Fines: Educational institutions  charge fines for late payments, lost books, and other infractions. The audit ensure that these payments are  collected in a fair and consistent manner.

Canteen Income: In order to verify the canteen income in internal audit procedures, an internal audit ensure the following aspects:

• Records maintain for canteen operations to support financial statements and agreements in case of a canteen running by an outsider
• Compliance with laws and regulations applicable for operation of canteen, for example, The Prevention of Food Adulteration Act & Rules, 1954, The Shops and Establishment Act 1948, The Central/State Goods and Service Tax Act 2017, etc.
• Examining the allocation of expenses such as equipment depreciation, rental charges, breakage, theft, spoilage and administrative expenses.

Fund Balances

An institution have different fund balances. The internal auditing aspects to be keep in mind in respect of each of these elaborated as under:

• Restricted Funds: Restricted funds are those that  donate or granted with specific restrictions on how they used. The internal auditor ensure that these funds are used in accordance with the restrictions
• Designated Funds: Designate fund represents appropriation made by an institution with the purpose of building funds for specific purposes. The Internal Auditor  evaluate on the basis of evidence about appropriation made with the purpose for which it was done.
• Loans and Borrowings: The borrowings of an educational institution consist of the term loans take for construction of buildings, infrastructure facilities, acquisition of plant and machinery, furniture,etc.
• Fees received in advance: Fees receive in advance a from students or other customers in advance of the provision of services. The internal auditor ensure that these fees are properly account for and that they are not  used for unauthorise purposes.
• Unutilised Grants: In the case, when the receive grant fail to meet the designate purpose then it get refund. In such instances, the internal audit obtain the original letter and its specifications. The accounting treatment will be based on the method used by the educational institution when receiving income if the grant is refundable.

Reporting of Frauds, Errors and Irregularities and Illegal Acts

Some common types of frauds, errors, irregularity and illegal acts are commonly found in educational institution:-

• Charging fees from students, where not allow.
• Plagiarism – The internet  a source of restricted data, intellectual property rights violations, and critical information leakage, such as examination papers, course papers, essays, or research notes.
• Selling question papers and answers by employees, faculty, publisher, etc.
• Professional misconduct, educational malpractices including inappropriate change in institution’s curriculum, misuse of institution’s resources and deliberate falsification of records.
• Misappropriation of assets.
• Improper use of grant money or misuse of government funding.
• Double billing-error of charging students twice for fees of a year.
• The accounting treatment will be based on the method use by the educational institution when receiving income if the grant is refundable.

                                            Conclusion

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 identify the areas of strength and areas requiring enhancement.

 Education industry helps in managing risk,optimising resources and the overall inflation of educational quality. As the landscape of education evolves, a well-define 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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