CMS Pub. 100-06, ch. 8, § 60.13

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.