§ 62.15 Reporting requirements: Management Audits
The proposed management audit mandate shows no demonstrable value in the teacher category. It will only
serve to weaken J-1 teacher designated sponsors who provide visa support and orientation to teachers. The
large financial burden of redundant audits would have to be passed on to parents and schools with
unnecessary cost burdens and bureaucracy. US schools are sufficiently regulated, supervised and governed
by individual states to conform to strict government regulations and standards in the form of reports,
inspections, certification requirements, etc. The Alliance for International Exchange concurs: “We suggest
that … the six audits to be required (au pair, high school, summer work/travel, camp counselor, training, and
intern) …”
§ 62.15 Management Audit signature
CHF's CPA firm concurs that it makes no sense for the Chief Financial Officer to sign off on J-1 visa categories
that do perform management audits, such as au pair. The top manager (Responsible Officer), who has
thorough grasp of the operation, would sign a management audit verifying that all operating procedures are
adequate, rather than the chief financial officer.
Suggested Management Audit template
Management audits for J-1 sponsors are estimated in the proposed rule to cost $6,000-$10,000 per year. The
Alliance and CSIET have stated that this provision would actually cost $10,000 to $20,000 annually. However,
it is impossible to calculate since the management audit template was not fleshed out in sufficient detail.
Imposing a new, seemingly redundant, and costly new mandate for a full, separate independent management
audit will burden J1 sponsors, sapping already limited resources. Non-Profit audits and 990 reports recently
became more costly due to the change in IRS non-profit corporation regulations, adding further burden to
already stressed 501(c)(3) budgets). The New York State Charities Bureau mandates expensive
($10-$20,000 annually) full financial audits for nonprofit orgs with annual incomes of $250K+. Most J-1 visa
sponsors are non-profit organizations.
Bill Fitzpatrick, CPA, CVA, Non-profit Audit Partner at McLean, Koehler, Sparks & Hammond (MKSH in the
greater Baltimore area, makes the following recommendations to simplify the cost and administrative time of a
full Management Audit:
"The management audit requirements seem somewhat ambiguous in that they state that “A management audit
is a review of a sponsor’s internal controls. The audit identifies weaknesses in operating procedures in the
conduct of an organization’s business and in meeting regulatory requirements in the administration of their
exchange visitor program.” The phrase “in the conduct of an organization’s business and in meeting
regulatory requirements…” appears to suggest that an independent auditor perform an internal control audit of
the entity’s complete internal control system, rather than just the controls related to compliance with the
exchange visitor program regs.
"I’m not sure whether I see the benefit of requiring a full internal control system audit. As part of a financial
statement audit performed in accordance with generally accepted auditing standards, the auditor must
communicate internal control deficiencies identified during the course of the audit. Why not just require a
financial statement audit (which most sponsors are likely to have already), and add two requirements:
(1) First, require the report to contain any internal control related communications from the auditor, along with
management’s response (as to how they plan to address the weaknesses noted).
(2) Second, require testing of only the portion of the internal control system related to compliance with the
requirements of the exchange visitor program. This would narrow the scope of the “management audit”
requirement and reduce the time expended and related audit cost.
"The suggested approach is similar to requirements typical in audits of other regulated entities such as
insurance companies, recipients of federal funding, issuers of federally backed mortgages, grant recipients,
etc. The proposed regs indicate that the estimated cost of this new management audit requirement to
program sponsors will be $6,000 to $10,000. I believe that estimate is optimistic.”
- Given current economic times and the crucial need to encourage – rather than discourage - existing
exchange programs to operate and the formation of new, smaller ones, a management audit in the Intern and
Trainee categories (with possible exception of High-School Students) should be required no more frequently
than every 2 years, presented simultaneously as part of the re-designation application.
- By the same token, a cut-off point should be set to exempt smaller organizations from having to finance and
submit a management audit which could squeeze them out – i.e. with an annual gross income below $200,000.
- The new non-profit laws going into effect in 6 weeks are sufficiently rigorous. The 990 Non-profit org IRS
report form--overhauled starting in 2010--is twice as long and complex.
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