OFFICE OF ENFORCEMENT 

AUDIT PROCESS

Contents

Planning, Preparation, and Execution Phase...................................................................................................... 2

The Audit Team............................................................................................................................................... 2

Commencement Letter................................................................................................................................... 2

Data Collection................................................................................................................................................ 2

Site Visit Opening Conference ........................................................................................................................ 3

Site Visit Wrap-up Conference........................................................................................................................ 3

Analysis........................................................................................................................................................... 3

Documentation ............................................................................................................................................... 4

Exit Conference............................................................................................................................................... 4

Audit Report Phase ............................................................................................................................................. 4

Issuance of Draft Audit Report ....................................................................................................................... 4

Issuance of Final Report.................................................................................................................................. 5

Disposition of Contested Audit Matters............................................................................................................. 5
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The Division of Audits within the Office of Enforcement helps ensure compliance with the 

Commission’s statutes, rules, regulations, and orders by conducting a wide array of audits 

of jurisdictional entities. The following summarizes the typical audit process used by the 

division to conduct audits. Particular audits may differ from this process as necessary to 

achieve the audit objectives.

Planning, Preparation, and Execution Phase

The Audit Team

The audit team may be comprised of accountants, auditors, energy industry analysts, and 

others depending on the nature of the audit. This multi-disciplined audit team will vary, 

providing the appropriate skill sets to the type of audit being conducted by the Division of 

Audits.

Commencement Letter

The Director of the Office of Enforcement sends the company selected for audit a public 

commencement letter that describes the purpose and scope of the audit, and audit staff’s 

authority to conduct the audit. The commencement letter also identifies all audit team 

members and provides appropriate contact information. Further, the commencement letter 

identifies the names and contact numbers of OE leadership. Although the commencement 

letter is a public document which can be found in eLibrary, all other correspondence with 

the company under audit, with the exception of the final audit report and the company’s 

written response attached to the report, is non-public. Financial audits are identified by a 

docket number with a prefix of “FA.” Operational audits are identified by a docket

number with a prefix of “PA.”

Data Collection

The audit team gathers a sufficient amount of evidence to document the work performed 

and to serve as the basis for the conclusions reached during the course of the audit. The 

information is gathered generally through:

Data Requests - The primary method of obtaining data is through data requests to the 

audited company. The data obtained through data requests could include financial and 

operational information, procedures manuals, organization charts, reports, email and voice 

mail records, and studies. Depending on the circumstances, the company will provide this 

data electronically or as paper documents.
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Site Visits - Site visits help ensure the auditors correctly interpret information 

provided by the company, offer an opportunity to collect relevant materials on-site,

observe processes, and offer an opportunity to conduct face-to-face interviews, 

among other things.

Interviews – The auditors conduct interviews in person and over the phone. 

Interviews enhance staff understanding of the data that the company has 

provided and the policies, processes, and procedures of the company.

Site Visit Opening Conference

At the start of each site visit, the audit team conducts a meeting with the 

company’s management. The company selects whom from its staff it wishes to 

attend this meeting. The purpose of this meeting is to explain the audit process, 

identify what information is required during the site visit, and to discuss any 

issues or concerns that have arisen since the issuance of the commencement letter. 

The team will also explain to company management how they can discuss 

unresolved issues with OE management, and provide contact information for the 

audit manager, division director, deputy office director, and office director.

Site Visit Wrap-up Conference

At the conclusion of each site visit, the audit team conducts a conference with the 

company’s management. The purpose of this meeting is to discuss any potential 

findings or areas of concern, identify audit work that the team needs to complete, 

clarify any outstanding data requests, and respond to any questions by company 

management. The team will again explain to the company’s management how 

they can contact OE’s leadership to discuss any issues or concerns regarding the 

audit.

Analysis

As data are collected from the company under audit, the team compiles and 

analyzes the data. The audit team analyzes information gathered from multiple 

sources, including FERC filings, as well as public records from other 

governmental agencies, state commissions, and the media. Advanced analysis 

may require the creation of complex spreadsheets and databases, and the use of 

sampling to test for potential non-compliance of Commission rules, regulations, 

and orders.
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Documentation

The team documents all audit work in the form of non-public working papers.

Working papers document the objective, scope, source, methodology, and results of 

each audit step, and reference all findings to the Commission’s statutes, precedents, 

rules, regulations, and orders. More importantly, working papers support the audit 

staff’s findings, conclusions, and recommendations. The standard for working 

papers is that they can be understood by an experienced auditor examining the same 

transactions and records.

Exit Conference

The purpose of an exit conference is to discuss the staff’s preliminary findings and 

recommendations with the company. The exit conference may be conducted in

person or through a conference call. Prior to conducting an exit conference, the 

audit staff receives OE leadership’s approval of its preliminary findings and 

recommendations, and consults with other offices, as appropriate, including the 

Office of the General Counsel (OGC) and the Office of Energy Market Regulation 

(OEMR. If consultation with other office occurs, the audit staff informs the 

company that is the case. The audit staff also explains the process regarding the

issuance of the draft and final audit reports and the fact that the company will have 

an opportunity to comment in writing on the draft report. Further, staff informs the 

company that other Commission offices (e.g. OGC and/or OEMR) and the 

Commission will see the company’s response before issuance of any letter order 

containing significant, unique or contested audit matters.

Audit Report Phase

Issuance of Draft Audit Report

A draft audit report is a non-public document issued to the audited company.

The draft report contains the audit staff’s findings and recommendations for 

corrective action. If a draft audit report contains significant, unique or contested 

audit matters, audit staff will distribute it to senior staff of other Commission 

offices, as appropriate, for comments before submitting it to the audited

company. OE leadership has final approval of the issuance of the draft audit 

report to the audited company.

The Audit staff customarily provides the company 15 days in which to work with 

audit staff to clarify findings and ensure that the team did not misinterpret 

information provided during the audit. The company may discuss the findings and 
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recommendations with the audit staff, submit additional information for the audit 

staff’s consideration and otherwise seek to address factual errors, tone of 

language, or lack of clarity in the report. In addition, the company may propose, 

for audit staff’s consideration, equivalent or superior recommendations to address 

the concerns of audit staff. The audit staff will take into consideration any 

additional information the company provides during this process before reaching 

its final conclusions. 

Upon completion of the review period, the company shall submit a written 

response to the draft report, as amended by audit staff during the review process. 

The written response the company provides to the draft report should state 

whether the company agrees or disagrees with each finding and recommendation. 

The company should also indicate any corrective actions already undertaken that 

are not reflected in the draft report and, to the extent practicable, when it expects 

to complete the remaining recommended corrective actions. If the company 

disagrees with a recommendation, the company is requested to provide an 

alternate resolution.

Issuance of Final Report

The audit staff will circulate to other Commission offices, as appropriate, the 

proposed final audit report with the company’s response, including any finding 

or recommendation with which the company has taken issue.

The Commission may issue the audit report as a Commission order or the Director 

of OE may issue it as a letter order under delegated authority (see 18 C.F.R. § 

375.311(j) (2014)). The order will state that the company has agreed to certain 

findings and recommendations for corrective action. Further, the order will approve 

and direct the recommended corrective action, and will constitute final agency 

action, except for disputed matters. The order will identify disputed audit issues, 

and will state that it does not constitute final agency action on these matters.

Disposition of Contested Audit Matters

If a company undergoing an audit disagrees with a finding, the procedures set forth 

in Parts 41, 158, 286 or 349 of the Commission’s regulations will govern. 

(Procedures for Disposition of Contested Audit Matters, Order No. 675, FERC 

Stats. & Regs. ¶ 31,209 (2006), order on reh’g, Order No. 675-A, FERC Stats. & 

Regs. ¶ 31,217( 2006)) Following completion of the audit process, the Commission 

will issue an order on the merits with respect to non-disputed audit matters 

contained in a notice of deficiency, audit report, or similar document, and will 

notice, without making any findings on the merits, any disputed audit matters. The 
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company may then elect a shortened procedure or a trial-type procedure to 

challenge the disputed audit matters. The Commission would honor this election 

unless the Commission determines that there are no material facts in dispute

which require a trial-type proceeding. In instances in which the company and 

the audit staff are unable to agree upon the findings and proposed remedies

contained in a draft report, the following steps occur:

• The company may provide in writing to the audit staff a response to the 

draft audit report indicating any and all findings or proposed remedies, or 

both, in any combination, with which the company disagrees.

• The audit staff communicates this response to the Commission along with 

the proposed final audit report. At this point, the Commission may direct 

the audit staff to undertake further analysis, obtain further information 

from the company, or take other action. The company’s response 

indicating disputed findings or proposed remedies becomes public when 

the audit report becomes public, i.e., at the time the Commission issues an 

order on the merits of the final audit report.

• The Commission may make determinations on the merits in a public order 

with respect to the findings and proposed remedies contained in the audit 

report that are not in dispute and will publicly notice the disputed items. 

The order will not constitute final agency action with respect to the 

disputed items and will provide the company notice that it has the 

opportunity to elect in writing the shortened procedure (submission of 

briefs) or the trial-type hearing within 30 days.

• If the company does not respond within 30 days to the notice, the 

Commission may issue an order on the merits regarding the noticed items. 

Alternatively, the company may timely respond to the notice in a public 

filing by electing in writing the shortened procedure or the trial-type 

hearing.

• If the company notifies the Commission that it seeks to challenge one or 

more audit findings, or proposed remedies, or both in any combination, by 

the shortened procedure, the Commission shall issue a notice setting a 

schedule for the filing of memoranda.

• The company electing the use of the shortened procedure, and any other 

interested entities, including the Commission staff, shall file, within 45 

days of the notice, an initial memorandum that addresses the relevant 

facts and applicable law that support the position or positions taken 

regarding the matters at issue. 
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• Reply memoranda shall be filed within 20 days of the date by which the 

initial memoranda are due to be filed. Only participants who filed initial 

memoranda may file reply memoranda. Subpart T of Part 385 of the

Commission’s regulations shall apply to all filings.

• Within 20 days after the last date that reply memoranda under the 

shortened procedure may be timely filed, the company who elected the

shortened procedure may file a motion with the Commission requesting a 

trial-type hearing if new issues are raised by a party. To prevail in such a 

motion, the company must show that a party to the shortened procedure 

raised one or more new issues of material fact relevant to resolution of a 

matter in the shortened procedure such that fundamental fairness requires 

a trial-type hearing to resolve the new issue or issues so raised. Parties to 

the shortened procedure and the Commission staff may file responses to 

the motion. In ruling upon the motion, the Commission may determine 

that some or all of the issues be litigated in a trial-type hearing.

• Except when there are no material facts in dispute, when a company does 

not consent to the shortened procedure, the Commission will assign the 

proceeding for hearing as provided by subpart E of Part 385 of the 

Commission’s regulations. Notwithstanding a company’s not giving 

consent to the shortened procedure, and instead seeking assignment for 

hearing as provided for by subpart E of Part 385, the Commission will not 

assign the proceeding for a hearing when no material facts are in dispute. 

The Commission may also, in its discretion, at any stage in the 

proceeding, set the proceeding for hearing.