Transcript Fiscal Management @ UGA:

Fiscal Management @ UGA:
My Responsibility
Fiscal Management @ UGA
Today’s Goal
Awareness of UGA’s current audit performance
AND
Recognition that we all have a role and
responsibility to improve audit performance
and internal controls at UGA
When Is UGA Subject to Financial
Audits?
•Every year we must have an audit by the State
Department of Audits.
•Every year we must have an A-133 Audit for UGARF and
a separate one for UGA.
•USG Board of Regents can audit UGA at any time.
•Any agency that passes federal funds through to UGA
may perform an audit at any time.
•Our F&A Proposal is subject to audit.
•Our Disclosure Statement is subject to audit.
•UGA is subject to IRS Audits.
•Each department at UGA is subject to internal audits.
How Does UGA Perform on
Audits?
•Internal Audits
•A-133 Audits
•State Audits
Fiscal Management @ UGA
Why Should I Care How
UGA Performs in Audits?
Fiscal Management @ UGA
Fiscal Management @ UGA
Fiscal Management @ UGA
Fiscal Irregularities Do Occur at UGA:
• As of September 2004, there were two fiscal
irregularities under investigation. Both
resulted in charges against the employee(s).
• Since September 2004, there have been five
reports of fiscal irregularities:
− two cases remain under investigation
− one case found no fiscal irregularity, and
− two were confirmed as fiscal irregularities with
charges pending.
UGA Fraud Policy
www.uga.edu/audit/IAD_fraud_policy.htm
Purpose
The University of Georgia is committed to maintaining the highest
professional standards in its administrative operations, promoting ethical
practices among its faculty and staff, and ensuring a level of
accountability appropriate for a public institution. This policy and
related procedures for the investigation, reporting and resolution of
fiscal irregularities are established as an integral part of the university's
efforts to ensure that all faculty and staff conduct themselves in
accordance with high ethical standards and that university performance
with respect to these matters is consistently applied.
Administrators, faculty and staff who know or suspect that other
employees are engaged in theft, fraud, embezzlement, fiscal
misconduct or violation of University financial policies have a
responsibility to report it to their supervisor and the
Controllers Office.
Fiscal Management @ UGA:
Each accounting and financial employee at
UGA plays a vital role in the overall health
of the University’s financial statements
and system of internal controls.
Fiscal Management @ UGA is our collective
responsibility.
Internal Audit Results
UGA internal audits were graded as follows:
FY2004
FY2005
Excellent
6
6
Good
15
17
Fair
10
8
Poor
1
1
Internal Audit –Most Common Findings
Independently Verify Cash Receipts
• The Office Manager who is responsible for monitoring outstanding
balances and verifying transactions posted to the monthly
account status report also has access to the corresponding cash
receipts and prepares deposits.
• Department does not prepare a record of payments received
which is necessary to independently verify deposits.
• We noted that receipt documents were not sequentially
controlled or used to independently verify that all funds have
been deposited.
Internal Audit – Most Common Findings
Deposit Cash Receipts in a Timely Manner
• Six of the ten cash receipts tested were deposited from eight to
thirty-four days after collection.
Establish Effective Accounts Receivable Record
• The Department’s sales account showed that charges were not
adequately documented, bills were not prepared timely, and
accounts receivable records were not properly created or
monitored.
• The duties relating to preparing bills and maintaining the accounts
receivable records are performed by the Department’s Accountant
who also receives the funds and prepares the deposit.
Internal Audit – Most Common Findings
Restrictively Endorse Checks
• The Department does not have a stamp to restrictively
endorse checks. Restrictively endorsing checks
immediately upon receipt reduces the risk of loss
between the time checks are received and
subsequently deposited
For Deposit Only
The University of Georgia
Department Name
Internal Audit – Most Common Findings
Maintain Accurate Property Records
• We noted that the Department has not fully completed its annual
inventory that was due November 30, 2005.
• Our test of the physical existence of 11 obsolete computers and
printers failed to locate five items valued at $9,692. (inadequate
equipment disposal procedures or inaccurate inventory
procedures).
• Our review of equipment noted that two items selected for
review were off-campus. A review of off-campus authorization
revealed these items did not have proper authorization for offcampus use.
Internal Audit – Most Common Findings
Adequately Document Deferred Income and
Encumbered Funds
• There was no documentation to support the
request to carry over balances into the
following year. In addition, we found no
evidence that balances carried at year end
represented
− Deferred income or
− Were used to pay for prior year expenses
Internal Audit – Most Common Findings
Control of Petty Cash Accounts
• We noted that the petty cash fund for the Department was not
utilized (or was underutilized). While University policy suggests
that the petty cash reimbursements be made monthly, we believe
that a petty cash fund should need to be replenished at least
quarterly. Therefore, the total amount reimbursed during a
twelve month period should be at least four times greater than
the amount advanced.
• No independently performed cash counts including verification to
the account’s authorized balance.
• The Department does not process reimbursement requests timely.
• Several receipts for expenditures were not retained.
Internal Audit – Most Common Findings
P-card Purchase Weaknesses
• Receipts missing or receipt does not adequately
describe the items purchased.
• Original receipts/documents not in the possession of
the coordinator.
• Unallowable expense (i.e. electronic equipment
costing more than $500 or used for meals).
• Active cards in the name of employees no longer with
department.
• Paying sales tax.
• Split purchases.
Internal Audit – Most Common Findings
Prepare Written Authorization for the
Delegation of Signatory
• We noted that the authorization for designated staff
to sign for the Director was not in writing. University
policy specifies that each Director should establish a
written procedure concerning the delegation of
signature authority.
Signature authority may be delegated to other staff of the unit;
however, responsibility for funds and transactions remain with the
Director. It is therefore necessary for a policy to be in writing to
ensure that the delegation is authorized.
Internal Audit – Most Common Findings
Independently Monitor Expenditure Transactions
• The independent monitoring and review of revenue
and expenditure transactions processed by
Department are not documented.
• We noted that the Department’s Office Manager
initiated and processed expenditure transactions in
addition to reconciling the Department’s accounts.
We recommend that Department Head receive adequate information
from the Office manager about the transactions processed through
the Department’s accounts. As part of this review, we recommend
that the Department Head or his designee approve the monthly
reconciliation of the ASR.
Internal Audit – Most Common Findings
Properly Approve Time Sheets
• Time cards are not signed by employees or
supervisors.
• Timesheets are signed and dated in advance by
employees and supervisors to meet payroll deadlines.
• Time records for hourly employees are returned to
employee after supervisory approval. Hours should be
written if it is necessary to return time record to
employee after supervisory approval.
Internal Audit – Most Common Findings
Retain Employee Eligibility Verification Forms
• Our review of Employee Eligibility Forms (Form
I-9) revealed several were not on file and could
not be located.
I-9 for employee who transferred from another
University unit was not obtained from the
original unit nor was a new I-9 form completed
when the employee transferred to the new unit
(either would have been acceptable).
Internal Audit – Most Common Findings
Complete Annual Performance Evaluation for
Classified Employees
• We noted that the Department did not conduct personnel
evaluations for its classified employees. University policy
states that a “performance evaluation form and evaluation
conference must be completed by the employee’s
immediate supervisor at the end of the employee’s sixmonth probationary period, and annually thereafter for the
period January through December, except where
performance requires more frequent review, when job
responsibilities change substantially, and when employment
ends. The annual evaluation conference must be
completed by January 31.”
Internal Audit – Most Common Findings
Properly Approve Personnel Activity Reports
• Personnel Activity Report (PAR) forms are not being signed
by personnel who have first-hand knowledge of the work
effort performed. PAR forms are intended to certify that
the employee’s distribution of compensation represents a
reasonable estimate of the work performed. The
percentages preprinted on the PAR forms are a guide based
on the payroll database but may not reflect the actual work
effort being performed by the individual.
• PAR forms not approved timely.
Internal Audit – Most Common Findings
Sales Accounts
• Ensure that billing rates are based on costs.
Information Technology (the non-technical
issues)
• Lack of adequate backup procedures
− Not performed
− Not stored offsite
• Inadequate password procedures.
− Shared passwords
− Passwords and user IDs kept on post-it-notes
• Use screen protectors that require passwords.
“How Do I Achieve Improved Audit
Ratings and Enhance Internal
Control?”
Fiscal Management @ UGA:
Petty Cash vs. PCards
All petty cash custodians need to attend.
Choose one session to attend:
•April 3 (1pm to 4pm)
•April 6 (9am to Noon)
Location: To be determined
Fiscal Management @ UGA:
Internal Controls and Best Practices
Learn how to strengthen internal controls for
your school, college, or department.
Choose one session to attend:
•April 13 (9am to Noon)
•April 14 (1pm to 4pm)
Location: To be determined
Sarbanes Oxley
What Does It Mean for UGA?
SOX and Higher Education
• Reporter asked if the act ultimately could be
extended to apply to non-profits and universities.
Oxley said he’d gotten numerous calls on this issue but
said he has no intention of the act applying to
nonprofits, adding that his co-author, Sen. Paul S.
Sarbanes (D-Md.) “agrees entirely”.
• Oxley pointed out that many nonprofits have
implemented Sarbanes-Oxley as a best practices
measure even though they are not required to do so.
• Source: Daily Report, October 18, 2005
SOX and Higher Education
• Section 404 of the Act addresses internal
controls, which are fundamental to
sound financial reporting. A
recommended business practice is to
document and evaluate internal controls
over a planned time period.
SOX and Higher Education
NACUBO believes that institutions of
higher education should look at the SOX
Act as a framework to help evaluate
overall financial risks, and not simply
comply with stewardship responsibilities
and public obligations they face.
Source: NACUBO Advisory Report 2003-03
Internal Controls
Resource Information
• NACUBO Tutorials on Internal Controls
http://www.nacubo.org/x1279.xml
• COSO-The Committee of Sponsoring
Organizations of the Treadway Commission
“Internal Control-Integrated Framework”
http://www.coso.org/publications/executive_
summary_integrated_framework.htm
What Happens During The A-133 Audit?
• When auditors find examples of noncompliance, they can go back to the beginning
of the project.
• If auditors have findings, they will expand the
audit to look at other projects at the
institution.
Example:
− An institution has $60 million in federal expenditures. If an
auditor looks at 10% of the expense transactions at the
institution and finds overcharges/unallowable items equal to
$1,000,000, he/she will project that amount across the total
awards of the institution to determine the amount to be
repaid to the Federal Government (the amount to return
would be $10,000,000).
What Happens to the A-133
Findings?
• Findings are a part of the University’s annual A-133 audit report
which is filed with the federal government.
• The audit report is available not only to the federal and other
agencies which supply funding to UGA grant proposals, but also to
colleges and universities using UGA as a sub-contractor for their
grant work.
• The A-133 audit covers all federal financial aid programs, and audit
results are supplied to the U.S. Department of Education.
• Findings impact the level of public trust with the University’s ability
to manage federal, state and private grant monies in accordance
with regulations and guidelines.
FY2005 A-133 Audit Results
Untimely Receipt of PARs
UGA utilizes “after-the-fact” confirmation of personal
service expenditures charged to direct and indirect cost
activities. This is achieved through the Personnel
Activity Report or PAR which confirms or corrects the
distribution of activity that represents a reasonable
estimate of effort performed on a particular
project/activity or indirect cost category so that the
appropriate account is charged the correct portion of
salary and benefits.
FY2005 A-133 Audit Results
Untimely Receipt of PARs
So Why Should I
Care if the PAR Is
Returned on a
Timely Basis Or Not?
Examples of Recent Federal Fines
• Northwestern University
− $5.5 million fine for over-billing research awards
primarily due to incorrect effort reporting.
Northwestern has spent in excess of $10 million on
this fine after legal & consulting fees.
• New York University
− $15 million for inflated research grant costs.
• University of South Florida
− $4 million failing to properly record purchases and
lack of signature by appropriate individuals when
certifying effort.
Examples of Recent Federal Fines
• Florida International University
− $11.5 million for effort reporting (PAR)
violations and unallowable charges
FY2005 A-133 Audit Results Untimely
Receipt of PARs
UGA procedures state that completed PARs are to be returned to
the Accounting Department by the established cutoff date of the
month following the pay period for which the PAR is applicable.
Each month campus units are provided reports of past due PARs and
there are a series of subsequent contacts made to collect the
outstanding PARs.
The FY2005 A-133 audit revealed that 255 PARs with federal
projects were past due as of 6/30/2005 and therefore called into
question the University’s ability to adhere to and enforce its
procedure regarding timely return of PARs. Evidence of the 255
past due PARs has resulted in a federal A-133 audit finding for UGA.
UNIVERSITY OF GEORGIA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2005
FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
ALLOWABLE COSTS/COST PRINCIPLES
Research and Development Cluster Program
Noncompliance with University Policy
Undocumented Time and Effort Reporting
Questioned Cost: $621,249.75
Finding Control Number: FA-518-05-01
Information:
There were numerous Personnel Activity Reports (PARs) for the fiscal year under
review that were still outstanding as of the end of the fieldwork, which was at
least 120 days after the last fiscal year 2005 pay period. The individual University
Departments were notified of outstanding PARs by the Finance and Administration
Office and efforts to collect these PARs were unsuccessful.
Cause:
The University has not complied with due dates for PARs to be received by the
Finance and Administration Office as stated in the University PAR Procedures.
Effect:
Since there is no PAR on file in the Finance and Administration Office for a number
of employees funded by Research and Development awards for certain pay periods
during fiscal year 2005, the personal services have not been confirmed through
the after-the-fact confirmation process as described in OMB Circular A-21. This
results in $621,249.75 in unconfirmed personal services distributions to Research
and Development awards (exclusive of fringe benefits and indirect costs).
What Happens to the State
Audit Findings?
• Reported to the BOR
• Reported to the Regents
Audit Committee
• Included in state audit
report
• Read by financial statement
users and John “Q” Public
State Audit Results
FY2003
• Testing identified $128,062 of unrecognized
revenue. Departments are not reporting
revenue in accordance with GAAP.
• Several P-card purchases selected for testing
did not conform to purchasing requirements.
State Audit Results
FY2004
• Cash receipts sampling at Dept “Q” revealed
poor internal controls over cash receipts.
Deposits were not made timely and there were
numerous unpaid invoices dating back to 2001.
• Testing identified $38,603 of unrecognized
revenue. Departments are not reporting
revenue in accordance with GAAP.
State Audit Results
FY2005
• Testing identified $328,783 of unrecognized
revenue. Departments are not reporting
revenue in accordance with GAAP, and UGA
does not have adequate controls over revenue
recognition.
• Split purchases on P-cards.
FY2005 State Audit Finding – Split
Purchases on P-cards
State audit testing disclosed instances where
departments split large P-card purchases into
two transactions. While this may not be an
intentional tactic to avoid purchasing “redtape”, in the absence of explanation, these split
purchases result in audit points and findings
which conclude that UGA does not comply with
purchasing policy.
4.4 Splitting Orders
No single purchase shall exceed $4,999.
The practice of splitting a large order into
two or more orders, as well as purchasing
the same items from two or more vendors
may well be considered an attempt to
evade the limitations of the P-card and
could lead to revocation of the
individual’s card.
Source: UGA Procurement Card Manual
Split Purchase Example
Department “A” made three separate P-card
purchases from the BD Supply Co. on
3/31/2005
− $3,164.00
− $3,283.00
− $4,525.00
Total purchased from BD Supply Co. on
3/31/2005 was $10,972
FY2005 State Audit Finding
Split Purchases on P-cards
How Can We Improve?
•Use the Procurement Card Manual for reference
http://www.busfin.uga.edu/procurement/newpc_manual.pdf
•Be aware of P-card pitfalls
•If uncertain, contact Procurement Office
Recurring State Audit Finding
Revenue Recognition
• FY2003—Subsequent receipt testing identified
$128,062 of unrecognized revenue.
Departments are not reporting revenue in
accordance with GAAP.
• FY2004 –Subsequent receipt testing identified
$38,603 of unrecognized revenue.
Departments are not reporting revenue in
accordance with GAAP.
FY2005 State Audit Finding
Revenue Recognition
• Testing of subsequent period receipts revealed
that eleven of sixteen departments tested had
unrecorded revenues totaling $328,783.
• Conclusion: There are not adequate controls
to ensure that decentralized departmental
sales revenues, receivables and receipts are
properly documented and recorded in the
proper accounting period according to
generally accepted accounting procedures.
FY2005 State Audit Finding
Revenue Recognition Example
• In December 2004, Department “A” provides training
to the XYZ Group.
• The cost of the training is $20,000.
• Department “A” invoices the XYZ Group on June 1,
2005, but does not record the receivable and
corresponding revenue.
• Department “A” receives the XYZ Group check for
$20,000 on July 15, 2005 and posts the receipt as
FY2006 revenue.
What Went Wrong?
•Six month delay in billing
the customer.
•Service was rendered in
FY2005, but revenue was
not recognized until
FY2006.
•Revenues and
expenditures are not
matched.
FY2005
 Service
provided,
recorded
$20,000 in
expenditures
 Untimely
invoicing
 Recorded $0 in
revenue
FY2006
 Recorded $0
in
expenditures
 Recorded
$20,000 in
revenue
What Went Wrong?
•The deposit of the check is pulled for “subsequent cash
receipt” testing by the auditors, and the back-up
documentation shows that services were rendered in
FY2005, but the revenue was recorded in the subsequent
fiscal year. This is not GAAP.
•Auditors give UGA an audit finding for not following
generally accepted accounting procedures, and
Department “A” has the $20,000 in revenue taken from
them since it was revenue in the prior year.
FY2005 State Audit Finding
Revenue Recognition
How Do We Correct This?
Per Board of Regents Business Procedures Manual
Section 10.0 Accounts Receivable:
• Each institution must establish procedures to
ensure that accrued and unbilled receivables
are continuously reviewed, and that billings
are issued and recorded without undue delay.
Correct Approach
• In December 2004, Department “A” provides
training to the XYZ Group.
• The cost of the training is $20,000.
• Department “A” invoices the XYZ Group in
December 2004 and records a receivable and
the revenue.
• Department “A” receives the XYZ Group check
and deposits it against the receivable.
Correct Approach
By following generally accepted
accounting procedures regarding revenue
recognition, we achieve:
FY2005
•Proper matching of revenues
and expenditures
•Timely invoicing
•Timely collections/reduces
uncollectible accounts
•Improved cash flow
FY2006
Service provided,
prompt invoicing
Recorded $0 in
expenditures
Recorded $20,000
in expenditures
Recorded $0 in
revenue
Recorded $20,000
in revenue
Payment receipted
FY2005 State Audit Finding
Revenue Recognition
UGA has a similar issue with deferred revenue
Departments may defer revenue
when they have collected payment
from the customer, but the services
have not yet been provided.
FY2005 State Audit Finding
Deferred
Revenue Example
•In April 2005, “Z” Best Institute @ UGA collects $333,000
in pre-registrations from customers for a conference to
be held in July 2005.
•“Z” Best Institute records $330,000 deferred revenue at
6/30/2005.
•In FY2006, “Z” Best Institute spends $300,000 of the
registration fee revenue on the July 2005 conference
expenses and does not spend the remainder. State audit
tests to see if the amount of deferred revenue is
allowable based on related expenditures and determines
that $30,000 is unallowable and must lapse.
What Went Wrong?
“Z” Best Institute could not substantiate the
need to defer $330,000 of deferred revenue at
year end.
“My department provides or sells
educational activities and services
to external customers, and we have
departmental sales accounts . . .
what am I going to do?”
Fiscal Management @ UGA:
Departmental Sales and
Revenue Recognition
If you deal with
departmental sales
accounts, you should
attend.
Fiscal Management @ UGA:
Departmental Sales and
Revenue Recognition
Choose One Session to Attend:
March 20, 2006 - 9:00am to Noon
March 27, 2006 – 1:00pm to 4:00pm
• Billing and collection cycle
• Revenue Recognition: accruals and deferrals
• Aging receivables and accounting for bad debt
• FY2006 and beyond
Revenue Recognition Example
The Bursar’s Office records interest income
earned on short-term investments.
This interest income must be used by each year
end or it lapses to the state.
Interest income is budgeted for unexpended
plant funds and used for capital outlay
purposes.
Revenue Recognition Example
The Bursar’s Office must account for interest
income on an accrual basis so the financial
statements reflect earnings for the fiscal year,
even if they have not yet been received.
The amount of accrued income is crucial so that
the Budget Office can expend or obligate
those earnings in the current fiscal year, and
income is not lapsed.
Revenue Recognition Example
On Nov 1, 2005 UGA purchases short-term discount notes which
pay interest semi-annually in February and August.
ACCRUAL ACCOUNTING REQUIRED
February 2006 Interest Payment
Cash $1,000,000
Interest Income $1,000,000
June 30,2006 accrual entry
Interest Receivable $666,667
Interest Income $666,667
August 2006 (FY07) Interest Payment
Cash
$1,000,000
Interest Receivable $666,667
Interest Income $333,333
BUDGET-FY2006
$1,666,667 =
Feb 2006 cash
receipt $1,000,000 +
June 30, 2006
accrual of $666,667
Impact of Audit Findings
• Financial
• Additional legal and consulting fees
• Loss of public trust
− impact on donations?
− Other grant funding?
• Loss of productivity during audit
• Loss of morale and trust in the work
environment
Fiscal Management @ UGA:
My Responsibility
“What can I do to improve
internal controls in my unit and
improve overall compliance with
policy and procedures?”
•Complete a self-assessment of internal controls.
•Analyze the type of accounting transactions in your
unit, then ask “Are we following appropriate UGA,
BOR and GAAP procedures to correctly account for
these transactions?”
•Take advantage of resources.
Fiscal Management @ UGA:
My Responsibility
Today’s Goal: Awareness of UGA’s Current
Audit Performance
AND
Recognition That We All Have a Role and a
Responsibility to Improve Audit Performance
And Internal Controls at UGA
Fiscal Management @ UGA:
My Responsibility
Short-term Goal: March and April 2006
Training Sessions Addressing UGA’s Fiscal
Pressure Points
•Departmental Sales and Revenue Recognition
•Petty Cash vs. PCards
•Internal Controls and Best Practices
Fiscal Management @ UGA:
My Responsibility
Medium-term Goal:
•Develop and Implement UGA Fiscal
Officer Training Program
•Require Program Completion for
Employees at Certain Levels
Fiscal Management @ UGA:
My Responsibility
Long-term Goal:
Achieve Excellence in Audit Performance
Actualize Compliance With Internal Controls, and
Adhere to Philosophy That Fiscal Management @
UGA is Everyone’s Responsibility
Thank You for Attending
Thank you for your interest. We look
forward to working with you as we move
through our goals for Fiscal Management
Training and Improved Audit
Performance and Internal Controls.