Transcript Minnesota State Colleges and Universities Audit Committee Meeting November 18, 2008 Agenda • • • • • • • Audit Process Audit Results – Reports Issued New Standards (SAS 104-111 and GASB 45) System.

Minnesota State Colleges and
Universities
Audit Committee Meeting
November 18, 2008
Agenda
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Audit Process
Audit Results – Reports Issued
New Standards (SAS 104-111 and GASB 45)
System Management Recommendations
Required Communication
Financial Statement Highlights
Questions and Open Discussion
Audit Process
• Detailed planning required prior to start of audit, including
increased communication before the audit is planned.
• Internal controls are analyzed in more detail than prior years.
• Risk is assessed, interviews are conducted and audit plan is
finalized.
• Audit plan executed, including sampling of transactions.
• Sample sizes range from 15 to 250 depending on risk, some
increasing and some decreasing based on internal controls and
related risk.
• Weekly conference calls are used to effectively and efficiently
complete the audit.
• Exit conference is scheduled to review results and management
letter comments.
• Process is finalized and sent to audit committee for acceptance.
Audit Results – Reports Issued
• Independent Auditors’ Report on Financial Statements (System Wide
and Revenue Fund) – Unqualified Opinion.
• Reasonable assurances on statements, which are responsibility of
management.
• Report References Other Campus Auditors for 2008 and 2007 for
campus work and foundations. KDV’s percentage under audit increased
due to rotation of campuses.
• Report on Internal Control Over Financial Reporting and on Compliance
Based Upon the Audit Performed in Accordance With Government
Auditing Standards – no material weaknesses, no significant deficiencies
at system level or revenue fund level. This compares to no material
weaknesses and 4 significant deficiencies at system and revenue fund
level in 2007 (scholarship allowance calculation, unrecorded accounts
payable, unrecorded interest receivable, journal entry approval).
SAS 104-111
SAS 104-111 establish standards and provide guidance concerning the assessment of
risks of material misstatement (whether caused by error or fraud) in a financial
statement audit, and the design and performance of audit procedures whose nature,
timing, and extent are responsive to the assessed risks.
The objectives are to enhance auditors’ application of audit risk by requiring:
– More in-depth understanding of MnSCU and its environment, including its internal
control, to identify the risks of material misstatement in the financial statements
and what MnSCU is doing to mitigate them.
– More rigorous assessment of the risks of material misstatement of the financial
statements based on that understanding.
– Improved linkage between the assessed risks and the nature, timing, and extent of
audit procedures performed in response to those risks.
These standards required MnSCU to invest considerable time to document all significant
internal control cycles.
GASB Statement 45
This statement accounts and reports Other Postemployment Benefits
Other than Pensions for employers. Note 13 to the financial statements
describes the benefits provisions, and relates to postemployment health
care coverage that is paid 100 percent by retired employees.
– The blending of the rate for all employees causes the implicit
subsidy.
– Total estimated long-term liability $94.2 Million, determined by
Actuarial study.
– Current year amortization $6 Million, and is included as a liability
of the financial statements.
– Amortization period is 30 years, maximum allowed.
System Board Comments
Security Access – Incompatibilities remain at campus and system level and
remains an important long term issue to resolve. Although complete
resolution to incompatibilities may not be achievable, continue to work with
Information Technology to design new systems with reduced incompatibilities.
Documentation of mitigating controls is an important step that MnSCU should
continue to implement.
Financial Reporting – All 12 campuses continued primary responsibility
for their financial statement preparation for 2008. Emphasis should continue
on hiring of qualified individuals and ongoing training to reduce the
inconsistencies between the level of technical knowledge at the campus level
and to further the understanding of results at the campus level.
Leave Benefit Accounting – Continue to refine the leave balance
reporting and accounting function to improve accuracy of the estimated
liability, currently at $126 Million.
System Board Comments
Information Technology – Improvements in
IT continue to be implemented during 2008.
– Continue to follow up on outstanding security
issues.
– Develop a comprehensive plan to properly test
the conversion of accounting data from the old
system to the new systems.
– Continue to analyze disaster recovery plans and
test as deemed appropriate.
Component Units
• As required by GASB Statement 39.
• Includes University Foundations that are “Significant”.
Includes Southwest, Winona, Metropolitan State, Mankato,
Bemidji, Moorhead, Century, Fergus Area and St. Cloud.
• Total Assets at June 30, 2008 totaled $169,897,000 compared to
2007 amount of $159,166,000.
• Total Revenues recognized for the year ended June 30, 2008
totaled $35,998,000, a decrease from 2007 amount of
$44,097,000. Unrealized investment loss 2008 was
($7,027,000) vs gain 2007 of $3,993,000.
• Shown as separate statement in the consolidated MnSCU report
to allow the financial statement readers to distinguish between
MnSCU and the Foundations.
Upcoming Standards
Summary of GASB Statement 49 - Accounting and Financial
Reporting for Pollution Remediation Obligations
– This Statement addresses accounting and financial reporting standards for pollution (including
contamination) remediation obligations, which are obligations to address the current or
potential detrimental effects of existing pollution by participating in pollution remediation
activities such as site assessments and cleanups. The effect this statement will have on fiscal
year 2009 basic financial statements has not been determined.
Summary of GASB Statement 51 - Accounting and Financial Reporting for Intangible Assets
– In June 2007, the GASB issued Statement No. 51, Accounting and Financial Reporting for
Intangible Assets. The objective of this Statement is to establish accounting and financial
reporting requirements for intangible assets to reduce reporting inconsistencies, thereby
enhancing the comparability of the accounting and financial reporting of such assets among
state and local governments. The effect GASB Statement No. 51 will have on the fiscal year
2010 basic financial statements has not yet been determined.
Summary of GASB Statement 52 - Land & Other Real Estate Held as Investments by
Endowments
– In November 2007, the GASB issued Statement No. 52, Land & Other Real Estate Held as
Investments by Endowments. This statement requires that land and real estate held as
investments in endowments to be recorded at fair market value. Changes in fair value during
the period will be reported as investment income. GASB Statement No. 52 is effective for
Minnesota Colleges and Universities for fiscal year 2009. The effect this statement will have
on fiscal year 2009 basic financial statements has not been determined.
Required Communication
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OUR RESPONSIBILITY UNDER GENERALLY ACCEPTED
AUDITING STANDARDS AND GOVERNMENT AUDITING
STANDARDS – reasonable but not absolute assurance that financial
statements are free of material misstatement. Sampling used in testing. No
opinion on internal controls.
SIGNIFICANT ACCOUNTING POLICIES – Note 1 to the Financial
Statements. GASB 45 new for 2008.
ACCOUNTING ESTIMATES - the most sensitive estimates were
depreciation, Allowance for uncollectible A/R, Scholarship Allowances,
Workers Compensation Claims, Compensated Absences - reasonable and
consistent.
AUDIT ADJUSTMENTS – None significant
DISAGREEMENTS WITH MANAGEMENT - none
CONSULTATIONS WITH OTHER INDEPENDENT ACCOUNTANTS
– campus auditors via weekly conference calls.
ISSUES DISCUSSED PRIOR TO RETENTION OF INDEPENDENT
AUDITORS - normal
DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT –
none
Summary of Key Indicators
(Amounts in Thousands)
2008
2007
Change - $
Change - %
Total Change in Net Assets
$
119,947
$
126,326
$
(6,379)
-5.05%
Income from Operations
$
8,402
$
7,124
$
1,278
17.94%
Unrestricted Net Assets
$
248,831
$
227,207
$
21,624
9.52%
-
0.00%
43,994
8.61%
Expendable Net Assets / Operating
Expenses (Months)
Unrestricted Cash and Equivalents
2.50
$
555,193
2.50
$
511,199
$
Summary of Key Indicators – Revenue Fund
(Amounts in Thousands)
2008
2007
Change - $
Change - %
Total Change in Net Assets
$
9,413
$
9,511
$
(98)
-1.03%
Income (Loss) from Operations
$
9,487
$
9,589
$
(102)
-1.06%
Unrestricted Net Assets
$
48,003
$
44,622
$
3,381
7.58%
Restricted Net Assets
$
16,682
$
12,159
$
4,523
37.20%
Unrestricted Cash and Equivalents
$
55,118
$
48,104
$
7,014
14.58%
Long Term Debt Payable
$
164,166
$
126,525
$
37,641
29.75%
Restricted Cash and Equivalents
$
94,519
$
91,991
$
2,528
2.75%
Questions and Open Discussion
Minnesota State Colleges and Universities
Financial Report Summary
For the years ended June 30, 2008 and 2007
Audit Committee Meeting
November 18, 2008
The Minnesota State Colleges and Universities system is an Equal Opportunity employer and educator.
Presentation Overview
• Consolidated System-wide & Revenue
Fund results
• Summarized College and University Audit
and Financial results
• Other Related Matters
Slide 16
System-wide Changes in Financial
Position at June 30, 2008 vs. 2007
• Primary driver of change is Capital asset
development and renewal
– 26 million square feet
– $129.2 million increase in capital assets, net of
accumulated depreciation
– $201.9 million new construction in progress
– $84.7 million increase in long-term debt
– $90.7 million increase in net assets invested in
capital assets, net of debt
Slide 17
System-wide Results of Operations—
Revenue FY 2008 vs. FY 2007
(in $millions)
Appropriation
Student, net
$800
Grants
$700
$600
$500
559
506
546
568
611
601
648
695
666
602
$400
$300
224
230
231
255
271
$200
2004
Slide 18
2005
2006
2007
2008
Trend for Expenses
(in $millions)
$1,200
$1,100
$1,000
$900
$800
$700
$600
$500
$400
$300
Compensation
All other
1160
966
935
1031
427
381
2004
1072
456
489
411
2005
2006
2007
2008
Note: About 61% of the FY 2008 $88 million increase in compensation
expense is from salaries (including compensated absences) and 39%
from fringe/other compensation benefits (includes $6 million first time
accrual of other postemployment benefits).
Slide 19
Student Growth
Fiscal Year Equivalent Students
139,885
140,000
135,494
134,220
135,819
130,000
135,839
132,586
120,000
03
0
2
Slide 20
04
0
2
05
0
2
06
0
2
07
0
2
08
0
2
Trend--Financial Results and Reserves
8.0%
6.0%
4.5%
4.0%
6.7%
7.5%
5.0%
Change in Net Assets
to Total Revenue
1.8%
2.0%
0.5%
-0.4%
0.0%
0.4%
-0.8%
-2.0%
04
0
2
05
0
2
0.5%
06
0
2
07
0
2
O perating Margin to
Total Revenue
08
0
2
2004
Slide 21
2005
2006
2007
2.
5
2.
5
2.
3
2.
1
3.0
2.5
2.0
1.5
1.0
2.
1
Primary Reserve in # of Months of Operations
2008
Economy and the Future
•2008 0perating/non-operating revenues increase -- $125.3 million
•2008 operating/non-operating expenses increase -- $124.0 million
•2008 State appropriation increase was nearly 51% of the revenues above
•2008 compensation expense increase was nearly 71% of expenses above
Appropriation (in $ millions)
$800
$700
$600
$500
$602.2
$665.9
$682.4
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20
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20
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20
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20
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07
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06
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$546.4
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Slide 22
$600.7
$592.3 $559.6
$602.2
FY 2008 Revenue Fund
Statements of Net
Assets
•$46.5 million new
construction in progress
•Capital assets, net
increased $38.5 million
•Revenue bond debt
increased $39.1 million
•Primary reserve – 9.7
months up from 9.3
months
Slide 23
Statements of
Revenues, Expenses
and Changes in Net
Assets
•Operating revenues -$83.6 million, up $6.8
million
•Operating expenses -$74.0 million, up $5.2
million
•Operating margin steady
at $9.5 million
Summarized Audit and Financial
results—Kern DeWenter Viere
Southwest
MSU
Rochester
CTC
Winona
State U.
MSU
Moorhead
MSU,
Mankato
Audit Results & Communications
Audit opinion
Unqualified
Unqualified
Unqualified
Unqualified
Unqualified
Internal control/compliance
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-
Other communications
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Potential high risk items
X
X
X
X
X
$(1.3)
$(2.9)
$1.3
$(0.6)
$5.5
1.5
2.2
2.8
2.4
2.6
Financial Indicators
Operating Margin ($million)
Primary Reserve (months)
Slide 24
Kern DeWenter Viere Audits -Commentary
Rochester Community and
Technical College
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RCTC has a joint use agreement with
the City of Rochester for a regional
sports complex plus some joint
facilities use and cost sharing with
Winona SU and the University of
Minnesota
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One contingent litigation liability with a
potential settlement in excess of
$100k was disclosed in the footnotes.
Foundation related-party transactions
-- disclosed in Footnotes
Foundation (component unit)
disclosure in Footnotes
Winona State University
Southwest MSU
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Foundation related-party transactions
-- disclosed in Footnotes
Foundation (component unit)
disclosure in Footnotes
MSU Moorhead
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Slide 25
MSU, Mankato
Foundation related-party transactions
-- disclosed in Footnotes
Foundation (component unit)
disclosure in Footnotes
•
Foundation related-party transactions
-- disclosed in Footnotes
Foundation (component unit)
disclosure in Footnotes
Summarized Audit and Financial
results—Larson Allen
Century
College
Audit Results & Communications
Audit Opinion
Unqualified
Internal control/ compliance
-
Other communications
-
Potential high risk items
X
Financial Indicators
Slide 26
Operating Margin
$1.7mil
Primary Reserve
1.7 months
Larson Allen Audit -- Commentary
Century College
• One contingent litigation liability with a potential
settlement in excess of $100k was disclosed in
the footnotes.
• Foundation related-party transactions -disclosed in Footnotes
• Foundation (component unit) disclosure in
Footnotes
Slide 27
Summarized Audit and Financial
results—Virchow Krause
St. Cloud
State U.
Metropolitan
State U.
Bemidji State
U.
Minneapolis
CTC
Unqualified
Unqualified
Minnesota
State CTC
Hennepin TC
Audit Results & Communications
Audit opinion
Unqualified
Unqualified
Unqualified
Unqualified
Internal control/
compliance
-
X
X
-
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X
Other communications
-
-
-
-
-
-
Potential high risk items
X
X
X
X
X
-
Financial Indicators
Operating Margin
(millions)
Primary Reserve
(months)
Slide 28
$4.2mil $1.0 mil $1.1 mil $3.2mil $(0.6)mil $(0.4)mil
2.0
2.9
2.0
2.9
0.8
1.7
Virchow Krause Audits -- Commentary
St. Cloud State University
Bemidji State University
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One contingent litigation liability with a
potential settlement in excess of $100k was
disclosed in the footnotes.
Foundation related-party transactions -disclosed in Footnotes
Foundation (component unit) disclosure in
Footnotes
•
Minneapolis CTC
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One contingent litigation liability with a
potential settlement in excess of $100k was
disclosed in the footnotes.
Metropolitan State University’s Minneapolis
campus is co-located with Minneapolis CTC.
Hennepin Technical
•
Several audit adjustments were required
with one increasing accounts receivable by
$442k and two others reducing unearned
revenue by $207k.
Minnesota State CTC
•
•
Slide 29
Foundation related-party transactions -disclosed in Footnotes
Foundation (component unit) disclosure in
Footnotes
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A significant deficiency was reported for a
group of audit adjustments with a value of
about $500k. The largest adjustment was a
reduction in salaries payable of about $480k.
In addition, the local bank account had not
been reconciled as of June 30, 2008.
One contingent litigation liability with a
potential settlement in excess of $100k was
disclosed in the footnotes.
Foundation related-party transactions -disclosed in Footnotes
Foundation (component unit) disclosure in
Footnotes
Metropolitan State University
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A significant deficiency was reported for
inconsistent independent review and
approval of journal entries.
Foundation related-party transactions -disclosed in Footnotes along with the colocation at Minneapolis CTC.
Foundation (component unit) disclosure in
Footnotes
FY 2008 Follow-up Status
• Other Postemployment Benefits (OPEB) Finance Committee discussion at July 2008
meeting
– Agreed to defer funding decision (qualified trust
contributions) due to uncertainty regarding key actuarial
variables and minimal examples of funding in industry
– We will monitor actuarial calculations and related
industry trends
• Reserves - Finance Committee discussion at
September 2008 meeting
– Continue efforts to bring all colleges and universities to
recommended range for Board required reserves
– Develop guidelines for Primary Reserve and other
accrual measures
Slide 30
Wrap Up
• Questions
• Resolution covering release of audited
statements
• January 2009 Report to Finance
Committee on FY2008 Audited Financial
Statements
• January 2009 Audit Committee discussion
on Audit Program
• Other
Slide 31