Fiscal Management _ UGA

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					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 off-
    campus 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 six-
   month 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 non-
   compliance, 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
               There were numerous Personnel Activity Reports (PARs) for the fiscal year under
Information:   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.
               The University has not complied with due dates for PARs to be received by the
Cause:
               Finance and Administration Office as stated in the University PAR Procedures.
               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
Effect:        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 ―red-
tape‖, 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       FY2005            FY2006
 the customer.                 Service           Recorded $0
                                provided,          in
•Service was rendered in        recorded           expenditures
 FY2005, but revenue was        $20,000 in
                                                  Recorded
 not recognized until           expenditures
                                                   $20,000 in
 FY2006.                       Untimely           revenue
•Revenues and                   invoicing

 expenditures are not          Recorded $0 in
 matched.                       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               FY2006
                                Service provided,   Recorded $0 in
 •Proper matching of revenues    prompt invoicing     expenditures

  and expenditures              Recorded $20,000    Recorded $0 in
                                 in expenditures      revenue
 •Timely invoicing
                                Recorded $20,000
 •Timely collections/reduces     in revenue

  uncollectible accounts        Payment receipted

 •Improved cash flow
    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                      BUDGET-FY2006
February 2006 Interest Payment                   $1,666,667 =
      Cash $1,000,000                                    Feb 2006 cash
                  Interest Income $1,000,000        receipt $1,000,000 +
June 30,2006 accrual entry
                                                         June 30, 2006
      Interest Receivable $666,667                  accrual of $666,667
                  Interest Income $666,667
August 2006 (FY07) Interest Payment
      Cash        $1,000,000
                  Interest Receivable $666,667
                  Interest Income $333,333
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.