Fiscal Management UGA:

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Fiscal Management _at_ UGA

• My Responsibility

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Fiscal Management _at_ UGA

• Todays Goal

Awareness of UGAs current audit
performance AND Recognition that we all have a
role and responsibility to improve audit
performance and internal controls at UGA
3
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 FA 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.

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How Does UGA Perform on Audits?

• Internal Audits
• A-133 Audits
• State Audits

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Fiscal Management _at_ UGA
Why Should I Care How UGA Performs in Audits?
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Fiscal Management _at_ UGA
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Fiscal Management _at_ UGA

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Fiscal Management _at_ 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.

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UGA Fraud Policywww.uga.edu/audit/IAD_fraud_polic
y.htm

• PurposeThe 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.

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Fiscal Management _at_ UGA

• Each accounting and financial employee at UGA
  plays a vital role in the overall health of the
  Universitys financial statements and system of
  internal controls.
• Fiscal Management _at_ UGA is our collective
  responsibility.

11
Internal Audit Results
UGA internal audits were graded as follows
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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.

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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 Departments 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 Departments Accountant who also
  receives the funds and prepares the deposit.

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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
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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.

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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

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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 accounts authorized balance.
• The Department does not process reimbursement
  requests timely.
• Several receipts for expenditures were not
  retained.

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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.

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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.
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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 Departments Office Manager
  initiated and processed expenditure transactions
  in addition to reconciling the Departments
  accounts.

We recommend that Department Head receive
adequate information from the Office manager
about the transactions processed through the
Departments accounts. As part of this review,
we recommend that the Department Head or his
designee approve the monthly reconciliation of
the ASR.
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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.

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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).

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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 employees
  immediate supervisor at the end of the employees
  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.

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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 employees
  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.

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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.

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How Do I Achieve Improved Audit Ratings and
Enhance Internal Control?
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Fiscal Management _at_ 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

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Fiscal Management _at_ 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

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Sarbanes Oxley

• What Does It Mean for UGA?

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SOX and Higher Education

• Reporter asked if the act ultimately could be
  extended to apply to non-profits and
  universities. Oxley said hed 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

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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.

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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

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Internal ControlsResource 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_summar
  y_integrated_framework.htm

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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).

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What Happens to the A-133 Findings?

• Findings are a part of the Universitys 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 Universitys ability to manage federal, state
  and private grant monies in accordance with
  regulations and guidelines.

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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.

37
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?

38
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.

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Examples of Recent Federal Fines

• Florida International University
• 11.5 million for effort reporting (PAR)
  violations and unallowable charges

40
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
  Universitys 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.

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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 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 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 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).
Information
Cause
Effect
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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

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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.

44
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.

45
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.

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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.

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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 individuals
  card.

Source UGA Procurement Card Manual
48
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

49
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

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Recurring State Audit Finding Revenue Recognition

• FY2003Subsequent 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.

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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.

52
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.

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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.

54
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.

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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.

56
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.

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• Correct Approach

By following generally accepted accounting
procedures regarding revenue recognition, we
achieve

• Proper matching of revenues and expenditures
• Timely invoicing
• Timely collections/reduces uncollectible accounts
• Improved cash flow

58
FY2005 State Audit FindingRevenue 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.
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FY2005 State Audit FindingDeferredRevenue
Example

• In April 2005, Z Best Institute _at_ 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.

60
What Went Wrong?

• Z Best Institute could not substantiate the
  need to defer 330,000 of deferred revenue at
  year end.

61
My department provides or sells educational
activities and services to external customers,
and we have departmental sales accounts . . .
what am I going to do?
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Fiscal Management _at_ UGA

• Departmental Sales and Revenue Recognition

If you deal with departmental sales accounts, you
should attend.
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Fiscal Management _at_ UGA
Departmental Sales and Revenue Recognition
Choose One Session to Attend March 20, 2006 -
900am to Noon March 27, 2006 100pm to 400pm

• Billing and collection cycle
• Revenue Recognition accruals and deferrals
• Aging receivables and accounting for bad debt
• FY2006 and beyond

64
Revenue Recognition Example

• The Bursars 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.

65
Revenue Recognition Example

• The Bursars 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.

66
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
67
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

68
Fiscal Management _at_ 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.

69
Fiscal Management _at_ UGA

• My Responsibility

Todays Goal Awareness of UGAs Current Audit
Performance AND Recognition That We All Have a
Role and a Responsibility to Improve Audit
Performance And Internal Controls at UGA
70
Fiscal Management _at_ UGA

• My Responsibility

• Short-term Goal March and April 2006 Training
  Sessions Addressing UGAs Fiscal Pressure Points
• Departmental Sales and Revenue Recognition
• Petty Cash vs. PCards
• Internal Controls and Best Practices

71
Fiscal Management _at_ UGA

• My Responsibility

• Medium-term Goal
• Develop and Implement UGA Fiscal Officer Training
  Program
• Require Program Completion for Employees at
  Certain Levels

72
Fiscal Management _at_ UGA

• My Responsibility

Long-term Goal Achieve Excellence in Audit
Performance Actualize Compliance With Internal
Controls, and Adhere to Philosophy That Fiscal
Management _at_ UGA is Everyones Responsibility
73
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.