Fiscal Management @ UGA:

1. Fiscal Management @ UGA: My Responsibility

2. Fiscal Management @ UGA 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 Today’s Goal

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 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.

4. How Does UGA Perform on Audits? • Internal Audits • A-133 Audits • State Audits

5. Fiscal Management @ UGA Why Should I Care How UGA Performs in Audits?

6. Fiscal Management @ UGA

7. Fiscal Management @ UGA

8. 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.

9. UGA Fraud Policywww.uga.edu/audit/IAD_fraud_policy.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.

10. 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.

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

12. Internal Audit –Most Common Findings Independently Verify Cash Receipts • The Office Manager who is responsible for monitoringoutstanding 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.

13. 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 theaccounts receivable records are performed by the Department’s Accountant who also receives the funds and prepares the deposit.

14. 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

15. 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.

16. 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

17. 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.

18. 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.

19. 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.

20. 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.

21. 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.

22. 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).

23. 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.”

24. 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.

25. 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 passwordprocedures. • Shared passwords • Passwords and user IDs kept on post-it-notes • Use screen protectors that require passwords.

26. “How Do I Achieve Improved Audit Ratings and Enhance Internal Control?”

27. Fiscal Management @ UGA: • 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 Petty Cash vs. PCards

28. Fiscal Management @ UGA: • 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 Internal Controls and Best Practices

29. Sarbanes Oxley What Does It Mean for UGA?

30. 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

31. 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.

32. 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

33. 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_summary_integrated_framework.htm

34. 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).

35. 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.

36. 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.

39. 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 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.

41. 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:

42. 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

43. 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.

46. 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.

47. 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

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

50. 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.