Auditing the Organizational Governance Processes Dick Dinan, CPA, CIA Amanda Jenami, CPA, CISA, CFE, CIA, MBA TACUA Apri

1. Auditing the Organizational Governance ProcessesDick Dinan, CPA, CIA Amanda Jenami, CPA, CISA, CFE, CIA, MBATACUA April 2010

2. Objectives Introduction • Overview • Definition of governance • Ideas to identify a candidate for a governance audit Methodology • Who we talked with • The information we requested • Information analysis & verification • Emerging themes/findings Reporting • Reporting to management • Reporting to the Board

3. Overview This session will discuss how an audit of the governance processes was conducted in a university environment. The general concepts and audit approach should be applicable to other types of organizations as well. The presentation will include the analysis of various types of data, the types of information gathered from faculty and staff interviews, and the reporting process. We will also provide information on how this audit added value to the university.

4. Background The Texas A&M University System is comprised of 20 members that include: • 11 Universities • 7 Agencies • 1 Health Science Center • System Office The System Internal Audit Department is a shared service providing internal audit services to all System members.

5. IIA’s Definition of Internal Auditing An effective internal auditing activity helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

6. What is Organizational Governance??

7. Definition of Governance There are many definitions of Organizational Governance, including: • Corporate governance is the system by which companies are directed and managed. It influences how the objectives of the company are set and achieved, how risk is monitored and assessed, and how performance is optimized. (Australia) • Corporate governance is a scheme for ensuring that the executive managers, who have been placed in charge of the company, fulfill their duties. (Japan) • The IIA put out a position paper titled Organizational Governance: Guidance for Internal Auditors that provides good information on the auditor’s role in auditing the governance processes. Here is the link to this position paper: www.theiia.org/download.cfm?file=76050

8. Howto Identify a Candidate for a Governance Audit If you have ever conducted audits of various university/agency processes such as financial management services, IT, HR, Student Financial Aid, Physical Plant, etc., that identify few significant control weaknesses or problems, but overall organizational performance is deteriorating, and your intuition tells you there are problems, it may be time to take another approach. A high level review of the organization’s governance processes provides the opportunity to step back and look at what is happening at the institutional level. At this level it is easier to view and assess how processes provide for overall direction/guidance, performance management, accountability, communication and transparency in the conduct of work to achieve the organization’s goals and objectives. Sometimes it is difficult to get this broad view when the audit scope and focus are on a smaller segment of the organization.

9. Our Situation • Over the last several years Texas A&M University – Kingsville had experienced decreased student enrollment, under performing programs, low faculty/staff morale, declining buildings and infrastructure, and a leadership void due to turnover and the relatively large number of interim management positions. For the most part, the audits conducted during this time were Code 3, meaning they identified a few significant issues, but mostly low level noncompliance types of issues. This is at a time when our other South Texas schools were experiencing growth in enrollment.

11. Methodology • Procedures used to gather information and perform analysis to develop findings/emerging themes.

12. People We Talked With • System personnel • Members of the President’s Council • College Deans • Student representatives • Information Technology • Human Resources • Office of Institutional Research • University employees

13. Information Requests (i) Who makes the university’s key decisions? • Committee Structure • Organization Charts How are university resources allocated? • Compact with the A&M System • Programmatic Review • Strategic Plan • Enterprise Risk Management Plan • Enrollment Plan

14. Information Requests (ii) How are units held accountable? • Divisional accountability Plans • Enrollment statistics • Retention statistics • Student satisfaction surveys • Other customer satisfaction surveys How does the university ensure compliance with requirements? • Regulatory Framework

15. Regulatory Framework • A&M System policies and regulations • University rules • Faculty handbook • Administrative procedures • Employee training • Compliance monitoring program

16. Information Requests (iii) Does the university have the expertise necessary to carry out its mission in an effective manner, and the ability to recruit/retain quality faculty and staff? • Human resources plan • Experience/expertise at key positions • Employee turnover report • List of vacancies • Salary competitiveness • Quality of city life/amenities • Employee training

17. Information Requests (iv) Does the university have processes in places to attract and retain high quality students? • Enrollment statistics • Retention statistics • Graduation statistics • ACT/SAT scores • State’s top ten percent students • Student accommodation

18. Information Requests (v) Do employees have the tools necessary to be effective and efficient? • Communication • Information systems • Staff development • Employee evaluations • Employee goal setting

19. Information/Data Analysis & Verification Independent Reports • Salary Comparative Study • The Coordinating Board • System Employee Turnover • Vacancies – System Payroll System • Overdue Mandatory Training – System Training Database Testing • Collaborative interviews • Secret shoppers • Program reviews • New hire starting salaries • Review of Institutional Effectiveness Plans

20. Emerging Themes: Lack of Accountability (i) Inadequate planning/Lack of focus • Lack of candid assessment of strengths, opportunities, weaknesses, threats • Lack of strategies on mission accomplishment • Lack of focus on strengths – Engineering, Music, and Wildlife • No academic plan • No master plan

21. Enrollment for South Texas Universities

22. Discontinued Programs • BA in Pre-Medical Technology, 2000 • BA in Pre-Dentistry, 2000 • BA in Anthropology, 2001 • Emphasis in Production Agriculture/Ornamental Horticulture, 2002 • BS in Restaurant and Foodservice Management, 2002 • BBA in Economics, 2002 • MS in Gerontology, 2002 • MA/MS in Supervision, 2002 • BS in Industrial Engineering, 2006 • BS in Natural Gas Engineering, 2006 • MA/MS in Elementary Education, 2006 • MA in Kinesiology, 2006 • BA in Geology, 2007 • BA in Geography, 2007 • MS in Geology, 2007 • BS in School Health, 2007

23. Emerging Themes: Lack of Accountability (ii) Lack of performance monitoring/compliance monitoring framework • Inadequate regulatory framework • Overdue program reviews • Overdue tenure track reviews • Learning effectiveness reviews (pre-& post-class) • Overdue mandatory training • Lack of goal/performance gap analysis • Decentralized survey administration – integrity of results • A large number of divisional goals not met • No “closing-the-loop” between planning and assessment • Resource allocation not tied to assessment. Do employees have the tools necessary to perform their duties effectively and efficiently?

24. Emerging Themes: Lack of Accountability (iii) Customer Service • No priority placed on good customer service. • Most support services – customer complaints. • Employees had not been provided with the tools necessary to succeed. • Some hiring decisions had been based on financial resources rather than on expertise. • Student information system had not been implemented in an efficient manner. • Employees had not been adequately trained on a new email management software. • Management did not track complaints.

25. Emerging Themes: Lack of Leadership (i) Leadership Style • Four Presidents in ten years • Non-participative non-cohesive style • High turnover in middle management – department chairmen, etc. • Leadership waits for under-performers to retire. • Underperformers are moved around the campus and not terminated. • Limited cross departmental communication • Departments operate in silos Too Many Interims • Provost • Vice President for Finance & Administration • Dean of Engineering • Dean of Business • Executive Director of University Facilities • Director of Physical Plant • Director of Admissions

26. Emerging Themes: Lack of Leadership (ii) Frugal Fiscal Management • Substandard accommodation • Inexperienced management and staff Organizational Culture • Small community • Not much external experience

27. Emerging Themes:High Employee Turnover High vacancy rate attributed to: • Uncompetitive salaries • Advertising positions at salary ranges the University did not intend to offer; • Many leave after a few months • A comparative salary study – resulted in a raise for 80% of the faculty • Entire original Banner implementation team had left three years after implementation

28. Emerging Themes:Use of Technology (i) The University has not adequately invested in technology for improved competitiveness. • IT function had not been pro-active in providing campus community with guidance. • Duplicative efforts at department level. • IT function is decentralized, uncoordinated, duplicative and wasteful.

29. Emerging Themes:Use of Technology (ii) The student information system had not been implemented in the most effective and efficient manner. • System not set up to perform automatic admissions. • Transcripts still loaded manually. • Transfer articulation performed manually. • Original implementation did not include CAPP –student advising still cumbersome, inefficient and prone to error. • No ongoing employee training.

30. Reporting - Overview The University’s governance processes do not adequately define expectations or ensure achievement of expected performance for a competitive higher education institution. The University lacks a strong accountability framework that provides management with the status of key University activities and responsive solutions to problems. The weak governance processes have contributed to the University experiencing a significant decrease in student enrollment; freshmen retention and on-time graduation rates that are below state goals; faculty salaries that are some of the lowest among the state’s doctoral and south Texas universities; and research funding declining to its lowest level since 2003. With four presidents in ten years, the University has not seen consistent leadership to help it address the complex challenges facing today’s universities. The University has operated in what has been described as “frugal” fiscal culture which has led to a sense of mediocrity. The University has not adequately invested in its human capital and information technology operations, thus hindering its ability to provide its students, faculty and staff with an environment that fosters success and excellence. See full report at http://www.tamus.edu/offices/iaudit/Reports

31. Reporting – Management Response University President • The new president called the report “an invaluable tool” for him going forward. • Thought the team had “asked the right questions.” • Recommended that a governance audit should be performed every time there was a new president coming into a university. • Made the report open to everyone on campus by posting on their intranet. • Called a university-wide meeting the same week he received the report . • Faculty said “it was good and that it should just be the beginning.” • Created committees responsible for implementing initiatives to address issues identified in the report. All committee work was driven by timelines, deliverables, and due dates for implementation of corrective actions. Status meetings are held bi-weekly to monitor progress.

32. Reporting– Committee on Audit Response Audit Committee Chair • Thought the audit report would be a useful tool to the new President. • Applauded the President’s response to the audit report during the committee meeting. • Indicated that the audit was the first of its kind and “intended to do more of these.”

33. Contact Information Team: Dick Dinan, ddinan@tamu.edu, (979) 458-7144 Amanda Jenami, ajenami@tamu.edu, (979) 458-7135 Address: Texas A&M University System System Internal Audit Department 1200 TAMU College Station, Texas 77843 Phone: (979) 458-7100 Fax: (979) 458-7111

34. Questions