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AUXILIARY ORGANIZATIONS
California State Polytechnic University, Pomona
Audit Report 16-03 July 5, 2016
CSU The California State University Office of Audit and Advisory Services
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EXECUTIVE SUMMARY
OBJECTIVE
The objectives of the audit were to ascertain the effectiveness of existing policies and procedures related to fiscal, operational, and administrative controls; determine the adequacy of internal compliance/internal control; evaluate adherence to auxiliary policies and procedures and applicable Integrated California State University Administrative Manual (ICSUAM) policies, or where appropriate to an industry‐accepted standard; and to ensure compliance with relevant governmental regulations, Trustee policy, Office of the Chancellor directives, and campus procedures.
CONCLUSION
California State Polytechnic University, Pomona Based upon the results of the work performed within the scope of the audit, the fiscal, operational, and administrative controls at California State Polytechnic University, Pomona as of April 8, 2016, taken as a whole, were sufficient to meet the objectives of this audit. However, the audit revealed that campus University Advancement (UA) did not always ensure that Cal Poly Pomona Foundation, Inc. (Foundation) endowment agreements were approved by a delegated authority and did not have a written procedure to document necessary information when establishing an endowment funded by multiple donors. Additionally, certain duties and responsibilities related to cash receipts were not adequately segregated at the College of Environmental Design Instructional Services, and cash receipts were not always forwarded to the Foundation for timely deposit. Cal Poly Pomona Foundation, Inc. Based upon the results of the work performed within the scope of the audit, except for the effect of the observations described below, the fiscal, operational, and administrative controls at the Foundation as of April 8, 2016, taken as a whole, were sufficient to meet the objectives of this audit. The audit revealed that Foundation Bronco Bookstore Cash Receipts/Sales Transactions Procedures were not aligned with the Foundation Cash Receipts policies and procedures, and the Foundation did not have documented evidence of communication with management regarding overages and shortages. Additionally, Foundation collection and follow‐up activity for returned checks was not documented, long outstanding returned checks were not timely written off or sent to a collection agency, and unit manager/project director responsibilities for collection and follow‐up activity for returned checks were not defined. Also, Foundation petty cash and change funds were not adequately administered, the Foundation did not always perform and document collection and follow‐up activity for long‐outstanding accounts receivable, uncollectible accounts receivable were not always timely written off, and the Foundation could not provide evidence of management review of accounts receivable monthly reconciliations. Further, Foundation travel authorization and expense reports were not always submitted, pre‐approval of international travel was not always documented, and the Foundation did not always obtain support for consultant travel expenditures. Also, the Foundation had not implemented a documented process for pre‐approval of employee overtime, did not always timely disencumber and remove outstanding paid purchase orders from the accounting system, and did not adequately secure two storage rooms at the Campus Center Marketplace central receiving location. In addition, the Foundation did not maintain an adequate listing of vault/safe access and did not change its
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vault/safe combination annually, and Foundation satellite locations did not maintain a listing of individuals with safe access and the last combination change date. Associated Students, Incorporated Based upon the results of the work performed within the scope of the audit, except for the effect of the observations described below, the fiscal, operational, and administrative controls at Associated Students, Incorporated (ASI) as of April 8, 2016, taken as a whole, were sufficient to meet the objectives of this audit. However, the audit revealed that ASI had not defined an appropriate timeframe for deposits; cash receipts were not always timely deposited; change funds were not assigned to individual cash handlers; and change funds and cash and cash equivalents were not adequately secured. In addition, ASI travel expense forms were not always completed or were not timely completed upon return from travel, itemized receipts were not always provided, and an unallowable hospitality expenditure was processed. Also, certain duties and responsibilities related to personnel and payroll were not adequately segregated at ASI, and management review of the reconciliation between payroll timesheets and ADP payroll records was not documented. Additionally, ASI did not perform documented fixed asset reconciliations; the fixed asset sub‐ledger did not always agree to the fixed asset listing; documented physical inventory counts were not retained; independent counts were not performed; ASI fixed assets were not always tagged; and Fixed Asset Acquisition forms were not timely completed. Also, ASI did not always document removal of Information Technology (IT) access on the employee separation exit checklist; final pay checks were not always timely provided; documented pre‐approval of employee overtime was not always on file; and overtime hours were not always noted on employee timesheets. Further, ASI had not developed written policies and procedures to address accounts receivable collection and follow‐up activity; collection and follow‐up activity for long‐outstanding accounts receivable was not always performed and documented; uncollectible accounts receivable were not always timely written‐off; and write‐offs were not always properly approved. Also, ASI procurement cards were not always timely reconciled, Agreement Regarding Use of ASI Credit Card forms were not always on file, ASI did not always timely and properly escheat long‐outstanding checks to the state, and ASI had not timely notified student clubs of checks that were returned due to non‐sufficient funds (NSF). Specific observations, recommendations, and management responses are detailed in the remainder of this report.
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OBSERVATIONS, RECOMMENDATIONS, AND RESPONSES Campus 1. ENDOWMENTS
OBSERVATION UA did not always ensure that Foundation endowment agreements were approved by a delegated authority and did not have a written procedure to document necessary information when establishing an endowment funded by multiple donors. We reviewed 20 Foundation endowments established from May 2013 to February 2016, and we found that in 13 instances, the Endowment Donor Agreement form was not approved by the vice president of UA, the individual with delegated authority for gift acceptance. Additionally, UA did not have a written procedure to document necessary information such as the purpose of the endowment, donor intent, source of funds, and individuals with authority to make changes to the purpose if it becomes impractical to perpetuate an endowment funded by multiple donors. Insufficient administration of endowments increases the likelihood that funds will be misdirected and the campus will be exposed to liabilities resulting from noncompliance with donor intent. RECOMMENDATION We recommend that the campus: a. Ensure that the vice president of UA approves Endowment Donor Agreement forms.
b. Establish a written procedure to document necessary information such as the purpose of
the endowment, donor intent, source of funds, and individuals with authority to make changes to the purpose if it becomes impractical to perpetuate an endowment funded by multiple donors.
MANAGEMENT RESPONSE We concur. a. The Endowment Donor Agreement forms were updated to include a signature line for the
vice president of UA in April 2016. The campus will ensure that the vice president of UA signs future Endowment Donor Agreement forms.
b. UA and the Foundation will establish a written procedure for documentation of
endowments funded by multiple donors. Expected completion date: On or before August 31, 2016
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2. CASH RECEIPTS
OBSERVATION Certain duties and responsibilities related to cash receipts were not adequately segregated at the College of Environmental Design Instructional Services, and cash receipts were not always forwarded to the Foundation for timely deposit. We found that one individual at the College of Environmental Design Instructional Services who sold products also performed voids and refunds, reconciled cash receipts, and made deposits. Additionally, deposits were made once every quarter instead of at least weekly, as required by the Foundation Cash Receipts policies and procedures. The lack of segregation of duties increases the risk that erroneous and inappropriate actions will not be timely detected, and untimely deposits increase the risk of loss/misappropriation of funds. RECOMMENDATION We recommend that the campus: a. Adequately segregate duties and responsibilities at the College of Environmental Design
Instructional Services related to product sales and cash receipts, or institute mitigating procedures approved by the campus chief financial officer (CFO).
b. Forward College of Environmental Design Instructional Services deposits to the
Foundation at least weekly. MANAGEMENT RESPONSE We concur. We will no longer accept cash at this location, only credit cards. Expected completion date: On or before September 30, 2016
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Cal Poly Pomona Foundation, Inc. 3. CASH OVERAGES AND SHORTAGES
OBSERVATION Foundation Bronco Bookstore Cash Receipts/Sales Transactions Procedures were not aligned with Foundation Cash Receipts policies and procedures, and the Foundation did not have documented evidence of communication with management regarding overages and shortages. We found that the Bronco Bookstore Cash Receipts/Sales Transaction Procedures did not define an overage/shortage dollar threshold that warranted additional management review and did not require significant discrepancies to be elevated to Foundation executive management, making them out of alignment with Foundation Cash Receipts policies and procedures. Additionally, we reviewed 29 transactions with overages of up to $364 and shortages of up to $682 at the Bronco Bookstore, and we found that in 17 instances, there was no documented evidence of communication with the Bronco Bookstore management. Per the Bronco Bookstore Cash Receipts/Sales Transactions Procedures, overages/shortages of more than an acceptable amount should be reported by email to the operations manager and director. Inadequate administration of cash overages and shortages increases the risk of loss or misappropriation of funds. RECOMMENDATION We recommend that the Foundation: a. Update the Bronco Bookstore Cash Receipts/Sales Transactions Procedures to define an
overages/shortages dollar threshold that warrants additional Bronco Bookstore management review and significant discrepancies that need to be elevated to Foundation executive management in order to align these procedures with Foundation Cash Receipts policies and procedures.
b. Establish a process to document evidence of communication with management regarding
overages and shortages over an acceptable amount as defined in the Bronco Bookstore Cash Receipts/Sales Transactions Procedures.
MANAGEMENT RESPONSE We concur. The Foundation’s Cash Receipt Procedure will be updated to include the Bronco Bookstore. Expected completion date: On or before August 31, 2016
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4. RETURNED CHECKS
OBSERVATION Foundation collection and follow‐up activity for returned checks was not documented, long‐outstanding returned checks were not timely written off or sent to a collection agency, and unit manager/project director responsibilities for collection and follow‐up activity for returned checks were not defined. We reviewed ten checks that had been returned by the bank due to insufficient funds and/or stop payments from January 29, 2014, to November 20, 2015, and we found that:
There was no documentation on file indicating that collection and follow‐up activity was performed by unit managers/project directors for any of the checks, which totaled $6,178.
Six checks, totaling $1,006, were outstanding for more than 365 days and were neither
written off nor sent to the collection agency, as required by Foundation Cash Receipts policies and procedures.
Additionally, Foundation Cash Receipts policies and procedures did not address unit manager/project director responsibilities for collection and follow‐up activity of returned checks. Inadequate control over returned checks increases the risk of loss or misappropriation of funds. RECOMMENDATION We recommend that the Foundation: a. Document collection and follow‐up activity for returned checks. b. Timely write off long‐outstanding returned checks that have not been recovered, and
submit these checks to the collection agency. c. Update Foundation Cash Receipts policies and procedures to address unit manager/
project director responsibilities for collection and follow‐up activity of returned checks. MANAGEMENT RESPONSE We concur. We will establish a process to document collection and follow‐up activity and the timely write‐off for long‐outstanding returned checks. We will also update our accounts receivable policies and procedures to address unit manager/project director responsibilities for collection and follow‐up activity of returned checks. Expected completion date: On or before August 31, 2016
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5. PETTY CASH AND CHANGE FUNDS
OBSERVATION Foundation petty cash and change funds were not adequately administered. This is a repeat observation from the prior Auxiliary Organizations audit. We visited seven petty cash and eight change fund locations for surprise re‐counts, and we found that:
At one location, the petty cash fund was short by $5.76. The Foundation’s recent surprise count performed in February 2016 revealed that the petty cash fund was short by $14.24. Additionally, petty cash reconciliations were not adequately performed as receipts for petty cash expenses incurred since March 2013 had not been submitted to the Foundation for reimbursement. Per Foundation Petty Cash Fund Procedures, all petty cash funds should be submitted for reimbursement on June 30 to ensure that expenditures are recorded in the proper fiscal year.
At another location, petty cash was commingled with the change fund. The change fund was short by $18.50 because it was used to cover for additional petty cash expenses.
Inadequate administration of petty cash and change funds increases the risk of loss or misappropriation of funds. RECOMMENDATION We recommend that the Foundation reiterate to the petty cash and change fund custodians that: a. Petty cash should be properly reconciled and timely submitted for reimbursement on
June 30 of each year.
b. Petty cash and change funds should not be commingled. MANAGEMENT RESPONSE We concur. We will reiterate to the petty cash and change fund custodians that their funds should be reconciled and submitted for reimbursement before June 30 of each year and that the funds should not be commingled. Expected completion date: On or before August 31, 2016
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6. ACCOUNTS RECEIVABLE
OBSERVATION The Foundation did not always perform and document collection and follow‐up activity for long‐outstanding accounts receivable, uncollectible accounts receivable were not always timely written off, and the Foundation could not provide evidence of management review of accounts receivable monthly reconciliations. We reviewed 20 delinquent accounts receivable invoices from the accounts receivable aging report as of February 8, 2016, ten accounts receivable write‐offs from April 2014 to March 2016, and the monthly accounts receivable reconciliations from December 2015 to February 2016. We found that:
Collection and follow‐up activity was not performed and documented to facilitate collection for any of the delinquent accounts receivable, which were outstanding from 123 to 1,276 days. This is a repeat observation from the prior Auxiliary Organizations audit.
In four instances, uncollectible accounts receivable were not written off after being
outstanding for two years, as required by Foundation Accounts Receivable Policy. These accounts receivable, which totaled $5,878, were outstanding from 1,125 to 2,386 days before they were written off. This is a repeat observation from the prior Auxiliary Organizations audit.
There was no evidence of management review of the accounts receivable reconciliations
we reviewed. Inadequate control over accounts receivable increases the risk that receivables will not be properly controlled and accurately reflected in auxiliary financial statements, reduces the likelihood of collection, and negatively impacts cash flow. RECOMMENDATION We recommend that the Foundation: a. Document collection and follow‐up activity for delinquent accounts receivable to facilitate
collection or support account write‐off. b. Write off uncollectible accounts receivable in accordance with Foundation Accounts
Receivable policies and procedures. c. Document management review of accounts receivable reconciliations. MANAGEMENT RESPONSE We concur. We will establish a process to document the collection and follow‐up activity for delinquent accounts receivable, the write‐off of uncollectible accounts receivable, and documentation of management’s review of accounts receivable reconciliations.
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Expected completion date: On or before August 31, 2016
7. TRAVEL ADMINISTRATION
OBSERVATION Foundation travel authorization and expense reports were not always submitted, pre‐approval of international travel was not always documented, and the Foundation did not always obtain support for consultant travel expenditures. We reviewed 25 travel‐related expenditures, and we found that:
In two instances, Travel Authorization and Expense Report forms were not submitted after completion of travel. Per the Foundation Travel Policy, whether or not a travel advance was issued or charges were made to a credit card, a Travel Authorization and Expense Report form is required to be submitted to financial services within 60 working days after return, whether or not any balance of monies is due to the traveler or the Foundation.
In one instance, a Travel Authorization and Expense Report form was not submitted to document pre‐approval for international travel. Per the Foundation Travel Policy, employees should complete Section I of the Travel Authorization and Expense Report form and obtain the executive director’s approval for international travel.
In one instance, a consultant’s travel for professional development was not supported by a written agreement showing that this type of travel was permitted.
Insufficient administration of travel increases the risk of errors, irregularities, and misappropriation of funds. RECOMMENDATION We recommend that the Foundation: a. Remind travelers to submit a Travel Authorization and Expense Report form within 60
working days of return from travel, whether or not any balance of monies is due to the traveler or the Foundation.
b. Remind travelers to complete Section I of the Travel Authorization and Expense Report
form and obtain the executive director’s approval for all international travel. c. Ensure that all consulting arrangements are supported by a written agreement showing
permitted expenses. MANAGEMENT RESPONSE We concur. We will remind travelers to submit a Travel Authorization and Expense Report form within 60 working days and to complete Section I and obtain the executive director’s
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approval for all international travel, and will ensure consulting arrangements are supported by a written agreement. Expected completion date: On or before August 31, 2016
8. PERSONNEL AND PAYROLL
OBSERVATION The Foundation had not implemented a documented process for pre‐approval of employee overtime. We reviewed ten non‐exempt employees with overtime hours, and we found that pre‐approval had not been obtained for any of the overtime hours, as required by the Foundation Employee Handbook. Inadequate administration of employee overtime increases the risk of unauthorized employee payments. RECOMMENDATION We recommend that the Foundation implement a documented process for pre‐approval of employee overtime. MANAGEMENT RESPONSE We concur. We will modify the overtime policy in our Employee Handbook and communicate to approving managers the revised policy, to ensure any overtime worked is approved on a pay period basis. Expected completion date: On or before August 31, 2016
9. OPEN PURCHASE ORDERS
OBSERVATION The Foundation did not always timely disencumber and remove outstanding paid purchase orders from the accounting system. We reviewed 12 open purchase orders that were outstanding for more than 365 days, and we found six purchase orders outstanding from 511 to 757 days, with remaining balances totaling $122,102, that had not been disencumbered and removed from the accounting system, although they had been paid. This is a repeat observation from the prior Auxiliary Organizations audit.
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Insufficient administration of long‐outstanding purchase orders could impair budget analysis and planning and affect decision‐making. RECOMMENDATION We recommend that the Foundation timely disencumber and remove paid purchase orders from the accounting system. MANAGEMENT RESPONSE We concur. We will establish a process to timely disencumber and remove paid purchase orders from the accounting system. Expected completion date: On or before August 31, 2016
10. DINING STORAGE ROOMS
OBSERVATION The Foundation did not adequately secure two storage rooms at the Campus Center Marketplace central receiving location. We found that the two storage rooms remained unlocked during business hours. Inadequate security of storage rooms increases the risk of unauthorized access and misappropriation of goods and supplies. RECOMMENDATION We recommend that the Foundation adequately secure storage rooms at the central receiving location of the Campus Center Marketplace. MANAGEMENT RESPONSE We concur. The Foundation has adequately secured the storage rooms at the central receiving location of the Campus Center Marketplace with a secure lock. Corrective action on this item is complete.
11. SAFE ACCESS
OBSERVATION The Foundation did not maintain an adequate listing of vault/safe access and did not change its vault/safe combination annually, and Foundation satellite locations did not maintain a listing of individuals with safe access and the last combination change date.
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We found that:
The Foundation listing of individuals with vault/safe access did not include the employees’ names and the last combination change date, and the vault/safe combination was not changed annually, as required by Foundation Cash Receipts policies and procedures.
The Bronco Bookstore, Collins College Hospitality Management Restaurant, and College of
Environmental Design Instructional Services did not maintain a listing of individuals with safe access and the last combination change date, as required by Foundation Cash Receipts policies and procedures.
Sufficient administration of vault/safe access and prompt safe combination changes improve safeguarding of cash receipts. RECOMMENDATION We recommend that the Foundation: a. Update its listing of vault/safe access to include employee names and the last combination
change date. b. Change its vault/safe combination annually. c. Instruct Foundation satellite locations to maintain a listing of individuals with safe access
and the last combination change date. MANAGEMENT RESPONSE We concur. The Foundation employees who have access to the vault/safe are maintained in the KRONOS (Human Resources) System. We will revise our policy with respect to changing the combination of the vault/safe when there is a change of employee. We will also instruct satellite locations to maintain a listing of non‐Foundation employees with safe access and the last combination change date. Expected completion date: On or before August 31, 2016
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Associated Students, Incorporated 12. CASH RECEIPTS AND HANDLING
OBSERVATION ASI had not defined an appropriate timeframe for deposits; cash receipts for cash and checks were not always timely deposited; change funds were not assigned to individual cash handlers; and change funds and cash and cash equivalents were not adequately secured, as required by the ASI Cash Handling Policy and Procedures. We found that:
The ASI Cash Handling Policy and Procedures did not address an appropriate timeframe within which deposits should be made to the bank. We reviewed 30 cash receipts, and we found that seven were deposited into the bank from 10 to 18 days after the receipt date.
ASI had not assigned change funds to individual cash handlers, and the key to the drawer
where cash was kept was pinned to a board on the wall.
Cash and cash equivalents were not locked in a secure receptacle in the vault room. Inadequate administration and safeguarding of cash and cash equivalents increases the risk of loss or misappropriation of funds, and the lack of a timeframe for deposits in cash‐handling policies and procedures and untimely deposits increase the risk that collections will be misplaced or misappropriated. RECOMMENDATION We recommend that ASI: a. Update the ASI Cash Handling Policy and Procedures to include an appropriate timeframe
within which deposits should be made to the bank.
b. Deposit cash receipts into the bank within the newly defined timeframe. c. Assign change funds to individual cash handlers and adequately secure the key to the
drawer.
d. Secure cash and cash equivalents in a locked and secure receptacle in the vault room. MANAGEMENT RESPONSE We concur. The ASI Senate has approved the revised Cash Handling Policy and Procedures to include the timeframe for bank deposit (no later than the next business day or on the next armored service pickup date). Cash and cash equivalents will be deposited to the bank timely. Cash and cash equivalents will always be placed in a locked drawer, a secure safe, or in the
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vault. We will develop procedures to assign change funds to individual cash handlers and provide appropriate training to staff. Expected completion date: On or before November 30, 2016
13. CASH DISBURSEMENTS
OBSERVATION ASI Travel Expense forms were not always completed or timely completed upon return from travel, itemized receipts were not always provided, and an unallowable hospitality expenditure was processed. We reviewed 20 ASI travel‐related expenditures, and we found that:
In 11 instances, Travel Expense forms were not submitted upon return from travel, even though disbursement requests, which were used for travel authorization, were submitted prior to travel.
In four instances, Travel Expense forms were not submitted within ten days of the travel
end date, as required by the ASI Travel Policy. Delays ranged from 24 to 73 days.
In three instances, itemized receipts were not provided.
We also reviewed 20 hospitality expenditures, and we found that:
In one instance, an expenditure related to a baby shower event was charged as a hospitality expenditure, which was not allowed per the ASI Public Relations and Hospitality Policy.
Insufficient administration of travel and hospitality expenditures increases the risk of errors, irregularities, and misappropriation of funds. RECOMMENDATION We recommend that ASI reiterate to employees that:
a. Travel Expense forms should be submitted within ten days of return from all travel.
b. Itemized receipts should be provided for all travel expenditures.
c. Charges that are not allowed as hospitality expenditures per the ASI Public Relations and
Hospitality Policy should not be processed.
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MANAGEMENT RESPONSE We concur. We will remind employees and account holders and require that Travel Expense Forms be submitted within 10 days of return from all travel and that itemized receipts be provided for all travel expenditures. Charges that are not allowed under the ASI Public Relations and Hospitality Policy will not be processed. Expected completion date: On or before October 31, 2016
14. PERSONNEL AND PAYROLL
OBSERVATION Certain duties and responsibilities related to personnel and payroll were not adequately segregated at ASI, and management review of the reconciliation between payroll timesheets and ADP payroll records was not documented. Specifically, we found that individuals who processed payroll also had access to pay rate changes, and there was no mitigating control, such as an independent management review of personnel change reports. Inadequate segregation of duties and absence of documented management review increase the risk that errors and irregularities will not be timely detected. RECOMMENDATION We recommend that ASI: a. Adequately segregate duties and responsibilities related to personnel and payroll or
institute mitigating procedures approved by the campus CFO.
b. Document management review of the reconciliation between payroll timesheets and ADP
payroll records. MANAGEMENT RESPONSE We concur. We have drafted procedures to segregate duties and responsibilities related to personnel and payroll for approval by the campus CFO. Procedures have also been developed for management review of ADP timesheets and payroll records. These procedures will be implemented by the deadline. Expected completion date: On or before November 30, 2016
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15. PROPERTY AND EQUIPMENT
OBSERVATION ASI did not perform documented fixed asset reconciliations; the fixed asset sub‐ledger did not always agree to the fixed asset listing; documented physical inventory counts were not retained; independent counts were not performed; ASI fixed assets were not always tagged; and Fixed Asset Acquisition forms were not timely completed. We found that ASI did not document the preparation and review of the reconciliation of the fixed assets sub‐ledger to the general ledger, and we noted that the total fixed asset value and depreciation expense on the fiscal year (FY) 2014/15 sub‐ledger did not agree to the fixed asset listing. Additionally, ASI had not retained documented physical inventory counts of property and equipment for FY 2013/14 and 2014/15, and independent counts were not performed to validate department annual inventory counts. We reviewed five assets, and we found that:
Four assets were not tagged.
Fixed Asset Acquisition forms were not timely completed for any of the assets. Insufficient administration of property and equipment increases the risk that property may be lost or stolen or misrepresented in the financial statements. RECOMMENDATION We recommend that ASI: a. Document the preparation and review of the reconciliations of the fixed assets sub‐ledger
to the general ledger, and ensure that the total fixed asset value and depreciation expense on the sub‐ledger agrees to the fixed asset listing.
b. Retain documentation for physical inventory counts and perform independent counts to
validate department annual inventory counts.
c. Properly tag assets and timely complete Fixed Asset Acquisition forms. MANAGEMENT RESPONSE We concur. We have reviewed and reconciled fixed asset sub‐ledger to general ledger and have made the appropriate adjusting journal entries. Physical inventory has been performed for fiscal year 2015/16 and will be performed annually. Fixed Asset Acquisition forms and tagging of assets will be completed timely. Expected completion date: On or before October 31, 2016
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16. PERSONNEL AND PAYROLL
OBSERVATION ASI did not always document removal of IT access on the employee separation exit checklist; final paychecks were not always timely provided; documented pre‐approval of employee overtime was not always on file; and overtime hours were not always noted on employee timesheets. We reviewed 15 employee separations, and we found that:
Removal of IT access was not documented on any of the employee separation exit checklists.
In five instances, final paychecks were not timely provided to employees. The checks
were issued from 12 to 21 days after the employees’ last day of work. Additionally, we reviewed 15 overtime payments, and we found that:
In six instances, documented pre‐approval of employee overtime was not on file. Overtime hours ranged from 6.5 hours to 16 hours per pay period.
In five of the six instances noted above, overtime hours were not noted on the employees’
timesheets. Insufficient administration of personnel and payroll increases the risk of errors and improper payments to employees and inappropriate use of auxiliary resources, and may increase legal liability. RECOMMENDATION We recommend that ASI: a. Document removal of IT access on all employee separation exit checklists. b. Timely provide final paychecks to separated employees. c. Document pre‐approval of overtime. d. Reiterate to employees that they must record overtime hours on timesheets.
MANAGEMENT RESPONSE We concur. a. Human Resources will send emails to IT to remove IT access upon employee separation.
Final paychecks will be provided timely to separated employees and will be documented in the timesheet and manual check log and signed off by said employees.
b. The overtime policy was recently amended and approved by the ASI Senate to require
approval by the department director, with notification to the executive director, within
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five working days of the overtime. With the implementation of the revised overtime policy, the recording of overtime on timesheets, required approval and notification will be enforced.
Expected completion date: On or before October 31, 2016
17. ACCOUNTS RECEIVABLE
OBSERVATION ASI had not developed written policies and procedures to address accounts receivable collection and follow‐up activity; collection and follow‐up activity for long‐outstanding accounts receivable was not always performed and documented; uncollectible accounts receivable were not always timely written‐off; and write‐offs were not always properly approved. We reviewed 20 delinquent accounts receivable from the accounts receivable aging report as of January 31, 2016, and we found that:
ASI had not developed written policies and procedures to address accounts receivable collection and follow‐up activity for delinquent accounts receivable.
In five instances, collection and follow‐up activity was not performed and documented to
facilitate collection. These accounts receivable, totaling $763, were outstanding from 184 to 308 days. This is a repeat finding from the prior Auxiliary Organizations audit.
In five other instances, credit balances totaling $584 were outstanding from 352 to 1,238
days and were not timely investigated or resolved.
We also reviewed five accounts receivable write‐offs, and we found that:
In four instances, the uncollectible accounts receivables were not timely written off, as
required by the ASI Allowance for Doubtful Accounts policies and procedures. These receivables, totaling $734, were outstanding from 528 to 585 days before they were written off.
In two instances, the write‐offs were not approved by the director of business services, as
required by the ASI Allowance for Doubtful Accounts policies and procedures.
Inadequate control over accounts receivable increases the risk that receivables will not be properly controlled and accurately reflected in auxiliary financial statements, reduces the likelihood of collection, and negatively impacts cash flow.
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RECOMMENDATION We recommend that ASI: a. Develop and implement written policies and procedures to address collection and follow‐
up activity for delinquent accounts receivable.
b. Perform and document collection and follow‐up activity for delinquent accounts
receivable to facilitate collection.
c. Timely investigate and resolve credit balances.
d. Timely write‐off uncollectible accounts receivables and properly approve write‐offs. MANAGEMENT RESPONSE We concur. We will review and develop ASI Accounts Receivable policies and procedures to address collection and follow‐up activities for delinquent accounts receivable. All collection communications will be documented. Outstanding uncollectible accounts will be properly approved and written off in accordance with our policies and procedures. Credit balances will be investigated timely. Expected completion date: On or before November 30, 2016
18. PROCUREMENT CARDS
OBSERVATION ASI procurement cards were not always timely reconciled, and Agreement Regarding Use of ASI Credit Card forms were not always on file. We reviewed ten procurement card reconciliations for five procurement cardholders, and we found that:
In six instances, procurement card reconciliations were not timely prepared and reviewed. The reconciliation delays were from 15 to 66 days.
In four instances, procurement card reconciliations were not dated, and therefore, we were unable to determine whether reconciliations were timely prepared and reviewed.
For two of the five cardholders, Agreement Regarding Use of ASI Credit Card forms were not on file, as required by the ASI Credit Card Policy and Procedures.
Inadequate administration of procurement cards increases the risk that errors, irregularities, misunderstandings, and misappropriation of funds will occur.
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RECOMMENDATION We recommend that ASI: a. Timely prepare and review procurement card reconciliations.
b. Date procurement card reconciliations to ensure they are timely prepared and reviewed.
c. Ensure that Agreement Regarding Use of ASI Credit Card forms are completed when credit
cards are issued. MANAGEMENT RESPONSE We concur. We will collect and review credit card reconciliations regularly. All reconciliations will be dated. ASI Credit Card Agreement forms will be completed when credit cards are issued. Expected completion date: On or before August 31, 2016
19. ESCHEATMENT
OBSERVATION ASI did not always timely and properly escheat long‐outstanding checks to the state. We found that:
The remit report and remittance for FY 2013/14 were due by June 15, 2015, but were not submitted until March 11, 2016.
Thirty‐four unclaimed payroll checks dated from December 2010 to June 2014, totaling
$2,807, had not been escheated to the state. Code of Civil Procedure Title 10, Unclaimed Property, and Chapter 7, Unclaimed Property Law, Article 2, §1510 and §1511, state that property held by a business association escheats to the state, subject to various requirements and limitations. Inadequate administration of unclaimed property to the state could result in fines. RECOMMENDATION We recommend that ASI timely and properly escheat long‐outstanding checks to the state. MANAGEMENT RESPONSE We concur. We have escheated all of our long‐outstanding checks to the state and will continue to submit notices and remittances according to the state’s deadlines.
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Expected completion date: On or before August 31, 2016
20. RETURNED CHECKS
OBSERVATION ASI had not timely notified student clubs of checks that were returned due to NSF. We reviewed five checks that were returned due to NSF, and we found that ASI had not provided a timely notice to the student clubs for any of them. Untimely notice of NSF checks to student clubs reduces the likelihood of collection. RECOMMENDATION We recommend that ASI provide timely notification to student clubs of any checks that are returned due to NSF. MANAGEMENT RESPONSE We concur. We will send timely notification to departments and clubs whenever checks are returned due to NSF. Expected completion date: On or before August 31, 2016
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GENERAL INFORMATION BACKGROUND
Education Code §89900 states, in part, that the operation of auxiliary organizations shall be conducted in conformity with regulations established by the Trustees. Education Code §89904 states, in part, that the Trustees of the California State University (CSU) and the governing boards of the various auxiliary organizations shall:
Institute a standard systemwide accounting and reporting system for businesslike management of the operation of such auxiliary organizations.
Implement financial standards that will assure the fiscal viability of such various auxiliary organizations. Such standards shall include proper provision for professional management, adequate working capital, adequate reserve funds for current operations and capital replacements, and adequate provisions for new business requirements.
Institute procedures to assure that transactions of the auxiliary organizations are within the educational mission of the state colleges.
Develop policies for the appropriation of funds derived from indirect cost payments. The Board of Trustee policy concerning auxiliary organizations was originally adopted in July 1981 in the Resolution of the Committee on Finance (RFIN) 7‐81‐4. CSU auxiliary organizations are required to comply with Board of Trustee policy (California Code of Regulations (CCR), Title 5, §42402 and Education Code, §89900). Campus management is responsible for establishing and maintaining an adequate system of internal compliance/internal control and assuring that each of its auxiliary organizations similarly establishes such a system. In January 1999, the Committee on Audit of the Board of Trustees resolved that resources be provided to the Office of the University Auditor for the purpose of conducting internal compliance/internal control reviews of CSU Auxiliary Organizations. The review will be used to determine compliance with the law, including statutes in the Education Code and rules and regulations of CCR, Title 5, and compliance with policy of the Board of Trustees and of the campus, including appropriate separation of duties, safeguarding of assets, and reliability and integrity of information. According to Board of Trustee instruction, each auxiliary organization shall be examined on a triennial basis. Executive Order (EO) 1059, Utilization of Campus Auxiliary Organizations, dated June 6, 2011, also represents policy of the Trustees addressing appropriate use of CSU auxiliary organizations. CSU auxiliary organizations are required to comply with Board of Trustee policy (CCR, Title 5, §42401 and §42500 and Education Code §89720, §89756, and §89900). This EO requires CSU auxiliary organizations to operate within the regulations and oversight of the campus. The campus president is responsible for ensuring the fiscal viability of auxiliary organizations and compliance with applicable CSU policies. The campus CFO is responsible for administrative compliance and fiscal oversight of auxiliary organizations. The campus, with the approval of the chancellor (or designees), may assign certain functions to auxiliary organizations pursuant to the CCR, Title 5, §42500. A written operating agreement is established detailing the functions that auxiliary organizations can perform. The campus may assign responsibility for an activity or program to auxiliary organizations, and the acceptance
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of the responsibility requires the assumption of the associated legal obligation and liabilities, fiscal liabilities, and fiduciary responsibilities by auxiliary organizations. Auxiliary organizations shall ensure that fiscal procedures and management systems are in place, consistent with CCR, Title 5, §42401.
ICSUAM §13680.00, Placement and Control of Receipts for Campus Activities and Programs, dated September 29, 2011, states that accountability and responsibility for campus activities and programs should be clearly established, and that related receipts should be appropriately placed and controlled in university or auxiliary organization accounts. This policy guides campuses as to the administration of such receipts and instructs as to their proper placement in accordance with legal and regulatory requirements. Cal Poly Pomona Foundation, Inc. The Foundation was established in 1966 as a non‐profit public benefit corporation responsible for operation of commercial services in support of the university’s educational mission. The Foundation operates the Bronco Bookstore; Kellogg West Conference Center and Hotel; Kellogg House, a venue used for weddings, corporate meetings, and other events; Innovation Village, a research and development environment for public‐private partnerships; and dining services, including restaurants, convenience stores, and vending. The Foundation also operates and/or administers sponsored programs, gifts and endowments, farm and agriculture operations, student and faculty housing, non‐credit continuing education classes, and various Foundation programs. Further, the Foundation performs accounting and business administration services for all of its operations. The Foundation is governed by a board of directors composed of representatives from the community, university administration, faculty, student body, and staff. Associated Students, Incorporated ASI was established in 1963 as a non‐profit public benefit corporation to create, promote, and fund social, cultural, and recreational programs and facilities both on campus and in the community; advocate for student interests; and participate in shared governance. ASI owns and operates the Bronco Student Center, which includes a food court, study lounges, meeting rooms, business services, and a games room. ASI also operates the Children’s Center and the Bronco Recreation and Intramural Complex and provides other programs, such as the Bronco Events and Activities Team, which brings live entertainment to campus and co‐sponsors intramural sports, outdoor adventures, and other events with various campus organizations. ASI is governed by a student board of directors, which is assisted by an advisory council composed of representatives from the campus and ASI administration.
SCOPE
We visited the California State Polytechnic University, Pomona campus and its auxiliary organizations from March 14, 2016, through April 8, 2016. Our audit and evaluation included the audit tests we considered necessary in determining whether fiscal, operational, and administrative controls are in place and operative at each auxiliary and may not have included examination of all fiscal and operational areas. The audit focused on procedures in effect from July 1, 2015, to April 8, 2016.
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Specifically, we reviewed and tested:
Timely and proper execution of agreements, contracts, and memoranda of understanding.
Corporate governance, including compliance with education, government, and corporation codes.
Fiscal, operational, and program compliance, such as review of cost reimbursement, reserves, conflict of interest, risk management, and trust accounts.
Segregation of duties and administration of key fiscal and operational areas.
Administration of sponsored programs.
Management of gifts and endowments.
Commercial operations (bookstore, dining services, etc.).
Auxiliary programs (radio station, housing, children’s center, etc.).
Campus oversight and support services provided to auxiliaries. As a result of changing conditions and the degree of compliance with procedures, the effectiveness of controls changes over time. Specific limitations that may hinder the effectiveness of an otherwise adequate system of controls include, but are not limited to, resource constraints, faulty judgments, unintentional errors, circumvention by collusion, and management overrides. Establishing controls that would prevent all these limitations would not be cost‐effective; moreover, an audit may not always detect these limitations.
CRITERIA
Our audit was based upon standards as set forth in CSU Board of Trustee policies; Office of the Chancellor policies, letters, and directives; campus procedures; and other sound administrative practices. This audit was conducted in conformance with the Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing. This review emphasized, but was not limited to, compliance with:
Code of Civil Procedure §1510 and §1511
Education Code §89720
Education Code §89756
Education Code §89900
Education Code §89904
Labor Code §201 and §202
CCR, Title 5 §42401, Declaration of Policy
CCR, Title 5 §42402, Authority of Campus President
CCR, Title 5 §42500, Functions of Auxiliary Organizations
RFIN 7‐81‐4
Executive Order (EO) 698, Board of Trustees Policy for the California State University Auxiliary Organizations
EO 1041, California State University Student Travel Policy
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EO 1059, Utilization of Campus Auxiliary Organizations
CSU Auxiliary Organizations Compliance Guide
CSU Auxiliary Organizations Sound Business Practices Guidelines
Foundation Cash Receipts policies and procedures
Foundation Accounts Receivable Policy
Foundation Bronco Bookstore Cash Receipts/Sales Transactions Procedures
Foundation Employee Handbook
Foundation Petty Cash Fund Procedures
Foundation Travel Policy
ASI Allowance for Doubtful Accounts policies and procedures
ASI Cash Handling Policy and Procedures
ASI Credit Card Policy and Procedures
ASI Fixed Asset Policy
ASI Overtime Policy
ASI Public Relations and Hospitality Policy
ASI Travel Policy
AUDIT TEAM
Senior Director: Janice Mirza Audit Manager: Caroline Lee Senior Auditor: Dominick Owens Internal Auditors: May Flores, Samer Harb, and Laura Vazquez
