AUXILIARY ORGANIZATIONS CALIFORNIA STATE … · Senior Auditors: Michael Caldera, Danica Roso, and...

Members, Committee on Audit Shailesh J. Mehta, Chair

Kyriakos Tsakopoulos, Vice Chair Debra Farar William Hauck

Frederick W. Pierce IV

Staff University Auditor: Larry Mandel

Senior Director: Michael Redmond Senior Auditors: Michael Caldera, Danica Roso, and Kathryn Upton

Internal Auditor: Sandy Skalla

BOARD OF TRUSTEES THE CALIFORNIA STATE UNIVERSITY

AUXILIARY ORGANIZATIONS

CALIFORNIA STATE UNIVERSITY,

HAYWARD

Report Number 02-52 June 6, 2003

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CONTENTS INTRODUCTION Purpose.......................................................................................................................................................... 1 Scope and Methodology ............................................................................................................................... 1 Background................................................................................................................................................... 2 Opinion ......................................................................................................................................................... 3

Executive Summary ...................................................................................................................................... 5

OBSERVATIONS, RECOMMENDATIONS, AND CAMPUS RESPONSES CAMPUS

Legal and Regulatory Compliance.............................................................................................................. 16 Public Relations Policy ........................................................................................................................ 16 Conflict of Interest................................................................................................................................ 17

Royalty Payments ....................................................................................................................................... 19

Trusts and Other Liabilities ........................................................................................................................ 19 Student Body Fees................................................................................................................................ 19 Custodial Funds.................................................................................................................................... 20

CALIFORNIA STATE UNIVERSITY, HAYWARD FOUNDATION, INC.

Legal and Regulatory Compliance.............................................................................................................. 22 Auxiliary Authorization........................................................................................................................ 22 Dissolution of Auxiliary ....................................................................................................................... 23 Leasing of Facilities ............................................................................................................................. 23 Delegation of Authority........................................................................................................................ 24 Salaries and Benefits ............................................................................................................................ 25 Reserves................................................................................................................................................ 25 Risk Management................................................................................................................................. 26 Non-Discrimination Policies ................................................................................................................ 27 Administrative Services Agreement..................................................................................................... 27 Segregation of Duties ........................................................................................................................... 28

Cash Receipts and Handling ....................................................................................................................... 29

CONTENTS

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Petty Cash and Change Funds..................................................................................................................... 31 Petty Cash Funds .................................................................................................................................. 31 Change Funds ....................................................................................................................................... 32

Investments ................................................................................................................................................. 33

Fees, Revenues, and Receivables................................................................................................................ 34 Accounts Receivable ............................................................................................................................ 34 Unrecorded Revenue ............................................................................................................................ 35

Purchasing and Accounts Payable .............................................................................................................. 36 Purchase Order Approval ..................................................................................................................... 36 Credit Cards.......................................................................................................................................... 36 Check Processing ................................................................................................................................. 37 Unclaimed Monies ............................................................................................................................... 38

Personnel and Payroll ................................................................................................................................. 39 Payroll Processing ................................................................................................................................ 39 Employee Separation............................................................................................................................ 40

Fixed Assets ................................................................................................................................................ 41

Auxiliary Programs..................................................................................................................................... 42

Information Technology ............................................................................................................................. 43 User Access .......................................................................................................................................... 43 Physical and Environmental Controls .................................................................................................. 44 Disaster Recovery Plan......................................................................................................................... 44

UNIVERSITY UNION OF CALIFORNIA STATE UNIVERSITY, HAYWARD

Legal and Regulatory Compliance.............................................................................................................. 46 Written Agreements ............................................................................................................................. 46 Salaries and Benefits ............................................................................................................................ 47 Segregation of Duties ........................................................................................................................... 48

Cash Receipts and Handling ....................................................................................................................... 48 Investments ................................................................................................................................................. 50

Fees, Revenues, and Receivables................................................................................................................ 51

Purchasing and Accounts Payable .............................................................................................................. 52 Accounts Payable ................................................................................................................................. 52 Tax Reporting....................................................................................................................................... 53 Sales Tax .............................................................................................................................................. 55

Fixed Assets ................................................................................................................................................ 55

CONTENTS

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Inventories .................................................................................................................................................. 57

ASSOCIATED STUDENTS, CALIFORNIA STATE UNIVERSITY, HAYWARD

Legal and Regulatory Compliance.............................................................................................................. 59 Auxiliary Authorization........................................................................................................................ 59 Board Minutes ...................................................................................................................................... 59 Salaries and Benefits ............................................................................................................................ 60 Reserves................................................................................................................................................ 61 Risk Management................................................................................................................................. 62 Segregation of Duties ........................................................................................................................... 63


Petty Cash and Change Funds..................................................................................................................... 64

Investments ................................................................................................................................................. 65

Fees, Revenues, and Receivables................................................................................................................ 66 Accounts Receivable ............................................................................................................................ 66 Revenue Reconciliation........................................................................................................................ 67

Purchasing and Accounts Payable .............................................................................................................. 67

Fixed Assets ................................................................................................................................................ 69

Information Technology ............................................................................................................................. 70

CAL STATE HAYWARD EDUCATIONAL FOUNDATION

Legal and Regulatory Compliance.............................................................................................................. 71 Auxiliary Authorization........................................................................................................................ 71 Public Meetings.................................................................................................................................... 71 Board Meetings .................................................................................................................................... 72 Delegation of Authority........................................................................................................................ 72 Budget Approval .................................................................................................................................. 73 Reserves................................................................................................................................................ 74


Investments ................................................................................................................................................. 75

Fees, Revenues, and Receivables................................................................................................................ 76 Donor System Reconciliation............................................................................................................... 76 Pledges Receivable............................................................................................................................... 77 Donation Processing............................................................................................................................. 78

Trusts .......................................................................................................................................................... 79

CONTENTS

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APPENDIX APPENDIX A: Personnel Contacted APPENDIX B: Scope APPENDIX C: Statement of Internal Controls APPENDIX D: Campus Response APPENDIX E: Chancellor’s Acceptance

ABBREVIATIONS AD Accounting Department Coded Memorandum AS Associated Students, California State University, Hayward CFR Code of Federal Regulations Childhood Center Early Childhood Education Center CSU California State University CSUH California State University, Hayward Educational Foundation Cal State Hayward Educational Foundation EO Executive Order Foundation California State University, Hayward Foundation, Inc. FPPC Fair Political Practices Commission FSR Faculty and Staff Relations – Office of the Chancellor IRA Instructionally Related Activity IRC Internal Revenue Code IRS Internal Revenue Service MOU Memorandum of Understanding NIH National Institutes of Health NSF National Science Foundation OMB Office of Management and Budget PHS Public Health Service Union University Union of California State University, Hayward

Auxiliary Organizations/California State University, Hayward/Report No. 02-52 Page 1

INTRODUCTION PURPOSE The principal audit objectives were to determine compliance with the Education Code, Title 5, and directives of the Board of Trustees and the Office of the Chancellor and to assess the adequacy of controls and systems. Specifically, we sought assurances that legal and regulatory requirements are complied with regarding the: Formation of the auxiliary. Functions the auxiliary performs on the campus. Creation and operation of the auxiliary’s board of directors. Establishment of policies and procedures based upon sound business practices. Observance of mandates to maintain an “arms-length” in business transactions between the auxiliary

and the campus. Campus oversight of auxiliary operations.

In addition, we reviewed internal controls to assure that: Accounting data is provided in an accurate, timely, complete, or otherwise reliable manner. Assets are adequately safeguarded from loss, damage, or misappropriation. Duties are appropriately segregated consistent with appropriate control objectives. Transactions, accounting entries, or systems output is reviewed and approved. Management does not intentionally override internal controls to the detriment of the overall internal

control objectives. Accounting and fiscal tasks, such as reconciliations, are prepared properly and completed timely. Deficiencies in internal controls previously identified were corrected satisfactorily and timely. Management seeks to prevent or detect erroneous record keeping, inappropriate accounting,

fraudulent financial reporting, financial loss, and exposure.

SCOPE AND METHODOLOGY Our management review emphasized, but was not limited to, compliance with state and federal laws and regulations, Board of Trustee policies, and Office of the Chancellor policies, letters, and directives as they relate to California State University (CSU) auxiliaries. For those audit tests that required annualized data, fiscal years 2000-2001 and 2001-2002 were the primary periods reviewed. In certain instances, we were concerned with representations of the most current data—in such cases, the test period was extended to December 2002. Our primary focus was on internal compliance and controls. Specifically, for the period reviewed, we examined compliance of the campus and each auxiliary with the Education Code and Title 5 as they relate to the operation of CSU auxiliary organizations. Individual codes and regulations included within the scope of our review were identified through an assessment of risk. Similarly, internal controls were included within our scope based upon risk. Therefore, the scope of our review varied from auxiliary to auxiliary.

INTRODUCTION


A preliminary survey of CSU auxiliaries at each campus was used to identify risks. Risk was defined as the probability that an event or action would adversely affect the auxiliary and/or the campus. Our assessment of risk was based upon a systematic process, using professional judgments on probable adverse conditions and/or events that became the basis for development of our final scope. We sought to assign higher review priorities to activities with higher risks. As a result, not all risks identified were included within the scope of our review. The scope of our review, regarding internal compliance considerations, focused on areas which were identified during our preliminary assessment of risks related to the CSU and its requirements to exercise oversight of auxiliaries. (See Appendix B.) The scope of our internal control review focused on separation of duties, safeguarding of assets, and reliability and integrity of information. Within these, we considered areas of risk identified during a preliminary survey of the campus’ auxiliary operations in addition to risks related to the CSU and its oversight of auxiliaries. (See Appendix B.) We have not performed reviews or analyses beyond the date of our report. Accordingly, our comments are based on our knowledge as of that date and should be read with that understanding. Since the purpose of our comments is to suggest areas for improvement, comments on favorable matters are not discussed.

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 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 which 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.

INTRODUCTION


Executive Order No. 698, superseding Executive Order No. 682, was issued on March 3, 1999. In that directive, the president of each campus was instructed, in part, as follows:

Section 2. Authority and Responsibility of the Campus President. Title 5, Section 42402 establishes the authority of campus presidents to require auxiliary organizations to operate in conformity with policy of the Board of Trustees and the campus. The president is required to review auxiliary programs and budgets and to require discontinuance of activities not in conformity with policies of the Board of Trustees and campus. The following Trustee policy supplements the existing policy of Section 42402 and provides an additional mechanism for the president to administer his or her responsibilities concerning auxiliary organizations. Action taken by the Trustees' Committee on Audit at the January 1999 meeting of the Board requires an internal compliance/internal control review to be performed by the University Auditor. The Office of the University Auditor will perform an internal compliance/ internal control review of auxiliary organizations. The review will be used to determine compliance with law, including statutes in the Education Code and rules and regulations of 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. This review of each auxiliary organization shall be completed on a triennial basis pursuant to procedures established by the chancellor.

This report represents our triennial review.

OPINION We visited California State University, Hayward from December 2, 2002, through January 10, 2003, and reviewed the internal compliance and internal control structures in effect at that time. Our study and evaluation were conducted in accordance with the Standards for the Professional Practice of Internal Auditing, issued by the Institute of Internal Auditors, and included the audit tests we considered necessary in determining that accounting and administrative controls are in place and operative. The campus and management at each auxiliary are responsible for establishing and maintaining adequate internal controls. This responsibility includes documenting internal controls, communicating requirements to employees, and assuring that internal controls are functioning as prescribed. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures.

INTRODUCTION


The objectives of accounting and administrative controls are to provide management with reasonable, but not absolute, assurance that: Assets are safeguarded against loss from unauthorized use or disposition.

Transactions are executed in accordance with management’s authorization and recorded properly to

permit the preparation of reliable financial statements. Financial operations are conducted in accordance with policies and procedures established in the State

Administrative Manual, Education Code, Title 5, and Trustee policy as applicable. Our audit disclosed conditions which, in our opinion, would result in significant errors and irregularities if not corrected. These conditions, along with other weaknesses, are described in the executive summary and in the body of the report. As a result of changing conditions and the degree of compliance with procedures, the effectiveness of controls change 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 to prevent these limitations would not be cost-effective; moreover, an audit may not always detect these limitations. (See Appendix C.)

INTRODUCTION


EXECUTIVE SUMMARY The purpose of this section is to provide management with an overview of conditions requiring their attention. Areas of review not mentioned in this section were found to be satisfactory. Numbers in brackets [ ] refer to page numbers in the report.

CAMPUS LEGAL AND REGULATORY COMPLIANCE [16]

PUBLIC RELATIONS POLICY [16]

The campus had not established a current public relations policy applicable to its auxiliary organizations. Establishing a current public relations policy applicable to auxiliary organizations reduces the risk that funds will be accumulated and used improperly. CONFLICT OF INTEREST [17]

The campus had not provided guidance for its auxiliaries regarding the implementation of conflict-of- interest policies and procedures, including statements and disclosures from board members, management, and principal investigators for applicable federal and non-governmental projects. Adequately addressing and implementing conflict-of-interest code policies and procedures for auxiliary boards and management reduce liability for acts contrary to the code.

ROYALTY PAYMENTS [19] The campus had not developed sufficient and appropriate written policies and procedures concerning royalties paid to faculty members for the reproduction and sale of their own copyrighted materials. Fully developed and communicated written policies and procedures strengthen internal controls and reduce the risk that misunderstandings will occur.

TRUSTS AND OTHER LIABILITIES [19]

STUDENT BODY FEES [19] The chief fiscal officer of the campus was not acting as custodian of student body organization fees. Sufficient control and accounting over student body funds ensure that custodial responsibilities are met and reduce the risk of error or misappropriation of funds.

INTRODUCTION


CUSTODIAL FUNDS [20] The campus did not exercise sufficient control over custodial funds held in trust by its auxiliaries. Sufficient oversight over custodial funds held by auxiliaries reduces exposure to regulatory and legal consequences.

CALIFORNIA STATE UNIVERSITY, HAYWARD FOUNDATION, INC. LEGAL AND REGULATORY COMPLIANCE [22]

AUXILIARY AUTHORIZATION [22] The California State University, Hayward Foundation, Inc. (Foundation) operating agreement with the California State University (CSU) required revision as to functions managed, administered, and operated by the auxiliary organization. Operating with an up-to-date, written agreement reduces the risk of misunderstandings and miscommunication regarding rights and responsibilities. DISSOLUTION OF AUXILIARY [23] The Foundation’s articles of incorporation did not specify that the net assets of the dissolved auxiliary must be distributed to a successor approved by the campus president and the CSU Trustees. The inclusion of a dissolution clause in accordance with Title 5 reduces the risk of net assets not being properly distributed in the event the corporation is dissolved. LEASING OF FACILITIES [23] Certain Foundation lease and sublease arrangements were not properly supported by written agreements. Maintaining written agreements reduces the risk of misunderstandings and miscommunication regarding rights and responsibilities. DELEGATION OF AUTHORITY [24] The Foundation had not established a written delegation of authority for certain board members to sign contracts on behalf of the auxiliary. A written delegation of authority to sign contracts on behalf of the auxiliary reduces misunderstandings and may reduce legal liability. SALARIES AND BENEFITS [25] The Foundation had not documented an analysis of full-time employee salaries, wages, and benefits between its employees and campus employees serving in similar positions. Fully documenting the comparative analysis of positions reduces the risk that the auxiliary may be expending inappropriate amounts on salaries and benefits for employees who perform substantially similar services as employees for the campus or other organizations.

INTRODUCTION


RESERVES [25] The Foundation reserve policy required updating. Sufficient reserve planning and analysis reduce the auxiliary’s risk to fund future needs. RISK MANAGEMENT [26] Certain Foundation contracts did not indemnify the campus or CSU Trustees. The inclusion of appropriate indemnification clauses in contracts reduces the auxiliary’s exposure to potential liability. NON-DISCRIMINATION POLICIES [27]

The Foundation’s current non-discrimination policy did not address discrimination based on pregnancy or veterans’ status. An adequate non-discrimination policy reduces the auxiliary’s risk of non-compliance with state and federal laws and regulatory actions. ADMINISTRATIVE SERVICES AGREEMENT [27] The Foundation had not executed a written agreement for fiscal and accounting services provided to the Cal State Hayward Educational Foundation (Educational Foundation) and for payroll-related services associated with campus instructionally related activity (IRA) funds. Maintaining written agreements reduces the risk of misunderstandings and miscommunication regarding rights and responsibilities. SEGREGATION OF DUTIES [28]

The Foundation did not appropriately segregate certain accounting functions for bookstore purchasing and payroll and human resources. Adequate segregation of duties reduces the risk that errors and irregularities will not be detected in a timely manner.

CASH RECEIPTS AND HANDLING [29] Certain controls over Foundation cash handling were insufficient. Adequate controls over cash handling reduce the risk of a loss or misappropriation of funds.

PETTY CASH AND CHANGE FUNDS [31]

PETTY CASH FUNDS [31] The Foundation had not documented petty cash fund policies and procedures which required provisions for performing periodic and independent, unannounced cash counts. Fully developed and communicated written policies and procedures strengthen internal controls and reduce the risk that misunderstandings will occur.

INTRODUCTION


CHANGE FUNDS [32] The Foundation bookstore textbook buyback change fund was inappropriately used to extend advances to employees. Adequate controls over change funds reduce the risk that a misappropriation of funds will not be detected in a timely manner.

INVESTMENTS [33] Foundation written investment policies and procedures did not address controls over the transfer of investment funds. Fully developed and communicated written policies and procedures strengthen internal controls and reduce the risk that misunderstandings will occur.

FEES, REVENUES, AND RECEIVABLES [34] ACCOUNTS RECEIVABLE [34] Certain controls over Foundation accounts receivable were inadequate. Sufficient controls over accounts receivable reduce the risk of loss, errors, and irregularities. UNRECORDED REVENUE [35] The Foundation did not record and deposit, upon receipt, reward revenues collected from the confiscation of invalid credit cards. Appropriately processing revenue reduces the risk of errors, irregularities, and misappropriation.

PURCHASING AND ACCOUNTS PAYABLE [36] PURCHASE ORDER APPROVAL [36]

The Foundation bookstore had not developed and implemented policies and procedures addressing the review and authorization of inventory purchases exceeding specified dollar thresholds. Fully developed and communicated written policies and procedures strengthen internal controls and reduce the risk that misunderstandings will occur. CREDIT CARDS [36] Controls over the use of Foundation corporate credit cards were insufficient. Sufficient controls over credit card usage reduce the risk of errors, irregularities, and misappropriation of funds. CHECK PROCESSING [37] Certain controls over Foundation check processing were inadequate. Adequate controls over check processing reduce the risk of errors, irregularities, and misappropriation of funds.

INTRODUCTION


UNCLAIMED MONIES [38] The Foundation had not developed policies and procedures to escheat unclaimed monies to the state. Meeting the requirements of unclaimed property law could reduce the auxiliary’s exposure to potential penalties and fines.

PERSONNEL AND PAYROLL [39]

PAYROLL PROCESSING [39] Certain payroll processing controls for the Foundation and Foundation-managed entities were insufficient. Adequate controls over payroll processing reduce the risk of errors, irregularities, and misappropriation of funds. In addition, compliance with tax legislation reduces the potential of fines. EMPLOYEE SEPARATION [40] The Foundation’s controls over separated employees were inadequate. Fully documenting and completing employee clearance forms and removing or inactivating separated employees from the payroll system reduce the risk of loss, errors, and misappropriation.

FIXED ASSETS [41] Certain controls over Foundation fixed assets were inadequate. Adequate controls over fixed assets reduce the risk that property may be lost or stolen.

AUXILIARY PROGRAMS [42]

Documentation to evidence that final technical reports and other technical deliverables were submitted to the sponsor was not contained in Foundation project files. Adequate documentation reduces the risk of penalties and disallowances for non-compliance with contracts and grants terms.

INFORMATION TECHNOLOGY [43] USER ACCESS [43] Foundation user profiles did not provide for proper segregation of duties/functions. Adequate segregation of duties/functions reduces the risk of errors, irregularities, and misappropriation of funds.

INTRODUCTION


PHYSICAL AND ENVIRONMENTAL CONTROLS [44] The Foundation’s computer room was not equipped with smoke detection equipment. Adequate physical and environmental safeguards for the computing equipment reduce the probability of a significant adverse event affecting the computing system. DISASTER RECOVERY PLAN [44] The Foundation had not developed a sufficiently detailed, written information technology disaster recovery plan and corresponding business continuation procedures. A detailed, written disaster recovery plan and corresponding business continuation procedures enable the auxiliary to restore data processing operations within a reasonable time frame.

UNIVERSITY UNION OF CALIFORNIA STATE UNIVERSITY, HAYWARD LEGAL AND REGULATORY COMPLIANCE [46]

WRITTEN AGREEMENTS [46]

Certain written agreements between the University Union of California State University, Hayward (Union) and other entities were incomplete, expired, and/or lacking sufficient detail of business arrangements. Maintaining complete and up-to-date, written agreements reduces the risk of misunderstandings and miscommunication regarding rights and responsibilities. SALARIES AND BENEFITS [47] The Union had not sufficiently documented an analysis of full-time employee salaries, wages, and benefits between its employees and campus employees serving in similar positions. Fully documenting the comparative analysis of positions reduces the risk that the auxiliary may be expending inappropriate amounts on salaries and benefits for employees who perform substantially similar services as employees for the campus or other organizations. SEGREGATION OF DUTIES [48] The Union did not appropriately segregate certain accounting functions for cash receipts. Adequate segregation of duties reduces the risk that errors and irregularities will not be detected in a timely manner.

CASH RECEIPTS AND HANDLING [48]

Transfer accountability over the movement of Union cash receipts and change funds was not clearly established. Adequate controls over cash receipts and change funds reduce the risk of a loss or misappropriation of funds.

INTRODUCTION


INVESTMENTS [50] The Union did not perform timely analysis and reconciliations of their investments maintained by the campus. Performing investment account reconciliations on a timely basis reduces the risk that errors and irregularities will not be detected.

FEES, REVENUES, AND RECEIVABLES [51] Certain controls over Union accounts receivable processing were inadequate. Sufficient controls over accounts receivable processing reduce the risk of loss, errors, and irregularities.

PURCHASING AND ACCOUNTS PAYABLE [52]

ACCOUNTS PAYABLE [52] Certain controls over Union accounts payable processing were inadequate. Sufficient controls over accounts payable processing reduce the risk of errors and irregularities. TAX REPORTING [53] The Union had not clearly documented its determination that stipends paid to student board members were not reportable in accordance with Internal Revenue Service (IRS) requirements. Properly reporting amounts considered as income to the recipients could reduce the risk of potential fines. SALES TAX [55]

The Union had overpaid sales tax for meals sold to students. Payment of imputed sales tax on only non-student meals enhances the ability of food service units to operate within their budgeted plan.

FIXED ASSETS [55]

Certain controls over Union fixed assets were inadequate. Adequate controls over fixed assets reduce the risk that property may be lost or stolen.

INVENTORIES [57]

Certain controls over Union food inventory were insufficient. Sufficient controls over food inventory reduce the risk of food cost from falling outside an acceptable range.

INTRODUCTION



LEGAL AND REGULATORY COMPLIANCE [59]

AUXILIARY AUTHORIZATION [59]

Associated Students, California State University, Hayward (AS) had not executed an operating agreement with the CSU for the period under review. Operating with an up-to-date, written agreement reduces the risk of misunderstandings and miscommunication regarding rights and responsibilities.

BOARD MINUTES [59] AS board meeting minutes were incomplete. Maintaining sufficient and appropriately approved board meeting minutes reduces the risk of misunderstandings and may reduce legal liability. SALARIES AND BENEFITS [60]

AS had not sufficiently documented an analysis of full-time employee salaries, wages, and benefits between its employees and campus employees serving in similar positions. Fully documenting the comparative analysis of positions reduces the risk that the auxiliary may be expending inappropriate amounts on salaries and benefits for employees who perform substantially similar services as employees for the campus or other organizations. RESERVES [61]

The AS reserve policy required revision. Sufficient reserve planning and analysis reduce the auxiliary’s risk to fund future needs. RISK MANAGEMENT [62]

AS did not maintain participant accident insurance coverage for its recreational activities and did not have procedures in place to determine the need for special riders for extraordinary events. Maintaining appropriate insurance coverage reduces the auxiliary’s exposure to potential liability. SEGREGATION OF DUTIES [63]

AS did not appropriately segregate certain accounting functions for cash receipts. Adequate segregation of duties reduces the risk that errors and irregularities will not be detected in a timely manner.

INTRODUCTION



Checks received by the AS Early Childhood Education Center (Childhood Center) were not restrictively endorsed at the time of receipt, and deposit receipts were not issued. Adequate controls over cash receipts reduce the risk of a loss or misappropriation of funds.

PETTY CASH AND CHANGE FUNDS [64]

Certain controls over AS petty cash and change funds were insufficient. Adequate controls over petty cash and change funds reduce the risk of a loss or misappropriation of funds.

INVESTMENTS [65]

AS inappropriately invested in an equity investment vehicle. Investing in authorized investment vehicles reduces the risk to future losses.

FEES, REVENUES, AND RECEIVABLES [66]

ACCOUNTS RECEIVABLE [66] Certain controls over AS accounts receivable were insufficient. Sufficient controls over accounts receivable reduce the risk of loss, errors, and irregularities. REVENUE RECONCILIATION [67] Revenues received by the AS Childhood Center were not reconciled to enrollment records. Adequately reconciling revenues reduces the risk that errors or misappropriation of funds would not be detected.

PURCHASING AND ACCOUNTS PAYABLE [67]

The AS had not clearly documented its determination that stipends paid to student board members were not reportable in accordance with IRS requirements. Properly reporting amounts considered as income to the recipients could reduce potential fines.

FIXED ASSETS [69]

Certain controls over AS fixed assets were inadequate. Adequate controls over fixed assets reduce the risk that property may be lost or stolen.

INTRODUCTION


INFORMATION TECHNOLOGY [70] Controls over information security at the AS Childhood Center were deficient. Implementing appropriate general computer controls reduces the potential for loss or corruption of personal information of child-care participants.

CAL STATE HAYWARD EDUCATIONAL FOUNDATION LEGAL AND REGULATORY COMPLIANCE [71]

AUXILIARY AUTHORIZATION [71]

The Educational Foundation had not executed an operating agreement with the CSU for the period under review. Operating with an up-to-date, written agreement reduces the risk of misunderstandings and miscommunication regarding rights and responsibilities. PUBLIC MEETINGS [71]

Notices of the Educational Foundation board of directors’ and committee meetings were not posted in a public area. Compliance with regulations for public meetings reduces the risk of misunderstandings and may reduce legal liability. BOARD MEETINGS [72] The Educational Foundation did not conduct the required number of board of directors’ meetings. When the board of directors meets on a regular basis in accordance with CSU policy, the board’s fiduciary responsibility over the operations of the auxiliary organization may be met. DELEGATION OF AUTHORITY [72] The Educational Foundation had not established a written delegation of authority for all named persons or positions to sign checks on behalf of the auxiliary. A written delegation of authority to sign contracts on behalf of the auxiliary reduces the potential for misunderstandings and legal liability. BUDGET APPROVAL [73]

The Educational Foundation did not prepare an annual budget subject to the approval of the campus president. Appropriate approval of auxiliary budgets reduces the risk that the auxiliary will operate in a manner inconsistent with the educational mission of the campus.

INTRODUCTION


RESERVES [74]

The Educational Foundation had not established a written surplus funds/reserve policy. Sufficient reserve planning and analysis reduce the auxiliary’s risk to fund future needs.


Certain Educational Foundation cash receipts were transported unsecured and in the custody of only one person. Adequate controls over cash receipts processing reduce the risk of a loss or misappropriation of funds.

INVESTMENTS [75]

Educational Foundation written investment policies and procedures did not address control over the transfer of investment funds. Fully developed and communicated written policies and procedures strengthen internal controls and reduce the risk that misunderstandings will occur.

FEES, REVENUES, AND RECEIVABLES [76]

DONOR SYSTEM RECONCILIATION [76] Reconciliations between the Educational Foundation donor database system and the general ledger accounting system were not consistently performed. Complete reconciliations of donor and accounting records reduce the risk of reporting errors and misappropriations of funds.

PLEDGES RECEIVABLE [77] Certain controls over the collection of Educational Foundation pledges receivable were insufficient. Sufficient controls over pledges receivable reduce the risk that accounts will not be collected in a timely manner. DONATION PROCESSING [78] Certain controls over Educational Foundation donation processing were inadequate. Adequate controls over donation processing reduce the risk of a loss or misappropriation of funds.

TRUSTS [79]

The Educational Foundation had not implemented procedures to ensure that the corpus balances for each endowment fund are adequately maintained and that distributions from these funds are in accordance with the expectations of the donors. Sufficient management and accounting procedures for endowments reduce the risk that funds will be handled inappropriately and contrary to the expectations of the campus and donors.


OBSERVATIONS, RECOMMENDATIONS, AND CAMPUS RESPONSES

CAMPUS

LEGAL AND REGULATORY COMPLIANCE

PUBLIC RELATIONS POLICY

The campus had not established a current public relations policy applicable to its auxiliary organizations. The campus public relations policy should address the following: Membership and participation in the activities of community groups, including, but not limited to,

service clubs and community-wide organizations of leading citizens in education, business, government, industry, and agriculture, with which campus administration should collaborate in order that the campus may properly serve the needs of the community.

Types of official activities that will commonly be engaged in by the campus which would generally be recognized as essential for promoting and maintaining student, faculty, and staff morale and for developing and maintaining effective relations with the community. Such activities may include but are not limited to campus receptions, public ceremonies, and lay advisory committee meetings held in support of certain campus instructional programs.

Providing essential accommodations and sustenance for official guests of the campus.

Title 5 §42502 requires the campus president to file, with the chancellor, a policy on the accumulation and use of public relations funds for all auxiliary organizations. The statement will include the policy and procedure on solicitation of funds, source of funds, amounts, purpose for which the funds will be used, allowable expenditures, and procedures of control. The associate vice president of business and financial services indicated his belief that the campus hospitality policy adequately addressed public relations. Failure to establish a current public relations policy applicable to auxiliary organizations increases the risk that funds will be accumulated and used improperly. Recommendation 1 We recommend that the campus establish a public relations policy applicable to its auxiliary organizations and maintain this policy on file with the Office of the Chancellor.



Campus Response We concur. The campus will establish a public relations policy applicable to its auxiliary organizations and maintain this policy on file with the Office of the Chancellor. Anticipated Completion Date: December 31, 2003 CONFLICT OF INTEREST

The campus had not provided guidance for its auxiliaries regarding the implementation of conflict-of- interest policies and procedures, including statements and disclosures from board members, management, and principal investigators for applicable federal and non-governmental projects. Each auxiliary on campus addressed, in some manner, conflict-of-interest requirements placed upon auxiliaries by the Education Code and Title 5. However, such policies and procedures should also consider the following areas:

Conflict-of-interest procedures. Records of proceedings relating to a possible or actual conflict. Compensation. Annual statements. Periodic reviews. Use of outside experts. Duty to disclose. Determination whether a conflict of interest exists. Actions required in association with a conflict. Actions to be taken when violations of conflict-of-interest policy are discovered.

Education Code §89906 states that no member of the governing board of an auxiliary organization shall be financially interested in any contract or other transaction entered into by the board of which he is a member, and any contract or transaction entered into in violation of this section is void. Title 5 §42401, §42402, §42500 and Education Code §89900 establish a responsibility to operate in accordance with sound business practices in the interest of the campus. Sound business practice mandates establishing conflict-of-interest policies and procedures to implement Education Code §89906 and other similar provisions to prevent imprudent or improper decisions by auxiliary board and management members. Code of Federal Regulations (CFR) Title 42, Part 50.604, Institutional Responsibility Regarding Conflicting Interests of Investigators, states, in part, that each institution must (a) maintain an appropriate written, enforced policy on conflict of interest and inform each investigator of that policy, the investigator’s reporting responsibilities, and of these regulations; (b) designate an institutional official(s) to solicit and review financial disclosure statements from each investigator who is planning to participate in Public Health Service (PHS) funded research; (c)(1) require that by the time an application is submitted to PHS, each investigator who is planning to participate in the PHS-funded research has submitted to the designated official(s) a listing of his/her known significant financial



interests (and those of his/her spouse and dependent children) (i) that would reasonably appear to be affected by the research for which PHS funding is sought and (ii) in entities whose financial interests would reasonably appear to be affected by the research. The National Institutes of Health (NIH) Grants Policy Statement, Part II, Conflict of Interest, states, in part, that NIH requires grantees and investigators to comply with the requirements of 42 CFR, Part 50, Subpart F, “Responsibility of Applicants for Promoting Objectivity in Research for which NIH Funding is Sought,” pertaining to investigators’ actual or potential conflicts of interest. The National Science Foundation (NSF) Grant Policy Manual §510, states, in part, that an institutional conflict-of-interest policy should require that each investigator disclose to a responsible representative of the institution all significant financial interests of the investigator (including those of the investigator’s spouse and dependent children) (i) that would reasonably appear to be affected by the research or educational activities funded or proposed for funding by NSF or (ii) in entities whose financial interests would reasonably appear to be affected by such activities. California State University (CSU) directive, Faculty and Staff Relations – Office of the Chancellor (FSR) 86-05(P), Principal Investigator – Fair Political Practices Commission (FPPC), Approval List of Non-Profit Organization, dated July 11, 1986, indicates that employees with principal responsibility for research projects funded in any part by a contract or grant from a non-governmental entity, including non-profit organizations, are required to file financial disclosure statements. The associate vice president of business and financial services indicated that the need for a policy may have been overlooked. Failure to adequately address implementation of conflict-of-interest code policies and procedures for auxiliary boards and management increases liability for acts contrary to the code.

Recommendation 2 We recommend that the campus provide guidance for its auxiliaries with regard to strengthening and further documenting conflict-of-interest policies and procedures. Campus Response We concur. The campus will provide guidance for its auxiliaries with regard to strengthening and further documenting conflict-of-interest policies and procedures. Anticipated Completion Date: December 31, 2003



ROYALTY PAYMENTS The campus had not developed sufficient and appropriate written policies and procedures concerning royalties paid to faculty members for the reproduction and sale of their own copyrighted materials. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that policies and procedures concerning royalties paid to faculty members be properly documented. The associate vice president of business and financial services indicated that the lack of policy was due to oversight. Failure to fully develop and communicate written policies and procedures weakens internal controls and increases the risk that misunderstandings will occur. Recommendation 3 We recommend that the campus establish sufficient and appropriate written policies and procedures concerning royalties paid to faculty members. Campus Response We concur. The campus will establish sufficient and appropriate written policies and procedures concerning royalties paid to faculty members. Anticipated Completion Date: December 31, 2003

TRUSTS AND OTHER LIABILITIES

STUDENT BODY FEES The chief fiscal officer of the campus was not acting as custodian of student body organization fees. The campus collects Associated Students, California State University, Hayward (AS) student body fees and immediately transmits these monies to AS. AS then invests and disburses the fees and other revenue from their organizational banking and investment accounts and acts as custodian of the funds. Title 5 §42403(a) requires the campus chief fiscal officer to manage and serve as custodian of student body fees.



The associate vice president of business and financial services indicated that the campus provided oversight by acting as an authorized signer for all AS disbursements. He further indicated that custody of these funds was just recently transferred to the control of AS. Insufficient control and accounting over student body funds increase the risk that custodial responsibilities are not met and increase the risk of error or misappropriation of funds. Recommendation 4 We recommend that the campus chief financial officer act as custodian of student body organization fees.

Campus Response We concur. The campus chief financial officer is acting as custodian of student body organization fees, with AS expenditures being funded from the campus on a reimbursement basis. Anticipated Completion Date: Completed CUSTODIAL FUNDS The campus did not exercise sufficient control over custodial funds held in trust by its auxiliaries. Funds were held in trust by three of the four campus auxiliary organizations on behalf of student organizations, campus academics and administrators, and other entities. We found that: State revenues were held in trust accounts maintained at the California State University, Hayward

Foundation, Inc. (Foundation) and were not accurately recorded in state accounting records. Revenues and expenses associated with contracts and grants, excluding indirect cost revenues,

were recorded within an agency account on the statement of Foundation net assets, rather than reflected in the statement of activities. Additionally, the revenues and expenses were not reflected in the campus’s financial statements.

Foundation trust/agency agreements did not address the disposition of unexpended funds or

include disclosure of management fees (when applicable) or that (for certain types of accounts) interest earned would be retained by the Foundation.

Signature cards for several Foundation trust and agency accounts were not current. The

Foundation was in the process of updating signature cards during our review.



Written trust agreements, which contain the purpose of the account, source of funds, disposition of unexpended funds, reporting requirements and describe the use of investment earnings as well as other restrictions, were not executed between AS and campus clubs. Student organization trust accounts were established solely on the approval of the office of student life and the completion of a signature card.

Negative student organization account balances were not periodically reviewed and cleared in a

timely manner. We noted eight student organizations with overdrawn account balances. Title 5 §42401, §42402, §42500 and Education Code §89900 establish a responsibility to operate in accordance with sound business practices in the interest of the campus. Education Code §89721 and various chancellor’s office mandates establish standards for such operations and related funds management. The CSU Investment Manual for California State University Trust Funds, Accounting Department Coded Memorandum (AD) 97-08, indicates that all CSU trust fund money, pending disbursement for its intended purpose, will be managed in custodial accounts in the name of the CSU system. The associate vice president of business and financial services stated that the campus had recently issued auxiliary organization policies and procedures that specifically address the administration of custodial funds held by auxiliaries. A lack of sufficient oversight over custodial funds held by auxiliaries exposes the campus and the CSU system to regulatory and legal consequences. Recommendation 5 We recommend that the campus continue to take the appropriate measures to ensure that policies and procedures regarding oversight of custodial funds held by auxiliaries are followed.

Campus Response We concur. The campus will continue to take the appropriate measures to ensure that policies and procedures regarding oversight of custodial funds held by auxiliaries are followed. Anticipated Completion Date: December 31, 2003



CALIFORNIA STATE UNIVERSITY, HAYWARD FOUNDATION, INC. LEGAL AND REGULATORY COMPLIANCE

AUXILIARY AUTHORIZATION The California State University, Hayward Foundation, Inc. (Foundation) operating agreement with the California State University (CSU) required revision as to functions managed, administered, and operated by the auxiliary organization. Functions not articulated in the operating agreement included the Foundation’s acquisition and development of real and personal property, public relations activities, and fiscal management services related to trust and similar funds. Title 5 §42501 states that a written agreement on behalf of the State of California by the Chancellor of The California State University and Colleges and the auxiliary organization is required for the performance by such auxiliary organization of any of the functions listed in §42500. Title 5 §42502 states that the operating agreement should specify the function or functions that the organization is to manage, operate, or administer. The Foundation interim executive director indicated that management was unaware of the need to update the language in the operating agreement, as the Foundation’s activities had not changed since the operating agreement was executed in 1994. Operating in the absence of an up-to-date, written agreement increases the risk of misunderstandings and miscommunication regarding rights and responsibilities. Recommendation 6 We recommend that the CSU and the Foundation update its operating agreement to specify all functions managed, administered, and operated by the auxiliary organization. Campus Response We concur. The Foundation will update its operating agreement to specify all functions managed, administered, and operated by the auxiliary organization. Anticipated Completion Date: December 31, 2003



DISSOLUTION OF AUXILIARY The Foundation’s articles of incorporation did not specify that the net assets of the dissolved auxiliary must be distributed to a successor approved by the campus president and the CSU Trustees. Title 5 §42600(b) states that upon dissolution of the organization, net assets, other than trust funds, shall be distributed to a successor approved by the president of the campus and by the Board of Trustees. The Foundation interim executive director indicated that the non-compliant dissolution clause was due to oversight. The lack of a dissolution clause in accordance with Title 5 could result in net assets not being properly distributed in the event the corporation is dissolved. Recommendation 7 We recommend that the Foundation amend its articles of incorporation to include a dissolution clause in accordance with Title 5. Campus Response We concur. The Foundation will amend its dissolution clause in accordance with Title 5. Anticipated Completion Date: Completed LEASING OF FACILITIES Certain Foundation lease and sublease arrangements were not properly supported by written agreements. We found that the Foundation had no facilities or ground lease agreements with the campus pertaining to the Contra Costa campus bookstore and University Club site. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that facility lease arrangements be properly supported by written agreements. The campus vice president of administration and business affairs indicated that the campus was in the process of executing the Contra Costa bookstore lease. He further stated that the lack of a ground lease for the University Club site was due to oversight.



The absence of written agreements increases the risk of misunderstandings and miscommunication regarding rights and responsibilities. Recommendation 8 We recommend that the Foundation execute written lease agreements with the campus pertaining to the Contra Costa campus bookstore and University Club site. Campus Response We concur. The Foundation will execute written lease agreements with the campus pertaining to the Contra Costa campus bookstore and University Club site. Anticipated Completion Date: December 31, 2003 DELEGATION OF AUTHORITY The Foundation had not established a written delegation of authority for certain board members to sign contracts on behalf of the auxiliary. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that signature authority be delegated by official policy and action and be conveyed in written documents, authorizing named individuals to sign specific types of agreements on behalf of the organization. The Foundation interim executive director indicated that the lack of written authorization was due to oversight. The lack of a written delegation of authority to sign contracts on behalf of the auxiliary increases misunderstandings and may increase legal liability. Recommendation 9 We recommend that the Foundation establish a written delegation of authority for certain board members to sign contracts on behalf of the auxiliary. Campus Response We concur. The Foundation will establish a written delegation of authority for certain board members to sign contracts on behalf of the auxiliary. Anticipated Completion Date: Completed



SALARIES AND BENEFITS The Foundation had not documented an analysis of full-time employee salaries, wages, and benefits between its employees and campus employees serving in similar positions. Title 5 §42405 states that the governing board of each auxiliary organization shall provide salaries, working conditions, and benefits for its full-time employees, which are comparable to those provided campus employees performing substantially similar services. For those full-time employees who perform services that are not substantially similar to the services performed by campus employees, the salaries established shall be at least equal to the salaries prevailing in other educational institutions in the area or commercial operations of like nature. The Foundation interim executive director indicated management was unaware that a written comparison was required, although the Foundation diligently updated its salary ranges and benefits to mirror campus salaries and benefits. Failure to fully document the comparative analysis of positions increases the risk that the auxiliary may be expending inappropriate amounts on salaries and benefits for employees who perform substantially similar services as employees for the campus and other organizations. Recommendation 10 We recommend that the Foundation document an analysis of all auxiliary and comparable campus salaries, wages, and benefits. Campus Response We concur. The Foundation will perform, and document, an analysis of all auxiliary and comparable campus salaries, wages, and benefits. Anticipated Completion Date: September 30, 2003 RESERVES The Foundation reserve policy required updating. We noted that certain: Reserve definitions did not specify the methodology used for the calculation of reserves. Reserve definitions did not include minimum reserve requirements. Reserve definitions were inconsistent with the reserves defined in the reserve policy.

Education Code §89904(b), §89904.5, and §89905 indicate that adequate reserve planning is necessary.



The Foundation interim executive director indicated that the lack of specificity in the reserve definitions regarding calculations and minimum reserve requirements was due to oversight. She further stated that management believed the annual board review and update of the reserve definitions sufficiently constituted a change in the reserve policy. Insufficient reserve planning and analysis increase the auxiliary’s risk to fund future needs. Recommendation 11 We recommend that the Foundation update its reserve policy to address: a. The methodology used to calculate all reserves. b. Minimum reserve requirements. c. Current reserve definitions. Campus Response We concur. The Foundation will update its reserve policy to address: a. The methodology used to calculate all reserves. b. Minimum reserve requirements. c. Current reserve definitions. Anticipated Completion Date: September 30, 2003 RISK MANAGEMENT Certain Foundation contracts did not indemnify the campus or CSU Trustees. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that contracts contain essential clauses, including indemnification clauses that indemnify all appropriate parties. The Foundation interim executive director indicated that the lack of an adequate indemnification clause was the result of attorney oversight. The lack of appropriate indemnification clauses in contracts increases the auxiliary’s exposure to potential liability. Recommendation 12 We recommend that the Foundation ensure that contracts include appropriate indemnification clauses.



Campus Response We concur. The Foundation will ensure that contracts include appropriate indemnification clauses. Anticipated Completion Date: December 31, 2003 NON-DISCRIMINATION POLICIES

The Foundation’s current non-discrimination policy did not address discrimination based on pregnancy or veterans’ status. Executive Order (EO) No. 774, Systemwide Guidelines for Nondiscrimination and Affirmative Action Programs in Employment, dated May 17, 2001, prohibits “discrimination on the basis of race, color, religion, national origin, sex, sexual orientation, marital status, pregnancy, age, disability, and covered veterans’ status.” The Foundation interim executive director indicated that management was unaware that the policy was incomplete. An inadequate non-discrimination policy increases the auxiliary’s risk of non-compliance with state and federal laws and may result in regulatory actions. Recommendation 13 We recommend that the Foundation revise its non-discrimination policy in accordance with CSU policy. Campus Response We concur. The Foundation will revise its non-discrimination policy in accordance with CSU policy. Anticipated Completion Date: Completed ADMINISTRATIVE SERVICES AGREEMENT The Foundation had not executed a written agreement for fiscal and accounting services provided to the Cal State Hayward Educational Foundation (Educational Foundation) and for payroll-related services associated with campus instructionally related activity (IRA) funds. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that written agreements be executed which fully define the expectations, rights, and responsibilities of the parties involved.



The Foundation interim executive director indicated that the Foundation assumed the Educational Foundation accounting duties at the request of the campus and that due to the urgent need for the Foundation to take over these duties, a written agreement was not executed. The absence of written agreements increases the risk of misunderstandings and miscommunication regarding rights and responsibilities. Recommendation 14 We recommend that the Foundation establish a written agreement for fiscal and accounting services provided to the Educational Foundation and for payroll-related services associated with campus IRA funds. Campus Response We concur. The Foundation will establish a written agreement for fiscal and accounting services provided to the Educational Foundation and for payroll-related services associated with campus IRA funds. Anticipated Completion Date: December 31, 2003 SEGREGATION OF DUTIES

The Foundation did not appropriately segregate certain accounting functions for bookstore purchasing and payroll and human resources.

Bookstore Purchasing

We found that the same individual was responsible for ordering and receiving bookstore merchandise. The Foundation bookstore general manager indicated that the lack of segregation of duties is due to the small number of shipping/receiving staff. Payroll and Human Resources We found that: The Foundation payroll clerk was responsible for entering new personnel, making personnel

master file changes (wage rate, address changes, etc.), entering benefits information, processing payroll, verifying payroll accuracy, and disbursement of payroll checks.

The AS office manager was responsible for entering new AS/University Union of California State

University, Hayward (Union) personnel, making personnel master file changes (wage rate, address changes, etc.), entering benefits information, processing payroll, approving payroll of employees under her supervision, verifying payroll accuracy, and disbursement of payroll checks.



The Foundation payroll manager stated that resource constraints did not allow for an appropriate separation of duties between the human resource and payroll functions. EO No. 698, Board of Trustees Policy for The California State University Auxiliary Organizations, dated March 3, 1999, states that the review of auxiliary organizations will be used to determine appropriate separation of duties, safeguarding of assets, and reliability and integrity of information. Inadequate segregation of duties increases the risk that errors and irregularities will not be detected in a timely manner. Recommendation 15 We recommend that the Foundation properly segregate accounting functions for bookstore purchasing and payroll and human resources or institute mitigating procedures approved by the campus.

Campus Response We concur. The Foundation will segregate accounting functions for bookstore purchasing and payroll and human resources or institute mitigating procedures approved by the campus. Anticipated Completion Date: December 31, 2003

CASH RECEIPTS AND HANDLING

Certain controls over Foundation cash handling were insufficient. Cash Room We noted the following:

Without escort, cash receipts were transported from auxiliary entities to the bookstore customer service counter.

A sufficient written record of the names of individuals who had access to the cash room and the

date the combination was last changed was not maintained. The cash room combination was last changed over two years ago despite the departure of three

employees within the last year. The Foundation interim executive director indicated that the Foundation believed that current cash room practices were sufficient.



Bookstore We found that the customer service safe and change drawer was not adequately secured. The key was maintained in an unlocked drawer at a customer service workstation and was accessible to all employees during work hours. The Foundation bookstore general manager indicated that the failure to adequately secure the key was due to oversight. Contra Costa Campus Bookstore Cash Room We noted the following: Cash receipts were hand carried unsecured from the Contra Costa bookstore to the California State University, Hayward (CSUH) bookstore cash office.

A sufficient written record of the names of individuals who had access to the cash room safe and the date the combination was last changed was not maintained.

The Foundation bookstore general manager indicated that cash controls at the Contra Costa bookstore should be similar to those at the campus; however, due to the remote location, certain procedures may not be consistently adhered to. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice requires sufficiently controlled cash handing and movement procedures for the exchange of funds. Sound business practice also mandates that a record be kept showing the date the combination was last changed and the names of individuals knowing the present combination. Inadequate controls over cash handling increase the risk of a loss or misappropriation of funds. Recommendation 16 We recommend that the Foundation improve cash handling controls by: a. Increasing the level of security present when transporting cash funds. b. Establishing procedures to ensure that a record is maintained of individuals having cash room

combinations and the date the combinations were last changed. c. Ensuring the combination to the cash room is changed when staffing changes occur. d. Adequately securing the customer service safe and change drawer keys.



Campus Response We concur. The Foundation will improve cash handling controls related to: a. Level of security when transporting cash funds. b. Maintaining a record of individuals having combinations and the date the combinations were last

changed.

c. Ensuring the safe combination is changed when staffing changes occur.

d. Securing the customer service safe and change drawer keys. Anticipated Completion Date: December 31, 2003

PETTY CASH AND CHANGE FUNDS PETTY CASH FUNDS The Foundation had not documented petty cash fund policies and procedures which required provisions for performing periodic and independent, unannounced cash counts. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that periodic and independent, unannounced counts be performed to ensure that assets are sufficiently safeguarded. The Foundation interim executive director indicated that, although procedures did not reference periodic and independent cash counts, informal counts of these funds were performed periodically. Failure to fully develop and communicate written policies and procedures weakens internal controls and increases the risk that misunderstandings will occur. Recommendation 17 We recommend that the Foundation develop written petty cash fund policies and procedures which require periodic and independent, unannounced cash counts.



Campus Response We concur. The Foundation will document petty cash fund policies and procedures which require periodic and independent, unannounced cash counts. Anticipated Completion Date: December 31, 2003 CHANGE FUNDS The Foundation bookstore textbook buyback change fund was inappropriately used to extend advances to employees. We noted six advances (totaling $1,500) that were made from the textbook buyback change fund. These advances dated back to 1999 and were supported by IOU documents signed by the advance recipients. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that change funds be sufficiently controlled and used for their intended purpose. The Foundation interim executive director indicated that she was aware of the situation and believed the advances had been cleared. She further indicated that existing policy prohibits advances from Foundation change funds. Inadequate controls over change funds increase the risk that misappropriated funds will not be detected in a timely manner. Recommendation 18 We recommend that the Foundation: a. Take appropriate measures to ensure that the practice of issuing advances from change funds is

discontinued. b. Seek immediate repayment of outstanding cash advances.



Campus Response We concur. The Foundation will: a. Discontinue issuing advances from change funds. b. Seek immediate repayment of outstanding cash advances. Anticipated Completion Date: Completed

INVESTMENTS

Foundation written investment policies and procedures did not address controls over the transfer of investment funds. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates detailed instructions regarding the transfer of investment funds. The Foundation controller stated that the failure to include instructions regarding the transfer of investment funds was due to oversight. Failure to fully develop and communicate written policies and procedures weakens internal controls and increases the risk that misunderstandings will occur.

Recommendation 19

We recommend that the Foundation update its written investment policies and procedures to include controls over the transfer of investment funds.

Campus Response We concur. The Foundation will update its written investment policies and procedures to include controls over the transfer of investment funds. Anticipated Completion Date: Completed



FEES, REVENUES, AND RECEIVABLES ACCOUNTS RECEIVABLE Certain controls over Foundation accounts receivable were inadequate. We found that: Collection efforts over inter-auxiliary accounts receivable required improvement. We noted approximately $30,000 of Union and AS receivables that had been outstanding since 1999.

Accounts receivable reconciliations were not signed and dated by the preparer and reviewer.

Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates policies and procedures over, and management oversight of, accounts receivable. The Foundation interim executive director indicated that the receivables due from AS and the Union remained outstanding because there was a question as to the validity of these receivables. The Foundation controller indicated that the failure to sign and date the accounts receivable reconciliations every month was due to workload issues. Insufficient controls over accounts receivable increase the risk of loss, errors, and irregularities. Recommendation 20 We recommend that the Foundation: a. Take immediate action to recover long-outstanding accounts receivable or use appropriate

write-off measures to bring accounts current. b. Take appropriate measures to improve inter-auxiliary accounts receivable collection efforts.

c. Ensure that all accounts receivable reconciliations are signed and dated by the preparer and the

reviewer. Campus Response We concur. The Foundation will: a. Take immediate action to recover long-outstanding accounts receivable or use appropriate

write-off measures to bring accounts current.



b. Take appropriate measures to improve inter-auxiliary accounts receivable collection efforts.

c. Ensure that all accounts receivable reconciliations are signed and dated by the preparer and the reviewer.

Anticipated Completion Date: December 31, 2003 UNRECORDED REVENUE The Foundation did not record and deposit, upon receipt, reward revenues collected from the confiscation of invalid credit cards. The Foundation safe contained approximately $1,100 that was not recorded in the Foundation accounting records. Reward revenue received from banks, related to bookstore employees’ confiscation of invalid credit cards, was maintained in an envelope in the bookstore vault and was not recorded in the Foundation general ledger. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that all revenues be recorded and deposited when received. The Foundation controller indicated that these revenues had been identified during a periodic count of the change fund. She further indicated that the practice of the bookstore retaining the revenue associated with the confiscation of credit cards has apparently been in place for many years. Failure to properly process revenue increases the risk of errors, irregularities, and misappropriation. Recommendation 21 We recommend that the Foundation take appropriate measures to ensure that all reward revenue collected from the confiscation of invalid credit cards is recorded and deposited upon receipt. Campus Response We concur. The Foundation will take appropriate measures to ensure that all reward revenue collected from the confiscation of invalid credit cards is recorded and deposited upon receipt. Anticipated Completion Date: December 31, 2003



PURCHASING AND ACCOUNTS PAYABLE PURCHASE ORDER APPROVAL

The Foundation bookstore had not developed and implemented policies and procedures addressing the review and authorization of inventory purchases exceeding specified dollar thresholds. We found that buyers had the ability to purchase unlimited amounts of inventory without direct management oversight. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates secondary approval authority over inventory purchases exceeding predetermined limits. The Foundation bookstore general manager indicated that purchase order approval was not required at the time of the audit, as bookstore buyers were responsible for their own budgets and inventory levels. Failure to fully develop and communicate written policies and procedures weakens internal controls and increases the risk that misunderstandings will occur. Recommendation 22 We recommend that the Foundation develop and implement policies and procedures addressing additional review and authorization of inventory purchases exceeding specified dollar thresholds. Campus Response We concur. The Foundation will develop and implement policies and procedures addressing additional review and authorization of inventory purchases exceeding specified dollar thresholds. Anticipated Completion Date: Completed CREDIT CARDS Controls over the use of Foundation corporate credit cards were insufficient. We noted four corporate credit card accounts with past-due balances totaling $5,982. In order to preserve the Foundation’s credit rating, payment for the outstanding obligations was remitted by the Foundation and the related expense was recorded as advances to the individual cardholders.



Education Code §89900(b) states that the president of that state university shall be responsible for ascertaining that all expenditures are in accordance with policies of the Trustees, the propriety of all expenditures, and the integrity of the financial reporting made by auxiliary organizations. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that the distribution and use of corporate credit cards be properly controlled. The Foundation controller indicated that the lack of cardholder accountability might have contributed to the delinquency of the cardholder accounts. Insufficient controls over credit card usage increase the risk of errors, irregularities, and misappropriation of funds. Recommendation 23 We recommend that the Foundation take appropriate measures to establish proper accountability over the use of corporate credit cards. Campus Response We concur. The Foundation will take appropriate measures to establish proper accountability over the use of corporate credit cards. Anticipated Completion Date: December 31, 2003 CHECK PROCESSING Certain controls over Foundation check processing were inadequate. We noted that:

Check stock usage was not reconciled to check-signing machine usage. Picture identification was not reviewed before handing checks to payees.

Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that sufficient controls be maintained over the check-processing function and escheatment requirements.



The Foundation interim executive director indicated that lack of verification of picture identification prior to check disbursement was due to employees’ disbursement of checks based on sight recognition of individuals personally known to them. The Foundation controller indicated that resource constraints contributed to having multiple employees with access to check stock. Inadequate controls over check processing increase the risk of errors, irregularities, and misappropriation of funds. Recommendation 24 We recommend that the Foundation: a. Perform an independent reconciliation of check stock usage to check-signing machine usage. b. Establish procedures to verify picture identification prior to handing checks to payees.

Campus Response We concur. The Foundation will: a. Perform an independent reconciliation of check stock usage to check-signing machine usage. b. Establish procedures to verify picture identification prior to handing checks to payees. Anticipated Completion Date: December 31, 2003 UNCLAIMED MONIES

The Foundation had not developed policies and procedures to escheat unclaimed monies to the state. Unclaimed checks were not reported as escheat property, but were instead reversed and transferred back to the appropriate cash accounts. Code of Civil Procedures, Chapter 7, Unclaimed Property Law, Article 2 §1510 and §1511 indicate that property held by a business association escheats to the state, subject to various requirements and limitations. The Foundation controller indicated that the failure to escheat unclaimed monies was due to confusion as to whether the funds were valid unclaimed monies. Failure to meet the requirements of unclaimed property law could increase the auxiliary’s exposure to potential penalties and fines. Recommendation 25 We recommend that the Foundation, in conjunction with the campus, develop operating procedures that implement the requirements of the Code of Civil Procedures with respect to unclaimed property.



Campus Response We concur. The Foundation will, in conjunction with the campus, develop operating procedures that implement the requirements of the Code of Civil Procedures with respect to unclaimed property. Anticipated Completion Date: December 31, 2003

PERSONNEL AND PAYROLL

PAYROLL PROCESSING Certain payroll processing controls for the Foundation and Foundation-managed entities were insufficient. We found that: Signature cards of persons authorized to approve non-grant timesheets were not maintained.

Certain payroll transactions were processed through accounts payable rather than payroll,

resulting in underpaid payroll taxes. Forms utilized to support AS and Union personnel address and direct deposit account changes did

not require management approval. Management review and reconciliation of AS and Union employee master file changes were not

documented.

Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates proper controls over the payroll process. The Foundation interim executive director stated that, although not formally documented, she reviews all personnel and payroll transactions for the Foundation, AS, and Union. Inadequate controls over payroll processing increase the risk of errors, irregularities, and misappropriation of funds. In addition, failure to comply with tax legislation could result in the assessment of fines.



Recommendation 26 We recommend that the Foundation take the appropriate measures to ensure that: a. Signature cards are established and maintained for those individuals authorized to approve

timesheets.

b. All payroll disbursements are processed through the Foundation payroll system. c. Adequate documentation of management review exists for employee master file changes.

d. A reconciliation of employee master file changes is conducted and management review of the

reconciliation is appropriately documented. Campus Response We concur. The Foundation will take the appropriate measures to ensure that: a. Signature cards are established and maintained for those individuals authorized to approve

timesheets. b. All payroll disbursements are processed through the Foundation payroll system.

c. Adequate documentation of management review exists for employee master file agreements.

d. A reconciliation of employee master file changes is conducted and management review of the

reconciliation is appropriately documented. Anticipated Completion Date: December 31, 2003 EMPLOYEE SEPARATION The Foundation’s controls over separated employees were inadequate. We found several employees that were coded as active employees, but were no longer employed with the Foundation. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that adequate employee separation procedures be maintained.



The Foundation payroll manager indicated that the department periodically reviews the list of active employees; however, due to resource constraints within the department, this review may not have been consistently performed. Failure to document and complete clearance forms and remove or inactivate separated employees from the payroll system increase the risk of loss, errors, and misappropriation. Recommendation 27 We recommend that the Foundation strengthen controls over the status of separated employees. Campus Response We concur. The Foundation will strengthen controls over the status of separated employees. Anticipated Completion Date: December 31, 2003

FIXED ASSETS

Certain controls over Foundation fixed assets were inadequate. We found that: A physical inventory count of fixed assets had not been performed in the last three years.

Current policies and procedures for contracts and grants did not address the transfer or disposal of

fixed assets. A written reconciliation of Foundation property listing/location records to the general ledger was

not performed on a regular basis for contracts and grants assets. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates strong controls over fixed assets. The Foundation controller stated that the fixed asset control weaknesses were attributable to resource constraints. Inadequate controls over fixed assets increase the risk that property may be lost or stolen.



Recommendation 28 We recommend that the Foundation: a. Conduct physical inventories of fixed assets.

b. Develop written policies and procedures over the transfer or disposals for contracts and grants

fixed assets.

c. Perform periodic, written reconciliations of fixed asset records for fixed assets. Campus Response We concur. The Foundation will: a. Conduct physical inventories of fixed assets. b. Develop written policies and procedures over the transfer or disposals for contract and grants

fixed assets.

c. Perform periodic, written reconciliations of fixed asset records for fixed assets. Anticipated Completion Date: December 31, 2003

AUXILIARY PROGRAMS

Documentation to evidence that final technical reports and other technical deliverables were submitted to the sponsor was not contained in Foundation project files. We noted that no process was in place to monitor the timely submission of technical reports or other technical deliverables. Office of Management and Budget (OMB) Circular A-110, Uniform Administrative Requirements for Grants and Agreements With Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations Financial Reporting, δ_. 51(a), states that recipients are responsible for managing and monitoring each project, program, award, function, or activity supported by the award. OMB Circular A-110, Uniform Administrative Requirements for Grants and Agreements With Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations Financial Reporting, δ_. 71(a), states that recipients shall submit, within 90 calendar days after the date of completion of the award, all financial, performance, and other reports as required by the terms and conditions of the award. The campus vice president of administration and business affairs indicated that the project directors, rather than Foundation staff, were responsible for monitoring technical deliveries.



Inadequate documentation increases the risk of penalties and disallowances for non-compliance with contracts and grants terms. Recommendation 29 We recommend that the Foundation, in coordination with the campus, strengthen controls to include documented evidence that technical reports and other technical deliverables are submitted to sponsoring agencies. Campus Response We concur. The Foundation will, in coordination with the campus, strengthen controls to include documented evidence that technical reports and other technical deliverables are submitted to sponsoring agencies. Anticipated Completion Date: December 31, 2003

INFORMATION TECHNOLOGY USER ACCESS Foundation user profiles did not provide for proper segregation of duties/functions. We found that the accounting application was not configured to restrict access to only those persons requiring access to selected modules. Thus, all full-time accounting staff had change access to the accounting systems for all four auxiliaries. EO No. 698, Board of Trustees Policy for The California State University Auxiliary Organizations, dated March 3, 1999, states that the review of auxiliary organizations will be used to determine appropriate separation of duties, safeguarding of assets, and reliability and integrity of information. The Foundation controller indicated that the lack of restricted access was due to limited personnel and the need to have backups in the event of employee absences. Inadequate segregation of duties/functions increases the risk of errors, irregularities, and misappropriation of funds. Recommendation 30 We recommend that the Foundation review its accounting system user profiles to ensure the appropriate segregation of duties/functions or institute mitigating controls approved by the campus.



Campus Response We concur. The Foundation will review its accounting system user profiles to ensure the appropriate segregation of duties/functions or institute mitigating controls approved by the campus. Anticipated Completion Date: December 31, 2003 PHYSICAL AND ENVIRONMENTAL CONTROLS The Foundation’s computer room was not equipped with smoke detection equipment. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates proper physical and environmental controls for computer rooms. The Foundation controller attributed the lack of smoke detection equipment in the computer room to oversight. Inadequate physical and environmental safeguards for computing equipment increase the probability of a significant adverse event affecting the computing system. Recommendation 31 We recommend that the Foundation evaluate the cost/benefit of implementing smoke detection equipment within the Foundation’s computer room. Campus Response We concur. The Foundation will evaluate the cost/benefit of implementing smoke detection equipment within the Foundation’s computer room. Anticipated Completion Date: December 31, 2003 DISASTER RECOVERY PLAN The Foundation had not developed a sufficiently detailed, written information technology disaster recovery plan and corresponding business continuation procedures. EO No. 696, Implementation of The California State University Emergency Preparedness Program, dated January 29, 1999, states, in part, that each campus president is delegated the responsibility for the implementation of a multihazard emergency program on campus and shall ensure that management activities including, but not limited to, maintenance and regular updating of the



institutional multihazard emergency plan and determination, acquisition, and maintenance of facilities, equipment, and related supplies required for emergency preparedness are accomplished. The Foundation controller indicated that the Foundation had believed that their procedures should be focused on the backup of computer files only. Without a detailed, written disaster recovery plan and corresponding business continuation procedures, the auxiliary may not be able to restore data processing operations within a reasonable time frame. Recommendation 32

We recommend that the Foundation document a sufficiently detailed, written disaster recovery plan and corresponding business continuation procedures. Campus Response We concur. The Foundation will document a sufficiently detailed, written disaster recovery plan and corresponding business continuation procedures. Anticipated Completion Date: December 31, 2003



UNIVERSITY UNION OF CALIFORNIA STATE UNIVERSITY, HAYWARD LEGAL AND REGULATORY COMPLIANCE

WRITTEN AGREEMENTS

Certain written agreements between the University Union of California State University, Hayward (Union) and other entities were incomplete, expired, and/or lacking sufficient detail of business arrangements. We noted that: Food vendors have been provided space which was not articulated in agreements. These spaces

provide them with open access to Union-operated food inventory. Three lease agreements to third-party food service providers expired June 30, 2002.

There was no third-party agreement for the operation of the food service facility in the Physical

Education Building. The University Club property management agreement expired June 30, 2002.

The licensing agreement for a Union-operated food service facility expired December 23, 2002.

There was no written agreement or memorandum of understanding (MOU) with the campus for

check signing and related services or the 13-percent service fee charged on utility bills. There was no written agreement or MOU for the lease of the Contra Costa campus café.

Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that business arrangements be supported by complete and current, written agreements. The Union executive director stated that the items above were caused by conflicting priorities that resulted in having only drafts in process, rather than finalized agreements. Failure to maintain complete and up-to-date, written agreements increases the risk of misunderstandings and miscommunication regarding rights and responsibilities.



Recommendation 33 We recommend that the Union establish complete and up-to-date, written agreements with other entities clearly articulating all business arrangements. Campus Response We concur. The Union will establish complete and up-to-date, written agreements with other entities clearly articulating all business arrangements. Anticipated Completion Date: December 31, 2003 SALARIES AND BENEFITS The Union had not sufficiently documented an analysis of full-time employee salaries, wages, and benefits between its employees and campus employees serving in similar positions. Title 5 §42405 states that the governing board of each auxiliary organization shall provide salaries, working conditions, and benefits for its full-time employees, which are comparable to those provided campus employees performing substantially similar services. For those full-time employees who perform services that are not substantially similar to the services performed by campus employees, the salaries established shall be at least equal to the salaries prevailing in other educational institutions in the area or commercial operations of like nature. The Union executive director indicated that there was a procedure to maintain comparability, but that it was not documented. Failure to fully document the comparative analysis of positions increases the risk that the auxiliary may be expending inappropriate amounts on salaries and benefits for employees who perform substantially similar services as employees for the campus and other organizations. Recommendation 34 We recommend that the Union document an analysis of all auxiliary and comparable campus salaries, wages, and benefits. Campus Response We concur. The Union will perform, and document, an analysis of all auxiliary and comparable campus salaries, wages, and benefits. Anticipated Completion Date: September 30, 2003



SEGREGATION OF DUTIES The Union did not appropriately segregate certain accounting functions for cash receipts. The Union accounting technician prepared billings, received check payments, and matched receipts against open receivables before the checks were endorsed to the Union and included in the daily deposit by the accounting clerk. EO No. 698, Board of Trustees Policy for The California State University Auxiliary Organizations, dated March 3, 1999, states that the review of auxiliary organizations will be used to determine appropriate separation of duties, safeguarding of assets, and reliability and integrity of information.

The Union executive director stated that establishing a proper segregation of duties in this instance had not occurred due to a lack of resources. Inadequate segregation of duties increases the risk that errors and irregularities will not be detected in a timely manner. Recommendation 35 We recommend that the Union properly segregate accounting functions for cash receipts or institute mitigating procedures approved by the campus. Campus Response We concur. The Union will properly segregate accounting functions for cash receipts or institute mitigating procedures approved by the campus. Anticipated Completion Date: December 31, 2003


Transfer accountability over the movement of Union cash receipts and change funds was not clearly established.

We noted that: Accountability for transfers of cash bags were not always documented.

Certain change funds were not regularly verified and documented by a second person.

Point-of-sale change fund beginning balances and ending receipts verification were not

documented by employee and supervisor signatures.



Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates adequate internal controls over cash receipts and change funds. The Union executive director stated her belief that the lack of transfer accountability over cash was due to a lack of resources. Inadequate controls over cash receipts and change funds increase the risk of a loss or misappropriation of funds. Recommendation 36 We recommend that the Union implement procedures to ensure that: a. Transfers of all cash bags from one person’s accountability to another person’s accountability are

documented.

b. Change funds not used at the point-of-sale be regularly verified and documented by a second person.

c. Point-of-sale change funds beginning balances and ending receipts verification is documented by

employee and supervisor signatures. Campus Response We concur. The Union will implement procedures to ensure that: a. Transfers of all cash bags from one person’s accountability to another person’s accountability are

documented. b. Change funds not used at the point-of-sale are regularly verified and documented by a second

person.

c. Point-of-sale change fund beginning balances and ending receipts verification is documented by employee and supervisor signatures.

Anticipated Completion Date: December 31, 2003



INVESTMENTS The Union did not perform timely analysis and reconciliations of their investments maintained by the campus. We noted that communication between the campus and the Union with respect to these investments was insufficient: There was no written agreement between the Union and the campus establishing reporting

standards. Sufficient information on balances and activity were not received from the campus when

requested by the Foundation, who performed general ledger accounting for the Union since fiscal year 2000.

Management reports do not provide managers and boards with information sufficient to allow

them to take corrective action on a timely basis. We also noted the following: Significant accounting adjustments to investment balances related to construction in prior periods

were necessary when a reconciliation was completed in fiscal year 2003. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that investment accounts be reconciled on a timely basis. The campus associate vice president for business and financial services indicated that during the transition of accounting responsibilities from the campus to the Union, there were definitional and responsibility misunderstandings that resulted in an improper recording of the investment and the related transactions in the Union ledgers. He further stated his belief that this issue should have been resolved during the course of the Union’s financial audit. Failure to perform investment analysis and account reconciliations on a timely basis increases the risk that errors and irregularities will not be detected. During the course of our fieldwork, the Union reconciled and closed this investment account.



FEES, REVENUES, AND RECEIVABLES Certain controls over Union accounts receivable processing were inadequate. We noted that: The AS had not paid the Union its lease obligation for 2001, 2002, or 2003. They had not been

billed for any of these annual payments in accordance with the prescribed formula.

Only two out of ten commission-based lessees (i.e., food, games, automated teller machine) were current on their amounts owed to the Union, and three were more than 90 days past due. For these lessees, there was no billing system, no late payment penalties, and no interest charges accrued on estimated amounts past due.

Documentation accompanying commission-based lessee payments was insufficient and the right-

to-audit clauses had not been used to verify payments on a periodic basis.

Video game providers’ cash collections were not witnessed, as required by their contract. Therefore, later check payments could not be verified.

The University Club had not paid its annual fee of $1,400 for fiscal year 2002. The Union has

not billed for this amount.

The accounts receivable subledger detail was not used by the catering, room reservations, and copy center units to either collect unpaid balances or prevent the extension of additional credit to non-paying customers.

Reconciliations of the accounts receivable subsidiary records and general ledger were not

regularly performed. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates the establishment of adequate internal controls over accounts receivable processing. The Union executive director stated that these accounts receivable processing controls had not been addressed due to management oversight. Insufficient controls over accounts receivable processing increase the risk of loss, errors, and irregularities.



Recommendation 37 We recommend that controls over Union accounts receivable be improved to ensure that: a. All amounts owed are billed and late payment disincentives are established. b. All amounts billed are collected and accompanying documentation is sufficient to support

payments. c. Right-to-audit clauses are periodically enforced.

d. Credit is not extended to those with past-due accounts.

e. Reconciliations of the accounts receivable subsidiary records and general ledger are performed

regularly. Campus Response We concur. The Union will improve controls over accounts receivable to ensure that: a. All amounts owed are billed and late payment disincentives are established. b. All amounts billed are collected and accompanying documentation is sufficient to support

payments.

c. Right-to-audit clauses are periodically enforced.


e. Reconciliations of the accounts receivable subledger and general ledger are performed regularly. Anticipated Completion Date: December 31, 2003

PURCHASING AND ACCOUNTS PAYABLE

ACCOUNTS PAYABLE Certain controls over Union accounts payable processing were inadequate. We noted that: Reconconciliations between accounts payable subsidiary records and the general ledger were not

performed regularly.



Amounts due were not consistently paid on a timely basis. We noted 23 of 60 payments tested were processed untimely.

Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that accounts payable processing be properly managed. The Foundation controller who provides services for the Union stated that the reconciliation of accounts payable occurred only once a year due to a management oversight. The Union executive director stated that the unpaid balances often represented items still in dispute. Insufficient controls over accounts payable processing increase the risk of errors and irregularities. Recommendation 38 We recommend that the Union: a. Regularly reconcile accounts payable subsidiary records and the general ledger. b. Ensure that amounts due are paid on a timely basis, and that disputed items are resolved in a more

timely manner. Campus Response We concur. The Union will improve controls over accounts receivable to ensure that: a. Accounts payable subsidiary records and the general ledger are regularly reconciled. b. Amounts due are paid on a timely basis, and that disputed items are resolved in a more timely

manner. Anticipated Completion Date: December 31, 2003 TAX REPORTING The Union had not clearly documented its determination that stipends paid to student board members were not reportable in accordance with Internal Revenue Service (IRS) requirements. According to the IRS, in order to establish that all or part of a scholarship or fellowship grant is received tax-free, the following must be documented: You are a candidate for a degree at an educational institution.



Amounts you receive as a scholarship or fellowship are used for tuition and fees required for enrollment or attendance at the educational institution, or for books, supplies, and equipment required for courses of instruction.

The amounts received are not a payment for services.

Further, the IRS notes that the following income would be reportable: Amounts used for incidental expenses, such as room and board, travel, and optional equipment.

Amounts received as payments for teaching, research, or other services required as a condition for

receiving the scholarship or fellowship grant. Internal Revenue Code (IRC) §6050S requires entities to report specified information returns with the IRS and to provide a corresponding statement to individuals on the information return, indicating that the information has been reported. These leadership scholarships are reportable as 1099 miscellaneous income because they represent reimbursement for incidental expenses. In order to be a tax-free scholarship (per IRS Publication 520), the stipend would have to be used under the terms of the grant for tuition and fees required for enrollment, and for fees, books, supplies, and equipment required for all students enrolled in a given course. The Union executive director indicated that the lack of sufficient documentation was an oversight. Failure to properly report to the IRS amounts considered as income to the recipients could increase the risk of fines and penalties. Recommendation 39 We recommend that the Union clearly document its determination that stipends paid to student board members were not reportable in accordance with IRS requirements or properly report taxable stipend income as required by the IRS. Campus Response We concur. The Union will clearly document its determination that stipends paid to student board members were not reportable in accordance with IRS requirements or properly report taxable stipend income as required by the IRS. Anticipated Completion Date: December 31, 2003



SALES TAX

The Union had overpaid sales tax for meals sold to students. We noted that the Union-operated food units did not charge sales tax at the point-of-sale, but later imputed it from daily gross sales and remitted the accumulating liability to the California Franchise Tax Board. This calculation did not take into consideration that students can be exempt from sales tax on certain meals. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that resources be efficiently managed so that the auxiliary can fulfill its campus mission. The Union executive director was unaware that the student portion of food service sales could be estimated as a basis for reducing the amount of sales tax remitted to the state. The overpayment of imputed sales tax impairs the ability of food service units to operate within their budgeted plan. Recommendation 40 We recommend that the Union pursue the elimination of sales tax on student meals. Campus Response We concur. The Union will pursue the elimination of sales tax on student meals. Anticipated Completion Date: December 31, 2003

FIXED ASSETS

Certain controls over Union fixed assets were inadequate. We noted that the Union had not developed written policies and procedures that addressed: Accountability and responsibility for equipment. Control over additions and deletions of inventory. Procedures for tagging equipment. Off-site use of equipment. Property sales and dispositions. Reconciliations between property inventory listing and the general ledger and property listings. Periodic physical inventories.



Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates strong controls over fixed assets. The Union executive director indicated that the Union had previously identified fixed asset controls as being insufficient. She further indicated that the Union was currently in the process of conducting updated inventory of fixed assets, as well as strengthening controls over fixed assets. Inadequate controls over fixed assets increase the risk that property may be lost or stolen. Recommendation 41 We recommend that the Union develop written policies and procedures over fixed assets that address:

a. Accountability and responsibility for equipment. b. Control over additions and deletions of inventory. c. Procedures for tagging equipment. d. Off-site use of equipment. e. Property sales and dispositions. f. Reconciliations between property inventory listing and the general ledger and property listings. g. Periodic physical inventories.

Campus Response We concur. The Union will develop written policies and procedures over fixed assets that address: a. Accountability and responsibility for equipment. b. Control over additions and deletions of inventory. c. Procedures for tagging equipment. d. Off-site use of equipment. e. Property sales and dispositions. f. Reconciliations between property inventory listing and the general ledger and property listings. g. Periodic physical inventories. Anticipated Completion Date: December 31, 2003



INVENTORIES

Certain controls over Union food inventory were insufficient. We noted that significant variations in the cost of sales have occurred over the past few years. Such has been the result of weaknesses associated with the following: Sufficient effort was not directed toward obtaining the best value or cost of inventory.

Assurance was not obtained that all billed items were actually received.

Appropriate safegards of inventory were lacking, including the separation of Union inventory

from contracted vendor inventory.

Thorough regular inventory counts were not performed. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that inventory policies and procedures properly safeguard assets and accurately measure cost of goods sold. The Foundation controller providing accounting services to the Union stated that calculating food cost of sales on a periodic basis has not been a routine management monitoring tool. She further stated that therefore, periodic inventory counts have not been considered necessary to verify food cost calculations. Insufficient controls over food inventory increase the risk of food cost falling outside an acceptable range. Recommendation 42 We recommend that controls over Union inventory be improved to provide assurance that: a. An effort is made to obtain the best value for the money spent on inventory. b. All billed items are received. c. Inventory is safeguarded from spoilage or theft. d. The accuracy of food cost of sales is frequently verified through regular inventory counts. Campus Response We concur. The Union will improve controls over inventory to provide assurance that: a. An effort is made to obtain the best value for the money spent on inventory. b. All billed items are received.



c. Inventory is safeguarded from spoilage or theft. d. The accuracy of food cost of sales is frequently verified through regular inventory counts. Anticipated Completion Date: December 31, 2003





AUXILIARY AUTHORIZATION

Associated Students, California State University, Hayward (AS) had not executed an operating agreement with the CSU for the period under review. We found that AS did not formally execute its operating agreement until September 2002.

Title 5 §42501 states that a written agreement on behalf of the State of California by the Chancellor of The California State University and Colleges and the auxiliary organization is required for the performance by such auxiliary organization of any of the functions listed in §42500. Title 5 §42502 states that the operating agreement should specify the function or functions that the organization is to manage, operate, or administer. The AS executive director indicated that the failure to maintain a current operating agreement was due to oversight.

Operating in the absence of an up-to-date, written agreement increases the risk of misunderstandings and miscommunication regarding rights and responsibilities.

During the course of our fieldwork, AS provided documentation evidencing that an operating agreement had been executed.

BOARD MINUTES AS board meeting minutes were incomplete. We found that: Meeting minutes were not signed and approved by an appropriate official.

Meeting minutes did not indicate when board members joined the board meeting to constitute a

quorum, nor did they detail if all voting members were present when voting on a business transaction.

Business transactions were conducted without a quorum present.

Minutes were not always maintained for various subcommittees of the AS board of directors.



Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates complete and accurate minutes signed by an appropriate official and include sufficient detail. The AS executive director indicated that management was unaware of the requirement for the minutes to be signed or that they must document the status of board member attendance. She further indicated the meeting minutes could not be located due to the recent departure of the AS office manager. Failure to maintain sufficient and appropriately approved board meeting minutes increases the risk of misunderstandings and may increase legal liability. Recommendation 43 We recommend that AS take appropriate measures to ensure that: a. Board minutes are signed and approved by an appropriate official. b. Minutes are complete, including sufficient detail, describing all members present. c. A quorum is present to properly conduct business. d. Subcommittees of the board of directors maintain minutes for each meeting or proceeding. Campus Response We concur. The AS will take appropriate measures to ensure that: a. Board minutes are signed and approved by an appropriate official. b. Minutes are complete, including sufficient detail, describing all members present. c. A quorum is present to properly conduct business. d. Subcommittees of the board of directors maintain minutes for each meeting or proceeding. Anticipated Completion Date: Completed SALARIES AND BENEFITS

AS had not sufficiently documented an analysis of full-time employee salaries, wages, and benefits between its employees and campus employees serving in similar positions. Title 5 §42405 states that the governing board of each auxiliary organization shall provide salaries, working conditions, and benefits for its full-time employees, which are comparable to those provided campus employees performing substantially similar services. For those full-time employees who perform services that are not substantially similar to the services performed by campus employees, the salaries established shall be at least equal to the salaries prevailing in other educational institutions in the area or commercial operations of like nature.



The AS executive director indicated management was unaware that a written comparison was required, although AS diligently updated its salary ranges and benefits to mirror campus salaries and benefits. Failure to fully document the comparative analysis of positions increases the risk that the auxiliary may be expending inappropriate amounts on salaries and benefits for employees who perform substantially similar services as employees for the campus or other organizations.

Recommendation 44

We recommend that AS document an analysis of all auxiliary and comparable campus salaries, wages, and benefits.

Campus Response We concur. The AS will perform, and document, an analysis of all auxiliary and comparable campus salaries, wages, and benefits. Anticipated Completion Date: September 30, 2003 RESERVES

The AS reserve policy required revision. Reserve balances maintained for the permanent child-care center and the child-care scholarship were not in compliance with AS board-established requirements. We noted that the AS fiscal reserve policy required a reserve of $5,253 and $1,400 for the permanent child-care center and the child-care scholarship, respectively. The June 30, 2002, AS financial statements, Notes #8, indicated a reserve of $168 and $1,300, respectively. Education Code §89904(b) states, in part, the Trustees in consultation with the Department of Finance and the governing boards of the various auxiliary organizations shall implement financial standards which will assure the fiscal viability of such various auxiliary organizations. Such standards shall include proper provisions for professional management, adequate working capital, adequate reserve funds for current operations and capital replacements, and adequate provisions for new business requirements.

The AS executive director indicated that AS fiscal reserves were not adequate because the existing policy required updating. Insufficient reserve planning and analysis increase the auxiliary’s risk to fund future needs. Recommendation 45 We recommend that the AS reserve policy be reviewed and updated by the AS board.



Campus Response We concur. The AS reserve policy will be reviewed and updated. Anticipated Completion Date: December 31, 2003 RISK MANAGEMENT

AS did not maintain participant accident insurance coverage for its recreational activities and did not have procedures in place to determine the need for special riders for extraordinary events. Title 5 §42401 requires auxiliaries to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Education Code §89905.5(c) indicates that an auxiliary needs to take measures to protect the campus from all possible liability associated with its service operations. Sound business practice mandates sufficient insurance coverage. The AS executive director indicated that AS was unaware that its programs and activities warranted participant insurance. The lack of appropriate insurance coverage increases the auxiliary’s exposure to potential liability. Recommendation 46 We recommend that AS: a. Obtain adequate insurance coverage for extraordinary events. b. Establish policy and implement procedures for periodic review of its insurance coverage for

adequacy. Campus Response We concur. The AS will: a. Obtain adequate insurance coverage for extraordinary events. b. Establish policy and implement procedures for periodic review of its insurance coverage for

adequacy. Anticipated Completion Date: December 31, 2003



SEGREGATION OF DUTIES AS did not appropriately segregate certain accounting functions for cash receipts. We found that the AS office manager was responsible for cash handling, deposit preparation, invoicing, and accounts receivables management. EO No. 698, Board of Trustees for The California State University Auxiliary Organizations, dated March 3, 1999, states that the review of auxiliary organizations will be used to determine appropriate separation of duties, safeguarding of assets, and reliability and integrity of information. The AS executive director concurred and indicated that limited staff size contributed to segregation of duties issues. Inadequate segregation of duties increases the risk that errors and irregularities will not be detected in a timely manner. Recommendation 47 We recommend that AS properly segregate accounting functions for cash receipts or institute mitigating procedures approved by the campus. Campus Response We concur. The AS will segregate accounting functions for cash receipts or institute mitigating procedures approved by the campus. Anticipated Completion Date: December 31, 2003


Checks received by the AS Early Childhood Education Center (Childhood Center) were not restrictively endorsed at the time of receipt, and deposit receipts were not issued. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that proper internal controls be maintained over cash receipts. The AS Childhood Center director indicated that she was unaware that checks received needed to be restrictively endorsed at the time of receipt and that a receipt needed to be issued. Inadequate controls over cash receipts increase the risk of a loss or misappropriation of funds.



Recommendation 48 We recommend that AS take appropriate measures to ensure AS Childhood Center checks are restrictively endorsed upon receipt and that deposit receipts are issued where appropriate. Campus Response We concur. The AS will take appropriate measures to ensure AS Childhood Center checks are restrictively endorsed upon receipt and that deposit receipts are issued where appropriate. Anticipated Completion Date: September 30, 2003

PETTY CASH AND CHANGE FUNDS

Certain controls over AS petty cash and change funds were insufficient.

We found that:

Petty cash funds maintained by the AS Childhood Center had not been reconciled nor replenished

since approximately February 2002.

The petty cash and change fund general ledger balances do not correspond to the funds on hand. A petty cash fund expense was reimbursed without submittal of receipts to evidence the expense.

Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates adequate controls over petty cash and change funds. The AS Childhood Center director indicated that she was unaware that the petty cash fund was to be routinely reconciled and replenished. The AS executive director stated that established policies and procedures exist for petty cash administration. She further indicated that the identified petty cash control weaknesses were due to a lack of awareness of those policies and procedures. Inadequate controls over petty cash and change funds increase the risk of a loss or misappropriation of funds. Recommendation 49 We recommend that the AS ensure that: a. Petty cash and change funds are reconciled on a routine basis.



b. The petty cash and change funds on hand correspond to the recorded amounts on the general ledger.

c. Petty cash fund reimbursements are only made upon the submission of receipts to justify

requested reimbursements.

Campus Response We concur. The AS will ensure that: a. Petty cash and change funds are reconciled on a routine basis. b. The petty cash and change funds on hand correspond to the recorded amounts on the general

ledger.

c. Petty cash fund reimbursements are only made upon the submission of receipts to justify requested reimbursements.

Anticipated Completion Date: Completed

INVESTMENTS

AS inappropriately invested in an equity investment vehicle. To help fund future employee retirement needs, AS invested funds in an investment account that contained equity funds as part of the investment mix. This account was subsequently liquidated in October 2002 due to poor investment performance. Education Code §89301 indicates that student body organization membership fees shall be deposited or invested in any one or more of the following ways: (a) Deposits in trust accounts of the centralized State Treasury system or in a bank or banks whose accounts are insured by the Federal Deposit Insurance Corporation. (b) Investment certificates or withdrawable shares in state-chartered savings and loan associations and savings accounts of federal savings and loan associations. (c) Purchase of any of the securities authorized for investment by Section 16430 of the Government Code or investment by the Treasurer in those securities. (d) Participation in funds which are exempt from federal income tax pursuant to Section 501(c)(3) of the IRC and which are open exclusively to non-profit colleges, universities, and independent schools. (e) Investment certificates or withdrawable shares in federal or state credit unions. The AS executive director stated that when the fund was established, the chancellor’s office was contacted to ensure that this was a legitimate investment transaction. Failure to invest in authorized investment vehicles increases the risk of future losses.



During the fieldwork, AS provided documentation evidencing that the equity investment had been liquidated.

FEES, REVENUES, AND RECEIVABLES

ACCOUNTS RECEIVABLE Certain controls over AS accounts receivable were insufficient. We found that:

Written policies and procedures had not been developed for the administration, collection, and

write-off of accounts receivable.

Accounts receivable subsidiary records were not reconciled to the general ledger.

Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates maintaining proper internal controls over accounts receivable. The AS executive director stated that organizational policies and procedures had not been developed for certain aspects of the administration of accounts receivable due to an oversight. Insufficient controls over accounts receivable increase the risk of loss, errors, and irregularities. Recommendation 50

We recommend that AS: a. Document policies and procedures for the administration, collection, and write-off of accounts

receivable.

b. Perform periodic reconciliations between accounts receivable subsidiary records and the general ledger.

Campus Response We concur. The AS will: a. Document policies and procedures for the administration, collection, and write-off of accounts

receivable.



b. Perform periodic reconciliations between accounts receivable subsidiary records and the general ledger.

Anticipated Completion Date: December 31, 2003 REVENUE RECONCILIATION Revenues received by the AS Childhood Center were not reconciled to enrollment records. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates reconciliation between revenue collections and enrollment. The AS executive director indicated that revenue reconciliations were inadvertently discontinued following AS staff turnover. Failure to reconcile revenues increases the risk that errors or misappropriation of funds would not be detected. Recommendation 51

We recommend that the campus coordinate with AS to ensure that reconciliation of receipts to enrollment records is performed regularly and timely.

Campus Response We concur. The AS and the campus will coordinate to ensure that reconciliation of receipts to enrollment records is performed regularly and timely. Anticipated Completion Date: December 31, 2003


The AS had not clearly documented its determination that stipends paid to student board members were not reportable in accordance with IRS requirements. According to the IRS, in order to establish that all or part of a scholarship or fellowship grant is received tax-free, the following must be documented: You are a candidate for a degree at an educational institution.



Amounts you receive as a scholarship or fellowship are used for tuition and fees required for enrollment or attendance at the educational institution, or for books, supplies, and equipment required for courses of instruction.

The amounts received are not a payment for services.

Further, the IRS notes that the following income would be reportable: Amounts used for incidental expenses, such as room and board, travel, and optional equipment.

Amounts received as payments for teaching, research, or other services required as a condition for

receiving the scholarship or fellowship grant. IRC §6050S requires entities to report specified information returns with the IRS and to provide a corresponding statement to individuals on the information return, indicating that the information has been reported. These leadership scholarships are reportable as 1099 miscellaneous income because they represent reimbursement for incidental expenses. In order to be a tax-free scholarship (per IRS Publication 520), the stipend would have to be used under the terms of the grant for tuition and fees required for enrollment, and for fees, books, supplies, and equipment required for all students enrolled in a given course. The AS executive director indicated that the lack of sufficient documentation was an oversight. Failure to properly report to the IRS amounts considered as income to the recipients could increase the risk of fines and penalties.

Recommendation 52

We recommend that AS clearly document its determination that stipends paid to student board members were not reportable in accordance with IRS requirements or properly report taxable stipend income as required by the IRS.

Campus Response We concur. The AS will clearly document its determination that stipends paid to student board members were not reportable in accordance with IRS requirements or properly report taxable stipend income as required by the IRS. Anticipated Completion Date: December 31, 2003



FIXED ASSETS

Certain controls over AS fixed assets were inadequate. We noted that AS had not developed written policies and procedures that addressed: Accountability and responsibility for equipment. Control over additions and deletions of inventory. Procedures for tagging equipment. Off-site use of equipment. Property sales and dispositions. Reconciliations between property inventory listing and the general ledger and property listings. Periodic physical inventories.

Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates strong controls over fixed assets. The AS executive director indicated her belief that existing controls over AS fixed assets were sufficient. Inadequate controls over fixed assets increase the risk that property may be lost or stolen. Recommendation 53 We recommend that AS develop written policies and procedures over fixed assets that address:

a. Accountability and responsibility for equipment. b. Control over additions and deletions of inventory. c. Procedures for tagging equipment. d. Off-site use of equipment. e. Property sales and dispositions. f. Reconciliations between property inventory listing and the general ledger and property listings. g. Periodic physical inventories.

Campus Response We concur. The AS will develop written policies and procedures over fixed assets that address: a. Accountability and responsibility for equipment. b. Control over additions and deletions of inventory. c. Procedures for tagging equipment. d. Off-site use of equipment. e. Property sales and dispositions.



f. Reconciliations between property inventory listing and the general ledger and property listings. g. Periodic physical inventories. Anticipated Completion Date: December 31, 2003

INFORMATION TECHNOLOGY

Controls over information security at the AS Childhood Center were deficient. We noted that the backup disk for child-care enrollment information was found in the reception workstation disk drive. In addition, a second backup disk could not be located by AS.

Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that sensitive information be properly secured. The AS Childhood Center director indicated that a backup disk is usually kept in a locked cabinet. She further indicated that the second backup disk is usually kept in her office workstation. Failure to implement appropriate general computer controls could result in loss or corruption of personal information of child-care participants.

Recommendation 54 We recommend that AS improve child-care information system controls by properly securing and storing backups for the child-care enrollment information.

Campus Response We concur. The AS will improve child-care information system controls by properly securing and storing backups for the child-care enrollment information. Anticipated Completion Date: December 31, 2003



CAL STATE HAYWARD EDUCATIONAL FOUNDATION LEGAL AND REGULATORY COMPLIANCE


The Educational Foundation had not executed an operating agreement with the CSU for the period under review. We found that the Educational Foundation did not formally execute an operating agreement with the Trustees until October 2002. Title 5 §42501 states, in part, that a written agreement is required for the auxiliary’s performance of any functions listed in Title 5 §42500. Title 5 §42502 states that the operating agreement should specify the function or functions which the organization is to manage, operate, or administer. The campus director of university advancement indicated that because the auxiliary was designated as an authorized auxiliary organization by the chancellor’s office, she believed an operating agreement with the Trustees had been executed. Operating in the absence of an up-to-date, written agreement increases the risk of misunderstandings and miscommunication regarding rights and responsibilities. During the course of our fieldwork, the Educational Foundation provided documentation evidencing that an operating agreement had been executed in November 2002. PUBLIC MEETINGS

Notices of the Educational Foundation board of directors’ and committee meetings were not posted in a public area.

Education Code §89920 states that each governing board of an auxiliary organization shall conduct its business in public meetings. Education Code §89924 states that no governing board shall take action on any issue until that issue has been publicly posted for at least one week.

The campus director of university advancement indicated that she was unaware of the need to notify the public about board and subcommittee meetings.

Non-compliance with regulations for public meetings increases the risk of misunderstandings and may increase legal liability.

Recommendation 55

We recommend that the Educational Foundation post its board of directors’ and committee meeting notices in a public area in accordance with the Education Code.



Campus Response We concur. The Educational Foundation will post its board of directors’ and committee meeting notices in a public area in accordance with the Education Code. Anticipated Completion Date: December 31, 2003 BOARD MEETINGS The Educational Foundation did not conduct the required number of board of directors’ meetings. We found that the Educational Foundation’s board of directors had only met three times during each of the last three fiscal years. Education Code §89903 states that each governing board shall, during each fiscal year, hold at least one business meeting each fiscal quarter. The campus director of university advancement indicated that the failure to conduct Educational Foundation board of directors’ meetings once per fiscal quarter was due to oversight. She stated her belief that the board was only required to meet once per educational quarter. She was not aware of the requirement to hold meetings once per fiscal quarter. When the board of directors does not meet on a regular basis in accordance with CSU policy, the board’s fiduciary responsibility over the operations of the auxiliary organization may not be met. Recommendation 56 We recommend that the Educational Foundation take appropriate measures to ensure that the board of directors meets at least once each quarter. Campus Response We concur. The Educational Foundation will take appropriate measures to ensure that the board of directors meets at least once each quarter. Anticipated Completion Date: December 31, 2003 DELEGATION OF AUTHORITY The Educational Foundation had not established a written delegation of authority for all named persons or positions to sign checks on behalf of the auxiliary. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound



business practices. Sound business practice mandates that signature authority be delegated by official policy and action and be conveyed in written documents, authorizing named individuals to sign checks on behalf of the organization. The campus director of university advancement indicated that the lack of written authorization was due to oversight. The lack of a written delegation of authority to sign checks on behalf of the auxiliary increases misunderstandings and may increase legal liability. Recommendation 57 We recommend that the Educational Foundation establish a written delegation of authority for all named persons or positions to sign checks on behalf of the auxiliary. Campus Response We concur. The Educational Foundation will establish a written delegation of authority for all named persons or positions to sign checks on behalf of the auxiliary. Anticipated Completion Date: December 31, 2003 BUDGET APPROVAL

The Educational Foundation did not prepare an annual budget subject to the approval of the campus president. The Educational Foundation informed the campus president of general activities and expenditures; however, a formal budgeting process was not in place. Title 5 §42402 requires the auxiliary to submit its programs and budgets for review in a timely manner as specified by the president (or designee). The campus director of university advancement indicated that the lack of a written budgeting process was due to oversight. The lack of appropriate approval of auxiliary budgets increases the risk that the auxiliary will operate in a manner inconsistent with the educational mission of the campus.

Recommendation 58

We recommend that the Educational Foundation prepare annual budgets and work with the campus to establish a policy as to the manner and method for campus presidential approval.



Campus Response We concur. The Educational Foundation will prepare annual budgets and work with the campus to establish a policy as to the manner and method for campus presidential approval. Anticipated Completion Date: December 31, 2003 RESERVES

The Educational Foundation had not established a written surplus funds/reserve policy. Such a policy should address or consider the following areas: Minimum reserve requirements. The inclusion of reserves in the budget submitted to the campus president. Board review of reserve levels. Reserves for working capital and capital replacement. The methodology used for the calculation of reserves.

Education Code §89904(b), §89904.5, and §89905 indicate that reserve planning is necessary. The campus director of university advancement indicated that the board had recently discussed the need for such a policy. However, as of the time of the audit, such a policy had not been established. Insufficient reserve planning and analysis increase the auxiliary’s risk to fund future needs.

Recommendation 59 We recommend that the Educational Foundation coordinate with the campus to establish a formal policy for the allocation of surplus funds/reserves.

Campus Response We concur. The Educational Foundation will coordinate with the campus to establish a formal policy for the allocation of surplus funds/reserves. Anticipated Completion Date: December 31, 2003




Certain Educational Foundation cash receipts were transported unsecured and in the custody of only one person. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that sufficient internal controls be maintained over cash funds. The campus director of university advancement indicated her belief that mitigating controls, such as weekly cash deposit reconciliations and transfer accountability documentation, reduced the potential exposures associated with current deposit transportation practices. Inadequate controls over cash receipts processing increase the risk of a loss or misappropriation of funds. Recommendation 60 We recommend that the Educational Foundation take appropriate measures to ensure that funds are adequately safeguarded when transported. Campus Response We concur. The Educational Foundation will take appropriate measures to ensure that funds are adequately safeguarded when transported. Anticipated Completion Date: December 31, 2003

INVESTMENTS

Educational Foundation written investment policies and procedures did not address control over the transfer of investment funds. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates detailed instructions regarding the transfer of investment funds. The campus director of university advancement stated that the failure to include instructions regarding the transfer of investment funds was due to oversight.



Failure to fully develop and communicate written policies and procedures weakens internal controls and increases the risk that misunderstandings will occur. Recommendation 61

We recommend that the Educational Foundation update its written investment policies and procedures to include the transfer of investment funds. Campus Response We concur. The Educational Foundation will update its written investment policies and procedures to include the transfer of investment funds. Anticipated Completion Date: December 31, 2003


DONOR SYSTEM RECONCILIATION Reconciliations between the Educational Foundation donor database system and the general ledger accounting system were not consistently performed. In July 2002, the campus established procedures for reconciliation and appropriate management review of the Educational Foundation accounting records with the donor database, including pledges and gifts-in-kind. However, these procedures were not implemented. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates reconciliation between the donor database system and the general ledger accounting system. The campus director of university advancement stated that the failure to perform the reconciliation was due to resource constraints within the department. Failure to complete reconciliations of donor and accounting records increases the risk of reporting errors and/or misappropriations of funds.

Recommendation 62

We recommend that the Educational Foundation take appropriate measures to ensure that previously agreed-upon corrective actions are implemented in a timely manner. These corrective actions are as follows:



a. Develop written, periodic reconciliation procedures between the Educational Foundation accounting system and the computerized donor system that take into consideration pledges and gifts-in-kind.

b. Ensure that reconciliation results are documented and reviewed by the Educational Foundation

management. Campus Response We concur. The Educational Foundation will take appropriate measures to ensure that the following previously agreed-upon corrective actions are implemented in a timely manner: a. Develop written, periodic reconciliation procedures between the Educational Foundation

accounting system and the computerized donor system that take into consideration pledges and gifts-in-kind.

b. Ensure that reconciliation results are documented and reviewed by the Educational Foundation

management. Anticipated Completion Date: December 31, 2003 PLEDGES RECEIVABLE Certain controls over the collection of Educational Foundation pledges receivable were insufficient.

We found that for pledges greater than $5,000, outstanding pledges receivable totaled approximately $1.4 million. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates maintaining proper internal controls over the management and collection of pledges receivable.

The campus director of university advancement stated that the large amount of outstanding pledges receivable was due to the fact that the person responsible for generating pledges receivable reminders had recently completed employment.

Insufficient controls over pledges receivable increase the risk that accounts will not be collected in a timely manner. Recommendation 63

We recommend that the Educational Foundation take appropriate measures to improve pledges receivable collection efforts.



Campus Response We concur. The Educational Foundation will take appropriate measures to improve pledges receivable collection efforts. Anticipated Completion Date: December 31, 2003 DONATION PROCESSING Certain controls over Educational Foundation donation processing were inadequate. We found that: Donor restrictions on the use of gifts were not always communicated to those individuals

responsible for the use of the funds. Donations were recorded to accounts specified by the professors, without evidence of donor

specification. Acknowledgment letters were issued based on memos or photocopies of checks, without evidence

of deposit.

Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates that sufficient internal controls be maintained over donation processing. The campus director of university advancement indicated that the lack of adequate written policies and procedures concerning donation processing contributed to the above issues. Inadequate controls over donation processing increase the risk of a loss or misappropriation of funds.

Recommendation 64

We recommend that the Educational Foundation develop written policies and procedures to ensure that:

a. Donor restrictions on the use of gifts are communicated to those individuals responsible for the

use of the funds. b. All gifts other than in-kind gifts are deposited in Educational Foundation accounts.

c. Gift receipts are issued based only on receipt by the Educational Foundation of original

supporting documentation.



Campus Response We concur. The Educational Foundation, in coordination with the University, will develop written policies and procedures to ensure that: a. Donor restrictions on the use of gifts are communicated to those individuals responsible for the

use of the funds. b. All gifts other than in-kind gifts are deposited in Educational Foundation accounts.

c. Gift receipts are issued based only receipt by the Educational Foundation of original supporting

documentation. Anticipated Completion Date: December 31, 2003

TRUSTS

The Educational Foundation had not implemented procedures to ensure that the corpus balances for each endowment fund are adequately maintained and that distributions from these funds are in accordance with the expectations of the donors. We noted several restricted endowment accounts for which the restricted portion of the fund had not been retained as required per the endowment agreement. Title 5 §42401 and §42402 indicate that the campus president shall require that auxiliary organizations operate in conformity with policy of the Board of Trustees and the campus. One of the objectives of the auxiliary organizations is to provide fiscal procedures and management systems that allow effective coordination of the auxiliary activities with the campus in accordance with sound business practices. Sound business practice mandates management and accounting procedures to adequately monitor and account for endowment distributions and corpus amounts of permanently restricted endowment trusts. The campus director of university advancement acknowledged that sufficient procedures for the tracking and reporting of endowment funds did not exist. She stated that Educational Foundation management had identified the eroded principal amounts and were currently in the process of developing procedures to appropriately manage and administer endowed funds. Insufficient management and accounting for endowments increase the risk that funds will be handled inappropriately and contrary to the expectations of the campus and donors.

Recommendation 65

We recommend that the Educational Foundation implement procedures to ensure payouts from endowments do not invade corpus and that payouts are used in accordance with the expectations of the donors.



Campus Response We concur. The Educational Foundation will implement procedures to ensure payouts from endowments do not invade corpus and that payouts are used in accordance with the expectations of the donors. Anticipated Completion Date: December 31, 2003

APPENDIX A: PERSONNEL CONTACTED Name Title CAMPUS Norma S. Rees President John Abbey Assistant Controller Karen Esteller General Accounting Manager Neal R. Hoss Associate Vice President, Business and Financial Services Socorro Medrano Accountant Richard Metz Vice President, Administration and Business Affairs CALIFORNIA STATE UNIVERSITY, HAYWARD FOUNDATION, INC. Keith Beaudry Shipping and Receiving Supervisor LaTayna Bellow Executive Assistant Judy Helm General Manager, Bookstore Anne Hoy Bookstore Accounts Payable Clerk Diane Koops Cash Operations Technician Dorothy Lee Accounting Technician Joyce Montgomery Interim Executive Director Monica A. Pacheco Project Coordinator, CSUH Auxiliaries Darleen Robertson Accounting Manager Marilyn Stager Controller Leigh Tioseco Payroll Specialist Cynthia Vinson Contracts and Grants Manager and Payroll Manager UNIVERSITY UNION OF CALIFORNIA STATE UNIVERSITY, HAYWARD Lupe Hernandez Clerical Assistant Doris Lagasca Accounting Clerk Callie Le Renard Administrative Services Coordinator Joyce Montgomery Executive Director Cathy Pero Building Operations Coordinator Vince Perry Assistant Manager, Contra Costa Café Lourdes Salalila Accounting Technician Mirium Shabazz Catering Manager ASSOCIATED STUDENTS, CALIFORNIA STATE UNIVERSITY, HAYWARD Lil Brown-Parker Office Coordinator, Early Childhood Education Center Margaret Daniel Office Manager Janice Fonteno Director, Early Childhood Education Center Joyce Montgomery Executive Director Lourdes Salalia Accounting Assistant Precious Stroud-Chambers Marketing and Programs Director

APPENDIX A

CAL STATE HAYWARD EDUCATIONAL FOUNDATION Robert Burt Campus Vice President, University Advancement Elizabeth Graw Campus Director, University Advancement Andre Johnson Campus Associate Director, Advancement Services

APPENDIX B Page 1 of 4

SCOPE INTERNAL COMPLIANCE SCOPE As discussed in the body of our report, we evaluated each organization’s compliance with the Education Code and Title 5 as related to the operation of CSU auxiliary organizations. Within the scope of our review, we included the following internal compliance considerations, which were identified during our preliminary assessment of risks related to the CSU and its oversight of auxiliaries in determining whether:

The auxiliary performed only those functions determined by the CSU Trustees to be appropriate for auxiliary organizations.

The auxiliary performed only those functions authorized under a written agreement executed with the

chancellor. The auxiliary board of directors established provisions in either the articles of incorporation or

constitution stating that, upon dissolution, net assets other than trust funds will be distributed to a successor approved by the campus president (or designee) and the CSU Trustees.

The auxiliary board of directors adopted a constitution and, if the auxiliary was not incorporated, has

filed a copy of the constitution with the chancellor (or designee). All leasing of campus facilities by the auxiliary was effected under provisions of Education Code

§89046 or other laws governing the leasing of state facilities and whether it appropriately paid rent on space in tax-supported buildings on campus utilized by federally sponsored projects, unless the projects were excluded from space reimbursement requirements.

All contracts or other business arrangements involving real property were entered into with prior

approval of the campus president (or designee) and prior notification and consultation with the CSU chancellor (or designee).

The auxiliary board of directors met statutory requirements in size and composition.

Statutory requirements applicable to public meetings were adhered to as applicable to the auxiliary.

The auxiliary board of directors held business meetings at least once a quarter.


The auxiliary was established by constitution, statute, bylaws, or resolution and whether there were provisions for election of officers and board members.

Sufficient operating procedures had been established by the auxiliary to allow the campus president

(or designee) to ascertain the propriety of all expenditures and the integrity of financial reporting and whether all expenditures were made in accordance with policies of the CSU Trustees.

The auxiliary had all expenditures and fund appropriations approved by its board and whether it had

fund appropriations for use outside of normal business operations of the auxiliary approved by an officer designated by the CSU Trustees.

The auxiliary provided full-time employee salaries, working conditions, and benefits comparable to

those provided by the CSU. The auxiliary operated commercial services on a self-supporting basis.

The auxiliary submitted its programs and budgets for review in a timely manner as specified by the

president (or designee). The auxiliary maintained a reasonable provision for reserves and used surplus funds from commercial

operations for purposes consistent with regulations of the CSU Trustees. The auxiliary used indirect cost reimbursements in accordance with statutory requirements.

The auxiliary gave loans, scholarships, stipends, and grants-in-aid to currently admitted students only.

The auxiliary accepted grants, contracts, bequests, trusts, or gifts, to be used only for purposes

consistent with the policies of the CSU Trustees. The auxiliary forwarded records of student financial assistance to the campus financial aid office on a

timely basis. Expenditures for public relations or other purposes which would serve to augment state

appropriations for operation of the campus were approved by the governing body of the auxiliary organization and that this policy was filed with the chancellor (or designee).

The auxiliary had taken measures to protect the campus from all possible liability associated with the

operation of commercial services. The auxiliary obtained indemnity bonds for officers and employees handling funds as statutorily

mandated.


Conflict-of-interest statutes and regulations had been complied with, including, but not limited to, the

prohibition of financial conflicts of interest or personal pecuniary gains in transactions with governing board members.

The auxiliary adopted a non-discrimination and affirmative action in employment policy approved by

the chancellor (or designee). The student body organization auxiliary deposited in trust with the chief financial officer of the

campus all student body organization fees or other funds and money under the programmatic control of the student body organizations, except for those collected from and used in or for major commercial services and agency funds.

The student body organization auxiliary sufficiently enabled the chief fiscal officer of the campus to

comply with legislative mandates by recommending the most appropriate institution or medium for investment of unexpended funds.

The student body organization auxiliary submitted appropriate claim schedules to the chief fiscal

officer of the campus after review and approval by an officer of the student body organization. INTERNAL CONTROL SCOPE As to the scope of our internal control review, our focus was on the separation of duties, safeguarding of assets, and reliability and integrity of information. The areas included were identified through a preliminary survey and risk assessment of the operation of each auxiliary on the campus. Risks were defined as the probability that an event or action may adversely affect the auxiliary and/or the campus. We generally considered that duties were adequately segregated when no individual performed more than one of the following duties: (1) receiving and depositing remittances; (2) authorizing disbursements; (3) preparing checks; (4) operating a check-signing machine; (5) comparing signed checks with authorizations and supporting documents; (6) reconciling bank accounts and posting to the general ledger or any subsidiary ledger affected by cash transactions; and (7) initiating or preparing invoices. Within our general internal control focus, we considered and reviewed, as deemed appropriate based upon our assessment of risk, the following: Procedures for receipting and storing cash, segregation of duties involving cash receipting, and

recording of cash receipts. Establishment of receivables and adequate segregation of duties regarding billing for and payment of

receivables. Approval of purchases, receiving procedures, and reconciliation of expenditures to general ledger

balances.


Use of petty cash funds, periodic cash counts, and reconciliation of bank accounts.

Authorization of personnel/payroll transactions.

Posting of the property ledger, regular reconciliation of the property to the general ledger, and

physical inventories. Access restrictions to automated accounting systems and proper documentation of the systems.

Procedures for initiating, overseeing, and accounting for investments.

Establishment of trust funds, separate accounting, adequate agreements, and annual budgets.

As discussed, the areas actually included within the scope of our review were identified through a preliminary survey and risk assessment of each auxiliary’s operation. They were included within the scope of our review because they were deemed to address the risks associated with each auxiliary’s operation on the campus. Risk was defined as the probability that an event or action may adversely affect the auxiliary and/or the campus.

APPENDIX C Page 1 of 2

STATEMENT OF INTERNAL CONTROLS

A. INTRODUCTION

Internal accounting and related operational controls established by the state of California, the CSU Board of Trustees, and the Office of the Chancellor are evaluated by the university auditor, in compliance with professional standards for the conduct of internal audits, to determine if an adequate system of internal control exists and is effective for the purposes intended. Any deficiencies observed are brought to the attention of appropriate management for corrective action.

B. INTERNAL CONTROL DEFINITION

Internal control, in the broad sense, includes controls which may be characterized as either accounting or operational as follows:

1. Internal Accounting Controls

Internal accounting controls comprise the plan of organization and all methods and procedures that are concerned mainly with, and relate directly to, the safeguarding of assets and the reliability of financial records. They generally include such controls as the systems of authorization and approval, separation of duties concerned with record keeping and accounting reports from those concerned with operations or asset custody, physical controls over assets, and personnel of a quality commensurate with responsibilities.

2. Operational Controls

Operational controls comprise the plan of organization and all methods and procedures that are concerned mainly with operational efficiency and adherence to managerial policies and usually relate only indirectly to the financial records.

C. INTERNAL CONTROL OBJECTIVES

The objective of internal accounting and related operational control is to provide reasonable, but not absolute, assurance as to the safeguarding of assets against loss from unauthorized use or disposition, and the reliability of financial records for preparing financial statements and maintaining accountability for assets. The concept of reasonable assurance recognizes that the cost of a system of internal accounting and operational control should not exceed the benefits derived and also recognizes that the evaluation of these factors necessarily requires estimates and judgment by management.

APPENDIX C Page 2 of 2

D. INTERNAL CONTROL SYSTEMS LIMITATIONS

There are inherent limitations that should be recognized in considering the potential effectiveness of any system of internal accounting and related operational control. In the performance of most control procedures, errors can result from misunderstanding of instruction, mistakes of judgment, carelessness, or other personal factors. Control procedures whose effectiveness depends upon segregation of duties can be circumvented by collusion. Similarly, control procedures can be circumvented intentionally by management with respect to the executing and recording of transactions. Moreover, projection of any evaluation of internal accounting and operational control to future periods is subject to the risk that the procedures may become inadequate because of changes in conditions and that the degree of compliance with the procedures may deteriorate. It is with these understandings that internal audit reports are presented to management for review and use.

CALIFORNIA STATE UNIVERSIlY, HAywAR!iPPENDIX D -Page 1 of 29

25800 Carlos Bee Boulevard, Hayward, California 94542-3001

CAL STATE

Office of the President

Telephone: (510) 885-3877 Fax: (510) 885-3808HAYWARD

July 15, 2003

THE CALIfORNIA STATEUN!VERSlTYMr. Larry Mandel

University AuditorThe California State University401 Golden ShoreLong Beach, CA 90802

Campus Response to Recommendations of Auxiliary Organizations Audit 02-52California State University, Hayward

Subject:

Dear Mr. Mandel,

Please find enclosed California State University, Hayward's response to the recommendationsresulting from our Auxiliary Organizations Audit 02-52. For each recommendation, we haveincluded a corrective action plan and an anticipated date for implementation.

We appreciate the efforts of you and your staff during the process and the professional manner inwhich the audit and the related special investigation were performed.

,~

Sincerely,

.::~;~~~/114'~1'-' r

Norma S. ReesPresident

Enclosure

Chancellor ReedVice President Metz

Cc:

THE CAliFORNIA STATE UNIVERSITYBakersfield. Channel Islands. Chico. Dominguez Hills. Fresno. Fullerron .Hayward. Humboldt. Long Beach. Los Angeles. Maritime AcademyMonterey Bay. Northridge .Pomona. Sacramento. San Bernardino. San Diego. San Francisco. San Jose .San Luis Obis(K> .San Marcos. Sonoma. Stanislaus

APPENDIX D -Page 2 of 29

California State University, HaywardResponses to Auxiliary Organizations Audit 02-52

CAMPUS


PUBLIC RELATIONS POLICY

Recommendation 1

We recommend that the campus establish a public relations policy applicable to its auxiliaryorganizations and maintain this policy on file with the Office of the Chancellor.

Campus Respouse

We concur. The campus will establish a public relations policy applicable to its auxiliaryorganizations and maintain this policy on file with the Office of the Chancellor.


CONFLICT OF INTEREST

Recommendation 2

We recommend that the campus provide guidance for its auxiliaries with regard to strengthening andfurther documenting conflict-of-interest policies and procedures.

Campus Response

We concur. The campus will provide guidance for its auxiliaries with regard to strengthening andfurther documenting conflict-of-interest policies and procedures.


ROYALTY PAYMENTS

Recommendation 3

We recommend that the campus establish sufficient and appropriate written policies and proceduresconcerning royalties paid to faculty members.

Campus Response

We concur. The campus will establish sufficient and appropriate written policies and proceduresconcerning royalties paid to faculty members.


Page 1 of28


TRUSTS AND OTHER LIABILITIES

STUDENT BODY FEES

Recommendation 4

We recommend that the campus chief financial officer act as custodian of student body organizationfees.

Campus Response

We concur. The campus chief fmancial officer is acting as custodian of student body organizationfees, with AS expenditures being funded from the campus on a reimbursement basis.


CUSTODIAL FUNDS

Recommendation 5

We recommend that the campus continue to take the appropriate measures to ensure that policies andprocedures regarding oversight of custodial funds held by auxiliaries are followed.

Campus Response

We concur. The campus will continue to take the appropriate measures to ensure that policies andprocedures regarding oversight of custodial funds held by auxiliaries are followed.


Page 2 of28


CALIFORNIA STA TE UNIVERSITY. HA YWARD FOUNDA TIONo INC.



Recommendation 6

We recommend that the CSU and the Foundation update its operating agreement to specify allfunctions managed, administered, and operated by the auxiliary organization.

Campus Response

We concur. The Foundation will update its operating agreement to specify all functions managed,administered, and operated by the auxiliary organization.


DISSOLUTION OF AUXILIARY

Recommendation 7

We recommend that the Foundation amend its articles of incorporation to include a dissolution clausein accordance with Title 5.

Campus Response

We concur. The Foundation will amend its dissolution clause in accordance with Title 5.


LEASING OF FACILITIES

Recommendation 8

We recommend that the Foundation execute written lease agreements with the campus pertaining tothe Contra Costa campus bookstore and University Club site.

Campus Response

We concur. The Foundation will execute written lease agreements with the campus pertaining to theContra Costa campus bookstore and University Club site.


Page 3 of28


DELEGATION OF AUTHORITY

Recommendation 9

We recommend that the Foundation establish a written delegation of authority for certain boardmembers to sign contracts on behalf of the auxiliary.

Campus Response

We concur. The Foundation will establish a written delegation of authority for certain boardmembers to sign contracts on behalf of the auxiliary.


SALARIES AND BENEFITS

Recommendation 10

We recommend that the Foundation document an analysis of all auxiliary and comparable campussalaries, wages, and benefits.

Campus Response

We concur. The Foundation will perform, and document, an analysis of all auxiliary and comparablecampus salaries, wages, and benefits.

Anticipated Completion Date: September 30, 2003

RESERVES

Recommendation 11

We recommend that the Foundation update its reserve policy to address:

a. The methodology used to calculate all reserves.b. Minimum reserve requirements.c. Current reserve definitions.

Campus Response

We concur. The Foundation will update its reserve policy to address:

a. The methodology used to calculate all reserves.b. Minimum reserve requirements.c. Current reserve defInitions.

Anticipated

Completion Date: September 30, 2003

Page 4 of 28


RISK MANAGEMENT

Recommendation 12

We recommend that the Foundation ensure that contracts include appropriate indemnification clauses.

Campus Response

We concur. The Foundation will ensure that contracts include appropriate indemnification clauses.


NON-DISCRIMINATION POLICIES

Recommendation 13

We recommend that the Foundation revise its non-discrimination policy in accordance with CSU

policy.

Campus Response

We concur. The Foundation will revise its non-discrimination policy in accordance with CSU policy.


ADMINISTRATIVE SERVICES AGREEMENT

Recommendation 14

We recommend that the Foundation establish a written agreement for fiscal and accounting servicesprovided to the Educational Foundation and for payroll-related services associated with campus IRA

funds.

Campus Response

We concur. The Foundation will establish a written agreement for fiscal and accounting servicesprovided to the Educational Foundation and for payroll-related services associated with campus IRA

funds.


Page 5 of 28


SEGREGATION OF DUTIES

Recommendation 15

We recommend that the Foundation properly segregate accounting functions for bookstore purchasingand payroll and human resources or institute mitigating procedures approved by the campus.

Campus Response

We concur. The Foundation will segregate accounting functions for bookstore purchasing andpayroll and human resources or institute mitigating procedures approved by the campus.

Anticipated

Completion Date: December 31, 2003


Recommendation 16

We recommend that the Foundation improve cash handling controls by:

Increasing the level of security present when transporting cash funds.a.

b. Establishing procedures to ensure that a record is maintained of individuals having cash roomcombinations and the date the combinations were last changed.

Ensuring the combination to the cash room is changed when staffing changes occur.c.

d. Adequately securing the customer service safe and change drawer keys.

Campus Response

We concur. The Foundation will improve cash handling controls related to:

Level of security when transporting cash funds.

a.

Maintaining a record of individuals having combinations and the date the combinations were lastchanged.

b.

c. Ensuring the safe combination is changed when staffing changes occur.

Securing the customer service safe and change drawer keys.d.


Page 6 of 28



PETTY CASH FUNDS

Recommendation 17

We recommend that the Foundation develop written petty cash fund policies and procedures whichrequire periodic and independent, unannounced cash counts.

Campus Response

We concur. The Foundation will document petty cash fund policies and procedures which requireperiodic and independent, unannounced cash counts.

Anticipated


CHANGE FUNDS

Recommendation 18

We recommend that the Foundation:

Take appropriate measures to ensure that the practice of issuing advances from change funds isdiscontinued.

a.

b.

Seek immediate repayment of outstanding cash advances.

Campus Response

We concur. The Foundation will:

a. Discontinue issuing advances from change funds.b. Seek immediate repayment of outstanding cash advances.

Anticipated

Completion Date: Completed

INVESTMENTS

Recommendation 19

We recommend that the Foundation update its written investment policies and procedures to includecontrols over the transfer of investment funds.

Campus Response

We concur. The Foundation will update its written investment policies and procedures to includecontrols over the transfer of investment funds.


Page 7 of 28



ACCOUNTS RECEIVABLE

Recommendation 20


Take immediate action to recover long-outstanding accounts receivable or use appropriate write-off measures to bring accounts current.

a.

b. Take appropriate measures to improve inter-auxiliary accounts receivable collection efforts.

Ensure that all accounts receivable reconciliations are signed and dated by the preparer and thereVIewer .

c.

Campus Response


Take immediate action to recover long-outstanding accounts receivable or use appropriatewrite-off measures to bring accounts current.

a.

Take appropriate measures to improve inter-auxiliary accounts receivable collection efforts.

b.

c. Ensure that all accounts receivable reconciliations are signed and dated by the preparer and the

reviewer.


UNRECORDED REVENUE

Recommendation 21

We recommend that the Foundation take appropriate measures to ensure that all reward revenuecollected from the confiscation of invalid credit cards is recorded and deposited upon receipt.

Campus Response

We concur. The Foundation will take appropriate measures to ensure that all reward revenuecollected from the confiscation of invalid credit cards is recorded and deposited upon receipt.


Page 8 of28



PURCHASE ORDER APPROVAL

Recommendation 22

We recommend that the Foundation develop and implement policies and procedures addressingadditional review and authorization of inventory purchases exceeding specified dollar thresholds.

Campus Response

We concur. The Foundation will develop and implement policies and procedures addressingadditional review and authorization of inventory purchases exceeding specified dollar thresholds.


CREDIT CARDS

Recommendation 23

We recommend that the Foundation take appropriate measures to establish proper accountability overthe use of corporate credit cards.

Campus Response

We concur. The Foundation will take appropriate measures to establish proper accountability overthe use of corporate credit cards.


CHECK PROCESSING

Recommendation 24


a.b.

Perfonn an independent reconciliation of check stock usage to check-signing machine usage.Establish procedures to verify picture identification prior to handing checks to payees.

Campus Response


Perform an independent reconciliation of check stock usage to check-signing machine usage.Establish procedures to verify picture identification prior to handing checks to payees.

a.b.

Anticipated


Page 9 of28


UNCLAIMED MONIES

Recommendation 25

We recommend that the Foundation, in conjunction with the campus, develop operating proceduresthat implement the requirements of the Code of Civil Procedures with respect to unclaimed property.

Campus Response

We concur. The FoW1dation will, in conjW1ction with the campus, develop operating procedures thatimplement the requirements of the Code of Civil Procedures with respect to W1claimed property.


PERSONNEL AND PAYROLL

PAYROLL PROCESSING

Recommendation 26

We recommend that the Foundation take the appropriate measures to ensure that:

a. Signature cards are established and maintained for those individuals authorized to approvetimesheets.

b. All payroll disbursements are processed through the Foundation payroll system.

c. Adequate documentation of management review exists for employee master file changes.

d. A reconciliation of employee master file changes is conducted and management review of thereconciliation is appropriately documented.

Campus Response

We concur. The Foundation will take the appropriate measures to ensure that:

Signature cards are established and maintained for those individuals authorized to approve

timesheets.a.

b. All payroll disbursements are processed through the Foundation payroll system.

c. Adequate documentation of management review exists for employee master file agreements.

d. A reconciliation of employee master file changes is conducted and management review of thereconciliation is appropriately documented.


Page 10 of 28

~~


EMPLOYEE SEPARATION

Recommendation 27

We recommend that the Foundation strengthen controls over the status of separated employees.

Campus Response

We concur. The Foundation will strengthen controls over the status of separated employees.


FIXED ASSETS

Recommendation 28


a. Conduct physical inventories of fIXed assets.

b.

Develop written policies and procedures over the transfer or disposals for contract and grantsfixed assets.

c. Perform periodic, written reconciliations of fixed asset records for fIXed assets.

Campus Response


a. Conduct physical inventories of fIXed assets.

b. Develop written policies and procedures over the transfer or disposals for contract and grantsfixed assets.

c. Perfonn periodic, written reconciliations of fIXed asset records for fIXed assets.


AUXILIARY PROGRAMS

Recommendation 29

We recommend that the Foundation, in coordination with the campus, strengthen controls to includedocumented evidence that technical reports and other technical deliverables are submitted to..sponsonng agencies.

Page 11 of28


Campus Response

We concur. The Foundation will, in coordination with the campus, strengthen controls to includedocumented evidence that technical reports and other technical deliverables are submitted to..sponsonng agencIes.

Anticipated


I N FORMATION TECH NOLOGY

USER ACCESS

Recommendation 30

We recommend that the Foundation review its accounting system user profiles to ensure theappropriate segregation of duties/functions or institute mitigating controls approved by the campus.

Campus Response

We concur. The Foundation will review its accounting system user profiles to ensure the appropriatesegregation of duties/functions or institute mitigating controls approved by the campus.


PHYSICAL AND ENVIRONMENTAL CONTROLS

Recommendation 31

We recommend that the Foundation evaluate the cost/benefit of implementing smoke detectionequipment within the Foundation's computer room.

Campus Response

We concur. The Foundation will evaluate the costlbenefit of implementing smoke detectionequipment within the Foundation's computer room.


DISASTER RECOVERY PLAN

Recommendation 32

We recommend that the Foundation document a sufficiently detailed, written disaster recovery planand corresponding business continuation procedures.

Page 12 of28


Campus Response

We concur. The Foundation will document a sufficiently detailed, written disaster recovery plan andcorresponding business continuation procedures.


Page 13 of28


UNIVERSITY UNION OF CALIFORNIA STA TE UNIVERSITY. HA YWARD


WRITTEN AGREEMENTS

Recommendation 33

We recommend that the Union establish complete and up-to-date, written agreements with otherentities clearly articulating all business arrangements.

Campus Response

We concur. The Union will establish complete and up-to-date, written agreements with other entitiesclearly articulating all business arrangements.



Recommendation 34

We recommend that the Union document an analysis of all auxiliary and comparable campus salaries,wages, and benefits.

Campus Response

We concur. The Union will perfonn, and document, an analysis of all auxiliary and comparablecampus salaries, wages, and benefits.



Recommendation 35

We recommend that the Union properly segregate accounting functions for cash receipts or institutemitigating procedures approved by the campus.

Campus Response

We concur. The Union will properly segregate accounting functions for cash receipts or institutemitigating procedures approved by the campus.

Anticipated


Page 14 of 28



Recommendation 36

We recommend that the Union implement procedures to ensure that:

Transfers of all cash bags from one person's accountability to another person's accountability aredocumented.

a.

Change funds not used at the point-of-sale are regularly verified and documented by a secondperson.

b.

Point-of-sale change funds beginning balances and ending receipts verification is documented byemployee and supervisor signatures.

c

Campus Response

We concur. The Union will implement procedures to ensure that:

Transfers of all cash bags from one person's accountability to another person's accountability aredocumented.

a.

b. Change funds not used at the point-of-sale be regularly verified and documented by a second

person.

Point-of-sale change fund beginning balances and ending receipts verification is documented byemployee and supervisor signatures.

c.



Recommendation 37

We recommend that controls over Union accounts receivable be improved to ensure that:

All amounts owed are billed and late payment disincentives are established.a.

All amounts billed are collected and accompanying documentation is sufficient to support

payments.b.

Right-to-audit clauses are periodically enforced.c

Credit is not extended to those with past-due accounts.d.

Reconciliations of the accounts receivable subsidiary records and general ledger are performed

regularly.e.

Page 15 of 28


Campus Response

We concur. The Union will improve controls over accounts receivable to ensure that:

a. All amounts owed are billed and late payment disincentives are established.

b. All amounts billed are collected and accompanying documentation is sufficient to supportpayments.

c. Right-to-audit clauses are periodically enforced.


e. Reconciliation of the accounts receivable subledger and general ledger are perfonned regularly.



ACCOUNTS PAYABLE

Recommendation 38

We recommend that the Union:

a. Regularly reconcile accounts payable subsidiary records and the general ledger.

b. Ensure that amounts due are paid on a timely basis, and that disputed items are resolved in a moretimely manner.

Campus Response

We concur. The Union will improve controls over accounts receivable to ensure that:

Accounts payable subsidiary records and the general ledger are regularly reconciled.

a.

b. Amounts due are paid on a timely basis, and that disputed items are resolved in a more timelymanner.


TAX REPORTING

Recommendation 39

We recommend that the Union clearly document its determination that stipends paid to student boardmembers were not reportable in accordance with IRS requirements or properly report taxable stipendincome as required by the IRS.

Page 16 of28


Campus Response

We concur. The Union will clearly document its determination that stipends paid to student boardmembers were not reportable in accordance with IRS requirements or properly report taxable stipendincome as required by the IRS.


SALES TAX

Recommendation 40

We recommend that the Union pursue the elimination of sales tax on student meals.

Campus Response

We concur. The Union will pursue the elimination of sales tax on student meals.

Anticipated


FIXED ASSETS

Recommendation 41

We recommend that the Union develop written policies and procedures over fixed assets that address:

a. Accountability and responsibility for equipment.b. Control over additions and deletions of inventory.c. Procedures for tagging equipment.d. Off-site use of equipment.e. Property sales and dispositions.f. Reconciliations between property inventory listing and the general ledger and property listings.g. Periodic physical inventories.

Campus Response

We concur. The Union will develop written policies and procedures over fixed assets that address:


Anticipated


Page 17 of 28


INVENTORIES

Recommendation 42

We recommend that controls over Union inventory be improved to provide assurance that:

a.b.c.d.

An effort is made to obtain the best value for the money spent on inventory.All billed items are received.Inventory is safeguarded from spoilage or theft.The accuracy of food cost of sales is frequently verified through regular inventory counts.

Campus Response

We concur. The Union will improve controls over inventory to provide assurance that:

a. An effort is made to obtain the best value for the money spent on inventory.b. All billed items are received.c. fuventory is safeguarded from spoilage or theft.d. The accuracy of food cost of sales is frequently verified through regular inventory counts.


Page 18 of 28


LEGAL AN D REGU LATORY COMPLIANCE

BOARD MINUTES

Recommendation 43

We recommend that AS take appropriate measures to ensure that:

a. Board minutes are signed and approved by an appropriate official.b. Minutes are complete, including sufficient detail, describing all members present.c. A quorum is present to properly conduct business.d. Subcommittees of the board of directors maintain minutes for each meeting or proceeding.

Campus Response

We concur. The AS will take appropriate measures to ensure that:

a. Board minutes are signed and approved by an appropriate official.b. Minutes are complete, including sufficient detail, describing all members present.c. A quorum is present to properly conduct business.d. Subcommittees of the board of directors maintain minutes for each meeting or proceeding.



Recommendation 44

We recommend that AS document an analysis of all auxiliary and comparable campus salaries,wages, and benefits.

Campus Response

We concur. The AS will perform, and document, an analysis of all auxiliary and comparable campussalaries, wages, and benefits.


Page 19 of28


RESERVES

Recommendation 45

We recommend that the AS reserve policy be reviewed and updated by the AS board.

Campus Response

We concur. The AS reserve policy will be reviewed and updated.

Anticipated


RISK MANAGEMENT

Recommendation 46

We recommend that AS:

a. Obtain adequate insurance coverage for extraordinary events.

b. Establish policy and implement procedures for periodic review of its insurance coverage foradequacy.

Campus Response

We concur. The AS will:

Obtain adequate insurance coverage for extraordinary events.

a.b.

Establish policy and implement procedures for periodic review of its insurance coverage foradequacy.



Recommendation 47

We recommend that AS properly segregate accounting functions for cash receipts or institutemitigating procedures approved by the campus.

Campus Response

We concur. The AS will segregate accounting functions for cash receipts or institute mitigatingprocedures approved by the campus.


Page 20 of 28



Recommendation 48

We recommend that AS take appropriate measures to ensure AS Childhood Center checks arerestrictively endorsed upon receipt and that deposit receipts are issued where appropriate.

Campus Response

We concur. The AS will take appropriate measures to ensure AS Childhood Center checks arerestrictively endorsed upon receipt and that deposit receipts are issued where appropriate.

Anticipated

Completion Date: September 30, 2003


Recommendation 49

We recommend that the AS ensure that:

Petty cash and change funds are reconciled on a routine basis.a,

b.

The petty cash and change funds on hand correspond to the recorded amounts on the generalledger .

c. Petty cash fund reimbursements are only made upon the submission of receipts to justifyrequested reimbursements.

Campus Response

We concur. The AS will ensure that:

a. Petty cash and change funds are reconciled on a routine basis.

b.

The petty cash and change funds on hand correspond to the recorded amounts on the generalledger.

c. Petty cash fund reimbursements are only made upon the submission of receipts to justifyrequested reimbursements.


Page 21 of 28



ACCOUNTS RECEIVABLE

Recommendation 50

We recommend that AS:

a.

Document policies and procedures for the administration, collection, and write-off of accountsreceivable.

b. Perform periodic reconciliations between accounts receivable subsidiary records and the generalledger.

Campus Response

We concur. The AS will:

a. Document policies and procedures for the administration, collection, and write-off of accountsreceivable.

b.

Perform periodic reconciliations between accounts receivable subsidiary records and the generalledger.


REVENUE RECONCILIATION

Recommendation 51

We recommend that the campus coordinate with AS to ensure that reconciliation of receipts toenrollment records is perforn1ed regularly and timely.

Campus Response

We concur. The AS and the campus will coordinate to ensure that reconciliation of receipts toenrollment records is performed regularly and timely.



Recommendation 52

We recommend that AS clearly document its determination that stipends paid to student boardmembers were not reportable in accordance with IRS requirements or properly report taxable stipendincome as required by the IRS.

Page 22 of 28


Campus Response

We concur. The AS will clearly document its determination that stipends paid to student boardmembers were not reportable in accordance with IRS requirements or properly report taxable stipendincome as required by the IRS.


FIXED ASSETS

Recommendation 53

We recommend that AS develop written policies and procedures over fixed assets that address:


Campus Response

We concur. The AS will develop written policies and procedures over fixed assets that address:

a.b.c.d.e.f.g.

Accountability and responsibility for equipment.Control over additions and deletions of inventory.Procedures for tagging equipment.Off-site use of equipment.Property sales and dispositions.Reconciliations between property inventory listing and the general ledger and property listings.Periodic physical inventories.


INFORMATION TECHNOLOGY

Recommendation 54

We recommend that AS improve child-care information system controls by properly securing andstoring backups for the child-care enrollment information.

Campus Response

We concur. The AS will improve child-care information system controls by properly securing andstoring backups for the child-care enrollment information.

Anticipated


Page 23 of28


CAL STATE HA YWARD EDUCATIONAL FOUNDATION~ ~


PUBLIC MEETINGS

Recommendation 55

We recommend that the Educational Foundation post its board of directors' and committee meetingnotices in a public area in accordance with the Education Code.

Campus Response

We concur. The Educational Foundation will post its board of directors' and committee meetingnotices in a public area in accordance with the Education Code.


BOARD MEETINGS

Recommendation S6

We recommend that the Educational Foundation take appropriate measures to ensure that the board ofdirectors meets at least once each quarter.

Campus Response

We concur. The Educational Foundation will take appropriate measures to ensure that the board ofdirectors meets at least once each quarter.


DELEGATION OF AUTHORITY

Recommendation 57

We recommend that the Educational Foundation establish a written delegation of authority for allnamed persons or positions to sign checks on behalf of the auxiliary.

Campus Response

We concur. The Educational Foundation will establish a written delegation of authority for all namedpersons or positions to sign checks on behalf of the auxiliary.


Page 24 of 28


BUDGET APPROVAL

Recommendation 58

We recommend that the Educational Foundation prepare annual budgets and work with the campus toestablish a policy as to the manner and method for campus presidential approval.

Campus Response

We concur. The Educational Foundation will prepare annual budgets and work with the campus toestablish a policy as to the manner and method for campus presidential approval.


RESERVES

Recommendation 59

We recommend that the Educational Foundation coordinate with the campus to establish a formalpolicy for the allocation of surplus funds/reserves.

Campus Response

We concur. The Educational Foundation will coordinate with the campus to establish a formal policyfor the allocation of surplus funds/reserves.



Recommendation 60

We recommend that the Educational Foundation take appropriate measures to ensure that funds areadequately safeguarded when transported.

Campus Response

We concur. The Educational Foundation will take appropriate measures to ensure that funds areadequately safeguarded when transported.


Page 25 of 28


INVESTMENTS

Recommendation 61

We recommend that the Educational Foundation update its written investment policies andprocedures to include the transfer of investment funds.

Campus Response

We concur. The Educational Foundation will update its written investment policies and procedures toinclude the transfer of investment funds.



DONOR SYSTEM RECONCILIATION

Recommendation 62

We recommend that the Educational Foundation take appropriate measures to ensure that previouslyagreed-upon corrective actions are implemented in a timely manner. These corrective actions are asfollows:

a. Develop written, periodic reconciliation procedures between the Educational Foundationaccounting system and the computerized donor system that take into consideration pledges andgifts-in-kind.

b. Ensure that reconciliation results are documented and reviewed by the Educational Foundationmanagement.

Campus Response

We concur. The Educational Foundation will take appropriate measures to ensure that the followingpreviously agreed-upon corrective actions are implemented in a timely manner:

Develop written, periodic reconciliation procedures between the Educational Foundationaccounting system and the computerized donor system that take into consideration pledges andgifts-ill-kind.

a.

Ensure that reconciliation results are documented and reviewed by the Educational Foundationmanagement.

b.


Page 26 of28


PLEDGES RECEIVABLE

Recommendation 63

We recommend that the Educational Foundation take appropriate measures to improve pledgesreceivable collection efforts.

Campus Response

We concur. The Educational Foundation will take appropriate measures to improve pledgesreceivable collection efforts.

Anticipated


DONATION PROCESSING

Recommendation 64

We recommend that the Educational Foundation develop written policies and procedures to ensurethat:

a. Donor restrictions on the use of gifts are communicated to those individuals responsible for theuse of the funds.

b. All gifts other than in-kind gifts are deposited in Educational Foundation accounts.

Gift receipts are issued based only on receipt by the Educational Foundation of originalsupporting documentation.

c.

Campus Response

We concur. The Educational Foundation, in coordination with the University, will develop writtenpolicies and procedures to ensure that:

Donor restrictions on the use of gifts are communicated to those individuals responsible for theuse of the funds

a.

b. All gifts other than in-kind gifts are deposited in Educational Foundation accounts.

Gift receipts are issued based only receipt by the Educational Foundation of original supportingdocumentation.

c.


Page 27 of 28


TRUSTS

Recommendation 65

We recommend that the Educational Foundation implement procedures to ensure payouts fromendowments do not invade corpus and that payouts are used in accordance with the expectations ofthe donors.

Campus Response

We concur. The Educational Foundation will implement procedures to ensure payouts fromendowments do not invade corpus and that payouts are used in accordance with the expectations ofthe donors.


Page 28 of 28

APPENDIX E

THE UNIVERSITY~i ii

OFFI CEiioE:rHEii@~CELLO R"c CC C

BAKERSF

.D

August 25,2003

:HANNEL ISLANDS

:HICOMEMORANDUM

DOMINGl

FRESNOTO: Mr. Larry Mandel

University Auditor

Charles B. Reed~Chancellor

~Ft :RTON

FROM:HAYWARJ

.fBOLDT

SUBJECT: Draft Final Report Number 02-52 on Auxiliary Organizations,California State University, Hayward,ONG BEAC

MARITIME ACADEMY In response to your memorandum of August 25, 2003, I accept the response assubmitted with the draft final report on Auxiliary Organizations, CaliforniaState University, Hayward.

MONTEREY BAY

NORTHRIDGJ

POMONACBRfamd

ACRAMENTOEnclosure

~BERNARDINCcc: Mr. Richard Metz, Vice President, Administration and Business Affairs

Dr. Norma S. Rees, PresidentAN DIEGO

:AN FRANCISC(

AN JOSE

AN OBISF

AN MARCO~

SONOM

TANISLAUS

401

GOLDEN SHORE. loNG BEACH, CA 90802-4210 .(562) 951-4700 .Fax (562) 951-4986 [email protected]

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