Response to PWC USM audit

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• Publié par: Thowying
• Nombre de lectures: 15
• Langue: English

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Management’s Response to PriceWaterhouseCoopers USM Review

February 27, 2008

1.3.1 The full amount of the deficit must be identified

1.3.1.1

USM must identify the full amount of the deficit. Individual operating deficits at the departments

need to be identified and aggregated before a financial plan can be prepared. USM must reconcile all the

positions in the current budget with personnel who are actually being paid, including their actual fringe

benefit cost and the institution must capture from each department the amount they believe they will

actually incur to run their current programs, regardless of what has been submitted in the budget process.

Responsibility: Office of CFO at USM

Timing: Immediate

Response:

Agreed, underway.

The reconciliation of positions is in process and expected to be

completed prior to the end of FY 2008. The FY 2009 budget development process is expected to determine

true costs.

1.3.2 Budgets should more directly reflect the strategic priorities of the institution

1.3.2.1

The executive management team, led by the President, should set academic, strategic and fiscal

goals for fiscal year 2009 in advance of the budget review described below. Enrollment assumptions for

fiscal year 2009 should be documented, compared with currently available data on student trends and be

part of the goal-setting process.

Responsibility: Office of the President of USM

Timing: Prior to the end of the current fiscal year

Response:

Agreed, underway. This is occurring concurrent with the development of the FY 2009

budget.

1.3.2.2

The current task forces that are examining shared services and organizational changes should

report near-term recommendations to the President and senior management team together with financial

impact statements which should be subject to validation by the office of the CFO prior to the end of the

current fiscal year.

Responsibility: Office of the President of USM

Timing: Prior the end of the current fiscal year

Response:

Agreed, underway. The results of those task forces are being shared and used to guide the

development of the FY 2009 budget. The CFO is validating and documenting finances.

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1.3.2.3

The combined operating budget should be reviewed together by the USM President, CFO,

Provost and each Vice President and major budget manager. Distinction should be made between what is

required to run the institution as it is currently structured and changes, including new programs, that are

proposed. For any additional activity, the funding sources and estimated returns should be clearly

specified and subject to audit.

Responsibility: Office of the President of USM

Timing: Prior to the end of the current fiscal year

Response:

Agreed, underway. This is being done concurrent with the development of the FY 2009

budget and restructuring to reduce costs. Processes to document and verify expected financial results are

being developed.

1.3.2.4

Decisions should be made on how to remedy the operating deficit presented by the combined

budget prior to the commencement of the next fiscal year. This should include how to fund the over-all

deficit, identification of potential new revenue sources and reporting consistently across USM

departments and groups. The President, in consultation with the CFO and Provost, should determine

whether un-funded positions should be eliminated.

Responsibility: Office of the President of USM

Timing: Prior to the end of the current fiscal year

Response:

Agreed, underway. The FY 2009 budget is being established with the expectation that all

positions included in it will be fully funded. Internal reallocations that will align budgeted and actual

expenditures are occurring though this process.

1.3.2.5

Shared service budgets should be built in conjunction with the departments. A customer/supplier

approach should be implemented for the creation of support services.

Responsibility: Office of the CFO at USM

Timing: Fiscal 2009

Response:

Agreed, underway. The review of “chargebacks” – one department providing and

charging for a service of another - was begun in FY 2008 and is continuing. Chargebacks for facilities

related services (e.g., painting an office, rearranging furniture, minor renovations) are being evaluated

as part of a larger review of how USM manages facilities that will take place this spring and summer.

1.3.2.6

All capital projects should be assessed to determine their current status against budget and their

funding status. A plan should be put forward by USM for any projects that are over-budget or do not

currently have sufficient funding to complete.

Responsibility: Office of the CFO at USM

Timing: Immediate

Response:

Agreed, underway. This process, begun during late spring 2007, is expected to be complete

this fiscal year. The assessment phase is nearing completion.

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1.3.3 Budget and reporting disciplines must be greatly improved

1.3.3.1

A discussion with the CFOs from each of the institutions should take place focusing on lessons

learned from the USM experience. Enhanced guidance on the budget processes should be issued. This

should be communicated to all who participate in the budget process, including major budget managers

and should be consistent throughout the System. Institutions would be responsible for managing the

budget process and subject to periodic audit or other oversight procedures by the System.

Responsibility: Office of the CFO at the System

Timing: Initial conversations with institution CFOs at least one month prior to targeted date for presenting

FY2009 budgets. Enhanced guidance developed and distributed prior to the commencement of the budget

process for fiscal year 2010.

Response:

As part of the annual budgeting process, the System Office provides:

•

Financial Planning Timetable (see

Attachment I

)

•

Budget instructions standardized forms

•

Basic assumptions to be used by all campuses (compensation increases, fringe benefit rates, state

appropriation allotment, maximum recommended tuition increase)

•

Senior Management Review – each campus President, CFO, and CAO meet with the Chancellor,

System CFO, and other Senior Management members to review proposed campus budgets.

The CFO’s for all Universities within the UMS System meet at least quarterly for a full day of discussions

on the most critical financial matters.

The next meeting is scheduled for March 4

th

, 2008, approximately

one month prior to the Senior Management Review of the proposed FY09 budgets.

At that meeting, the

Office of the CFO at the System will begin a discussion of lessons learned from the USM experience and

plan a CFO retreat to share best practices in budget preparation at the campus and departmental levels.

The goal is to establish a set of core best practices that can be utilized by the financial management and

leadership at each of our Universities to develop the annual operating budget for fiscal year 2010.

We also believe that periodic assessments, such as this report to provide oversight over the budgeting and

reporting processes at USM, should be conducted on each of our Universities routinely such that each

university is subject to a review at least once within a three year period.

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1.3.3.2

A bottom-up baseline operating budget should be compiled by each Vice President and major

budget manager at USM. This budget should incorporate all known and projected cost increases and

positions that are expected to be reflected in Position Management by July 1, 2008. These budgets should

be reviewed with the CFO at USM and compared with targets that the Institution is establishing as the

basis for its financial sustainability plan. Each department head should sign off on his or her finally-

agreed department budget.

Responsibility: Office of the CFO at USM

Timing: Prior to completion of the fiscal year 2009 budget process.

Response:

Agreed, underway. This is being incorporated in the FY 2009 budget development process.

1.3.3.3

Guidelines should be established by the President with input from the USM CFO for the analysis

of proposed and existing programs and initiatives, including support functions. In addition to measuring

the program's alignment with strategy goals, these guidelines should specify how to prepare financial

projections and how to report periodically on progress against these goals.

Responsibility: Office of the President at USM

Timing: Prior to the beginning of fiscal year 2009

Response:

Agreed, underway. While a template for preparing financial projections may not be

developed until later, managers have been advised that program proposals and reports must include a

discussion of financial expectations and progress.

1.3.3.4

Monthly actual to budget reporting should be implemented from all departments to the USM

CFO. These should be aggregated and reviewed with the President and the executive management team.

Additional variances that arise over a certain threshold should be reported to the System.

Responsibility: Office of the CFO at USM

Timing: Immediate

Response:

Agreed, underway. A secure financial web-site showing by division, and within academic

affairs, by organizational unit was established in November and is updated on a monthly basis. A mid-

year budget review was conducted in late January where variances were identified and discussed. The

results are summarized and reported to the UMS in through the newly established quarterly reporting

system

1.3.3.5

Spending controls should be established to ensure that purchases in excess of remaining budget

allowances can not be made without additional approval from the USM CFO.

Responsibility: Office of the CFO at USM

Timing: Immediate

Response:

Agreed, underway. A resource review committee, consisting of the Provost, CFO, and Vice

President for Human Resources and Institutional Planning has been established to review all E&G

purchases in excess of $2,500. Business Services is implementing new, lower limits on purchasing cards

and reducing the number of staff authorized to enter requisitions.

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1.3.3.6

The measurement and rewards for budget owners should be tied to their responsibilities for

managing their budgets. There should be a financial commitment to managing costs and delivering on

program goals.

Responsibility: Office of the President at USM

Timing: Prior to the commencement of fiscal year 2009.

Response:

Agreed, underway. This is being implemented with the development of the FY 2009 budget.

During FY 2009, performance evaluations will consider how effective costs are managed and financial

goals are met.

1.3.4 The finance function at USM should be improved

1.3.4.1

An analysis capability should be created to enable the office of the CFO at USM to prepare or to

assess these reports.

o New programs and activities that are approved as part of the budget process for FY 2009 should be

reviewed at least semi-annually by the department head, CFO and the President to determine

whether these should be continue

o Identification of new potential revenue sources should be a priority moving forward. This would

include the identification of programs that are gaining traction and revenue growth vs. the

programs that are operating at a loss.

Responsibility: Office of the President at USM

Timing: Prior to the commencement of fiscal year 2009.

Response:

Agreed, underway. All programs, new and previously existing, will be included in the mid-

year budget review process. The CFO expects to expand this process in FY 2009 to include financial

managers at all levels. The President and Provost are establishing criteria for evaluating proposed and

existing programs, giving priority to initiating activities that will strengthen USM’s financial situation

while concurrently asking areas that appear problematic, in terms of enrollments, graduates, finances

and other key metrics to articulate an implement recovery plans or be suspended.

1.3.4.2

All finance resources that are required to prepare budgets and conduct financial reporting should

report to the institution's CFO who should be responsible for hiring, deployment and annual reviews for

these individuals. These resources may be located in departments or colleges at the CFO's discretion and

may develop expertise along functional lines rather than within a particular department.

Responsibility: Office of the CFO for USM

Timing: Prior to the commencement of fiscal year 2009.

Response:

Both PWC and USM’s Student and Administrative Services Task Force recently made this

recommendation. Discussions about how it might be implemented, while at the same time reducing costs,

are underway.

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1.3.4.3

The System, in consultation with the CFOs at the Institutions should develop common standards

for financial reporting and the finance skills that are required at the Institution level. Training on financial

responsibility should be developed and conducted for all finance personnel.

Responsibility: Office of the CFO for the System

Timing: Prior to the commencement of fiscal year 2009.

Response:

Financial Management Reporting

For reporting at the departmental level, an on-line, General Ledger Inquiry tool is available to every

department manager and other pertinent personnel, depending on security access.

With this tool, the user

has the capability to view real-time budget vs. actual expenses (summarized and transactional).

The Office of the CFO for the System also provides standard financial management reports monthly

within 5 days of month end.

These reports are placed on a secure website and are available to

individuals with security access as determined by each University’s CFO.

These reports are generated by

ampus by fund with unrestricted and restricted funds grouped separately.

The reports provide:

c

Year-To-Date Actuals

Budget versus Year-To-Date Actuals

Comparative information from prior fiscal year

Financial Training

Training sessions for PeopleSoft financials were conducted prior to the go-live.

In addition, business

process documentation for various areas of accounting, budgeting, and position management is available

on the System’s Office of Finance and Treasurer website.

This documentation provides a self-service

approach to training for financial managers.

Position Management training was completed prior to the go-live again in March 2007.

Specialized

trainings in Position Management have been conducted by System staff at UMA, UMFK, and USM during

the past 2 years.

While initially much of the training was technical - focused on “how” to accomplish specific tasks in

PeopleSoft, the System now recognizes a need to conduct

theoretical financial training – focusing on the

“why” aspect and the impact various transactions have on the financial statements.

The Accounting

Department at the System Office has conducted a survey to determine campus training needs.

The Office

of the CFO of the System will utilize the survey results to determine areas where additional training is

needed, prioritize those needs, and determine appropriate System and/or campus staff to conduct

trainings.

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1.3.5 PeopleSoft should be fully implemented

1.3.5.1

The implementation of Position Management within PeopleSoft should be completed.

Responsibility: Office of the CFO and VP, Human Resources at USM

Timing: Immediate

Response:

Agreed, underway. Position Management implementation will be complete when the

FY2009 budget is loaded.

1.3.5.2

Access to PeopleSoft should be reviewed and modified, if necessary to eliminate the risk of

unnecessary changes being made to the budget. All approved users should receive training on PeopleSoft

sufficient to allow all transactions and reports to be created within the system.

Responsibility: Office of the CFO at USM

Timing: Prior to the end of the current fiscal year

Response:

Agreed, underway. Review is in process. The campus is also preparing to implement the

PeopleSoft “work flow” approval system in FY 2009.

1.3.6 Oversight should be improved

1.3.6.1

The Board of Trustees is responsible for the overall governance of the System and relies upon the

senior officers at the System to implement an effective Governance structure. The system should evaluate

its governance and oversight mechanisms and make improvements where necessary. This evaluation

should include the role of the System in establishing guidelines and policies, setting common standards

for system-wide initiatives such as the PeopleSoft implementation, monitoring performance, promoting

competence and measuring and rewarding performance.

Responsibility: Office of the CFO for the System

Timing: Prior to the commencement of fiscal year 2009.

Response:

In January, 2008 the CFO of the System developed and the Board approved a Financial Oversight Plan

to improve financial control, monitoring, and performance (See

Attachment II

).

This plan includes

improvements and greater transparency such as budget to forecast financial variance reporting to the

Board of Trustees, conducting a preliminary year-end “hard close”, a financial processes review, and

increased internal audit reviews.

Many facets of this plan have already been implemented or will be by

fiscal year-end. Integral to the Financial Oversight Plan is for management to review and strengthen

trustee mechanisms which will improve oversight and accountability by the Board.

To address issues related to financial sustainability, the Chancellor has developed the Agenda for Action

which outlines the System’s financial sustainability goals and campus accountability measures.

The

System will utilize a multi-year planning process that embraces prudent financial controls, transparency,

cost containment, revenue enhancement, and optimal sizing of the institutions, functions and activities.

Campus accountability measures include the following financial indicators:

Break even or slightly positive net change on annual campus operations

Debt service coverage ratio

Unrestricted net assets to debt ratio

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1.3.6.2

An internal audit function should be re-constituted to provide objective monitoring of key risk

areas throughout the system. It should operate consistent with a Charter based on industry-standards.

Responsibility: Office of the CFO for the System

Timing: Prior to the commencement of fiscal year 2009.

Response:

The audit function currently reports administratively to the CFO of the System and functionally to the

Audit Committee of the Board of Trustees for annual planning and risk assessment in accordance with its

operating Charter (see

attachment III

).

The University of Maine System established an internal audit function in 1977 and provided this service

in-house up until May 2006 when the Director of Internal Audit was promoted to the Controller position.

The department was established with three auditors, including the director.

Staffing levels stayed flat until the late 80’s when, following a couple of campus embezzlements, the

department peaked with 8 auditors.

With hard fiscal times in the 1990’s, several positions that became

vacant were never filled and the department was back to three positions by 2001. While the number of

auditors fluctuated somewhat in the following years, the average was about three positions until 2006.

At the direction of the Audit Committee, the Chancellor formed the Risk Assessment and Review Advisory

Committee in October 2003 and the University of Maine System began its first enterprise wide risk

assessment efforts. The work of this committee provided direction to the annual audit plan then and still

does today.

There are different models for providing the internal audit function within an organization:

•

In-source: internal staffing with director

o

Staff are readily accessible to management and the Board and have great institutional

knowledge.

o

Staff are typically generalists rather than specialists.

o

In Maine, experienced auditors (especially specialists) are hard to find.

o

Deep specialist skills are frequently needed for high risk areas (e.g., IT, construction,

payroll) and may not be available.

o

This model often provides a training ground allowing auditors to move into other areas of

the business.

•

Co-sourced: one or more internal staff working on generalized audits including compliance and

monitoring while also engaging the services of third-parties to provide audits.

o

Co-sourcing models can range from internal audit functions that are almost entirely in-

sourced and only rarely require external assistance, to others that may be almost

completely outsourced.

o

Outside firms supply professionals for critical projects or specialists on an as-needed

basis.

o

Entities have more budget flexibility with this model as costs are variable rather than

fixed.

o

Able to bring in fresh ideas from other organizations/cultures.

•

Out-sourced with no internal staff. In addition to the bullets noted above under co-sourcing:

o

Outsourcing the internal audit function enables management to contract with dedicated

internal audit professionals without the day-to-day managerial requirements.

Because of the difficulty in attracting and retaining qualified talent within the internal audit function at

UMS, the Office of the CFO of the System outsourced the A-133 audit to KPMG beginning FY06 and

conducted an RFP process to explore other co-sourced and/or outsourced internal audit functions.

This

resulted in the Audit Committee selecting PWC to provide co-sourced audit services with compliance

audits continuing to be done internally by one remaining staff level internal auditor.

As an example,

compliance audits include:

Monthly sponsored programs compliance monitoring for all campuses

Annual NCAA Financial Audit-UM

Annual NCAA Compliance Audit-UM

Purchasing Card Audit on various campuses

Accounts payable and purchasing reviews

Loan processing audit

The Office of the CFO for the System recommends that at its annual May 2008 planning meeting, the

Audit Committee review the different models for the internal audit function and the current enterprise-

wide risk assessment, to determine how the internal audit function should be conducted in the future for

the University of Maine System and what budget should be allocated toward this function.

1.3.6.3

A task force should be established to:

o Monitor progress against the recommendations that are adopted from this report; and

o Advise USM management on the effectiveness of any proposed changes to the system of internal

controls relating to budgeting and financial reporting stemming from this report.

This task force should be Chaired by a senior officer on behalf of the System, report to the President of

USM and include a representative from the office of the CFO at the System and an internal controls

specialist.

Responsibility: Office of the CFO for the System

Timing: Immediate

Response:

Since the beginning of the 2007-2008 academic year, the Chancellor and Senior Management of the

System and the Board of Trustees have been routinely receiving updates from USM’s management on the

current state of USM. The Chancellor, CFO of the System, and Senior Management will continue to

monitor USM’s progress and provide assistance to USM’s management team including in-depth

discussions with USM’s new president when selected.

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1.3.6.4

System-wide discussions with the Presidents and CFOs should take place to share the ideas and

practices addressed in these recommendations and actions that might follow.

Responsibility: Office of the CFO for the System

Timing: Prior to the commencement of fiscal year 2009.

Response:

A copy of the PWC recommendations and management’s responses will be shared and discussed with all

campus Presidents and CFO’s at the next scheduled meeting.

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