Facilities and Operations : Facilities and Operations Financial Management and Controls Presentation December 15, 2004


The Presenters: The Presenters Kathy Gillespie (Senior Business Systems Analyst) CPA 7 years in Internal Audit, 8 in Medical School 5 in MAIS (with the Fandamp;O folks for 5 years and loving it!) Brian Heldt (Senior Financial Analyst) CPA, 7 years Public Accounting 14 management experience – hospitality andamp; manufacturing 3 U/M Financial Analysis Russ Fleming (Manager of Financial Reporting) CPA 18 years Fund Accounting, 1.5 Internal Audit 4 Director of Bandamp;F Network Systems 3 internal consultant for PeopleSoft Implementation Task group for implementation of Sarbanes/Oxly Act


Table of Contents: Table of Contents Director/Financial Manager Responsibilities Fiscal Financial Control Tools ChartFields Predefined Management Reports Everest Budget Reports System Controls Business Process Controls Old SPG vs. New SPG Sarbanes/Oxley Act Internal Control Guide Resources


The Director/Financial Manager Responsibilities: The Director/Financial Manager Responsibilities Fiscal Responsibilities To manage the financial and accounting matters for your unit(s). Financial Control Responsibilities To serve as a trustee/overseer for the funds you manage. SPG 500.1: 'It is the responsibility of every faculty and staff member who are involved in any financial activity on behalf of the University to be fiscally responsible and to exercise appropriate financial controls, as outlined in this document and as is relevant to their role. University of Michigan Statement on Stewardship: http://www.umich.edu/~hraa/stewardship.htm


Why are these Responsibilities Important?: Why are these Responsibilities Important? Financial Stewardship Review Spending Look for Operating Efficiencies Maintain Professional Skepticism Maintain Management Oversight


Fiscal Responsibility: Fiscal Responsibility The Director/Financial Manager’s Fiscal Responsibilities include: Demonstrating a high level understanding of how the University’s financial system works. Budgeting effectively. Tracking expenditures. Analyzing and investigating variances. Using the available tools to analyze financial activity.


The Fiscal Tools – ChartFields : The Fiscal Tools – ChartFields Bus. Unit Budget Period Fund Dept ID Class Program Project/Grant Account ChartFields Ensure that the correct ChartFields are used at the transaction level. Allow transaction data to be gathered into a specific 'bucket' of operation. Correct transaction ChartFields result in good financial report data.


What Happens If Erroneous ChartFields Are Used?: 623500 What Happens If Erroneous ChartFields Are Used? Revenues and Expenses are recorded in the wrong 'bucket.' 613300


How Do You Discover that Erroneous ChartFields Were Used? : Variances occur between what is budgeted and what is expended. How Do You Discover that Erroneous ChartFields Were Used? Report data identifies inaccuracies.


The Fiscal Tools – Predefined Reports: The Fiscal Tools – Predefined Reports Management Reports Reliable financial data depends on correct transaction ChartFields. Predefined reports: Categorize where, when, and how your Department’s funds are spent. Help you determine why funds are spent. Identify possible problems. Identify operating efficiencies.


Predefined Reports by Environment: Predefined Reports by Environment FinODS Statement of Activity Voucher Detail Expense Vista Plus Gross Pay Register


Predefined Reports by Environment: Predefined Reports by Environment UM Data Warehouse BusinessObjects Corporate Documents Repository CMB Department Reconciler’s Report RevExp Trend Report by DeptID and Fund PY01 Payroll Estimates Summary by Dept or Dept Group RevExp Summary of Activity by Department for Operating Funds RevExp Department Summary of Travel and Hosting


Data Warehouse – Business Objects: Data Warehouse – Business Objects Just Arrived UtlPlant - Work Requests by Dept ID UtlPlant – All Charges for a Work Request UtlPlant – Plant Charges by Building Number Coming Soon Nonproductive Time by Dept


Everest Budget Tool : Everest Budget Tool SPG 500.1 There are four main elements that should exist in all University units that manage their own finances. The University requires these elements for all units (and at all levels) that control their own finances. If your unit has a unique DeptID, this applies to you. Major operating units, sponsoring agencies, donors, etc. may impose additional requirements. The minimum requirements are: Preparation of a Budget Plan Processing of Financial Transactions Financial Review Internal Controls and Management Responsibilities


Everest Budget Tool: Everest Budget Tool Budget data can be entered and reported by: Fund Department and/or Department Groups Program Project/Grant Account Group and/or individual Accounts Actuals data are displayed per the budget setup. Actuals details are available by Account Group and individual Account value.


Everest Financial Statement: Everest Financial Statement Report shows the budget and actuals variance data Runs monthly Tabs show breakdown of financial data by: Summary Plan 12 Month Plan Revenue detail Expense detail


Summary Plan – Columns : Summary Plan – Columns The Summary Plan tab shows:


Summary Plan – Rows : Summary Plan – Rows Revenue and Expense Account Groups are listed down the side of the report


Summary Plan – Totals Rows: Summary Plan – Totals Rows Totals rows include: Beginning and Ending Fund Balance for YTD data Revenue Subtotals for Compensation andamp; Benefits and Other Expenses Expenses Net Income Before Transfers Net Transfers Net Change After Transfers


12 Month Plan – Layout: 12 Month Plan – Layout The 12 Month Plan tab shows the Fiscal Year data:


Detail Tabs – Layout: Detail Tabs – Layout The Revenue andamp; Transfers detail tab shows:


Everest Summary: Everest Summary What Everest Does Individualized Budgets Uniform Management Reporting Customized Management Reporting to Serve Different Needs Facilitates Variance Analysis What Everest Does Not Do Eliminate the Need to Reconcile Statements Eliminate the Need for Good Internal and Financial Controls Allow You to Look at Individual Transactions


Analyze Report Data & Apply Financial Controls to Limit Fraud: Analyze Report Data andamp; Apply Financial Controls to Limit Fraud Former U-M worker charged in payroll fraud University probe claims $425,000 embezzled from health research E. Lansing United Way out $1.9 million Theft tied to worker is double amount charity first thought was missing Lansing woman charged in embezzlement, forgery Office manager alleged to have bilked $50,000 from nonprofit agency Employee admits she embezzled from firm Former financial administrator pleads guilty in $350,000 theft from local company AAA Michigan adjuster accused of taking $1.5M 36-year employee allegedly duplicated 549 checks


Triangle of Fraud: Triangle of Fraud


Financial Control Tools – System Controls: Financial Control Tools – System Controls M-Pathways System Access Citrix Password Procurement Dollar Amount Limits Positive Voucher Approval


The Financial Control Tools –Business Process Controls: The Financial Control Tools –Business Process Controls Consistent Report Reconciliation Statement(s) of Activity Gross Pay Register Pcard Strong Internal Controls Separation of Duties Managerial Oversight/Professional Skepticism Cash/Check Receipts Budget Variance Reports Financial Controls Task Force Reports


Recap of the Major Points: Recap of the Major Points Demonstrate Fiscal and Financial Control Responsibility. Use Accurate ChartFields. Verify appropriate ChartFields are being used. Build good financial/management reports. Evaluate Management Report data for good managerial oversight and decision making Identify the Appropriate Management Reports for Your Business. Apply Good System and Business Process Financial Controls.


Internal Controls and SPG 500.1: Internal Controls and SPG 500.1 SPG 500.01 vs. SPG 500.1 Financial Controls Task Force Sarbanes-Oxley and the University of Michigan Internal/Financial Controls


SPG Emphasis in Legacy: SPG Emphasis in Legacy Accounts and Project Directors Not on organizations The old SPG was titled 'Fiscal Responsibilities of a Project Director' and was highly procedural. e.g., the projector director initiates a purchasing requisition; purchasing determines the vendor and places the order… The old SPG stated '…the responsibility for many of the fiscal controls rests principally with the account project directors.'


SPG Emphasis NOW: SPG Emphasis NOW Financial Controls Task Force Review and revision to many financial areas of the SPG Emphasis on ‘organizational accountability’ The new SPG is titled 'Fiscal Responsibilities' and the major changes are: Scope is broadened so the policy clearly applies to all faculty and staff Emphasize that people in executive management positions are responsible for the fiscal integrity of their units through the implementation of financial controls Guidance is provided within the policy to help units think through and implement financial controls Tools are provided to help units assess internal controls


Sarbanes/Oxley Act: Sarbanes/Oxley Act Effect on the University Financial Accountability Subcertifications Internal Controls Subcertifications


Internal Control Guide: Internal Control Guide Purpose of the Internal Control Guide What are internal controls Limitations of internal controls Department responsibility What is University Audit’s responsibility Internal control self assessment


Internal Control Guide - continued: Internal Control Guide - continued Purpose of the Internal Control Guide ICG provides a framework for developing and reviewing internal controls Because the University is decentralized, appropriate reporting and review procedures must be established


Internal Control Guide - continued: Internal Control Guide - continued What are internal controls? One definition – Internal control is a process effected by management, which is designed to provide reasonable assurance regarding the achievement of objectives to the following categories: effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations Less technical definition – internal controls are tools that help managers be effective and efficient while avoiding serious problems such as overspending, operational failures, and violations of laws.


Internal Control Guide - continued: Internal Control Guide - continued Limitations of Internal Controls Cost Human failure or poor judgment Collusion Exceptions to policy increase risk


Internal Control Guide - continued: Internal Control Guide - continued Department Responsibility Management needs to: Identify and assess risk Evaluate and develop 'control activities' Control activities are the structure, policies and procedures that an organization establishes so that identified risks do not prevent the department from reaching its objectives.


Internal Control Guide - continued: Internal Control Guide - continued Department Responsibility (continued) Control activities commonly used by management to safeguard a department’s assets, assure accuracy of its information, promote effectiveness and efficiency, and comply with regulations: Segregation of duties – an individual should not be in a position to initiate, approve, and review the same action. Authorize transactions – authorization authority should be granted to individuals that know enough about the transaction to ensure its accuracy and consistency with University policy. Control access to assets and resources - money, supplies, inventory, records (e.g. HR, patient, etc.). Maintain a secure environment. Supervision – assign tasks, establish written procedures for assignments, systematically review work, approve work at critical points, and provide documentation of examined work.


Internal Control Guide - continued: Internal Control Guide - continued Department Responsibility (continued) …more control activities: Recording, Verifying andamp; Analyzing Financial Information – ensure transactions are recorded accurately, timely, and within mandated guidelines. Document Internal Controls – prepare a written internal control plan, which generally includes: Goals and objectives of the department Risks to meeting goals and objectives Explain how the dept structure, policies and procedures act to control risk Statement of ethical values expected of all staff


Internal Control Guide - continued: Internal Control Guide - continued What is University Audits Responsibility? A resource to departments for designing and implementing internal controls. They provide an independent evaluation of the adequacy of internal controls. Assist in evaluating risk. Provide official audit report; recommend improvements; review management responses and action plan; review and proper implementation.


Resources: Resources Internal Control Guidance http://www.umich.edu/~uaudits/internal control/ Financial Internal Control Guide http:// www.umich.edu/~uaudits/internal control/financial.internal.html Self Assessment Questionnaires http:// www.umich.edu/~uaudits/internal control/selfassessment.html Includes internal control self assessment questionnaires covering: Control Environment Budget and Financial Reporting Accounts Receivable Property and Renovations PCard Expenses Purchase Order Expenses Payroll Expenses Cash Receipt Processing Departmental Computers and Networks


Slide41: Discussion?