Auditor of Public Accounts Update Joseph Stepp, CPA CIA CGAP CGFM CFE Audit Director Higher...
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Transcript of Auditor of Public Accounts Update Joseph Stepp, CPA CIA CGAP CGFM CFE Audit Director Higher...
Auditor of Public Accounts UpdateJoseph Stepp, CPA CIA CGAP CGFM CFEAudit Director
Higher Education Programs
May 2011
Discussion Topics
• APA Audit Initiatives• Issues Identified During Audits• General Assembly Issues• Fraud at Universities• College President Fraud
3
APA Audit Initiatives
• Continue to Improve Banner Audit Approach• Revise Student Financial Aid Audit Approach• Revise NCAA Agreed-Upon Procedures
Program• Diversify Project Manager and Staff
Assignments• Accelerate Completion of Audits• Federal In-Cycle Reviews 5
APA Audit Initiatives
• Diversify Project Manager and Staff Assignments• Continue to assign Project Managers with
different specialties but retain continuity of assignments where possible
• Assign staff from different specialties, including Court Auditors, to Student Financial Aid and NCAA assignments
• Continue to provide support from Higher Education Specialty Team
6
APA Audit Initiatives
• Accelerate Completion of Audits• Current Fall Audits completed by December 31, 2011
• UVa, VT, and VCU• Reaccreditation Audits –
• FY10 GMU – FY11 ODU and RU• Complete FY12 audits by December 31, 2012
• UVa, VT, and VCU• CWM, GMU, JMU, and ODU
• Accelerate Audits in Future Years• CNU, LU, NSU, RU, UMW,
VMI, and VSU7
APA Audit Initiatives
Federal In-Cycle Reviews for FY11• Research and Development
• UVa, GMU, NSU• Student Financial Aid
• CWM, JMU, LU, ODU, and VT• Blue Ridge CC, Dabney S. Lancaster CC, • Eastern Shore CC, J. Sargeant Reynolds CC, • New River CC, Southside Virginia CC, • Southwest Virginia CC, Thomas Nelson CC, • and Virginia Western CC 8
Issues Identified During Audits
•Capital Asset Issues•Purchase Card Transactions•1,500 hour rule and Overtime
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Capital Asset Issues
• Completing Capital Asset Inventories• Reconciling Capital Asset Inventories
and Promptly Posting Corrections• Tracking and Resolving Lost or Stolen
Assets• Accounting for Intangible Assets• Reporting Library Books• Art and Historical Treasures 11
Tracking and Resolving Lost or Stolen Assets• Discover Lost or Stolen Assets either through
discovery or inventory• Promptly post deletion to capital asset records• Investigate reasons for loss and refer to law
enforcement when necessary• Consider accumulating quantities of Lost or
Stolen Assets• Consider follow-up with departments with
significant quantities of Lost or Stolen Assets 12
Art and Historical Treasures
• Paintings and Sculptures• Purchased or Donated Items of Significance• Student Art
• Rare Books• Reference Materials• Historical Significance
• Manuscripts and Memorabilia• University Records• Student Produced Research• Historical Items and Papers
13
Art and Historical Treasures
• Stewardship• Physical Control
• Prevention of loss or theft• Environmental Control
• Limit deterioration or catastrophic loss• Risk Management
• Complete records for insurance coverage15
Art and Historical Treasures
• Accounting• Inventory
• Complete listing regardless of location• Valuation
• Estimates of current value for insurance coverage
• Review• Periodically confirming presence
and valuation16
Art and Historical Treasures
• Financial Reporting• Capitalization Policy
• Follow general capitalization rules or use exceptions
• Historical Cost Valuation• Purchase price, if available, or value at date
of donation• Footnote Disclosures
• Disclose any reasons as to whycollections are not capitalized
17
Purchase Card Transactions
• Review procedures based on changes in purchase card vendor
• Improve procedures for supervisory review• Revise training for cardholders and
supervisors• Delete purchasing system access promptly for
terminated employees• Improve SPCC Administration to include audit
trail, purchase limits and potential split purchases
18
Part-time Employees and Overtime Hours• Limiting Hours of Part-Time Wage Employees
• State Policy Limits Part-Time Wage Employees to 1,500 Hours per Year
• Why is this important?• How to monitor this?
• Limiting Overtime Hours• Why should colleges monitor and limit
overtime hours?• At what point does increased
work hours lower efficiency?19
General Assembly Issues
• Virginia Higher Education Opportunity Act of 2011 - TJ21
• Establish State Inspector General
21
Virginia Higher Education Opportunity Act• Recommends Higher Education funding policy :
• Reaffirms state funding of basic operations at 67% for in-state students and commitment to fund faculty salaries at 60th percentile of peer universities.
• A per student amount of General funds to the Virginia public or private university where the student enrolls.
• Institutional funding of financial-aid to low and middle income families.
• Targeted economic and innovative incentives based on criteria set by the Higher Education Advisory Committee with ten possible goals. 22
Virginia Higher Education Opportunity Act• Universities are required to develop a six-year plan every
other year that includes:• Financial plans with possible tuition and general fund levels
aligned with projected enrollment levels.• How the university will meet the financial-aid needs of students.• Degree conferral targets. • Optimal year-round facility usage plans.• Plans to share instructional resources with other universities.• Programs to meet the economic and innovative targets and
incentives.• Identification of any new programs or targets.
23
Virginia Higher Education Opportunity Act• Creates a Higher Education Advisory Committee
that will: • Review the higher education funding model. • Review the criteria to qualify students for financial aid
programs. • Develop objective performance criteria (replacing
criteria currently in the Appropriation Act) for universities to qualify for financial incentives.
• Develop economic opportunity metrics. • Recommend additional authority and goals and
objectives that should be attained under the Higher Education Restructuring Act.
24
Virginia Higher Education Opportunity Act• SCHEV will determine each year if the
institutions have met performance criteria set up by the Committee beginning for FY14. FY11 certification carries forward through FY13.
• Universities are to limit tuition increases to base operations funding and unavoidable increases. Universities must use any excess to fund financial aid and forgo any increase of appropriations above FY12 levels.
25
Virginia Higher Education Opportunity Act• Secretaries of Education and Finance are to
create a STEM public-private partnership advisory committee to advance STEM education throughout the K-16 system.
• VCCS is to create a one-year certificate where all credits are transferrable to any Virginia state-supported University.
26
Office of the State Inspector General•Replaces Division of the State
Internal Audit• Appointed by Governor for
four-year term• CPA or CIA with five years
experience
27
Office of the State Inspector General• Duties
• Receive complaints of fraud, waste, and abuse• Investigate state agencies and nonstate
agencies• Coordinate current internal audit programs• Assess accounting, financial, and
administrative controls• Conduct performance reviews• Administer Fraud Hotline and
Whistle Blower Reward Fund28
Office of the State Inspector General• Refers complaints of fraud at universities to their
internal audit departments• All state agencies and employees shall promptly
report any allegations of criminal acts or of fraud, waste, abuse, corruption, or mistreatment to the State Inspector General
• State Inspector General may investigate any state agency at any time, without prior announcement
• Can issue summonses and subpoenas29
Office of the State Inspector General• Reports all problems, abuses, and
deficiencies to seven executive branch and legislative officials
• Directly supervises internal audit at VDOT, DBHDS, DJJ, and DOC
• Governor may transfer appropriations
30
Office of the State Inspector General• Governor shall complete a plan for
the coordination and oversight of internal audit programs to the State Inspector General by December 31, 2011
• Becomes effective July 1, 2012
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Auditor of Public Accounts§ 30-138. State agencies, courts, and local constitutional officers
to report certain fraudulent transactions; penalty. A. Upon the discovery of circumstances suggesting a reasonable
possibility that a fraudulent transaction has occurred involving funds or property under the control of any state department, court, officer, board, commission, institution or other agency of the Commonwealth, including local constitutional officers and appointed officials exercising the powers of elected constitutional officers, as to which one or more officers or employees of state or local government may be party thereto, the state agency head, court clerk or local official in charge of such entity shall promptly report such information to the Auditor of Public Accounts ("Auditor") and the Superintendent of State Police ("Superintendent").
34
Auditor of Public Accounts
•What must be reported• Reasonable possibility• Fraudulent transaction• Involving state funds• Involving a state employee
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What is fraud?
• Any deception practiced to cause one to surrender something of value or a legal right.• Obtains property by false pretenses• Embezzles or commits larceny• Converts the property of another
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What is Not Fraud
• Theft by non-employees• No concealment
• Errors in financial documents not resulting in theft of assets• No theft
• Using business assets for business purposes• No conversion 38
What May Be Fraud
• Procurement irregularities• Kickbacks• Bribes• Gifts
• Financial statement irregularities• Overstatement of revenues• Understatement of liabilities
• Conflicts of Interest 39
The Perfect Storm is Brewing
Internal Controls
Internal and External Pressures
Opportunity to Commit Fraud
DownsizingFewer controlsDecreasing budgets
Increased pressure and decreased controls
LayoffsDecreased home valuesCredit crisis
41
Why does fraud occur?
• Opportunity• Poorly designed internal controls• Failure of internal controls• Management override• Collusion
42
Common Fraud Schemes
• Forging checks payable to cash, oneself and/or to personal vendors
• Pocketing cash receipts meant for deposit into university accounts
• Issuing extra paychecks and/or bonus checks through payroll to oneself
• Submitting fraudulent expense reports for reimbursement
43
Common Fraud Schemes
• Submitting fraudulent invoices from phony or legitimate vendors
• Abusing university credit card accounts for personal use
• Transfers of university funds to personal accounts and/or vendors
• Pilfering university equipment and/or inventory
44
Cash Collections
•Diverting cash received before it goes to the cash register or receipt book
•Creating false refunds or voids to hide taking cash out of the register
46
Cash Collections
•Are lesser amounts collected when certain employees are on duty?
•Should two employees observe collections?
•Are there more voids when certain employees are on duty?
47
Local Bank Accounts
•Creating bank accounts for small activities such as selling room supplies
•Not properly monitoring student activity or club bank accounts
48
Hiding Procurement Card Transactions•Using downloaded transactions to
create facsimile card statements•Creating store receipts that rename
or leave out certain purchased items
50
Hiding Procurement Card Transactions•Supervisors should only review
original card statements•Supervisors should be alert to
receipts that don’t look right or don’t add up
51
Poor Supervisory Review
•Not reviewing statements or receipts in detail
•Not questioning purchases from inappropriate vendors
•Not questioning recurring large purchases
52
Poor Supervisory Review
• Cardholders notice when supervisors do not perform a thorough review
• Problems when using residential vendors and not commercial vendors or wholesalers
• Should recurring purchases be made in bulk or through procurement
53
Vendor Gifts
•Employees receiving gift cards or other gifts from vendors or potential vendors
• Inappropriate to accept these even if used for the university or department activities
54
Solutions
•Better training for purchase cardholders and supervisors
•Better procedures for cash collections including reconciliations
•Let employees know of university policies relating to creating bank accounts and accepting gifts
55
Fraud by College Presidents
• Income/Bonuses•Employment Contract Provisions•Personal Expenses•Housing•Gifts (giving and receiving)
58
Fraud by College Presidents
•Contract Renewals/Terminations•Entertaining•Personal Travel•Contracting/Consulting•Outside Employment•Discretionary Funds
59
Kansas City University of Medicine and Biosciences•Created Board minutes authorizing
12 bonuses of $65,000 each ($780,000)
•Had University reimburse her for charitable donations that she deducted from her taxes or did not actually make
60
Kansas City University of Medicine and Biosciences•Received reimbursement for
personal travel and other expenses ($51,297)
•Money laundering
61
University of Central Arkansas
•President falsified a letter from several VPs to the Board stating that there were local funds available to pay his $300,000 deferred compensation
•Money laundering
62
American University
•President had “severe expense account violations”• French chef• Weekends abroad• Extravagant parties for friends• House renovations and supplies
63
Texas Southern University
•President (Ph.D. in accounting) used more than $650,000 in university funds for personal expenses• Landscaping• Kitchenware• Massive bar tab ($100,000)
64
Holmes Community College
•Audit accused President of using more than $10,000 in university funds for personal expenses• Car tires• College employees working at his
house in preparation for a wedding
65
Iona College
•Vice President of Finance embezzled over $800,000 over 10 years• Submitted false invoices• Had college pay personal bills• Personal use of college purchase
card• Catholic nun
66
St. John’s University
•Dean embezzles about $1 million• Personal expenses• Gambling at casinos• Son’s college tuition• Created phony foundation that
received contributions intendedfor the university
67