Northern Arizona University Internal Audit Department

Purchasing Card Compliance Audit July, 2004

Submitted To: Dr. John D. Haeger, President

Copies To: Audit Committee, Arizona Board of Regents Karen E. Appleby, Senior Assistant to the Provost & Special Assistant to the President David R. Bousquet, Vice President for Enrollment Management & Student Affairs Dr. John R. Burton, Special Assistant and Senior Associate to the President Anton P. Ciochetti, Assistant Comptroller Dr. Elizabeth Grobsmith, Provost David E. Lorenz, Vice President for Administration & Finance Becky E McGaugh, Interim Assistant Director, Purchasing Dr. M.J. McMahon, Executive Vice President Robert G. Norton, Assistant Vice President for Financial ServiceslComptroller Lone Sheppard, Program Coordinator, Purchasing Dugald J. Tryon, Interim Budget Director Sharon J. Washington, Management Analyst Sr., Comptroller's Office Molly C. Williams, Vice President for University Advancement

Purchasing Card Compliance Audit

July, 2004

Report Number 2004105-01

May 5, 2004 (last day offieldwork)

BACKGROUND This audit, which is on our fiscal year 2004 audit schedule, was requested by David Lorenz, Vice President for Administration & Finance and Robert Norton, Assistant Vice President for Financial ServiceslComptroller. Due to staffing issues related to budget cuts, there was an 18 month gap in the Comptroller's Office compliance/post-audit reviews of Purchasing Card activity. Compliance reviews resumed in January 2004. We were asked to assist the Comptroller's Office to "catch-up" on these compliance reviews.

The NAU Purchasing Card (PCard) program was implemented in fiscal year (FY) 1998. The PCard, a VISA credit card, enables employees to directly purchase goods and services without involving Purchasing or Accounts Payable.

The goal of the PCard program is to simplify processing of low-dollar value purchases, reduce papenvork/costs, expedite purchases, and give control over these purchases directly to departments. For more information on the PCard program, see: http:l/www.nau.edu/purchPurchasing_Card/Frameset_PC.ht.

Responsibilities for the PCard program are divided as follows: Purchasing - policy, procedure, limits, issuance, training, administration, liaison with the bank (JP Morgan Chase), Account Manager- authorizes issuance of PCards that result in charges to their account, Cardholders - logs purchases, maintains documentation for all purchases, Departments - Fiscal Liaison oversight and monthly post-approval of transactions, and Comptroller's Office - compliance (post-audit) reviews.

During FY 2003, use of the PCard was expanded to include all travel expenditures except per diem allowances. PCard activity has grown from 3,600 transactions, totaling $550,000 in FY 1999, to 23,000 transactions totaling $5 million in FY 2003. There are currently about 750 active PCards.

AUDIT OBJECTIVES To determine whether:

there is adequate internal control over PCard purchases, and PCard policy and procedure is being complied with.

DESCRIPTION OF AUDIT WORK PERFORMED The time period covered by this audit review is FY 2004 through March 3 1,2004

We selected a sample of accounts for review, and a sample of PCards charged to those accounts. We interviewed the PCard Fiscal Liaison. We reviewed the PCard logs for the sample PCards to see that they were complete, up-to-date, reconciled, and signed by the Cardholder and Fiscal Liaison within policy time limits. We tested a sample of transactions for adequate supporting documentation and, if applicable, cross-references to the related travel documents.

We provided detailed documentation of our reviews, along with our observations and recommendations, to the department's Fiscal Liaison and their supervisor.

The volume of year-to-date activity on the 11 1 PCards sampled was 2,600 transactions totaling $538,000. See Attachment I for a list of areas reviewed.

The university's administration is responsible for establishing and maintaining the internal control structure. Because of inherent limitations in any internal control structure, errors or irregularities may occur and not he detected by our audit tests.

CONCLUSION There is adequate internal control over PCard purchases, and PCard policy and procedure is being complied with.

EXECUTIVE SUMMARY OF RECOMMENDATIONS We have categorized these recommendations into:

RECOMMENDATIONS FOR THE ATTENTION OF SENIOR ADMINISTRATION None

OTHER RECOMMENDATIONS (pages 3-5) Second-Person ReviewIApproval of Purchases, Use of PCards for Class Fee Expenditures, and Miscellaneous Observations.

-, e- ~ h e v i e v e C. Wilson, Senior Internal Auditor

Craig L. ~ukton, University Auditor

OTHER RECOMMENDATIONS

Observation

Second-Person ReviewlApproval of Purchases

1. In 6 of the 17 departmentslareas reviewed, the Purchasing Card (PCard) holder was also the department Fiscal Liaison. Employees who sign the transaction logs as both PCard holder and Fiscal Liaison are approving their own purchasing activity. There is no second-person review1 approval of these employees' purchases.

The PCard manual states that "...Fiscal Liaison shall review their Cardhoiders'submitfed Purchasing Card documentation including ... Statement ofAccount and ... Transaction Log for appropriateness, completeness and .. . documentation. .. "

Recommendation

a) That PCard holders not serve as their own Fiscal Liaison.

b) That the PCard Policy and Procedure manual be clarified to explicitly state that PCard holders may not sewelsign-off as their own Fiscal Liaison.

c) That the campus community be informed of this change in policy via the PCard listsew.

d) That where the PCard holder is also the Fiscal Liaison, either the immediate supervisor, or whoever else can best judge the appropriateness of the purchases, e.g. the PI for a grant, sign off as Fiscal Liaison.

e) That the departmentslareas inform the PCard Program Coordinator of the change in Fiscal Liaison.

Response

a - e) Will do. (Lorie Sheppard, Program Coordinator and Becky McGaugh, Interim Assistant Director. Purchasing)

Page 3 o f 5

OTHER RECOMMENDATIONS

Observation

Use of PCards for Class Fee Expenditures

2. Dr. Ronald Pitt, Associate Provost for Academic Administration, oversees the administration of NAU Class Fees, including:

internal approval to charge Class Fees, . requesting ABOR approval of Class Fees of $50 or more, and overseeing spending, which is restricted to the purpose for which the fee was justifiedlapproved.

During this audit Dr. Pitt approved the issuance of a PCard for the Dental Hygiene department's Class Fee account on a trial basis. Dr. Pitt requests that he pre-approve the issuance of PCards for Class Fee accounts.

The Comptroller's Office informed us that 28 PCards have been issued to Class Fee accounts.

Recommendation

a) That the PCard Program Coordinator: get post-approval from Dr. Pitt for the 28 existing Class Fee account PCards, and get Dr. Pitt's pre-approval before issuing any future PCards to Class Fee accounts.

b) That the Comptroller's Office have available a listing of the applicable spending restrictions when they perform PCard compliance reviews on Class Fee accounts.

Response

a) Will do. (Lorie Sheppard, Program Coordinator)

b) As far as the compliance reviews our office performs, we will make sure we flag any class fee cardholders, and review their transactions for possible non-instruction related expenses. We will also make sure we are copying Dr. Pitt on any reports issued on class fee agencylorgns. (Anton Ciochetti. Assistant Comptroller)

Page 4 of 5

OTHER RECOMMENDATIONS

# o f Instances:

14

Observations:

lncomplete documentation, e.g. unitemized receipts, packing slip

Log not signed or submitted by 10-day deadline

Incomplete log

Personal charges on hotel bill paid with PCard, with later reimbursement to NAU

Purchase of pre-paid fuel option on rental vehicle (not cost-effective)

Travel expenses not cross-referenced on log to travel documents

Travel expenses on PCard not listed on travel claim (so that the trip makes sense to a reviewer)

Missing receipt

Purchase of optional insurance on rental vehicle (duplicates coverage)

Vendor split transaction to bypass PCard holder's dollar transaction limit

Food purchase

Donor development expense charged to University account

Grant charged for disproportionate share of Pl's professional society dues

Action Taken bv Fiscal Liaison:

Better documentation will be required in the future, in one case a duplicate invoice was requested

Reminders sent to PCard holders

Logs completed and will make sure complete in future

Reminders sent to PCard holders to pay for personal charges with personal funds, and then charge balance to PCard

Reminders sent to PCard holders

Corrected and will do in future

Will do in the future

Faxed invoices obtained

Reminders sent to PCard holders, grant reimbursed

Reminders sent to PCard holders to use PO in future

Will use PO in future

Will be reimbursed by the NAU Foundation

Grant reimbursed

Page 5 o f 5

LISTING OF AGENCIES REVIEWED

College of Health Professions Physical Therapy Dental Hygiene Nursing Speech Pathology Dean's Office Exercise Science

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~ev iewed . ,

PHT DHY NUR SPH HPD EXS

Center for Sustainable Environments Environmental Research ERD

*U.::yW,'yf':':':: PCards

Hotel & Restaurant Management Hotel & Restaurant Mgmt HRM AZ Hospitality Research AHR

;ACfi$jfY F W D ' $ S of 3131104 .#transactions I $ amount

President Institute for Native Americans NMM

Vice Provost for Research & Graduate Studies Institute for Human Development IHD Cancer Research Center RES Research Greenhouse RES Analytical Laboratory RES

Vice President for Enrollment Mgmt & Std Affairs Admissions ADM Recreation Center REC

Vice President for Administration & Finance BVP

TOTAL

UNIVERSITY TOTAL (as of March 31, 2004)

Percentage Reviewed

ATTACHMENT I