Audit Report 16-27...CALIFORNIA STATE UNIVERSITY, FRESNO – ACADEMIC DEPARTMENT FISCAL REVIEW Audit Report 16‐27 Office of Audit and Advisory Services Page 3 2. CASH AND CASH‐EQUIVALENT

Audit Report 16-27 June 24, 2016

ACADEMIC DEPARTMENT FISCAL REVIEW

California State University, Fresno

Jordan College of Agricultural Sciences and

Technology

CSU The California State University Office of Audit and Advisory Services

CALIFORNIA STATE UNIVERSITY, FRESNO – ACADEMIC DEPARTMENT FISCAL REVIEW

Audit Report 16‐27 Office of Audit and Advisory Services Page 1

EXECUTIVE SUMMARY

OBJECTIVE The objectives of the audit were to ascertain the effectiveness of college and academic department administrative and financial controls; to evaluate adherence to the Integrated California State University Administrative Manual (ICSUAM) financial policies; and to ensure compliance with relevant governmental regulations, Trustee policy, Office of the Chancellor directives, and campus procedures. CONCLUSION

Based upon the results of the work performed within the scope of the audit, except for the effect of the weaknesses described below, college and academic department administrative and financial controls as of May 20, 2016, taken as a whole, were sufficient to meet the objectives of this audit. In general, the audit did not reveal any significant internal control problems or weaknesses that would be considered pervasive in their effects on college administrative and financial controls. Overall, we found that fiscal controls at the Jordan College of Agricultural Sciences and Technology (JCAST) were sound. However, the review did identify opportunities for improvement in some areas, such as campus cash‐handling procedures, California State University, Fresno Foundation (Foundation) fee‐for‐service contract establishment, and approval of hospitality expenditures. Although the objectives of this audit were met, the issues identified indicate that some attention is needed to ensure that the college and academic department financial and administrative operations are in conformance with existing policies and to a level necessary to meet management expectations. Most issues listed below represent opportunities to improve the college and academic department administrative and financial controls at California State University, Fresno (Fresno State). Specific observations, recommendations, and management responses are detailed in the remainder of this report.



OBSERVATIONS, RECOMMENDATIONS, AND RESPONSES 1. CAMPUS CASH‐HANDLING PROCEDURES

OBSERVATION Campus cash‐handling policies and procedures needed improvement. We found that campus policies and procedures did not address systemwide requirements set forth in ICSUAM §3102.04. Specifically, campus policies and procedures did not require that deposits be transported jointly by at least two employees or that employees transporting deposits exceeding $2,500 be escorted by campus police. In addition, we reviewed two campus policies related to cash receipts and one procedure specific to satellite cashiering and found inconsistencies and a lack of clarity about which policy or procedure campus personnel involved with cash handing should follow. Clear and concise policies and procedures for cash and cash‐equivalent management that adhere to systemwide requirements improve accountability and decrease the campus’ exposure to loss or misappropriation of funds. RECOMMENDATION We recommend that the campus review and update campus cash‐handling policies and procedures to: a. Align the policies and procedures with systemwide requirements for the transport of

deposits. b. Remove inconsistencies in the policies and procedures noted above, and either consolidate

them or clarify the situations to which each policy or procedure applies. c. Communicate the updated policies and procedures to key college and departmental

personnel involved in cash‐handling processes. MANAGEMENT RESPONSE We concur and will implement the following changes by November 30, 2016. a. The campus will align its cash‐handling policies and procedures with the systemwide

requirements for transporting deposits. b. We will remove inconsistencies from policies and procedures noted above and consolidate

the policies and procedures. c. We will communicate the updated policies and procedures to the key college and

departmental personnel involved in cash‐handling processes.



2. CASH AND CASH‐EQUIVALENT ACTIVITIES

OBSERVATION Oversight of college cash‐handling locations needed improvement. We reviewed three cash‐handling locations that deposited funds to accounts held by the campus and the Foundation: the Viticulture and Enology Research Center (VERC), the Center for Irrigation Technology (CIT), and the department of animal sciences and agricultural education. We found that:

An authorization form had not been completed to designate one location as an official satellite cashiering location.

At all three locations, employees who collected cash and cash equivalents did not receive related training on an annual basis, as required by campus policies.

At two locations, checks received were not transported to the campus or Foundation cashier for deposit on the day that total checks exceeded $500 or at least weekly, as required by systemwide policy.

Checks received at one location were not endorsed on the day they were received. Because the location did not possess a Foundation endorsement stamp, checks were not endorsed for deposit until they were delivered to the Foundation cashier. In one instance, checks were held for a period of more than three months.

One of the locations did not issue pre‐numbered receipts to individuals who made in‐ person payments.

Appropriate oversight and administration of cash‐handling locations ensures that employees are properly trained and aware of related policies and procedures and decreases campus exposure to loss or misappropriation of funds. RECOMMENDATION We recommend that the campus and Foundation provide enhanced oversight and training to all key personnel in JCAST involved in cash‐handling activities, including appropriate employees at the locations listed above. This training should emphasize, but not be limited to, timely cash and check deposits and other areas identified above. MANAGEMENT RESPONSE We concur. The campus, with support from the Foundation (applicable to the process for depositing funds into Foundation trust accounts), will work with JCAST to ensure that cash is being handled in a manner that is timely and consistent with the university’s cash‐handling policy. Cash and check‐handling training by university accounting services staff for key



personnel, specifically staff in VERC, CIT, and the animal sciences and agricultural education

departments, will be completed by September 30, 2016.

3. CONTRACTS AND AGREEMENTS

OBSERVATION Contracts and agreements for fee‐for‐service arrangements were not always in place. We found that formal contracts or agreements were generally not executed for fee‐for‐service arrangements at the CIT and the department of viticulture and enology (DVE). Revenue from these arrangements was deposited to Foundation accounts. For example, we reviewed five instances in which the CIT had provided services, such as product testing and evaluation, to external entities and two instances in which a DVE faculty member employed students through the Foundation to analyze samples from vineyards for an external entity. Contracts or agreements had not been executed for any of these arrangements. The lack of appropriate agreements or contracts increases the potential for misunderstandings of the business terms and responsibilities and exposes the campus and Foundation to financial and legal risks. RECOMMENDATION We recommend that the campus and the Foundation: a. Review the existing fee‐for‐service arrangements noted above with the CIT and DVE and

develop a process to ensure that appropriate contracts or agreements are executed when services are provided in the future.

b. Remind college and department administrators of the types of situations in which a contract

or agreement should be completed, including when services are provided to external entities, and communicate the process for executing appropriate contracts or agreements in these situations.

MANAGEMENT RESPONSE We concur. a. The campus and the Foundation will review the existing fee‐for‐service arrangements for CIT

and DVE and develop a process by August 15, 2016, to ensure that appropriate contracts or agreements are executed when services are provided.

b. The Foundation will send a reminder communication by September 15, 2016, to school and

college deans, appropriate department administrators, and Foundation project directors that includes the types of situations in which a written contract or fee‐for‐service proposal



form should be executed, including when services are provided to external entities, and the process for executing such documents.

4. EXPENDITURE AUTHORIZATION AND APPROVAL

OBSERVATION Hospitality expenditures were not approved by the university controller, as required by campus policy. We reviewed 30 campus expenditures and noted that none of the four hospitality expenditures reviewed were approved by the university controller. Proper authorization and approval of hospitality‐related expenditures improves accountability, and decreases the risk of noncompliance with CSU and governmental requirements. RECOMMENDATION We recommend that the campus remind college and department administrators and the accounting staff that all hospitality expenditures must be approved by the university controller. MANAGEMENT RESPONSE We concur. The campus will remind all Jordan College department administrators and accounting services staff that all hospitality must be approved by the university controller or university controller’s designee. The campus will revise the current policy to align with the above statement. The policy revision and reminder communication will be completed by November 30, 2016.

5. TRUST FUND AGREEMENTS

OBSERVATION Foundation trust fund agreements were not always current. We reviewed four Foundation fund agreements and found that three had expired. We also noted expenditures from these funds that occurred after the agreement expiration dates. Adequate administration of trust fund agreements decreases the risk of noncompliance with regulations and the risk that unallowable expenditures will be charged. RECOMMENDATION We recommend that the Foundation:



a. Review and update the fund agreements discussed above to ensure that they are current. b. Remind Foundation personnel who review and maintain trust fund agreements that

agreements should be kept current and that expenditures should not be processed for expired funds.

MANAGEMENT RESPONSE We concur.

a. The Foundation will review all JCAST trust account applications that have expired or where

there has been a change in management oversight and obtain updated applications by July 30, 2016.

b. A reminder communication will be sent to key Foundation personnel by July 15, 2016,

reiterating the importance of ensuring that trust account applications must be kept current per Foundation policy and that expenditures should not be processed if the application has expired.

6. SENSITIVE‐EQUIPMENT PROCEDURES

OBSERVATION Not all campus personnel involved in equipment tracking was aware of current sensitive‐equipment procedures. We found that college and department personnel responsible for property and equipment control and certain campus accounting personnel were unaware of the current campus definition of sensitive equipment. Formally documented and readily available procedures for the tagging and tracking of sensitive equipment improve the accuracy of equipment records and decrease the risk of misappropriation or theft of university‐owned assets. RECOMMENDATION We recommend that the campus communicate the current sensitive‐equipment procedures to appropriate college, department, and accounting personnel. MANAGEMENT RESPONSE We concur. Procurement is finalizing a campus property manual and procedures to include a definition of, and procedures for, sensitive equipment. This manual is to be finalized and communicated to the campus, including college, department, and accounting personnel, by September 30, 2016.



7. PROCUREMENT CARD ADMINISTRATION

OBSERVATION Campus procurement card policies and procedures did not address training for procurement‐card‐approving officials, and this training was not completed as required by systemwide policy. Adequate training provides assurance that approvers understand their responsibilities and decreases the risk of unallowable or inappropriate purchases. RECOMMENDATION We recommend that the campus: a. Update the campus procurement card manual to align with systemwide requirements

procurement‐card‐approver training. b. Provide procurement card training to current procurement‐card‐approving officials in JCAST

and obtain documentation acknowledging that they have completed the training. MANAGEMENT RESPONSE We concur. a. The campus procurement card manual will be updated to align with systemwide

requirements, along with updates to training and the prohibited items list, by July 31, 2016. b. Annual online procurement‐card‐approver training and annual procurement‐card‐holder

training will be created and provided to procurement‐card‐approving officials in JCAST. Training will be implemented and documentation acknowledging their training completion will be secured by September 30, 2016.



GENERAL INFORMATION BACKGROUND

The California State University (CSU) is the nation’s largest four‐year public university system, with 23 campuses and eight off‐campus centers. Additionally, the CSU awards nearly half of the state’s baccalaureate degrees. Campuses are generally organized into academic colleges that house schools, departments, and programs specific to an area of study. Each college is headed by a dean, who reports to the provost in the division of academic affairs. Colleges and academic departments may be responsible for a wide variety of financial activities, including, but not limited to, managing budgets; generating revenues through workshops, clinics, and other services; processing requisitions; and initiating disbursements. College funds may be held either in campus or auxiliary organization accounts. Funds held in campus accounts must follow ICSUAM requirements; funds in auxiliary organization accounts primarily follow requirements set forth in the Compilation of Policies and Procedures for CSU Auxiliary Organizations and Title 5 of the California Code of Regulations. At Fresno State, the dean of each college has overall responsibility for oversight of financial administration within the college and is supported by the chair of each department. Additionally, each college has a professional financial administrator, the budget analyst directly reporting to the dean, to ensure compliance with fiscal policies and procedures and to act as a liaison to the divisions of administrative services and financial services. Centralized oversight over college financial activities is also provided by central finance through the financial services department. The JCAST consists of seven departments: agricultural business; animal sciences and agricultural education; food science and nutrition; child, family, and consumer sciences; industrial technology; plant science; and viticulture and enology. It houses a variety of programs and activities that integrate the community with the college, including the Institute for Food and Agriculture, the CIT, and the VERC.

SCOPE

We used financial and other factors to select one college and its various academic departments for review. Our review did not consider separate colleges of graduate studies, international education, or extended education. We used factors that we considered important to evaluate the risks in the overall college fiscal and administrative control environment to make our determination. We visited the Fresno State campus from April 18, 2016, through May 20, 2016. Our audit and evaluation included the audit tests we considered necessary in determining whether administrative and financial controls are in place and operative at the JCAST. The audit focused on procedures in effect from January 1, 2014, through May 20, 2016. Specifically, we reviewed and tested:

Processes to ensure that segregation of duties is adequate, accountability is maintained, and safeguarding is adequate for cash and cash equivalents.



Processes to ensure that appropriate reviews and approvals are in place for contracting activities.

Processes to ensure that expenditures are appropriate, properly authorized, and processed in accordance with CSU and campus policies.

Identification, tracking, and tagging of sensitive equipment purchases. As a result of changing conditions and the degree of compliance with procedures, the effectiveness of controls changes 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 that would prevent all these limitations would not be cost‐effective; moreover, an audit may not always detect these limitations. Our testing and methodology was designed to provide a review of key financial controls, which included detailed testing on a limited number of transactions. Our review did not examine all aspects of financial controls or encompass all areas within the college or academic departments where financial activities may have taken place.

CRITERIA

Our audit was based upon standards as set forth in CSU Board of Trustee policies; Office of the Chancellor policies, letters, and directives; campus procedures; and other sound administrative practices. This audit was conducted in conformance with the Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing. This review emphasized, but was not limited to, compliance with:

ICSUAM §1101.00, Delegation of Authority to Obligate the University

ICSUAM §13680.00, Placement and Control of Receipts for Campus Activities and Programs

ICSUAM §3000, General Accounting

ICSUAM §5000, Contracts and Procurement

ICSUAM §8000, Information Security

Compilation of Policies and Procedures for CSU Auxiliary Organizations

Government Code §13402 and §13403

California Code of Regulations, Title 5

Fresno State Cash Handling Policy No. B‐42

Fresno State Cash Receipts Policy

Fresno State Satellite Cashiering Cash Handling Procedures 2015‐2016

Fresno State Direct Pay Policies & Procedures

Fresno State Procurement Card Handbook

Fresno State Hospitality Policy and Procedures

Fresno State Property Tagging Procedures

Foundation Procurement Policy

Foundation Trust Account Policy



AUDIT TEAM

Senior Director: Michelle Schlack Senior Audit Manager: Wendee Shinsato Internal Auditor: Rick Pyles

Documents

Audit Report 16-27...CALIFORNIA STATE UNIVERSITY, FRESNO – ACADEMIC DEPARTMENT FISCAL REVIEW Audit Report 16‐27 Office of Audit and Advisory Services Page 3 2. CASH AND CASH‐EQUIVALENT