The intent of this memo is to document the audit aims with related planned audit processs sing the Faculty Professional Expense ( FPE ) accounts audit every bit good as to place the internal control failing and recommendations within the FPE procedure. The current concerns about the Internal Audit section will besides be discussed at the terminal of this memo.
Use of FPE Histories:
The objectiveness of the usage of FPE histories is to supply module members reimbursements and credits for allowable disbursal paid that are straight related to the chase of module member ‘s instruction or research activities. Faculty members ‘ bookshop purchases claims are processed otherwise from non-bookstore purchases. The maximal entitled FPE history for each member per financial twelvemonth is $ 3000. The board would desire to guarantee that all FPE histories are being used as intended ; that all outgos being claimed must be legitimate and specifically run into the definition of allowable disbursals. Therefore, we need to analyze the current control processs and policies in topographic point within the FPE procedure, so measure and document the effectivity and sufficiency of controls over FPE procedure.
Exhibit 1 provides three elaborate Audit Objectives related to our internal control audit of FPE history and the related processs that we would execute to supply a high degree of confidence.
Exhibit 1- Audit Objectives and Procedures
Audited account Procedures
1. All disbursal claims ( both bookshop purchases and non-bookstore purchases ) are certified ; that they are being decently authorized and approved to verify for its occurrence/existence.
a )bookshop purchases:
– Inquire bookshop directors and clerks whether they are cognizant of the list of allowable merchandises that faculty members can buy in the bookshop utilizing their FPE history and whether there are policies and processs that guide the bookshop clerks on how to cover with the FPE history.
– Observe whether the clerks would decline to originate a purchase dealing ( s ) related to FPE history when the purchase consists of non-allowable merchandises.
Obstacles:Although the bookshop director is cognizant of the policies and have knowledge about most professors taking advantage of the FPE history, but it seems that she did n’t decently develop her staff of what points are allowable for FPE credits and farther instructed her staff to be nice to the module members as these minutess would assist them to increase shop gross revenues and do non desire to dissatisfy long term clients. Therefore, the unity of bookshop director is questionable and the information we get at the bookshop degree is likely to be biased.
– Inquire Maggie on the monthly generated study of bookshop purchases utilizing FPE history. Whether the study consists of an automatic control by computing machines that would fit the merchandise codifications of each purchase to its allowable merchandise codifications list for FPE claims and bring forth an exclusion study on any odd points. If automatic controls do non be, so analyze whether manual controls are in topographic point to corroborate allowable merchandise codifications for claims.
– Inquire Maggie on merchandise codifications for any non-allowable merchandise purchases utilizing FPE histories and send an bill to the module members for any non-legitimate claims.
B )Nitrogenon-bookstore purchases
– Inquire relevant Department caputs on their normal patterns of O.K.ing module member ‘s claims.
–Interview with Department caput on their consciousness of the FPE policies that they should be experienced with the definition of allowable disbursals.
Obstacles:The Department caput ‘s replies to our inquiries may be biased if utilizing the FPE histories for personal benefits is a normal pattern for the module members and that O.K.ing these types of outgos are acceptable for the most of the Department caputs.
– Randomly obtain transcripts of sanctioned expense claim signifiers and guarantee that all claims come with supported paperss such as types of purchases, relevant reception, and grounds of blessing by their Department caputs.
– Consider indiscriminately analyzing the big sum or usual claims and verify its rightness. For illustration, office furniture purchased could be verified by look intoing to see if the furniture is located at the office of the module member ; Membership fees in professional organic structures could be verified by look intoing if that the professional organic structures are related to the place module where that module member belongs to.
–Obstacles:Some outgo may be harder to verify. For illustration, travel or travel related disbursals and laptop could be claimed primary for personal usage.
2. Controls are equal to guarantee that balance of FPE histories are accurate and that they should be reconciled with reimbursements made to bookstore and/or module members.
– Inquire Maggie on her processs sing the monthly rapprochement of FPE histories. In the event of disagreement is found, ask about her follow up processs to rectify the disagreement.
– Randomly select the completed rapprochements done by Maggie and analyze whether they are initialed by Darlene.
– Check to guarantee that no recognition balances exist for all FPE histories ( i.e. module members could non utilize their FPE history for more than $ 3000 per financial twelvemonth. )
– Check to guarantee that at twelvemonth terminal ( April 30 ) , all staying balances of FPE histories are transferred to the Scholarship Trust Fund either automatically or manually. ( i.e. FPE balances should be zero at each twelvemonth terminal )
3. Management policies are in topographic point that the FPE plans are being efficaciously managed and monitored.
– Inquire The Human Resource Department on control processs over expiration of module members. That the lists of module members should be complete and up to day of the month. Inquire HR section staff whether they would detect the Financial Service Department instantly after ending any module member so that they could end the FPE history associated with the terminated module member on a timely footing.
– Check to see if Financial Service would verify with HR section for a new module member when puting up a new FPE history associated with that member.
– Ensure that the FPE plan is being monitored for its effectivity on a uninterrupted footing and any major alterations should be presented/ discussed with the board.
Current Control Weakness
The current control environment and general control over the FPE histories are considered to be really weak chiefly due to the deficiency of control processs and policies in topographic point in the bookshop degree, hapless quality of review/procedures before O.K.ing grosss by Department caputs and deficiency of independent check/verification of blessings made by section caputs including deficiency of segregation of responsibilities in the Financial Service Department.
Exhibits 2 identified these important internal control failings within the FPE procedure, described the deductions of each failing every bit good as recommendations for betterment.
Exhibit 2- Control Weakness, Implication and Recommendation
1. Either no good established processs and policies sing the usage of FPE history for bookshop purchases in topographic point for director and staff to be followedorPolicies and Procedures exist but Royola Berterson, Bookstore director did non follow and did n’t teach her staff to follow. Alternatively bookstore director instructed the staff to be gracious and helpful to faculty members because they are long-run clients and do non desire to lose them and therefore does n’t truly care of what allowable purchases to write off against FPE history.
e.g. Brian Ross ( professor ) bought apparels, computing machine for personal usage at place. This clearly shows the staff members credited FPE history for apparels bought at bookshop. Either it is possible that the bookshop staff does non hold the list for allowable disbursal under FPE which they should hold or if they have the list so they are merely non following it.
Most professors take advantage of the Bookstore for a figure of purchases. These purchases included the non-allowable outgos that were non supposed to be charged against the FPE histories, ensuing in abuse of the FPE histories for the bookshop purchases.
-Establish clear and enforceable policies and processs at the bookshop to guarantee that FPE histories may merely be used against allowable outgo.
-Implement an automatic system at gross revenues terminus that would read the merchandise codification and fit them to the pre-authorized classs of merchandise codification ( i.e. books, equipments ) , so that non-allowable purchase such as vesture from the bookshop utilizing the FPE history could be automatically rejected.
-Book shop clerks should corroborate the individuality of the module members before crediting the FPE history to forestall the abuse of lost cards.
-Consider engaging another bookshop director since Royola Perterson ‘s unity is questionable
2. Poor quality of reappraisal of blessings for non-bookstore purchases by assorted Department caputs.
No processs of how to reexamine the affiliated grosss of non-bookstore purchases to look into if those disbursals are allowed to be deducted under FPE history or non. No processs to look into if those non-bookstore purchases were used for office or personal intent.
e.g. Brian Ross ( professor ) program to go for concern and vacation purpose- disbursal related to concern intent and non concern intent demands to be segregated
Misuse of FPE history can ensue in an addition of FPE disbursals. Faculty members can claim reimbursements for purchase of points for personal usage by supplying those grosss. Faculty members can claim for points non allowable under non-bookstore purchases due to miss of control processs. FPE disbursal can be maximal of $ 3000*195 module members= $ 585,000.
Faculty members will be more inclined to deceive/ claim unallowable disbursals if mistakes go undetected.
– Require all division directors to reexamine all the grosss submitted by module members to look into if it ‘s an allowable disbursal to be reimbursed to employees for non-bookstore purchases.
– Need to look into the day of the month on the reception submitted by module members for allowable reimbursements to see if the disbursal incurred is in the current twelvemonth for cutoff.
-Need to look into if non-bookstore purchases/expenses were entirely for the intent of office/university benefit ( non personal benefit ) – to segregate the personal disbursal from office disbursal ( e.g. Travel disbursal related to concern and personal use- to reimburse concern related travel disbursal merely )
-Check for old twelvemonth ‘s grosss submitted by those faculty members who are found to claim unallowable disbursal by supplying grosss to bear down back those sums.
3. Lack of independent cheque in the Financial Service Department of the grosss submitted by different section caputs for its truth and dependability if it ‘s an allowable disbursal that is being claimed for reimbursement as Maggie merely debits the disbursal history and initiates a check requisition for payment to the module members. Maggie should n’t make both rapprochement and composing checks at the same clip, which clearly indicates deficiency of segregation of responsibilities.
Intentional/ unwilled mistakes made by divisional caputs will travel undetected.
This will ensue in reimbursing sums that should n’t hold been which increases the disbursal under “FPE account” which otherwise would hold been transferred to a “Scholarship Trust Fund” .
Faculty members will be more inclined to deceive/claim unallowable disbursals if mistakes go undetected. Fraud may happen as Maggie can easy do accommodations at the year-end if the entire university history posting related to FPE is non equal to the sum relieved from the module FPE histories.
-Requires Financial section to look into for all claims/receipts that are being claimed to corroborate if it ‘s an allowable disbursal under FPE history before originating a check requisition for payment to the module member.
-Hire a new employee in fiscal section to look into all the grosss initialized by section caputs.
-Duties of rapprochement and composing checks should be segregated by engaging a new employee.
Current concerns about the Internal Audit section
- Lack of independency as there is no direct presentation/reporting to the Board at their quarterly meetings.
- Nature of occupation duties- Internal hearer working/replacing staff in the fiscal services during holidaies violates independence issues and is non a portion of duty of an internal hearer.
- Internal hearers should non fix bank rapprochement for bank histories.
- Independence regulations will be violated if internal hearer assists Vice-president of fiscal services.
- Need to present/report findings, consequences and issues straight to Board of Governors at quarterly meetings instead than describing it to VP to avoid independency issues.
- When employees in fiscal service section goes on holiday there should be employees within the fiscal service section to cover for them and they should be paid overtime to give an inducement to them. Merely one fiscal employee should be permitted to take long planned holiday at a clip which can be reserved by employees good in progress. Additionally, work done by the employee replacing the employee on holiday should be dual checked by person else for its truth.
- Duty of bank rapprochement for all bank histories should be segregated so that employee responsible for bank rapprochement is non responsible for any other accounting section work ( i.e. A/P or A/R section ) to hold proper segregation of responsibilities.
- Internal hearer should n’t help Vice-president of fiscal services to stay independent as internal hearer will be scrutinizing the work of frailty president, in instance if internal hearer does help Vice-president, it should be clearly disclosed in internal hearer ‘s study that is presented to external hearer.
Bloomington University does non hold effectual controls processs in topographic point for usage of FPE history. Evidences have been found to turn out the abuse of FPE history by module members because of deficiency of reappraisal by bookshop director, section caputs and fiscal section to let reimbursing all claims. We recommend the Board to instantly take action to better its control weaknesses over the FPE procedure. A list of our recommendations is provided in exhibit 2. An alternate manner would be to extinguish the usage of FPE history, because the unity of FPE plan seems to be really questionable. The processs to replace the FPE histories could be as followed. For book-store purchases and non-book shop purchases, different section should be in topographic point to order/buy on behalf of module members. Faculty members can merely put an order to that separate section of their demands to transport out their occupation and that section will automatically take attention of all allowable purchases to be made.