Management Guides

Management Guides for Control Self Assessment

Fiscal oversight is one of the primary responsibilities of any manager. This responsibility requires an understanding of some basic internal control concepts that need be applied and reviewed on a periodic basis. In some cases, department and unit administrators may not be familiar with financial management and related internal control issues. For this reason, the KU Internal Audit Office designed three control self-assessment guides to assist administrators in carrying out their responsibilities to evaluate administrative and financial controls.

Even though many financial transactions are ultimately reviewed through the central administration, nothing can replace the direct involvement of department administrators and managers in monitoring financial activities. The purpose of the control self-assessment guides (referenced below) is to help these individuals understand some of the more important control issues and assist them in conducting an assessment of a department’s policies, procedures and related fiscal controls. Of course, additional assistance will continue to be available from Comptroller and Internal Audit Offices on campus as referenced in the self-assessment guides.

The control self-assessment guidelines address three of the biggest problem areas for department administrators: (1) handling cash, (2)making purchases and authorizing payments, and (3) controlling property. (Click on highlighted topics to access.) We have designed the guides to assist administrators in determining whether existing departmental controls are sufficient to prevent or detect problems and to aid the creation of effective control systems where needed. In order to minimize the time required, each guide can be applied separately and includes only those essential controls that should be evaluated at the department level.

Department administrators should have their financial controls evaluated using the self-assessment guides at least once a year and more frequently when conditions warrant. These evaluations would be most effective if conducted by individuals not directly involved in the day-to-day fiscal activity being reviewed. Large departments may have administrative personnel who can conduct the evaluations and review results with the chairperson. In smaller departments, the chairperson may need to conduct the review or appoint a designated representative. The results of these periodic reviews should be used to make improvements in administrative and financial controls.

The self-assessment guides provide a series of questions that can help determine whether key features of an effective control system are in place. While all controls are important, Internal Audit has accumulated the following list of issues that deserve special attention based on problems encountered in the past. (Note: Many of the following issues, as well as the controls mentioned in the referenced self-assessment guides, will apply to a department's KU Endowment and KUCR funds in addition to University accounts.)

• Separation of duties. One person should not have complete control over an entire process or fiscal activity without any oversight. For example, no one person should be able to prepare a transaction, approve and process it, and then reconcile department records to the university’s accounting system or related systems. Otherwise, a person may be able to spend university funds for private purposes without detection or put someone on the payroll inappropriately. To help achieve adequate separation of duties, Internal Audit recommends that managers get involved in the financial administration of their departments. For example, we suggest that department chairs routinely approve financial transactions and then review the financial and budgetary status of their departments on a monthly basis uaing available reports or system inquiry techniques. In smaller departments where separation of responsibility may be harder to achieve, the involvement of the chairperson or other high-level administrator in the financial approval and review process becomes imperative.
• Adequate organization and record keeping. Administrative duties should be clearly defined and documented in job descriptions. Departmental policies and procedures should be in writing to facilitate management review and employee training and cross-training. Copies of transaction logs, vouchers, invoices, timesheets or work schedules, deposit slips, and other pertinent source documents should be organized to facilitate any reasonable need to reconstruct activity.
• Account reconciliations. A department's receipts, expenditures, and account balances must be checked (reconciled) to the university’s systems on a regular basis. Otherwise, errors or misconduct in the accounts may not be detected. For example, revenue deposits may not be credited to the right department, expenditures may be inappropriately charged to the wrong account, or employees may be getting inappropriate pay or overtime. We suggest that department administrators become familiar with available financial reports or system inquiry methods and then review transactions along with fund balances on a regular basis with the employee responsible for the detailed monthly reconciliation to University systems.
• Authorizations/Signatures. The authority to approve/sign purchase orders, expenditure transaction logs and payroll appointments should be made in writing by the department head, keeping in mind the need for adequate separation of duties as discussed above. The person who approves a transaction is responsible for determining if the transaction is appropriate. This responsibility should be performed by the department chair or a designated representative not involved in the preparation of the documents or the reconciliation of department records to University systems.
• Revenue Collection Process. The collection of funds obviously involves special risk, and the process must be controlled and well documented. Prenumbered receipts are normally used to establish accountability for funds collected unless some other acceptable method is available such as a cash register. When prenumbered receipts are used, a receipt book should be assigned to each employee collecting funds, and the receipts should be reconciled to the funds collected. Each person handling cash should have his/her own cash box or other means to safeguard funds so that they are the only ones with access. When funds are transferred to others, the funds should be counted and the transfer documented. The person receiving the funds should sign for the amount received. Revenue should be deposited with the Comptroller's office daily if possible. Do not hold receipts over a weekend. Deposits should be reconciled to the receipt books or other accountability documents, and a record of the deposit should be maintained and reconciled monthly to the University’s financial system.
• Inventory. Departments should maintain a "vulnerable items" list of equipment costing less than $5,000 that is considered highly vulnerable to theft. All goods ordered by the department should be delivered to the department and not a home address.
• System passwords. Individual computer passwords should be kept confidential and periodically changed (every 90 days unless otherwise directed by the system administrator). Passwords should be not be left on desks, monitors, under keyboards and phones, etc.
• Computer backup. Procedures should be in place to ensure computer files can be restored if needed. Computer files should be backed up on a regular basis and the backup files stored in a safe location, preferably in an off-site location or fire-proof room.
• Federal tax or state sales tax issues. If a department collects funds from a source other than faculty, staff, and students, there may be exposure to federal tax called “Unrelated Business Income Tax” or UBIT. A department may also encounter certain other federal income tax or state sales tax issues under certain conditions. Any tax question should be referred to the University Tax Analyst, Robbie Vannaman, at 4-3786.