FINANCIAL MANAGEMENT
This chapter reviews the financial operations of Austin Community College (ACC) in the following sections:
- A. Organization and Management
- B. Budgeting and Planning
- C. Tax Rate and Collections
- D. Internal and External Auditing
- E. Tuition and Fees
- F. Accounting Operations
F. ACCOUNTING OPERATIONS
Accounting operations include payroll, accounts payable, student accounting and grant accounting. These are critical functions in any organization, including community colleges. Payroll represents the largest operating expenditure of community colleges. For example, ACC's fiscal 2001 payroll costs were 62 percent of current expenditures; the average for ACC's peer colleges was 55 percent. Legal mandates must be fulfilled for payroll tax withholding and filing of grant information with various governmental agencies.
Employees must be paid accurately and promptly. Goods and services must be purchased and paid for if the college is to continue supporting the educational goals of the community. Vendors, particularly local vendors, expect to be paid on time and the correct amount. The college must properly account for student tuition and other payments and must collect these funds on a timely basis. Grants are obtained from federal, state and local sources to support and promote educational programs and other activities. These funds must be properly accounted for so that accurate, timely financial reports are submitted to funding agencies that will verify whether grant requirements and objectives are being met.
FINDING
ACC engaged the services of two outside collection agencies to collect past due accounts. ACC contracted with the collection agencies, beginning in fall 2001 and in spring 2002, to help ACC recover delinquent tuition, parking fees and late fees that were more than 90 days past due. ACC had approximately $434,000 in student receivables more than 90 days past due during 2000, which prompted ACC to seek alternative solutions to collecting money due the college.
For balances due to the college, ACC sends statements of accounts to students after the reporting date of the longest teaching period in each term. Before the end of the fall, spring and summer terms, a positive balance report is run and verified. Students with positive balances will have a hold placed on their account to bar future registration. The Admissions Office notifies students by mail of any type of hold on their account before registration starts for the next term. After the add/drop period of the term following the delinquency, students with a balance of $25 and above are sent another notification. They are alerted that they have two weeks to settle their account or they will be sent for collection. Accounts are reviewed after the two weeks and past due amounts are placed with the collection agency.
One collection agency handles delinquent student installments and non-sufficient funds for the 1996 through spring 2001 period. The other collection agency handles delinquent student installments and non-sufficient funds for the fall 2001 and spring 2002. Survey of ACC's peer colleges reveal that only one of the peers uses a collection agency to collect past due student balances. ACC transferred approximately $1.1 million in delinquent student accounts to the collection agencies, of which 16 percent has been collected through May 2002 in a five-month period.
Exhibit 5-35 shows the student account balances transferred to the collection agencies.
Exhibit 5-35 Source: Student Accounting Department and collection agency reports.
ACC Delinquent Student Accounts Receivable Balances
Transferred to Collection Agencies
Period Total
Amount
TransferredTotal
Amount
CollectedTotal
Percentage
CollectedSpring 2001 and prior $915,277 $129,219 14% Fall 2001 $208,472 $49,204 24% Total $1,123,749 $178,423 16% COMMENDATION
ACC uses collection agencies to speed collection of delinquent student accounts.
FINDING
ACC developed an in-house electronic timesheet reporting system, known as "eTime," to provide an efficient way to process employees' time records. The initial pilot program started July 2001 with a test group of three departments. The system streamlines processing of paper timesheets, which took a considerable amount of payroll staff time. Information Technology staff works closely with Payroll employees to correct any programming issues.
As of June 2002, ACC placed all departments, with the exception of work-study students, interpreters, full-time faculty and continuing and adult education instructors, on the system. As with the implementation of any new system, ACC experienced systems programming problems, but has identified and corrected those problems as they have occurred. The electronic time reporting system will be fully implemented by October 1, 2002 for the entire college staff.
COMMENDATION
ACC implemented an electronic time reporting system to make its payroll processing more efficient.
FINDING
Although the college purchased Datatel's grant accounting module in 1997, ACC has not implemented the software. Consequently, grant accountants use cumbersome spreadsheets to monitor, track and reconcile grant expenditures to the Datatel system. These spreadsheets are also necessary to track expenditures for grants that straddle ACC's fiscal year. The Datatel system requires all grant accounts to be closed at year's end. Therefore, grant accountants must close grant accounts at year's end and reopen them at the beginning of the fiscal year. This process is inefficient and increases the probability of errors and makes grant accounting and reporting more difficult.
The spreadsheets that grant accountants use to reconcile grant expenditures represent a significant improvement over the grant accounting process that existed before the grant manager was hired in July 2001. Between 1997 and July 2001, the grant accounting area lacked proper supervision and oversight, which resulted in poor accounting, weak internal controls and misunderstanding or misapplication of grant requirements. As a result, ACC failed to receive a net of $206,724 in unreimbursed grant funds over the period. The net loss also included overpayments, which are represented as negative amounts in Exhibit 5-36. The losses resulted primarily from unbudgeted matching funds, funds that were not invoiced and inaccurate and/or late final report filings. Exhibit 5-36 presents a summary of grant funds that were not received.
Exhibit 5-36 Source: ACC Business Services, Grant Accounting.
Summary of Grant Funds Not Received
Cause of Loss *Net Funds
Not ReceivedExpenses not included in budget $181,129 Funds never invoiced to granting agency $69,216 Expenses charged after final report submitted $26,810 Reimbursements never received $24,338 Billing and calculation errors ($62,318) Funds not used ($30,356) Other ($2,095) Total $206,724
*Negative amounts represent overpayments.Despite past problems in the grant accounting area, the following improvements have been made under the new grant accounting manager:
- Implemented reconciliation spreadsheets for all existing grant accounts;
- Streamlined Excel workbooks for multi-grants (Perkins formula grants);
- Created monthly close schedule to reconcile all grant accounts;
- Created a checklist process to better track all grants and contracts;
- Created the Restricted Accounting Report Calendar to better supervise grant reports in a timely manner;
- Created a "Pub-share" drive for Restricted Accounting and Fixed Assets to better communicate and serve employees. (When someone is out of the office, staff has access to files);
- Created a Financial Request Report (Aging report) to better keep track of all outstanding revenue;
- Updated all procedures and processes;
- Resolved outstanding variances from 1997-2001; and
- Performs a monthly analysis to monitor current grants and contracts.
In spite of these improvements, ACC's grant accountants rely heavily on spreadsheets and cannot track, on the Datatel system, projects that span the college's fiscal year. The college's Datatel system, however, has a grant accounting module designed specifically for higher education, which allows a grant or project to start and end at any time, even crossing fiscal years. The module also allows grant accountants to associate any combination of general ledger account numbers with one or more projects simultaneously. It also provides both fiscal year and inception-to-date accounting and reporting for the life of the grant or project.
Recommendation 50:
Use the grant accounting module of ACC's computer system.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The vice president, Business Services instructs the controller and accounting manager responsible for Grants/Fixed grants and fixed assets to implement the grant accounting module. January 2003 2. The controller and the accounting manager for grants and fixed assets work with the associate vice president, Information Technology to understand the requirements for implementing the grants module. January 2003 3. The controller, accounting manager and appropriate Information Technology personnel develop an implementation timeline that includes set-up, parallel testing, training and final implementation. March 2003 4. The controller, accounting manager and appropriate Information Technology personnel monitor program usage and troubleshoot problems during the post implementation phase. After Final Implementation FISCAL IMPACT
This recommendation can be implemented with existing resources.
FINDING
ACC's accounting system, Datatel, is incapable of generating information for the Internal Revenue Service (IRS) Form 1098-T. As a result, Business Service's accounting staff spend an inordinate amount of time between January and April processing student requests for 1098-T information, which the students need to complete their tax returns. Information Technology staff have been working to identify and correct the problems in Datatel, with limited success.
The Taxpayer Relief Act of 1997 (the Act) provides the Hope Scholarship Credit and the Lifetime Learning Credit to taxpayers who pay qualified tuition and related expenses to eligible educational institutions. Section 6050S of the Internal Revenue Code requires eligible educational institutions who receive payment of qualified tuition and related expenses to file a form 1098-T, which is an information return that helps taxpayers and the IRS determine any education tax credit allowable under the tax law. The law, while not requiring eligible institutions to actually provide qualified tuition and related expense information on the 1098-T, calls for the institution to provide a phone number so that the taxpayer can request the information if desired. Exhibit 5-37 presents a copy of the IRS 1098-T form.
Exhibit 5-37
Internal Revenue Service 1098-T Form
Source: Internal Revenue Service-1098-T Form.Datatel produces standard reports that are supposed to provide student tuition amounts, but the information on the reports is not reliable. Business Services staff tested the report by examining 29 1098-T transactions - 23 out of 29 were incorrect, which is an error rate of 79 percent.
The Dallas County Community College District (DCCCD) uses a tax credit reporting service to process and mail their 1098Ts. The service relieves DCCCD of the burden of printing, mailing and reporting 1098-Ts and enables the college to focus on its core function - education, while helping students benefit from the education tax credits. One company quoted ACC a price of $1.54 per record the first year and $2.04 per record thereafter for its full service option.
ACC has contracted with a company to mail 1098-Ts. Annual costs to mail 1098-Ts from 1998 through 2001 are presented in Exhibit 5-38. Total costs include start up, processing, postage and other fees.
Exhibit 5-38 Source: ACC Business Services Analysis.
Annual Cost to Mail 1098-Ts
Tax
YearTotal
CostNumber
of RecordsAverage Cost
per Record1998 $30,206 44,448 $0.68 1999 $22,983 44,390 $0.52 2000 $23,994 49,975 $0.48 2001 $27,489 52,873 $0.52 Total $104,672 191,686 Growth Rate 6% ACC plans to upgrade to the next version of Datatel in fiscal 2003, but without assurance that the standard reports used to produce the 1098-T will work in the upgraded version, problems will continue.
Recommendation 51:
Develop a solution for accurate 1098-T processing prior to ACC's computer system upgrade.
Business Services and Information Technology should work together with the vendor to determine a solution for producing accurate 1098-T forms.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The associate vice president, Business Services and the associate vice president, Information Technology, discuss the barriers to accurate 1098-T forms being produced from the Datatel system. January 2003 2. The associate vice president, Business Services and the associate vice president, Information Technology develop a plan to address the deficiencies. February 2003 - March 2003 3. The vice president, Information Technology, contacts Datatel to determine additional system-specific barriers. March 2003 4. The associate vice president, Business Services and the associate vice president, Information Technology, implement changes to the Datatel system to ensure accurate 1098-T reporting. April 2003 FISCAL IMPACT
This recommendation can be implemented with existing resources.
FINDING
ACC's Payroll Department processes excessive supplemental payrolls each month. Each week, sometimes several times a week, the Payroll Department generates supplemental payroll runs, which are caused by late timesheets, late new hire and termination notifications and other departmental transactions. The Payroll Department receives timesheet information electronically based on the published payroll schedule for payment for each employee classification. The Human Resources Department also receives various data from the campuses based on the published schedule, which is required to be in the payroll computerized system prior to Payroll Department's processing deadline.
There are various reasons for these delays. A typical reason employees give for late timesheets, for example, is that they were lost. Generally, this reason cannot be proved or disproved. Exhibit 5-40 presents reasons for supplemental payrolls.
Exhibit 5-40 Source: Human Resources Department.
Reasons for Supplemental Payrolls
February 2002 through June 2002
Description Number of
Times Error
Occurred*Faculty assignment or overload not approved 9 Timesheet not submitted, lost, late, misplaced 11 Key punch or input error 3 Direct deposit error 3 Software system error 1 Performance appraisal not approved, not entered/missing 8 Incorrect social security number 1 Employee submitted both paper and electronic timesheets 1 eTime system error 1
*From February 2002 through June 2002.A late timesheet also occurred when a supervisor allowed employees to avoid using the "eTime" reporting system simply because the employee did not want to use it. In addition, the vice president's or president's office has on some occasions instructed the Payroll Department to process the manual timesheet in a supplemental payroll run. In essence, Payroll has the responsibility, but does not always have the authority to enforce payroll procedures.
Another reason for supplemental payrolls is late submission of new hire salary data-for adjunct, classified and hourly employees. Employees in the dean's office (program coordinator, task force chair or dean) are responsible for ensuring all faculty class assignments are entered in the student module of Datatel; the dean approves the assignments in the system; the data is transmitted to Human Resources-Records. When the information is missing or submitted after the payroll processing deadline, supplemental payroll runs are generated.
Consistent use of supplemental payrolls is inefficient and generally requires that the Payroll staff work overtime on a regular basis, which lowers employee morale and productivity. ACC's procedure for supplemental payroll checks requires employees to pickup their payroll check at the cashier's office, show identification and sign for their check. The Payroll Department generates approximately 4,600 payroll checks monthly.
Exhibit 5-41 summarizes the supplemental payroll activity for September 2001 through June 2002.
Exhibit 5-41 Source: Payroll Department.
Supplemental Payroll Activity
September 2001 through June 2002
Number of
Payrolls
Processed2001-02
Total Number
of Checks**Regular Payrolls 53 46,260 Supplemental Payrolls 47 1,287 Total Payrolls Processed 100 47,547 Percentage of Supplemental Runs Processed 47%
**Includes advices for direct deposits.One of ACC's peers processes only one monthly supplemental payroll and generated only 108 supplemental paychecks during 2000-01. Controlling the number of supplemental payrolls improves operational efficiency.
Payroll's primary responsibility is to ensure employee paychecks are processed timely and accurately. To fulfill its role, Payroll must rely on other departments within the college to submit timely, accurate information, such as hours worked, leave taken, benefit changes, new hires, terminations and other changes in employee records that affect their pay. Clear, comprehensive procedures ensure that the payroll process runs smoothly and that exceptions are handled accurately, timely and in accordance with established payroll procedures.
Recommendation 52:
Enforce payroll procedures, and hold budget authorities accountable for compliance.
The Payroll Department should have the authority with the responsibility to enforce consistent compliance with ACC's payroll procedures by all employees for efficiency and accuracy of payroll activity. The goal should be to reduce supplemental payrolls to one run per month for processing efficiency.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The president reinforces the responsibility and authority for processing and handling payroll activities to the associate vice president, Human Resources and Payroll manager and holds department heads accountable for ensuring cooperation between their departments and Payroll. January 2003 2. The president instructs the associate vice president, Human Resources to reduce supplemental payrolls to one per month. January 2003 3. The associate vice president, Human Resources prepares and issue notice to all employees, with emphasis to budget authorities and supervisors, of the change to one supplemental payroll run, the requirements, procedures and accountability. February 2003 4. The associate vice president, Human Resources instructs the Payroll manager to track and report exception transactions and departments to identify and eliminate recurring exceptions.
February 2003 5. The Payroll manager implements the policy permitting only one supplemental payroll each month. March 2003 6. The payroll manager tracks and reports progress of improved processing to the vice president, Human Resources. March 2003 and Monthly FISCAL IMPACT
This recommendation can be implemented with existing resources.
FINDING
ACC's Payroll Department has a backlog of unreconciled payroll liability and expense accounts. Payroll liability accounts are accounts maintained in ACC's general ledger where various deductions or withholdings from employees' paychecks, for items such as federal taxes, insurance, retirement or child support, are recorded. The reconciliations include reconciling the liability (insurance, retirement, taxes, garnishments, etc.) accounts with related payroll payments; expense accounts with related payroll liabilities accounts; and expense accounts with related federal and state reports. None of the payroll expense accounts have been reconciled to the related payroll liabilities accounts.
In addition, payroll expense accounts have not been reconciled with federal and state reports. Internal Audit's March 2002 Payroll Reconciliation Report noted that 46 of 120 or 38 percent of the payroll liability accounts were reconciled to the related payments through February 2002. Exhibit 5-42 shows the status of accounts that have not been reconciled.
Exhibit 5-42 Source: ACC Payroll Manager.
ACC Unreconciled Payroll Liability Accounts
As of July 2002
Liability
AccountNumber
of AccountsReconciliation
StatusTeacher Retirement System 1 Reconciled through 10/2001 Savings Bonds 2 Reconciled through 10/2001 State Employee Charitable Contributions 26 Reconciled through 10/2001 Parking Permits 1 Reconciled through 10/2001 Total 30 Reconciling the payroll accounts is a continuing challenge because there are so many accounts and they require a significant amount of time to reconcile. ACC has hired temporary workers at least twice in the past to reconcile these accounts. However, the reconciliations are still not completed. ACC had not been able to keep a full time payroll accountant position filled. This position was created in September 2001 and has been vacant since April 2002. Effective September 2, 2002, ACC filled this position, which will allow ACC to establish a long term solution to reconciling the payroll accounts.
ACC does not have the manpower to bring the backlog of reconciliations current in a timely manner. The payroll manager directs the Payroll Department with support staff that includes a supervisor and three payroll clerks (as of July 2002). Only the payroll supervisor has been in the department for more than two years. Exhibit 5-43 shows the comparison of ACC's Payroll Department to its peers relative to number of payroll staff, total employees and total payroll budget.
Exhibit 5-43 Source: ACC and peer colleges survey data.
ACC and Peer Colleges
2000-01 Budgeted Payroll Costs
College Payroll
StaffTotal
EmployeesTotal
Payroll BudgetACC 5 ***2,267 $65,561,382 Collin County 3 1,971 $31,716,580 North Harris Montgomery N/A 3,589 N/A San Jacinto N/A 2,335 N/A
***Does not include hourly employees; not provided by ACC.
N/A - Information not available or received from peer.The Payroll manager said that all payroll liability accounts have been reconciled through August 31, 2002; however, there are approximately 700 active payroll expense accounts that have not been reconciled to payroll records and Internal Revenue Service reports.
Errors are prone to happen because of the large volume of payroll checks processed-approximately 4,600 monthly. Timely reconciliation of these accounts is vital to ensure accuracy of account activity and balances, proper payments of all liabilities, proper allocation to the appropriate expense accounts and timely identification and disposition of any adjustments that are found. Federal and state government agencies can assess penalties for non-payment of full liabilities; ACC employees could experience interruption in benefit services if insurance premiums have not been received by the provider; or employees could lose earnings if all monies intended for investments are not submitted accurately and timely.
One situation occurred in which the health care premiums liability account was in a deficit balance for fiscal 2001, which means that ACC's liability for health care premiums exceeded the state reimbursement amount, which the Legislature appropriates each biennium. Without proper and timely reconciliations being prepared consistently, ACC did not recognize the potential shortfall.
Recommendation 53:
Contract with an external accounting firm to bring payroll reconciliations current and develop internal reconciliation and monitoring procedures.
ACC should issue a purchase order to contract with an external audit firm with payroll expertise to reconcile total payrolls to the total payroll recorded in the general ledger and Internal Revenue Service filings. ACC should start with the balances as of January 1, 2001 and make appropriate adjustments to the accounts in the general ledger.
The Payroll manager should then ensure that internal procedures are developed for accurate monthly reconciliations, and the manager should monitor and review the reconciliations for timeliness, reasonableness and completeness.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The associate vice president, Human Resources instructs the Payroll manager to initiate request for professional services to reconcile all payroll accounts and develop payroll reconciliation procedures. December 2002 2. The Payroll manager develops request for professional services and submits for approval to the vice president, Human Resources, executive vice president, Academic, Student & Campus Affairs, the president and board, according to standard procedures. January 2003 3. The Payroll manager develops reconciliation procedures to ensure timely, accurate and complete reconciliations are performed. February 2003 4. The Payroll manger obtains professional services, executes the contract, including monitoring of reconciliation status and resolution of reconciling items and makes provision for full time staff. February - March 2003 5. The Payroll manager submits a status report upon conclusion of the professional services contract, hires full time staff to prepare payroll reconciliations (with other duties) and ensures procedures are operating effectively. April 2003 FISCAL IMPACT
In order to bring reconciliations current, assuming the most complex, time consuming accounts to be contracted externally and ACC obtains a negotiated rate below normal rate, the cost of hiring an external audit firm to reconcile these accounts is estimated at $6,000. The estimate is based on the following:
- One staff - 100 hours x $55 per hour = $5,500
- One supervisor - 5 hours x $100 per hour = $500
Recommendation 2002-03 2003-04 2004-05 2005-06 2006-07 Contract with an external accounting firm to bring payroll reconciliations current and develop internal reconciliation and monitoring procedures. ($6,000) $0 $0 $0 $0 FINDING
ACC offers direct deposit to its employees but has a relatively low participation rate of 58 percent. Direct deposit is a win-win situation for ACC and the employees because it makes payroll processing more efficient for the college and more convenient for the employee. Although many employees may not understand the benefits of direct deposit or trust the process, employees benefit in the following ways by having their paychecks directly deposited:
- Saves time;
- Eliminates trips to the bank;
- Pay is deposited even while employee is out of town or on leave;
- Direct deposit is safe; eliminates lost, stolen or forged paychecks; and
- Eliminates potential for paycheck fraud.
ACC's direct deposit efforts have included enrollment fairs on professional development days, which occurred infrequently at the college and are no longer offered. During employee orientation, the employee is offered direct deposit and given forms to complete, but no payroll staff is available to give a presentation of the benefits. ACC also offers direct deposit information on ACC's Intranet and Web site. Exhibit 5-44 compares ACC's direct deposit participation rate to its peers.
Exhibit 5-44 Source: ACC Payroll Department and Peer Surveys.
Direct Deposit Participation
By ACC and Peers 2002
College Percentage ACC 58% Collin County 65% North Harris Montgomery N/A San Jacinto N/A
N/A - Information not available or received from peer.Many employers boost direct deposit participation through increased, focused marketing efforts. Some effective methods have included sending employees frequent direct deposit reminders, placing messages on paychecks, training office managers to present direct deposit information to employees and partnering with a local teachers credit union to offer direct deposit when employees open an account.
In addition to the above benefits, increased direct deposit for employees can help reduce the number of unclaimed paychecks that are not picked up by employees. ACC has approximately 500 checks totaling more than $97,000 as of July 2, 2002 in custody of the Cashier's office, waiting to be picked up by employees or former employees.
Recommendation 54:
Expand direct deposit marketing efforts through use of the Intranet, weekly publications, incentives, partnerships with banking institutions and a direct deposit week campaign.
Surveys are effective tools that would help the college understand why employees do not favor direct deposit. Using survey results, the college should focus its marketing efforts towards specific employee attitudes and populations. For example, safety should be emphasized if survey results show that most employees don't use direct deposit because they don't trust the process. Also, efforts should be directed towards classified workers if survey results show high percentages of non-users in this group.
Finally, the college should consider implementing a direct deposit week. During this week, employees who have direct deposit and understand its benefits would be asked to wear badges that read "Ask Me About Direct Deposit" or "Ask Me Why I Use Direct Deposit." Flyers promoting the benefits of the program should be posted at strategic locations throughout the college campuses, such as break rooms, students' and teachers' lounges. Each campus and department location should set up an area where refreshments are served and where employees could sign up for direct deposit or obtain more information about the program, periodically.
IMPLEMENTATION STRATEGIES AND TIMELINE
1. The vice president, Human Resources instructs the payroll manager to use more innovative ways to market ACC's direct deposit program to employees. January 2003 2. The payroll manager conducts a survey to determine why employees do not use direct deposit. January 2003 3. The vice president, Human Resources solicits the assistance of the Business Services Department to develop a financial institution partnering program and to identify and contact area financial institutions that might be interested in partnering with the district in marketing its direct deposit program. January 2003 4. The vice president, Human Resources and the payroll manager work in conjunction with ACC's technology personnel to offer direct deposit information, including signup forms on the college's Intranet and Web site. February 2003 - April 2003 5. The vice president, Human Resources and payroll manger establish a task force to organize and implement direct deposit week throughout the college campuses. February 2003 6. The vice president, Human Resources instructs the payroll manager to advertise the benefits of direct deposits in all of ACC's publications and to continue traditional efforts to market the program. February 2003 and Ongoing 7. The payroll manger uses the survey information to focus and fine-tune ACC's direct deposit marketing efforts. February 2003 and Ongoing FISCAL IMPACT
This recommendation can be implemented with existing resources.
