TSPR Higher Education Protocols- Chapter 5

Chapter 5
Financial Management - Institutional Support

Colleges or universities must practice sound financial management in order to maximize the effectiveness of limited resources and to plan for future needs. Effective financial management ensures that internal controls are in place and operating as intended, technology is maximized to increase productivity and that reports are generated that help management reach its goals.
The institution is required to manage its financial operations in conformity with Generally Accepted Accounting Principles and the accounting principles of the National Association of Colleges and University Business Officers (NACUBO). Further, institutions are required to report certain key information to Federal, State and private organizations.
Part 1
5.A. Organization and Management
5.B. Budgeting and Planning
5.C. Budget Monitoring and Review
5.D. Internal and External Auditing
Part 2
5.E. Accounts Payable and Payroll Management
5.F. Accounting Procedures and Internal Financial Controls
5.G. Reporting (regulatory and management)
5.H. Review and Evaluation of Contracting Process

PART 1
The material in this section should be considered a guide, rather than a complete list of requirements.
5.A. Organization and Management
Financial management is most effective when an institution properly aligns its business services functions, establishes strong systems of internal control, and properly allocates staff resources to achieve the best results.
Data Needs

Organization chart(s) for the business services functions
Listing of the number and type of employees for each section of the business services function
Summary of functions/activities/job descriptions for each business services function
Budget for the institution's business services/financial management function

Possible People to Interview
System officials (if appropriate)
President
Board members (as appropriate)
Vice president with assigned responsibility
Finance or budget director
Department head(s) and administrative assistants
Legislative staff
Internal Auditor
Activities to Perform

5.A.1. Review the method of organizing the business services of the institution; compare to a best practice institution's organization; compare to peer institutions.
5.A.2. Review and compare to peer institutions the number and type of staff dedicated to specific business services functions.
5.A.3. Analyze the budget of the financial management functions and determine where and why significant budget changes have occurred within the organization.

Questions to Ask
How are the business services functions organized? Is the management span of control appropriate? Is the reporting relationship with the president and board clearly defined? Is the chain of command followed?
Are there one or more financial standing committees of the board that regularly reviews the work of the finance area or specific functions of the finance area? Who represents the administration on these committees? Is the administrative representation on the committee adequate and appropriate?
Has the organizational structure changed recently? Over the last five years? Is the organization the most effective way to carry out the functions? Are staff dedicated to specific business functions?
Are staff cross-trained to perform different business functions? Are staff shared between different functions during peak operating times? Is there any overlap among functions being performed by the staff in one or more units? Are there any business services functions that are better aligned with another institution department? Are there any functions that are centralized in the business office that would be better handled in the campuses and/or departments?
Are there any functions in the campuses and/or departments that would be better centralized in the business office? Do the positions and titles of staff accurately describe their functions and responsibilities? How many levels of supervision exist and what is the reporting structure?
5.B. Budgeting and Planning
Budget preparation and administration are important aspects of an institution's overall operations. Providing adequate resources for programs within the restraints of available funding sources presents administrators with a significant challenge. Sound budgeting practices benefit the institution by:
Establishing a documented method for budget development, adoption, and administration
Providing administrative controls for expenditure of funds within approved allocations
Assuring appropriate campus involvement through the budget development
A review of this area must evaluate existing policies and procedures supporting the budget process. Operational practices that must be analyzed include staff involvement, expenditure control, spending plans, program budgeting, and long term budget planning.
Data Needs

Institutionwide budget for current year and prior five years, or as available according to the institution's records retention guideline.
Financial statements for the last three years (audited if available)
Legislative Appropriations Request (LAR) and USAS reports on budgeted revenues and budgeted expenditures for the institution and current peer institutions for the current year and the prior four years
Budget planning documents
Budget policies and procedures
Pertinent internal audit reports
Component institution's budgets and planning documents

Possible People to Interview
System administrators with assigned responsibility
President
Board members (as appropriate)
Vice president with assigned responsibility
Finance or budget director
Dean(s)
Department head(s)
Component institution's presidents and/or financial managers
Internal Auditor
Activities to Perform

5.B.1. Chart, review and compare budgets and percentages of budgets of the institution and peer institutions (those institutions currently comparable in size and mission) for the current year by fund, function and object code (possibly as per full-time student equivalent (FTSE) expenditures to negate differences in institution sizes). Chart and review the institution's budget for the last four to five years by fund, function and object code. Analyze the data to determine negative trends or specific areas where institutional spending is out of line with peers.
5.B.2. Chart the differences between budget and actual data for the last few years to determine significant variances.
5.B.3. Compile all budget planning documents including such things as budget calendars, budget training documents, staffing or other allocation formulas used to prepare campus and departmental budgets.

Questions to Ask
What major initiatives have been undertaken to control costs or increase revenues? Were these initiatives successful, and how did they impact the delivery of education within the institution? Were budget reductions done strategically and what justifications were required?
What are the major budget drivers in the institution (i.e., growing or declining student enrollment, rising or declining property values, changes in program delivery procedures, etc.). What advance planning has been undertaken to lessen or prepare for (not all the fore mentioned situations are negative) the impact of these situations?
How is management involved in the budgeting process?
Is the board brought into the planning process early enough that they can have an impact on needed changes? Or, are most decisions administration driven? In a community college, what way has the community been involved in helping the institution deal with budget needs? Are they made aware of needs well in advance so that they can offer suggestions and participate in the decision-making process?
Do the institutional budgets reallocate funds from low to high priority levels or do they just continue prior year funding of all units?
Planning
Does the budget planning process provide for an adopted budget development timeline or calendar that is published and disseminated that alerts the board to ongoing activities that must be performed to create the budget?
How are the departmental budgets tied to the institution's strategic plan? What is the process for assuring that departmental funds are budgeted in accordance with the institution's strategic plan?
Does the institution have board-approved budgeting policies? Are there budget procedures that are published and disseminated to appropriate staff and committee members?
Do the budgeting procedures identify roles and responsibilities in the budget process including the Board of Regents, president, directors and supervisors, Deans, instructors, staff, component institution's management team, the community in the case of community colleges, and the budget committee (if one exists)?
Is there a budget advisory committee? If so, is the representation appropriate and effective? Does the budget advisory committee provide recommendations to the president? In what form are recommendations made?
How are budget plans built into the budgeting process?
Does the budget process provide for long-term (three to five years) budget planning including, but not limited to:

Enrollment projections?
Staffing requirements?
Facility needs?
Long-term debt requirements?
Staff development?
Debt retirement obligations?
Salary and benefit projections?
Maintenance needs?
Capital expenditures for equipment and vehicles?
Income projections?
Revenue collections?

Does the institution engage in an annual planning process to improve budgeting procedures such as:

Evaluation of procedures used to determine improvement goals?
Evaluation of procedures used in establishing priority goals?
Evaluation of procedures used to establish hardware, software and staffing needs?
Evaluation of procedures used to establish training needs of budget staff and personnel involved in budget development and control?
Evaluation of the budget preparation process including the budget manual, all forms, the submittal process, the adoption schedule, public input, etc.?

Does the institution use multi-year budgeting? Could multi-year budgeting assist the board or administration to realize the long-term impact of decisions?
Does the institution have a memorandum of understanding or interlocal agreement for providing any planning and/or budgeting services?
Does the institution have a designated budget staff that is comparable to institutions of similar size? (The budget function may either be centralized (with basically all budget personnel in a central unit) or decentralized (with some personnel assigned to units (i.e., academic) not appearing under the central administration on the organization chart.)
Does the institution's budget staff have assigned areas of responsibility and monitoring, such as enrollment projections, and the various funds?
Does the institution's budget staff have assigned budget responsibilities as they relate to the size of the budget, functions, categorical programs, and location?
Revenue and Expenditure Budget Projections
Which department is responsible for developing and verifying enrollment projections, trends, comparative analysis and multi-year planning? What steps are taken to maximize state and federal funding flows? What steps could be taken to further maximize federal or state funding flows?
How does the institution use trend analysis to determine whether revenues are meeting or exceeding expenditures? What mechanisms are in place to adjust fees structures, tuitions and the like to ensure that revenues meet or exceed anticipated expenditures?
Are projections of inflationary costs for energy (heat, electricity, etc.), insurance and other fixed expenditures included in the budget?
Are formalized forecasting methods used in the budget development process?
Are multi-year comparisons performed? How are these comparisons used to identify trends? To better understand the impact of certain decisions? Others?
Do the budgeting procedures provide a methodology for controlling full time equivalent (FTE) positions and part-time positions? Does the institution have a position control system for budgeting and controlling staff allocations and hiring?
Are five-year trends and ratios in the growth of staff and students prepared and presented with budget information during budget adoption hearings?
Do all Deans and other administrators have a specific spending plan for non-salaried expenditures?
Budget Development Process
Do the hardware and software systems used for budgeting meet the needs of the institution? Is budget data automated and accessible to appropriate institution staff and management? Does the budget system have automated features that facilitate the budget preparation process?
Are accurate budget reports produced from the system and provided to the board and staff members?
Are budget reports simple and clear in explaining the institution's budget status?
Can the budget hardware and software accommodate changing budget requirements?
Does the budget process provide for evaluating and prioritizing institution needs (including but not limited to):

Instructional materials?
Staffing requirements?
Expenditure allocations?
Facility needs?
Staff development?
Special services?
Maintenance and operational needs?
Library materials and other needs?

Does the budgeting process include an analysis of prior year budgets and expenditures? Does the budgeting process provide training in budget development and monitoring procedures for all personnel involved in budget development?
Does the budgeting process provide training to budget staff on changing budget requirements and procedures? Does budget staff attend state and area budget seminars?
Does the budget provide a reserve for contingencies? Does the budgeting process allow for evaluating and prioritizing the special needs of the institution?
Is there a budget manual? Does it contain all relevant forms, instructions, and other data?
Has the institution implemented program budgeting in accordance with NACUBO and statewide requirements? Are all direct costs charged directly to program/department budgets? Are special activities and other program costs charged to program/department budgets? Is overtime charged to program/department budgets? Are part-time employees charged to program/department budgets?
Are all funds included in the institution's budgeting system with procedures clearly designating the budget manager's responsibility for all funds, including Petty cash funds.
5.C. Budget Monitoring and Review
Data Needs

Institutionwide budget for current year and prior five years
Budget planning documents
Budget policies and procedures
Pertinent internal audit reports
Component institution's budgets and planning documents

Possible People to Interview
System staff with assigned responsibility
President
Board members (as appropriate)
Vice president with assigned responsibility
Finance or budget director
Dean(s)
Department head(s)
Component institution's presidents and/or financial managers
Internal Auditor
Activities to Perform

5.C.1. Diagram the process by which the institution ensures that the board-approved budget is adhered to, including computerized systems, internal control mechanisms, and the like. Identify any weaknesses that might result in expenditures that exceed appropriated funds.

Questions to Ask
Is the annual adopted budget published and disseminated to all required state and local entities?
Are all (state) statutorily required reports made available to members of the Legislature electronically in the format determined by the Texas Legislative Council?
The Texas Legislative Council has determined that state agencies should:

Format the report in Adobe Acrobat (PDF) format, HTML Format, or ASCII format,
Place the reports on the agency's web site, and
Contact Legislators and specify the address (URL) of the report on the agency's web site.
A list of all (state) statutorily required reports is compiled by the Comptroller and available on the Comptroller's web site.
A list of reports required by the Coordinating Board's Educational Data Center are listed in the Data Guide found at the CB's web site (www.thecb.state.tx.us)
What controls are in place to ensure that expenditures do not exceed appropriated funds? Does the budget process include monthly and quarterly reviews to determine the status of the annual spending plan (income, expenditures, encumbrances and balances) with a provision for necessary adjustments?
Are budgets distributed to campuses and departments monthly? Do users trust the budget distributed from the central office or do the campuses and departments keep their own manual ledgers because they do not trust the figures distributed from the central office?
Does the institution have an expenditure control system that allows for controlling expenditures and allocations? Is the budget system integrated with financial, cash management, and payroll systems?
Does the expenditure control system have an interrelationship between purchasing, accounting and the budget office?
Does the expenditure control system provide for a written request and approval process for exceeding expenditure allocations?
5.D. Internal and External Auditing
Internal and external audits provide a review of the institution's compliance with established standards and practices. External audits are conducted by the State Auditor's Office (SAO). Results of these reviews may include:

Financial and compliance report
Reports on the expenditure of federal funds (as applicable)
A report to management on internal accounting controls (as applicable)

The internal audit function supplements the work of the external auditor. The internal audit function examines specific areas to determine:

The adequacy of internal controls
Compliance with procedures, regulations, policies, and applicable law
Efficiency and effectiveness of operations

Data Needs

Any external audit reports produced (with management letters), including SAO/Comptroller comments and the institution's responses to the comments, for the last three years
Internal audit charter, plan, mission and goals
List of published internal audit and other special reports and several samples of audit reports conducted during the last three years

Possible People to Interview
System administrators with assigned responsibility
President
Selected board members (Audit committee if appropriate)
Vice president with assigned responsibility
Finance director
External auditor
Internal auditor
Activities to Perform

5.D.1. Attend Audit committee board meeting (if applicable) to determine the audit committee's level of involvement in the audit process. Determine how the committee deals with audit findings and ensures that findings are remedied in a timely manner.
5.D.2. Review the institution's external audit reports for the last three years, including management letter comments and SAO's comments, to determine the continuing existence of problems in the institution. (If significant trends are found, look at earlier years.)
5.D.3. Evaluate the institution's internal audit function and internal audit reports to determine if the institution is in compliance with auditing standards established by the Institute of Internal Auditors.
5.D.4. Obtain and review peer institution information for the external audit function, including length of time institution has had the same auditor and rotation policies, if any, of the external auditor.
5.D.5. Obtain and review peer institution information for the internal audit function, including the existence of an internal audit function, type of reporting structure (to the president or board), existence of an audit committee, number of internal audit staff, qualifications of internal audit director and staff and type of audits performed.

Questions to Ask
Does the institution have board-approved external auditing policies? Are the services of an external audit firm used for any portion of the institution's accounts or operations or to supplement the work of the SAO? Does the institution regularly seek proposals for audit services (if applicable)? Are the institution's procedures for selecting external audit firms published and distributed?
How does the institution prepare for the external audit? Do the external auditors meet with appropriate institution management and Board of Regents to discuss the annual audit plan for the external audit at the beginning of the audit; scheduling of audit work, and the findings and recommendations contained in the report to management at the end of the audit?
Do the external auditors meet with appropriate institution management and Board of Regents to discuss the role of the institution's participation in the external audit (i.e. internal audit and accounting personnel assistance)?
Does the external audit encompass the entire institution, and involve all fund types and account groups of the institution? Is a risk assessment done in compliance with auditing standards and is it followed?
Assuming the institution receives federal funding, is the external audit performed according to the required standards (OMB Circular A-128, Audits of State and Local Governments; Standards for Audit of Governmental Organizations, Programs, Activities, and Functions issued by the U.S. General Accounting Office; Financial Accountability System Resources Guide, "Special Program Guidelines"; OMB Circular A-133)?
Were the audit reports reviewed in public meetings and copies distributed to appropriate users? What process or procedure is in place for monitoring the administration's responses to the external and internal audits?
Does the institution have a memorandum of understanding or interagency contract for providing any external audit services?
Does the Board of Regents use outside management audits to identify areas for improving economy, efficiency and effectiveness of the institution?
Internal Audit
Is the Internal Audit department organizationally independent with the department being administratively responsible to a level in the institution that has an understanding of the internal audit function and sufficient authority to provide oversight and budgetary support?
Does the Internal Audit department report to a level in the institution that has an understanding of the internal audit function and authority to promote independence and allow the department to fulfill its purpose? (This may mean the internal auditor reporting to a department head, to the president with some interface with the Board of Regents, or directly to the Board of Regents.)
Has the Internal Audit department established long-range goals that are defined, measurable, and approved by administration and the Board of Regents?
Are the Internal Audit department's long-range goals accompanied by measurement criteria?
Verify that the institution/system has an internal audit charter, as required by law.
Has Internal Audit been authorized to access records and personnel necessary for the performance of audits?
Does the institution have documented internal audit policies and procedures that define the department's purpose, authority, responsibility and scope of the audit work, preparation of audit working papers, development of audit findings and preparation of audit reports?
Can Internal Audit's reported findings and recommendations be made without undue influence from the audited group?
Does the Internal Audit department have access, as needed, to the Board of Regents?
Does the board receive and approve a summary of the annual audit work schedule?
Do persons who are independent of the organization and have no conflict of interest review the Internal Audit department externally at least once every three years? Is a formal written report issued upon completion of the review?
Does the institution have a memorandum of understanding or interagency contract for providing any internal audit services?
Internal Audit Staffing
Are the Internal Audit staff's audit assignments made using a rotation policy?
Do any of the Internal Audit staff have operational responsibilities for any areas of the institution?
Is the work of the internal auditors reviewed before the related audit report is released to provide reasonable assurance that the work was performed objectively?
Are there clearly defined minimum educational requirements for internal audit staff holding various levels of responsibility?
Does the institution require their audit staff to have work experience appropriate for the types of audits to be performed?
Is continuing education and on-the-job training provided to all staff to ensure each audit team possesses the training appropriate for the work required?
Do audit supervisors receive training in personnel management skills?
Do the Internal Audit staff participate in professional organizations?
Are internal audit staff evaluated at least annually?
Internal Audit Operations
Is the scope of the department's audit work clearly defined with all areas for potential audit within the institution defined and approved?
Does the audit scope include an examination and evaluation of the adequacy and effectiveness of the system of internal control?
Are internal audits adequately planned and documented including the objectives and scope?
Do the internal auditors appropriately identify the areas of audit risk during audit planning? How are high-risk programs and services determined? How is the risk assessment tracked and reported?
Do the internal audits examine all financial and operating records and reports?
Are special audits conducted such as investigative or other types? How are the decisions made about the type and number of special audits? How does conducting special audits affect the planned audits?
Do the internal audits review the systems established by management to ensure compliance with policies, plans, procedures, laws and regulations?
Do the internal audits review the operating or program objectives and goals established by management, as well as the administrative control procedures developed and implemented by management?
Do the internal auditors meet periodically with the external auditors to coordinate activities?
Do the internal auditors conduct their audits using audit programs?
Are concise, constructive and timely audit reports prepared, including the purpose of the audit, the scope of the audit, an expression of the auditors' opinion and recommendations for improvements?
Are report follow-up procedures in place to determine that corrective actions were taken and are achieving the desired results?

5.A.1.	Review the method of organizing the business services of the institution; compare to a best practice institution's organization; compare to peer institutions.
5.A.2.	Review and compare to peer institutions the number and type of staff dedicated to specific business services functions.
5.A.3.	Analyze the budget of the financial management functions and determine where and why significant budget changes have occurred within the organization.

5.B.1.	Chart, review and compare budgets and percentages of budgets of the institution and peer institutions (those institutions currently comparable in size and mission) for the current year by fund, function and object code (possibly as per full-time student equivalent (FTSE) expenditures to negate differences in institution sizes). Chart and review the institution's budget for the last four to five years by fund, function and object code. Analyze the data to determine negative trends or specific areas where institutional spending is out of line with peers.
5.B.2.	Chart the differences between budget and actual data for the last few years to determine significant variances.
5.B.3.	Compile all budget planning documents including such things as budget calendars, budget training documents, staffing or other allocation formulas used to prepare campus and departmental budgets.

5.D.1.	Attend Audit committee board meeting (if applicable) to determine the audit committee's level of involvement in the audit process. Determine how the committee deals with audit findings and ensures that findings are remedied in a timely manner.
5.D.2.	Review the institution's external audit reports for the last three years, including management letter comments and SAO's comments, to determine the continuing existence of problems in the institution. (If significant trends are found, look at earlier years.)
5.D.3.	Evaluate the institution's internal audit function and internal audit reports to determine if the institution is in compliance with auditing standards established by the Institute of Internal Auditors.
5.D.4.	Obtain and review peer institution information for the external audit function, including length of time institution has had the same auditor and rotation policies, if any, of the external auditor.
5.D.5.	Obtain and review peer institution information for the internal audit function, including the existence of an internal audit function, type of reporting structure (to the president or board), existence of an audit committee, number of internal audit staff, qualifications of internal audit director and staff and type of audits performed.