Skip to content
Quick Start for:
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 2

5.E. Accounts Payable and Payroll Management

Data Needs

  • Accounts payable and payroll-related policies and procedures
  • Sample transactions
  • Pertinent internal audit reports

Possible People to Interview

System staff with assigned responsibility
President
Vice president with assigned responsibility
Department head(s)
Internal Auditor

Activities to Perform

5.E.1.Diagram the payroll function. Show intersections among the human resources, accounting and payroll activities, highlighting strengths and weaknesses in the current system, particularly where internal controls would be expected to protect institutional assets.
5.E.2.Diagram the accounts payable function. Show intersections between the accounting, shipping and receiving activities, highlighting strengths and weaknesses in the current system, particularly where internal controls would be expected to protect institutional assets.
5.E.3.Select a sample of the payroll and accounts payable transactions and test for accuracy, compliance with stated procedures and the like. Note any discrepancies.
5.E.4.From the selected sample of accounts payable transactions, track the number of days from receipt of goods to payment and make note of early payment discounts or penalties paid as a result of current payment practices.

Questions to Ask

Payroll
Are human resources and payroll functions performed and supervised by staff in different departments? Are Payroll staff responsible for processes such as the payroll calculations, preparation of payroll disbursement records (payroll ledger, individual year-to-date earnings records) and preparation of payroll checks?

Are Human Resources staff responsible for processes such as documenting employee status, compensation and benefit records; approving employee status change documents; and preparing and updating payroll master files?

Is direct deposit of payroll checks available to staff at all levels? What percent of staff are enrolled in direct deposit?

Are payroll systems automated, when appropriate for the institution size, to provide accurate and timely information on salaries and benefits? Is the payroll system automated and integrated with human resources, accounting and budget systems? Does the payroll system provide for efficient adjustment to changing requirements? Does the payroll system provide for efficient maintenance of historical payroll records?

Does the payroll system provide for efficient accounting for both variable salary payment types such as 10 month, 12-month, hourly waged employee? Are the payroll and human resources systems integrated to provide necessary financial data and reporting? Do the payroll and human resources systems share a common database with appropriate security measures employed?

Can the payroll and human resources systems generate management reports showing leaves, balances, overtime, special stipends, etc.? Does the accounting system provide for program cost accounting as specified in the Financial Accountability System Resource Guide? In the accounting system, are special activities and other program costs charged to the proper program/department budgets? In the accounting system, are overtime, part-time, substitute and other incidental salaries and benefits charged to program/department budgets?

Accounts Payable
How does the institution maintain records of accounts payable? How does the institution ensure that payments are made in a timely manner, capitalizing on available discounts for timely payment? Are there records of payments being made to vendors after the due dates? How much was paid in penalties for late payment last year?

How are receiving records and invoices verified against the original purchase orders/requisitions to ensure that payment is made for the correct amount and quantity? Have there been instances in the last year where vendors have been overpaid for goods or services?

Are all records orderly and maintained in a way that would make it difficult for invoices to be lost prior to recording them as a payable on the books? How is the accounting record updated when payments are made? Is it automated or manual? What steps in the process are manual and how could those steps be eliminated or reduced?

What internal control weaknesses exist in the current system? How do the current controls guard against collusion as a means of defrauding the institution? Has the internal or external auditor written the institution up for weaknesses in the accounts payable section? Has there been an instance in the institution's history where fraud was detected in the accounts payable section? Has fraud ever been detected in another section of the institution's operation that went undetected by accounts payable?

5.F. Accounting Procedures and Internal Financial Controls

Accounting and payroll are among the most important business functions performed by a campus institution. Although regulations and other accounting standards exist, actual practices vary widely throughout the state.

A sound accounting and payroll system can provide numerous benefits including:

  • Providing internal controls and safeguards
  • Providing timely reporting on the status of funds
  • Allowing systematic disbursements to maximize available funds

Accounting and payroll policies, procedures, and operations must be evaluated. Key areas include segregation of duties, integration of funds into the central accounting system, use of hardware and software systems, and staff training programs to keep employees abreast of constantly changing requirements.

Data Needs

  • Accounting manuals and any related manuals which identify policies and procedures
  • Financial statements for the last three years - Audited if available
  • Any external audit reports produced (with management letters), including SAO's comments and the institution's responses to SAO's comments, for the last three years
  • USAS records for the last five years
  • Payroll records for the last year identifying position and annual salary, organized by type of employee
  • List of accounting/payroll training programs for accounting/payroll staff
  • USAS reports on budgeted revenues and budgeted expenditures for institution and peer institutions for current year and prior four years

Possible People to Interview

President
Vice president with assigned responsibility
Finance director/Chief Financial Officer
Chief accountant
Human Resources director
Director of information services
External auditor
Internal Auditor
TEA staff that commented on institution's audit report

Activities to Perform

5.F.1.Interview accounting staff to determine actual procedures performed; compare actual procedures to accounting policies/procedures manual.
5.F.2.Prepare accounting process flowcharts to determine inefficiencies or control weaknesses, if any, in the process (specific flowcharts for each accounting function, including data entry, accounts payable, accounts receivable, payroll entry, payroll disbursements, other?)
5.F.3.Examine samples of payroll files for links to payroll automated system.
5.F.4.Examine USAS reports for the last five years to determine and evaluate the level and type of funding received, and how the funding has fluctuated from year to year. Compare the results to the peer institutions.

Questions to Ask

Has the institution organized the departments and adequately defined each position's responsibility to ensure proper segregation of duties that promotes internal accounting control?

Has the institution established staffing criteria for payroll and accounting with management staff assigned specific monitoring activities?

Is revenue and expenditure information compiled for analysis, evaluation, and planning purposes? Is financial data used for program evaluation?

Policies and Procedures
Has the institution established procedures in the areas of cash receipts, cash disbursements, accounts payable and the payroll function, which prevents someone from sole access to both assets (cash, equipment, vehicles, etc.) and accounting records?

Does the institution have board-approved payroll and accounting policies?

Are the institution's accounting and payroll policies published (or posted electronically) and distributed (or made available electronically) to the appropriate personnel?

Do the institution's accounting and payroll policies identify key roles and responsibilities of payroll and accounting personnel?

Are the accounting and payroll policies consistent with federal, state and local regulations?

Does the institution have an approved accounting procedures manual and a payroll procedures manual?

Are the accounting procedures manual and the payroll procedures manual published (or posted electronically) and distributed (or made available electronically) to the appropriate personnel?

Does the accounting procedures manual and the payroll procedures manual identify required data for federal, state, and local reporting requirements?

Does the accounting procedures manual and the payroll procedures manual follow the NACUBO and USAS Chart of Accounts guidelines?

Does the accounting procedures manual provide for various levels of reporting for management review and evaluation for such purposes as cost analysis?

Does the payroll procedures manual provide for the control and confidentiality of payroll records?

Are accounting and payroll policies and procedures evaluated and revised annually according to changing federal, state and local requirements?

Internal Controls
Has the external auditor pointed out any control weaknesses in the last three years? Have each of these items been corrected? Are payroll and disbursement checks signed by two authorized individuals, or equivalent controls in use for automated checks? Are manual checks limited to once a week? Are automated checks limited to twice a month?

What internal controls exist in policy or procedure to prevent the occurrence of the following cash management practices:

  • Excessive draw down (e.g., transferring unavailable funds to another account well in excess of the amount available)?
  • Check kiting (e.g., covering shortfalls in one bank account with a check that itself represents uncollected funds)?
  • Chaining (e.g., using additional depository banks to deposit a check before final concentration occurs)?
  • Check-crossing (e.g., simultaneously issuing and depositing checks for identical amounts drawn on different banks)?

Fiscal Monitoring
Are revenues and expenditures tracked in a timely manner? Are disbursements made in a timely manner? Are available payment discounts taken advantage of? Are penalties incurred for late payments?

Petty cash funds
Are petty cash funds monitored with full accounting measures through the central accounting system? Does the institution have a published (or electronic) petty cash funds accounting procedures, which have been disseminated to students, advisors and officers? Are there institution procedures for periodic monitoring and reporting if petty cash funds are accounted for on a decentralized basis?

Training
Is training in accounting procedures provided to the accounting staff? Is training on payroll procedures provided to the payroll staff? Is training on payroll procedures provided to new employees and new management? Is training provided to management personnel in understanding and analyzing payroll and accounting reports?

Accounting
Are regularly scheduled reviews, analysis, and evaluation of accounting activities performed? Are periodic random internal audits of petty cash and petty cash funds performed?

Are reviews of compliance with changing accounting requirements conducted? Is a review and evaluation of information provided to managers conducted? Is an evaluation of the accounting reporting system in relation to federal, state and local reporting requirements conducted?

Are monthly reconciliations of all bank accounts performed (and current?)? Are detailed tax receipt records reconciled to the general ledger tax revenue? Is a review of changing payroll requirements conducted in a consistent manner? Is the payroll register reconciled to the payroll general ledger?

Does the institution have a memorandum of understanding or contract for providing any

5.G. Reporting (regulatory and management)

Over 75 percent of the funds appropriated to general academic institutions each biennium are allocated by funding formulas designed to equitably allocate funds. Consequently, accurate and timely reporting of data is critical, if the institution is to receive the appropriate amount of funds. Further, accurate and timely management reports are needed to insure that departments and schools are running as effectively and efficiently as possible.

Data Needs

Possible People to Interview

Vice President or other individuals responsible for data collection and reporting
Clerks and coordinators responsible for gathering and entering data
Educational Data Center - THECB
Comptroller staff responsible for collecting and reviewing USAS, SPA and other accounting data
Managers and/or department heads
LBB Higher Education Team
SAO staff as applicable

Activities to Perform

5.G.1.Diagram the USAS, SPA THECB and LBB data collection and compilation process starting at the campus level through the final submission and re-verification process. Determine what quality assurance steps are in the system and where there are points of redundant manual data entry and identify any areas of weakness.
5.G.2.Sample a set of reported data and compare the reported data to the source documentation to ascertain the accuracy of the data. Samples should concentrate on areas with greatest potential for error, and/or areas that have the most significant impact on funding.
5.G.3.Prepare a list of management reports regularly published and used by departments and schools. Show the frequency of the reports, the last time that the report was edited or reviewed to ensure it continues to meet management's needs, the report content and the intended purpose served by the report. Note any obsolete reports that continue to be run, or any "standard" management reports that are not being used by the institution.

Questions to Ask

Reporting Requirements
Are policies and procedures in place to ensure the accurate collection and reporting of USAS, SPA, THECB and LBB data? Are all reports submitted as required by the Texas Administrative Code, Texas Education Code and General Appropriations Act? What data reporting problems has the institution experienced in the last three years and how has the institution dealt with those issues? What attendance and other campus-level administrative tasks are automated? What redundant data entry must be done either from manual forms to the computer or from one computerized system to another? Are systems integrated to allow for easy transfer of data? Does the institutions computer system store data in a form and format that can be easily extracted and submitted?

Does the institution work closely with the THECB, Comptroller Coordinators or Specialists and LBB Analysts? What other entities provide support to the institution in the data collection and reporting process?

Accuracy in Reporting (especially for formula purposes)
How does the institution ensure the accuracy of data, especially the data used for formula funding purposes? What systematic checks and controls are in place to prevent entry errors, detect errors or data manipulation, ensure the logic of the compiled data, and correct data errors when detected? What controls are in place to ensure that identifier data is accurate and consistent?

Are campus level personnel required to verify and confirm the accuracy of data? Did the data resubmission process require significant data correction? If so, was there an extensive review of the accuracy of management reports and the institution's use of data? Do executive level administrators examine the data submissions and perform logic checks? Who is held accountable for data accuracy? What were the frequencies of errors detected by the agencies?

How many clerks does the institution employ? coordinators? What training is provided to clerks and coordinators? What are the institution's policies for mandatory training for all individuals responsible for data input and reporting functions?

Do the accounting systems create the following documents: General ledger (monthly and year-to-date); Subsidiary ledgers (cash disbursements, cash receipts, fixed assets, payroll, etc., as appropriate); Budget-to-actual expenditure reports (monthly and year-to-date); Various special reports (list of expenditures for period, outstanding encumbrances, etc.)?

Is program and department accounting information readily available? Are budget detail reports, including expenditures, encumbrances and budget balances provided monthly to program managers, Deans and directors? Do accounting hardware and software systems meet the needs of the institution?

Are the institution's accounting systems automated, when appropriate for the institution size, and integrated to supply consistent information? Does the institution's accounting system allow for the development of required analysis and reports on a regular and as-needed basis? Do payroll hardware and software systems meet the needs of the institution?

What external entities provide support for the institution's computer systems? How accessible is the contracted support for and maintenance of their accounting systems?

Are funds and account groups integrated in the central accounting system?

Management Reporting
What reports can managers or department heads access or run without assistance from a central office? Is the system user friendly and allow for ad hoc reports to be generated? What training is provided to managers and department heads on access data or running ad hoc reports?

Does the format of the reports provide sound management information in a concise manner? How frequently are reports reviewed and modified to better meet management's needs? What process is in place to discontinue the production of standard reports when they are no longer useful?

Who determines what reports are run and the frequency of the reports? If a research group or other central office generates reports, is that department responsive to the needs of managers? How is this responsiveness demonstrated?

5.H. Review and Evaluation of Contracting Process

A number of financial services might possibly be purchased or contracted for through private companies or interagency contracts with neighboring institutions or other governmental entities. It is important to regularly evaluate whether there are goods or services that can be obtained from the private sector at a lower cost, higher quality or both. It is equally important to continually evaluate existing contracts to determine if the institution is getting the best value possible through the contracting arrangement. For example, in a shared services arrangement, there is a fiscal agent. An important question to ask is whether there is evidence that the fiscal agent of the shared services arrangement is banking a significant amount of fund balance. Are payments to the fiscal agent comparable to other similar institutions in shared services arrangements?

The evaluation process is discussed in great detail in the Purchasing Chapter.