TSPR Higher Education Protocols- Chapter 6

Chapter 6
Asset and Risk Management - Institutional Support

Managing the assets of a college or university, including both the cash and physical assets, is an ongoing challenge. Cash must be accounted for and invested in a prudent manner that ensures its safety while maximizing interest earnings and complying with the Public Funds Investment Act. Physical assets must be tracked and inventoried and fixed asset capitalization policies and procedures should mirror recommendations made by the National Association of Colleges and University Business Officers (NACUBO) and be in compliance with Governmental Accounting Stands Board (GASB) statements 34 and 36.
Further, institutions are required to report certain key information to Federal, State and private organizations. For example, colleges and universities are required to track certain assets through the State Property Accounting (SPA) system and to follow guidelines for disposal of assets tracked through that system.
While there is considerable crossover between the financial management and asset and risk management functions, this module looks at the asset and risk function of the institution in the following sections:
Part 1
6.A. Organization and Management
6.B. Cash Management, Cash Flow Forecasting and Petty Cash Funds
6.C. Investment Management, Investment Strategies and Public Funds Investment Act
6.D. Endowments
6.E. Fixed Asset Management, Tracking and Counting, Reporting and Surplus Property
Part 2
6.F. Insurance Coverage, Risk Management, Safety and Workers Comp
6.G. Bonded Indebtedness and Issuance
6.H. Accounts Receivable, Tuition and Fee Collection Process
6.I. Review and Evaluation of Contracting Process

PART 2
6.F. Insurance Coverage, Risk Management, Safety and Workers Comp
Risk management has become an essential part of campus institution operations. Rising costs for health, property and liability insurance coverage has demanded that administrators begin cost containment programs. Successful risk management programs start with strong support from the governing board, president and senior financial administrators. Commitment from the upper
management to the fundamental goals of risk management is essential if risk management practices are to be effective. Sound risk management involves:

Analyzing alternatives for insurance coverage such as self-insurance and other current industry trends, to the extent that the State of Texas does not self-insure.
Analyzing current insurance plans including deductible amounts, co-insurance levels and types of coverage provided
Assessing hazards and implementing programs to minimize exposure to potential losses
Continuously monitoring if the institution is in compliance with various laws and regulations

This module assesses the institution's risk management program including methods for reviewing insurance coverage, evaluation of the effectiveness of current programs, loss control programs, claims handling, determining insurable values and requirements for coverage by outside groups using institution facilities.
Data Needs

Policies and procedures
Insurance policies or documentation on self-funded programs
Coverage costs by type of coverage for the last five years, or as available according to the institution's records retention guidelines.
Planning documents for risk management
Staffing charts and job descriptions
Pertinent internal audit reports

Possible People to Interview
System staff with assigned responsibility
President
Vice president with assigned responsibility
Statutorily required compliance officer.
Administrative staff with assigned responsibility
Institution's insurance agent and/or third party administrator
Internal auditors
Activities to Perform

6.F.1. Examine the organization and staffing charts and job descriptions for risk management and interview staff to determine reporting arrangements, whether the organizational structure depicted on the chart reflects the actual organization of the department and document if it has been changed recently or repeatedly in the recent past or is anticipated to change in the near future and why. In addition, note any contract services performed by professionals or consultants in support of the risk management function and show to whom they report or who monitors their activities.
6.F.2. Examine all policies and procedures related to risk management and determine whether internal operating procedures mirror board policy and whether internal procedures provide a level of detail to ensure that risk management processes would continue in the event of staff turnover or sustained absences.
6.F.3. Prepare a list of all of the institution's risk management initiatives including such things as preventive loss programs, safety training, emergency preparedness training and the like. Determine the target audience for each initiative, any documented results or performance measures used to evaluate the effectiveness of the initiative and the person responsible for implementation.
6.F.4. Examine all insurance policies and prepare a complete list of all insurance coverage including worker's compensation as well as any insurance cooperatives, self-insurance, names of third party administrators, stop loss coverages and the like. For each category of coverage, describe the nature of the coverage, the basic limits of the coverage and annual premiums.
6.F.5. Prepare a list of all employee benefit coverages such as health, dental, etc. and show the State of Texas' contribution to the premiums versus the employee's contributions for the variety of coverages for employee, employee and spouse, employee and dependent children and the like.

Questions to Ask
Are risk management functions aligned with similar functions within the institution? Has the institution assigned specific staff to manage risk management programs? Who is assigned to manage and control the institution's property and liability insurance coverages? Who establishes rules and procedures to ensure the safety and well being of students, employees and the public while on or in institution property?
Who is assigned to bid insurance coverages? Are any outside insurance consultants or other professionals under contract to the institution to provide guidance on insurance purchasing decisions? If the institution is self-insured for some coverages, is an actuary used to determine appropriate contributions and safe fund balances for the institution? To whom do these contracted individuals report? Who monitors performance? Does the institution use professional insurance consultants when an identified need exists?
Does the institution use the latest available risk management techniques such as inspections, investigation and training to identify, analyze and minimize risks inherent in the operation of institution programs?
Are campus or building administrators (as applicable) responsible for identifying risks inherent to their location and operation and to make every effort to minimize such risks? Who is responsible for educating employees concerning their responsibilities and enlisting their support? Who is responsible for safekeeping of all assets through security of facilities? Who distributes questionnaires and survey forms and coordinates on-site inspections and analysis of physical operations? Who is responsible for maintaining records for inspection and forwarding reports to the assigned risk management administrator?
Risk Management Policies and Procedures
Does the institution have board approved risk management policies that have been published and disseminated to all appropriate staff and the public? Do policies provide for a program of protection against and/or insurance for:

Loss or damage or disability as mandated by federal, state or local codes?
Loss or damage to real or personal property?
Liability of the institution and/or personal liability of members of the board and employees for damage to persons or property including injury or death?
Losses due to employee dishonesty?
Worker's compensation/employees liability?
Employee health, life and other supplemental benefits such as dental, optical, or disability?

Has the institution clearly defined the risk management program, including goals, objectives, procedures and responsibilities?
Have administrative regulations or procedures for the risk management program been developed and approved? Do procedures cover:

loss prevention control?
placement of insurance coverage?
property damage restitution?
catastrophe plan?
requirements for coverage by independent contractors?
use of facilities by outside groups?
driver training insurance coverage?
field trip and/or excursion coverage?
employee/student personal property guidelines?

Do policy or procedures provide safeguards against the duplication of coverages, contracts for unlawful or unauthorized coverages.
Insurance Coverages
Has the institution identified the most cost effective insurance programs? Does the institution regularly attempt to control costs by examining other options such as self-insurance (determined by actuarial study or required by the state)? Levels of coverage? Realistic deductibles? Annual request for proposals for insurance carriers (as applicable)? Wellness programs?
Has the institution conducted an employee satisfaction survey of their benefits?
What type of services is the institution receiving from the third party insurance administrator, if a third party administrator is used? How does the institution use the information provided by the third party administrator?
Does the institution have an institutionwide safety program? How is the effort organized? Does the institution have safety training for employees? Does the institution have a calendar of safety workshops? How does the institution measure the success of its safety training?
Is the risk management program reviewed and evaluated annually with emphasis on:

Annual evaluation of types of claims?
Annual evaluation of annual losses versus premium paid (if applicable)?
Annual evaluation of changes in regulations and laws?
Annual evaluation of insurance industry trends?

Does the institution keep abreast of federal, state and local risk management laws and regulations? Do risk management employees attend federal, state and local organizational meetings and seminars? Is there a mechanism in place to share appropriate laws and regulations with all employees?
Has the institution identified areas of exposure to loss and obtained comprehensive coverage (if required or permitted by law)? Do property and casualty insurance cover all the institution's buildings and contents at replacement value as determined through a property valuation program? How are policies updated for new construction or renovations? At what point does the construction contractor's insurances end and institution policies take over?
Is comprehensive general liability, auto liability and errors and omissions protection provided covering the institution, members of the board, institution officers and employees while acting in the discharge of their duties within the scope of their employment and/or under the direction of the board?
Does the institution provide for workers' compensation insurance to cover all employees and volunteers of the institution providing benefits as prescribed by law? Has the institution explored the use of a workers' compensation pool or a self-insurance program as a means for controlling costs?
Does the institution carry physical damage coverage on selected vehicles owned or operated by the institution?
Does the institution carry boiler and machinery insurance covering boilers and such pressure vessels, air conditioning and refrigeration units to such limits as determined through an equipment inventory? Are the inventories current? Are coverages adjusted each year after the inventory is taken? When was the last time the list of machinery and equipment was updated?
Is student health insurance made available to all students and required of those students who engage in institution-organized athletic events?
What employee fringe benefits are provided to employees, such as hospital and medical insurance, dental insurance, optical insurance, life insurance, long-term or short-term disability insurance to limits authorized by the Board of Regents?
Risk Management Operations
Has the institution established a preventive loss control program including:

Installation of sprinkler systems?
Installation of intrusion alarms and/or security systems with direct connection to a monitored location?
Installation of smoke alarms with direct connection to a monitored location?
Purchase of non-toxic smoke producing materials for campus furniture, walls and folding doors?
Construction of buildings with firewalls (determined by local building and fire codes) between rooms and campus facilities that are vandal proof?
Installation of security fencing and lighting around buildings and ground?
Employment of security personnel?
Adjusting custodial schedules to provide greater adult coverage on campus campuses?
Requesting neighbors to contact police about any suspicious activities?

Find out if certain risk management strategies are not in place because of the relative lack of local building codes in certain rural areas.
Does the institution maintain complete inventories of all furniture, equipment, books and materials in the institution? Is a duplicate copy of inventories kept in fireproof locations or an off-site storage facility? Are "as-built" building plans and specifications in fireproof vaults or flat files?
Does the fire department have maps of campus building indicating the location of fence gates and utility cutoffs to facilitate pre-fire planning? Does the institution maintain a minimum quantity of flammable liquids that are properly stored? Does the institution make fire inspections of buildings with fire department personnel and maintain written records of action taken on inspection reports?
Are emergency rules and procedures prepared for campus personnel? Are emergency plans annually evaluated? Are the names and phone numbers of emergency personnel posted at each building in the institution?
How does the institution discourage student vandalism and encourage respect for public property? (SEE FACILITIES CHAPTER) Is safety training provided to employees to reduce worker's compensation claims?
Has the institution established procedures for purchasing insurance coverage? Does the institution obtain insurance coverage by accepting proposals for the best and most comprehensive coverage to meet its needs? Does the institution consider various combinations of insurance coverage, such as, self-insurance, varying levels of deductibles and multi-year coverage?
How does the institution normally evaluate insurance coverage, carriers and self-insurance programs to determine best options for the institution?
Does the institution have established claims handling procedures?
Has the institution established a catastrophic preparedness checklist including:

Notification of proper emergency organization (i.e.) Fire Department, Police Department?
Management, supervisory and maintenance emergency response teams for coordination of responsibilities?
Communication (such as an emergency telephone system) for notification of relatives and/or spouses?
Supply of emergency power (if applicable)?
Evacuation plan?
Information on media releases and who is authorized to speak on behalf of the institution?
Notification of the insurance carrier?

Did the institution back up the critical data and stored off site?
Has the institution established insurance requirements for outside parties utilizing institution facilities and for contractors? Is a certificate of insurance, a hold harmless and indemnification agreement and/or endorsement to other party's liability policy showing the institution as an addition to the insurance policy obtained from:

Individuals or organizations using or renting facilities or equipment?
Automobiles or buses hired by the institution?
Contractors hired by the institution?
Joint ventures with other public entities?

Is insurance coverage required for all contractors with periodic checks to ensure policies are in force? Has the institution established a formal agreement for proper coverage for leased sites and facilities that requires tenants to obtain their own insurance and include the institution as part of the "named insured"? Requires periodic checks to assure policies are in force?
6.G Bonded Indebtedness and Issuance
Community Colleges are authorized to issue tax bonds and revenue bonds under Section 130 of the Texas Education Code. Property tax assessments by the community college district fund the tax bonds while pledged revenues from rentals, rates, charges, tuition and other resources of the district fund the revenue bonds.
For other institutions, three sources of bonding authority exist, either in Section 55 of the Texas Education Code, or Article 7, Sections 17 and 18 of the Texas Constitution.
Section 56.13 gives the institution or system boards authority to issue bonds to be funded from pledged revenues. But the Texas Public Finance Authority is required to issue bonds on behalf of the institutions with the exception of The University of Texas System, the Texas A&M University System, or any institutions, with three exceptions, authorized to issue bonds under Article 7, Section 17 of the Texas Constitution (HEAF).
Section 55 in general contains information on bond issuance authority. Specific institutions and amounts authorized identify bonds commonly known as tuition revenue bonds. Although pledged tuition revenue is the formal funding source, the Legislature has historically appropriated General Revenue sufficient to fund the debt service requirements on these issue.
Article 7, Section 17 authorizes the issuance of bonds for certain institutions to be funded from appropriations of the Higher Education Fund. Section 18 authorizes the boards of the University of Texas System and the Texas A&M System to issue bonds totaling a fraction of the Permanent University Fund and serviced from the Available University Fund.
Bonds are contractual representations that a debt is owed by one party, the issuer, to one or more other parties, the investors. Bonds may be secured by lien on personal or real property or may be unsecured. The contract between the issuer and the investors is the bond indenture. The bond indenture specifies the: maturity date, interest payments, denominations of principal, call and or conversion provisions, security, the trustee, repayment plans, such as a bond sinking fund and special provisions.
Data Needs

Policies and procedures
Tuition Revenue bond authority, Ed. Code Chapter 55
Financial reports
Budget
Organization and staffing chart of the administrative department
Debt payment schedules
Analysis of the bonds payable
Pertinent internal audit reports
Board minutes

Possible People to Interview
Texas Public Finance Authority staff
Texas Bond Review Board staff
University of Texas System Administration staff
Texas A&M System Administration staff
Vice president with assigned responsibility
Chief Financial Officer
Investment Officer
System administrators
Internal auditor
Activities to Perform

6.G.1. Examine the bonded indebtedness of the institution and note the amounts of all outstanding bonds, the interest rates and debt service payment schedules on each issue, the amount of any unexpended bond proceeds, any outstanding investment instruments purchased with unexpended bond proceeds and whether any of the bonds have been refunded. Examine if the institution analyzed the economic costs of capital lease for real property in context of potential economic savings for issuance of bonds. Look at use of commercial paper programs for interim financing.
6.G.2. Review recent bond issuance materials and planning documents and the like and diagram the process used by the institution and any supporting organizations to provide information about and promote the bond. Look at tuition revenue bond authority, amounts issued, amounts authorized that are still outstanding.
6.G.3. Examine policies, procedures and processes used to issue the bonds.

Questions to Ask
Does the institution analyze, evaluate, monitor and report debt financing alternatives?
Does the institution have procedures for refunding bonds? Has the institution recently refunded bonds? What were the interest savings from the refunding? Did the institution improve its cash flow position as a result of the refunding?
Who watches the arbitrage provisions? In house? Outside? Does the institution comply with arbitrage provisions?
Does the institution classify bonds payable properly between current and non-current? Does the institution record the bonds in accordance with GAAP and sufficient notes are included in the financial statements?
Does the institution have procedures in place to evaluate various alternative financing methods, for selecting independent financial advisor, for choosing the method of sale, for reviewing and evaluating the costs of issuance of debt, for analyzing the cost and benefits of advance refunding transactions, to provide for compliance with federal arbitrage rebate and restrictions and for providing timely reporting the continuing financial disclosures?
Does the institution have a board-approved policy on issuing bonds? Does the institution have procedures in place for issuing bonds? How did the institution present its most recent bond proposal? How was it received?
What technical assistance did the institution have during the bond issuance process? Who is the institution's financial advisor?
Does the institution comply with restrictions/requirements in the bond indenture?
Does the institution have board-approved policies for issuing and managing debt that recognizes any federal, state or local limitations imposed on the type and amount of debt issued? The institution should have a policy establishing debt limits
How does the institution calculate and monitor compliance with federal arbitrage regulations? Has the institution employed or contracted for the services of financial advisors, bond counsel and the external auditor either in day-to-day investment activities or when evaluating and issuing debt obligations?
Does policy require disbursement of bond proceeds to follow bond indenture guidelines?
Has the institution ever engaged in bond refunding activities? Is there any evidence that bond proceeds were used for operating capital, like payroll? Did the refunding result in an improved cash flow and/or reduced overall debt obligations?
Additional Resources
Banks to bonds: a practical path to sound investing. Comptroller of Public Accounts, Austin, Texas, October 2000. This publication identifies 10 key steps in developing and monitoring an institution's investment programs, with additional resources identified at the end of each step.
College and university business administration. National Association of College and University Business Officers, Washington, D.C., 2000.
6.H. Accounts Receivable, Tuition and Fee Collection Process
Data Needs

Policies and procedures
Financial reports showing the major accounts receivable categories
Aging reports on accounts receivables including tuition and fees
Organization and staffing chart and job descriptions of the accounts receivable and collection personnel
Tuition and fee schedules for the last five years, or as available according to the institution's records retention guidelines.
Contract agreements with any outside collection agencies
Copies of standardized letters or contact forms used for collection

Possible People to Interview
System administrators with assigned responsibility
President
Vice president with assigned responsibility
Chief Financial Officer
Bursar (or director of Cashiering/Loan Collections)
Comptroller or equivalent
Collections and accounts receivable staff
Admissions personnel
Registrar
Students
Activities to Perform

6.H.1. Prepare a list of all major receivables including tuition, fees and the like. Show the balance due on the date of review, the number of existing accounts with outstanding balances and the average number of months delinquent for each type of receivable as well as the name of the department or group responsible for collection.
6.H.2. Identify the source of the receivables, such as installments, emergency tuition loans, insufficient funds checks, housing and so forth. List the dollar amount that has been written off annually for the last three fiscal years, by category. Determine the total amount that has been written off from installments since the inception of the legislation requiring installments.
6.H.3. Diagram the collection procedures used for the major receivable types noting the strengths and weaknesses of the current system and indicating any practices, if any, that do not conform to board policy. If contracted collection services are used, indicate the process used for transferring the accounts for collection and the disbursement of collected dollars.
6.H.4. Review any sanctions that are used to encourage payment of debts, such as withholding transcripts or diplomas. Determine the effectiveness of such procedures in minimizing bad debt.
6.H.5. Diagram the organizational structure of the collection process including the office that has authority for setting and administering collection policies as well as the area(s) that carries out the actual collection efforts for receivables listed in 6.H.1 above. This diagram should include information regarding outside collection firms and the point at which these firms are brought into the process.
6.H.6. Review a sample of written contracts and /or promissory notes that are used to document debt and list out the major provisions of the contracts, noting any strengths or weaknesses in the contracts that could impact collection.
6.H.7. Review the separation of duties.

Questions to Ask
Which collection techniques or programs appear to be most effective? What sanctions appear to have the greatest impact on collections? What collection techniques are not being employed by the institution that could produce better results? Why are these techniques not being employed?
What policies or procedures exist that either enhance or deter collection activities? Are all techniques employed by the institution legal and in compliance with state guidelines and/or institutional policies?
Are cash collection procedures, designed to get the money into the institution's accounts as quickly as possible? What time delays, if any, exist between the collection of funds and the depositing of funds into the accounts? Does the institution use automated debits or electronic checks to draft payments for debts?
As funds are deposited, what lapse time exists between the time that deposits are made and the time that excess funds are identified and moved to higher yielding investment accounts? Does the institution use lockboxes when the benefit of increased availability of funds exceeds additional cost? Does the institution use of wire transfers or direct deposits to accelerate the movement of cash into institution bank accounts?
What areas cause the largest dollar volume of losses due to non-payment, such as installments, hot checks and the like? What areas result in the largest numbers of transactions? What is the correlation between transactions and need for delinquent collection efforts? Are staff assigned based upon the number of transactions or the volume of collections?
What evaluation is done to determine when to use an outside collection firm? What evaluation is done to determine whether an outside collection firm is being effective in collecting bad debts? Who is responsible for making that determination? Are there performance standards established in the contract with the outside collection firm to ensure good results? Who monitors that activities of the outside collection firms to ensure that they are abiding by contract terms and conditions? That the firm is achieving the expected results? When was the last time that the contract was renegotiated?
6.I. Review and Evaluation of Contracting Process
A number of asset and risk management functions 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.

6.F.1.	Examine the organization and staffing charts and job descriptions for risk management and interview staff to determine reporting arrangements, whether the organizational structure depicted on the chart reflects the actual organization of the department and document if it has been changed recently or repeatedly in the recent past or is anticipated to change in the near future and why. In addition, note any contract services performed by professionals or consultants in support of the risk management function and show to whom they report or who monitors their activities.
6.F.2.	Examine all policies and procedures related to risk management and determine whether internal operating procedures mirror board policy and whether internal procedures provide a level of detail to ensure that risk management processes would continue in the event of staff turnover or sustained absences.
6.F.3.	Prepare a list of all of the institution's risk management initiatives including such things as preventive loss programs, safety training, emergency preparedness training and the like. Determine the target audience for each initiative, any documented results or performance measures used to evaluate the effectiveness of the initiative and the person responsible for implementation.
6.F.4.	Examine all insurance policies and prepare a complete list of all insurance coverage including worker's compensation as well as any insurance cooperatives, self-insurance, names of third party administrators, stop loss coverages and the like. For each category of coverage, describe the nature of the coverage, the basic limits of the coverage and annual premiums.
6.F.5.	Prepare a list of all employee benefit coverages such as health, dental, etc. and show the State of Texas' contribution to the premiums versus the employee's contributions for the variety of coverages for employee, employee and spouse, employee and dependent children and the like.

6.G.1.	Examine the bonded indebtedness of the institution and note the amounts of all outstanding bonds, the interest rates and debt service payment schedules on each issue, the amount of any unexpended bond proceeds, any outstanding investment instruments purchased with unexpended bond proceeds and whether any of the bonds have been refunded. Examine if the institution analyzed the economic costs of capital lease for real property in context of potential economic savings for issuance of bonds. Look at use of commercial paper programs for interim financing.
6.G.2.	Review recent bond issuance materials and planning documents and the like and diagram the process used by the institution and any supporting organizations to provide information about and promote the bond. Look at tuition revenue bond authority, amounts issued, amounts authorized that are still outstanding.
6.G.3.	Examine policies, procedures and processes used to issue the bonds.

6.H.1.	Prepare a list of all major receivables including tuition, fees and the like. Show the balance due on the date of review, the number of existing accounts with outstanding balances and the average number of months delinquent for each type of receivable as well as the name of the department or group responsible for collection.
6.H.2.	Identify the source of the receivables, such as installments, emergency tuition loans, insufficient funds checks, housing and so forth. List the dollar amount that has been written off annually for the last three fiscal years, by category. Determine the total amount that has been written off from installments since the inception of the legislation requiring installments.
6.H.3.	Diagram the collection procedures used for the major receivable types noting the strengths and weaknesses of the current system and indicating any practices, if any, that do not conform to board policy. If contracted collection services are used, indicate the process used for transferring the accounts for collection and the disbursement of collected dollars.
6.H.4.	Review any sanctions that are used to encourage payment of debts, such as withholding transcripts or diplomas. Determine the effectiveness of such procedures in minimizing bad debt.
6.H.5.	Diagram the organizational structure of the collection process including the office that has authority for setting and administering collection policies as well as the area(s) that carries out the actual collection efforts for receivables listed in 6.H.1 above. This diagram should include information regarding outside collection firms and the point at which these firms are brought into the process.
6.H.6.	Review a sample of written contracts and /or promissory notes that are used to document debt and list out the major provisions of the contracts, noting any strengths or weaknesses in the contracts that could impact collection.
6.H.7.	Review the separation of duties.