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Bill Cole, Deputy Auditor Auditor of Public Accounts

FALL 2006 FOCUS November 14-15, 2006 Higher Education Restructuring Act Financial & Administrative Standards. Bill Cole, Deputy Auditor Auditor of Public Accounts. Higher Education Restructuring Act Financial and Administrative Standards.

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Bill Cole, Deputy Auditor Auditor of Public Accounts

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  1. FALL 2006FOCUSNovember 14-15, 2006Higher Education Restructuring ActFinancial & Administrative Standards Bill Cole, Deputy Auditor Auditor of Public Accounts

  2. Higher Education Restructuring ActFinancial and Administrative Standards • COV Section 2.2-5004 – Financial and Administrative Management Standards • Unqualified opinion from the APA • No significant audit deficiencies • Substantial compliance with all financial reporting standards approved by the State Comptroller • Substantial attainment of A/R standards approved by the State Comptroller • Substantial attainment of A/P standards approved by the State Comptroller • Such other financial and administrative management standards as the Governor may establish

  3. Higher Education Restructuring ActFinancial and Administrative Standards • COV Section 23-38.88 B. 11 (Goal 11) • … meets the financial and administrative standards as specified by the Governor pursuant to Section 2.2-5004 and included in the appropriation act, including best practices for: • Electronic procurement and leverage purchasing • Information technology • Real estate portfolio management • Diversity of suppliers through consideration of SWAM

  4. Higher Education Restructuring ActFinancial and Administrative Standards • …the Governor shall develop objective measures of financial and administrative management performance and related institutional performance benchmarks for the goals and objectives set forth in B 11.

  5. Higher Education Restructuring ActFinancial and Administrative Standards • 2006 Appropriation Act (4-9.02 K. 23) • The Governor or his designees … shall develop additional standards to assess the extent to which an institution is well-managed in the areas of information technology, personnel, capital outlay, and procurement. The Governor shall report these standards no later than October 1, 2006 for consideration by the 2007 General Assembly.

  6. Higher Education Restructuring ActFinancial and Administrative Standards • 2006 Appropriation Act (4-9.02 K. 23) • Until such additional standards are authorized by the 2007 GA, all institutions shall be subject to the following standards: • Completes no < 75% of all non-exempt purchase transactions through eVA and makes no < 75% of dollar purchases from vendors and suppliers who are registered in eVA; and • Completes no < 75% of dollar purchases through leveraged cooperative contracts such contract is available, except when the institution can demonstrate that the cost < available leveraged contracts

  7. What is Happening with the Standards in the Identified Areas? • Secretary of Finance working group • Secretaries of Finance and Administration • Deputy Secretaries (Finance, Admin, Technology) • House Appropriations staff • Senate Finance staff • APA • DGS, VITA, DHRM • Institutions of higher education (UVA, VT, W&M, LU, VSU, and VCCS)

  8. What is Happening with the Standards in the Identified Areas? • Capital Outlay • Points for consideration • Projects on schedule based on budget • Comparison of GF to NGF projects • Centralized vs. decentralized • Subgroup is working! Nothing Finalized!

  9. What is Happening with the Standards in the Identified Areas? • Procurement • Points for consideration • eVA • SWAM • Purchases from leveraged cooperative contracts • Subgroup is working! Nothing Finalized!

  10. What is Happening with the Standards in the Identified Areas? • Information Technology • Points for consideration • Information security • Major information technology projects • On schedule • Within budget • Subgroup is working! Nothing Finalized!

  11. What is Happening with the Standards in the Identified Areas? • Personnel • Points for consideration • Strategic workforce analysis and plan • What are identified risks? • What is the institution doing to address the risks? • Subgroup is working! Nothing Finalized!

  12. Who is Responsible for Evaluating the Institutions?

  13. Higher Education Restructuring ActFinancial and Administrative Standards • COV Section 30-133.1 – The APA shall promptly upon completion of the annual audit for each institution, certify in writing to the BOV chair, Secretaries of Education, Finance, and Administration, and GA Money Committee Chairs whether or not the institution meets all of the financial and administrative management standards currently in effect.

  14. Higher Education Restructuring ActFinancial and Administrative Standards • COV Section 30-133.1 (cont’d.) - In addition, for any institution required to develop and implement a plan of corrective action under Section 2.2-5004, the APA shall at the time of making the certification provide a written evaluation of the institution’s progress in implementation of the plan and in meeting all the financial and administrative management standards currently in effect.

  15. Higher Education Restructuring ActFinancial and Administrative Standards • COV Section 2.2-5004 – Par. B and C • Any institution that does not meet all of the financial (par. B) and administrative (par. C) standards … shall develop and implement a plan of corrective action for purposes of meeting such standards as soon as practicable. BOV chair shall provide copy of the written plan to the APA and Secretaries (E/F/A) promptly upon completion of the development of the written plan.

  16. Higher Education Restructuring ActFinancial and Administrative Standards • COV Section 23-9.6:1.01 – Assessment of Institutional Performance • Paragraph C – The State Council shall annually assess the degree to which each institution has met the financial and administrative management and educational-related performance benchmarks. The Council shall request assistance from the Secretaries of Finance and Administration for purposes of assessing the financial and administrative management performance benchmarks.

  17. Higher Education Restructuring ActFinancial and Administrative Standards • COV Section 23-9.6:1.01- Paragraph C (cont’d.) • No later than June 1, the State Council shall provide a certified written report of the results of such annual assessment • Those institutions certified by the State Council as having met the financial and administrative management and educational-related performance benchmarks shall be entitled to the financial benefits set forth in Section 2.2-5005

  18. Higher Education Restructuring ActFinancial and Administrative Standards • 2006 Appropriation Act Section 4-9.02 - … the following education-related and financial and administrative management measures shall be the basis on which SCHEV shall annually assess and certify institutional performance. Institutional performance measures set forth in par. K shall be evaluated year-to-date by the Secretaries of Finance and Administration, as appropriate, and communicated to SCHEV before 6/1 of each year.

  19. So Who is Responsible for Evaluating the Institutions? • SCHEV • Secretary of Finance • Secretary of Administration • Auditor of Public Accounts • All of the above

  20. Financial Management Standards • Unqualified opinion from the APA • No significant audit deficiencies • Substantial attainment of A/R standards approved by the State Comptroller • Substantial attainment of A/P standards approved by the State Comptroller • Substantial compliance with all financial reporting standards approved by the State Comptroller

  21. Audit Deficiencies • No significant audit deficiencies – What does that mean? • New AICPA and Yellow Book Definitions • Material weaknesses • Significant deficiencies

  22. AICPA Standards, SAS No. 112, Communication of Internal Control Matters • New definitions • New thresholds • New reporting timeframes

  23. Definition • Control Deficiency – Exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. • Design – control is missing or existing control is not properly designed • Operation – properly designed control does not operate as designed or person does not have necessary authority or qualifications to perform the control effectively

  24. SAS 112 Definitions A control deficiency with more than a remote likelihood that a misstatement: • Is greater than inconsequential = significant deficiency • Is material = material weakness

  25. SAS No. 112Reporting Considerations • In writing to management and “those charged with governance” • Not later than 60 days after audit report issued • Other issues - material audit adjustments, prior year uncorrected, shock and horror to our auditees

  26. Significant Deficiencies • Insufficient controls over, or expertise in, selecting and applying accounting principles in conformity with GAAP • Insufficient antifraud programs & controls • Inadequate controls over non-routine and non-systematic transactions • Inadequate controls over the period-end financial reporting process

  27. Significant Deficiencies, Likely Material Weaknesses Strong indicators of a material weakness in internal controls: • Ineffective internal control over financial reporting. • Restatement of previously issued financial statements. • Audit adjustments to current financial statements. • Ineffective internal audit function.

  28. Significant Deficiencies, Likely Material Weaknesses • Ineffective regulatory compliance function. • Identification of fraud by senior management. • Failure by management to correct a previous significant deficiency. • An ineffective control environment with various control deficiencies.

  29. Effect of the New Definitions

  30. What is the Impact of SAS 112 on Financial Management Standards? • Does significant audit deficiencies = AICPA significant deficiencies? • NO! • Does significant audit deficiencies = AICPA material weaknesses? • Probably!But not absolutely 100%! • Decision is up to APA’s judgment

  31. QUESTIONS?

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