Audit Risks / Trends For Colleges
And Universities
June 2, 2015
Mike Stanley, C.P.A.
Source – College Board
Source – College Board
Source – College Board
Current Trends in Colleges and Universities
1. Funding: More institutional self-sufficiency and
competition
• Colleges and universities have to become more financially sustainable
• Budget cuts abound
• Some increase the recruitment focus on O-O-S or international students who pay higher,
out-of-state tuition and fees
• Deferred Maintenance has become a major funding need
• Adaptability to do more with less will be the hallmark of success for higher education
institutions
Current Trends in Colleges and Universities
2. Regulations
• Consequence of the global financial crisis has been the toughening of the regulatory
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environment for higher ed institutions
An increasing focus on managing risk and assuring quality and demands for accountability
Governance is challenged as there is a demand for greater efficiency (having to do more
with less)
Rising student debt levels and default rates continue to increase
Increasing demand from stakeholders (especially public universities) to justify the costs and
benefits of higher education
Current Trends in Colleges and Universities
3. Increasing use of Technology to provide an Education
• Technology now offers many credible academic pathways
• Maturation of Massive Open Online Courses (MOOCS)
• At the beginning of 2012, MOOCS were virtually unknown but today they have compelled
many leading universities worldwide to voluntarily or involuntarily integrate them in their
strategies
• In 2016 and in the future MOOCS will mature from irrational exuberance to a more viable
and credible alternative for earning academic credit
• The unique mixture of content delivery, technology, quality, and cost transform educational
expectations to form “glocal students” and bring into question the sustainability of brick and
mortar/infrastructure-heavy branch campuses
Current Trends in Colleges and Universities
3. Increasing use of Technology to provide an Education
(cont.)
• Advances in Technology, and competition for students will drive a significant increase in
distance learning
• Blended courses of 2-3 years where the majority is done via distance learning and online
access followed by one year on-campus will also become common
• Costs and fees will have to become more flexible and varied to accommodate the different
course and student requirements
• The college experience is slowly shifting off campus and into the internet as students seek
out multiple sources for their educational experience
Current Trends in Colleges and Universities
4. Earning Credit for what you know:
• The Obama administration, state governments, and foundation funders are all pressuring
college to shrink the time it takes for students to graduate. Two strategies:
1) Advance students based on mastery of the subject (Competence Based Learning)
2) Give students credit for related work and life experiences (Prior Learning Assessment)
• Starbucks and the City University of Seattle have developed a partnership that allow
employees to earn college credit for workplace training
• Some may argue that the School of Life and of hard knocks is going to become an
accredited, degree granting institution
Current Trends in Colleges and Universities
5. Career and Technical Education (CTE)
• After years of being pushed aside to free time for academics, career-focused learning is
back
• High schools, community colleges, and companies are bonding together to help increase
the opportunities students have to gain technical skills – often spurred by new state laws,
like those in Texas and Georgia, These put a bigger emphasis on career and technical
education
• Old school term = Vocational schools – these are back in vogue
Current Trends in Colleges and Universities
6. Student Loan Outrage
• Recent data shows that seventy-one percent of students carry some type of student-loan
debt
• A recent Harvard Institute of politics poll found that forty-two percent of students blame
colleges and universities for rising college prices
• The total student-debt burden now exceeds $1 trillion
• Main cause – state and federal funding for higher education and financial aid has dropped
radically since the 1980’s, and today’s college students are less well off than they used to
be
Current Trends in Colleges and Universities
7. Data-Privacy Concerns
• We have recently witnessed the beginnings of a backlash over the collection and storage of
student data, including grades, contact information, disciplinary records, etc.
• Be cognizant of data storage companies such as inBloom and their use of or lack of privacy
protections
Current Trends in Colleges and Universities
8. Other Current Thoughts:
• Focus on Measuring Institutional Effectiveness as colleges and universities continue to
face increased pressure to justify costs through college ranking systems (what cannot be
measured cannot be managed)
• Institutions should start investigating ways to define and track student outcomes which
could relate to future federal funding
• Expect to hear more about innovative higher education models. We mentioned
competency-based education and prior learning assessments. Prepare for others including
the continued expansion, analysis, and refinery of online education
Types of Risk in Higher Education
1. Financial Risks
• Accounting and Auditing Matters
• Falsification of Contracts, Reports, or Records
• Fraud
• Improper Giving or Receiving of Gifts
• Improper Suppliers or Contract Activity
• Misuse of Donor Funds
• Theft or Embezzlement
• Waste, Abuse, or Misuse of Institutional Resources
Types of Risk in Higher Education
2. Research Risks
• Conflict of Interest
• Data Privacy
• Environmental and Safety Matters
• Falsification of Contracts, Reports, or Rewards
• Fraud
• Intellectual Property Infringement, Misappropriation or Disclosure
• Human or Animal Research
• Research Grant Misconduct or Misappropriation of Costs
• Scientific Misconduct
• Theft or Embezzlement
• Waste, Abuse, or Misuse of Institutional Resources
Types of Risk in Higher Education
3. Human Resource Risks
• Discrimination or Harassment
• EEOC or ADA Matters
• Employee Misconduct
• Offensive or Inappropriate Communication
• Sexual Harassment
• Threat or Inappropriate Supervisor Directive
• Unsafe working conditions
• Violence or threat
Types of Risk in Higher Education
4. Athletics Risk
• Fraudulent Activities
• Improper Giving or Gifts
• Inappropriate Activities
• Misuse of Assets, Players, or Endorsements
• Recruiting Misconduct
• Scholarship/Financial Aid Misconduct
• Sexual Misconduct
• Substance Abuse
Types of Risk in Higher Education
5. Safety Related Risks
• Confidentiality
• Data Privacy – includes disclosure of Confidential Information
• Environmental and Safety Matters
• Sabotage or Vandalism
• Unsafe working conditions
• Waste, Abuse, or Misuse of Institutional Resources
Audit Risk and Trends and Guidance
Sarbanes-Oxley Act of 2002 (SOX): Institutions of higher education are not required to comply with SOX;
however, SOX requirements for audit committees can be a basis for best practices. The National Association
of College and University Business Officers (NACUBO) along with PricewaterhouseCoopers reviewed the
SOX requirements and identified sections of the Act that could represent best practices in higher education.
This guidance includes:
• The institution should have an audit committee or incorporate audit in an existing committee, such as Finance and Audit Committee.
• The audit committee should have a charter and the necessary authority to carry out its duties.
• Institutions with internal audit departments should consider using them to periodically report on internal controls to the audit
committee in addition to reporting to management.
• The audit committee should ensure a process exists for receiving confidential complaints and reviewing the nature and disposition
of reported matters.
• The audit committee should consider periodic inquiries of executives on the adequacy of financial controls.
• The audit committee should review the code of ethics for senior financial officers and periodically review how compliance is
assured.
Risk Appetite and Risk Tolerance
Risk Assessment Matrix
Source – Institute of Internal Auditors
Controls, Compliance and Risk
Risk Appetite and Risk Tolerance
There is a growing trend among Higher Ed Institutions to enhance risk management
through better controls over the many systems, process and procedures in place, and
to promote the importance of accountability among all of the institutions employees.
Improved governance and strong internal controls benefit the organization.
Place emphasis on compliance, and the recruiting, retention, and training of staff.
Develop plans to remediate gaps. DON’T INGNORE THE RISKS. Be proactive in
addressing and developing procedures and process to deal with these “elephants in
the room”.
Controls, Compliance and Risk
Be aware of gaps in internal control effectiveness:
Control effectiveness has two components: design effectiveness and operational
effectiveness. Design effectiveness refers to whether controls are properly designed to achieve
control objectives if they operate as defined; Operating Effectiveness refers to whether controls
consistently operate as designed. Let’s addresses the design effectiveness of controls.
At this point, processes have been documented, control objectives have been defined and
control activities have been described. The primary goal of this function is to identify the controls
that most effectively and efficiently achieve the control objectives – i.e., the “Key Controls”.
Having too many controls will result in excessive documentation, testing, analysis and
assessment efforts, and potentially inefficient business processes. Having too few controls will
result in “design gaps”, or inadequate Control Activities to achieve Control Objectives.
Determine whether each Control Objective is addressed by an adequate group of Control
Activities and whether there may be redundant Control Activities.
Controls, Compliance and Risk
The most significant challenges internal auditors said they face in auditing including compliance:
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Documentation issues;
Communication issues;
Lack of definitive standards;
Size or geographic reach of the organization;
Lack of guidance from external auditors (tied with) controls identification and testing;
Align controls with organizational strategies:
• Improve techniques for maintaining current process documentation, risk and control linkages,
and testing amid global and domestic changes
• Organize, streamline, and boost efficiency of internal control programs
• Improve corporate risk and compliance monitoring through software solutions
• Identify and remedy operational design and operating deficiencies
• Transition from internal control over financial reporting (ICOFR) to operational risk emphasis
Current Trends in Colleges and Universities
QUESTIONS/COMMENTS?