Lawrence Berkeley National Laboratory
Observations From Agreed Upon Procedures
June 30, 2010
Table of Contents
Page
Your Needs and Expectations
3
Background
4
Risk Assessment
5
Audit Strategy
6-7
Details of Work Performed
8 - 25
This document is intended for use by the Regents’ Committee on Compliance and Audit and the management of the University of California and
has been completed in the context of our audit of the University of California taken as a whole. The matters raised in this report are only those
which have come to our attention that we believe need to be brought to you. They are not a complete listing of every potential matter arising from
our procedures and we cannot be responsible for reporting all risks in your business or internal control weaknesses. This report should not be
quoted in whole or in part without our prior written consent. No responsibility for any third party is accepted as the report has not been prepared
for, nor is intended for, any other purpose.
2
Your Needs and Expectations
Based on our discussions with the Regents’ Committee on Compliance and Audit (the Committee) and with input
from the management of the University of California (UC), we have set forth these needs and expectations for the
audit of the Lawrence Berkeley National Laboratory (Lab) and our actions to address them.
Needs/Expectations
PwC Actions
Provide the Committee and UC management
with an assessment of the Lab’s financial
accounting and reporting processes. Prior to
issuance to UC management and the
Committee, results of the assessment are to be
provided to the Lab’s finance management.
On this engagement we completed analytics,
internal controls review and substantive audit
testing and ensured that a consistent level of
quality and rigor was applied.
Develop management recommendations with
departmental responses for submission to the
Committee.
Any recommendations for internal control
improvements are communicated to the Lab’s
finance management via this report of
management recommendations and comments.
Keep management apprised of audit results and
issues on a timely basis.
We provided ongoing communication with
management.
Provide communication of our expectations to
Lab personnel and UC management.
We prepared a detailed listing of items required
to be provided (PBC list). We monitored the
listing and notified management of any issues
that arose.
Since certain financial data of the Lab is either restricted or established by DOE, and since our procedures were limited to
the period ended June 30, 2010, we did not perform a complete audit of the Lab on a stand-alone basis. Had we
conducted such an audit, additional matters may have arisen to report to you.
3
Background
This year, we conducted certain procedures at the Lawrence Berkeley National Laboratory. While
this report may raise control and documentation issues, these should be viewed as
recommendations for continuous improvement in the control environment.
Professional auditing standards require that we communicate to the Committee any significant
deficiencies or material weaknesses identified during our audit as evaluated based upon the
University's consolidated financial statements. Because this evaluation is made in relation to the
consolidated financial statements, the Lab-specific observations and recommendations
addressed in this report are not classified as significant deficiencies or material weaknesses for
purposes of this communication. However, it is important to note that while a control deficiency
identified at the Lab may not rise to the level of a significant deficiency or material weakness at
the consolidated University level for purposes of the 2010 agreed upon procedures, if that
deficiency recurs in subsequent years, it has the potential to rise to a significant deficiency or
material weakness at the consolidated level, as a result of being unaddressed by your individual
location. In this circumstance, the matter would need to be formally communicated to the
Committee at that time.
4
Risk Assessment
Our audit approach at the University of California is risk-based. In connection with the performance of the audit, we
performed certain procedures, as detailed herein, to provide the Committee and UC management with additional
information on the Lab’s financial accounting and reporting processes and to identify areas for improvement.
Assessment and identification of risks are performed continuously throughout the process. We focus on the risks that
have a potential impact on financial reporting and the controls that mitigate those risks. The table below outlines our risk
assessments and our responses to them.
Risk Assessment
PwC Actions
Preliminarily assess the significant balance sheet accounts
to identify significant variances and unusual items within the
accounts as of June 30, 2010.
By performing various tests, as well as interviewing Lab
management, we assessed and documented our
understanding of the Lab’s control environment and utilized
that assessment as a preliminary basis for our procedures.
Obtain an understanding of the overall control environment,
including an understanding of the key accounting cycles.
The key accounting cycles addressed as part of this control
risk assessment are:
We met with Lab management to obtain an overall
understanding of the Lab’s control environment. We
documented the process and control procedures as they
relate to each of the four accounting cycles. In addition, we
performed a review of monitoring controls for each of the
accounting cycles.
Treasury
Purchasing and payables
Payroll
Revenue and receivables
Our assessment was complemented by substantive testing
of the above areas.
Address financial statement assertions (completeness,
accuracy, validity, existence) of the significant financial
statement accounts.
We performed certain substantive detail testing of
significant balance sheet and expense accounts. A
summary of the details and the results of the work
performed are documented herein.
Fraud review procedures and internal audit reports review.
We obtained and reviewed all internal audit reports issued
in fiscal 2010. In addition, we inquired with Lab
management and internal audit of their awareness of any
known instances of fraud.
5
Audit Strategy
Audit Strategy
Audit Procedures
Cash
Assess and test monitoring controls
Confirm bank account balances with Wells Fargo Bank
Perform analytical review
Perform testing of bank account reconciliations
Accounts receivable
Assess and test monitoring controls
Perform analytical review
Review accounts receivable reconciliations
Perform subsequent receipts testing
Evaluate the allowance for doubtful accounts
Prepaid expenses
Perform analytical review
Intercompany
Reconcile intercompany balances to UC trial balance
Inventory
Review inventory reconciliations
Perform analytical review
Review policies for valuation and accounting of inventory
Fixed assets
Review related accounting policies
Review account reconciliations
Perform analytical review
Perform substantive testing over significant additions
Accounts payable, accrued liabilities and funds held for
others
Assess and test monitoring controls
Review account reconciliations
Perform search for unrecorded liabilities
Perform analytical review
Perform substantive testing
6
Audit Strategy (continued)
Audit Strategy
Audit Procedure
Pension and post-retirement medical liabilities
Perform analytical review
Agree balances to actuarial report
Deferred revenue
Assess and test monitoring controls
Obtain understanding of revenue recognition policies
Review account reconciliations
Perform analytical review
Perform substantive testing
Commitments and other contingencies
Discuss any commitments/contingencies with
management
Consider results of other audit tests for additional
commitments/contingencies
Net assets
Perform analytical review
Payroll
Assess and test monitoring controls
Perform substantive testing
Perform analytical review
Agree balances to UC Membership & Annuitant Systems
Internal Audit
Review internal audit reports
Perform substantive testing by reperforming a sample of
internal audit cost allowability testing during the year
7
Cash
•
•
Assessed and tested monitoring controls over the treasury cycle
o
Obtained an updated overview of the controls over the treasury cycle.
o
Assessed and tested monitoring controls over the treasury cycle for the following accounts:

Vendor account

Payroll account

Concentration account

Non-DOE accounts
o
Selected a sample of four monthly bank reconciliations for each of the vendor, payroll, and concentration
accounts and ensured that reconciliations were being performed timely on a regular basis and ensured
appropriate, timely review by an individual other than the preparer.
o
For each of the five non-DOE accounts, selected a sample of four non-DOE account reconciliations and
ensured that they were being performed timely on a regular basis and ensured appropriate review.
Examined and reviewed bank reconciliations at June 30, 2010 for all Lab accounts, and ensured they agreed to the
respective bank account statements. We selected for testing all individual reconciling items over a certain threshold
for these agreed upon procedures.
8
Cash (continued)
•
Confirmed all bank account balances with Wells Fargo Bank
o
•
•
•
Performed completeness check and verified that all bank accounts (DOE and non-DOE) are listed in the
confirmations.
Performed analytical reviews
o
Obtained an understanding and documented the composition and description of the accounts.
o
Obtained explanations of significant and material variances.
Performed detailed substantive testing of bank reconciliations
o
Tested all transfers between Lab account balances near the year-end date of June 30, 2010.
o
Considered all deposits received but not recorded before the year-end date of June 30, 2010.
No exceptions noted from our procedures over the cash accounts.
9
Accounts Receivable
•
Assessed and tested monitoring controls over the revenue and receivables cycle
o
Obtained an updated overview of controls over the revenue and receivables cycle.
o
Selected 4 monthly Account Receivable reconciliations and reviewed for timeliness of completion and
review.
o
Selected 4 monthly Accounts Receivable aging reports and reviewed for timeliness of completion and
review.
o
Selected 4 Requests for Reimbursable Work Refunds and reviewed for proper submission to the DOE.
o
Selected 25 Requests for Issuance of Check and reviewed for evidence of authorized review and approval
by Requestor and FSD Approver.
10
Accounts Receivable (continued)
•
•
•
Performed analytical reviews
o
Obtained an understanding of the composition and description of the accounts.
o
Obtained explanations of significant and material variances.
Reviewed accounts receivable reconciliations
o
Reviewed June 30, 2010 Accounts Receivable Aging Detail, which was reconciled to the general ledger balance at
that date.
o
Tested reconciling items to supporting documentation, as applicable.
Performed subsequent receipts testing
o
Obtained the Outstanding Receivable as Billing / Payment Report.
o
Selected a sample of 22 Accounts Receivable customer balances as of June 30, 2010 and vouched subsequent
cash receipt to ensure validity of the Accounts Receivables and proper account classification.
•
Evaluated the allowance for doubtful accounts for reasonableness.
•
No exceptions noted from our procedures over the accounts receivable accounts.
11
Prepaids
•
•
Performed analytical reviews
o
Obtained an understanding and documented the composition and description of the accounts.
o
Obtained explanations of significant and material variances.
o
Noted at prior year-end, prepaids included the fair value of Pension Plan assets in excess of the projected
benefit obligations for contractor defined benefit pension plans. However, as of June 30, 2010, the plan's
projected benefit obligations were in excess of the plan assets. As such, the June 30, 2010 prepaid
balance is zero and the liability is recorded in GL liability account 3991. See “Pension and PostRetirement” section for procedures performed as balance is no longer a prepaid expense.
No exceptions noted during our procedures over the prepaid expense accounts.
12
Intercompany
•
•
Perform review of intercompany balances reconciliations
o
Obtained Intercompany Receivables and Liability balances.
o
Agreed balances to related Financial Journal obtained from UC audit team and reviewed that balances were
properly recorded as Accounts Receivable and Accounts Payable in the UC books.
No exceptions noted during our procedures over the intercompany accounts.
13
Inventory
•
•
•
•
Reviewed inventory reconciliation
o
Reviewed inventory reconciliation totaling $345K, or 71%, of the inventory balance as of June 30, 2010.
o
We noted no material reconciling items for testing.
Performed analytical reviews
o
Obtained an understanding and documented the composition and description of the accounts.
o
Obtained explanations of significant and material variances.
Reviewed policies for valuation and accounting of inventory
o
Reviewed financial policies and procedures for accounting for excess inventory.
o
Reviewed financial policies and procedures for allowance for loss on stores inventory.
No exceptions noted from our procedures over inventory accounts.
14
Fixed Assets
•
Reviewed fixed asset accounting policies
o
•
•
•
•
Reviewed policies and procedures for accounting for fixed assets capitalization and depreciable lives.
Reviewed account reconciliations
o
Reviewed account reconciliations for fixed assets as of June 30, 2010.
o
Tested reconciling items to supporting documentation, as applicable.
Performed analytical reviews
o
Obtained an understanding and documented the composition and description of the accounts.
o
Obtained explanations of significant and material variances.
Tested additions and disposals
o
Selected and substantively tested $30 million of fixed asset and construction work in progress additions.
o
Performed a scanning analytic of asset additions in order to review for proper capitalization.
o
Noted no significant disposals.
No exceptions noted from our procedures over the fixed asset accounts.
15
Accounts Payable, Accrued Liabilities and Funds
Held for Others
•
•
Assessed and tested monitoring controls over the purchasing and payables cycle
o
Obtained an updated overview of controls over the purchasing and payables cycle.
o
Performed testing over the cost allowability of expenses for review and authorization.
o
Obtained Self-Assessment Mid-Year Report and reviewed for completeness.
o
Selected 4 monthly Accounts Payable aging reports and reviewed for timeliness of completion and review.
o
Obtained invoice certifications.
o
Selected a sample of 25 Requests for Issuance of Check and reviewed for proper review and authorization.
o
Selected a sample of 4 Accounts Payable reconciliations and reviewed for timeliness of completion and
review.
Assessed and tested monitoring controls over the treasury cycle
o
Obtained an updated overview of controls over the treasury cycle.
o
Assessed and tested monitoring controls over the treasury cycle for the following accounts:
o

Vendor account

Payroll account

Concentration account

Non-DOE accounts
Selected a sample of four monthly bank reconciliations for each of the vendor, payroll, and concentration
accounts and ensured that reconciliations were being performed timely on a regular basis and ensured
appropriate, timely review by an individual other than the preparer.
16
Accounts Payable, Accrued Liabilities and Funds
Held for Others (continued)
•
•
•
Reviewed account reconciliations
o
Reviewed the AP detail to general ledger reconciliation at June 30, 2010.
o
Reviewed Accruals, Provisions and Other Liabilities account reconciliations, including the environmental
reserve accrual and the vacation accrual.
o
Tested reconciling items to supporting documentation, as applicable.
Performed search for unrecorded liabilities
o
Obtained disbursement listings.
o
Selected 14 major expenditures paid from July 1, 2010 to August 7, 2010.
o
Verified validity and accuracy by reviewing to determine whether items had been properly included in or
excluded from the liability accounts at year-end.
Performed analytical reviews
o
Obtained a thorough understanding and documented the composition and description of significant accounts.
o
Obtained explanations of significant and material variances.
17
Accounts Payable, Accrued Liabilities and Funds
Held for Others (continued)
•
•
Reviewed letter of credit reconciliations
o
Obtained Letter of Credit Reconciliations for Concentration Account, Vendor Account and Payroll Account.
o
Agreed the adjusted bank balances to the book balances.
o
Reviewed significant reconciling items.
o
Tested transfers between Lab accounts.
Performed detailed testing
o
Obtained detailed listing of monthly vacation accruals.
o
Non-statistically selected 35 items and tested for mathematical accuracy and verified balances to
supporting documentation.
18
Accounts Payable, Accrued Liabilities and Funds
Held for Others (continued)
Observations:
During our testing of controls, we noted one check in the sample of disbursements selected that was signed by only
one authorized signer, and not two as required by the controls process. This was considered an exception in the
testing. We noted that the transaction was processed for the proper invoiced amount and received proper manager
approval. Additionally, as a separate person signed the check from the person who authorized it, a segregation of
duties in the payment process was still upheld. As the transaction was processed for the correct amount, received
manager approval, and segregation of duties was maintained, this exception it is not considered to increase the risk
related to the accounts payable process.
Recommendation:
We suggest that the Lab ensure practices relating to the signing of checks for disbursement are followed in all
situations.
Management Response:
Management concurs that this check should have been signed by two persons with the proper authority.
Management also agrees that this does not affect the risk of material misstatement related to the purchasing and
payables process, but they agree to devote attention to ensuring their controls procedures are followed.
19
Pension and Post-Retirement
•
•
•
Performed analytical reviews
o
Obtained an understanding and documented the composition and description of the accounts.
o
Obtained explanations of significant and material variances.
Reviewed pension and post-retirement accounts
o
Reviewed pension and postretirement benefits account reconciliations and agreed balances to DOE
actuarial Disclosure Statements.
o
Tested reconciling items to supporting documentation, as applicable.
o
Noted the fair value of the pension plan assets is less than the projected benefit obligation and the
difference is properly included as a liability on the Lab’s financial records.
No exceptions noted from our procedures over the pension and post-retirement account balances.
20
Deferred Revenue
•
Assessed and tested monitoring controls
o
Reviewed the general ledger account reconciliations for significant account balances as of June 30, 2010.
o
Obtained an updated overview of the revenue cycle.
•
Obtained an understanding of revenue recognition policies.
•
Reviewed account reconciliations
o
•
•
Performed analytical reviews
o
Obtained an understanding and documented the composition and description of significant accounts.
o
Obtained explanations of significant and material variances.
Performed substantive testing
o
•
Reviewed the general ledger account reconciliations as of June 30, 2010.
Selected a sample of three advance payments in the deferred revenue balance and agreed the details to
check copies and contracts, as applicable.
No exceptions noted from our procedures over the deferred revenue accounts.
21
Net Assets
•
•
Performed analytical reviews
o
Obtained a thorough understanding and documented the composition and description of the accounts.
o
Obtained explanations of significant and material variances.
No exceptions noted from our procedures over the net asset accounts.
22
Payroll
•
Assessed and tested monitoring controls
o
Updated our understanding of the payroll cycle.
o
Tested monitoring controls over the payroll cycle.
−
Selected a sample of 4 PeopleSoft Monthly Paid vs. Effort Reports and reviewed to ensure follow-up
documentation is noted for all employees on the report.
−
Selected and obtained 25 payroll tax reconciliations and reviewed for evidence of timely preparation
and proper review.
−
Selected a sample of 30 ACH electronic payments for approval.
−
Selected a sample of 5 ACH wire payments transmitted by automatic pick-up by Wells Fargo Bank
and reviewed for two required on-line approvals.
−
Selected a sample of 25 vendor check requests and reviewed for supervisory signatures and
authorization.
−
Selected a sample of 45 employee timesheets and reviewed for evidence of supervisory approval.
23
Payroll (continued)
•
Performed substantive testing of payroll costs
o
•
•
Performed analytical review over payroll deductions
o
Obtained an understanding and documented the composition and description of the accounts.
o
Obtained explanations of significant or unusual balances.
Agreed PeopleSoft payroll balances to UC Retirement System balances
o
•
Selected a sample of fourteen employees’ payroll from various points throughout the fiscal year and agreed
the payroll checks to human resource records to verify the validity and accuracy of payroll costs.
As part of detailed testing, agreed payroll and deduction balances to UCRS balances.
No exceptions noted from our procedures over the payroll accounts.
24
Review of Internal Audit Results
•
Review of Internal Audit Reports
o
•
Obtained all internal audit reports issued during the year. We reviewed those reports to determine whether
any issues noted relate to financial statement assertions or the allowability of costs under the DOE contract.
Review of Internal Audit Cost Allowability Testing
o
Reviewed Internal Audit testing of cost allowability during fiscal year 2009. We selected 55 transactions
that were tested by Internal Audit across the five categories of costs tested. We reviewed the supporting
documentation for the costs to ensure that our conclusions on the allowability of the related costs, and the
conclusions of Internal Audit, were consistent. We noted no exceptions through this testing.
25
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