University of
Missouri System
University of Missouri – Kansas City
Bloch School of Management
April 2015
cc:
Brian Burnett, Vice President for Finance and Chief Financial Officer, UM System
Leo Morton, Chancellor, UMKC
Sharon Lindenbaum, Vice Chancellor, Finance and Administration, UMKC
Carol Hintz, Vice Chancellor, Human Resources, UMKC
Bob Crutsinger, Director, Accounting Services, UMKC
Mary Morgan, Manager III, Business Administration, Bloch School of Management, UMKC
Table of Contents
AUDIT REPORT .............................................................................................................................................2
EXECUTIVE SUMMARY .................................................................................................................................3
OBSERVATIONS, RECOMMENDATIONS AND MANAGEMENT RESPONSES

Develop an action plan to improve the current financial state of the School. (H) .............................6

Strengthen internal controls over expenditures and review historical transactions for
appropriateness. (H) ..............................................................................................................................7

Improve communication and alignment of key stakeholders within the School. (M) .......................9

Improve compliance with University and department procurement policies and travel and
expense guidelines. (M) ........................................................................................................................11

Improve monitoring of international expenditures. (M)................................................................... 13

Evaluate tax implications of compensation for teaching courses within Executive Education.
(L).......................................................................................................................................................... 14

Ensure proper segregation of duties during the cash receipts process. (L)...................................... 15
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Confidential information for the sole benefit and use of the University of Missouri.
Report
To:
David Donnelly, Dean, Bloch School of Management, UMKC
Ryan Rapp, Controller, UM System
We have completed certain internal audit procedures related to the Bloch School of Management at
the University of Missouri – Kansas City. Our Services were performed and this report was developed
in accordance with the March 31, 2014 addendum to the engagement letter dated November 25, 2013
and is subject to the terms and conditions included therein. Our work was performed through
interview, observation and limited testing of selected controls.
Our Services were performed in accordance with Standards for Consulting Services established by the
American Institute of Certified Public Accountants. Accordingly, we are providing no opinion,
attestation or other form of assurance with respect to our work and we did not verify or audit any
information provided to us. Our work was limited to the specific procedures and analysis described
herein and was based only on the information made available through December 19, 2014.
Accordingly, changes in circumstances after this date could affect the findings outlined in this report.
This information has been prepared solely for the use and benefit of, and pursuant to a client
relationship exclusively with, the University of Missouri. PwC disclaims any contractual or other
responsibility to others based on its use and, accordingly, this information may not be relied upon by
anyone other than the University of Missouri.
Very truly yours,
St. Louis, Missouri
April 1, 2015
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Executive Summary
Background
The Fiscal Year 2014 Internal Audit Plan was amended to include an assessment of the Henry W.
Bloch School of Management (“Bloch School” or “School”) at the University of Missouri - Kansas City
(“UMKC”). The purpose of the audit was to analyze the effectiveness and efficiency of the School’s
operations and to assess compliance with University and School policies and procedures.
The Bloch School’s mission is to develop purposeful, entrepreneurial and innovative leaders to meet
changing global demands, and advance knowledge and practice through excellent teaching,
scholarship, outreach, and service. The School is comprised of six academic departments, including
Accountancy, Finance, Management, Marketing, Public Administration, and Global Entrepreneurship
and Innovation. The School offers several degree programs, including Bachelor of Business
Administration, Bachelor of Science in Accounting, Master of Business Administration, Executive
Master of Business Administration, Master of Public Administration, Executive Master of Public
Administration, Master of Science in Accounting, Master of Science in Finance and Master of
Entrepreneurial Real Estate, Doctor of Entrepreneurship and Innovation, and Doctor of Public Affairs
and Administration.
The School advances student learning through five strategic centers and institutes: The Cookingham
Institute of Urban Affairs, The Executive Education Center, The Regnier Institute for
Entrepreneurship and Innovation (“IEI” or “Institute”), The Lewis White Real Estate Center, and The
Midwest Center for Nonprofit Leadership. IEI is a nationally ranked program and leader in
innovation, connecting students with a comprehensive combination of world-class research,
renowned faculty, cutting-edge curriculum, and experiential programs driven to deliver results. The
Institute’s mission is to inspire and nurture entrepreneurs and innovators through transformational
education and research.
The School’s enrollment has increased 21% in the past five years. As of Fall 2013, the School consisted
of approximately 60 faculty who served approximately 1,800 students. The School has had an
operational deficit for several years. Revenues from anticipated enrollment growth were to cover
some of the increased compensation expenses for new faculty. However, faculty compensation
expenses have grown faster than allocated enrollment revenues. As of June 30, 2014, the cumulative
operational deficit (operating fund) was approximately $10.6 million. Revenues for Fiscal Year 2014
totaled approximately $19.4 million, which was comprised of $10.7 million in operations, $1.8 million
in continuing education, and the remaining $6.9 million in gifts, grants and endowments
(all funds).
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Objectives, Scope and Approach
Our procedures focused on assessing the financial internal controls and related business processes in
the School. We also assessed compliance with selected University and School policies and procedures.
Internal Audit (“IA”) utilized a risk-based approach to accomplish the project objectives within the
defined scope. Through inquiry of management and performance of selected testing procedures, IA
accomplished the following objectives:
Scope Areas
o
o
Summary Results
Financial and Operational Areas
 Understand and analyze processes and internal
controls utilized by the Bloch School and each of its
departments in the following areas:
 Monitoring of financial activity,
 Procurement and expenditures, including
travel expenditures,
 Payroll, including additional pay,
 Revenue, cash receipts, receivables and
transfers,
 Restricted gift funds,
 Sponsored research funds and time
commitments/reporting, and
 Records management.
Other
 Provide recommendations to be considered by
management for process improvements and/or
changes to policies/procedures.


See observation 1 and 2.
See observation 4.


See observation 6.
See observation 7.


No items noted.
No items noted.

No items noted.

See observations 3 and 5.
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Key Observations
1.
2.
3.
4.
5.
Description
Risk
The School has had an operational deficit throughout the entire scope period of the
audit. The School, along with campus leadership have made historical decisions to
invest in and build the School’s national and global brand. These decisions have
contributed to the increase in School expenditures and the resulting deficit.
Developing a formalized and defined action plan that balances growth, strategic
investments and fiscal responsibility, the School can implement measures to
decrease expenditures or increase revenues to improve their ending balance.
High
Recent improvements have been made in the School’s expenditure review and
approval processes. However, the historical internal controls environment
presented opportunity for inappropriate or unauthorized expenses to be incurred as
an important control to review and approve expenditures was overridden by
management.
High
Greater transparency is needed throughout Bloch relating to financial decisions,
strategic investments, allocations and overall strategy. While some improvements
have been made recently including enhanced communication and analysis in these
areas, key stakeholders, including chairs of departments, within the School
indicated a lack of alignment with regards to the strategic direction of the School.
Medium
Compliance with University and department procurement policies and travel and
expense (“T&E”) guidelines should be improved. Instances were identified where
purchases did not adhere to purchasing card usage policies, preferred method of
payment guidelines, and T&E guidelines. By enforcing compliance with University
and department policies and guidelines, the risk of unauthorized purchases is
reduced and cost savings can be realized.
Medium
Several School faculty and staff regularly travel abroad for School operations. The
School also contracts with an external consultant to recruit students and develop
relationships in Asia. The controls in place to review international related
expenditures should be enhanced through greater consideration of any applicable
laws and regulations.
Medium
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Observations, Recommendations, and Management Responses
The management responses and any expected action dates have been reviewed by University of
Missouri System management to ensure they sufficiently address the issue(s) noted. Internal Audit
has not performed additional procedures to test items management has indicated as complete as of
the report date. At the request of University of Missouri System management, we have assigned
ratings to the various observations and recommendations in our report. The ratings are based on the
risk and potential impact on business operations each particular item presents if not addressed by
management. These ratings are “H” for high risk and impact, “M” for medium, and “L” for low.
Observation 1: Develop an action plan to improve the current financial state of the School. (H)
Recommendations to
Management
Description
The School has had an operational deficit throughout the entire
scope period of the audit. At the end of Fiscal Year 2014 the
operational deficit totaled $10,594,594, up from $1,510,343 in 2009.
The School, along with campus leadership has made historical
decisions to invest in and build the Bloch School of Management’s
national and global brand. These decisions are a primary factor in
the increase in School expenditures and resulting deficit.
Bloch management indicates expenditure decisions were made with
regard to the longer-term stature of the School, including adding
higher salaried professors. Under the budget model, which allows
academic units to keep their net tuition (based in part on historical
enrollment), revenues from anticipated enrollment growth were to
cover some of the increased compensation expenses for new faculty.
However, faculty compensation expenses have grown faster than
allocated enrollment revenues. In addition, the budget model
requires academic units to cover their support costs which have
increased due to the growth the School has experienced.
This deficit is in the operational fund and does not reflect gifts or
endowments or other funds.
By developing a formalized and defined action plan that balances
growth, strategic investments and fiscal responsibility, the School
can implement measures to decrease expenditures or increase
revenues to improve their ending balance.
Bloch leadership and campus
central administration should
continue their efforts to evaluate
the School’s financial activities
and establish a plan to resolve
the operational deficit. This plan
should include multiple methods
of improving the financial
health, including analysis of
existing and new revenue
streams as well as plans to better
manage and reduce expenditures
in all areas of the School.
Management should also
consider budgeting revenues and
expenditures at a more granular
level to allow for better
monitoring of actual activity to
budgeted balances.
Along with campus central
administration, Management
should perform ongoing review
of the business plan to verify
progress is being made and
determine if any updates are
necessary.
Management Response: Prior to the commencement of the audit, the Bloch School management was
already focused on plans to improve performance. That work has started and will continue until the
financial situation is resolved. Working with the central administration, a plan will be developed that
reviews revenues and expenses with a focus on growing revenues and appropriately managing expenses.
Operating performance will be improved and ultimately the deficit will be resolved. The plan will be
monitored on a semi-annual basis and will be updated as needed.
Changes have already been made with respect to fiscal reporting and additional central fiscal resources
have been provided to assist in preparing budgets and forecasts, as well as monitoring performance.
Due Date: July 31, 2015
Responsible Party: Dean, Bloch School of Management
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Observation 2: Strengthen internal controls over expenditures and review historical transactions for
appropriateness. (H)
Description
Recent improvements have been made in the School’s expenditure
review and approval processes; however, there were instances where
the key control for reviewing and approving departmental
expenditures was overridden by management. This type of override
is an indicator of an improper “tone at the top” on internal controls.
This created the opportunity for inappropriate or unauthorized
expenses to be incurred and charged to general funds as well as
private gift and endowment sources. Management has taken actions
to improve the internal control environment and is developing a
plan to perform a review of historical expenditures to ensure only
appropriate expenses were incurred and those that were incurred are
classified correctly.
Additionally, as part of expenditure testing the following
observations were identified:
Travel and Expense

Five expense reimbursements (totaling $39,160) occurring
during Fiscal Year 2012 related to research services performed
by consultants were paid personally and reimbursed, as opposed
to establishing a contract with the third party and paying via
Non-PO voucher. IA was unable to validate the legitimacy of
these transactions based on information available in University
records. The consultants did not have a current contract with
the School and the preferred method of purchase guidelines
were not followed. Per interviews, the work related to collecting
research data, which is consistent with University work and
external endeavors. Per UMKC and UM System guidelines,
payments to a consultant totaling more than $500 require a
current contract or consulting agreement to be in place.
Additionally, UM System preferred method of purchase
guidelines specify that consulting fees should be paid through a
Non-PO voucher.

In 14 business meals (totaling $1,690), the number of guests
listed on the receipt did not agree to the number of attendees in
the documentation submitted for reimbursement. The meal
receipts typically indicated there were one or two more
individuals present at the meal than what was documented for
reimbursement purposes.

Four T&E transactions (totaling $823) and one non-PO voucher
($179) has receipts provided that were not itemized when they
should have been. Three of the above five transactions that did
not include an itemized receipt occurred in Fiscal Year 2012 and
two occurred in Fiscal Year 2013. Per T&E guidelines, itemized
receipts are required for any expense incurred when the
employee is not in travel status, regardless of the amount and for
all expenses $75 or more. Per Business Policy Manual (BPM)
505, itemized receipts are required to be attached to the expense
report for all expenditures $75 or more.
Recommendations to
Management
Perform a review of the spend
activity which could have been
inappropriately influenced by
management. This review
should consider the historical
review and approval
environment within the School
and University policies and
procedures. Spend activity to
include in this review should
include travel and expense
activity, extra compensation
paid to UMKC staff and faculty,
or any other resources which
could have been inappropriately
directed based on the internal
controls environment.
Performing a review of these
transactions will help the
University identify
inappropriate, unreasonable or
out of compliance transactions.
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Continued from previous page
Observation 2: Strengthen internal controls over expenditures and review historical transactions for
appropriateness. (H)
Additional compensation
Two faculty members were paid additional compensation that was
processed based on documentation that could not be reconciled to
supporting records.
Management Response: An internal review of historical transactions has already occurred. The
School has implemented steps to ensure compliance with University expenditure and approval policies.
The steps include additional training for staff and administrators responsible for ensuring proper
approval of expenditures; special training and increased review of transactions identified through the
internal review as most problematic; administrative changes in areas most prone to non-compliance;
and the implementation of a strict policy of rules enforcement.
The Bloch School is committed to ensuring that the tone at the top is unequivocal in its support for a
strong internal control environment and adherence to all policies.
Due Date: Complete
Responsible Party: Dean and Fiscal Officer, Bloch School of Management
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Observation 3: Improve communication and alignment of key stakeholders within the School. (M)
Recommendations to
Management
Description
Greater transparency is needed throughout Bloch relating to
financial decisions, strategic investments, allocations and overall
strategy. While some improvements have been made recently
including enhanced communication and analysis in these areas, key
stakeholders, including chairs of departments, within the School
indicated a lack of alignment with regards to the strategic direction
of the School. This has led to a divided environment in which some
stakeholders do not fully understand the rationale of key financial
investments.
Throughout fieldwork, it became apparent there is a divide between
several units within the School and IEI. Per inquiry of multiple
faculty members and the Business Office, “Core Bloch” (i.e.,
Accountancy, Management, Public Affairs, Business Administration,
Finance, etc.) personnel do not always understand and sometimes
question the investments that have been made in IEI and whether or
not they have produced an adequate return. The environment exists
largely due to increased investments and expenditures relating to
IEI. The divide within Bloch has created a morale issue in which
some units do not feel they are being treated equally.
Enhancing lines of communication and alignment of key
stakeholders throughout Bloch and with campus central
administration and ensuring strategic investments are
accomplishing established objectives will allow for an improved
understanding of the School’s strategic initiatives and investments.
Further, it will facilitate better transparency into School financials.
Implement processes to improve
communication and alignment
of key stakeholders within Bloch
and UMKC. Senior level Bloch
leadership (e.g., Dean, Assistant
Deans and Department Chairs)
should be included in the
development and
implementation of the Business
Plan recommended in
observation #1. Additionally,
implement new and continue
current processes to improve
transparency within the School,
such as:

Periodic meetings, in which
Department Chair’s and
Directors are present, to
discuss major financial
decisions, investments and
allocations throughout the
entire Bloch School.

Increased collaboration
across units within Bloch
concerning strategic
decisions.

Include campus central
administration in strategic
and financial discussions
with Bloch leadership.

Enhance current and
implement new processes to
measure return on strategic
investments throughout the
School.
Management Response: The Bloch School management recognizes the importance of key
stakeholders being involved in setting the strategy of the school. Communication and transparency with
key stakeholders is critical as the School moves forward.
Examples of recent activities are noted below:
The Strategic Planning Committee of the Bloch School has decided it is time to perform an in-depth
review of the current strategic plan and has developed a timeline in which to perform this review. As
with the past plans there will be a comprehensive process of faculty, staff and external stakeholder
involvement. The updated plan will be widely shared.
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Continued from previous page
Observation 3: Improve communication and alignment of key stakeholders within the School. (M)
This year a Balanced Scorecard approach was implemented with respect to measuring the performance
of key strategic initiatives. The scorecard allows for evaluation and communication, as well as guiding
internal activities in support of the strategies.
In an effort to enhance transparency the Dean presented a detailed financial review of the school’s
budget to the faculty. This will continue.
The Bloch School’s Resource and Planning Committee serves as a communication link between the
leadership and the faculty with respect to budget issues. Their work will continue.
Special attention has been given to the improving the transparency and visibility related to the Institute
for Entrepreneurship and Innovation. The new Director has improved communication with the rest of
the Bloch School and the Institute’s academic activities are more integrated with the rest of the Bloch
School.
The Department Chairs and Direct reports now meet with the Dean on a monthly basis unless more
frequent meetings are needed. The Dean also has regular meetings with central administration to review
financial and budget activities.
Due Date: Complete
Responsible Party: Dean and Faculty, Bloch School of Management
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Observation 4: Improve compliance with University and department procurement policies and travel
and expense guidelines. (M)
Recommendations to
Management
Description
Compliance with University and department procurement policies
and travel and expense (“T&E”) guidelines should be improved.
Instances were identified where purchases did not adhere to
purchasing card (“p-card”) usage policies, and T&E guidelines. By
enforcing compliance with University and department policies and
guidelines, the risk of unauthorized purchases is reduced and cost
savings can be realized.
Insufficient Documentation

Eight T&E transactions (totaling $312) and one Non-PO
Voucher (totaling $123) did not have a receipt provided to
validate that the items purchased were allowable. Eight of the
nine transactions occurred in Fiscal Year 2013 or prior.
Additionally, one T&E transaction (totaling $110) did not
include an itemized receipt. This transaction occurred in Fiscal
Year 2013. Per T&E guidelines, itemized receipts are required
for any expense incurred when the employee is not in travel
status, regardless of the amount and for all expenses $75 or
more. Per Business Policy Manual (BPM) 505, itemized
receipts are required to be attached to the expense report for all
expenditures $75 or more.

The gift card logs for two gift card transactions occurring in
Fiscal Year 2014 (totaling $534) were not properly completed
to evidence disbursement of the gift cards to the correct
recipient. The logs provided for the transactions were not
signed by the gift card recipients. Per Bloch School policy, a
gift card log should be completed for each gift card purchase.
The log should be signed by the gift card recipient to indicate
the gift card was used for its intended purpose and to verify the
individual actually received the gift card.

One p-card transaction that occurred in Fiscal Year 2012
($2,601) did not include technology approval prior to the
purchase. Per Bloch School policy, technology approval should
be obtained prior to purchasing a large technology item.
Improve compliance with
procurement policies and T&E
guidelines by educating
individuals throughout the
School. Ensure education
provides information on
documentation requirements,
allowability of using other
individuals’ p-cards, and
allowability of purchases to be
reimbursed through the T&E
system.
For T&E reimbursements,
ensure approvers are educated
on the policies and procedures
for allowability and
documentation requirements
within the system, as well.
Allowability

One p-card transaction that occurred in Fiscal Year 2012 ($315)
related to an individual using someone else’s p-card. Per the
Purchasing Card Policy Manual section 2.9, the only person
authorized to use the p-card is the cardholder whose name
appears on the face of the card.
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Continued from previous page
Observation 4: Improve compliance with University and department procurement policies and travel
and expense guidelines. (M)

One T&E transaction that occurred in Fiscal Year 2013 ($141)
related to a business dinner that included the purchase of
alcohol. No additional documentation was provided as to the
business purpose of the alcohol. Per BPM 217, a statement
explaining how the expenditure that includes the alcohol
benefits the University must be shown on each transaction that
requests payment of, or reimbursement for, alcoholic
beverages.
Management Response: Compliance with procurement policies and travel and expense guidelines is
very important and the Bloch School leadership has already committed to improvement.
An internal review was conducted and the School implemented the following:




Additional training for staff and administrators responsible for ensuring proper approval of
expenditures,
Special training and increased review of transactions identified through the internal review
as most problematic,
Administrative changes in areas most prone to non-compliance, and
The implementation of a strict policy of rules enforcement.
The Bloch School is committed to ensuring that the tone at the top is unequivocal in its support for a
strong internal control environment and adherence to all policies.
Due Date: Complete
Responsible Party: Dean and Fiscal Officer, Bloch School of Management
12
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Observation 5: Improve monitoring of international expenditures (M)
Recommendations to
Management
Description
Several School faculty and staff regularly travel abroad for School
operations. The School also contracts with an external consultant to
recruit students and develop relationships in Asia. UMKC paid the
consultant approximately $360,000 during Fiscal Years 2012 – 2014
for services related to recruitment of students and the furthering of
UMKC’s relationships with international Universities. The controls
in place to review international related expenditures for employees
and the external consultant should be enhanced through greater
consideration of applicable laws and regulations.
Perform an assessment of
applicable laws and regulations
which may impact the UMKC
employees or contractors
performing work internationally
and identify any training
necessary for these employees.
Implement enhancements to
policies and internal controls to
help ensure compliance as
necessary.
Management Response: The UM System Office of Finance will work with the campuses to assess
current policies and training related to international expenditures and address any deficiencies as
necessary.
Due Date: December 31, 2015
Responsible Party: UM System Controller
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Observation 6: Evaluate tax implications of compensation for teaching courses within Executive
Education. (L)
Description
Recommendations to
Management
The compensation process for teaching Executive Education sessions
within the Bloch School should be evaluated. Executive Education
offers custom corporate, open enrollment, networking and certificate
programs. Faculty members, from various disciplines, develop
materials for these courses, lead the sessions and then are
compensated for their efforts. Instructors have the option to receive
pay as additional compensation (i.e., in excess of their base salary)
or to transfer the money to their faculty support account. Providing
this option may constitute earned income and these funds would
then be considered taxable compensation, regardless of the faculty
election.
Evaluate tax implications
related to compensation for
teaching sessions within
Executive Education moving
forward. Communicate with the
appropriate UMKC and UM
System personnel to verify funds
transferred to faculty accounts
are appropriately taxed in
accordance with federal tax
regulations.
If a faculty member elects to receive additional compensation for
their efforts related to leading an Executive Education session, the
compensation is processed via payroll and is appropriately taxed.
However, when a faculty member elects to transfer funds to their
support account, funds are not taxed. In the past five fiscal years,
faculty members have elected to transfer approximately $45,500 to
respective faculty support accounts. These funds have not been taxed
as compensation. This could create individual and university
liability for their share of taxes. By evaluating the tax implications of
compensation for teaching Executive Education courses,
Management can help ensure compensation is being appropriately
taxed.
Management Response: The University has procedures in place surrounding the taxability of these
types of arrangements. This specific instance will be reviewed by the Central Payroll Office and Campus
HR.
Due Date: July 1, 2015
Responsible Party: UM System Controller
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Observation 7: Ensure proper segregation of duties during the cash receipts process. (L)
Description
Recommendations to
Management
Cash receipts within the School have the opportunity to be reconciled
by the same individual that deposits the receipts. Per Accounting
Policy Manual section 2.25.55, no one person should have
responsibility to complete two or more major functions, including
authorization, recording, verification, custody of assets, and
managerial review.
Implement proper segregation of
duties by ensuring deposit and
reconciliation procedures within
the cash receipts process are
split between different
individuals in the School.
The student worker for the School’s Business Office or one of the
office staff share responsibility for depositing cash receipts. The
work study is also who performs reconciliation procedures for cash
receipts. Segregating deposit and reconciliation procedures in the
process will better safeguard University assets and help ensure
improved compliance with the University policy.
Management Response: While the finding does not disclose a direct policy violation it does identify
an opportunity whereby internal controls can be strengthened through better segregation of duties.
Changes have been made whereby responsibilities are now divided so that no one individual perform
duties that are in conflict.
Due Date: Complete
Responsible Party: Dean and Fiscal Officer, Bloch School of Management
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