OFFICE OF INTERNAL AUDITING
30 EAST SEVENTH STREET
SUITE 350
ST. PAUL, MN 55101-4946
ph 651.201-1808
www.internalauditing.mnscu.edu/
MEMORANDUM
Date:
October 28, 2013
To:
Leadership Council
From:
Beth Buse, Executive Director Internal Audit
Laura M. King, Vice Chancellor Finance - CFO
Subject: Financial audit analysis project
We have undertaken a study at the direction of the Board of Trustees to evaluate the
system’s financial audit plan prior to undertaking a new RFP process this winter. The
study acknowledges that we have been on the same program for 10 years, our
financial management and assurance operating environment has changed over this
period, and it is timely to examine whether our investment of staff time (campus and
system office) and resources is appropriately balanced. The study includes:




Analyzing the objectives, capacity and cost effectiveness of continuing to conduct
13 individual college and university financial statement audits.
Evaluating the current process for auditing financial internal control and
compliance of colleges and universities.
Reviewing enterprise risk management strategies for management of financial
risk.
Obtaining input from the Board of Trustees and senior management on desired
assurances.
We plan to discuss with the Leadership Council at its November meeting what has
been done historically, the current environment, research we have completed, and
possible alternatives for the future. We are including two attachments to this memo
to help prepare you for the discussion:


Financial Audits – Reflection and Looking to the Future – PowerPoint
presentation – please note page 9 contains possible alternatives
Sample of a suggested revision to the Annual Supplement to the Annual
Financial Report – please note this only includes two institutions, the actual
report would include all institutions.
After our discussion in November, we will be asking Leadership Council members to
talk with your leadership team and provide us feedback on financial audit preferences
for FY2014 activity and beyond.
The Minnesota State Colleges and Universities System is an Equal Opportunity employer and educator.
Financial Audits – Reflection and
Looking to the Future
Leadership Council – November 4, 2013
Discussion
Minnesota State Colleges and Universities
The Minnesota State Colleges and Universities system is an Equal Opportunity employer and educator.
Introduction





2
Background
Finance – Risk Management
Research
Possible Alternatives
Next Steps
Background
 In January 2012, the Board of Trustees requested a
study with recommendations by January 2014, on a
financial audit plan for the future. The study includes:
 Analyzing the objectives, capacity and cost effectiveness of continuing
to conduct 13 individual college and university financial statement
audits.
 Evaluating the current process for auditing financial internal control and
compliance of colleges and universities.
 Reviewing enterprise risk management strategies for management of
financial risk.
 Obtaining input from the Board of Trustees and senior management on
desired assurances.
3
Background: Financial Audit Comparison
 Financial Statement
 Provides an opinion on whether
financial statements are
presented fairly, in all material
respects.
 Audit focus is primarily on largest
financial activities.
 Materiality varies - institutions
between $500,000 and $2 million.
 Audits consider internal controls
over financial reporting but do not
express an opinion on their
effectiveness.
 Audited financial statements
contain a management analysis
and detailed information in notes
to the statements.
4
 Internal Control and
Compliance
 Provides for a tone at the top.
 Greater flexibility in determining
audit scope.
 Provides assurance that internal
controls are appropriately
designed and working.
 Provides assurance that
MnSCU policies and financerelated legal provisions were
complied with.
 Identifies weaknesses in internal
controls.
 Identifies opportunities to
improve business processes.
Finance – Risk Management
 Current audit approach began with Board of Trustees
direction in July 1999
 Goal of program was attainment of unqualified opinion on systemwide
financial statements
 Progressive financial statement audit program expansion between 1999
and 2009 (Since 2003 – audits of 12 largest colleges and universities,
representing 60 percent of financial activity)
 For past four years, audited financial statements: systemwide, revenue
fund, seven universities, six colleges
 Financial management improvements since 1999
 Financial health and compliance measures oversight
 CFI calculation and review
 Annual review of all colleges and universities (trends and highlights)
5
Finance – Risk Management
(continued)
 Financial internal control and compliance
 Three year cyclical college internal control and compliance audits by
Legislative Auditor ended in 2010
 Internal Audit: Annual audit plan based on a risk assessment
 Institution audits: 2012 – Southwest Minnesota State University, 2013 – Bemidji State
University and Northwest Technical College, 2014 - Minnesota State University
Moorhead (planned)
 Functional area audits: 2012 – State University Payroll, 2013 – Banking Controls, 2014
- Purchasing Cards (In progress) and Grant Management (planned)
 Audit finding follow-up
 Office of the Legislative Auditor (January 2012 – Metropolitan State
University)
6
Research
 Higher Education Systems
 MnSCU’s hybrid approach is unique for
auditing financial statements
 Difficult to compare internal control and
compliance audit approaches
 Higher Learning Commission
 Finance Related Criteria
 Legislative Audit Coverage
 Minimal
 Past Surveys of Presidents and
CFOs
7
Possible Alternatives
 Financial Statement Audits:
 Only complete an audit of the systemwide financial statements and
revenue fund.
 Only complete financial statement audits of the systemwide, revenue
fund, and largest three state universities.
 Complete financial statement audits of the systemwide, revenue fund
and rotating institutions.
 Enhance the supplement to the annual financial report
with additional ‘Trends and Highlights’ schedules.
 See sample
 Shift resources from financial statement audits to
additional internal control and compliance audits.
8
Next Steps
 By November 18th – Presidents seek input from your
leadership team on desired audit coverage given today’s
discussion.
 Late November – draft future financial audit plan
 December – seek input on plan from stakeholders,
including Leadership Council
 January 2014 – Board approval of financial audit plan
9
Sample Enhanced Supplement to the Annual Financial Report
MINNESOTA STATE COLLEGES AND UNIVERSITIES
STATEMENT OF NET ASSETS BY INSTITUTION (UNAUDITED)
AS OF JUNE 30, 2012
(IN THOUSANDS)
Normandale
Community
College
St. Cloud
State
University
37,287
1,351
155
1,957
1,323
1,103
225
43,401
82,460
2,424
853
3,445
2,567
199
950
430
93,328
19,157
33,742
65,124
65,124
4,984
201,861
206,845
127,682
333,915
Current Liabilities
Salaries and benefits payable
Accounts payable
Unearned revenue
Payable from restricted assets
Interest payable
Funds held for others
Current portion of long-term debt
Other compensation benefits
Other liabilities
Advances to other schools
Total current liabilities
3,001
1,382
2,209
3,213
266
171
1,575
485
51
12,353
10,491
2,584
5,142
6,139
358
609
7,230
1,688
611
34,852
Noncurrent Liabilities
Noncurrent portion of long-term debt
Other compensation benefits
Capital contributions payable
Advances to other schools
Total noncurrent liabilities
38,512
4,595
43,107
79,590
15,242
5,832
100,664
55,460
135,516
39,197
2,202
3,050
27,773
131,599
18,443
16,135
32,222
72,222
198,399
Assets
Current Assets
Cash and cash equivalents
Investments
Grants receivable
Accounts receivable, net
Prepaid expense
Inventory
Student loans, net
Other assets
Total current assets
$
Total restricted assets
Noncurrent Assets
Student loans, net
Capital assets, net
Advances from other schools
Total noncurrent assets
Total Assets
Liabilities
Total Liabilities
Net Assets
Invested in capital assets, net of related debt
Restricted expendable, bond covenants
Restricted expendable, other
Unrestricted
Total Net Assets
$
Page 1
Sample Enhanced Supplement to the Annual Financial Report
MINNESOTA STATE COLLEGES AND UNIVERSITIES
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS BY INSTITUTION (UNAUDITED)
FOR THE YEAR ENDED JUNE 30, 2012
(IN THOUSANDS)
Normandale
Community
College
Operating Revenues
Tuition, net
Fees, net
Sales and room and board, net
Restricted student payments, net
Other income
Total operating revenues
$
St. Cloud
State
University
22,654 $
1,844
5,185
2,876
40
32,599
63,799
8,863
12,904
19,540
5,239
110,345
Operating Expenses
Salaries and benefits
Purchased services
Supplies
Repairs and maintenance
Depreciation
Financial aid, net
Other expense
Total operating expenses
43,594
4,846
6,058
837
2,611
1,440
3,379
62,765
128,184
20,019
10,067
2,123
12,220
1,742
9,509
183,864
Operating loss
(30,166)
(73,519)
17,417
14,537
2,788
745
234
(1,333)
34,388
53,186
20,733
7,868
10,726
499
(2,724)
(134)
90,154
4,222
16,635
7,649
(210)
11,661
7,212
29
(19)
23,857
Nonoperating Revenues (Expenses)
Appropriations
Federal grants
State grants
Private grants
Interest income
Interest expense
Grants to other organizations
Total nonoperating revenues (expenses)
Income (Loss) Before Other Revenues, Expenses, Gains, or Losses
Capital appropriations
Capital grants
Donated assets and supplies
Gain (loss) on disposal of capital assets
Change in net assets
Total Net Assets, Beginning of Year
Total Net Assets, End of Year
$
Page 2
60,561
174,542
72,222 $
198,399
Sample Enhanced Supplement to the Annual Financial Report
MINNESOTA STATE COLLEGES AND UNIVERSITIES
SUMMARY OF CASH AND CASH EQUIVALENTS
FOR THE YEAR ENDED JUNE 30, 2012
(IN THOUSANDS)
Carrying Amount
Cash, in bank
Repurchase agreements
Money Market
Cash in bank - Foreign currencies
Change fund
Cash , trustee account (US Bank)
Total local cash and cash equivalents
Total treasury cash accounts
Grand Total
Normandale
St. Cloud
Community
State
College
University
$
1,624 $
(1,972)
0
11,382
143
0
0
92
0
25
4,289
2,769
6,056
12,296
42,913
94,267
48,969
106,563
TUITION, FEES, AND SALES, NET
FOR THE YEAR ENDED JUNE 30, 2012
(IN THOUSANDS)
Normandale Community College
Scholarship
Description
Tuition
Fees
Sales
Restricted student payments
Total
$
$
Gross
Allowance
34,642 $
(11,988) $
3,213
(1,369)
5,900
(715)
2,876
—
46,631 $
(14,072) $
OPERATING EXPENSES BY FUNCTIONAL CLASSIFICATION
FOR THE YEAR ENDED JUNE 30, 2012
(IN THOUSANDS)
Description
Academic support
Institutional support
Instruction
Public service
Research
Student services
Auxiliary enterprises
Scholarships & fellowships
Less interest expense
Total operating expenses
Normandale
St. Cloud
State
Community
College
University
$
9,369 $
26,152
6,671
19,137
30,416
79,241
388
1,966
4
2,711
8,234
24,778
7,576
30,861
1,440
1,742
(1,333)
(2,724)
$
62,765 $
183,864
Page 3
St. Cloud State University
Scholarship
Net
Gross
Allowance
Net
22,654 $ 90,748 $
(26,949) $ 63,799
1,844
9,995
(1,132)
8,863
5,185
12,948
(44)
12,904
2,876
20,244
(704)
19,540
32,559 $ 133,935 $
(28,829) $ 105,106
Sample Enhanced Supplement to the Annual Financial Report
MINNESOTA STATE COLLEGES AND UNIVERSITIES
SEGMENT INFORMATION - REVENUE FUND
FOR THE YEAR ENDED JUNE 30, 2012
(IN THOUSANDS)
Normandale
Community
College
CONDENSED STATEMENTS OF NET ASSETS
Assets
Current assets
Current restricted assets
Noncurrent restricted assets
Noncurrent assets
Total assets
Liabilities
Current liabilities
Noncurrent liabilities
Total liabilities
Net Assets
Invested in capital assets, net of related debt
Restricted for bond covenants
Total net assets
CONDENSED STATEMENTS OF REVENUES,
EXPENSES, AND CHANGES IN NET ASSETS
Operating revenues
Operating expenses
Net operating income
Nonoperating revenues (expenses)
Change in net assets
Net assets, beginning of year
Net assets, end of year
CONDENSED STATEMENTS OF CASH FLOWS
Net cash provided (used) by
Operating activities
Investing activities
Capital and related financing activities
Noncapital financing activities
Net increase
Cash, beginning of year
Cash, end of year
$
$
$
$
$
$
St. Cloud
State
University
2,594 $
10,217
7,475
14,369
34,655
18,945
21,385
9,639
35,541
85,510
2,816
26,408
29,224
6,710
32,054
38,764
1,490
3,941
5,431 $
17,473
29,273
46,746
3,724 $
(1,081)
2,643
(859)
1,784
3,647
5,431 $
20,523
(19,633)
890
7,124
8,014
38,732
46,746
2,989 $
38
(1,569)
0
(1,458)
11,247
12,705 $
4,264
99
(9,320)
8,200
3,243
35,327
38,570
Page 4