MEETING OF THE AUDIT COMMITTEE OF THE BOARD OF TRUSTEES HOUSTON COMMUNITY COLLEGE May 10, 2012 Minutes The Audit Committee of the Board of Trustees of Houston Community College held a meeting on Thursday, May 10, 2012, at the HCC Administration Building, 3100 Main, 2nd Floor, Seminar Room A, Houston, Texas. COMMITTEE MEMBERS PRESENT Neeta Sane, Committee Chair Sandie Mullins, Committee Member Carroll G. Robinson, Committee Member Bruce Austin Mary Ann Perez ADMINISTRATION Mary S. Spangler, Chancellor Art Tyler, Deputy Chancellor/COO Renee Byas, General Counsel Shantay Grays, Interim Executive Officer to the Chancellor Charles Cook, Vice Chancellor, Instruction William Carter, Vice Chancellor, Information Technology Diana Pino, Vice Chancellor, Student Success Daniel Seymour, Vice Chancellor, Planning and Institutional Effectiveness Remmele Young, Executive Director, Government Relations and Sustainability Willie Williams, Jr., Chief Human Resources Officer OTHERS PRESENT Jarvis Hollingsworth, Board Counsel, Bracewell & Giuliani Thomas Urban, President, Faculty Senate Other administrators, citizens and representatives from the news media CALL TO ORDER Mrs. Sane called the meeting to order at 12:35 p.m. and declared the Committee convened to consider matters pertaining to Houston Community College as listed on the duly posted Meeting Notice. UPDATE FISCAL AND COMPLIANCE REVIEW OF QATAR CONTRACT Mrs. Brockman provided an update regarding the fiscal and compliance review of the Qatar contract. She noted that each monthly financial statement was compared with the general ledger report. She apprised that if an unusual transaction was identified then a detailed review was conducted. She presented a comparison of the auxiliary budget report and Houston Community College Audit Committee – May 10, 2012 - Page 2 informed that they are almost identical. Mrs. Brockman provided an auxiliary budget by fund for each month beginning September 2010 through February 29, 2012. She noted that the indirect cost is recognized and informed that there may have been some misclassifications. She noted that accounting literally allows immaterial amounts to be booked in the spending account rather than reduction in fund balance. She apprised that after examination of the elements and presentations of the data, the auxiliary budget by fund page of the monthly financials reasonably reflects the general ledger. Mrs. Brockman informed that a discussion was held with Ron Defalco and it was noted that Qatar line items were broken out for the financial year 2011. Mrs. Brockman apprised that they were actually reclassifications. She informed that the account balances are the same in Schedule B of the fiscal year end statement as of August 31, 2010. She noted that when tested the difference was explained and the account balance is the same. Mrs. Sane inquired if the clarification was that there was an accounting error. Mrs. Brockman responded that there was not so much as an accounting error as it was a presentation error. She noted that the financial statements reasonably reflect the general ledger. Mr. Robinson referenced the slide with the review of the monthly financial statements and inquired as to how much should be received over the term of the contract. Dr. Tyler informed that the fees are included in the total revenue, which would begin to accumulate. Mr. Robinson inquired how much of the $4.5 million has come in hand. Dr. Tyler informed that approximately $900,000. He noted that approximately $750,000 to $800,000 should be anticipated annually over the next three years. AMENDMENT TO INTERNAL AUDIT PLAN Motion – Mr. Robinson moved and Mrs. Sane seconded. Mr. Robinson apprised that his amendment emerged from the internal auditor stating that she did not have the proper staff to conduct the operational audit of purchasing and that he wanted to provide funding to do so. He was later informed that there is a contract in place to conduct an external audit of procurement. Mrs. Byas noted that there was an external audit completed in 2010, any subsequent follow-up would require a new RFQ. Mr. Robinson informed that the representation at the Board table was that he was wasting tax payer’s money because the audit was already done. He noted that his desire was to have the Internal Auditor conduct the operational audit of the procurement department. Mr. Austin apprised that he was over the Audit Committee in 2010 and was informed that many of the recommendations from a previous review were not developed. He noted that when the report was provided to the General Counsel, she immediately began making progress to implement procedures as recommended in the report. He apprised that there should be a review to see if the recommendations have been implemented and that he Houston Community College Audit Committee – May 10, 2012 - Page 3 supports an operational audit; however, it should be reviewed if appropriate actions have been implemented regarding the report provided to General Counsel in 2010. Mrs. Byas noted that there was a discussion with Mrs. Brockman and it was requested that assistance be provided to make certain the recommendations have been implemented. She informed that the National Institute of Governmental Purchasing (NIGP) would be the type of firm to come in and review the procurement department. She noted that discussions are underway to engage NIGP or another to complete the procurement audit in October. Dr. Tyler apprised that the audit would be a part of the upcoming fiscal budget. He recommended having someone outside the organization validate then the internal audit could conduct follow-up to the audit. Mr. Robinson informed that he does not mind following the administration’s recommendation. He noted that he is fine with administration identifying the best means to accomplish the task. He informed that as a Trustee, he felt that it was imperative that the internal auditor have the infrastructure to complete the operational audit. He noted that he was accused of wasting tax payer’s funds because there was a contract in place to conduct the operational audit; however, there was not a contract in place. He apprised that he is happy to withdraw the first item regarding the operational audit of the procurement department. He noted that he requested an audit be conducted with construction because of the presentations that were scheduled to the community regarding the facilities. He informed that the auxiliary audit was requested because of the Qatar contract, which has now been cleared. Mr. Robinson acknowledged that the requested funding amount of $100,000 was an arbitrary number based on discussion with Trustee Schechter. He noted that this number may not be enough or may be too much and noted that he would yield to the recommended amount from the Internal Auditor. Mr. Austin informed that an audit is not always necessary to identify discrepancies. He noted that digital best practices need to be installed so that there is a better tracking mechanism. Dr. Tyler informed that if the Audit Committee agrees that these items should be added, there is a contingency fund which would assist the internal audit to gain needed assistance. Dr. Spangler noted that the request for staff should come forward from Mrs. Brockman during the budget development process. She apprised that this is how the additional staff will be recognized through the administration supporting the initiative. Ms. Perez informed that a budget workshop will be held in June 2012 so that there is a review of the current budget as well as the proposed budgets for the next biennium. Mr. Austin noted that Mr. Robinson is looking for quality and compliance with rules. He noted that there needs to be compliance with Statement of Accounting Standards (SAS) Houston Community College Audit Committee – May 10, 2012 - Page 4 section 112 dealing for financial reporting to tighten up things to provide proper tracks for internal control mechanism. Mr. Robinson informed that he would amend his amendment to include two high risks areas and allow administration to identify the funding for the items. He noted that amendment was to have the construction accounting and auxiliary contracts administration audits added to the Internal Audit Plan. Mr. Austin inquired as to what are the best practices regarding construction audit and recommended a review of what other institutions are doing. Mrs. Brockman requested the opportunity to review the scope of the construction audit because they are often rigorous audits. Mr. Robinson noted that the internal auditor reported that she was not able to cover these high risk areas and he was merely supporting the items that were mentioned in the report. He apprised that administration has informed that they will identify how to deal with the funding but thought these two items should be added to the Internal Audit Plan; however, if the internal auditor feels that they could wait, then he is okay with postponing. Mrs. Brockman noted that she would prefer to wait on these items. Mr. Austin inquired with the internal auditor if there has been a review with National Association of College and University Business officers (NACUBO) as best practices. Mr. Robinson informed that he merely took the items from the Internal Audit report and does not have a recommendation as to how detailed the audit should be since he is supporting whatever is needed based on the presentation. Mrs. Brockman apprised that she reviewed what other universities were doing as well as management and Board concerns. She noted that based on capability and staff, those items recommended were presented. Mrs. Sane inquired if there needs to be a dollar amount based on the scope. Mr. Robinson informed that the funding amount was clarified. He noted that the internal auditor provided a document that stated there are additional high risk areas that were not included because capabilities and funding. He apprised that his recommendation to amend was because items were considered high risk and he was viewing the issue from a fiduciary point of view. Mrs. Sane noted that there are some high risk areas that are part of the Internal Audit Plan and asked the internal auditor to identify which high risk areas should be included. Mrs. Brockman informed that she is noting that areas were listed as high risk areas by management and the Board. She noted that every high risk area will never be covered in an internal audit plan and recommended that the budget process is followed. Houston Community College Audit Committee – May 10, 2012 - Page 5 Mr. Austin noted that there is a bifurcated process and that there needs to be some kind of Total Quality Management (TQM) on the accounting process. He noted that at some point the auditor should comment on whether these processes are in place. He apprised that the other issue is to see how we are doing in procurement before making the final decision. He noted that there needs to be quality regarding CIP accounting. Mr. Robinson informed that he will follow the recommendation of the internal auditor. He noted that the simple booking items as noted in the Qatar contract review needs to be cleared and that we should be the first to audit ourselves. Mrs. Sane noted that based on the discussion, there is no action needed at this time. Mr. Robinson apprised that he has been contacted regarding if an Information Technology (IT) audit has been conducted. Dr. Tyler informed that the external auditor includes IT systems as a part of the external audit conducted. ADJOURNMENT With no further business, the meeting adjourned at 1:34 p.m. Recorded, transcribed and submitted by: Sharon R. Wright, Manager, Board Services Minutes Approved: June 21, 2012