Minutes*
Faculty Consultative Committee
Thursday, July 22, 1993
Studio C, Rarig Center
1:00 - 3:00
Present:
Judith Garrard (chair), John Adams, Lester Drewes, Kenneth Heller, Karen Seashore
Louis, Harvey Peterson, Irwin Rubenstein, Shirley Zimmerman
Regrets:
Mario Bognanno, James Gremmels, Robert Jones, Toni McNaron,
Guests:
Professor Carl Adams (Chair, Committee on Faculty Affairs), Professors Richard Poppele,
Richard Purple, and John Soechting (Department of Physiology); Mr. Patrick Spellacy
(Director of Audits)
Others:
None
[In these minutes: Closed discussion with Physiology faculty; the process of auditing a department]
1.
Closed Discussion with Faculty From Physiology
Professor Garrard convened the meeting at 1:00 and asked for consent to go into closed session to
discuss various issues associated with the audit of the Department of Physiology; the Committee voted
unanimously to close the meeting. She welcomed Professors Poppele, Purple, and Soechting and invited
them to make comments.
In the discussion that ensued, Committee members discussed with their guests a number of issues,
including the following:
---
----
details of the audit of the Physiology Department
issues associated with an audit, such as due process, the independence of the audit, timing
of release of reports, and the relationship of the audit to the management review of the
Health Sciences
faculty morale
the role of the governance system in the management and allocation of resources
communication between faculty and the administration
Professor Garrard thanked the three faculty members for joining the meeting; Committee members
then considered whether or not the issues that had been raised should be discussed with President
Hasselmo.
2.
The Audit Process
*
These minutes reflect discussion and debate at a meeting of a committee of the University of Minnesota
Senate or Twin Cities Campus Assembly; none of the comments, conclusions, or actions reported in these minutes
represent the views of, nor are they binding on, the Senate or Assembly, the Administration, or the Board of Regents.
Faculty Consultative Committee
July 22, 1993
2
Professor Garrard then opened the meeting and welcomed Mr. Patrick Spellacy, Director of
Audits, to the meeting to discuss the audit process.
Mr. Spellacy distributed a handout on the components of an audit, on the planning and
performance of audits, and on the overall audit strategy and approach. He also distributed a booklet of
background information on the Department of Audits. Among the major points raised in the discussion
were these:
--
Minnesota has by comparison with a group of 21 peers a small audit staff; with the
addition of 3 new audit staff members, the University will rank 18th of 21 in the size of its
audit department.
--
In terms of selecting units for audit, audit planning is first driven by the University's
mission and plans. There are a lot of areas that could be audited; units are selected, in
consultation with the Audit Committee of the Board of Regents, on the basis of risk
analysis (units with multiple sources of funding, complexity, etc.). Some units are audited
every year as a matter of policy (such as the Bursar's office).
--
Where external audit requirements exist, the University uses Coopers and Lybrand.
--
Approximately 90% of the audits are "detective" audits ("to DISCOVER an unintended
event or result; investigative) rather than preventive audits (to AVOID an unintended
result or event); Mr. Spellacy said he believed they are spending too few resources on
preventive audits, but the need to conduct the "detective" audits prevents spending more
time helping departments with preventive audits.
--
His office has been told by the Board of Regents to be aggressive and to take diligent
action on investigations; they must respond to that directive by the Board.
--
His office is an independent fact-finding unit that is to document what the rules are and
whether or not they have been followed, rather than to comment on issues it finds in an
audit. If the independence of the unit is undermined, it is finished as an effective
operation.
--
The audit department is trying out a new approach, called a diagnostic audit, which
inquires about the "control atmosphere" rather than whether or not every last regulation is
being adhered to in all its specifics. They try to ascertain if the unit is trying to do the
right things and keep up with its financial control and policy compliance responsibilities.
This process takes about three weeks. In the case of one small college, the auditors liked
what they saw, decided the college was functioning as well as it could, and concluded that
no larger audit was required. This approach is different from the past, which took the
narrow view that following the letter of the regulations was important; now, the
environment is seen as what is important--coupled with a recognition that if the
environment is wrong, the rules will not matter and there are not enough auditors in the
world to keep up with the problems.
Faculty Consultative Committee
July 22, 1993
3
--
In explaining the audit process, Mr. Spellacy responded to a question about actions to be
taken in response to an audit. His office does not recommend disciplinary action, for
instance, and in cases where there ARE problems, they do not suggest the unit respond
quickly. The audit report, for instance, may be provided to a dean with a suggestion that
action be taken and a request that a response be provided within a month or so. If the
auditors, however, do not set a deadline, the department controls the process--and the
auditors are asked why they aren't doing their job. The auditors do take into account
whether there was a pattern of problems, rather than a single incident.
--
In terms of deciding between an investigative and diagnostic audit, the investigative audits
almost always occur because there has been an allegation of mismanagement. 85% of
problems are not uncovered by an audit but rather by someone in the units.
--
Departments are provided the opportunity to respond to audit findings; at times the
auditors and department may agree to disagree.
--
From 1986-90, there were 115 audits and 2300 recommendations; 20 of them were
investigative. In 15 cases there were a loss of University assets (intentional) totalling
about $700,000. This is a VERY small amount in a total University budget of $1.8 billion;
the dollar losses to the University through fraud are insignificant. The loss of reputation is
of greater significance than the dollar amounts.
--
The auditors would rather do preventive audits than investigations; they also want to
encourage self-testing, and are developing criteria departments can use to do so. They are
engaged in centralized testing of samples of accounting transactions across the University
to find error rates; these will let units compare themselves with the norms.
--
Mandatory training about the most likely errors for individuals who process documents is
not required. Instruction is offered, however. If, however, central testing reveals critical
errors being made, then training is mandatory.
--
With over 200 academic units at the University, some virtually all on state funds and some
with large amounts of external funds, the auditors do attend more to units that have more
funds and are more complex.
--
The auditing office has a dual reporting structure, both the Board of Regents Audit
Committee and to Senior Vice President Erickson. Their reports and work papers are all
released publicly on the docket of the Board of Regents; this release is required by law.
--
CUFS has caused a lot of troubles for departments, as have new policies and procedures; it
has a lot of advantages that are not yet realized and it has a number of weaknesses from an
auditing standpoint. It does not provide the simple reports that people need, leading to a
growth in shadow systems--and it is tougher for auditors to be critical of noncompliance
because there have been so many system problems.
Faculty Consultative Committee
July 22, 1993
4
--
Units can appeal audit findings. The reports are ranked 1, 2, or 3; exceptions to an audit
ranked number 1 require regental approval; those ranked 2 require vice presidential
approval, and those ranked 3 require dean or head approval. But SOMEONE must
approve exceptions, rather than have them fall through the cracks. The auditors also find
rules that do not make sense, or good reasons for non-compliance, and make
recommendations accordingly.
--
The auditing office is evaluated, by itself and through surveys, both of which are used by
the Regents' Audit Committee.
--
It is very rare for the Regents or a vice president to ask for an audit of a specific unit--less
than five per year. It is the people in the units who know what's wrong, not vice presidents
and regents.
Professor Garrard thanked Mr. Spellacy for meeting with the Committee.
Committee members then discussed what, if anything, they should next do in connection with
issues associated with the health sciences. It was agreed that the Committee should meet next with
Assistant to the President Win Wallin and the President to discuss the Deloitt & Touche management
report and plan for the reorganization of the health sciences.
It was also agreed that the Committee, plus Finance and Planning and Senate Committee chairs,
should meet with the President to discuss the strategic planning process.
The meeting was adjourned at 5:20.
-- Gary Engstrand
University of Minnesota