University of Minnesota
Office of Internal\External Sales
January 20, 2011
“The Internal Sales Review Process”
Keith Jansen – Internal\External Sales Manager
Mary Kosowski – Compliance Officer
Jeff Kurland – Compliance Officer
Session Objectives:
Keith
• Explain the process used for internal sales
reviews
• Identify what can be done to improve the
process
About the Reviews
Scope includes:
• Budget vs. Actuals vs. Rates
• Previous completed fiscal year
• Resource utilization
• Break-even analysis
• Margin analysis
• Identify the risks and the controls over
those risks
Keith
“Which Internal Sales activities will be
reviewed?”
Keith
• Objective is to focus our review work on the
areas of greatest risk to mitigate that risk
• Review all Internal Sales every 2 years
• Review any Internal Sales identified with
issues by Internal Audit
• Review sales generated in Internal Sales
account 500101 that do not have approval or
meet requirements
Reviews Process Objective
Keith
• Objective is to determine if the rate
development methodology, accounting, and
rate charging practices are compliant with
OMB A-21 requirements, federal cost
accounting standards, and University of
Minnesota policy and procedures.
• OMB Circular A-21 is the publication:
Cost Principles of Educational Institutions
from the Office of Management & Budget
Prior to the Review
Keith
Request for information is sent to management in
advance of expected review
A request is made for review materials, including:
• Rate development
• Types of services and activity
• Assigned Business Manager / point of contact
• Transactional detail for selected vouchers
• Volume basis
• Fixed asset reconciliation/depreciation calculations
• Account structure used for ISO and ESO activity
Prior to the Review (continued)
• Materials to be returned in 10-14 days to
Internal Sales
• Electronic submission required
• Information is used during review
Keith
Prior to the Review (continued)
Keith
Meeting
• Before the review work has started but after
receiving the requested information
• Typically the RRC Manager & main financial
person
• Provides a chance to discuss the general
review process
• Gives input to Internal Sales activities that
will be reviewed
Review Process
Keith
Information sources:
• UMReports “Account Status for Current NonSponsored Funds Report” for budget,
revenue and expenditures.
• Fixed Asset report from Inventory Services
• The request for information is sent to
management with questions and information
requested
Review Process (continued)
• Activities reviewed:
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Unallowable and allowable costs
Transfer codes
Segregation of revenue and expenditures
Rate volumes
Depreciation
Operating Margin
Inclusion of all costs
Impact of External Sales
Budget vs. Actuals and Rate development
Customer base and rate type
Annual Requirements
Monthly Invoicing
Keith
Review Process (continued)
Keith
• Request for Materials
• Preparation of review checklist
• Request meeting to go over open items and
resolve questions
• Draft compliance memo
• CC draft to Business Manger and RRC
Manager for feedback / questions
• Issue final compliance memo
• Follow up of Plan implementation
Reviews
Mary
What to expect during the review?
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Length of time – 2 weeks after information received
Transaction documentation
Follow-up questions
Communication of results
Define solution to identified findings
Reviews (continued)
How do the results affect you?
• Awareness of policies / processes / best
practices
• Changes needed to enhance compliance or
efficiencies
• Update rate development
• Adjustments to cover surplus & deficits
Mary
What is in the Compliance Memo?
Mary
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Description of the unit and the activity
Summary of findings
Recommendations
Ratings of findings
Management action plan response
requirement
• Policy or procedure statement that defines
requirement
Compliance Issue Examples
Keith
• Expenses not included in rates or actuals
• Not charging all internal customers the same rate
• Depreciation rates not agreeing with Inventory
Services, actuals or rate development
• Unallowable expenses in rates
Compliance Issue Examples
Keith
• Not segregating revenues and expenses for
Internal and External Sales
• Purchasing equipment directly to an Internal Sales
account rather than an Internal Sales plant fund
• Set up with incorrect fund and accounts
• Not managing surpluses or deficits
Review Findings Rating System
Mary
• Refer to handout
• ESSENTIAL
• Resolution will help avoid a potentially
critical negative impact:
– Loss of material assets
– Loss of reputation
– Loss of critical financial information
– Inability to comply with important laws, policies or
procedures
Review Findings Rating System (continued)
Mary
• SIGNIFICANT
• Resolution will help avoid a potentially
significant negative impact:
– Loss of material assets
– Loss of financial information
– Inability to comply with important laws, policies or
procedures
Review Findings Rating System (continued)
• USEFUL
• Resolution will help improve controls and
avoid problems in the unit’s operations
Mary
How is the Rating System Used?
Mary
• Significant or Essential findings:
– require a Management Action Plan
• No Significant or Essential findings:
– the review is closed
• Useful findings:
– Do not require a MAP but should be
implemented by department
Who sees the Compliance Memo?
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Dean/Department Head/Director
Business Manager
RRC Manager
Budget Office
Controllers Office
Department of Audits
Internal/External Sales Manager
Mary
Compliance Memo Response
Jeff
• Management Action Plan is due 1 month from
the date of the final memo
• ESSENTIAL findings must be corrected within
three months of date of final memo
• SIGNIFICANT findings must be corrected
during next budget cycle
• Surpluses greater than 15% must be paid
back within three months of date of memo
• Deficits that will not be included in future rates
must be paid before fiscal year end
Follow-up by the Reviewed Unit
Jeff
• Review report findings, recommendations,
and management action plan
• Retain documentation to support efforts
towards implementation
Follow-up by the Reviewed Unit
(continued)
• Communicate with Internal/External
sales on ongoing progress
• Self-assess progress toward expected
implementation date
• Explain obstacles preventing or
delaying implementation
Jeff
Follow-up by Internal Sales
Jeff
• Documentation to support status as
reported
• Review to confirm
• Summary report and assessment of
progress
How to improve the review process
Prompt responses
• Requested Materials
• Documentation
• Requests for information
• Requests for meetings
Jeff
How to improve the review process
(continued)
Jeff
Communicate
• Availability of key staff
• Completion of requests
• Concerns
• Explanations
• Issues
How to improve the review process
(continued)
Jeff
Take action
• Implement agreed-upon management action
plan
• Do a review before the formal review and
during the year
• Communicate progress
Tips on how to prepare / stay
prepared for the next review
Jeff
• Adjust operations to ensure compliance
• Update items that have been requested
• Downsizing, restructuring, merging of functions can
impact internal sales rates; review rates to ensure
they are still proper
• Use U-wide systems and processes in lieu of
developing in-house processes
• Monitor surpluses or deficits
• Training for key personnel
• Discuss any issues or concerns with Internal Sales
Other Items
• Register for the “Internal Sales Seminar” on
February 17th”
• Brown Bag Seminar “External Sales Agreement”
(Contracts) January 27th at 12:30.
• Internal Sales Training Courses at our website
• Procedure “ Reviewing Internal Sales Activity
Annually”
Keith
Questions?
Resources: Office of Internal Sales website
http://www.finsys.umn.edu/sales/iso.html
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This presentation is posted on the site.