How to Avoid Risky Business

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How to Avoid Risky Business !

• Presented by the Certified Approver Continuing
  Education Committee
• May 15, 2003

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What will be covered today

• Determine your role and responsibility
• Explaining the risks
• Assessing your risks
• Tools available for your use
• When bad things happen to good institutions
• What are some departments doing to monitor
  information
• Demonstration by Academic Health Center
• Demonstration by College of Education

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What is your role?
Certified Approver
Department Chair
Grant Administrator
Effort Coordinator
Research Staff
Preparer
Unit Administrator
Sponsored Financial Reporting Staff
OAR Staff
Approver
Principal Investigator
Purchase Initiator
Dean
Budget Manager
Auditor
Vice President for Research
Controller
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Risk Assessment Reviews

• All the risks we are describing today come from
  the risk assessment review that is conducted by
  the Office of Oversight, Analysis and Reporting
  (OAR). You can find the Risk Summary Report
  template and related Tip Sheet at
• http//www.oar.umn.edu/int_reporting.html

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Risk - FFN Usage

• OAR reviews the percentage of documents that were
  not processed in FFN, but could have been.
• Why is this a risk?
• University has a policy regarding FFN usage
• FFN is set up to automatically route documents to
  CAs
• Indicator of potential problems in fiscal
  management
• FFN enforces University procedures

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Responsibility - FFN Usage

• Preparers
• Are you using the correct system, FFN or paper?
• Approvers and/or Certified Approvers
• If you are signing paper documents, determine
  whether or not the document should be done in FFN
• Are you the proper approver

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Tools - FFN Usage

• Summary available in Shared Queries
• http//financial.reports.umn.edu//xfss.htm

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Tools - FFN Usage

• Detail available in Data Warehouse
• SELECT DISTINCT a.trans_cd, a.trans_no, a.fund,
  a.area, a.org, a.obj,
• a.subobj, a.dollar_amt, a.acctg_pd,
  a.fisc_yr, a.acct_type
• FROM dwfs_tran_hist a
• WHERE a.fisc_yr '2003'
• AND a.acctg_pd '09'
• AND a.acct_type '22'
• AND a.trans_cd 'IX'
• AND a.trans_no LIKE 290'
• AND a.trans_no NOT LIKE '___F'
• ORDER BY a.trans_no

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Risk Cost Transfers between Projects

• OAR reviews the total number of cost transfers
  processed between projects
• Why is this a problem?
• Expenses should be charged directly to the
  appropriate grant the first time
• Reliance on cost transfers can lead to late
  transfers, poor financial management and
  potentially disallowed costs

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Responsibility Cost Transfers between Projects

• Preparer
• All charges should be charged directly to the
  appropriate grant, question PI if this doesnt
  seem to be the right account.
• Approver/Certified Approver
• Is the expense appropriate to the project?
• Use tools to track the number of non-salary cost
  transfers each department is processing
• Budget Manager
• Limit the number of costs transfers and make sure
  that costs transfers are done within the 30 day
  window

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Tools Cost Transfers between Projects

• Reports available in Sponsored Reports
• http//financial.reports.umn.edu/xrunreport.htm
• DEPARTMENT (Area Level)
• - Salary Transfers By Area/Department
• - Non-salary Expense Transfer Activity by Area

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Risk Documentation and Justifications

• OAR reviews the information that accompanies
  transactions for adequate descriptions and audit
  trail
• Why is this a risk?
• Descriptions/justifications must support
  allowability on projects
• Auditors may disallow poorly justified or
  unsupported transactions

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Responsibility Documentation and Justifications

• Keep in mind the number of people that use the
  information contained in the financial
  transaction
• Description or justification should include
  complete information about the transaction (who,
  what, when, where, and why) and not repeat
  information provided by the account string

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Tools Documentation and Justifications

• Document Description/Justification Standards
• http//www.oar.umn.edu/CA/docjust.htm
• OAR is currently revising the standards

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When Bad Thing Happen to Good Institutions

• GAO Lax oversight at housing agency led to
  abuse of purchase cards
• Poor oversight led to more than 2.3 million in
  inappropriate and suspicious purchase card
  charges by HUD employees in fiscal 2001
• HUD was not performing the required periodic
  reviews of purchase card transactions to assess
  compliance with its policies and procedures
• There was often inadequate documentation
  supporting many purchases GAO reviewed

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When Bad Thing Happen to Good Institutions

• Some examples of the questionable vendor
  transactions for which we did not receive
  adequate support included over 27,000 to various
  department stores such as Best Buy, Circuit City,
  Dillards, JCPenney, Lord Taylor, Macys, and
  Sears over 8,900 to several music and audio
  stores including Sound Craft Systems, JRs Music
  Store, Guitar Source, and Clean Cuts Music and
  over 9,700 to various restaurants such as Legal
  Sea Food, Levis Restaurant, The Cheesecake
  Factory, and TGI Fridays. Additional examples of
  questionable or potentially improper purchases we
  found include 25,400 of no show hotel charges
  for HUD employees who did not attend scheduled
  training and 21,400 of purchases from vendors
  who appear to have been out of business prior to
  the purchase. Because HUD was unable to provide
  adequate documentation for these purchases, we
  consider them to be a questionable use of
  government funds and therefore potentially
  improper purchases.

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Risk Questionable Object Codes
OR
Risk Object Codes of Ill Repute

• Object codes that are potentially unallowable or
  for costs normally charged as indirect

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Responsibility Questionable Object Codes

• Know which object codes can be questionable
• Know what object codes were proposed and awarded
• Be as proactive as you can before purchases are
  made

• Ask questions of the PI, Certified Approver, SPA
  and other resources if youre unsure about the
  transaction

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Tools Questionable Object Codes

• 7300-15 Books/Publ
• 7300-35 Food
• 7300-46 Minor Machines
• 7300-50 Office Supplies
• 7301-05 Advertising
• 7301-30 Dues Sub
• 7301-36 Insurance
• 7301-37 Insur Claim
• 7310-10 Printing/Dupl
• 7340-10 Addressing/Mail

• 7510 Federal NonReimb Exp
• 7341 Postage
• 7350 Local Phone
• 8010 Waste Mgmt
• 8020 Repairs Maint
• 8200-25 Furnishings
• 8200-45 Office Machines
• 8620 Bad Debt Exp
• 8800 TIP Int Chgs

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Risk Document Processing Approvals

• Is there a separation of duties between preparing
  and approving documents?
• Did the document get the appropriate approvals?
  Department/CA/Higher Level
• Are documents being approved in a timely manner?
• Have you determined your approvers Wuss
  Factor?

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Determining the Wuss Factor
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Responsibility Document Processing Approvals

• Always seek the appropriate approvals
• Dont assume the job of preparer eliminates your
  responsibility for everything stated on the
  document.

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Tools Document Processing Approvals

• CA Routing Grid always refer to the web
  version, because the document is always being
  updated.
• http//www.oar.umn.edu/CA/docrouting.htm

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When Bad Thing Happen to Good Institutions

• Former U administrator to be tried for theft,
  swindling
• Former University employee accused of swindling
  46,000 worth of equipment for allegedly using
  University funds to purchase two lawn tractors,
  several accessories and other items for personal
  use
• Some transactions split to keep under 10,000
  threshold
• Some equipment identified as services on PO to
  avoid involvement of inventory services

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Risk Deficit Spending

• Number of accounts and the totals dollars in
  deficit are risk factors
• Major risk to departments/colleges nonsponsored
  budgets if deficits arent cleared up in a timely
  manner
• May indicate poor budgeting or poor financial
  management and oversight

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Responsibility Deficit Spending

• Know the status of all accounts at all times
• Always question why an account is in deficit and
  discuss with PI
• Know why an account is in deficit
• new year budget not set up
• prior year not closed out
• transaction processing error
• IDC charging error
• error in encumbrances
• overspent budget
• If the reason is overspending, STOP SPENDING!

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Tools - Deficit Spending

• Report available in Sponsored Reports
• http//financial.reports.umn.edu/xrunreport.htm
• DEPARTMENT (Area Level)
• - Sponsored Accounts in Deficit by Area

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Risk Spending Rates

• Elapsed project period versus percentage of
  budget expended
• The spending rate should follow timelines
  proposed as closely as possible
• May indicate poor project and/or fiscal
  management

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Responsibility Spending Rates

• Review proposals and awards
• Communicate with PI as to changes in workscope or
  timeline that may be reflected in different
  spending patterns
• Alert PI when spending seems to be out of whack
  with project period dates
• Projects usually do not follow a consistent
  spending pattern be flexible

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Tools Spending Rates

• Report available in Sponsored Reports
• http//financial.reports.umn.edu/xrunreport.htm
• DEPARTMENT (Area Level)
• - Spending Rate of Sponsored Accounts by Area

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Risk Closeouts of Expired Accounts and Fixed
Price

• Grants that are past end date and arent
  completed , (potential No-cost extension)
• Grants that are completed and past end date, but
  the account has a balance or deficit
• Fixed price grants with balances (did they charge
  expenses to another grant)

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Responsibility Closeouts of Expired Accounts
and Fixed Price Closeouts

• Be aware of grants that are nearing their end
  dates and communicate with PIs
• Request no-cost extensions before the end date
• Work with SFR to close out account in a timely
  manner, identify accounts for fixed price
  transfers

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Tools Closeouts of Expired Accounts and Fixed
Price Closeouts

• Report available in Sponsored Reports
• http//financial.reports.umn.edu/xrunreport.htm
• DEPARTMENT (Area Level)
• - Spending Rate of Sponsored Accounts by Area
• - Fixed Price Account Balances By Area

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Risk Proposal Processing and Pre-Award

• Have a proposal and an award been processed
  concurrently
• Budgets and approvals not applied prior to
  sponsor receiving budget/proposal
• Limits ability to negotiate
• Accounts in pre-award past 90 days
• Budget implications if award does not come
  through

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Responsibility Proposal Processing and Pre-Award

• Communicate proposal process with PIs and their
  research staff
• Monitor pre-award accounts and determine a
  spending limit without a formal award

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Tools Proposal Processing and Pre-Award

• SPA reports proposal concurrents to the Associate
  Dean of Research for each college
• Report available in Sponsored Reports
• http//financial.reports.umn.edu/xrunreport.htm
• DEPARTMENT (Area Level)
• - Aged Pre-Award Accounts by Area

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Risks CA Continuing Education and RCR PI
Education

• CAs and PIs are responsible to complete their
  continuing education requirements

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Risks ISO Billings

• Have there been delayed billings from ISOs onto
  grants
• Timing issue when grants are near their end dates

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Responsibilities ISO Billings

• Contact ISO if delayed billings have occurred
• If not resolved, contact OAR
• Refer to the policy Processing Internal
  Accounting Transactions

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Risk Effort Statement Submissions

• Late submissions of effort statements
• May indicate problem behavior in departments
  and/or poor oversight

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Responsibilities Effort Statement Submissions

• Review and distribute effort statements in a
  timely manner so that they can be returned before
  the deadline
• Work with staff that continually have problems
  with returning statements in a timely manner

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When Bad Thing Happen to Good Institutions

• NU OKs settlement in federal grant case
• Government alleged that Northwestern University
  overstated the percentage of available researcher
  effort on grant applications to NIH and other
  federal agencies.
• United States also alleged that the University
  knowingly failed to comply with federal
  government requirements that a specific
  percentage of the researchers effort be devoted
  to a grant.
• Employee warned University officials that they
  werent in compliance, but his pleas were
  ignored.
• NU was fined 5.5 million and paid the legal fees
  of the employee who reported it.

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Risk Program Income

• OAR reviews that program income earned is
  processed correctly
• Why is this a risk?
• Federal sponsors have explicit reporting
  requirements for income generated during the
  project period
• University policy requires PIs to identify
  program income on projects from both federal and
  non-federal sponsors

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Responsibility Program Income

• Potential program income must be identified in
  proposal
• External Sales should be consulted re pricing
  and sales tax issues
• Departments are required to invoice for program
  income (copy to SFR)
• All program income received must be deposited by
  SFR

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Tools Program Income

• Report available in Sponsored Reports
• http//financial.reports.umn.edu/xrunreport.htm
• DEPARTMENT (Area Level)
• - Program Income By Area

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Communication

• Communication is the most important tool used by
  all staff members within all roles, but it comes
  with pitfalls
• Reactions
• Being unnecessarily defensive
• Feeling persecuted
• Feeling threatened and making threats
• Extreme emotions
• Feeling isolated

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Communication

• Key is to be professional, consistent and
  respectful to everyone
• How do I prepare for interactions?
• Be familiar with A-21, U and Department/College
  policies
• Establish working relationships with key resource
  people
• Know the risks involved in what you are doing

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Where Else Can I Turn?

• Non-CAs can consult with or refer issues to
  their departmental or collegiate CA
• Certified Approvers can consult with Division
  Head or Department Director
• If the CA is disputed by the PI and Division
  Head, the matter may be referred to the Associate
  Dean for Research for a final decision

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Where Else Can I Turn?

• Policy 2.4.4 Dealing with Allegations of
  Financial and Operational Misconduct
• Employees may contact either the Designated Key
  Administrator (DKA) in their college or
  administrative unit or the Universitys
  Department of Audits to report such suspected or
  known violations of financial or operational
  policies and laws.

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Where Else Can I Turn?

• Policy 2.4.5 Expanded Intervention
• When the control environment in a University
  unit is materially flawed it can result in
  inordinate levels of risk and cost, both to that
  unit and to the University as a whole. In some
  cases this condition can prevent the department
  or college from achieving its mission. When
  ordinary measures have not resulted in needed
  improvements the unit will be designated for
  expanded intervention.

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Where Else Can I Turn?

• Policy 2.4.5 Expanded Intervention
• The Audit Department or other central units can
  recommend a University Unit for expanded
  intervention. Several of the following indicators
  would typically be present
• Management has clearly not established an
  adequate control environment
• There are major deficiencies in critical control
  activities
• Financial irregularities or repeated intentional
  non-compliance with statutes, regulatory
  agencies, or University policies has occurred
• Fiscal problems are so severe that ongoing
  operations are at risk

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Financial Reports on the Web

• http//financial.reports.umn.edu