Consulting Engagement Fixed Assets Part 3 of 3

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1 COAST COMMUNITY COLLEGE DISTRICT Consulting Engagement Fixed Assets Part 3 of 3 Office of Internal Audit Rachel A. Snell, Director CIA, CFE, CRMA, CICA June 2014 Providing value-added services in an independent, 1 ethical, and collaborative environment

2 Consulting Engagement Fixed Assets Part 3 of 3 Chancellor Jones, What s Inside Objective, Scope, Methodology. 2 Consulting Engagement Results District instruction manuals..4 Policies and procedures 4 Appendix A...6 Summary of Results & Action Plan.7 Internal Audit conducted a Consulting Engagement related to Fixed Assets. The objectives were to 1) enter fixed asset information into Banner; 2) create process manuals documenting fixed asset entry into Banner; and 3) evaluate Fixed Assets policies and procedures. This report is Part 3, in a three-part series, which relates to Fixed Asset and Surplus policies and procedures. Part 1 was completed April 2014, and it was related to fixed asset purchasing and tracking. Part 2 was completed in May 2014, and it was related to surplus property tracking. To accomplish Part 3, we performed the following work: Reviewed prior reports and analyzed findings and recommendations; Reviewed policies, procedures, and other relevant criteria; Assessed risk and controls, including the potential for fraud, waste, and abuse. As a result, we determined that internal procedure manuals and guides are not always reviewed to ensure consistency with board policies or reflect current practice. Periodic inventories are not always completed, and roles and responsibilities of various staff positions related to fixed assets are not always well defined. A summary of the results and action plan is located on page 7 of this report. If you have any questions, I can be contacted at (714) or rsnell1@mail.cccd.edu. Rachel Snell, Director Internal Audit 1

3 Objective, Scope, and Methodology As per Board Policy, Internal Audit uses the International Professional Practices Framework (IPPF) to guide the performance of its activities. Board Policy 6330 requires the Internal Auditor to perform an annual review of purchasing practices. The work performed related to all 3 part of the Fixed Asset Consulting Engagement was done so as part of this requirement. This project was selected as a Consulting Engagement due to Independence and Objectivity conflicts. One member of the OIA staff performed management functions in this area for over one year. Per Board Policy, auditors are not permitted to perform management functions, and per IPPF auditing standards, auditors cannot audit their own work. In order to institute safeguards while providing a value adding service, the audit objective, scope, and methodology were limited. Objectives: This report is Part 3 in a three-part series. To evaluate policies and procedures related to Fixed Assets and Surplus Property. Scope: Fixed Asset and Surplus policies and procedures approved by the Board of Trustees as of March Methodology: In order to perform our work, we performed the following tasks: Reviewed prior reports and analyzed findings and recommendations; Reviewed policies, procedures, and other relevant criteria; Assessed risk and controls, including the potential for fraud, waste, and abuse. Team Members: Rachel Snell, Director Tracy Young, Team Member 2

4 Consulting Engagement Results Background In Parts 1 and 2 of this consulting project, Internal Audit identified inefficiencies that hinder staff s ability to appropriately enter, track, and manage fixed assets district wide. These inefficiencies included: Inaccurate and untimely purchasing entries into Banner; Limited to no independent review of purchasing and fixed asset Banner entries; Purchases not always delivered to/processed by appropriate staff and/or department; Surplus property practices do not always conform with recently revised Board Policy; Disparate information systems that do not communicate with each other or Banner. As a result, management agreed to implement measures in order to resolve these weaknesses. Criteria In order for the District to appropriately account for purchased assets, there are several rules and regulations, including Board policies and procedures. The following criteria were identified: Criteria Summary Table Criteria Last Revised Date Criteria Summary Month/Year BP/AP 6520 December 2013 Chancellor establishes procedures to manage, control, and protect the assets of the District. District maintains fixed asset inventory system and conducts periodic physical inventory. BP/AP 6535 December 2013 District property/equipment shall not be loaned to any individual/organization for private use. BP/AP 6550 December 2013 Chancellor delegated authority to declare personal property as surplus, not real property. The District may sell/dispose/ auction personal property if not required for District purposes. Sales of surplus personal property shall be reported to the Board on a periodic basis. CCCD Fixed Asset Manual March 2014 Instructions on entering and amortizing fixed assets in Banner. CCCD Surplus Manual April 2014 Instructions on entering surplused assets in Banner. CCCD GO Bond Manual March 2014 Instructions on entering and amortizing capital construction expenditures in Banner. CCCD Property Control February 2010 Documentation on campus processes on fixed Manual asset purchasing, receiving, tagging, recording, inventory, and surplus. CCCD Purchasing Handbook Summer 2009 District purchasing guidelines. 3

5 Results-Enhancements to District Instruction Manuals Internal Audit staff performed responsibilities that are defined as management duties. Board Policy and Auditing Standards do not allow Internal Audit to perform functions that it is charged with auditing. During a period of transition, Internal Audit created three manuals: Fixed Asset, Surplus, and General Obligation (GO) Bond. As of June 2014, Internal Audit transferred responsibility of these manuals, including review and revision, and associated fixed asset processes to District Office Fiscal Services. The Property Control Manual and the Purchasing Handbook have not been revised in last several years. Without a more current review, and given that the District has undergone significant revisions to Board Policies and Procedures, there is a risk that the manuals do not reflect the current practice in the Fiscal/Purchasing departments, and may not be consistent with revised Board policies. Results-Enhancements to BP/AP 6520 Use and Security for District & Personal Property Administrative Procedures 6520 states that the District conducts periodic fixed asset inventories. According to management, OCC generally conducts an inventory review every other year. GWC and CCC are not aware of when the last inventories were conducted, and the District has not conducted an inventory. Furthermore, Information Technology has not conducted an inventory, but in the past, staff has assisted the campuses in conducted inventory reviews. In addition, the Inventory Control employee for each site must document and approve assets that transfer between District. Management is not always clear on who at each campus is the designated Inventory Control employee as referenced in this policy, and while assets transfer infrequently, there is currently no mechanism for tracking these transfers. According to management, the District is in the process of revising internal forms and procedures to ensure transfers are documented and approved by the appropriate personnel. In general, some staff believes the Maintenance & Operations staff serves as Inventory Control officers for non-it equipment, and Information Technology staff is the Inventory Control officers for IT equipment. Administrative Procedure 6520 also states that requests to use District equipment off site for Districtrelated purposes must be approved through immediate management. Furthermore, equipment that is loaned for non-education purposes for which charges are involved must be approved by immediate management. While these two requests are infrequent, there is no consistent process for documenting the equipment that leaves the District property, or the management approvals. In response, Internal Audit worked with staff to create a form that would serve to assist management throughout the District in documenting equipment used off-site (including for non-educational purposes) and approvals. (See Appendix A) Lastly, Risk Services is responsible for various insuring and bonding responsibilities, which includes disclosing to third party providers the extent to which losses have occurred throughout the District. Although procedure 6520 states that lost or stolen equipment or unauthorized use of equipment should be reported, these reports are made to the responsible administrator, which is a position not defined in procedures and there is no mention of Risk Services. According to management, there are efforts underway to update current reporting forms for fixed assets that include the reporting of theft. 4

6 Results-Enhancements to BP/AP 6535 Use of District Equipment Board Policy states that District employees are responsible for any equipment under his/her control, and losses should be reported immediately to the appropriate administrator, as well as risk services. The contents of this policy and procedure are already discussed in BP/AP 6520, and therefore are potentially redundant and unnecessary. BP/AP 6550 Disposal of Property Board policy allows the District to dispose of property once it is determined that the property is of no longer valuable or useful for business operations. This policy and procedure does not define who in the District is authorized to make disposal decisions. Other purchasing and property policies and procedures delegate certain authorities to the Chancellor and/or the designee, with ratification by the Board of Trustees. The procedure delegates the disposal of real property to the Board of Trustees. According to management, there are efforts underway to draft a recommendation and policy change to delegate surplus authority to the Chancellor, as well as hone the process for reporting and physically disposing of surplus fixed assets. Results-Outside the Scope Internal Audit did not perform work related to patrolling District property or campus safety and security. However, during our review of Board Policy and Procedure 6520 we noted inconsistent language regarding roles and responsibilities delegated to the campus Presidents with regard to campus safety, security, and patrols of District Property. For example, the policy states that patrolling is delegated to the Presidents, but also states that the campus safety/security function is under the leadership and direction of the OCC President. GWC has its own public safety force, whereas CCC and the District Office do not. 5

7 Appendix A Off Site Property/Equipment Check Out Form Check out Date: Check Out By: Verified By: All IT equipment and any other equipment as deemed by supervisor Department Director or above Approval: Non-educational Purpose: Yes/No (Circle) * Note: Add additional rows as necessary Item # Description (type, model) ex Dell Laptop 1610 Vendor S/N CCCD Barcode

8 Summary of Results and Action Plan Action plan items that were previously reported were not duplicated within this report. The summary of results and action plan presented below reflects new opportunities identified through the dedicated review of District policies and procedures, made in consultation with management. Management does not always periodically review internal manuals and guides, and the manuals that exist may not always reflect current practice. Recommendation 1: The District Office should periodically evaluate its internal practices related to purchasing and fixed assets to ensure continued efficiency and effectiveness, and ensure applicable manuals and guides are revised as needed to reflect current practice and Board policies and procedures. The District and Campuses are not always able to comply with BP/AP 6520, and the District/Campuses are not always completing a periodic inventory as required. Recommendation 2: The District Office should create and/or clarify procedures to ensure staff throughout the District and the campuses are able to comply with policy. This includes: 1. Clearly designating which employee and/or position is the Inventory Control employee as referenced in policy and communicate roles & responsibilities to designated personnel; 2. Review the current policy regarding entity responsible for the conduct of periodic inventory and determine whether this function should take place at the campus level versus the District level. If at the District level, consider seeking a new full time position dedicated to fixed asset coordination and inventory review District-wide. 3. Implementing a mechanism for documenting transfers between District sites, as well as the review and approval of such transfers. 4. Updating the procedures to include the use of the off-site equipment form. The new requirement should also be communicated district-wide. 5. Define responsible administrator for the purposes of reporting fixed asset losses and unauthorized use, clarify process for making such reports, including the notification of Risk Services. BP/AP 6535 presents guidelines that are already discussed in BP/AP Recommendation 3: District leadership should review BP/AP 6535 and consider consolidating its contents with BP/AP Board Policy 6550 does not define who within the District is authorized to dispose of surplus property. Recommendation 4: District leadership should review and revise language of Board Policy 6550 to include delegated authority to the Chancellor and/or a designee, and provide for Board ratification of surplus property decisions. Board Policy 6520 has inconsistent language regarding roles and responsibilities delegated to the campus Presidents with regard to campus safety, security, and patrols of District Property. Recommendation 5: District leadership should review and revise language of Board Policy 6520 in order to clarify the campus roles and responsibilities related to campus safety and patrols. Management Response/Action Plan: Through the Office of the Vice Chancellor of Administrative Services, there is a District wide effort to review fixed asset policies and procedures, ensure current policies and procedures are followed for all property, including Measure M, and to implement recommendations from audit reports Part 1, 2, & 3. Due Date: December 2015 Responsible Party: Andy Dunn, Vice Chancellor Administrative Services 7