2010 Joint Chairmen s Report. UMB Progress to Address Audit Findings. (R30B/R75T), pages 133/ Release of Restricted Funds

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3 2010 Joint Chairmen s Report UMB Progress to Address Audit Findings (R30B/R75T), pages 133/ Release of Restricted Funds 1

4 Subject: 2010 Joint Chairmen s Report - UMB Progress to Address Audit Findings (R30B/R75T), pages 133/ The University of Maryland, Baltimore offers this report on the status of current efforts made in response to the most recent report of the Office of Legislative Audits. We would also like to share the changes in institutional policies and procedures concerning compensation matters that the institution has implemented to insure that issues such as those raised in the report do not recur in the future. We have attached a table showing each audit finding, the auditor s recommendation, an indication of whether or not the institution agreed with the auditor, a checkmark indicating the status of UMB efforts to implement a correction, and a description of the corrective action taken. This document, updated for actions taken to date, served as a useful and concise discussion tool at the hearings during the legislative session, and we believe it efficiently responds to the requirements of the budget committee expectations. Updates on the chart are set forth in bold. The University continues to work diligently towards complete resolution of those few recommendations which are not marked as complete. The University has completed a comprehensive review of institutional policies relevant to changes in employee compensation and the processing of those changes. A number of procedures have been implemented with more in process. This review was conducted by a team comprised of representatives of various administrative areas within the University and each of the schools. The collaborative group recommended additional Human Resource Earnings codes and Payroll Compensation Codes which will identify all types of earnings paid to Faculty and Staff in order to properly track and report to the legislature on the various types of compensation. These codes will be implemented on July 1, 2010 and in effect for the FY 2011 Working Budget. To ensure the campus commitment to compliance the following policies have been created since December 2009: UMB Procedures to Implement USM Policy on Board of Regents Review of Contracts for Highly Compensated Personnel UMB Policy on Concurrent Faculty and Administrative Appointments UMB Policy Concerning Faculty Supplemental Pay for Summer Work UMB Policy Concerning Supplemental Payments and Salary Adjustments for Faculty UMB Code of Ethics and Conduct UMB Policy on Increased Responsibilities and Supplemental Compensation for Exempt Staff UMB Payroll Policy updated to require Supervisor Approval on all forms 2

5 DRAFT Policy currently under review by institutional legal counsel on UMB Policy Concerning Additional Compensation Payments (not yet posted) These policies can be found at and The Office of the Attorney General has been conducting an investigation of the facts relating to the compensation paid to the UMB Dean whose compensation is discussed in the audit. The Office has also been reviewing the legal options available to the State as the facts are developed. The investigation is still underway. For this reason the Office is not able to provide any further details at this time. In addition to the above compensation-specific changes, other compliance-related changes have been made. All USM / UMB policies are being reviewed to ensure that a UMB policy is in effect and corresponds to the USM policy. This analysis will be completed by the end of June 2010 at which time the process of creating new policies that are needed will commence. In April 2010 the entire campus submitted new Signature Authority Forms with original signatures, which are accessible to Financial Services staff for their review before processing transactions. This new procedure was implemented to help prevent the use of fraudulent signatures. During the past few months University System Internal Auditors have conducted a full review of all gift card transactions for the School of Social Work. Fraud by an individual employee was discovered and was referred to the Attorney General s Office for prosecution in June No additional details can be released until the fraud investigation is completed. In addition, the School of Social Work has revised and implemented policies and procedures regarding the purchase and use of gift cards. The campus will be developing a policy and procedures concerning gift cards. The University continues to strengthen its controls, policies, and procedures intended to ensure compliance with laws, regulations, legislative mandates, and Board of Regents policy. These actions have been discussed with campus leadership and the University s new President, Dr. Jay Perman, who will start on July 1. A new Vice President position for planning and accountability has been created and filled. A campus policy of Business Ethics has been approved and will be implemented throughout the organization. In order to ensure compliance with all audit issues the Office of Administration and Finance has made the following organizational changes: Created a new Department of Management Advisory Services which is responsible for the ongoing monitoring of compliance that is specified in this report. Additionally, this new department will develop and implement the central and departmental level training in accounting compliance. We have transferred the former Director of Financial Services to head this organization and have posted 2 new positions, one management and one staff to perform these functions. 3

6 Restructured the Central Accounting function and posted the position to hire a new Director of Financial Services / Controller to lead this organization. Created a new Department of Sponsored Projects Accounting and Compliance. This reorganization will immediately increase the management resources available to meet the challenges identified by the audit related to contracts and grants. The University of Maryland, Baltimore and the findings in the report of the Office of Legislative Audits has been a formal agenda item at meetings of the Chancellor and System Presidents, meetings of System Administrative Vice Presidents and other Systemwide forums of officials involved in compensation matters, so that our other System institution counterparts are aware of the findings and the underlying circumstances. We believe that our experience may benefit other institutions in prompting similar institutional policy reviews. The University intends to persist in the completion of the actions deemed necessary in response to the report of the Office of Legislative Audits. These efforts are to be reviewed by the System s Office of Internal Audits, with a report to be issued to the Board of Regents Audit Committee. The University will work diligently to avoid any recurrence of the findings in the most recent audit report by the Office of Legislative Audits. We would be pleased to provide any additional information if necessary. 4

7 University System of Maryland University of Maryland Baltimore Audit Report June 2010 Status of Corrective Actions Repeat UMB Status Audit Findings Item Audit Report Recommendations Response Implemented ( ) Action taken Updates since February 2010 Employee Compensation 1 Questionable payments totaling $410,000 were made to a senior management employee a strictly comply with established USM and UMB policies for compensation payment, including sabbatical leave policy agree All mid year base compensation changes and supplemental compensation payments reviewed by VP for Finance and Administration implemented July Procedures for review of contracts with highly compensated individuals approved December in process USM investigation of the $350,000 retention payment is on going. Disposition of $60,000 summer stipend pending. Update: The investigation of the $350,000 is at the Atttorney General's Office and is still on going. The status of the $60,000 summer stipend is still pending. b payment for summer research to be authorized by appropriate supervisory personnel agree Campus policy on summer stipends, including signatory requirements was revised December 1, c submit the June 2008 agreement to the OAG and Regents agree The agreement was submitted. d formally disclose additional compensation payments to the General Assembly agree in process Investigation of the additional compensation is on going. Update: UMB Human Resource Services has developed additional earnings codes and payroll compensation codes which are being implemented on July 1, 2010 for the beginning of the FY2011 budget. 2 Lacked policies concerning certain employee compensation payments a establish policies on summer research, employee bonuses and all other forms of additional compensation b disclose additional compensation in Annual Budget to the General Assembly agree Analysis of "other earnings" totaling $55m over audit period was performed (results attached). Summer research policy revised December 1, Supplemental compensation to staff policy established June Supplemental compensation and salary adjustments for faculty policy established December 19, agree in process Revised budget submission formats being developed to identify regular and additional compensation totals draft with Systems Office Feb. 18, Update: USM is reviewing the draft. Cash Receipts 3 Adequate internal controls were not established over certain collections R a ensure employees maintaining A/R records do not have access to related collections agree New process requiring all collections received by the restricted funds unit be delivered immediately to the financial services department office manager for deposit, implemented July Sponsore Projects Accounting and Compliance oversees compliance. Accounts Receivable 4 Did not always pursue timely collections, sufficient controls were not established over non cash credit adjustments b timely deposit of collections agree New employees trained to submit checks for deposit immediately. Receipt recorded in a clearing account until any research necessary to make sure they are credited correctly is complete implemented July 1, R a send written payment demands to grantor agencies at required intervals agree Employees and supervisors trained in the reporting requirements, process change implemented October 2009.

8 University System of Maryland University of Maryland Baltimore Audit Report June 2010 Status of Corrective Actions Repeat UMB Status Audit Findings Item Audit Report Recommendations Response Implemented ( ) Action taken Updates since February 2010 b forward delinquent accounts to CCU according to regulation agree Received from CCU an additional extension in the time to pursue collection before turning accounts over the CCU. Processes established to be in compliance with revised regulations. All 58 of the accounts cited in the audit have been resolved, 46 collected, 7 resolved by negotiation, 5 sent to CCU. Work ongoing to get current with procesing of dental clinic receivables. In the 21 months up to June 30, ,581 accounts with balances of $1.2m were sent to SCCU. Discussions are underway with CCU on changes to the requirements. Update: The requirements for CCU are now in alignment with the internal procedures being followed in the Dental Clinic. c ensure final billings are prepared and sent to Dental clinic patients in accordance with internal procedures agree Procedures are being updated to reflect agreements with CCU and will be implemented. Update: Procedures have been revised as of May 26, Management Advisory Services oversees compliance. d separate processing of dental clinic insurance payments and non cash credit adjustments disagree UMB uses established clinical business practices for handling payments from insurance as implemented in the software system used for this process. Contracts with Medical System 5 Untimely execution of contracts and receipt of payments, did not assess late payment fees Revolving Fund Accounts 6 Written plans to eliminate deficit balances on certain accounts had not been established e increase number of dental clinic non cash credit adjustments that are independently reviewed agree Revised process results in review of 40 transactions a month rather than the 10 reviewed under the previous process. Implemented December 2009, review performed by accountant not involved in A/R transactions. R a execute annual contract prior to beginning of fiscal year agree FY10 contract executed June 28, b monitor payments and assess late fees agree Process put in place to monitor and assess late fees. Management Advisory Services oversees compliance. c take appropriate action to collect late payment fees agree Fees under 1 contract collected; the others have been invoiced and collection will be pursued. a establish written plans for the accounts referred to in the audit and other large deficit balance accounts agree Plans have been written and all but 1 of the accounts referred to in the audit now have a positive balance. Budget and Financial Analysis oversees compliance. b consult with legal counsel on remedies available in the event of default agree Legal counsel will be sought when the written plan benchmarks are not met. Update: To date, there have been no defaults. Purchasing and Disbursement Transactions 7 Adequate internal controls were not established and required BPW approvals were not always obtained a ensure purchases and disbursements are subject to independent approval agree Revised processes limiting accounts payable personnel access to revise or create vendors implemented February 1, New report of vendor additions created, and is reviewed daily by the accounts payable manager.

9 University System of Maryland University of Maryland Baltimore Audit Report June 2010 Status of Corrective Actions Repeat UMB Status Audit Findings Item Audit Report Recommendations Response Implemented ( ) Action taken Updates since February 2010 b restrict ability to process transactions based on job responsibility agree System access changed February 1, c immediately remove system access for employees who leave agree Employee termination process reviewed. d report the cited service contracts to BPM and request approval in advance in the future agree in process In the future UMB will treat the annual library subscription contracts as service contracts and will seek BPM review. Update/Revised Position: USM will submit a letter to BPW claiming that the subcription contract is not a service but a commodity. This is based on the definition of services and commodities within the USM procurement policies. This letter will be submitted by July, Purchases were made without formal procurement processes a use formal written procedures for purchases reasonably expected to exceed $100,000 agree in process New review procedures are being developed to identify multiple purchasing card transactions which would reasonably be expected to exceed $100,000 and will use formal procurement processes to negotiate for best pricing on these items. Update: UMB Procurement Services has identified procurement card vendors exceeding $100,000 for the last fiscal year and is in the process of reviewing these vendors to negotiate best prices. Corporate Purchasing Cards 9 Purchases not always reviewed by supervisory personnel and supporting documentation was not always maintained a enforce existing procedures on supervisory review agree To ensure supervisor review, a 3rd verification signature and an automated IT reminder system was implemented March b ensure that cardholder logs and related documents are forwarded to Procard program administrator or fiscal officer for review Specific fraud incident was discovered in January of 2008, an internal audit was completed in August of 2008 and the individual pled guilty in June alternative Responsibility for this final level of review has been assigned to the verification reviewer under a new process implemented in March of It is not practical for the central P card admin to review all 590 cards. Procurement Services oversees compliance. c Internal audit review of the gift card purchases and associated procedures agree in process Internal audit began their review in February Update: USM auditors have conducted a full review of all gift card transaction for the School of Social Work. A fraud was discovered and turned over to the Attorney General's Office for prosecution. Policies and procedures regarding the issuance of gift cards in the School of Social work have been revised and implemented. The campus will be developing a policy and procedures concerning gift cards. Information Systems Security and Control 10 Proper user account and password controls for certain critical systems were not established R a comply with account and password recommendations of the USM guidelines agree Specific findings from prior audit had been addressed but new findings in the area of account and password compliance were discovered. Strong password standards implemented and enforced fall Passwords and account access for highly privileged accounts strengthened.

10 University System of Maryland University of Maryland Baltimore Audit Report June 2010 Status of Corrective Actions Repeat UMB Status Audit Findings Item Audit Report Recommendations Response Implemented ( ) Action taken Updates since February Significant security related events were not always logged and monitored R a comply with logging and monitoring provisions of the UMS guidelines agree in process The guideline calls for a comprehensive assessment of risks to the IT databases, application and host servers and monitoring of these systems to mitigate those risks. A formal risk assessment is underway and a reviewed plan for logging and monitoring system activity will be put in place by December 31, Update: The completion date is still on target. 12 Internal computer network including key administrative systems were not adequately secured R a detailed recommendations were made to improve network security agree in process Network security is a complex and ever changing area of risk. The audit recommendations will be reviewed in detail and a plan for implementation developed to be completed by December Update: The completion date is still on target. Working Fund 13 Internal control deficiencies existed for two working funds R a separate duties between recording working fund disbursements and printing and signing checks b separate duties between preparing working fund bank reconciliations and recording disbursements and printing and signing checks agree New procedures detailing access to checks, verification and daily report reviews were implemented July 1, Management Advisory Services oversees compliance agree New procedures detailing access to checks, verification and daily report reviews were implemented July 1, Management Advisory Services oversees compliance

11 University of Maryland, Baltimore February 2010 Legislative Audit Report Components of Additional Compensation (Finding 2) FY FY 2008 Description Policy $31.0M $12.5M Regular compensation payments to employees who are exempt from FICA (Social Security and Medicare). These employees are often graduate students and non-resident alien post-doctoral fellows. UMS policy 22.0 II , VII , VII-9.0, UMB procedures on pay administration 9.0M 3.6M 5.0M 2.5M Accrued leave payouts to employees terminated or separated (e.g. retired, found another position) Payments to employees (UMB faculty/doctors as well as nurses) for weekend and evening on-call coverage as well as additional clinical services. UMS policy 22.0 II , VII , VII-9.0, UMB procedures on pay administration UMMC / UMB annual physician services contract 3.5M 1.6M Salary payments for adjunct faculty. UMS policy VII , UMB policy VII (A) last revised 10/04 Payments for regular faculty teaching over-load, faculty teaching in addition UMB policy II C, UMB policy II-1.25 (A), to regular duties, staff teach in addition to regular duties UMB policy VII (A) 1.5M.6M Summer stipends for 10 month faculty. UMB policy II (B) 3.9M 1.7M.2M.1M Variable compensation amounts under employment contracts for performance, supplemental compensation for additional duties UMB policy II (A), II C, VII (A), VII (A), VII (A), ex-pat policy Staff bonuses under Reward and Recognition programs UMS policy VII , VII , UMB procedures on pay administration.5m.2m Retention, recruitment or performance bonuses for major recruits.4m Questionable compensation payments in Finding 1 $55.0M $22.8M Total Additional Compensation per Finding 2 K:\UMB\President\CY 2010\Audit JCR\audit report 2010 chart 2 21 Components of Compensation(3)2