AUDITING & CONSULTING SERVICES 2013 ANNUAL FINANCIAL REPORT Internal Audit Report #

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2 AUDITING & CONSULTING SERVICES 2013 ANNUAL FINANCIAL REPORT Internal Audit Report # Background In accordance with accounting and financial reporting requirements promulgated by UT System policy and the Texas Comptroller of Public Accounts, Annual Financial Reports (AFRs) and related footnote information are prepared by the financial reporting officers at each UT institution and UT System Administration. The Office of the Controller at UT System Administration consolidates the AFRs and prepares footnotes and other related disclosures to comply with generally accepted accounting principles. The University of Texas at San Antonio (UTSA) AFR and related footnote information is the responsibility of UTSA management. At the February 2012 meeting, the Board of Regents approved the renewal of Deloitte to conduct an independent audit of the Consolidated AFR of the UT System for FY 2012 and FY Deloitte has audited the Consolidated AFR, which includes the statement of net position as of August 31, 2013, and the related statement of revenues, expenses, and changes in net position and cash flows for the year then ended. As part of the external financial audit, UTSA s Office of Auditing and Consulting Services performed financial audit procedures provided by Deloitte. Deloitte will present its opinion on the Consolidated AFR to the Board of Regents at the February 2014 meeting. Summarized below are UTSA s AFR Statement of Net Position, Statement of Revenues, Expenses and Changes in Net Position, and Statement of Cash Flow information. Statement of Net Position As of 8/31/13 As of 8/31/12 Total Assets $1,271,506,437 $1,240,238,036 Total Liabilities 184,304, ,736,082 Total Net Position 1,087,202,262 1,039,501,953 1

3 SRECNP (Statement of Revenues Expenses & Changes in Net Position) FYE 8/31/13 FYE 8/31/12 Operating Revenue $298,985,085 $309,058,172 Operating Expenses (475,029,268) (462,070,876) Non-Operating Revenue 212,931, ,942,721 Gains, Losses & Transfers 10,813,013 23,617,791 Change in Net Position 47,700,309 58,547,808 Statement of Cash Flows FYE 8/31/13 FYE 8/31/12 Net Cash (Used) by Operating Activities $(126,232,837) $(113,993,248) Net Cash Provided by Noncapital Financing Activities 192,787, ,637,017 Net Cash (Used) by Capital and Related Financing Activities (48,476,537) (61,833,713) Net Cash Provided / (Used) by Investing Activities (2,331,378) 1,301,113 Net Increase / (Decrease) in Cash 15,746,347 4,111,169 Cash & Cash Equivalents Beginning of the Year 40,763,712 36,652,543 Cash & Cash Equivalents End of the Year 56,510,059 40,763,712 Audit Scope and Objectives Deloitte is required to perform the audit of the Consolidated Annual Financial Report of the UT System in conformity with auditing standards generally accepted in the United States of America to determine whether the Consolidated AFR of the UT System presents fairly, in all material respects, the financial position of the UT System as of August 31, 2013, and its changes in nets position and its cash flows for the year then ended. The UT System Audit Office agreed to assist Deloitte in conducting the independent financial audit. The scope of the audit procedures developed by Deloitte and executed across the UT System varied based on size of the institution and financial statement line item. 2

4 The extent of UTSA s Office of Auditing and Consulting Services work was limited to procedures necessary for Deloitte to provide an opinion on the Consolidated AFR of the UT System for the fiscal year ended August 31, The extent of UTSA s Office of Auditing and Consulting Services procedures is not sufficient to provide an opinion on the AFR of UTSA. Audit Results Overview of Procedures Performed Deloitte identified six financial statement line items for UTSA s Office of Auditing and Consulting Services to audit: Cash & Cash Equivalents $56,510,059 Plant Property, and Equipment $1,135,907,927 Deferred Revenue $117,168,148 Tuition Revenue $265,968,746 Tuition Discount and Allowance $84,531,922 Operating Expenses $475,029,268 The Office of Auditing and Consulting Services tested multiple controls that mitigate the risk of material financial statement misstatement for each line item. One of the 13 controls tested did not operate as intended. Specifically, the deferred revenue calculation did not have supervisory approval; however, no errors were identified in the deferred revenue calculation. Based on compensating controls of a fluctuation analysis of the balance sheet and the use of a template provided by UT System to calculate deferred revenue, a recommendation to address the risk of an inaccurate calculation of deferred revenue is not necessary. The Director of Accounting will ensure the deferred revenue calculation is reviewed by another individual. No other control deficiencies were noted. In addition, the Office of Auditing and Consulting Services performed detailed testing of the six financial statement line items as described below. At the request of Deloitte, the Office of Auditing and Consulting Services gathered the results of an Information Technology Questionnaire. 3

5 Additionally, Deloitte performed procedures to comply with Statement of Auditing Standards (SAS) 99 Consideration of Fraud in a Financial Statement Audit SAS 99 which requires auditors to perform procedures to address the risk of fraud that would materially affect the financial statements. Finally, the scope of this audit was to determine if UTSA s Monitoring Plan and sub-certification process is functioning as intended to demonstrate compliance with UT System Policy Policy on the Annual Financial Report. Cash Plant Property and Equipment Cash on UTSA s AFR consists of amounts in three JPMorgan Chase cash accounts (1. operating, 2. controlled disbursements, and 3. payroll), the short term investment fund, cash in the state treasury, and petty cash. The Office of Auditing and Consulting Services reviewed the August 2013 bank statement reconciliations for the three JPMorgan Chase accounts for significant unreconciled differences, deposits in transit, outstanding checks, and outstanding direct deposits. No issues were noted. Capital and Intangible Assets and depreciation and amortization are reported in summary on the balance sheet. The S-11 Schedules of Changes in Investment in Plant for Land, Building, Facilities and Other Improvements, Equipment, Construction in Progress, Infrastructure, and Intangible Assets are reported in the supporting schedules. The Office of Auditing and Consulting Services tied the S-11 supporting schedules to the balance sheet and performed various detail tests of a sample of transactions on the supporting schedules for existence, rights & obligations, completeness, and valuation & allocation. For construction-in-progress additions, the Office of Auditing and Consulting Services obtained the approved contract and payment requests for a sample of transactions. Each construction-in-progress addition sample was reviewed for various attributes such as payment amount, bidding requirements, change order approval, and bonding and insurance coverage. For items transferred out of construction in progress during the year, the Office of Auditing and Consulting Services obtained supporting documentation to determine if the project was complete. No issues were noted with the construction-in-progress testing. The Office of Auditing and Consulting Services also reviewed 4

6 supporting documentation for non construction-in-progress additions and equipment to determine if the amount capitalized was appropriate and if the sample selected existed. A sample of assets disposed of during the year was reviewed to determine if the appropriate supporting documentation existed and if the gain/loss on the disposal was appropriately calculated. Finally, an overall depreciation reasonableness test was conducted. No issues were noted with the addition, disposal, or depreciation testing. Deferred Revenue Tuition and Revenue To fairly present tuition and other revenue, a deferred liability of a portion of revenue received but not earned is recorded. Fall 2013 tuition revenue received prior to August 31, 2013 is the largest percentage of the total amount deferred. We selected a sample of deferred tuition revenue, deferred non-tuition revenue, and prepaid scholarships and tested for accuracy, existence, and completeness. We also tied the total deferred calculation to the balance sheet. No issues were noted. Tuition and Fees are recorded including Discounts and Allowances on the Statement of Revenues, Expenses, and Changes in Net Position. Tuition rates vary based on the number of hours taken for resident and non-resident undergraduate and graduate students. In addition, all students pay various mandatory fees which either vary based on the number of hours taken or are a flat rate. The Office of Auditing and Consulting Services performed a tuition reasonableness test based on the Fall 2012, Spring 2013, and Summer 2013 tuition and mandatory fee rates and student enrollment statistics for those semesters, noting no issues. In addition, the Office of Auditing and Consulting Services sample tested students from each semester to determine if the student was charged the correct tuition and mandatory fees based on their status and course load. No issues were noted in the sample testing. Tuition Discount and Allowance Discounts and Allowances reported on the Statement of Revenues, Expenses, and Changes in Net Position is based on the NACUBO Alternative Method for determining tuition and scholarship allowances as required by UT System. The Office of Auditing and Consulting Services agreed the calculation to the general ledger, evaluated significant assumptions to ensure reasonableness, and created an expectation and compared to the actual balance. No issues were noted in the analytics 5

7 performed. The Office of Auditing and Consulting Services also matched the components of the calculation from the DEFINE accounting system to the BANNER student information system for a sample of days. In addition, various categories of aid such as Stafford/Pell and general fund scholarships as well as student payments and refunds for a sample of students were traced to the calculation for appropriateness and accuracy. No issues were noted in sample testing. Operating Expenses Information Technology Questionnaire Fraud Procedures Operating Expenses are reported by Functional Classification on the Statement of Revenues, Expenses, and Changes in Net Position and by Natural Classification on Footnote 14 in the Supporting Schedules. The Office of Auditing and Consulting Services tied the supporting schedules to the General Ledger and, based on materiality, performed analytical procedures on the functional classification. No issues were noted in the analytical procedures or the sample testing. Deloitte requested that UTSA complete a questionnaire to identify the systems responsible for processing financial information and document the IT security controls present at UTSA associated with these systems. UTSA utilizes the DEFINE General Ledger system and the primary revenue feeder application is BANNER. Deloitte did not request UTSA to perform any testing of controls identified and did not have any comments or concerns regarding the controls documented in the questionnaire. SAS 99 - Consideration of Fraud in a Financial Statement Audit requires auditors to perform procedures to address the risk of fraud that would materially affect the financial statements. UTSA executive management attested that no actual, suspected, or alleged fraud at UTSA occurred in FY13 that would have a material effect on the FY13 financial statements. In addition to the attestation, the Office of Auditing and Consulting Services provided Deloitte with an overview of UTSA s procedures to report and investigate anonymous compliance issues including fraud. Deloitte also requested a report of all transactions that occurred in FY13 in order to validate the trial balance and to review for potential fraud. Deloitte worked directly with the Director of 6

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