The University of Texas System Administration System Audit Office Annual Audit Report Fiscal Year 2016

Transcription

1 System Audit Office Fiscal Year 2016 The University of Texas System System Audit Office 210 West 6th Street, Room B.140E Austin, Texas 78701

2 TABLE OF CONTENTS I. COMPLIANCE WITH TEXAS GOVERNMENT CODE, SECTION II. INTERNAL AUDIT PLAN FOR FISCAL YEAR III. CONSULTING SERVICES & NON-AUDIT SERVICES COMPLETED IV. EXTERNAL QUALITY ASSURANCE REVIEW V. INTERNAL AUDIT PLAN FOR FISCAL YEAR VI. EXTERNAL AUDIT SERVICES VII. REPORTING SUSPECTED FRAUD AND ABUSE... 31

3 I. Compliance with Texas Government Code, Section : Posting the Internal Audit Plan, Internal Audit Annual Report, and Other Audit information on Internet Web site The System Audit Office FY 2016 Internal Audit Annual Report, which includes its approved FY 2017 Annual Audit Plan (see Section V), a summary of weaknesses/concerns and related actions taken resulting from the FY 2016 Annual Audit Plan (see Section II) can be found on the UT System website (specifically, the Reports to State webpage choosing Audit Reports from the Report Type drop down menu). The annual report can be found at 1

4 II. Internal Audit Plan for Fiscal Year 2016 Financial Audits and Projects FY 2016 Audit Plan Engagements FY 2015 System Administration and Consolidated Financial Audit Status of Plan Deloitte Report FY 2015 UTS Account Reconciliations & Subcertifications Audit 12/15/15 FY 2016 System Administration and Consolidated Financial Audit (interim) Deloitte Report FY 2015 UT Systemwide Financial Audit General - Guidance/Assistance to Institutions Complete Report N/A FY 2016 UT Systemwide Financial Audit General - Guidance/Assistance to Institutions (interim) Complete Report N/A NCAA Agreed-Upon Procedures at UT Arlington 01/15/16 NCAA Agreed-Upon Procedures at UT El Paso 01/15/16 NCAA Agreed-Upon Procedures at UT San Antonio 01/15/16 NCAA Agreed-Upon Procedures at UT Pan American 01/15/16 NCAA Agreed-Upon Procedures at UT Permian Basin 01/15/16 Operational Audits and Projects Executive Travel & Entertainment Expenses Audit UTIMCO CEO/CIO & Executive Travel & Other Expenses Audit UTIMCO TBD Audit Devon Energy Oil and Gas Producers Audit Conflict of Interest Process Audit Postponed In Progress Cancelled In Progress In Progress Chancellor's Travel, Entertainment & University Residence Maintenance Expenses Audit 02/17/16 Presidential Travel, Entertainment & University Residence Maintenance Expense Audits Postponed OFPC Fee Benchmark Consulting In Progress Procurement Workgroup Consulting - GPO Reviews Complete Report N/A Student Success Metrics Consulting Cancelled UT Austin Jackson Estate Foundation Trust Audit Not Started UTRGV Consulting Cancelled UTIMCO Separately Managed Accounts Process Audit (Carryforward) 05/10/16 Executive Travel & Entertainment Expenses Audit (Carryforward) 11/05/15 Presidential Travel & Entertainment Expenses Audit (Carryforward) Various Last on 03/10/16 UTPB College of Education Special Project Complete Report N/A Compliance Audits and Projects Procurement and Contract Administration Audit In Progress Proportional Benefits Audit 03/14/16 Office of Employee Benefits HIPAA Audit In Progress Guidance to Institutions on Procurement and Contract Administration Audits Complete Report N/A Guidance to Institutions on Proportional Benefits Audits Complete Report N/A Guidance to Institutions on Practice Plan Audits Cancelled LERR Expenditures Audit (Carryforward) 04/21/16 Academic Workload Audit (Carryforward) 11/12/15 UTMDACC Procurement Special Review In Progress Information Technology Audits and Projects Cloud Computing and Storage Audit UT Share Post Implementation Review UT Share Executive & Operating Committee Participation IT Strategic Planning and Governance Review Systemwide IT Inventory Risk Assessment In Progress Postponed Complete Report N/A In Progress In Progress TAC 202 Audit (Carryforward) 01/08/16 2

5 Follow Up System Audit Office Follow Up FY 2015 FY 2016 Audit Plan Operations Development of Internal Audit Strategy Management of the Internal Audit Activity General Audit Assistance to System Administration Departments FY 17 System Audit Office Annual Audit Plan and Risk Assessment Development Process System Audit Office Quality Assurance Review Program Activities System Administration Internal Audit Committee TeamMate and Website Updates SharePoint Site Management UTIMCO Meetings and Oversight Activities Institution Liaison Activities (Guidance/Assistance to Institutions) Communications - General Communications - Systemwide Audit Council and Education ACMR Committee and Board of Regents Meetings Quality Assurance Review Participation at External Entities Fraud and Investigation Tracking Priority Findings Tracking and Reporting Metrics Tracking & Reporting Online Reporting Data Analytics Technical Operations FY 17 Systemwide Annual Audit Plan and Trend Analysis System Administration Committees and Councils State Auditor's Office Reporting and Requests FY 2016 Audit Plan Initiatives Audit Governance Capabilities and Communication Risk Assessment Stabilization Audit Management Technology Implementation Quality Program Implementation Knowledge and Resource Development Audit Report Development Audit Team Capabilities and Leadership Development Internal Audit Staff Training/Continuing Professional Education Professional Organizations and Associations Various Memos Status of Plan Complete Report N/A Cancelled Ad hoc Complete Report N/A Status of Plan Deviations from Audit Plan Submitted: The System Audit Office completed its FY 2016 annual audit plan except those noted above as in progress and the deviations noted below. Audits in progress at the end of FY 2016 were carried forward for completion in FY Changes from the original FY 2016 annual audit plan were presented to and approved by the UT System Administration Internal Audit Committee throughout the fiscal year as follows. Hours Cancelled or Reduced: Audits and Projects: Executive Travel & Entertainment Expenses Audit; Presidential Travel, Entertainment & University Residence Maintenance Expenses Audit; UTIMCO Audit; Student Success Metrics Consulting; UTRGV Consulting; Guidance Institutional Practice Plan Audits; UT Share Post Implementation Review Operations: Quality Assurance Review Participation at External Entities Initiatives: Audit Management Technology Implementation Hours Added to FY 2016 annual audit plan: Audits and Projects: Chancellor s Travel, Entertainment & University Residence Maintenance Expenses; UT Austin Jackson Estate Audit; UTPB College of Education Special Project; UTMDACC Procurement Special Review; and various Carryforward Audits. 3

6 Compliance with the Benefits Proportionality Audit Requirements for Higher Education Institution: Rider 8, page III-41, the General Appropriations Act (84th Legislature, Conference Committee Report), requires that higher education institutions conduct an internal audit during fiscal year 2016 of benefits proportional by fund, using a methodology prescribed by the State Auditor s Office. The rider requires that the audit examine appropriation years (AY) 2012 through 2014, and be completed no later than August 31, To comply with Rider 8, a benefits proportionality audit was conducted as part of the FY 2016 annual audit plan and issued on March 14, 2016 (and is included in Section II below). TEC Section (h): Senate Bill 20 (84th Legislative Session) made several modifications and additions to Texas Government Code (TGC) and Texas Education Code (TEC) related to purchasing and contracting. Effective September 1, 2015, TEC requires that, The chief auditor of an institution of higher education shall annually assess whether the institution has adopted the rules and policies required by this section and shall submit a report of findings to the state auditor. The System Audit Office conducted this required assessment for FY 2016, and found the following: Based on review of current institutional policy and the UT System Board of Regents Rules and Regulations, UT System Administration has generally adopted all of the rules and policies required by TEC Review and revision of System policy is an ongoing process. These rules and policies will continue to be assessed annually to ensure continued compliance with TEC TGC Section : A summary table of recommendations made to address issues identified from FY 2016 engagements, the actions taken by management, and the current implementation status is included on the following pages to address web site posting requirements as required by Texas Government Code Section

7 10/19/15 LERR Expenditures Audit Recommendation 1 (System): A key question for management to consider is whether expenditures of short-lived, small dollar items represent the best use of PUF bond proceeds when considering other strategic capital needs, which could include funding for new facilities or repair and rehabilitation of existing ones. To this end, we have recommended that UT System management consider: Aligning the definition of a capital asset with those established by the Texas Comptroller and UT System for financial reporting purposes. Alignment will reduce confusion as to what qualifies as a capital asset and will ultimately require the institutions to expend and focus available PUF resources on larger dollar capital assets. If certain projects do not require expenditure on capital items, then those resources could be transferred to existing approved projects. Establishing a minimum useful life standard for acquired assets to more closely align the useful life of items acquired to the term of the bond notes issued. Establishing a clear and specific exception for certain scientific equipment that may have a relatively short useful life and relatively small acquisition cost provided such equipment is used for research and already required to be tracked (i.e., controlled items) as part of the institution s inventory system. If management elects to retain the current definition of a capital assets (i.e., an item must have a useful life of greater than one year with no dollar limit), management should work with PUF-eligible institutions and develop more comprehensive guidance with sufficient detail to reduce the risk of ineligible expenditures. Management Response 1: Management has considered aligning the definition of a capital asset with those established by the Texas Comptroller used for financial reporting purposes; however, management recommends that this more restrictive limitation not be followed in that it would reduce the BOR s flexibility in determining what capital projects could be financed with PUF, including prohibiting the financing of certain capital projects, including infrastructure projects below $500,000 and building improvements below $100,000. Following the Comptroller thresholds could eliminate the ability of the BOR to address fire and life safety improvements that have been historically funded with PUF if the cost of those improvements is below the Comptroller thresholds. Management agrees with the importance of establishing minimum useful life standards. The general guideline is that the assets acquired must be capital in nature and have a useful life of at least one year. This standard, supported by an opinion from external bond counsel, does not have a minimum dollar limit. The weighted average life of projects to be financed is reviewed in connection with each longterm tax-exempt bond issuance. Tax counsel reviews the list of capital projects to be financed with proceeds of the tax-exempt issue to ensure compliance with all relevant restrictions, including the 120% test, before tax counsel will provide their opinion that the bonds are tax-exempt. The list of projects to be financed must also be provided to the Texas Attorney General in connection with their review and approval of the bond issue. UTS 168 policy for capital expenditure policy requires that an authorized representative from each institution sign, on an annual basis, an authorization for executing cash requisition form. By signing the form, the institution acknowledges that the funds are being spent accordingly and follow the Texas Constitution Article VII, Section 18(d), LERR budget rules and associated expenditures guidelines for each award/project. 5

8 Overall we believe that the expenditures reviewed by this audit are materially in compliance with the Expenditure Guidelines. However, in an effort to reduce the risk of ineligible expenditures, UT System Administration will seek to expand the LERR Expenditure Guidelines for next fiscal year to provide additional guidance to PUF-eligible institutions. Recommendation 2 (System): To ensure that the institutions are fully aware of UTS181 and IRC documentation requirements for expenditures made from tax-exempt bond proceeds, UT System management should update the Expenditure Guidelines to include a reference to the documentation standards in UTS181 and also consider reminding institutions each year of the document retention requirement in the annual requests for LERR projects, notices of Faculty STARs awards, and other communications associated with projects to be funded by PUF bond proceeds. Recommendation 3 (System): UT system should ensure that sufficient resources are dedicated to monitor institutional expenditures from PUF bond proceeds. At minimum, the institutions should provide a comprehensive summary of expenditures, including descriptions, made to OFPC with their cash requests. Such a listing would provide OFPC information on expenditures and OFPC could periodically select and review supporting documents for what it determines to be questionable or higher risk items. Management Response 2: Management agrees that having the retention requirement not only included in UTS181 and on the cash requisition form, but also included in the Expenditure Guidelines can further assist in communicating this requirement to the institutions. As a result, UT System Administration has already updated its Expenditure Guidelines for fiscal year 2016, which were approved by the BOR on August 20, 2015, to include a statement regarding the retention of records. It states The Internal Revenue Service requires that invoice documentation supporting capital expenditures, including LERR, faculty STARs and similar programs funded with proceeds of taxexempt bonds, be maintained for a period ending three (3) years after the complete extinguishment of the bonds. Pursuant to the Texas Constitution, PUF bonds may only be structured with a maximum maturity of 30 years. In order to comply with the IRS requirement and UTS181, UT institutions shall maintain invoice documentation for 35 years for any capital expenditure funded with tax-exempt proceeds. Management Response 3: Overall, we believe that the expenditures reviewed by this audit are materially in compliance with the Expenditure Guidelines. The additional guidance provided by UT System Administration through the expanded Expenditure Guidelines is expected to provide additional guidance to PUF-eligible institutions, which is expected to further reduce ineligible expenditures. The Office of Facilities, Planning and Construction handles a significant number of monthly cash reimbursements to institutions and does not currently have the resources in place to review in detail a comprehensive expenditure listing for each of these cash reimbursements. 6

9 Authorized representatives for each institution execute an authorization for executing cash requisition form in connection with each PUF construction reimbursement acknowledging that the funds are being spent accordingly and follow the Texas Constitution Article VII, Section 18(d), LERR budget rules and associated expenditures guidelines for each award/project. Recommendation 4 (System): UT system should ensure that funds not expended within 36 months from the date of the award or the appropriation are approved for extension, or lapsed and made available for future reallocation. Recommendation 5 (UTAUS): 1. Consistent with the control in place for the COE, provide a listing of permissible object codes for projects funded by PUF bond proceeds. Additional training may need to be provided to departments on correct uses of object codes to ensure expenditures are properly classified for review and ultimately for financial reporting purposes. 2. Review the procurement workflow for items that may be purchased under object code Update the process to ensure capital equipment items that may be purchased as part of this process are assigned the appropriate object codes to ensure that such items are tagged soon after acquisition and included within the inventory system. 3. Implement a detective control that identifies impermissible object codes. The identified transactions could then be routed back to the departments for additional explanation, reclassification to a permissible object code, or rejection (if applicable) as an impermissible expense. Management Response 4: Management agrees that allocated PUF funds should be expended within 36 months from the date of the award or the appropriation unless approved for an extension. Budget rules and procedures stipulate that all LERR and Faculty STARs appropriations must be expended within 36 months from the date of the award or the appropriation will lapse and be made available for future System-wide reallocation. Institutions are provided an opportunity to request an extension for unexpected circumstances. The Office of Facilities, Planning and Construction will assist the Controller s Office in reviewing the identified eight projects to determine if an extension is/was granted or the balances are made available for future reallocation. Management Response 5: 1. We will share the STARS Object Audit Group (OAG) developed by the College of Engineering with other units. However, due to different purchasing requirements for their unique research programs, these standards may not work for all units. We ll also make sure that each unit has the UT System guidelines for PUF, LERR, and STARS expenditures along with a listing of appropriate object codes. 2. As these variances are identified through recommendation #3, we will work with the affected unit and the Inventory department to ensure compliance. 3. We will review transactions prior to submission to UT System for cash requisition for reasonableness by object code. 4. We will recommend to the Provost s Office that their current website be updated to include additional information about transactions (by object code) that may not be allowable. 7

10 4. Provide additional training to the departments who are eligible to spend PUF bond proceeds to facilitate consistent interpretation of eligibility guidelines and correct use of object codes. 5. Though not required under current Expenditure Guidelines, consider establishing internal dollar limits for expenditures made using PUF bond proceeds. This could reduce risk of ineligible purchases and reduce the administrative burden related to retention of supporting documentation and monitoring purchases. 6. Refund to UT System amounts associated with unallowable expenditures made from PUF bond proceeds. 7. In coordination with the affected departments, review expenditures classified under impermissible object codes and, for identified unallowable expenditures, refund the amounts to UT System. 5. We agree that the limits and some policies are not clear and look to UT System to further clarify the program rules so that we can develop procedures for compliance. 6. We will work with the UT System Office of the Controller and UT Austin departments to clarify the unallowable expense amount and repay, as appropriate. Recommendation 6 (UTMDACC): 1. Retain all documentation to support expenditures made from PUF bond proceeds. 2. The departments are the first line of defense to ensure eligibility of expenditures. To strengthen oversight of decentralized expenditures funded from PUF bond proceeds, management should explore identifying and restricting use of accounts from which expenditures using PUF bond proceeds cannot be made. In addition, MD Anderson should consider developing a centralized review of expenditures before requests for cash reimbursement are submitted to UT System. Such a review could focus on potential exceptions. Exceptions could be routed back to the departments for additional explanation, reclassification to a permissible account code, or rejection (if applicable) as an impermissible expense. Lastly, to facilitate a centralized oversight, the departments could provide additional descriptive information of what the expenditures represent so that the appropriateness of the expenditures can be confirmed. 3. Provide additional training to the departments authorized to spend PUF bond proceeds to ensure that consistent interpretation of eligibility guidelines. 4. Though not required under current Expenditure Guidelines, MD Anderson could consider establishing internal dollar limits for expenditures made using PUF Management Response 6: Additional emphasis and training will stress retaining supporting documentation for all PUF bond related expenditures at the department level. We are adding additional edits to restrict accounts available for PUF expenditures. Expenditure review will be at the department level and supplemented by the Buyer before a PO is issued. If the Buyer finds an issue, requisition will be returned to the department for correction. New expenditure guidelines have been developed and posted to the Office of Research Administration (ORA) website. The STARS award letters will reference these guidelines. Training will also be provided on allowable expenditures by the ORA. The guidelines also include a $500 minimum expenditure threshold for equipment. This threshold matches the current controlled asset threshold mandated by the State. Agree, the threshold may reduce the risk of ineligible purchases but will have no significant impact on the administrative burden for PUF STARS expenditures. Refund for unallowable expenditures will be paid to UT System by the close of the fiscal year. 8

11 bond proceeds. This could reduce the risk of ineligible purchases and reduce the administrative burden related to retention of supporting documentation and monitoring purchases. 5. Refund to UT System identified unallowable expenditures made from PUF bond proceeds. 6. In coordination with the affected departments, review expenditures classified under the accounts listed above and, for identified unallowable expenditures, refund the amounts to UT System. Recommendation 7 (UTMDACC): Management should update the documentation retention policies to align with UT System and IRS documentation requirements for expenditures made from tax-exempt bond proceeds. Management should also ensure that this requirement is communicated to the departments authorized to make expenditures from PUF bond proceeds and other tax-exempt debt. Recommendation 8 (UTD): 1. Retain all documentation to support expenditures made from PUF bond proceeds. 2. The departments are the first line of defense to ensure eligibility of expenditures. To strengthen oversight of decentralized expenditures funded from PUF bond proceeds, management should explore identifying and restricting use of accounts from which expenditures using PUF bond proceeds cannot be made. In addition, UT Dallas should consider developing a centralized review of expenditures before requests for cash reimbursement are submitted to UT System. Such a review could focus on potential exceptions. Exceptions could be routed back to the departments for additional explanation, reclassification to a permissible account code, or rejection (if applicable) as an impermissible expense. Lastly, to facilitate centralized oversight, the departments could provide additional descriptive information of what the expenditures represent so that the appropriateness of the expenditures can be confirmed. 3. To reduce the risk that inventory is not properly reported or tracked, ensure that equipment purchases are recorded in the appropriate accounts. Management Response 7: We will work with the Texas State Library Commission on the steps required to amend our current retention schedule to meet this requirement. Once the amended schedule has received re-certification from the Texas State Library, our Records Management website will be updated. Management Response 8: UT Dallas will implement rules based controls for STARS cost centers as well as a monthly report to review transactions for these awards. A centralized review process has been implemented where all plant transactions route through Accounting for approval at the requisition phase. A summarized but specific award notice will be developed for STARS recipients to ensure that guidelines are clear and LERR related guidance will be added to the FAQ system with resources available when questions arise. Finally, UT Dallas will comply with UT System procedures to remedy any noncompliant transactions discovered in the review of accounts list above. 9

12 4. Provide additional training to the departments authorized to spend PUF bond proceeds to ensure consistent interpretation of eligibility guidelines. 5. Though not required under current Expenditure Guidelines, UT Dallas could consider establishing internal dollar limits for expenditures made using PUF bond proceeds. This could reduce the risk of ineligible purchases and reduce the administrative burden related to retention of supporting documentation and monitoring purchases. 6. Refund to UT System identified unallowable expenditures made from PUF bond proceeds. 7. In coordination with the affected departments, review expenditures classified under the accounts listed above and, for identified unallowable expenditures, refund the amounts to UT System. 11/05/15 System Administration Executive Travel and Entertainment Expenses Audit 11/12/15 Faculty Academic Workload Audit Recommendation 9 (UTD): Management should update the documentation retention policies to align with UT System and IRS documentation requirements for expenditures made from tax-exempt bond proceeds. Management should also ensure that this requirement is communicated to the departments authorized to make expenditures from PUF bond proceeds and other taxexempt debt. Management Response 9: UT Dallas will update its records retention policy for tax-exempt bond proceeds and communicate the requirement to appropriate departments. None None N/A Recommendation 1: OAA should develop a Systemwide academic workload report that meets the information needs of the Board and demonstrates compliance with RR The institutions should provide information required by TEC to UT System, which should be made available to the Board within 30 days of the end of each academic year. Using the annual report that will be developed, OAA should implement a monitoring process to evaluate faculty workload for all academic institutions, identify faculty who did not achieve the minimum academic workload, determine whether there were legitimate extenuating circumstances for not doing so, and ensure that, if necessary, the affected campus has taken the appropriate corrective action. Management Response 1: The Office of Academic Affairs will prepare a summary report on academic workload to be presented to the Board of Regents annually. The Office of Academic Affairs will also use this report to monitor academic workload at the institutions. Regarding the institutional reports to the UT System, it is important to note that reporting faculty workload information within 30 days of the end of the academic year is a challenge. TEC refers to the ninemonth academic year, which is generally understood to be September to May. The faculty workload information required by TEC is reported to the THECB during the month of February for the preceding fall semester and during the month of July 10

13 for the preceding spring semester. Institutions need this slightly extended timeframe to collect, verify, and certify all of the data. Based on the reports submitted to the THECB in summer 2015, many institutions across the state finalized and certified their data as late as mid-august. Only after the data required by TEC are certified and submitted to the THECB does the UT System retrieve the information from the THECB. It is also important to note that the information submitted to the THECB covers only the instructional side of faculty workload. The next step in the process is the submission of faculty workload information specific to Regents Rule In recent years, UT System institutions have submitted this information, which includes certain workload credit equivalencies and presidential credit allowances as permitted in RR 31006, in November of each year. The November submission covers the preceding academic year. Once the UT System has both sets of information, a report representing a more complete picture of faculty workload can be produced. Recommendation 2: OAA, in coordination with key stakeholders, should provide supplemental academic workload guidance to the academic institutions and/or update RR to address the following: Each college/school should have clearly documented workload policies and procedures for each when those policies differ from institutional workload policies. Such policies should be reviewed and approved by the respective deans and provost. Institutions should determine whether workload was met each semester. The process for determining and assigning workload and presidential credits should start at or before the beginning of each semester and be completed within a reasonable period after the census date to ensure that each faculty member achieves the minimum academic workload requirement. Management Response 2: The Office of Academic Affairs will form a working group composed of institutional representatives including OAA staff, OSI staff, and Audit staff to develop supplemental guidelines for the institutions. The purpose of the guidelines will be to ensure consistent application of the provisions of the Regents Rule across all of the academic institutions with a focus on an outcome that will provide a management value to the institutions and to the UT System. 11

14 Workload and presidential credits granted to faculty for approved activities other than instruction should be documented in writing. The documentation should indicate clear expectations for the workload credits and release time granted as well as approval by appropriate chairs and/or deans. The completed documentation should be compiled at the college/school level and submitted by the dean s office to the provost s office for final review and approval. The form and manner in which the requests are made should be determined by the provost s office to ensure consistency of the process across the institution. If the provost s office agrees to the dean s request, the provost (or his/her designee) should document approval of the request. Recommendation 3: OAA, in coordination with key stakeholders, should provide supplemental academic workload guidance to the academic institutions or update RR to address the following: Clearly communicate the applicability of Section 6.1, Graduate Instructions, to instructional types under Section 6.2, Labs, and Section 6.3, Supervision. Update 6.4, Honors Program or Individual Research Projects, to include internships to align with guidance provided by the THECB. Provide updated guidance on how to account for crosslisted courses that concurrently serve both graduate and undergraduate students. Recommendation 4: Because online courses may impact faculty that deliver and administer such courses, OAA should review RR and, in consultation with the academic institutions, determine whether RR provides adequate workload credit for online courses or other courses with very large enrollments. If warranted, RR could be updated to ensure that appropriate workload credits are provided to affected faculty. Alternatively, the OAA could provide guidance to the institutions that presidential credits could be granted to applicable faculty. Management Response 3: The Office of Academic Affairs will form a working group composed of institutional representatives including OAA staff, OSI staff, and Audit staff to develop supplemental guidelines for the institutions. The purpose of the guidelines will be to ensure consistent application of the provisions of the Regents Rule across all of the academic institutions across all of the academic institutions with a focus on an outcome that will provide a management value to the institutions and to the UT System. Management Response 4: As part of the development of the supplemental guidelines, the Office of Academic Affairs will consult with the academic institutions and other System offices to determine whether faculty teaching courses with enrollments in excess of 250 (the enrollment number specified in the Regents Rule for which the maximum amount of workload credit may be granted) should be granted more workload credit than currently allowed. 12

15 Recommendation 5 (UTD): UTD should update its academic workload policy to more closely align with RR by defining, where applicable, workload credit limits for workload equivalencies, and presidential credits. The policy should define presidential credits, for what they can be awarded, and the requirements for awarding them. UTD has been unable to ensure compliance with its policy for faculty to provide at least three SCH of undergraduate and six SCH of organized class instruction each semester. UTD should consider reviewing this policy and determine whether the policy needs to be updated. Management Response 5: Both of these issues will be brought before Dean s Council for discussion on how to implement. It is likely that requirements will be UTD School specific as the activities in the Sciences and Engineering differ from those in the Arts. The second issue of requiring undergraduate instruction and minimum semester requirements will be reviewed. Both of these were introduced when UTD was not growing rapidly. In the future when growth slows the undergraduate requirement will be enforced. Recommendation 6 (UTD): The provost s office should develop a standardized workload equivalency and presidential credit request form. This would be completed by each college and would clearly describe the workload credit equivalency and presidential credit requested along with amounts being requested for each faculty member. The form, to be completed by each college, could include the expected teaching load for the semester, equivalency elements with RR section references (e.g., Section 6.10,Administrative Services; Section 6.11, New Faculty; Section 6.12, Course Development; etc.), and the amounts being requested. A comment column could also be included that would provide additional descriptive information, if needed, to facilitate the provost s office review. The requests from the school should also include the approval (signature and date) of the respective deans and the provost, or the provost s delegate. Copies of the final approved form should be provided to the respective schools. Within each school, approval for workload equivalencies and presidential credit should be documented. A standardized form could be developed within each college that is approved by the department chair or dean, as applicable. The form would include assigned workload and presidential credits and expected deliverable and/or duty assignment for which the release time is being provided. Recommendation 7 (UTD): To the extent to which faculty members are compensated and released from Management Response 6: This recommendation is strongly related to the first recommendation. It will be discussed with the Deans in connection with the first recommendation and a solution obtained for both. Management Response 7: To the extent possible this will be implemented beginning with the Spring 13

16 teaching and other university duties allowed by RR 31006, the university should not use state funds appropriated for faculty salaries. Instead, non-state, institutional funds should be used to such releases that are agreed to between applicable faculty and UTD. If workload releases from instruction and other university duties documented in an institutional approved agreement were funded with non-state funding sources, granting of presidential credits or other workload credits permitted by RR would not be necessary. In addition, the provost s office should obtain copies of such agreements to ensure workload requirements are met and comply with RR Semester of However, it should be pointed out that these releases are allowed by RR so that state funds will have to be used if no other fiscal resources are available. Recommendation 8 (UTD): The provost s office should update its workload program to ensure that faculty that provide instruction for large, combined cross-listed courses a awarded full workload equivalent credit as permitted by RR Recommendation 9 (UTD): The provost s office should modify its workload program to calculate workload equivalents for section 6.2 courses in compliance with the requirements of RR Recommendation 10 (UTD): The provost s office should ensure that faculty members are awarded workload equivalency credits within limits provided by RR Recommendation 11 (UTD): The provost s office should update the workload program to ensure that it accounts for all applicable faculty codes. Management Response 8: The computer programs which compute teaching load are presently being modified to implement this recommendation. Management Response 9: With regards to laboratory and clinical courses, UTD s policy is stricter than that of the Regents in that we would allow only one hour of credit for a three-hour lab or clinical course rather than the Regent s two hours. This is in line with the granting of student course credit across the US. With regard to studio art, our past investigation indicates that faculty instruction here is a mixture of both group and individual instruction and the faculty effort is equivalent to that of a full time lecture. Accordingly, we will again investigate this issue and may have to reclassify the instruction type of some courses to adequately reflect what happens in the classroom. Management Response 10: UTD Policy was created when the minimum faculty workload was defined by semester rather than by the academic year. The policy will be modified to use the academic year as the base for this credit. Management Response 11: With regards to faculty codes, the computer programs are currently being modified to remove this problem. With the adjustment of UTD to a new financial system, the problem of 14

17 UTD payroll should provide timely updates of mid-year changes in funding sources and the purpose of the changes so that provost s office has up-to-date and complete information to monitor faculty workload and make changes if necessary. retrospective changes should disappear. However, the Provost s Office will alert the UTD Payroll area that any such changes must be reported to the Provost Office. Recommendation 12 (UTD): The use of SSN s should be limited to that which is necessary for the THECB reporting requirements. Otherwise, the provost s office and the university schools should discontinue using faculty social security numbers for monitoring faculty workload. Recommendation 13 (UTSA): Management should consider having each college document workload agreements that include the faculty member s duties, expectations, deliverables, administrative assignments, and/or other approved activities. In addition to serving as a basis for the faculty member s performance evaluation, these agreements could serve as support for workload release time granted. In addition, management should establish institutional guidelines for awarding presidential credits for basic and applied research, including documentation of a research work plan, pursuant to RR Management Response 12: It should be noted that all correspondence from the Provost Office to other University Offices precludes inclusion of SSN s as well as UTD ID s. Teaching load information which has SSN is hand carried from the Provost Office to other University Offices. The inclusion of SSN s in s, mentioned above, was from the Office of a Dean to the Provost Office. The office was informed that this was in violation of university policy. We shall immediately make Dean s Offices aware that SSN s or any other personal information should not be included in or attachments. Management Response 13: We appreciate this recommendation and believe that clear disciplinebased expectations help colleges meet their strategic goals and help faculty successfully manage their careers. The provost s office will re-emphasize that faculty workload commitments, including a research work plan if presidential credits are requested for research, should be carefully reviewed and signed off on every year to be in compliance with the requirement of Regents Rule 31006, Section Regarding research plans, currently the workload policies for the Colleges of Business, Liberal and Fine Arts, and Public Policy lay out explicit requirements for their faculty members research productivity (as well as for teaching and service), depending on the track to which the faculty member is assigned, and provide the timespan over which the productivity is expected to occur. The revised workload policy of the College of Engineering, under development at the time of the audit, also reflects the requirements noted for the three colleges above, and will go into effect in AY The College of Architecture, Construction and Planning and the College of Sciences vary in the level of detail and application of their workload policies. The College of Education and Human 15

18 Development currently holds all faculty to the balanced workload. Every faculty member reports her/his productivity outcomes every year in the required Annual Report. The outcomes are evaluated by the supervisor given the weighting to which the faculty member agreed in her/his workload plan. The evaluation of outcomes is reflected in both faculty merit awards and in any adjustments to the following year s workload plan. Those colleges that have not developed clear guidance regarding outcomes for workload releases will amend their current workload policies. We will use this management tool for chairs and deans to improve documentation. Recommendation 14 (UTSA): Management should strengthen existing controls to include verification of the accuracy of information manually recorded by the departments in Banner. Recommendation 15 (UTT): The provost s office should continue to develop and implement its procedures for monitoring faculty workload, including the documentation, review, and approval of workload releases. Monitoring efforts Management Response 14: We appreciate this finding because it gives us an opportunity to better educate the staff members who enter teaching responsibility percentages into the Banner Student Information System from which workload reports are generated. They will be reminded to make the allocations based on effort, regardless of source of funding (faculty salary, Ph.D. student stipend, etc.). In addition, we will instruct the department chairs, who determine the assignments of their instructors, to more closely review to make sure that everyone assigned teaching responsibilities is given appropriate workload credit in the department report. We have modified annual workload training sessions as well as our workload guidelines to note that assignment of teaching responsibility is based on the actual share of teaching time rather than on source of pay. Lastly, we will develop a standard report that will list class/lab section teaching percentage assignments to assist us in searching for and remedying discrepancies such as this. Management Response 15: A workload process has been designed and a standard form for requesting limited workload credit is in place. In addition, guidelines for awarding presidential credits for basic and applied research have been developed. 16

19 should include a review of presidential credits to ensure that UTT is not exceeding the 1% limit. In addition, UTT should develop institutional guidance for granting presidential credits for basic and applied research to ensure compliance with RR Recommendation 16 (UTT): Although Section 5 of RR allows the institution to set more restrictive requirements, UTT should consider revising its clinical supervision and lecture workload calculations, especially when the calculation does not provide applicable faculty with and accurate level of workload credit. UTT should also ensure that that it determines workload credits for lecture courses on SCH instead of contact hours. Recommendation 17 (UTT): Management should consider updating its workload policies to include a clearly defined expected minimum academic workload requirement of non-tenure-track faculty. This will ensure consistent minimum workload expectations for non-tenure-track faculty across the institution. 12/15/15 UTS Audit Recommendation 1: The Controller's Office should improve its tracking methods to provide more effective identification of individuals who participate in the reconciliation process but lack required training; including those individuals who have not yet completed PeopleSoft reconciliation training. The Controller's Office should also work with the offices listed above to ensure that all individuals involved in the reconciliation process receive training. Because executive officers can be involved in the reconciliation process, the Controller's Office should consider providing targeted training to executive officers. Such training could be provided during a regularly scheduled executive officer meeting. Recommendation 2: The Office of the Chancellor should make certain that reconciliations are dated so that it can ensure that reconciliations are completed in a timely manner. Recommendation 3: Employee Services should make certain that reconciliations are signed and dated so that it can ensure that reconciliations are completed in a timely manner. Management Response 16: Workload calculations will be reviewed and, when appropriate, corrections will be made to assure that workload credits are based on semester credit hours rather than contact hours. Clinical supervision and lecture workload calculations will be reviewed. Management Response 17: The university will propose amending the Handbook of Operating Procedures to require a minimum of 24 semester hours of teaching per academic year for non-tenure-track faculty. Management Response 1: Extensive training, not tracked for satisfying the requirement, has been provided related to the reconciliation process with PeopleSoft. The training accomplished the goal of teaching the process to System Administration reconcilers. Monitoring a list of training for any new employees with reconciliation duties is an ongoing effort. We have no required repeat training but instead have provided one on one assistance to departments as needed. Scheduling executive officer level training beyond the current onepage information sheet they read and sign, will be considered. Management Response 2: We will ensure that all reconciliations are dated by the preparer and the approver, through a process of double-checking prior to filing the reports. Management Response 3: While the two reconciliations in question were completed timely, we recognize that they were not signed and dated. Going forward, we will ensure that reconciliations are 17

20 completed, signed, and dated within two months of the general ledger close. Recommendation 4: Facilities Management should ensure that reconciliations are completed in a timely manner. Recommendation 5: ITL should ensure that reconciliations are dated and that reconciliations are completed in a timely manner. Recommendation 6: Shared Information Services should ensure that reconciliations are completed in a timely manner. Recommendation 7: OTIS should ensure that reconciliations are completed in a timely manner. 01/08/16 TAC 202 Audit Recommendation 1: The Office of Technology and Information Services should establish a policy and corresponding procedures to define the circumstances by which administrative rights may be approved and granted, and software installation allowed. Recommendation 2: The Office of Technology and Information Services should monitor software installed by users on managed hardware and establish procedures Management Response 4: Facilities Management strives to complete reconciliations in a timely fashion. In some instances, we receive supporting documentation more than two months after the close of the month. Under these circumstances, we have delayed completion of the reconciliation until all adequate supporting documentation is received. However, going forward, we will ensure our reconciliations are completed within two months of month-end close and identify any expenses for which we have not received adequate supporting documentation as reconciling items. Once we receive the needed supporting documentation, we will ensure that the amounts recorded in the cost center agree to the supporting documentation received and follow-up on any discrepancies if necessary. Facilities Management will create maintain records of the late reported supporting documentation and their eventual reconciliation. Management Response 5: All ITL reconciliations will be completed, dated, and approved within two months of the general ledger close. Management Response 6: We are going through a staffing change and will put this on the calendar to ensure timely reconciliation going forward. Management Response 7: Management agrees with the finding and has revised office practices to target reconciliation completions within three weeks of month-close. Management Response 1: Management agrees with the recommendation. OTIS will work with the Information Security Office to identify applicable policies and generate appropriate procedures to define qualifications for administrative rights and software installations on individual machines. Management Response 2: Management agrees with the recommendation. OTIS will work with the Information Security Office to establish an approved 18

21 to ensure any unlicensed or unapproved software is removed promptly. software list and mechanism(s) to regularly report exceptions to this approved installations list for appropriate action. Various Last on 03/10/16 Presidential Travel & Entertainment Expenses Audit Recommendation 3: Systemwide Information Services should include assessment of security impact as a required step in the system development and change process, and monitor for ongoing compliance with this requirement. Recommendation 1 (UTMB): A process should be implemented to ensure that direct billed expenses for both travel and entertainment, paid on behalf of the president and his spouse (for activity related to the Office of the President), are reviewed by the CBO with documented approval, prior to payment of the expense. Management Response 3: Systemwide Information Services will be adding this to its standard change management process, which will be written formally by the end of January 20J 6. There will be a written checklist of items that need to be completed prior to migration. Management Response 1: The Office of the President will establish a process to ensure the Chief Business and Finance Officer's documented approval is obtained prior to payment of any direct billed travel and entertainment expenses paid on behalf of the president and his spouse. Additionally, we will work with the other departments responsible for processing direct billed entertainment expenses paid on behalf of the president and his spouse to ensure additional procedures are established to obtain the CBFO's documented approval prior to the expense payment. Recommendation 2 (UTAUS): The Office of the President should strengthen the process of preparing and reviewing the quarterly reports to ensure they are complete, accurate, and consistent. The preparer(s) and reviewer(s) of the report should be familiar with the travel systems, the accounting system, and the overall process to ensure all relevant expenses are identified and properly captured. Training a back-up or developing procedures should be considered in light of potential turnover of the position(s) preparing the report. Management Response 2: UT Austin concurs with the recommended changes and will implement the suggested process improvements. Recommendation 3 (UTAUS): The Office of the President, working with Financial Affairs, should implement a process, or modify current processes, as determined to be most practical, to ensure that all direct billed expenses for the president and his spouse are approved by the CBO in accordance with Rule Management Response 3: UT Austin will review the current process and routing of direct billed expenses and implement changes to comply with Rule Recommendation 4 (UTT): The Office of the President should strengthen the process of preparing and reviewing the quarterly expense reports to ensure they are complete and accurate. The person(s) preparing the report should be familiar with the travel systems, the accounting Management Response 4: The President's Office has trained recently hired staff and implemented new procedures to insure accuracy and completeness in the reporting process for the quarterly expense reports. 19

22 system, and the overall process to ensure all relevant expenses are identified and properly captured. Recommendation 5 (UTT): UT Tyler should establish appropriate guidance related to business entertainment expenses for the president, including per person meal limits, allowable expenses, and other applicable criteria. In addition, as already recognized by UT Tyler, the BRUD policy should be evaluated to determine if an adjustment to the maximum business meal amounts may be needed. Further, UT Tyler should update the policy to reflect the change made by executive management to allow business entertainment expenses to be paid for events in which only university employees attend, and ensure that the periodic review required in the travel policies is completed. Recommendation 6 (UTRGV): The Office of the President should strengthen the process of preparing and reviewing the qua1ierly reports to ensure they are complete, accurate, and consistent. The preparer(s) and reviewer (s) of the report should be familiar with the travel systems, the accounting system, and the overall process to ensure all relevant expenses are identified and properly captured. Additionally, the Office of the President should revise the quarterly reports for the audit scope period to include all applicable expenses and resubmit them to the UT System OAA. Recommendation 7 (UTRGV): All travel and entertainment expenses, reimbursed to or paid on behalf of the president, should be reviewed by the CBO with documented approval, prior to payment. If an automatic approval for direct billed expense estimates occurs, additional steps should be taken to obtain the CBO's documented approval of these expenses. In addition, if actual costs of direct billed expenses significantly exceed estimates, the CBO' s approval should be documented. Management Response 5: The BRUD policy is in the process of being evaluated to include the changes approved by executive management related to reimbursement of business meals and will include a review of maximum business meal amounts to determine if an adjustment is needed. Further, the policy will be revised to include specific guidelines pertaining to the President's business entertainment expenses. Management Response 6: The Office of the President is strengthening the process by working closely with the Office of the Executive VP for Finance & Administration (EVPF A) and Internal Audits to ensure accurate and timely submission of travel and ente1iainment expense reports. The travel and business expense preparer is now familiar with all systems/processes required to prepare the quarterly reports and will be submitting them to Internal Audits and the EVPF A two weeks prior to due date for review to ensure that all relevant expenses have been properly captured and that reports are submitted accurately and on a timely basis. The Office of the President will revise the quarterly reports for the audit scope period to include all applicable expenses and resubmit them to the UT System OAA as soon as possible, but no later than April 1, Management Response 7: Concur (itravel) Travel Approvals: The Executive Vice President for Finance and Administration (EVPF A), currently approves the President's travel before the passive approval occurs. Additionally, the EVPFA and his Executive Assistant constantly monitor Concur s for pending approvals for the President's trips. The Executive Assistant notifies the EVPFA of incoming approvals, and in turn, the EVPF A approves these 20

23 transactions immediately. Concur approvals will be kept on file for future reference. 02/17/16 Chancellor s Travel, Entertainment & Residence University Maintenance Expenses Audit Recommendation 1: The Office of the Chancellor should work with appropriate System Administration offices to develop a method by which travel, entertainment, and Bauer House maintenance expenses reimbursed to, and made of behalf of, the Chancellor and his spouse can be flagged to ensure a complete population for quarterly reporting purposes. Because the majority of the omitted expenses were for Bauer House maintenance, the Chancellor s Office should closely coordinate with Facilities Management to ensure these expenses are included within the quarterly reports. Reimbursements Travel Vouchers: The President's travel vouchers are submitted to the Office of the EVPF A for review and are subsequently approved by the EVPF A. All original documentation is forwarded back to the President's Office for submittal into UTRGV' s eprocurement system (ishop ). Business Expense Reimbursement: The President's business expense reimbursements are not currently submitted to the EVPF A for approval as part of the ishop workflow. Moving forward, the Office of the EVPF A will work with Business Information Systems to modify the existing approval workflow to include the EVPF A on all business expense reimbursements for the President. Management Response 1: The Chancellor s Office agrees with this recommendation and has developed new processes with personnel in Accounting and Purchasing Services, as well as Facilities Management to capture the appropriate items. Recommendation 2: The Chancellor s Office should develop a process to ensure that all travel and entertainment expenses, including centrally-billed travel, are submitted to the General Counsel to the BOR for approval before payment. In addition, the Chancellor s office should ensure that the Chancellor s out-of-state travel is submitted to the General Counsel to the BOR for approval. Management Response 2: The Chancellor s Office will review its processes to ensure compliance with RR In September 2010, an editorial amendment was made to RR by the Board Office to clarify that all expenses, paid to or on behalf of the Chancellor and the UT System presidents, be reviewed and approved. The editorial amendment, as drafted, actually made a substantive change to require all payments to be reviewed before payment, and this is the standard Internal Audit used to determine compliance with RR The effect of the change had unintended consequences on the administration and approval of direct- and centrally-billed expenses. These expenses 21

24 tend to be for travel, such as airline tickets and rental cars, and are generally required to be procured through UT System contracted vendors, subject to departmental review and approval. They are neither paid nor specifically influenced by the Chancellor or the presidents and are at a low risk of resulting in a personal benefit to them. The Board Office will make an editorial change to RR to continue to require that all expenses be reviewed and approved. Reimbursements made directly to the Chancellor or a president will continue to be reviewed and approved before payment and expenses paid to a third-party vendor may be reviewed and approved after payment. Both are currently required to be included in the quarterly reports. RR will be updated to clarify that review and approval of direct payments made to a third-party vendor will occur and be documented at the time the quarterly reports are reviewed. Recommendation 3: The Chancellor s Office should work with Facilities Management to develop a process to ensure that all Bauer House maintenance expenses are submitted to the General Counsel to the Board of Regents for approval. For those expenses exceeding $10,000, the Chancellor s Office should also obtain advanced approval from a committee composed of the Executive Vice Chancellor for Business Affairs, the Vice Chancellor and General Counsel, and the General Counsel to the Board of Regents. Recommendation 4: The Chancellor s Office should ensure that requests for reimbursement for travel expenses made on behalf of the Chancellor or his spouse are submitted to APS for payment within 60 days of incurring the expense. Management Response 3: The Chancellor s Office has developed new processes that will ensure that we are in compliance with Regents Rule on expenses related to Bauer House. We have also worked closely with the Board of Regents Office and Facilities Management in the development of capturing these items appropriately. Management Response 4: The staff within the Chancellor s Office has addressed this issue of timeliness resulting in workload reassignment to ensure that all travel is reimbursed in a timely manner. 03/14/16 Benefits Proportionality by Fund Audit 05/10/16 UTIMCO Separately Managed Accounts Audit None None NA Recommendation 1: UTIMCO staff and UTIMCO Board should review and modify the current Option to Review process, and consequently the Delegation of Authority Policy, by clarifying when UTIMCO Board action is necessary and when a proposed investment Management Response 1: While respectfully disagreeing with the Report s characterization of the Option to Review process, UTIMCO staff has nonetheless prepared a draft of proposed revisions to the Delegation of Authority Policy. The revised policy 22

25 above UTIMCO staff s stated authority may proceed without UTIMCO Board action. will eliminate the Option to Review process. It will also clarify that the Policy delegates complete investment authority to staff, subject only to a prudent fiduciary control entitling any single Director to submit a written request requiring a Board vote on whether or not to approve a proposed investment that exceeds one of the investment thresholds set forth in the revised Delegation of Authority Policy. The thresholds are not changed by the revisions. UTIMCO staff submits that the revised Policy should eliminate any uncertainty as to the lack of a requirement for Board action to approve a proposed investment that exceeds one of the thresholds, unless any single Director believes that such action is warranted or appropriate. Recommendation 2: UTIMCO should work with the Office of the BOR to establish an agreed-upon process to form new LLCs, specifying who must approve their creation. Based on that understanding, UTIMCO and UT System should update the IMSA with the revised provisions regarding approval of new separate legal entities on behalf of the BOR. Before any additional LLCs are established, the BOR would need to approve the change to the IMSA. After approval of a LLC, UTIMCO management should ensure that it informs the Office of the BOR that a LLC has been established. In addition, UTIMCO should implement a process to report newly-established LLCs to the BOR, including their purpose and performance. Reporting should occur annually. The form of reporting may be determined by UTIMCO management and coordinated, if necessary, with the Office of the BOR. Recommendation 3: UTIMCO should clarify its internal process to specify that UTIMCO Board members and Key Employees are required to sign Certificates of Compliance by the date an IAA is signed or the effective date of the IAA, whichever occurs earlier. Additionally, UTIMCO should retain documentation of reasons why certain individuals did not complete the certificates. Management Response 2: The establishment of an LLC is for the purpose of protecting the assets of the Board of Regents of the University of Texas System. Any LLC established is approved in advance by UTIMCO s CEO with full knowledge of the reasons for its necessity. As previously discussed with the auditors, in addition to service of three members of the BOR and the Chancellor on the UTIMCO Board, staff from the UTIMCO Office of Finance receive copies of all Investment Recommendations, copies of all investment summaries accompanying certificates of compliance, participate in UTIMCO portfolio reviews, committee and board meetings and as such have been put on notice regarding the formation of any LLCs. Notwithstanding the foregoing, UTIMCO will develop a process to annually report to the Board office all existing LLCs. Management Response 3: The auditors identified no instances of noncompliance with the Certificates of Compliance Procedure, i.e., all required certificates of compliance were signed and received prior to committing to an investment. However, UTIMCO will clarify its internal process, including the date that will be used as the date the investment is made. UTIMCO staff believes it maintains adequate documentation regarding those individuals that must complete the certificates prior to the date an 23

26 investment is made but will also revisit those processes and determine if changes are needed. Recommendation 4: UTIMCO should clarify its Delegation of Authority Policy to specify how and when delegation of authority calculations should be documented. Additionally, in instances when more than three months have passed since the initial testing of delegated authority limits and initial funding of the investment, UTIMCO should determine whether it is appropriate and feasible to retest against the policy using current amounts at the time of funding. Management Response 4: The Delegation of Authority Policy sets the limits of the investment amounts but does not address how the calculation should or documented. As such, UTIMCO staff will not make changes to the Delegation of Authority Policy with respect to the calculations and documentation. UTIMCO staff will however, ensure that its calculations are appropriately documented. 24

27 III. Consulting Services & Non-audit Services Completed Report Date Report Name 11/05/15 UTPB College of Education Special Consulting Project 01/15/16 UT Arlington NCAA Agreed-Upon Procedures 01/15/16 UT El Paso NCAA Agreed-Upon Procedures 01/15/16 UT San Antonio NCAA Agreed-Upon Procedures 01/15/16 UT Pan American NCAA Agreed-Upon Procedures 01/15/16 UT Permian Basin NCAA Agreed-Upon Procedures High-Level Objectives(s) Perform special request consulting project Perform NCAA Agreed-Upon Procedures on Athletics SRE Perform NCAA Agreed-Upon Procedures on Athletics SRE Perform NCAA Agreed-Upon Procedures on Athletics SRE Perform NCAA Agreed-Upon Procedures on Athletics SRE Perform NCAA Agreed-Upon Procedures on Athletics SRE Observations/Results/Recommendations Internal memo issued None None Consistent with our recommendation from the FY Report on UTSA 's Application of Agreed- Upon Procedures, the Athletics Department, in coordination with other UTSA departments such as Student Affairs, Business Affairs, and the PeopleSoft Sustainment Center should work together to develop a streamlined approach to creating the Statement of Revenues and Expenses (SRE). The Intercollegiate Athletics Department should cross train employees so that more than one individual is knowledgeable in the preparation of the SRE and should develop well written procedures for the preparation of the SRE. This will help ensure that the SRE, which must be reported annually to both the NCAA and the university president, is complete and accurate. UTPB should develop procedures for preparation of the SRE designed to provide consistent, accurate, and complete reporting of athletic revenues and expenses to both the NCAA and the UTPB president. In addition, management should consider cross training employees so that more than one individual is knowledgeable in preparation of the SRE. Various Procurement Workgroup Consulting GPO Reviews Perform GPO reviews UTPB should consult UT System General Counsel and seek a written opinion to determine whether graduate assistants that provide parttime operational support to Athletics may be legally compensated from state funds. Internal memos issued 25

28 IV. External Quality Assurance Review See next page 26

29 September 12, 2014 Mr. J. Michael Peppers, Chief Audit Executive The University of Texas System 210 W. 6th Street, Suite B.140E, Austin, TX We have completed an External Quality Assessment ( EQA ) of The University of Texas System ( UT System or System ) Audit Office ( System Audit Office or IA ). The EQA included an assessment of the level of conformance with the Institute of Internal Auditor s International Standards for the Professional Practice of Internal Auditing ( the IIA Standards ), the Generally Accepted Government Auditing Standards ( GAGAS ), as well as the relevant requirements of the Texas Internal Auditing Act ( TIAA ). Listed below are our observations: IIA Standards - Based on our work, overall the System Audit Office generally conforms. We did identify process enhancement opportunities. GAGAS - Our assessment of GAGAS was limited, based on System Audit Office s disclosure that no internal audits were performed during our assessment period under GAGAS. Based on our work, we did not identify conformance observations. We did identify process enhancement opportunities. TIAA requirements Other than the observations related to IIA Standards and GAGAS, no other observations were noted during our work. Our services were performed and this report was developed in accordance with our contract dated February 18, 2014 and are subject to the terms and conditions included therein. Our Services were performed in accordance with the Standards for Consulting Services established by the American Institute of Certified Public Accountants ("AICPA"). Accordingly, we are providing no opinion, attestation or other form of assurance with respect to our work and we did not verify or audit any information provided to us. Our work was limited to the specific procedures and analysis described herein and was based only on the information made available through June 17, 2014, when field work was substantially completed. Accordingly, changes in circumstances after this date could affect the findings outlined in this report. This information has been prepared solely for the use and benefit of, and pursuant to a client relationship exclusively with. PwC disclaims any contractual or other responsibility to others based on its use and, accordingly, this information may not be relied upon by anyone other than. We would like to offer a sincere thank you to you and your staff, and the Audit Committee and management of UT System, for the time and attention they provided during this assessment. We appreciate the opportunity to serve on this important engagement. Very truly yours, PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP, 1201 Louisiana, Suite 2900, Houston, TX T: (713) , F: (713) , Information contained herein is for the sole benefit and use of PwC's Client 27