SUSSEX COUNTY COMMUNITY COLLEGE MANAGEMENT LETTER JUNE 30, 2012 WISS ACCOU NTANTS CONSULTANTS

Transcription

1 WISS ACCOU NTANTS CONSULTANTS

2 T~T WISS ACCOUNTANTS CONSULTANTS SUSSEX COUNTY COMMUNITY COLLEGE The Board of Trustees Sussex County Community College In planning and performing our audit of the financial statements of Sussex County Community College (the "College") as of and for the year ended June 30, 2012, in accordance with auditing standards generally accepted in the United States of America, we considered the College's internal control over financ ial reporting ("internal control") as a basis for designing our aud iting procedures for the purpose of expressing our opinion on the financial statements but not for the purpose of expressing an opinion on the effectiveness of the College's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the College's internal control over financial repoliing. A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity' s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the lim ited purpose described in the first paragraph and was not designed to identify all deficiencies in internal control that might be significant deficiencies or material weaknesses and, therefore, there can be no assurance that all such deficiencies have been identified. However, we did identify a deficiency in internal control that we consider to be a material weakness as discussed in this report. During our audit, we also became aware of other matters that are opportunities for strengthening internal controls and operating efficiency that merit your consideration. This repoli summarizes our comments and suggestions regarding these matters. This communication is intended solely for the information and use of the Board of Trustees and management, and is not intended to be and should not be used by anyone other than these specified parties. We would be pleased to discuss the matters in the attached report or to respond to any questions, at your convenience. Iselin, New Jersey October 29,2012 1!JI~ "1-"4"0 WISS & COMPANY, LLP WISS & COMPANY, LLP 485C Route 1 South. Suite 250. Iselin. NJ Phone: Fax: ISELIN LIVINGSTON FLEMINGTON NEW YORK

3 MATERIAL WEAKNESS Financial Statement Close Process The College's business office personnel perform certain fmancial statement close processes on a monthly basis and at year end which include the posting of journal entries and other various accruals and reconciliations. We did note that there is a formalized document that details the various steps performed as part of the monthly and year-end close processes, however, it was not being signed off by the preparer/reviewer. Significant strides have been made by the College in the 2012 fiscal year to implement and improve procedures relating to the College's financial statement close process. However, the following are specific items that warrant consideration related to the financial statement close process: Accounts Payable and Accrued Expense.. The College improved the year-end accrual process, however, we noted several significant items that were recorded as accrued expenses, in which goods were not received and services were not rendered. The College should record accruals based on services that are performed before year end and were paid after the fiscal year-end. Deferred Revenue and Enrollment Reconciliation.. When performing enrollment testing procedures, we noted that the College performed an annual reconciliation of actual enrollment by semester hours multiplied by rates, including any adjustments, to the tuition revenue recorded in the financial statements. We also noted a large number of waivers and other adjustments that are processed throughout the year affecting the tuition revenue account of the College. During our review of the deferred grant revenue account, we noted that the entire amount of the grant award is recorded as accounts receivable offset by deferred revenue at the time the award is received. Grants that are on a cost reimbursement basis should only be recorded as an accounts receivable when the funds have been expended and not yet reimbursed. Deferred revenue should be recorded when money is received in advance of when the money has been spent. This accounting does not overstate the statements of revenues, expenses and changes in net assets, however it overstates accounts receivable and deferred grant revenue on the statements of net assets... During our review of the deferred tuition revenue account, we noted that the College records revenue when a student registers as accounts receivable and offset by tuition revenue. The College then defers the revenue that has not been earned by debiting revenue and crediting deferred revenue for the weeks that pertain to the subsequent fiscal year. Deferred revenue should be recorded when money has been collected in advance of when it is earned. The College's accounting overstates accounts receivable and deferred tuition revenue on the statements of net assets but does not overstate the statements of revenues, expenses and changes in net assets. However, for the fiscal year ended June 30, 2012, we noted that the Summer 2 time period that extends between the 2012 and 2013 fiscal years (June 18,2012 through August 2 or August 10,2012) was not properly recorded. In the fiscal year 2012, the College understated revenue by approximately $152,000, overstated deferred tuition revenue by approximately $235,000 and overstated accounts receivable by approximately $83,000. 2

4 During our testing of the schedules of federal and state awards presented in the financial statements, we noted several discrepancies. The schedules were not properly updated to include accurate CFDA#/grant#, grant names, classifications between federal/state/local, award amounts, periods, cash receipts, and expenditure amounts. In order to better document the monthly and year end close processes, we suggest that the College implement the developed written financial statement close process document identifying the various procedures performed along with timelines for the procedures and use this document to capture the signatures or initials of the individuals performing and reviewing/approving the various closing procedures. Additionally, the following are suggested procedures that the College should implement to allow for a more accurate close and prevent the material misstatement of the financial statements: The accounting policies of the College should conform to accounting principles generally accepted in the United States of America as applicable to colleges and the accounts should be maintained on the accrual basis of accounting since its financial statements are reported as a business-type activity, as defined by GASB Statement No. 34; Perform a reconciliation of enrollment on at least a semi-annual basis to ensure that the tuition revenue recorded is reasonable in relation to total enrollment; Record deferred grant revenue based on funds received in advance of when the expenditures were incurred on the grant; Record deferred tuition revenue based on when tuition payments have been collected in advance of when it is earned; Update federal and state awards schedules presented in the financial statements for purposes of additional analysis as required by OMB Circular A-l33, to include accurate CFDA#/grant#, grant names, classifications between federal/state/local, award amounts, periods, cash receipts, and expenditure amounts. The schedule expenditures, receipts, accounts receivable and deferred revenue, if any, should be reconciled with the general ledger and reviewed by grant administrators; Develop a written year-end financial statement close out process, checklist and timeline to ensure more accurate and timely information is included in the fmancial statements instead of the current process that although improved, still results in inefficiencies and reworking of financial information needed to prepare for the audit. The close out process should document and identify the various procedures performed along with timelines for the procedures and this document should be used to capture the signatures or initials of the individuals performing and reviewing/approving the various closing procedures. The financial statement, including management's discussion and analysis, footnotes, and the schedules of expenditures of federal and state awards, should be prepared on a timely basis, agreed to the trial balance and consistent with the prior year's presentation. The June 30, 2011 College audit dated November 16, 2011 referenced the Jenzabar operating system was broken and required significant work. The Jenzabar accounting system was not set up correctly, has not been utilized by the College effectively and is not operating in a manner that allows the College to adequately post, capture and report all financial activity of the College. The College engaged Jenzabar to address corrective actions in FY 2011, beginning with Phase I converting the chart of accounts to establish the framework for data capture, funds and reporting. In FY 2012, the College engaged Jenzabar to further 3

5 address significant corrective actions on removing system patches, workarounds and software fixes to enable the operating system to operate as designed. The financial statement close process is very labor intensive due to the Jenzabar installation / set up process, several workarounds were developed to parallel the manual process, software changes were installed that resulted in business process gaps requiring off line manual work, and other operating components of the College business are currently maintained on a manual basis off line. Effective July 1, 2011, the College developed a new general ledger chart of accounts to capture the core business elements and funds of the College. Software changes were performed in FY 2012 to remove the system patches, workarounds, and to utilize the Jenzabar Software as designed to enable the College to migrate to the next generation of cloud-based software solutions and for alignment with the State of New Jersey Community Colleges moving forward. Jenzabar advised the College during fiscal year 2012, that the current CX (Unix) software is being re-written to the JX (Java) platform over the next few years, as the software is dated and will not be supported in the future. The current CX software version is significantly dated, highly dependent upon IT personnel and additional College staff, not user friendly, lacks basic management reporting and integrated functionality - which requires significant off line manual work-a-rounds on excel in all College departments-including a very manual fmancial statement closing process. In addition, the software is not aligned with the State of New Jersey Community Colleges software platform supported by the Big Ideas Projects of the NJ Council of Community Colleges. During calendar year 2012, the College engaged Jenzabar and Datatel to review and demo their (ERP) software, provide cost proposals for the College to evaluate and will recommend in FY 2013 a preferred software vendor of choice for funding this strategic technology investment for integrated delivery of 21 st century student education, improved efficiency and cost effectiveness. The College will implement a properly functioning financial statement close-out process after sufficient time has passed to ensure accurate information is obtained and included in the fmancial statements. The College has developed a monthly closing schedule/checklist of activities-timeline, however, will start to note signoff of preparers/reviewers. The accounts payable/purchasing system software had many workarounds implemented over the years-that require new software changes to streamline the business process that will continue to be addressed in fiscal The purchasing encumbrance system requires significant software changes to correct, as its reporting capability is not all inclusive, thus leaving room for error in financial statement accrual estimates. The College Administration will recommend to the Board that in future years the audit process not begin until at least 60 days after the fiscal year end to allow the fmance team time to complete the work required for the audit and reduce the additional audit work required due to targeting an early audit report date. College management will perform a credit hour/tuition reconciliation on at least a semester/six-month basis, and will develop business policies to address the process of allowing waivers, adjustments, along with the appropriate approvals/explanations and documentation. The College will record deferred revenue/receivables, as recommended. The College changed the Summer 2 time frame so that going forward there will be no crossover between different fiscal year-ends (for example: all of Summer revenue will be recorded in 2014 fiscal year-end). 4

6 OTHER MATTERSIDEFICIENCIES: Employee Payroll and Benefits SUSSEX COUNTY COMMUNITY COLLEGE During our testing of the College's payroll and human resource processes,'we examined personnel files of certain individuals that were employed by the College during the 2012 fiscal year. In performing our procedures, we identified that one employee file did not contain a W-4 form. There were five employees selected for testing that had the incorrect pension calculated for the payroll period selected, however, the College had already taken corrective action later in the year and the correct pension was calculated as of June 30,2012. The College does not have policy guidelines on employee benefit pension programs with the HR department alignment as fiduciaries for pay, benefit and personnel changes. The College does not have reports to monitor compliance of all benefit programs and does not conduct routine educational workshops with all employees on benefit programs. The College did perform a review of all existing College personnel files during fiscal year 2012, however, we suggest that the Human Resources Department ensure that the files are routinely reviewed and updated to contain the required documentation (i.e. - completed 1-9, W-4, pension forms and employment contracts). A checklist should be developed to document what is required in the files and to verify the proper information is maintained. We suggest the College establish policy guidelines on employee benefit pension programs with HR department alignment as fiduciaries for pay, benefit and personnel changes. We suggest the College develop ADP reports to monitor compliance of all benefit programs and conduct routine educational workshops with all employees on benefit programs. The Human Resources Department performed a personnel file audit of all current employees to update benefit documentation for validation with the State and ADP HRlPR systems. The internal audit process was completed by April 2012 for existing employees and the College converted all employee pay and benefit data from manual to ADP HRlPR system. The HR process has been established to complete and retain documentation for all new employees in their personnel files going forward. The College will establish policy guidelines on employee benefit pension programs with HR department alignment as fiduciaries for pay, benefit and personnel changes during fiscal year June 30,2013. The College will develop ADP reports to monitor compliance of all benefit programs and conduct routine educational workshops with all employees on benefit programs during fiscal year June 30,2013. Information Technology During our review of the College's IT general controls, although the system is backed up every night we noted that there is no formal written disaster recovery plan in place that documents how the College would continue functioning in the event of a disaster to the IT system. We also noted that there is no written policy that requires employees to change their password at any time or for the character or length of the password an employee is using. We suggest that the College develop a formal written Disaster Recovery plan in the event of a real disaster. We also suggest that a policy be implemented to require passwords to be updated routinely and include characters/minimum lengths, etc. 5

7 The Leadership of the IT department changed significantly during the last quarter of fiscal 2011, with the contracting with AIO to provide IT rebuilding and technology alignment with the College community. SCCC will address development of an IT disaster recoverylback up/ and security plan during fiscal year 2013, as part of the IT rebuilding. SCCC IT will address the policy on changing user passwords on a periodic basis and alignment of user menu options, as provided in the Jenzabar system software. During our review of the controller account and operating account bank reconciliations, we identified stale outstanding checks dating from totaling approximately $64,000 and $27,000, respectively, as well as another approximately $34,000 recorded as stale checks payable in the general ledger. We also noted that the College does not have a separate bank account setup for payroll related items as of June 30, Direct payment for payroll (net and agency) is made from the general operating accounts. This becomes an issue when those direct payments are made by the payroll vendor rather than the College employees. This type of process gives the payroll service provider access to all College funds rather than just the payroll for any given period. We suggest stale outstanding checks be investigated and either voided and reissued, or removed completely from the outstanding check list and payables. If a check was not reissued to an employee or vendor, the funds should be moved to an unclaimed property account and escheated to the State. We also suggest that the College utilize a separate imprest bank account for payroll so that the payroll service provider does not have access to other College funds and to make the reconciliation process easier. The bank reconciliation process will be further enhanced during fiscal 2013 with additional administrative reviews and escheating of old stale un-cashed checks to the State of New Jersey. The College is currently in process of establishing a new payroll imprest account with ADP, as recommended. During our review, we noted that the College does not have a Financial AidlBursar Committee for policy alignment and does not have a Grant Committee, Directory and Policy Guidelines. We suggest the College establish a Financial AidlBursar Committee for policy alignment and a Grant Committee, Directory and Policy Guidelines. The College will establish a Financial AidlBursar Committee for policy alignment and a Grant Committee, Directory and Policy Guidelines in fiscal year

8 Policies and Procedures During our review, we noted that many sections of the College's employee and policies and procedures manuals, as well as, board administrative policies, have not been revised in several years. We also noted that the College and Foundation do not have a written whistleblower policy or fraud risk hotline. The whistleblower policy is intended to provide protection for the College and Foundation if concerns are raised regarding incorrect financial reporting, unlawful activity or activities that are not in line with policy or amount to improper conduct. We suggest the College review its current policy and procedure manuals and update them as deemed necessary. We also suggest they include a formal written record retention policy, written conflict of interest policy, written whistleblower policy and create a fraud risk hotline for its employees for monitoring possible fraud. The College will prioritize the updating and development of College policies and procedures during fiscal year