ISSUE: The Committee will receive a status report on the bookstore special review.

Transcription

1 Audit Committee Meeting March 9, 2006 Item # 14 EXECUTIVE SUMMARY INFORMATION ITEM: NAU BOOKSTORE ISSUE: The Committee will receive a status report on the bookstore special review. Background: Rick Gfeller will brief the Committee on the NAU Bookstore audit in progress. Based on events in the NAU Bookstore Computer Sales Department, Chairman Stuart requested the Universities to address questions regarding product sold with educational discounts. The University Auditors will discuss their reports briefly. A B C ASU NAU UA NOTES:

2 DRAFT 1 MEMORANDUM February 17, 2006 TO: FROM: SUBJECT: Regent Gary Stuart, Arizona Board of Regents Jane Kuhn. Fiscal & Operations Director, Enrollment Management & Student Affairs Northern Arizona University Bookstore Resale Agreements As you requested, the agreement with Apple and the procedures in place have been reviewed to monitor compliance. In addition, the following actions have been taken: 1) the NAU Bookstore website has been reviewed; 2) the primary Bookstore agreements that contain eligibility provisions for sales of computer hardware and software have been reviewed; and 3) the procedures in place to ensure contract compliance with buyer eligibility provisions have been analyzed. Below is a summary of the significant facts and resulting conclusion. Further information is provided related to the recent release of Apple Campus Sales Centers Policies and Practices. NAU BOOKSTORE WEBSITE The NAU Bookstore website no longer states that educational discounts are available to the general public. The NAU website now states that students, faculty and staff receive educational discounts on Apple products. NAU BOOKSTORE AGREEMENTS WITH BUYER ELIGIBILITY PROVISIONS The NAU Bookstore has contracts with Apple and Microsoft Student Select that contain buyer eligibility requirements. NAU VERIFICATION OF ELIGIBILITY PROCEDURES In order to be in compliance with the various agreements requiring evidence of buyer eligibility, the NAU Bookstore has adopted the following procedures: Customers requesting to purchase a product at an educational discount are required to present a current NAU ID. The attached invoice is issued to and signed by all buyers verifying eligibility. The NAU Bookstore retains a copy of the invoice that reflects the customer s name, NAU ID number, product ID, product serial number, purchase date, purchase location, description of the product purchased, amount paid, and the name of the sales clerk. Both the sales clerk and the customer are required to sign the invoice. A copy of the invoice is retained for at least three years. The language on the invoice will be modified as follows: o I am a staff member, student, or faculty member at Northern Arizona University. By signing below, I certify that the Apple products that I am purchasing through Northern Arizona University s Collegiate Partnership Program with Apple Company, Inc. are for my own educational or research use. Furthermore, I agree that I may NOT purchase Apple products through the aforementioned Agreement for the purposes of resale.

3 The NAU Bookstore will adopt the following policy in response to the recent Apple Campus Sales Centers Policies and Practices: o A database similar to the Student Select database, see below, will be created to track all purchases by eligible buyers of educational discounted items. If the customer has previously purchased an item the database will display the customer s record with a listing of previously purchased products. The customer s record consists of the customer s name, NAU ID number, purchase date, product ID, product serial number, invoice number, and description. The sales clerk signs the invoice providing evidence that the sale was made in compliance with NAU and the supplier s terms. In addition, the customer signs the invoice providing evidence that they received the product as purchased. Microsoft Student Select Program for sale of Microsoft Office products, through InSight, has the same buyer eligibility requirements as the Apple contract. Sale of eligible products is done through a website, copy attached, in which the buyer has to verify status as faculty, staff or student through JAN account authentication. The site will only display products that are eligible for sale to the individual logging in. If a product has been purchased in the past, the product is removed from the list of eligible products for purchase and will not appear. The record is specific to the customer. A database of all customers and products purchased is kept in the bookstore. CONCLUSION The NAU Bookstore has proper controls in place and will continue to improve controls to deter a customer from purchasing and reselling educational discounted products. If you have any questions please feel free to contact me. Attachment c: Joel Sideman Rick Gfeller President John Haeger Mark Neumayr Craig Hutton David Bousquet

4 Welcome to the Computer Sales home page. The Computer Sales department is located inside the NAU Bookstore at the front of the building. We offer a great selection of computers, hardware, software, and peripherals for both the PC and Mac platforms. Below-retail prices are available to NAU students, faculty and staff. We are an Authorized Reseller of Apple, Dell, and Gateway Computers. We carry a full line of desktop and portable computers that can be customized to meet your needs. For additional information or questions please contact us via phone ( ), , or in person. Our qualified sales representatives are always available to assist you. PowerMac G5 Towers on sale now-- click here for details! Copyright 2005 NAU Bookstore Site maintained by Joseph Harting

5 file://c:\documents and Settings\shutch\Local Settings\Temporary Internet Files\OLKB\Student Select 2 U... Page 1 of 1 2/27/2006 Under NAU's new Microsoft Student Select Program, any currently enrolled NAU student can purchase Microsoft Office XP for Windows and Microsoft Office for Macintosh OS X for the student price of $ Click here to go to our Order Page. (This will open a new window.) If you have any questions, please contact us at computer.bookstore@nau.edu, , or NAU Bookstore Homepage Computer Sales Homepage

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7 NAU Bookstore Computer Sales S San Francisco St. Flagstaff, AZ Invoice # Date: 2/16/2006 Sales Person: Andrea Customer Info ID #: First: John Last: Cencioso Dept. SBS Addr. 65 mcconnel dr. suite 200 City flagstaff State AZ Zip Ph # IDB #: bk Line Class SKU Description Price Qty Tax Amount Imac Box #: 1221 Item on Order: Serial #: W85504C7TAR Box #: Serial #: Item on Order: Comments Sub-Total: Tax: Invoice Total: $ $91.28 $ I have read and agree to the following: I am a full-time staff member, student, or faculty at NAU or other approved educational institution Unopened items may be returned within a 30 day period excluding special order items and computer systems I will not re-sell any computer system purchased from the NAU Bookstore for the period of 2 years There are absolutely no returns on opened software or consumables (including ink) All returns are subject to a 15% restocking fee Customer Signature: Cashier/S&R Signature: Computers Signature: Date: Date: Transaction #: Date: 1

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15 Internal Audit University Services Building, Suite North Euclid Avenue PO Box Tucson AZ (520) Fax (520) Memorandum Date: February 21, 2006 To: From: Subject: Regent Gary Stuart, Chair Arizona Board of Regents Audit Committee Frances C. Foy, Chief Auditor /s/ University of Arizona Computer Sales Contract Controls In light of the NAU Bookstore s improper reselling of discounted Apple Computer products, you requested that Internal Audit review computer sales contract controls at the University of Arizona Bookstore s Computing and Technology Store ( CATS ) to determine compliance with agreements that contain eligibility restrictions and to assess controls related to reselling of computer hardware and software. The scope of the audit work Senior Auditor Les Clark completed February 16, 2006 included: 1) review of the CATS Web site, 2) review of the primary agreements that contain eligibility provisions for sales of computer hardware and software, and, 3) analysis of procedures in place to ensure compliance with purchaser eligibility provisions. In summary, CATS Web site displays the following message, Due to academic eligibility restrictions, the purchase of hardware and software at CATS is limited to: University of Arizona Students, Faculty, and Staff. CATS requires the purchaser to present a current CatCard; however, the CATS version of the Verification of Eligibility Form, i.e., the Order Invoice, to purchase hardware does not include the three purchaser declarations that Apple requires. Bookstore management has agreed to revise existing Order Invoice language to incorporate the required purchaser declarations. o I, the purchaser, belong to one of the eligible categories; o The Apple products are for my own personal, educational and/or research use; and o I am not purchasing the Apple products for the purpose of further resale. CATS has procedures in place to track sales of hardware and software, by individual, in a database, so that no more than the restricted number of a particular computer model or software title is sold to a purchaser within one year. On 2/15/06, Apple released an 18-page document, Campus Sales Centers Policies and Practices, which clarifies qualifying purchases, including the ipod. We noted that at the time of purchase CATS restricts the customer to the purchase of only one unit from each ipod family of products, but does not enter and track the item, by individual, in its database. The exposure is that within an academic year the same customer could purchase more than one item in the same ipod family, which would violate the Apple contract.

16 CATS management has agreed to review the 18-page document for any requirements that have to be met and will revise its procedures, as may be necessary to be in compliance. Internal Audit will schedule follow-up work to be performed in May The following are details of our review. UA CATS Web Site The Web site displays the following message, Due to academic eligibility restrictions, the purchase of hardware and software at CATS is limited to: University of Arizona Students, Faculty, and Staff. Links to the Apple and Gateway (customized for the University of Arizona) Web sites allows the customer to tailor the computer purchase from available components; payment and delivery is through CATS, although Gateway allows the purchaser to use his or her credit card and receive direct delivery. Apple: Demonstration units are available; a small amount of floor stock, educationally priced, is maintained. Gateway: Demonstration units are available; no floor stock is maintained; orders are placed on-line that results in a confirmed quote/order. CATS Agreements with Purchaser Eligibility Provisions We examined computer product agreements for four primary suppliers; that is, Apple (hardware and software), Gateway (hardware), Microsoft (software licenses), and Adobe (software licenses, which are available to students only). Boxed software that includes the media and user manuals, etc., is distributed by manufacturers, e.g., Adobe, to institutions via resellers; CATS uses reseller The Douglas Stewart Company ( DSC ). We examined a DSC-prepared spreadsheet that displays purchaser qualifications. A summary of the eligibility requirements of these agreements is included as Attachment A. Other than computer products, there are no other supplier agreements that contain purchaser eligibility requirements. Apple s Campus Sales Centers Policies and Practices Document In February 2006, Apple issued an 18-page document titled, Campus Sales Centers Policies and Practices that describes Apple s policies and ways of doing business as they apply to Campus Sales Centers (CSCs) in the U.S. This includes the list of qualifying purchases and maximum quantity allowed to be purchased by one individual, per academic year; the policy on eligibility, verification of individual purchasers, etc. This document clarifies the requirements related to purchases of ipods: One (1) per ipod family (ipod, ipod nano, ipod Shuffle 1 GB, etc.) may be purchased per academic year. (Note: there is no quantity limitation on the ipod Shuffle 512MB.) The auditor noted that at the time of purchase CATS restricts the customer to the purchase of only one unit from each ipod family of products, but does not enter and track the item, by individual, in its database. The exposure is that, within an academic year, the same customer could purchase more than one item in the same ipod family, which would be in violation of the Apple contract. CATS management has agreed to review the entire 18-page document and revise its procedures, as may be necessary to be in compliance. Internal Audit will schedule test work in May CATS Bookstore University of Arizona Page 2 of 4 February 21, 2006

17 CATS Verification of Eligibility Procedures In order to be in compliance with the various agreements requiring evidence of purchaser eligibility, CATS has adopted the following procedures. 1. All computer and software products are received by the Bookstore s warehouse, where the hardware serial number and a complete description of each item is entered into the central inventory system, prior to delivery to the CATS floor for sale. Inventory records are adjusted automatically from data transmitted by the sales register at the point of sale/payment. 2. Customers requesting to purchase hardware or software are required to present a current CatCard; software only will also be sold to a customer with a valid picture ID or class list from another accredited institution, e.g., to a Pima Community College ( PCC ) student, as PCC does not have a technology store. 3. If the customer has previously purchased hardware or software, the CATS database will display the customer s record with a listing of previously purchased hardware, by model number, and description and software, by software title and description. The customer s record includes the customer s name, CatCard number (or other ID), purchase date, serial number, catalog number, description, price, and, for hardware purchases, the Order Invoice number. Software purchases are entered into the database s software log. 4. The aforementioned data related to the current sale is entered into the database and if it is a hardware sale, two copies of the Order Invoice are printed; both copies are signed by the purchaser and the CATS sales associate, which constitutes CATS Verification of Eligibility Form. One copy is retained by CATS for a minimum of three years. 5. Sales associates are responsible to ensure that all hardware and software sales follow the procedures regarding eligibility and verify previous customer purchases by reference to the database. The eligibility rules are straight-forward, although we noted that Gateway allows computer sales to alumni, whereas Apple does not. 6. The sales associate and the purchaser sign the Order Invoice providing evidence that the sale was made in accordance with CATS and the manufacturer s terms. This also provides evidence that he or she received the product as purchased and understands that this purchase is not eligible of any refund or exchange. 7. The Apple contract requires that CATS assist Apple in verifying the eligibility of any purchaser (student, entering student, faculty, and staff member that is not a temporary employee, employed as a contractor, or acting as a consultant on behalf of the purchaser) of Apple products by requiring CATS to prepare its own Verification of Eligibility Form, that incorporates elements attested to by the purchaser. The elements are provided by Apple in a Sample Verification of Eligibility Form. The Order Invoice form, which includes the data maintained in the CATS database for hardware sales, is used by CATS for this certification purpose. CATS Bookstore University of Arizona Page 3 of 4 February 21, 2006

18 8. We noted that the purchaser declaration (or certification) section of the Order Invoice does not include several elements required by Apple; namely: 1) I, the purchaser, belong to one of the eligible categories, 2) The Apple products are for my own personal, educational and/or research use, and, 3) I am not purchasing the Apple products for the purpose of further resale. 9. Bookstore management agreed to revise the Order Invoice language to incorporate the above purchaser declarations. Attachment: Exhibit A c: Edith S. Auslander George H. Davis Frank Farias Charles E. Ingram Judith E. Leonard Peter W. Likins Debby I. Shively Saundra I. Taylor Joel D. Valdez Melissa Vito CATS Bookstore University of Arizona Page 4 of 4 February 21, 2006

19 University of Arizona Bookstore s Computing and Technology Store ( CATS ) Summary of Contracts for Computer Eligibility Provisions Products Apple (Hardware and Software) The Apple contract (Campus Sales Center Amendment to the Collegiate Purchase Program Agreement) requires that the UA assist Apple in verifying the eligibility of any individual purchaser (UA student, entering student, faculty, or staff) of Apple products by ensuring that the purchaser fill out a Verification of Eligibility Form. Apple released a February 2006, Apple Confidential, Campus Sales Centers Policies and Practices that, in part, reads, This document describes Apple s policies and ways of doing business as they apply to the Campus Sales Centers (CSC) in the U.S. On 2/15/06, Apple s senior account executive for education in Arizona, with who the auditor had been in contact, sent the 18-page document electronically to Internal Audit, with a copy to the CATS manager. Highlights of the document are as follows: The Center is to ensure each individual purchaser executes a form that declares he/she meets Apple s eligibility requirements; the Apple products are for his/her personal, educational, or research use; and, the individual is not purchasing Apple products for further resale. (Page7) Qualifying Purchases lists the quantities of each Apple product that a qualifying individual may purchase within one academic year; this includes limits on the sale of ipod products. (Page 5) Gateway (Hardware) The Gateway contract (Campus Referral Program Agreement) recognizes that the University would like to offer Gateway s Products to University s students, faculty, staff, and alumni ( Purchasers ). The agreement has been entered into to promote and offer Products for sale to Purchasers under the Program. The agreement does not stipulate the manner in which eligibility is to be verified. CATS has applied the Apple verification of eligibility to the sale of Gateway and Apple computers, the only two brands of computers offered for sale. Microsoft (Software Licenses) The Microsoft contract (Microsoft Corporation Academic Select License Agreement) provides that the UA can distribute Academic Edition Products only to Qualified Educational Users (accredited educational institutions, including their full and part-time faculty, staff and enrolled students) for their end use. The Agreement includes the Reseller Information Form, in which Insight has been named. In addition, there is an Academic Student Select Enrollment Agreement whereby students may receive licenses in the English-only version of: Windows XP Upgrade, Office XP Professional, and Office XP Standard. The UA must require each student to sign a Student Select License Agreement that discloses the student s name and ID number for Microsoft Corporation s audit purposes only. The UA is required to maintain an accurate database that identifies (a) name and student ID, (b) date of each license transfer, (c) distribution point, and (d) by product name and version number, the licenses provided to each such student. CATS Bookstore Exhibit A University of Arizona Page 1 of 2 February 21, 2006

20 University of Arizona Bookstore s Computing and Technology Store ( CATS ) Summary of Contracts for Computer Eligibility Provisions Products According to the CATS manager, sales to incoming students are limited to those with a CatCard, which is received during the two-day orientation. Individual end-users can buy different SKUs (assigned to each product by the vendor, e.g., Standard, Student/Teacher, Professional, and Developer versions of Office) within a 12-month period. For example, Microsoft Office XP may be obtained through the Student Select program (licenses), or, it may be purchased as a retail box with documentation and user-manuals. Adobe (Software Licenses available to students only) As a program member of the Adobe contract (Adobe Open Options Contractual Licensing Program Education membership Agreement), the UA is required to validate the status of each student prior to distribution of any software and retain evidence of such person s status as a student; and limit distribution to one copy of each Software title, per individual student, per year. As a Program Member, the UA agrees that it will not purchase licenses for software under this agreement for distribution to or use by any of its faculty, staff or other non-students. The UA must maintain systems and/or procedures sufficient to, report the correct numbesr of copies which have been installed. The UA South and UA Arizona Health Sciences Center are listed as subsidiaries. The CATS manager stated that, as a practical matter, the Main Campus CATS office handles all software license transfers in its database. Any UA South or UA Arizona Health Sciences Center student is directed to Main Campus CATS for assistance with software licenses. Resellers of Boxed Software Manufacturers of software distribute their software through resellers, for example, Microsoft software is distributed to the UA through software reseller Insight, of Tempe, Arizona. Retail, shrink-wrapped boxed software with media and user documentation (as opposed to licenses only) from Adobe and other software manufacturers, after authorization, is distributed to the UA primarily by reseller The Douglas Stewart Company ( DSC ). We examined a spreadsheet listing prepared by the DSC representative. Essentially, the manufacturers requirement for ID, verification and records is to Retain Institutional Purchase orders, and copies of student or faculty ID for one or two years. The CATS manager stated that the purchaser s CatCard is used as the ID and a photocopy is not maintained, because if necessary, an image can be produced by the CatCard Office. CATS Bookstore Exhibit A University of Arizona Page 2 of 2 February 21, 2006