1. Southern Association of Colleges and Schools Commission on Colleges
10 Minute Finance Focus
For SACSCOC PUBLIC members
MANAGEMENT LETTERS
Donna Barrett, Director, Institutional Finance
This is Donna Barrett. I serve as the Director for Institutional Finance on the administrative staff of SACS Commission on Colleges. My role is to assist institutions in accreditation related finance issues.
This ten-minute focus is on public institution management letter requirements. It is not intended for private institutions or for applicants or candidates seeking membership.

2. Disclaimer Every School is different Every Evaluator is different
No one size fits all solution
Staff perspective
As we begin please remember that every institution is different and every evaluator is different. There is no one size fits all solution to the management letter requirement. Also please note that this is a staff perspective based on trends in evaluator’s professional opinions.

3. Focus Goals Understand Management letter requirements
Reveal Common Problems in Public Institutions
Offer Potential Solutions
This focus should help public institutions understand management letter requirements, reveal common problems public institutions have and offer potential solutions.

4. 2012 edition Page 20 Full text available at www.sacscoc.org
On page 20 of the Principles of Accreditation you’ll find Core Requirement , which includes the management letter requirement.

5. CR 2.11.1 Financial Statements
Audited financial statements (or standard review report)
And written institutional management letter
And statement of unrestricted net assets
And Annual budget
And proof of budget planning & approval
Core Requirement requires five different types of financial documents. Please note that every institution is responsible for providing all five types of documentation when responding to the standard. This focus discusses the management letter.

6. Management Letter Individual to institution, written Accompanies audit
Required even if no issues
Required at Institutional level for all institutions
Management letters must be written, and are required even if no management issues are present. Management letters are required at the institutional level, not at the state or system level.

7. Definition
MANAGEMENT LETTER identifies issues not required to be disclosed in the Annual Financial Report but represent the auditors concerns and suggestions noted during the audit.
A management letter identifies issues not required to be reported in the annual financial report. These are concerns and suggestions noted during an audit. Typical management letter comments include internal control issues such as failure to change passwords, or failure of employees to take vacation. These management comments might not rise to the level of a finding in a federal awards audit or other compliance audit. Often the management letter is the only documentation of these management issues.

8. The public problem? No audit at institutional level
Results in no management letter at institutional level
Many public institutions are audited as part of the state or a system. SACSCOC will generally accept financial statements, for public member institutions only, as supplemental schedules to a state or system audit. And there’s the rub. Allowing public institutions to provide anything less than an audit opinioned at the institutional level may result in no management letter for the individual institution. Remember a management letter from a system or state audit will not meet the requirement in Core Requirement

9. External Verification of Internal Controls
Spirit of Requirement
External Verification of Internal Controls
To discuss solutions it is important to understand the spirit of the management letter requirement. The standard seeks external verification of internal controls. This is confirmation by an outside party, whether it’s a state auditor’s office or an external CPA firm, of the status of internal controls at the individual institution.

10. What’s not acceptable (but often submitted)
System or State Management Letter
Management Discussion and Analysis
Opinion letter
Management Representation Letter
Internal audit reports
Public institutions submit a variety of documents as management letters that are not accepted. Often we receive management letters for the state or system. We also get Management’s Discussion and Analysis documents. The cover letter to an audit or review, describing the scope of review, or maybe providing an opinion, is not a management letter. Management Representation letters provide assurance by institution’s management to provide full information to the auditors, which is great, but still not a management letter. And last we sometimes receive reports from internal auditors which, while helpful at identifying management issues, are not considered external verification.

11. What is Acceptable Management Letter for the institution
Management Letter for the System or State only if
Identifies by name all institutions included
Identifies all findings by institution
So, what is acceptable? A management letter accompanying an audit for the individual institution is always acceptable. If no management letter was issued because there were no management findings, a letter stating so from the auditor may be provided.
A management letter for the state or system may also be acceptable if, and only if, it identifies all the institutions included in the letter and lists findings by individual institution. Remember only public member institutions may submit this type of system management letter. Private institutions and all institutions seeking membership must have a full opinioned audit at the institutional level with an accompanying management letter.

12. Other Approaches that have been accepted thus far
See Georgia
See Florida
See Tennessee
The next few slides highlight examples from public institutions in our region that have met the management letter requirement with some alternative form of documentation. All accomplish the same goal, providing external verification of management letter type comments.

13. Georgia Full Disclosure Management Report, includes:
Financial statements
Financial Statement Findings & Questioned Costs
Federal Award Findings & Questioned Costs
Other Items Noted for Management’s Consideration
Georgia’s audit department has been extremely responsive to the accreditation needs of its public institutions not receiving full audits. At an institution’s request they will provide a full disclosure management report. On the last page of this report, the last item, Other Items noted for Management’s Consideration, has been generally accepted by evaluators to meet the management letter requirement.

14. Florida Financial Audit, i.e. report 2012-XXX
Includes Report on Internal Control
Which includes reference to an “operational audit report No XXX”
OA findings have generally been accepted as management letter comments
An institution in Florida recently provided their financial audit, which included a report on internal control. That report on internal control referenced an operational audit report. That operational audit report provided internal control findings and was accepted by a peer reviewer as providing management letter type comments.

15. Tennessee Letter from state auditor
Indicates matters discussed at a field exit conference
List of Items discussed at a field exit conference have generally been accepted as management letter comments
A public institution in Tennessee recently provided a letter from their state auditor indicating matters discussed with management at a field exit conference. In this case the evaluator and the committee accepted these auditor-provided field exit comments as documentation for the management letter requirement.

16. Remember…. This is a peer review process
Institutions may make their case
But ignoring the ML requirement won’t do
Public member institutions should remember this is a peer review process. That provides your institution with the ability to make its case for compliance. SACSCOC encourages public institutions to work with their state auditors to meet this requirement. Many of our state auditors are bound by state legislation and regulation on the services they provide to our institutions, and we appreciate this. But we are also seeing public institutions work with their state auditors to provide innovative solutions to the management letter requirement.

17. Need more information? See the Resource Manual (www.sacscoc.org)
Come to our Annual Meeting
Contact your Accreditation Liaison
For more information about financial standards see the Resource Manual at our website. Every December SACSCOC has an annual meeting with sessions provided on financial issues. And you also have an accreditation expert on your campus, your own accreditation liaison.

18. Thank you!
I hope this focus has been useful to you. Thanks so much for listening.