1. STATEMENT OF AUDITING STANDARDS 112 (SAS112)
Communicating Internal Control Matters Identified in an Audit
UC Riverside Spring 2007

2. " Today's audit environment
encourages  transparency and accountability.
Therefore, an integrated campuswide effort
is  needed  to  effectively steward
the funds entrusted to UCR.”
Chancellor Córdova

3. AGENDA * * Sponsored Project Administration 1- Why SAS112
2- What is SAS112
3- Impact of
SAS112
4- Minimizing risk
in C&G area
5- What to do? *
Sponsored
Project
Administration

4. Why SAS112? SAS112 is our SOX - United States Federal Law and SEC
For Public Companies
-Sarbanes–Oxley (SOX):
Requires conducting an assessment of the effectiveness of internal controls by management,
to be audited and approved by the company’s independent accountants
WorldCom
Enron
Why SAS112?
SAS112 is our SOX
- American Institute of Certified Public Accountants
For non-profit organizations (UCR)
- SAS 112

5. University of California (2002). Fine =$1.8 m
Non-Compliance Fine$
University of California (2002). Fine =$1.8 m
Northwestern University (2003). Fine = $5.5m
Harvard University (2004). Fine = $2.6m
Mayo Foundation/Mayo Clinics(2005). Fine = $6.5m
Florida International University (2005). Fine= $11.5m
University of Alabama Birmingham (2005). Fine =$3.4 m

6. What is SAS112?
Establishes standards for communicating internal control issues relating to:
integrity of financial reporting
compliance with applicable laws and regulation
Establishes standards that classify communicated control issues as:
- control deficiencies
- significant deficiencies
- material weaknesses
SAS112 standards have been adopted by the federal agencies and the Government Audit Standards has been updated to incorporate SAS112

7. SAS 112 requires disclosure of deficiencies to Regents and others
Impact of SAS 112 on UCR
Due to significant changes in the
evaluation of control exceptions
and more stringent audit standards,
UCR is more likely to encounter
control issues being identified and
reported
- Increased scrutiny
- Larger audit samples
- More audit evidence and documentation
- Lower audit materiality thresholds
SAS 112 requires disclosure of deficiencies to Regents and others

8. impact of deficiencies and weaknesses disclosures
-negative impact on sponsored program funding
-negative impact on reputation
-increase external audits
-audit disallowances
-fines and penalties

9. Generally, internal controls at UCR are in order and adequate,
but there are departments,
functions and areas where
we noted….
Control Issues with
- Review and reconciliation
of C&G expenditures
- Certified effort reports
- Cost Transfers
-Expenditure monitoring

10. Effectiveness and efficiency of operations.
INTERNAL CONTROL
Internal Control
Internal control is broadly defined as a process, effected by the UC Regents, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
Effectiveness and efficiency of operations.
Reliability of financial reporting.
Compliance with applicable laws and regulations.

11. Who is responsible for
internal controls?

12. Advisory Services, etc.)
PARTNERSHIP
Principal
Investigator
&
Project
Personnel
Central
Offices
(Office of Research,
Accounting, Audit &
Advisory Services, etc.)
College Dean,
Department
Chair,
MSO & Staff

13. Growth in Direct Contract and Grant Expenditures
Fiscal Year 2003/04 to Fiscal Year 2005/06
Source
FY03/04
FY04/05
FY05/06
1 Year % Increase/Decrease
2 Year % Increase/Decrease
Federal Government
$36,970,256
$47,197,544
$53,447,911
13%
45%
Local Government
$1,553,189
$1,936,147
$2,217,444
15%
43%
Private
$14,358,686
$14,711,554
$13,544,906
-8%
-6%
State Agencies
$5,788,019
$5,985,849
$4,950,031
-17%
-14%
Total
$58,670,150
$69,831,094
$74,160,292 6%
26%
(a)
Source: Annual Report on Contract & Grant Expenditures
(a) 26% increase from FY03/04

14. Increase extramural support while managing risk
UCR’s Challenge
Increase extramural support while managing risk
Our Goal
Facilitating Faculty Success!

15. award close-out sub-recipient monitoring cost sharing effort reporting
transfers
POTENTIAL
RISKS
IN C&G
AREA
physical
inventory
review of
monthly
statements
overdraft

16. FALL 2006

17. Area of Risk: Effort Reports
Symptoms of deficiencies
Incomplete or missing reports
Late reporting
Major area of concern for Federal Government
Current Efforts
New on-line system coming
Resolution of deficiency
Remove unsubstantiated costs

18. Area of Risk: Cost Transfers
Symptom of Deficiency
High volume
Late transfers (may require revised effort reports)
Improper documentation and/or allocation methodology
Major area of concern for Feds
Current Efforts
Enhancing Business Rules
Resolution of deficiency
Reversal of charges

19. Area of Risk: Award Closeout
Symptom of Deficiency
Delinquent Financial Reports
Delinquent Technical Reports
Area of concern for Feds
Current Efforts
Improving notification process
Resolution
Future funding withheld for specific awards
Funding to institution withheld

20. Minimizing the Risks Training Tools Policies
C&G Workshops (to be expanded)
Ethics Awareness
Tools
Enterprise Reporting System
Ledger Recon/Review System (coming soon)
Policies
C&G Manual
UCR Research Administration Roles & Responsibilities (in development)

21. Minimizing the Risks Timely review of monthly statements
Budget to Actual
Anticipate unspent balances or overdrafts
Review payroll transactions
Regularly meetings/discussion between PIs administrative staff
Immediately report discrepancies
Communication
Timely resolution

22. Minimizing the Risk Timely return of certifications:
Effort Reports
Cost sharing Reports
Impacts Financial Reports and Award Close-Out
Monitor Sub-recipient’s progress on project compared to billing statements
Potential impact on award close-out
Timely submission of Technical Reports

23. and there will be consequences
What to do
1- Department Assessment
2- Training
When issues are identified:
1 - Self-reporting
2 - Request Assistance
3 – Remediate/Escalate
4 - Proactive Approach
When control issues
or policy non-compliance
are recurring and systemic:
Everyone is responsible
It will be transparent
and there will be consequences

24. Contacts
Gretchen Bolar, Vice Chancellor-Academic Planning & Budget
Bobbi McCracken, Asst. Vice Chancellor-Financial Services
Mike Jenson, Director-Audit & Advisory Services
Bruce Morgan, Asst. Vice Chancellor-Office of Research
Toffee Jeturian, Asst. Director-Audit & Advisory Services
Marc Guerra, Director-Financial Control & Accountability