1. STATEMENT OF AUDITING STANDARDS 112 (SAS112)
Communicating Internal Control Matters Identified in an Audit
UC Riverside June 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 1- Why SAS112 2- What is SAS112 3- Impact of SAS112
4- Internal Control
5- Minimizing risk in
dept. operations
6- What to do?

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 =$1.8 m
Non-Compliance Fine$ - Contract & Grants
University of California (2002). Fine =$1.8 m
Northwestern University (2003). Fine = $5.5m
Harvard University (2004). Fine = $2.6m
Mayo Foundation (Mayo Clinics). 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 classifies 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. 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 evidence and documentation required during audits
- Lower audit materiality thresholds

8. Impact of SAS 112 on UCR
SAS 112 requires UCR to disclose deficiencies to 3rd parties:
Regents
Sponsors (Federal, State & Private)
3rd party creditors
Accrediting agencies
Rating agencies
Insurers

9. Impacts of deficiencies and weaknesses disclosures:
-negative impact on reputation for UC, UCR, VCA, and Department
-increased internal and external audits
-audit disallowances, fines and penalties
-potential negative impact on resource allocation

10. Generally, internal controls at UCR are in order and adequate,
but there are departments,
functions and areas where
we noted….
Control Issues with
- Ledger reconciliation & review
- Budget variance analysis
- Revenue monitoring
- Cash handling
- Payroll processing
- Timekeeping & billing
- Cost Transfers
- Fiscal Year End Processes
- PAN Reviews
The campus goals, related to SAS112, are to:
- Enhance understanding of Internal Controls
- Minimize Control Issues

11. 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.

12. implementing internal controls?
Who is responsible for
implementing internal controls?

13. Departments (Chair/ Director, MSO, Staff)
PARTNERSHIP
Central
Offices
(Accounting, Audit &
Advisory Services,
AP&B, OR,
etc.)
Executive
Management
Departments (Chair/ Director, MSO, Staff)
Control Units
(Deans/VC
& CFAO)

14. Minimizing the Risks Department Head:
Oversees and is integrated into the financial management process
Ensures proper controls and monitoring procedures are in place
Ensures financial reports are accurate and meaningful
Ensure SAAs, transactors and reviewers are appropriately trained and supported in their key business process roles

15. Minimizing the Risks
Timely reconciliation and review of monthly ledgers
Budget to Actual review
Analysis of causes for variances
Review of payroll transactions by financial staff and responsible manager
Regular review of financial reports by department manager and business officer
Evidence of ledger reconciliation and review
New Ledger Recon Tool-coming soon

16. Minimizing the Risk Timely resolution of errors
Frequent and late cost transfers can be a symptom of a deficiency
Ensure sufficient segregation of duties
No one person should have complete control over the key processing functions for financial transactions
Provides for prevention and detection
Errors
Inappropriate activities
Post Audit Notification (PAN) Reviews
Payroll/Personnel System and UCRFS transactions
Timely
Adequate

17. and there will be consequences
What to do:
Control Assessment
Training
When issues are identified:
1- Self-report
2-Assistance
3-Escalate/Remediate
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

18. 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