1. Crowe Horwath’s Letter to College of DuPage Audit Committee Regarding Internal Control Deficiencies Presented by: William J. Kresse, M.S., J.D., CPA, CFF, CFE, CrFA, CGMA, Esq. Independent Financial Expert, COD Audit Committee Governors State University, College of Business

2. The Crowe Horwath Management Advisory Letter Crowe Horwath (“Crowe”) provided the Audit Committee with a management advisory letter listing deficiencies in internal controls at College of DuPage. FOURTEEN deficiencies were reported. This presentation focuses on the most important three deficiencies.

3. Background Crowe was not engaged to identify or to express an opinion on COD internal controls. Crowe found these deficiencies during the course of its financial statement audit. And, Crowe does not express an opinion on internal controls. Additional important control deficiencies may exist that Crowe did not find.

4. Definition  “Control Deficiency” “ A control deficiency 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.” Sources: Crowe letter to COD, AICPA A deficiency is a weakness.

5. “Importance” vs. “Materiality” Importance: Trust, stakeholders, relationships, compliance and reputation. Materiality: A specified dollar amount selected that is relative to the overall financial size of the underlying entity. All material issues are important, but not all important issues are material.

6. “Clean” versus “________” “Unmodified” / “Clean” audit report generally means no material issues. “Clean” audit report can point to, include, or express important issues. Crowe’s letter pointed to 14 important deficiencies that they came across during the course of the audit.

7. Note Crowe was primarily interested in possible misstatements that would have a material impact on COD’s financial statements.

8. Deficiency: Conflicts of Interest Findings: “ [C]urrent conflict of interest policy only addresses trustee[s], … neglecting key officers and Foundation board members. ” “ Currently no process to positively confirm that all potential conflicts have been disclosed to the appropriate parties ”

9. Deficiency: Investment Policy Findings: “ [M]anagement was not effectively monitoring compliance with the investment policy established by the Board …. [T]he College recognized a $2 million loss on an investment … outside of the investment policy ’ s parameters …. ”

10. Deficiency: Purchasing & Inventory Controls Finding: “ Lack of appropriate and effective controls over purchasing and physical inventory ” at Waterleaf and potentially other auxiliary business operations.

11. Recommendations: Conflicts of Interest “ [A]mend … Conflict of Interest policy to require annual statements signed by each trustee and principal officer …. [P]roactively monitor … Foundation Board [for] conflicts …. Consider having this compliance process managed by the audit committee …. ”

12. Recommendations: Investment Policy “ Implement reporting controls to allow for appropriate monitoring of compliance with board policy …. [P]reventative controls to avoid the purchase of unauthorized investments [in the first place]. ”

13. Recommendation: Purchasing & Inventory Controls “[E]valuate the College’s purchasing and inventory controls over auxiliary business operations throughout the campus.”

14. Status: Conflicts of Interest COD management agree with Crowe’s recommendation, and inter alia, have developed appropriate policy modifications, and have reviewed approximately 70 Statements of Economic Interest.

15. Status: Investment Policy COD management agree with Crowe’s recommendation, and inter alia, have liquidated any investment in violation of the Board investment policy, and have implemented stronger controls over investment policy monitoring.

16. Status: Purchasing & Inventory Control COD management agree with Crowe’s recommendation, and inter alia, have implemented additional controls over the remaining inventory at the now- closed Waterleaf restaurant, and are identifying additional areas of improvement.

17. Additional Control Deficiencies Bond Premium Amortization User Access Controls Access Level Review Third Party Administrator Controls Reclassification of Held Checks Account Reconciliation Reviews Payroll Controls Perkins Funds Purchase Controls OMB Circular A-110 Controls Bid Document Retention Policy P-Card Transaction documentation

18. Constant Vigilance… COD’s issues are now well established As is its path back These 14 deficiencies remind all that compliance is a CONSTANT concern Identification – Solution – Implementation For continued student success and enhanced taxpayer credibility