REPORT DIGEST

CHICAGO STATE UNIVERSITY FOUNDATION

FINANCIAL AND COMPLIANCE AUDIT
For the Two Years Ended:
June 30, 1997

Summary of Findings:

Release Date:
April 23, 1998

State of Illinois
Office of the Auditor General

WILLIAM G. HOLLAND
AUDITOR GENERAL

Iles Park Plaza
740 E. Ash Street
Springfield, IL 62703
(217) 782-6046

SYNOPSIS

• The Foundation violated University Guidelines by not maintaining sufficient records to allow for a rational allocation of employee time between the University and the Foundation.

• The Foundation awarded scholarships to six students who were ineligible. Further, the Foundation did not have adequate documentation to support the award of one scholarship and on another occasion the Foundation made an inappropriate payment to a student for room and board.

• The Foundation failed to obtain signed promissory notes for a $4,950 faculty member travel advance, and a $2,000 student financial hardship loan.

• The Foundation failed to require that cash disbursements be properly approved prior to payment and did not maintain adequate documentation to support all expenditures.

• The Foundation made an inaccurate payment for unused sick leave to an employee who resigned.

• The Foundation did not record certain detailed transactions in its accounting system.

• The Foundation was unable to produce evidence that a formal budget was prepared or approved by the Board of Directors for fiscal years 1996 and 1997.

• The Foundation did not have adequate policies and procedures and did not maintain adequate records regarding cash receipts.

{Expenditures and Activity Measures are summarized on the reverse page.}

FY 1997

FY 1996

Contributions
Investment Revenue
Other Revenue
Total Revenue

EXPENDITURES

Scholarships
University Support (Administration)
Special Projects
Direct Program
Total Expenditures

EXCESS (DEFICIENCY) OF REVENUE OVER EXPENDITURES

$53,389
85,411
1,578
553,362
$693,740

$106,628

$62,629
106,919
-
472,259
$641,807

$155,761

SELECTED ACCOUNT BALANCES
(ALL FUNDS)

AT JUNE 30, 1997

AT JUNE 30, 1996

FOUNDATION EXECUTIVE DIRECTOR

During Audit Period: Dolores J. Brooks
Currently: Vicki Wilson (Acting)

Poor Cost Allocation Records

Preapproved Authorizations

Ineligible Students Receive Scholarships

Inadequate documentation to support the award of one scholarship

Inappropriate payment to a student for room and board

Advances were made to a student and a faculty member but no promissory notes were obtained

Poor documentation of financial transactions

Expenditures are processed by personnel without regard to signature approval and without appropriate supporting documentation

Use of Sick Leave not Recorded

Overpayment made for accrued sick leave time

General Ledger not Maintained

FY 1996 and FY 1997 Budget not Prepared

Poor Records of Cash Receipts

FINDINGS, CONCLUCIONS, AND
RECOMMENDATIONS

INSUFFICIENT RECORDS FOR COST ALLOCATION

The Foundation did not maintain sufficient records to allow for a rational allocation of employee time between the University and the Foundation.

The Foundation uses University employees to perform certain Foundation functions. The University initially pays all employees' salaries through its accounting system, and the Foundation then reimburses the University.

The Foundation implemented a policy that University employees track their time spent on Foundation projects; however, the form did not indicate the percentage of time spent on University versus Foundation projects. Also, the form was to be approved by the Director, but we noted that the blank forms available for employees to use already included the Director's signature. Therefore, the form was preapproved, and control was ineffective. (Finding 1, page 14)

The Legislative Audit Commission's University Guidelines require that sufficient records be maintained to document performance of contractual arrangements between the University and a University Related Organization.

We recommended the Foundation establish a better procedure to allocate employee time and other related costs on a periodic basis.

The Foundation responded that it concurs and that it will establish effective cost allocation procedures.

SCHOLARSHIPS AWARDED TO INELIGIBLE STUDENTS

The Foundation awarded Scholarships to six students who were ineligible. Further, the Foundation did not have adequate documentation to support the award of one scholarship, and on another occasion the Foundation made an inappropriate payment to a student for room and board. Specifically:

• A recipient of the Advocate HealthCare scholarship was awarded $3,261 but was not enrolled in the required program.

• Five recipients of the Roosevelt Richards Scholarship were awarded $500 each but did not meet minimum academic achievement requirement.

• In 1 out of 25 scholarship recipients' files reviewed, documents were not available to determine eligibility for the award.

• The Foundation paid $2,495 for the room and board of a student. The Foundation could not provide documentation to substantiate the reason for the payment. (Finding 2, page 15)

We recommended the Foundation verify and maintain documentation that all students meet eligibility requirements prior to awarding a scholarship. Also, the Foundation should establish procedures to substantiate scholarship disbursements to eligible recipients and should require supporting documents and evidence of Board approval for all disbursements to students.

The Foundation responded that it concurs with our recommendation. The Foundation also said it will take the necessary steps to ensure that all scholarship recipients meet eligibility requirements.

FAILURE TO OBTAIN SIGNED NOTE FOR TRAVEL ADVANCE AND STUDENT LOAN AND VIOLATION OF FUND RESTRICTIONS

The Foundation failed to properly document certain transactions:

• A faculty member was given a travel advance of $4,950. The Foundation did not require the faculty member to sign an agreement of liability or a promissory note.

• A student was given a loan for financial hardship of $2,000. The loan was charged to the President's Council Scholarship Fund. The Foundation did not obtain a signed promissory note for the loan.

Both of these transactions occurred during fiscal year 1996. During fiscal year 1997, the Director decided not to pursue collection. We found no evidence in Board meeting minutes approving the action. Also, we did not find authority to grant these advances or forgive debts in the Foundation's by-laws. (Finding 3, page 17)

We recommended the Foundation implement procedures to ensure that promissory notes are signed prior to disbursing funds for advances or loans.

The Foundation responded it concurs. The Foundation also responded it will take the necessary steps to ensure that proper procedures are followed in the future.

AUTHORIZATION OF CASH DISBURSEMENTS AND INCOMPLETE EXPENDITURE DOCUMENTATION

The Foundation failed to require that cash disbursements be properly approved prior to payment and did not maintain adequate documentation to support all expenditures. During our review of 50 cash disbursement vouchers, we noted the following:

• In nine of the vouchers (18%) reviewed, the same individual signed the check authorization form twice, rather than having two individuals each sign.

• In four of the vouchers (8%) reviewed, only one individual signed the check authorization form.

• In six of the vouchers (12%) reviewed, the check authorization form was not signed.

• In seven vouchers (14%) selected for testing, the Foundation was unable to provide supporting documentation for the payment.

The Foundation's cash disbursement procedures require the approval and signature of the Executive Director and the Fiscal Officer and the attachment of supporting documentation.

A listing of personnel authorized to approve expenditures was not available, and there was no evidence that such a list existed. Expenditures were processed by personnel without regard to signature approval and without reviewing appropriate supporting documents prior to approval of the disbursement.

This situation represents a condition of weak internal controls over cash disbursements which could lead to loss from fraud or theft. (Finding 4, page 18)

We recommended the Foundation implement effective procedures to ensure that disbursement checks are not issued without proper authorization and supporting documentation.

The Foundation responded it concurs. The Foundation further responded that greater emphasis will be placed to ensure that adequate documentation is maintained to support the expenditures and that proper signatures are obtained before checks are processed for disbursement.

INACCURATE SICK LEAVE RECORDS

The Foundation made an inaccurate payment for unused sick leave to an employee who resigned.

Review of the employee's personnel file disclosed a "Return to Work" form which documented that the employee had been unable to work due to illness from March 10, 1997 through April 22, 1997. This absence had not been reported to payroll resulting in overpayment of accrued sick leave time of $2,799 when the employee resigned. (Finding 6, page 20)

We recommended the Foundation implement effective controls over the reporting of sick leave of upper management.

The Foundation responded the employee has been notified of the overpayment and efforts are underway to ensure repayment.

INADEQUATE ACCOUNTING SYSTEM

The Foundation did not record certain detailed transactions in its accounting system. The Foundation uses the University's accounting system for cash receipts and disbursements. All other financial information is maintained on spreadsheets. Therefore, the accounting system is fragmented, and this condition could lead to errors in the recording of transactions. (Finding 8, page 22)

We recommended the Foundation implement a complete accounting system.

The Foundation responded it concurs and accepts the recommendation. Further, beginning July 1, 1998 the Foundation states it plans to implement a new accounting system to include all the various components that constitute a complete accounting system.

NO BUDGET APPROVED BY THE BOARD

The Foundation was unable to provide evidence that a formal budget was prepared or approved by the Board of Directors for fiscal years 1996 and 1997.

According to Article VI section 1(a) of the Foundation's by-laws, "The Executive Committee shall prepare a budget covering the anticipated expenses of the Foundation for the succeeding year." (Finding 11, page 25)

We recommended the Foundation establish effective procedures to ensure a budget is prepared, approved by the Board of Directors and monitored during the fiscal year.

The Foundation responded it concurs, and that a formal budget will be presented to the Board for approval in the future.

INADEQUATE CASH RECEIPT RECORDS AND PROCEDURES

The Foundation did not have adequate policies and procedures and did not maintain adequate records regarding cash receipts.

We noted the following:

• The Foundation did not date stamp 46 out of 50 (98%) receipts.

• 17 out of 50 (26%) receipts did not have complete supporting documentation.

• 13 out of 50 (26%) receipts did not have a receipt from the cashier's office to verify deposit.

• No documentation could be produced for 2 out of 50 (4%) receipts selected to test.

• No entry was made on the Fundmaster program for 4 out of 50 (8%) receipts tested.

• Checks were not restrictively endorsed immediately upon receipt.

• A listing of cash receipts was not made by the individual responsible for opening the mail.

• Individuals responsible for processing or recording cash receipts were not prohibited from receiving returned checks.

• Deposits were not reconciled to entries made to the accounting records. (Finding 14, page 28)

We recommended the Foundation develop procedures to properly maintain documentation of receipts.

The Foundation responded that it concurs.

OTHER FINDINGS

The remaining findings are being addressed and the Foundation has described planned corrective action.

AUDITORS' OPINION

Our auditors state the financial statements of Chicago State University Foundation at June 30, 1997 are fairly presented.

___________________________________
WILLIAM G. HOLLAND, Auditor General

WGH:JTD:pp

SPECIAL ASSISTANT AUDITORS

Pandolfi, Topolski, Weiss & Co., LTD. were our special assistant auditors for this audit.