Peralta Community College District
Audit and Finance Committee Meeting
Minutes
Date:April 16, 2009
Location:Chancellor’s Conference Room, District Office
Start time:5:00 p.m.
End time:8:15 p.m.
Present:Bill Withrow, Chair
Abel Guillén, Trustee
Elihu Harris, Chancellor
Thomas Smith, Vice Chancellor Finance and Administration
Gail Waiters, Inspector General
Sadiq Ikharo, Vice Chancellor, General Services
Yvonne Dorrough, Associate Vice Chancellor, Budget and Finance
Jeff Heyman, Director, Marketing and Communications
Heidi White, Vavrinek Trine Day & Co.
Bill Rauch, Vavrinek Trine Day & Co.
Mark Lindquist, President, Peralta Colleges Foundation
ABSENT:William Riley, Trustee
Cyril Gulassa, Trustee
AGENDA:
- Review and approve the agenda.
- Review and approve the minutes from the March 18, 2009 meeting.
- Review the external audit for FY 2007-08, the results of a follow-on status of recommendations and the definitive action plans to resolve any remaining significant and material weaknesses (Heidi White, Tom Smith, Wise Allen).
- Review external audit of the Peralta Colleges Foundation for FY 2004-05, FY 2005-06, FY 2006-07 and FY 2007-08 with timeline for 2009 (Heidi White, Tom Smith, Alton Jelks).
- Review external audit report of the Measure A expenditure process for FY 2006-07 and FY 2007-08 (Heidi White, Tom Smith and Sadiq Ikharo).
- Review status of the California State Budget and methodology for executing a cost reduction program to accommodate the financial shortfall for Peralta (Tom Smith).
- Presentation and discussion on fraud prevention (Gail Waiters).
- Review and discussion of Independent Consultant/Contractor Policy (Gail Waiters).
- Review of proposed policy for self-assessment of the Audit and Finance Committee (Gail Waiters).
- Discuss the Charter and responsibilities charged to the Audit and Finance Committee (Gail Waiters).
Chair Withrow opened the meeting at 5:00 p.m.
Item 1 – Review and approve the agenda.
IG Waiters last four items would like to address 7, 9 and 10, then 8.
ACTION:Trustee Guillén moved to approve agenda. Chair Withrow seconded. Motion passed.
Item 2 – Review and approve the minutes from the March 18, 2009 meeting.
No quorum for approval of minutes as Trustee Guillén was not present at the last meeting; will forward to next meeting.
Item 3 – Review external audit report for FY 2008, the results of a follow-on review of the status of recommendations and the definitive action plans to resolve any remaining significant and material weaknesses.
Ms. White said there were four to five issues that needed to be completed by year end. There was only one item that the auditors and VC Smith disagreed on the wording. The item was related to the OPEB Bond, the auditors wanted VC Smith to account for in PeopleSoft on month to month basis when a yearend journal entry will be accepted. They have reached concurrence.
Chair Withrow asked how many issues have not been started. Three of the 30 as noted as not being implemented and this was within the supplemental review. Ms. White said if auditors were not able to test, it was noted as being in process, so the ones addressed in supplemental report based on testing done. It means they have been implemented. Auditors will be back in May to ensure District is meeting the directive. The three not implemented are item 2008-3 PeopleSoft accounting - integration of accounting, etc., for our period not currently addressed. The auditors are not recommending a SAS 70 audit yet, once the three areas not integrated, with all the modules in place, plus the full time staff to do report, then a SAS 70 will take place. Ms. White agreed with that. VC Smith says we have not finished what the process and procedures will be because we still have CIBER. Until we have own people in place because we are still in process of implementing the system. Ms. White agreed that people need to be in place for checks and balance, want to make sure all systems are integrated.
Other not implemented – internal audit function, item 2008-10. Decentralization with four different business managers has created some issues because they don’t report into District. Continue to make recommendation for internal audit function. Will need resources, and should be addressed on long term basis. District needs someone to go out and review internal controls at each college, reporting revenue properly, sampling, etc. An internal auditor can do surprise cash counts, inventory maintenance, look for efficiencies within processes, including federal compliance, grants and contracts, et al. An example is the Veterans Administration program was not administered properly at college; not found until auditors came to do detailed review. Your internal auditor can do spot checks throughout the year. Ms. White believes that the internal auditor should be a full time person. An example of something that could have been avoided if having an internal auditor would be the cash maintenance problems at campuses would have been reduced; would have assisted with processes in payroll and accrual accounts. If CFO had line authority as opposed to advisory, it would drive the standardization at colleges. An internal auditor would have alleviated some of the financial aid issues. The position would report to Chancellor as opposed to the Board. An internal auditor would set up audit plans with Chancellor and bring schedule to Audit committee for approval.
Item 4 – Review external audit reports of the Peralta Colleges Foundations
Ms. White said there were no foundation audit reports for 2005 and 2006. The auditors only reviewed the financial reports and prepared tax returns. The last two years we had full audits with comments. Comments were not provided in prior years. Chair Withrow said the Audit committee needs the financials from the foundation for every year.
Mr. Lindquist said there are three signatories for the foundation, two required for any check. The current signers are Chancellor Harris, VC Smith and Foundation President Lindquist. Accounting is done on the Finance side. The Board foundation gets financial statements. The Board of Trustees are to receive the financial statements and the audits as well.
Chair Withrow would like copies of audits of the Peralta Colleges Foundation, Measure A (Proposition 39) and External audit with management letters each year. Trustee Guillén said he thinks it is important for the Trustees to be aware of is going on with the Foundation. If we don’t understand the relationship and Board of Trustees have a liability because of the MOU, they could be liable. Chair Withrow requested a copy of the checks and balances procedures for the Foundation. Mr. Lindquist will provide.
Item 5 – Review external audit report of the Measure A expenditure process for 2007 and 2008.
The FY 2006-07 Measure A audit was approved at the committee’s last meeting. VC Smith asked Chair Withrow what is the process he would like for presentation to the full Board? Measure A should come to audit committee first, then the Chair (of Measure A) should bring to the full board. VC Smith and VC Ikharo must also present findings to the full Board. Chair Withrow said there are two different processes – one avenue through oversight committee the other comes directly to the Board.
Bill Rauch from Vavrinek is over the Bond audit. Proposition 39 requires compliance audit which is different than a financial statement audit. Different directive to include financial information from the bond. There will be two separate reports – one agreed upon procedures and a separate financial statement for the bond. Change from 2007 to 2008 rules – financial statements were included with District, now it will be separate for Measure A in 2008.
Mr. Rauch started the audit on Monday April 13th, wrapping up the following Monday. Audit should be completed and presented to the Bond oversight committee on May 13th. Chair Withrow would like a copy of the draft, he and Chancellor will be at next four oversight committees. Mr. Rauch indicated no major issues have been found.
Mr. Rauch said auditors look at research on expenditures that relate back to the ballot. Issue of whether library books are permissible on ballot language; Chick Adams (bond counsel) has responded yes, and will put in writing. Engagement letters for external audit have been given to VC Smith, will also provided letters for Measure A and the Foundation.
Item 6 – Review status of California State Budget and methodology for executing a cost reduction program to accommodate the financial shortfall for the Peralta Colleges
VC Smith we don’t know how much money Peralta will be receiving. Each college and District is preparing 2% and 4% budget reductions. Presenting at Budget Advisory Committee on Monday, April 20th – broad overview, will make recommendations to SMT. Chair Withrow believes best approach is to see how can we best invest the money to optimize the mission we have been given; eventually need the program based budgeting. VC Smith said that hopefully DWEMPC will be doing that and look at production; 60% of our money is salary and benefits. We need to work with Vice Chancellor Wise Allen and college presidents at how best to invest the money. Dr. Allen and DWEMPC know that 1351 money will be reallocated because it can be invested more productively. Important to get some marketing information out so employees and staff begin to realize that the financial situation is serious.
Item 7 – Presentation and discussion on fraud prevention.
IG Waiters provided a presentation on fraud prevention and the effects fraud has on an organization. Management develops the internal controls.
When no action is taken on a fraud matter it gives employees the sense that nothing will be done about it. This appears to be a “sign of the times” – what happened to Enron, et al. “non-company” thinkers – what can I get out of it. On the Madoff situation, the internal auditor is going to prison even though he didn’t benefit from it or have any idea of what was going on. He did not protect the public in role he was charged with. This was why Chair Withrow focused in on the Foundation; Board can be held as liable in criminal sense.
The difference between an Inspector General and Internal Auditor – Inspector General is human input, and Internal Auditor is document input.
Fraudster’s are motivated by status seeking or maintaining status rather than greed. 55% of cases are misuse of cash – point of receipt, disbursement or cash left on hand. Weaknesses causing fraud – most common factors are lack of controls, absence of management review and overriding of existing controls.
Anti-Fraud controls in other organizations are surprise audits, job rotation, mandatory vacations. With an
Anti-Fraud Plan in place, you have demonstrated that you are trying to prevent it. The plan must include accountability plus penalties.
IG Waiters would like to establish an anti-fraud task force to assess potential risks to the District. Need task force people from faculty, classified, Board, management rep from each area. Find ways to mitigate potential risks. Post Audit – evaluate whether mitigating controls exist or are effective.
Item 8 – Review and discussion of Independent Contractor Policy.
Postponed to next meeting.
Item 9 – Review of proposed policy for self-assessment of the Audit and Finance Committee.
Self assessment ready to be distributed and take a few minutes – fill out while committee members are here.
Item 10 – Discuss the Charter and responsibilities charged to the Audit and Finance Committee.
Postponed to next meeting.
Meeting adjourned at 8:15 p.m.
Recorded by Jennifer Lenahan
April 16, 2009Page 1