ECC Board of Trustees

Transcription

1 ECC Board of Trustees Executive Summary Date: August 15, 2017 Subcommittee: Financial Health Agenda Item: 2016 ECC Audit Report Management Letter Comment Status This item is for: For Board's Information Backup Documentation: Attached to this document Background Information: In combination with the annual audit and release of the independent auditors report, a separate written communication, commonly referred to as the management letter, is distributed to management the Board of Trustees. This letter identifies any operational matters or deficiencies in internal controls discovered during the audit that could have future impact on the college. Reasons for Recommendation: Not applicable. Fiscal Implications: Not applicable. Consequences of Negative Action: If recommendations are not monitored or addressed in a timely manner, they may result in a negative impact against the college. Steps Following Approval: Not applicable. Contact Information If Any Questions: Krista R. Woods, Chief Accountant Phone: (716) E Mail: woods@ecc.edu

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3 EXHIBIT I Bank Reconciliations Formal policies and procedures surrounding bank reconciliations should be in place, which include the preparation of bank reconciliations in a timely manner and a formal review process. Due to the unforeseen extended leave of the employee primarily responsible for performing bank reconciliations, the College s bank reconciliations were not prepared or reviewed in a timely manner. Additionally, while the bank reconciliations are sent to multiple employees for review, there is no formal process in place identifying one individual responsible for the review and sign-off. We recommend that the College implement formal policies and procedures surrounding bank reconciliations, including procedures to be followed in the event there is an extended absence of an employee within the process. Management Response The College intends to review the bank account reconciliation practices, including identifying those employees responsible for performing and reviewing the reconciliations, and establishing appropriate procedures and time frames for completion and review. In addition, the College intends to crosstrain employees within the department to ensure that an unanticipated leave of absence or resignation will not hinder the bank reconciliation process. Status Update The College staff is working on identifying and developing informal procedures and expectations for the timely completion and review of bank reconciliations. It is a goal to have bank reconciliations complete within 60 days of month end and reviewed within 90 days of month end. Due to conditions surrounding the payroll bank account, it is a goal to have the payroll bank reconciliation complete and reviewed within 90, 120 days of month end. Declining Operations (Fiscal Stress) The budget includes the use of $1.25 million of undesignated fund balance in order to address a budget deficit. The and budgets included the use of $4.0 million of undesignated fund balance. Persistent and recurring annual operating deficits may be indicative of structurally imbalanced budgets and/or fiscal stress. In addition, as a result of increasing expenses and stagnant revenues, the College continues to experience fiscal stress. This stress can be largely attributed to declining student enrollment. The College has experienced decreases in enrollment of 6.4% and 6.3% for the years ended August 31, 2016 and 2015, respectively. The College has also experienced an increasing allowance for student receivables since the fiscal year. During the year ended August 31, 2016, the allowance as a percentage of student receivables increased from 80.62% at August 31, 2015 to 87.77%. We recommend that the College continue to carefully monitor operations to prevent further fund balance deterioration. The College should continue analyzing its short-term and long-term plans to enhance its future budgets. These plans should pursue potential cost-cutting and/or revenue enhancing options, including strategic tuition increases and marketing and recruitment strategies to stabilize and increase enrollment. Management s Response The College, in concert with the policy direction of the Board of Trustees, intends to continue to depend less on one-time revenue sources (fund balance) to address financial deficits. The use of fund balance for was a significant reduction from the prior year and the four year financial projections project further reductions in fund balance usage in the subsequent years. While some enrollment declines are outside the control of the College, anything that can be controlled is continuously addressed. In regards to cost containment, the budget instructions for include a goal of a 5% reduction in non-personnel costs. Status Update The College has appropriated $3.672 million fund balance in the 2018 adopted budget.

4 This includes $1.250 appropriated for operations and $2.422M for the ERP implementation. Due to declining enrollment, among other variables, it is anticipated the reliance of fund balance to support operations will be eliminated beginning with the fiscal year ending August 31, Software Upgrade It was noted that the College has a significant reliance on manual records and controls, particularly within its human resources, finance and payroll business cycles. This includes the use of manual timecards, redundancy of payroll records, lengthy hiring processes, financial reports that are not user- friendly, contributing to overall operating inefficiencies. In addition to the inefficiencies cited, the manual input of information into the College s systems provides an increased risk for human error. Lastly, it was noted that the Payroll Director is performing duties of which improved payroll software would include in its automated features, such as formatting bank statement data for performance of College bank reconciliations. During the year ended August 31, 2016, the College sought out and met with several providers to assess what viable options are available for an improved software system. We recommend that the College continues to evaluate options to move to an integrated system that incorporates automated controls. An upgraded software system should provide the automated groundwork to allow for reduced control risk, increased operating efficiencies and a clear audit trail, while at the same time reduce risk attributed to human error. Management s Response The College recognizes and acknowledges the short comings of its existing ERP software system and has done a complete assessment of its ERP needs, prompting the issuance of a Request for Proposals ( RFP ). Based upon responses to the RFP, multiple vendor proposals have been evaluated. The evaluation process continues with a strategic goal of moving forward with a new ERP during the 2016/17 fiscal year. Status Update In recent months, the College Board of Trustees and the Erie County Legislatures has approved a multi-year project to implement a new ERP software, Workday, which is intended to increase efficiencies and apply industry standard best practices in order to address these concerns and recommendations.

5 New Reporting Requirements The Governmental Accounting Standards Board ( GASB ) has adopted several new pronouncements, which may have a future impact upon the College: GASB Statement No. 73 The College is required to implement GASB Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not Within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68, effective for fiscal year ending August 31, The requirements of this Statement establish new reporting requirements for those pensions and pension plans that are not administered through a trust meeting the requirements of GASB Statements No. 67 and No. 68. GASB Statement No. 74 The College is required to implement GASB Statement No. 74, Financial Reporting for Post-employment Benefit Plans Other than Pension Plans, effective for the fiscal year ending August 31, The requirements of this Statement address the financial reporting of defined benefit OPEB plans that are administered through trusts that meet certain criteria. This Statement replaces GASB Statement No. 43, Financial Reporting for Post- employment Benefit Plans Other than Pension Plans. GASB Statement No. 75 The College is required to implement GASB Statement No. 75, Accounting and Financial Reporting for Post-employment Benefits Other than Pensions, effective for the fiscal year ending August 31, This Statement replaces GASB Statement No. 45, Accounting and Financial Reporting by Employers for Post-employment Benefits Other than Pensions, and will require more extensive note disclosures and required supplementary information about their OPEB liabilities. GASB Statement No. 77 The College is required to implement GASB Statement No. 77, Tax Abatement Disclosures, effective for the fiscal year ending August 31, This Statement requires the disclosure of information about the nature and magnitude of tax abatements and will make these transactions more transparent to financial statement users. GASB Statement No. 78 The College is required to implement GASB Statement No. 78, Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans, effective for the fiscal year ending August 31, This Statement addresses practice issues regarding the scope and applicability of GASB Statement No. 68, Accounting and Financial Reporting for Pensions. GASB Statement No. 80 The College is required to implement GASB Statement No. 80, Blending Requirements for Certain Component Units-an amendment of GASB Statement No. 14, effective for the fiscal year ending August 31, This Statement improves financial reporting by clarifying the financial statement presentation requirements for certain component units. GASB Statement No. 81 The College is required to implement GASB Statement No. 81, Irrevocable Split-Interest Agreements, effective for the fiscal year ending August 31, This Statement improves accounting and financial reporting for irrevocable split-interest agreements by providing recognition and measurement guidance for situations in which a government is a beneficiary. GASB Statement No. 82 The College is required to implement GASB Statement No. 82, Pension Issues-an amendment of GASB Statements No. 67, No. 68, and No. 73, effective for the fiscal year ending August 31, This Statement addresses the issues raised during implementation of GASB Statements No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and

6 Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. GASB Statement No. 83 The College is required to implement GASB Statement No. 83, Certain Asset Retirement Obligations, effective for the fiscal year ending August 31, This Statement addresses accounting and financial reporting for certain asset retirement obligations. GASB Statement No. 84 The College is required to implement GASB Statement No. 84, Fiduciary Activities, effective for the fiscal year ending August 31, The objective of this Statement is to improve guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported.