AUDITOR GENERAL WILLIAM O. MONROE, CPA

Transcription

1 AUDITOR GENERAL WILLIAM O. MONROE, CPA LAKE CITY COMMUNITY COLLEGE Operational Audit SUMMARY The operational audit for the period January 1, 2004, through December 31, 2004, and selected transactions through March 31, 2005, disclosed the following: Finding No. 1: The Board had not approved a policy related to, and the College did not have a written methodology for, determining which courses should require laboratory fees and the required amount of such fees. Finding No. 2: The College accumulated $1,826,608 of unexpended moneys reported in the Unexpended Plant Fund through transfers from the Current Fund Unrestricted and capital improvement fees. However, although requested, we were not provided a Board-approved spending plan identifying the specific projects to be funded with $1,654,630 of these moneys. Finding No. 3: The College entered into an energy performance-based contract that did not conform with provisions of law requiring that energy and operational savings offset the cost of energy conservation measures. BACKGROUND The College is under the general direction and control of the Division of Community Colleges, and is governed by State law and State Board of Education rules. A district board of trustees governs and operates the College. The Board constitutes a corporation and is composed of nine members appointed by the Governor and confirmed by the Senate. The Board members who served during the audit period are listed on Exhibit 1. The Lake City Community College has its main campus in Lake City, Florida, and a center in Baker County that has been contracted with the Florida Department of Corrections to be a Training Academy for the Department. Additionally, credit and noncredit classes are offered in public schools and other locations throughout Columbia, Baker, Union, Dixie, and Gilchrist Counties. The College reported enrollment of 2,443 full-time equivalent students for the fiscal year. The President of the College is Dr. Charles W. Hall. The results of our financial audit of the College for the fiscal year ended June 30, 2004, are presented in our report No An examination of expenditures of Federal awards administered by the College under contract and grant agreements to finance specific programs and projects is included in our Statewide audit of Federal awards administered by the State of Florida. The results of that audit for the fiscal year ended June 30, 2004, are presented in our report No FINDINGS AND RECOMMENDATIONS Finding No. 1: Laboratory Fees Section (12), Florida Statutes, authorizes the Board to establish fee schedules for certain user Page 1 of 11

2 services, such as laboratory fees, that are not to exceed the cost of the services provided and may only be charged to persons receiving the services. State Board of Education Rule 6A (6), Florida Administrative Code, provides that each board of trustees may establish fees in addition to tuition fees for courses and other instructional and noninstructional services that incur unusual costs. Laboratory fees collected by the College totaled $432,457 for the 2003 calendar year and $577,397 for the 2004 calendar year. On September 26, 2003, the Florida Community College Council of Business Affairs and the Division of Community Colleges issued guidelines for assessing laboratory fees. The guidelines provide that each local board of trustees establish policies providing justification for additional laboratory fees, defining which costs are in excess of base instructional costs, and describing the documentation required to support additional fees, the time period for review of such additional fees, and the manner of presenting such fees to the board for approval. However, as of March 31, 2005, the Board had not approved such a policy, and the College did not have a written methodology for determining which courses should require laboratory fees and the required amount of such fees. Recommendation: The College should develop and implement a methodology for assessing laboratory fees within the guidelines provided by the Florida Community College Council of Business Affairs and Division of Community Colleges. Finding No. 2: Capital Outlay Resources In August 2004, the Board approved an amendment to its fiscal year budget that provided for a transfer of $800,000 from the Current Fund Unrestricted to the Unexpended Plant Fund to cover technology expenditures or capital outlay needs. The College had previously made two other transfers from the Current Fund Unrestricted to the Unexpended Plant Fund ($330,000 in the fiscal year and $350,000 in the fiscal year). According to College records, the unexpended balance in the Unexpended Plant Fund from these transfers totaled $1,348,741 as of December Budgeted expenditures of these funds for the fiscal year totaled $171,978 and were earmarked for a master plan and associated costs and for landscaping projects. Section (11), Florida Statutes, authorizes a community college board of trustees to establish a separate fee for capital improvements and requires the board to identify each project, including maintenance projects, proposed to be funded in whole or in part by such fee. The College assesses a separate capital improvement fee of $1 per credit hour for resident students and $3 per credit hour for non-resident students. According to information provided by College personnel, these fees have been accumulating for several years and, as of December 2004, the unexpended balance of these fees in the Unexpended Plant Fund totaled $477,867. Upon inquiry, College personnel indicated that the unbudgeted balance of funds transferred from the Current Fund Unrestricted ($1,176,763) have accumulated for the eventual conversion of the College s data processing system to a new software system. However, although requested, we were not provided with a Board-approved spending plan identifying the specific projects to be funded with these moneys or with the unexpended capital improvement fees. Without specific Board action to set forth its intentions regarding these accumulated resources, the Board s official records do not clearly address the purpose of these moneys in the Unexpended Plant Fund. Page 2 of 11

3 Recommendation: In the absence of a specific Board-approved spending plan, the College should account for unrestricted operating resources in the Current Fund - Unrestricted. If it is the College s intent to accumulate resources to finance specific capital outlay projects, such spending plans should be made a part of the Board-approved capital outlay budget. Additionally, the College should ensure that specific projects to be funded from capital improvement fees are identified prior to the assessment of such fees. President s Response and Auditor Clarification The President, in response to this finding, referred to State Board of Education Rule 6A , Florida Administrative Code, and indicated that, except for the $330,000 transferred during the fiscal year, the College did not intend to expend, and therefore did not budget the expenditure of, the funds accumulated in the Unexpended Plant Fund for the fiscal year. We understand that the College may not have immediate plans to expend these funds. However, the point of our finding is that in the absence of a specific Board-approved short-term or long-term plan showing that these funds are to be used for acquisition or construction of physical property, or for major repairs to or replacement of College property, the College should account for these unrestricted operating resources in the Current Fund Unrestricted, rather than in the Unexpended Plant Fund, in accordance with the Florida Department of Education s Accounting Manual for Florida s Public Community Colleges. Finding No. 3: Energy Performance Contract Section (3), Florida Statutes, provides that each board of trustees may enter into an energy performance-based contract with an energy performance contractor to significantly reduce energy or operating costs of an educational facility through one or more energy conservation measures. Section (4), Florida Statutes, provides that the contract must include a guarantee by the energy performance contractor that annual energy cost savings will meet or exceed the amortized cost of the energy conservation measures. The contractor must provide the College an annual reconciliation of the guaranteed energy cost savings, and is liable for any annual savings shortfall that may occur. The College entered into a written agreement with an energy performance contractor in March 2004, which resulted in certain energy conservation measures being undertaken at a total estimated cost of $3,816,169 over the ten-year contract term, including $2,041,645 for installation of the energy savings measures; $209,079 for interest and other financing costs; approximately $1,450,000 for an annual technical support program projected over the ten-year term (a supplemental agreement that provides for the contractor to maintain the mechanical equipment, and provide hardware and software upgrades); and $115,445 for monitoring and verifying energy savings realized from the energy conservation measures. The technical support program and monitoring and verification plan are supplemental agreements required by the energy performance-based contract. According to the March 2004 agreement, the contractor guaranteed savings of $2,482,689 over the ten-year term of the arrangement, or $1,333,480 less than the total estimated costs to be incurred. Upon inquiry, College personnel indicated that the projected energy savings over the 20-year period provided for in Section , Florida Statutes, exceed the costs to be incurred. While the energy and operational savings, when projected over a 20-year period, appear to exceed the related costs for that period, the energy savings guarantee included in the College s contract only covers a 10-year period. We further noted that the guaranteed savings included stipulated savings totaling $823,400. These stipulated savings were identified as operational and maintenance savings (avoided costs) to be realized through installation of the energy savings measures, and were agreed upon at execution of the contract and will not be part of the annual monitoring and verification process. Although requested, College personnel did not provide documentation evidencing Page 3 of 11

4 their determination of the reasonableness of the stipulated savings amount. Recommendation: The College should seek necessary revisions to the contractual agreements to ensure that annual energy cost savings meet or exceed the amortized energy conservation costs, over the appropriate period of time, in accordance with Section (4), Florida Statutes. The College should also document the basis upon which it determined the reasonableness of the $823,400 of stipulated savings. President s Response and Auditor Clarification The President, in response to this finding, indicated that the College believes that only items defined as energy conservation measures as outlined in Section (2)(a), Florida Statutes, should be included in the required annual payments that must be covered by guaranteed energy savings, and that the maintenance agreement does not meet the definition of energy conservation measures. The President also indicated that it is not the College s position that guaranteed energy savings are required to cover the technical support program agreements. However, Section (2)(b), Florida Statues, defines energy cost savings as a measured reduction in fuel, energy, or operation and maintenance costs created from the implementation of the energy conservation measures when compared with an established baseline for previous fuel, energy, or operation and maintenance costs. Further, Section (3)(e), Florida Statutes, provides that the College may enter into an energy performance-based contract if "it finds that the amount it would spend on the energy conservation measures will not exceed the amount to be saved in energy and operation costs... and if the energy performance contractor provides a written guarantee that the energy or operating cost savings will meet or exceed the costs of the system [emphasis added]." Accordingly, the College s exclusion of the costs related to the maintenance agreement (technical support program agreement) from the amount that must be covered by the guaranteed energy savings was not consistent with the requirements of Section , Florida Statutes. SCOPE, OBJECTIVES, AND METHODOLOGY The objectives of this operational audit were to obtain an understanding and make overall judgments as to whether College management controls promoted and encouraged compliance with applicable laws, administrative rules, and other guidelines; the economic and efficient operation of the College; the reliability of financial records and reports; and the safeguarding of assets. Specifically, we reviewed management controls and administration of accounting records and management reporting, student receivables, auxiliary operations, supplemental student fees, employee compensation, faculty hours, expenditures, and capital outlay and construction projects for the period January 1, 2004, through December 31, 2004, and selected transactions through March 31, PRIOR AUDIT FINDINGS As part of our current audit, we determined that the College had substantially corrected the deficiencies noted in our report No Page 4 of 11

5 AUTHORITY Pursuant to the provisions of Section 11.45, Florida Statutes, I have directed that this report be prepared to present the results of our operational audit. AUDITEE RESPONSE The College s response is included as Exhibit 2. William O. Monroe, CPA Auditor General This audit was made in accordance with applicable Government Auditing Standards issued by the Comptroller General of the United States. This audit was coordinated by Mary A. Loughran, CPA, and supervised by Robert L. Kuitert, CPA. Please address inquiries regarding this report to Ted J. Sauerbeck, CPA, Audit Manager, via at tedsauerbeck@aud.state.fl.us or by telephone at (850) This report, as well as other audit reports prepared by the Auditor General, can be obtained on our Web site at by telephone at (850) ; or by mail at G74 Claude Pepper Building, 111 West Madison Street, Tallahassee, Florida Page 5 of 11

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7 EXHIBIT 1 LAKE CITY COMMUNITY COLLEGE S BOARD OF TRUSTEES Members of the College s District Board of Trustees who served during the audit period are listed below: Board Member Julia M. Richardson, Vice-Chair to , Chair from Dr. James Surrency, Vice-Chair from Robert C. Brannan, III Richard J. Johnson Kathryn Land McInnis, Chair to Stevie H. Landon Suzanne M. Norris Thomas J. Riherd from John L. Shadd to Harriet Wall County Baker Gilchrist Baker Columbia Dixie Columbia Columbia Union Union Dixie Page 7 of 11

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13 JANUARY 2008 REPORT NO AUDITOR GENERAL DAVID W. MARTIN, CPA LAKE CITY COMMUNITY COLLEGE Operational Audit SUMMARY Our operational audit for the fiscal year ended June 30, 2007, disclosed the following: Finding No. 1: The Board had not approved policies and related methodology for implementation of laboratory fees. Finding No. 2: The College did not identify in its Board-approved capital outlay budget, or otherwise document of record, specific projects to be funded with $280,986 of capital improvement fees budgeted to be received in the fiscal year. Finding No. 3: The College did not conform with certain provisions of law related to its energy performance-based contract. BACKGROUND The College is under the general direction and control of the Florida Department of Education, Division of Community Colleges, and is governed by State law and State Board of Education rules. A district board of trustees governs and operates the College. The Board constitutes a corporation and is composed of nine members appointed by the Governor and confirmed by the Senate. The Board members who served during the audit period are listed in Appendix A of this report. Lake City Community College has its main campus in Lake City, Florida, and a center in Baker County that has been contracted with the Florida Department of Corrections to be a Training Academy for the Department. Additionally, credit and noncredit classes are offered in public schools and other locations throughout Baker, Columbia, Dixie, Gilchrist, and Union Counties. The College reported enrollment of 2,290 full-time equivalent students for the fiscal year. The President of the College during the audit period was Dr. Charles W. Hall. The results of our financial audit of the College for the fiscal year ended June 30, 2007, will be presented in a separate report. An examination of expenditures of Federal awards administered by the College under contract and grant agreements to finance specific programs and projects is included in our Statewide audit of Federal awards administered by the State of Florida. The results of that audit, for the fiscal year ended June 30, 2007, will be presented in a separate report. FINDINGS AND RECOMMENDATIONS Finding No. 1: Laboratory Fees Section (12), Florida Statutes, authorizes each community college board of trustees to establish user fees, including laboratory fees. Such user fees cannot exceed the cost of the services provided and may only be charged to persons receiving the services. State Board of Education Rule 6A (6), Florida Page 1 of 7

14 JANUARY 2008 REPORT NO Administrative Code, authorizes each board of trustees to establish user fees in addition to tuition fees for services that incur unusual costs. Laboratory fees collected by the College totaled $834,876 for the fiscal year. The Florida Community College Council of Business Affairs (COBA) and the Florida Department of Education, Division of Community Colleges (Division), have issued guidelines for assessing laboratory, special course, and other user fees. The guidelines provide that each local board of trustees establish policies for the implementation and justification of additional laboratory fees, defining which costs are in excess of base instructional costs, and describing the documentation required to support the fees, the time period for review of such fees, and the manner of presenting such fees to the board for approval. In our report No , we noted that the College Board of Trustees (Board) had not approved such policies, and that the College did not have a written methodology for determining which courses should require laboratory fees and the required amount of such fees. Our current review disclosed that College personnel had developed a written methodology; however, the Board had not approved the methodology nor established policies for implementation of laboratory fees. Subsequent to our inquiry, the Board, in October 2007, adopted a policy authorizing implementation of laboratory fees and establishment of related procedures, and College personnel prepared formal procedures. Recommendation: The College should continue its efforts to ensure that its procedures for implementing laboratory fees are consistent with the COBA and Division guidelines. Finding No. 2: Capital Improvement Fees Section (11), Florida Statutes, authorizes each community college board of trustees to establish a separate fee for capital improvements. Such fees must be expended only to construct and equip, maintain, improve, or enhance educational facilities. To demonstrate the necessity of such fees, the board must identify each project, including maintenance projects, proposed to be funded in whole or in part by such fee. The College assessed a separate capital improvement fee of $5 per credit hour for resident students and $20.97 per credit hour for non-resident students. In our report No , we noted that the Board had not approved a spending plan identifying projects to be funded with capital improvement fees. Our current review disclosed that the Board-approved fiscal year capital outlay budget identified specific projects to be funded with capital improvement fees carried over from previous years (total of $599,768); however, it did not identify specific projects to be funded with the $280,986 of capital improvement fees budgeted to be received in the fiscal year. Nor had the College otherwise demonstrated, of record, the necessity of the $280,986 of capital improvement fees. Recommendation: The College should identify each project proposed to be funded by the capital improvement fees prior to the assessment of such fees. Finding No. 3: Energy Performance Contract Section (3), Florida Statutes, provides that each board of trustees may enter into an energy performance-based contract with an energy performance contractor to significantly reduce energy or operating costs of an educational facility through one or more energy conservation measures. Section (4), Florida Statutes, provides that the contract must include a guarantee by the energy performance Page 2 of 7

15 JANUARY 2008 REPORT NO contractor that annual energy cost savings will meet or exceed the amortized cost of the energy conservation measures. The contractor must provide the College an annual reconciliation of the guaranteed energy cost savings, and is liable for any annual savings shortfall that may occur. The College entered into a written agreement with an energy performance contractor in March 2004, which resulted in certain energy conservation measures being undertaken at a total estimated cost of $3,816,169 over the ten-year contract term, including $2,041,645 for installation of the energy savings measures; $209,079 for interest and other financing costs; approximately $1,450,000 for an annual technical support program projected over the ten-year term (this program provides for the contractor to maintain the mechanical equipment, and provide hardware and software upgrades); and $115,445 for monitoring and verifying energy savings realized from the energy conservation measures. The technical support program and monitoring and verification plan were supplemental agreements required by the energy performance-based contract. In our report No , we noted that according to the March 2004 agreement, the contractor guaranteed savings of $2,482,689 over the ten-year term of the arrangement, or $1,333,480 less than the total estimated costs to be incurred, which is not consistent with the requirements of Section (4), Florida Statutes. Our current review disclosed that, on September 11, 2007, the Board approved an amendment to the contract eliminating the requirement for a technical support program supplemental agreement with the contractor, contending that much of the projected maintenance cost was previously incurred by the College under separate maintenance contracts not related to the energy savings contract. Eliminating the estimated cost of this supplemental agreement reduced the total estimated cost of the energy conservation measures to $2,366,169, which is less than the $2,482,689 ten year guaranteed savings amount. We also recommended in our report No that the College document its determination of the reasonableness of $823,400 of stipulated savings included in the ten-year guaranteed savings amount. However, as of December 6, 2007, this had not been done. College personnel indicated that their intent in entering into the energy performance contract was to assure that the guaranteed savings would cover the ten-year loan, interest, and monitoring costs totaling $1,315,713, rather than the total cost of the energy conservation measures. Under this premise, there would be no need to document reasonableness of the stipulated savings because the ten-year guaranteed savings of $2,482,689, less the $823,400 of stipulated savings, would still leave a guaranteed savings of $1,659,289, which is sufficient to cover the $1,315,713 of loan, interest, and monitoring costs. However, failure to consider the total cost is contrary to Section , Florida Statutes, which requires the energy savings guarantee to cover the total cost of the energy conservation measures. Recommendation: The College, prior to entering into future contracts of this nature, should ensure that the guaranteed savings meet or exceed the total costs of energy conservation measures as specified in Section , Florida Statutes. OBJECTIVES, SCOPE, AND METHODOLOGY The objectives of this operational audit were to obtain an understanding and make overall judgments as to whether College internal controls promoted and encouraged compliance with applicable laws, rules, regulations, contracts, and grant agreements; the economic and efficient operation of the College; the reliability of financial records and reports; and the safeguarding of assets. Specifically, we reviewed internal controls and administration of accounting records, budgetary controls, cash and investments, student receivables, construction projects, capital assets, student activity and services fees and other selected revenues, purchasing processes, selected Page 3 of 7

16 JANUARY 2008 REPORT NO expenditures and contractual arrangements, and human resources and employee compensation for the fiscal year ended June 30, This audit was conducted in accordance with applicable Generally Accepted Government Auditing Standards. PRIOR AUDIT FINDINGS As part of our current audit, we determined that the College had not taken sufficient corrective actions for findings included in our report No Page 4 of 7

17 JANUARY 2008 REPORT NO AUTHORITY Pursuant to the provisions of Section 11.45, Florida Statutes, I have directed that this report be prepared to present the results of our operational audit. MANAGEMENT RESPONSE The College s response is included as Appendix B of this report. David W. Martin, CPA Auditor General This audit was coordinated by Robert E. Taylor, CPA, and supervised by Robert L. Kuitert, CPA. Please address inquiries regarding this report to Ted J. Sauerbeck, CPA, Audit Manager, via at tedsauerbeck@aud.state.fl.us or by telephone at (850) This report and other audit reports prepared by the Auditor General can be obtained on our Web site at by telephone at (850) ; or by mail at G74 Claude Pepper Building, 111 West Madison Street, Tallahassee, Florida Page 5 of 7

18 JANUARY 2008 REPORT NO APPENDIX A LAKE CITY COMMUNITY COLLEGE S BOARD OF TRUSTEES Members of the College s Board of Trustees who served during the fiscal year are listed below: Board Member Dr. James Surrency, Chair Suzanne M. Norris, Vice-Chair from Stevie H. Landon, Vice-Chair to (1) Robert C. Brannan, III Richard J. Johnson Kathryn Land McInnis Donald R. Kennedy from Julia M. Richardson Thomas M. Riherd, II Harriet Wall County Gilchrist Columbia Columbia Baker Columbia Dixie Columbia Baker Union Dixie Note: (1) Board member resigned effective September 29, Position remained vacant through November 5, Page 6 of 7

19 JANUARY 2008 REPORT NO APPENDIX B MANAGEMENT RESPONSE Page 7 of 7

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