Ohio University Internal Audit. Campus Recreation

Size: px

Start display at page:

Download "Ohio University Internal Audit. Campus Recreation"

Quentin May
5 years ago
Views:

1 A09-04P June 19, 2009

Internal Audit June 19, 2009 Dr. Douglas Franklin 140H Ping Center Athens, OH 45701 Dear Dr. Franklin: This is the final report for the audit of the.

In accordance with Internal Audit operating procedures, copies of this report are also available to the full Board of Trustees, the Auditor of State,

We have truly appreciated the interest and assistance you provided throughout our engagement, and we look forward to working with you again.

2 Internal Audit June 19, 2009 Dr. Douglas Franklin 140H Ping Center Athens, OH Dear Dr. Franklin: This is the final report for the audit of the. It is substantially the same as the draft we discussed. In accordance with Internal Audit operating procedures, copies of this report are also available to the full Board of Trustees, the Auditor of State, and the University s external auditors. We have truly appreciated the interest and assistance you provided throughout our engagement, and we look forward to working with you again. Sincerely, Kathryn Gilmore, CPA, CIA Chief Audit Executive cc: Mr. John Biancamano Mr. Brice Bible Mr. David Brightbill Mr. Matthew Dalton Dr. Thomas Davis Mr. William Decatur Ms. Gina Fetty Mr. C. Robert Kidder Dr. Kathy Krendl Ms. Barbara Kreutzer Mr. Steve Mack Dr. Roderick McDavis Dr. Gary Neiman Mr. Harry Wyatt Ms. Dawn Weiser Mr. David Wolfort Deans Vice-Presidents

3 OVERALL AUDITOR OPINION RATING Exceeds Expectations OBJECTIVE AND SCOPE Ohio University Internal Audit This audit assessed the adequacy of the internal control environment of the Ohio University (OHIO) Department to manage the organization s risks and enable it to meet its business objectives. We performed this review as a normal part of our audit process. We interviewed the administration and staff regarding current business processes. We reviewed financial data from FY 09 and examined samples of documents supporting financial operations, such as invoices, internal requisitions, payroll records, and point-of-sale system reports. We did not perform a review of information technology systems. This review will be conducted by the Office of Information Technology Security. BACKGROUND provides students and faculty with a learning-centered environment that promotes growth for all through involvement in the operations and/or use of recreational facilities and programs. The Division of operates many facilities, including; the Ping Center, Aquatic Center, Bird Ice Arena, Golf and Tennis Center and programs such as intramurals and a driving range. Each of these facilities has separate programs promoting personal growth and a healthy lifestyle for students. The Division [] is nationally prominent in the application of standards and produces ethical leaders through an active program of professional development for students and staff. (Taken from the website) CONCLUSION exhibits a strong control environment and provides extensive documented policies and procedures for employees and users of the facilities and programs. They have also taken the initiative to implement two-person integrity for cash handling processes. Two-person integrity is a security measure taken to prevent single-person access. EXECUTIVE SUMMARY Through our review, we noted opportunities for significant improvement in: 1. Virginia Graeme Baker Pool and Spa Safety Act This law was enacted in December 2007, with compliance required by December The OHIO Aquatic Center has not been inspected to determine compliance with the act. 1 of 9

4 We noted opportunities for minor improvement in: 1. Sales Tax Reporting on Food and Beverages Sales tax is not being collected on many concession items. All food and beverages consumed on premises are subject to state sales tax. 2. Unrelated Business Income (UBI) Reporting One spreadsheet used to calculate and report UBI contained formula errors. The Ping Center was not including usage by alumni or day (guest) passes as community usage for reporting purposes. 3. Employment Eligibility Verification (I-9) All employees had completed I-9 forms on file. Many were not completed timely and many contained substantive errors. 4. Check Handling and Timeliness of Deposits Checks are not restrictively endorsed upon receipt. Deposits are not always made within Ohio Revised Code (ORC) and OHIO policy requirements. 5. Tax Reporting Requirements for Provided Uniforms Uniforms provided to Campus Recreation staff may qualify as reportable income under IRS regulations. 6. Employee Discounts The sample of employee discounts reviewed found all discounts for services, such as membership fees, fell within the 20% limit IRS imposes for exclusion from gross income. Discounts on food concessions ranged from 24% to 50%. 7. Drivers License Verification There is no process in place to monitor and verify all drivers hold a valid driver s license prior to driving a vehicle. We found controls to be generally adequate for: Two-Person Integrity for Cash Handling has instituted two-person integrity for cash handling in most operations. This is considered a best practice for secure cash-handling. Facility Manuals and Documentation Each facility maintains comprehensive operational, employee, maintenance and user manuals. Travel Reimbursement travelers generally adhere to OHIO policy for travel reimbursement. Expenditures Expenses reviewed appeared to be reasonable and adequately documented and approved. Leave Monitoring The administrative assistant for monitors leave usage and reporting. Budget Monitoring - Through discussions with personnel, Internal Audit determined that budgets appear to be appropriately monitored. 2 of 9

5 DMA Forms - No missing DMA Forms were identified. DMA is an acronym for Declaration Regarding Material Assistance/Nonassistance to a Terrorist Organization. The DMA is a questionnaire which must be completed by applicants to certify that they have not provided material assistance to a terrorist organization. Vehicle Maintenance generally follows OHIO policy requirements for vehicle maintenance and safety inspections. OBSERVATIONS AND RECOMMENDATIONS 1. Virginia Graeme Baker Pool and Spa Safety Act The Virginia Graeme Baker Pool and Spa Safety Act was enacted December 19, The Act specifies required anti-entrapment devices for all public pools. Compliance was required by December 19, The management identified noncompliance with this act as a concern. has had ongoing discussions with Facilities Management to obtain the required inspections but the pool at the Aquatic Center has not been inspected to determine compliance with the Act. If the inspection is postponed past the summer quarter, a failed inspection could result in a shut-down of operations during the regular academic year. We recommend that the Aquatic Center pool be inspected promptly to determine compliance with the Virginia Graeme Baker Pool and Spa Safety Act. Because this facility is utilized for academic and athletic events, shut down during the academic year could have far-reaching consequences. CR will continue to work with Ohio University Facilities Management (OUFM) to comply with this federal mandate. 2. Sales Tax Reporting on Food and Beverages All food and beverage items consumed on premises are subject to state sales tax. Review of the Sales Items(s) Setup listing from the BNW point-of-sale system utilized in Campus Recreation revealed many items labeled as non-taxable when they may actually be consumed on premises. No process is in place to determine whether the items are consumed on or offsite. We recommend that management work with the Tax Compliance Manager to determine appropriate sales tax collection and reporting for all items consumed on-site. 3 of 9

6 All food and beverage items are provided for the convenience of CR patrons and thus should be assumed to be consumed on premises. Therefore, sales tax will be collected as part of each sale. 3. Unrelated Business Income (UBI) Reporting Internal Revenue Service (IRS) Section 511(a)(2)(B) of the Code imposes a tax on the unrelated business taxable income of any college or university which is an agency or instrumentality of any government or any political subdivision... Section 513(a) of the Code generally defines unrelated trade or business as any trade or business the conduct of which is not substantially related to the exercise or performance by an organization of the charitable, educational or other purpose constituting the basis for its exemption. The Ping Center reports no community usage. The Ping Center sells "community passes" only to faculty/staff and alumni. Though faculty/staff usage may be exempt from community usage considerations, alumni are not exempt. In addition, no day passes are counted as community usage. IRS Letter Ruling indicates that alumni social and recreational activities which are merely incidental to the institution s basic purpose and have as their objective advancing the interests of the university are found to be merely incidental to the accomplishment of the educational activities of the organization. IRS specifically rejects the argument that by making available its golf course, the institution is providing an "inducement" for alumni and donors to make financial contributions or otherwise be involved in the university. The university making available a golf course or any other sports or recreational facility in return for financial or other contributions by alumni and donors does not result in the substantially related test being met. The spreadsheet used by to report revenue for UBI contained some formula errors in the tab used to calculate the profit or loss for the Golf Course. This resulted in the Golf Course reporting a loss when a profit should have been reported for UBI Tax (UBIT) purposes. These conditions result in potentially inaccurate UBI reporting. All day passes, except those for un-enrolled students, should be counted as community usage. Any usage by alumni who have purchased memberships should also be reported as community usage for UBIT purposes. 4 of 9

7 Any cells in spreadsheets which contain formulas that do not require editing by the end user should be password protected. This change should protect the integrity of the UBI reported data. The interdepartmental spreadsheet used in calculating UBIT has been adjusted to reflect the correct amounts. CR Budget Unit Manager (BUM) will contact Tax Compliance Manager to verify correct amounts. 4. Employment Eligibility Verification (I-9) Form I-9 is federally required and used to verify employment eligibility in the US. Section 1 of the form, the attestation, must be completed by the employee no later than the first day of service. Section 2, the certification section, must be completed no later than the third day of service. Employers must complete this section by personally reviewing the original documentation. Either one document from List A or one document from each of List B and List C should be reviewed. Accepting excess documentation may be considered discriminatory. The employee s first day of work must be listed in the certification section. All changes to the form should be initialed, dated and annotated. Ten of seventeen I-9 Forms reviewed were completed incorrectly or in an untimely manner. Two documents contained errors in Section 1; the document was signed after the first date of employment. Five documents contained corrections that were not initialed, dated or annotated. One employee attestation was not dated. One form did not list the reviewed documentation in the correct columns. One document review was performed more than three days after the initial work date. One form included review of more than the required documentation. No missing I-9 forms were identified. Improperly completed or missing I-9 forms could result in fines of $110 to $1100 per employee. We recommend that all employees completing I-9 Forms review and understand the instructions. Higher level review should be performed until proficiency and understanding is achieved by all employees responsible for completing the forms. A process is being established by CR BUM to comply with this recommendation. 5 of 9

8 5. Check Handling and Timeliness of Deposits Ohio University Internal Audit The Ohio Revised Code (ORC) and OHIO policy require all funds be deposited within three business days, if under $1,000, or by the next business day, if $1,000 or more. Of seven deposits tested, only two were in compliance with ORC for timeliness. Checks are not stamped for deposit only immediately upon receipt. uses two-person integrity for cash collection and generally has strong procedures in place for cash controls. There are two individuals who prepare the deposits from all collection points in. However, each uses slightly different documentation procedures to prepare deposits. We recommend that all deposits be made in compliance with ORC and OHIO policy. Due to the potential of amounts exceeding $1000 on any given day, we recommend that Campus Recreation consider processing deposits daily. The two individuals responsible for deposit preparation should provide coverage for one another to ensure deposits are made daily. To simplify this coverage, the employees should consider using the same report and reconciliation processes. This will also facilitate review by others. We also recommend all collection points be supplied with for deposit only stamps to restrictively endorse checks upon receipt. To ensure compliance with OHIO Policy, CR BUM will develop and implement a process for daily deposits Monday through Friday. Deposits from weekend operations will be made by close of business Monday. CR cannot control the timeliness of deposits once they reach the Bursar s office. For-deposit-only (FDO) stamps have been ordered and will be distributed to each pointof-sale within CR facilities. CR BUM to add FDO process to CR cash handling procedures. 6. Tax Reporting Requirements for Provided Uniforms provides uniforms (such as shirts with its logo) to recreation and wellness employees. Management indicates this is a standard practice for the industry. The value of the uniforms provided to employees should be treated as a taxable benefit to the employee because the cost of the uniforms is not so small or infrequent as to make them de minimis. Nor, are they excludable as a working condition fringe benefit because the clothing is adaptable to general or continued usage (e.g. street wear). The courts have held that in order for the cost and maintenance of uniforms to be deductible as business expenses, the following tests must be met: (1) The uniforms must be of a type specifically required as a condition of employment, (2) they must not be adaptable to general or 6 of 9

9 continued usage to the extent that they take the place of ordinary clothing and (3) they are not so worn. Related IRS guidance follows: IRC (Internal Revenue Code) Section 61(a)(1) provides that gross income includes all income from whatever source derived, including fringe benefits, unless otherwise excluded by some other section of the Code. Section (b)(1) of the regulations provides that an employee must include in gross income the fair market value of the fringe benefit unless specifically excluded by some other section of the Code. IRC Section 262 Personal, Living, and Family Expenses states that Except as otherwise expressly provided in this chapter, no deduction shall be allowed for personal, living, or family expenses. Rev. Rul Section 162 Trade or Business Expenses states that work clothing consisting of white cap, white shirt or white jacket, white bib overalls, and standard work shoes, which a painter is required by his union to wear on the job, is not distinctive in character or in the nature of a uniform. The fact that the union requires a painter to wear such clothing is not sufficient to warrant the allowance of the cost and maintenance thereof as a deductible business expense. Exclusions from gross income follow: Regulation (a) (1) Working condition fringes - a "working condition fringe" is any property or service provided to an employee to the extent that, if the employee paid for the property or service, the amount paid would be allowable as a deduction. The uniforms would not be considered a working condition benefit due to the fact that they are street wearable. Regulation Section De minimis fringes (a) Gross income does not include the value of a de minimis fringe provided to an employee. The term "de minimis fringe" means any property or service the value of which is (after taking into account the frequency with which similar fringes are provided by the employer ) so small as to make accounting for it unreasonable or administratively impracticable. (e) Examples (1) Benefits excludable from income. Examples of de minimis fringe benefits are occasional typing of personal letters by a company secretary; occasional personal use of an employer's copying machine; occasional cocktail parties, group meals, or picnics for employees and their guests; traditional birthday or holiday gifts of property (not cash) with a low fair market value; occasional theater or sporting event tickets; coffee, doughnuts, and soft drinks; local telephone calls; and flowers, fruit, books, or similar property provided to employees under special circumstances (e.g., on account of illness, outstanding performance, or family crisis). (2) Benefits not excludable as de minimis fringes. Season tickets to sporting or theatrical events; the commuting use of an employer-provided automobile or other vehicle more than one day a month; membership in a private country club or athletic facility, 7 of 9

10 regardless of the frequency with which the employee uses the facility; employerprovided group-term life insurance on the life of the spouse or child of an employee; and use of employer-owned or leased facilities (such as an apartment, hunting lodge, boat, etc.) for a weekend. We recommend that work with the Tax Compliance Manager to ensure that all IRS reporting requirements are met. CR BUM will work with Tax Compliance Manager to determine the appropriate course of action regarding tax reporting on uniforms. 7. Employee Discounts Employee membership discounts reviewed fell within the 20% IRS exclusion for service discounts. Concession discounts ranged from 24% to 50%. No gross profit information was available to determine the appropriateness of the exclusion of these discounts from gross income. Final-Regulation Section Qualified employee discounts (a) (1) Gross income does not include the value of a qualified employee discount. A "qualified employee discount" is any employee discount with respect to qualified property or services provided by an employer to an employee for use by the employee to the extent the discount does not exceed (i) The gross profit percentage multiplied by the price at which the property is offered to customers in the ordinary course of the employer's line of business, for discounts on property, or (ii) Twenty percent of the price at which the service is offered to customers, for discounts on services. We recommend that all employee discounts be reviewed to ensure compliance with IRS taxation requirements. Concession and resale discounts for CR employees will be eliminated. CR BUM will work with Tax Compliance Manager to address employee discounts for items used in the course of business. 8. Drivers License Verification OHIO policy states that all drivers must possess a valid operator's license. 8 of 9

11 does not have a process in place to verify driver s licenses. We recommend develop a process to monitor driver's license verification and expiration. This process should not include recording of actual license numbers as these numbers are protected/sensitive data that need a high level of protection. CR Management will verify CR Fleet Vehicle process to monitor drivers license verification is in effect and is in compliance with OHIO policy. 9 of 9

12 Auditor s Overall Opinion Rating Guidelines Appendix A The following rating guidelines identify Internal Audit s overall opinion of the unit. The opinion is a compilation of the evaluation of the review of each business operation within the unit. 1. Exceeds Expectations Monitoring is in place and the control environment is effective Management actively seeks control improvements 2. Meets Expectations Some monitoring is in place; internal controls are generally effective Management is developing internal control improvements 3. Needs Improvement Monitoring is not routine Control improvements are considered only when control weaknesses are discovered Operational success could be negatively impacted and reputational risk is increased if controls are not strengthened 4. Inadequate Little monitoring takes place Controls show critical weakness, putting the success of the operation at risk and increasing financial and reputational risk The following should be considered in evaluating the effectiveness of the controls for each business operation: 1. Proportion of significant observations 2. Repeat observations from prior audits 3. Existence of monitoring 4. Management actions to improve the control environment Note: Fraud identified during an audit will automatically result in an overall rating of inadequate.

INTERNAL REVENUE SERVICE NATIONAL OFFICE TECHNICAL ADVICE MEMORANDUM April 6, 2000

INTERNAL REVENUE SERVICE NATIONAL OFFICE TECHNICAL ADVICE MEMORANDUM April 6, 2000 Number: 200030001 Release Date: 7/28/2000 Third Party Contact: Index (UIL) No.: 274.14-00 CASE MIS No.: TAM-117215-99/CC:DOM:IT&A:B2