This procedure is to be used to comply with Policy 1101, Guiding Principles for Business and Financial Administration, which sets forth the fundamental principles for the administration of business and financial activities at the University including the internal control framework and requires that all units assure a sound business and control environment.
Financial reviews – transaction review and budget monitoring - are essential components of an integrated system of control activities. Along with preventive controls, after-the-fact financial reviews provide reasonable assurance, but not absolute assurance, that financial activity is accurate, valid, and complete.
Good judgment and common sense are the guiding principles for performing an efficient and effective financial review of transaction activity.
Time and effort for a financial review should be proportional to the associated risk, and not exceed the expected benefits. Therefore, reviewers should concentrate on high risk activities, including but not limited to large dollar transactions, transactions not requiring pre-approval, unusual transactions, and transactions where the cost of non-compliance is high.
Minimum Financial Transaction Review and Budget Monitoring Requirements
An essential component of the financial review process is to identify errors, anomalies, potential compliance issues, and significant budget variances and review them with those in financial oversight roles.
- All transaction reviewers and budget monitors have a duty to question, research, and correct, if necessary, the potential issues discovered during the review process.
- Corrective actions taken and explanations of significant variances should be documented.
- Issues that cannot be expeditiously resolved should be brought to the attention of the Lead Administrator, Business Operations Leadership Team (BOLT) member, or unit leader.
- The Standards of Business Conduct outlines the availability of additional institutional resources for addressing concerns regarding business dealings.
- Numerous standard reports and tools are available to assist units with transaction reviews. The following are the minimum requirements for a sound financial review process:
- Assure that major payroll events are appropriately reflected (e.g., terminated employees were removed from payroll, staff on unpaid leave are not paid, and additions correspond to approved new hires).
- All payroll charges should be reflected against valid charging instructions.
- Payroll preview reports are available in advance of each payroll run to help ensure the accuracy of payroll transactions, especially the accuracy and appropriateness of costs charged to sponsored awards.
Non-Salary Transaction Expenditure Review:
- Lead Administrators must have processes in place to determine if non-salary transactions are materially accurate and risks to the University appropriately contained.
- Reviews include but are not limited to an assessment of sample transactions processed for complete documentation, examination of transactions that do not require pre-approval, and review of relatively large dollar transactions.
Review Journal Entries:
- Review journal entries and labor distribution adjustments that were approved outside the department to ensure these adjustments are accurate.
- In areas of high-volume or high-dollar journal entries, reviewers should periodically examine a sample of entries processed within the unit to ensure that preparers and approvers understand their responsibilities and are executing them properly.
Review Sponsored Award Charging:
- Charges to sponsored awards need an extra level of review to ensure compliance with terms and conditions as required by government and sponsor regulations.
- Review sponsored awards for high-risk expense types (e.g., business meals, food and beverage, memberships and dues), which may not be permissible on the award.
- Review sponsored awards for possible Facilities and Administrative (F&A) charges. F&A expenses charged directly on federal sponsored awards require justification in order to be permissible on the award.
Monitor Budgets and Fund Balances:
- Timely review of budget reports provides an important check that funds are being used appropriately to achieve unit objectives, that transactions are being recorded accurately, and that funds governed by external restrictions are being appropriately utilized.
- Budget monitoring should occur at multiple levels of the organization (school/division, department, fund source group, and individual program, gift or grant).
- Fund balances, assets and liabilities should be monitored for appropriateness and proper fund usage.
Review Activity Trends:
- Compare spending in key expense and revenue categories (e.g., overtime, temporary salaries, travel, and other income) to prior months, or prior quarter’s, or year’s activity.
- Significant changes in the pattern should be researched, understood and followed up if needed.
Financial Review Checklist
To help the above reviews occur in a consistent and high-quality manner, every unit that has authority to process and approve financial transactions must utilize a financial review checklist that clearly states the transaction review and budget monitoring activities the unit performs, including the frequency with which those activities are performed. Completed checklists should be kept in department files.
- The BOLT is accountable – based on delegated authority from the University Controller – for ensuring that units utilize an adequate financial checklist.
- BOLT provides a recommended financial checklist 1101FR.01 Financial Review Checklist that meets most unit needs and outlines the minimum financial transaction review and budget monitoring requirements.
- The Lead Administrator of the unit, in conjunction with their BOLT member, must approve in writing content deviations from this recommended checklist and units must retain this documented approval.
- BOLT will provide the University Controller with a list of units who have approved variations to their checklist at least annually.
- Units must be able to provide evidence that financial review checklist activities are being effectively performed at an appropriate frequency.
Method for Evaluating Compliance with and Effectiveness of this Procedure
The effectiveness of and compliance with this procedure will be evaluated by the Controller’s Office.
The primary means of evaluation will be:
- Periodic discussions with BOLT and Lead Administrators about the internal control framework and operational performance of their respective units;
- Ongoing reviews of operational metrics related to effectiveness and efficiency, e.g., analysis of high risk transactions such as journal entries and paycheck/invoice adjustments outside of standard business processes ; and
- Periodic audits performed by University Auditing, Significant errors or irregularities, high volumes of errors/adjustments, and lack of evidence that the above procedure was followed may result in more detailed oversight by BOLT or the Controller’s Office and/or disciplinary action.
Roles and Responsibilities
All individuals who are involved in business transactions within the University have a fiduciary responsibility to safeguard the assets of the institution and ensure the integrity of its accounting records.
Establish clear policies and procedures for use in transaction processing, reviews, and maintenance of internal controls.
Responsible for implementing and maintaining effective internal controls and procedures over financial reporting for the University in adherence with University Policy and Procedures, accounting principles, and sponsor/donor agreements, and for regularly monitoring financial activity to ensure the records fairly represent the financial position and results of operations for the year
Provide other assistance and recommendations to BOLT, Lead Administrators, and Operations Managers in the design and maintenance of control activities in their units.
Business Operations Leadership Team (BOLT)
Responsible for implementing and maintaining effective internal controls and procedures over financial reporting for the portfolio of schools and units within the BOLT member’s area of responsibility in adherence with University Policy and Procedures, accounting principles, and sponsor/donor agreements, and for regularly monitoring financial activity to ensure the records fairly represent the financial position and results of operations for the year.
Maintains the recommended financial management checklist and other guidance on best practices for ensuring strong controls in the units.
Ensure Lead Administrators, Operations Managers, and other unit personnel involved in the review of financial activity receive the appropriate training and communication regarding their responsibilities.
Responsible for implementing and maintaining effective internal controls and procedures over financial reporting for the school(s) and/or unit(s) within the Lead Administrator’s area of responsibility in adherence with University Policy and Procedures, accounting principles, and sponsor/donor agreements, and for regularly monitoring financial activity to ensure the records fairly represent the financial position and results of operations for the year.
Maintain appropriate use and control of the funds entrusted to them, including the following:
Establish clear roles and responsibilities for approvals, conducting financial transaction reviews, monitoring budgets, and resolving issues in a timely manner including appropriate segregation of duties. The financial reviewer must not be the initiator or sole approver on any transactions they are reviewing, unless there is a mitigating control.
Ensure processes are in place for the distribution of financial information to principal investigators and others with financial responsibility.
Ensure approval and financial reviewer authority is delegated to individuals who have been appropriately trained and conduct reviews to validate approvers’/reviewers’ understanding of their responsibilities.
Ensure budgets are established for their units at an appropriate level of detail to facilitate effective budget monitoring at multiple levels of their organization
Ensure units effectively utilize a BOLT-approved financial management checklist that is adequate for the review of financial activity in each of those units.
Partner with BOLT member to address potential issues and concerns.
Shared Service Centers
Assure adherence to institutional policies and procedures when processing transactions (e.g., issuing payments to vendors and employees preparing journal entries, labor distribution adjustments, budget preparation). Responsibilities delegated by Lead Administrators or the Controller’s Office should be clearly documented with service-level agreements. Supervisors and managers in these centers are responsible for ensuring processors and approvers are appropriately trained and segregation of duties is maintained.
Financial Transaction Reviewers (i.e. any person who has been assigned responsibility for some portion of the review process)
Conduct transaction reviews in a timely manner.
Research and resolve or escalate issues that arise during review.
Document issues and their resolution.
Complete the unit’s Financial Review Checklist for any assigned sections.
Regularly review actual spending compared to budget for their area of responsibility.
Alert business office leadership to issues and concerns.
Note: Employees manage budgets at multiple levels of the organization. “Budget Owners” may be identified as deans, department heads, principal investigators, program leaders, and/or project or task managers.
Regularly review financial budget reports and follow up on potential issues, as needed. Understand responsibility for accuracy of charges to sponsored awards including when tasks are delegated to others.
Serve as an independent resource for monitoring internal controls within the University.
Accountability and/or responsibility cannot be delegated even when tasks are delegated.