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An Audit Report on Financial and Operational Processes at Texas State University-San Marcos

July 2013

Report Number 13-043

Overall Conclusion

Texas State University–San Marcos (University) has controls over its financial and operational processes; however, it should improve controls over areas such as financial reporting, capital and controlled asset processes, contract management, procurement card purchases, and information technology. Specifically:

- While the University has certain controls in place, it should improve controls over its financial reporting processes. The University's General Accounting Office does not coordinate with its Office of Sponsored Programs to verify that amounts reported for state and private grants in the University's annual financial report agree with actual grant activity managed by the Office of Sponsored Programs. In the sample of grants that auditors tested, the University overstated accounts receivable in total by $843,278 and understated deferred revenue in total by $570,511. It is important for the University to report actual grant activity so that revenue is recognized as it is earned.

- The University had controls over capital assets and inventory processes; however, it should improve controls over reporting and document retention. Auditors identified 1 item totaling $26,371,933 that the University reported as construction in progress in its fiscal year 2012 annual financial report; however, the University should have reported that item as a capital asset. In addition, the University was unable to provide supporting documentation to substantiate 18 (42 percent) of 43 capital assets (for example land, buildings, or vehicles) tested and 1 (5 percent) of 21 controlled assets (for example computers or computer equipment) tested.

- The University had sufficient controls over its requisition and purchasing processes; however, it should strengthen its controls related to procurement cards. Six (40 percent) of 15 procurement card purchases tested were confirmed as being split purchases. University procedures state that single purchases must not be split into multiple transactions in order to keep each transaction under the University's maximum spending limits. University policy requires a waiver or prior approval be obtained to exceed maximum spending limits. By splitting purchases, the user is able to circumvent that approval process.

- The University had controls to prevent unauthorized modifications or use of data; however, it should strengthen its reviews of user access. While the University has automated controls in its accounting system to terminate access when users leave employment, the University does not otherwise conduct periodic reviews of user access and it does not have a comprehensive policy for user access reviews. Auditors identified users who were able to enter and process invoices through to payment using the University's American Express card, which increases the risk of payments not being used for intended purposes. Auditors did not identify any users who created and posted an invoice and posted a payment.

The University had sufficient controls in place to help ensure that:

- Grants and contracts processed through the Office of Sponsored Programs were authorized in accordance with the University's policies and procedures.

- Expenses were valid and sufficiently supported, and purchase orders and requisitions had appropriate approvals, had sufficient supporting documentation, and were for allowable goods and services.

- It correctly applied veteran program benefits awarded to students in accordance with the state and federal requirements.

- Its tuition and fee rates were in accordance with the Texas State University System Board of Regent's published rates and the Texas Education Code.

Auditors communicated other, less significant issues to the University in writing.

Contact the SAO about this report.

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