Summary of Report 98-064

August 1998

Report Number 98-064

Overall Conclusion

The State Auditor's Office uses the results of this analysis as a risk assessment tool in choosing audits to perform. We may propose limited audits during fiscal year 1999 at some of the nine community colleges identified. The nine colleges received $101 million of the $660 million in state funds appropriated to community colleges for fiscal year 1998. Such audits would determine if significant financial or management problems actually exist at these colleges. These audits would incorporate audit work already performed by the colleges' internal and external auditors.

The State Auditor's Office recommends that the Legislature consider including community colleges in the Texas Internal Auditing Act (Act). Effective internal audit programs could help the colleges identify and correct financial and operational problems on an ongoing basis. If included in the current Act, 90 percent of all community colleges would be required to have an internal auditing program.

Key Facts and Findings

The State Auditor's Office's financial analysis identified nine community colleges and three state universities with potential issues of significant financial risk.

• Operating Deficits -- At least one fund's expenses exceeded its revenues. This means the fund was not self-sufficient, and reserves or other sources were used to cover expenses. Fifty percent of the colleges reported operating deficits in fiscal year 1997.
• Deficit Fund Balance - At least one fund's liabilities exceeded its assets. This means the fund does not have the reserves to cover any future operating deficits. Sixteen percent of the colleges reported deficit fund balances at August 31, 1997.
• Reporting Issues - The community college's audited annual financial report was not prepared in compliance with the Higher Education Coordinating Board's Annual Financial Reporting Requirements for Texas Public Community Colleges. While these issues may not directly affect the institution's financial condition, internal and external users may make inappropriate decisions based upon inaccurate information. We found reporting errors in 32 percent of the colleges' annual financial reports.

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