Session Objectives: Keith

1. University of Minnesota Internal\External Sales “The Internal Sales Review Process”An Overview of What Happens During the Review

2. Session Objectives: Keith • Explain the process used for internal sales reviews • Identify what can be done to improve the process

3. About the Reviews Keith Scope includes: • Budget vs. Actuals vs. Rates • Previous completed fiscal year • Resource utilization • Break-even analysis • Margin analysis • Identify the risks and the controls over those risks

4. “Which Internal Sales activities will be reviewed?” Keith • Objective is to focus our review work on the areas of greatest risk to mitigate that risk • Review all Internal Sales every 2 years • Review any Internal Sales identified with issues by Internal Audit • Review sales generated in Internal Sales account 500101 that do not have approval or meet requirements

5. Reviews Process Objective Keith • Objective is to determine if the rate development methodology, accounting, and rate charging practices are compliant with OMB A-21 requirements, federal cost accounting standards, and University of Minnesota policy and procedures. • OMB Circular A-21 is the publication: Cost Principles of Educational Institutions from the Office of Management & Budget

6. Prior to the Review Keith Request for information is sent to management in advance of expected review A request is made for review materials, including: • Rate development • Types of services and activity • Assigned Business Manager / point of contact • Transactional detail for selected vouchers • Volume basis • Fixed asset reconciliation/depreciation calculations • Account structure used for ISO and ESO activity

7. Prior to the Review (continued) Keith • Materials to be returned in 10-14 days to Internal Sales • Electronic submission required • Information is used during review

8. Prior to the Review (continued) Keith Meeting • Before the review work has started but after receiving the requested information • Typically the RRC Manager & main financial person • Provides a chance to discuss the general review process • Gives input to Internal Sales activities that will be reviewed

9. Review ProcessKeith Information sources: • UMReports “Account Status for Current Non-Sponsored Funds Report” for budget, revenue and expenditures. • Fixed Asset report from Inventory Services • The request for information is sent to management with questions and information requested

10. Review Process(continued) Keith • Activities reviewed: • Unallowable and allowable costs • Transfer codes  • Segregation of revenue and expenditures • Rate volumes • Depreciation • Operating Margin • Inclusion of all costs • Impact of External Sales • Budget vs. Actuals and Rate development • Customer base and rate type • Annual Requirements • Monthly Invoicing

11. Review Process(continued) Keith • Request for Materials • Preparation of review checklist • Request meeting to go over open items and resolve questions • Draft compliance memo • CC draft to Business Manger and RRC Manager for feedback / questions • Issue final compliance memo • Follow up of Plan implementation

12. ReviewsMary What to expect during the review? • Length of time – 2 weeks after information received • Transaction documentation • Follow-up questions • Communication of results • Define solution to identified findings

13. Reviews(continued) Mary How do the results affect you?  • Awareness of policies / processes / best practices • Changes needed to enhance compliance or efficiencies • Update rate development • Adjustments to cover surplus & deficits

14. What is in the Compliance Memo?Mary • Description of the unit and the activity • Summary of findings • Recommendations • Ratings of findings • Management action plan response requirement • Policy or procedure statement that defines requirement

15. Compliance Issue Examples Keith • Expenses not included in rates or actuals • Not charging all internal customers the same rate • Depreciation rates not agreeing with Inventory Services, actuals or rate development • Unallowable expenses in rates

16. Compliance Issue Examples Keith • Not segregating revenues and expenses for Internal and External Sales • Purchasing equipment directly to an Internal Sales account rather than an Internal Sales plant fund • Set up with incorrect fund and accounts • Not managing surpluses or deficits

17. Review Findings Rating SystemMary • Refer to handout • ESSENTIAL • Resolution will help avoid a potentially critical negative impact: • Loss of material assets • Loss of reputation • Loss of critical financial information • Inability to comply with important laws, policies or procedures

18. Review Findings Rating System (continued) Mary • SIGNIFICANT • Resolution will help avoid a potentially significant negative impact: • Loss of material assets • Loss of financial information • Inability to comply with important laws, policies or procedures

19. Review Findings Rating System (continued) Mary • USEFUL • Resolution will help improve controls and avoid problems in the unit’s operations

20. How is the Rating System Used? Mary • Significant or Essential findings: • require a Management Action Plan • No Significant or Essential findings: • the review is closed • Useful findings: • Do not require a MAP but should be implemented by department

21. Who sees the Compliance Memo? Mary • Dean/Department Head/Director • Business Manager • RRC Manager • Budget Office • Controllers Office • Department of Audits • Internal/External Sales Manager

22. Compliance Memo Response Jeff • Management Action Plan is due 1 month from the date of the final memo • ESSENTIAL findings must be corrected within three months of date of final memo • SIGNIFICANT findings must be corrected during next budget cycle • Surpluses greater than 15% must be paid back within three months of date of memo • Deficits that will not be included in future rates must be paid before fiscal year end

23. Follow-up by the Reviewed Unit Jeff • Review report findings, recommendations, and management action plan • Retain documentation to support efforts towards implementation

24. Follow-up by the Reviewed Unit (continued) Jeff • Communicate with Internal/External sales on ongoing progress • Self-assess progress toward expected implementation date • Explain obstacles preventing or delaying implementation

25. Follow-up by Internal SalesJeff • Documentation to support status as reported • Review to confirm • Summary report and assessment of progress

26. How to improve the review process Jeff Prompt responses • Requested Materials • Documentation • Requests for information • Requests for meetings

27. How to improve the review process (continued) Jeff Communicate • Availability of key staff • Completion of requests • Concerns • Explanations • Issues

28. How to improve the review process (continued) Jeff Take action • Implement agreed-upon management action plan • Do a review before the formal review and during the year • Communicate progress

29. Tips on how to prepare / stay prepared for the next review Jeff • Adjust operations to ensure compliance • Update items that have been requested • Downsizing, restructuring, merging of functions can impact internal sales rates; review rates to ensure they are still proper • Use U-wide systems and processes in lieu of developing in-house processes • Monitor surpluses or deficits • Training for key personnel • Discuss any issues or concerns with Internal Sales

30. Other Items Keith • Register for the “Internal Sales Seminar” on February 17th” • Brown Bag Seminar “External Sales Agreement” (Contracts) January 27th at 12:30. • Internal Sales Training Courses at our website • Procedure “ Reviewing Internal Sales Activity Annually”

31. Questions? Resources: Office of Internal Sales website http://www.finsys.umn.edu/sales/iso.html • This presentation is posted on the site.