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Independent State Auditor's report on the Board of Education's policies and procedures pertaining to trust funds at the Massachusetts public colleges and community colleges PDF

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Preview Independent State Auditor's report on the Board of Education's policies and procedures pertaining to trust funds at the Massachusetts public colleges and community colleges

AUDITOR OF THE COMMONWEALTH ONEASHBURTONPLACE. ROOM 1819 BOSTON 02108 A.JOSEPHDeNUCCI (617)727-6200 AUDITOR NO.98-5062-3 INDEPENDENTSTATEAUDITOR'S REPORTONTHEBOARDOFHIGHEREDUCATION'S POLICIESANDPROCEDURESPERTAININGTO TRUSTFUNDSATTHEMASSACHUSETTSPUBLIC COLLEGESANDCOMMUNITYCOLLEGES OFFICIAL AUDIT REPORT MAY - 2 2000 ISSUEDBYTHE DepartmentoftheStateAuditor 98-5062-3 TABLEOFCONTENTS/EXECUTIVESUMMARY INTRODUCTION The Massachusetts Board ofHigherEducation is apohcy setting agency. Its domain includes the five University ofMassachusetts campuses, nine state colleges, and 15 community colleges. Our review focused on the policies, procedures, and controls concerning trust funds at seven ofthe state colleges and the 15 community colleges. Thetermtrustfunds,asusedinpubliceducation,referstononappropriatedfundsheld bythe institutions. Thepurposeoftrustfundsaretocomplement state appropriations in order to ensure sufficient funding of an institution's programmatic needs. The statutory authority for trust funds is Chapter, 15A, Section 9(n) and 22(e), of the MassachusettsGeneralLawsandvariousotherstatutesforpublicinstitutionsofhigher education.ThesestatutesallowtheBoardofHigherEducationandinstitutionalboards ofttustees to create and account forcertaincampusprojects,programs, andactivities. For fiscal years 1998 and 1999 state colleges and community colleges received departmentalandmiscellaneousrevenue(excludingfederalgrantsandreimbursements) of approximately $368,163,000 and $368,054,000 respectively. Expenditures from nonappropriated funds are for items such as salaries, admmistt-ative expenses, energy costs, space rentals, facility operational supplies, consultant services, equipment purchases,leases,andmaintenanceandrepairs. Dunngthe 1980s, considerableconcernwasraisedaboutallegedmisuseoftrustfunds at various Massachusetts campuses. In 1989, the Massachusetts BoardofRegents of Higher Education, in an effort to address these concerns, formed a "Blue Ribbon Commission."Thepurposeofthecommissionwastostudyandissuerecommendations concerning the management of trust funds throughout the state system of higher education. Thepurposeofourauditwastoreviewthepolicies,procedures,andupdatesthatwere initiatedfromtheCommission'sreport. AUDITRESULTS 1. TrustFundGuidelinesHaveNotBeenUpdated SinceNovember 1992: Although the individual institutions havebecome morerelianton trust funds andtrust fund policy has evolved, the Board ofHigherEducationhadnotrevised itsTrust Fund GuidelinessincetheissuanceofthelastrevisionmNovember 1992. Ourreviewof these guidelines disclosed some instances wherethe Board ofHigherEducation's practicesdidnotcomplywithitsownguidelines. 2. Lack of Oversight by the Board of Higher Education Has Resulted m Four Institutions Maintaining Incomplete and Inadequately Documented Trust Fund Policies and Procedures: Ofthe 22 institutions we reviewed, we determined that 18 of the institutions have developed adequate ttiast fund policies that were approvedbytheirrespectiveboardsoftrustees. MassachusettsCollegeofLiberal Arts, Middlesex Community College, and Roxbury Community College did not have documented trust fund policies and procedures. Although at Frammgham State College theBoard ofTrustees issuedtt-ust fundpoliciesandprocedures,not allHigherEducationTrustFundGuidelineswereaddressed. 98-5062-3 TABLEOFCONTENTS/EXECUTIVESUMMARY(Continued) 3. Trust Fund Agreements Could Not be Located at Two Institutions: Certain 11 agreements for individual trust funds at Worcester State College and Quinsigamond Community College could not be located. Trust fund reports we reviewed revealed that Worcester State College listed 17 active trust funds of which eight lacked documentation and Quinsigamond Community College listed 12 ofwhich three lacked documentation. Each trust fund created at an individual institutionis forauniquepurposewithspecifiedsourcesofrevenueandrestricted uses ofthe funds. Sound accounting practices advocate that each specific trust fund have a documented agreement. At a minimum, the trust fund agreement should include: the name of the trust fund, intended purpose ofthe trust fund, sourceoffunds,allowableexpendituresofthefunds,anyrestrictionsonthefunds, andthecustodianofthetrustfund. SCHEDULEA-ListingofInstitutionsReviewed 13 98-5062-3 -1- INTRODUCTION Background TheMassachusettsBoardofHigherEducationisapohcysettingagency. Itsdomainincludesthefive University of Massachusetts campuses, nine state colleges, and 15 community colleges. Our review focusedonthepolicies,procedures,andcontrolsconcerningtrustfundsatsevenofthestatecollegesand the 15communitycolleges. ThetermTrustFunds,asusedinpubliceducation,referstononappropnated fundsheldbytheinstitutions. Thetrustfund'spurposeistocomplementstateappropriationsinorderto ensuresufficientfundingofaninstitution'sprogrammaticneeds. Thestatutoryauthontyfortrustfundsis Chapter 15A, Section 9(n) and 22(e), ofthe Massachusetts General Laws and various other statutes for public institutions of higher education. These statutes allow the Board of Higher Education and institutionalboardsoftrusteestocreateandaccountforcertaincampusprojects,programs,andactivities. For fiscal years 1998 and 1999 state colleges and community colleges received departmental and miscellaneousrevenue(excludingfederalgrantsandreimbursements)ofapproximately$368,163,000and $368,054,000 respectively. Expenditures from nonappropnated funds are for items such as salaries, administrative expenses, energy costs, space rentals, facility operational supplies, consultant services, equipmentpurchases,leases,andmaintenanceandrepairs. During the 1980s considerable concern was raised about alleged misuse oftrust funds at various Massachusettscampuses. In 1989,theMassachusettsBoardofRegentsofHigherEducation,' maneffort toaddresstheseconcerns, formeda"BlueRibbonCommission."Thepurposeofthecommissionwasto studyandissuerecommendationsconcerningthemanagementoftrustfundsthroughoutthestatesystem of higher education. The commission was composed of the Senior Vice President/Treasurer, John Hancock Insurance Company; President, Wellesley College; and Chairman, GenRad Inc. The commission contracted withan independentaccountanttocomplete an in-depth studyofthe adequacies ThegoverningbodyoftheMassachusettsHigherEducationSystemchangedfromtheBoardofRegentstothe HigherEducationCoordinatingCounciltothecurrentBoardofHigherEducation. 98-5062-3 -2- and faults ofthe existing system. At the conclusion ofthe commission's review, Standardsfor the ExpenditureofTrustFundswasissuedtotheMassachusettsBoardofRegentsonMay2, 1989. Included in thereportwas a senesofstandards concerningthemanagementofhighereducationtrustfunds. The statedpurposeofthestandardsfortheexpenditureofTrustFundswere: 1. To provide some guidance and suggestions on selected expenditures made m the interest of promotingthemissionoftheinstitution. 2. To outline recommended standards for the expenditures that have the appearance ofproviding personalbenefitstocollegeofficialsandfriends,orofbeinglavishorextravagantinnature. Thereportadditionallystatedthat: These standards should be consideredminimum standards. Local Boards ofTrustees must developinstitutionalguidelinesandstandardswhichmaybemorebutnotlessrestrictive. Thereportwentontofurtherstateanumberofimportantprinciplesthatunderliethestandards: 1. Institutional autonomyand flexibilityaswell aslocal decisionmakingareimportantandshould beencouraged. 2. No set of general or detailed guidelines can be a substitute for personal ethics and sound judgment. 3. Local BoardsofTrustees havetheresponsibilitytoissueclearguidelines fortheexpendimreof trustfundsandtoestablishthemechanismsandstructuretoactivelyreviewtheseexpenditures. 4. State colleges and universities are members ofand participants in the larger communities they serve. 5. State institutions, like private institutions, must engage in activities that promote employee morale,generatephilanthropicsupport,andenhancethewellbeingoftheinstitution. 6. Trust funds shouldnotbespentinamannerthatgivestheimpressionoflavishorextravagance spending. Using the report of the Blue Ribbon Commission as a standard, on May 9, 1989, the Board of RegentsofHigherEducationissuedStandardsfortheExpendituresofTrustFunds. Thesestandardshave beenrevisedandreissuedonJune6, 1990andNovember2, 1992. The Higher Education Trust Fund Guidelines, issued on November 2, 1992, were established to provide a basis forthe public highereducational institutions to developpolicies andprocedures forthe 98-5062-3 -3- management oftrust funds. They outline the minimum standards in two areas (1) responsibility and reporting and (2) categories ofexpenditures. The highlights that are included in the guidelines are as follows: ResponsibilityandReporting : • The institution's board oftrustees is responsible for the specific trust fund guidelines, which should include policies and procedures concerning trust fund revenue sources, appropriate and inappropriate expenditures, bank accounts, spending approval levels, and required documentation. • Responsibility fortrust fund administrationrestswiththepresident/chancellorofthe institution. Records shall be maintained m accordance with proper accounting procedures with adequate documentation. • All trustfundactivitiesshallbeavailableforregularauditandinspection. • Clear goals and objectives for trust funds should be established by the institution and, where feasible, anannualbudgetshouldbedeveloped: reviewedbythepresident, andsubmittedtothe board oftrustees for approval. The budgets should include sufficient detail to support major expenditures. • Thepresidentshallprovideadetailedaccountoftrustfundexpenditurestotheboardoftrustees onaquarterlybasisandtheBoardofHigherEducationonanannualbasis. • The level ofdetail ofthe report should satisfy theneeds ofthe Board ofTrustees and it should also include: (1) certification by the president that all records were maintained in accordance withproperaccountingprocedures,includingdocumentationofreceipts,disbursements,andbank accounts, and (2) relationship ofthe expenditures to the institutional mission should be clearly statedorevident. • Thequarterlyreportshouldbereviewedbyanappropriatesubcommitteeoftheboardoftrustees and approvedbythe full board. Inaddition, theboard shouldreport all violations oftrust fund expenditurestandardsaswellasthefollow-upactiontakentoaddresseachviolationtotheBoard ofHigherEducation. • Whereverthese standardsrequire Board ofTrustee approval, approval maybe givenby the full board,asubcommittee,oradesignatedtrustee. Theapprovalprocessshouldbedocumented. • Wherever these standards require prior approval, the approved annual budget satisfies the approvalrequirementaslongassufficientdetailisincludedinthebudget. • The president or designee should have discretion over trust fund expenditures up to a ceiling specified by the Board ofTrustees, except inthe following circumstances thatrequire approval regardlessoftheamountoftheexpenditures: 1. Expendituresthatpersonallybenefitthepresident, 98-5062-3 -4- 2. Expenditures for renovations, repairs, or decoration of the president's office or home or administrators'offices, 3. Expenditures foran individual's membership dues m any amount foremployees otherthan thepresidentandforamountsinexcessof$1,000forthepresident, 4. Expendituresforattendanceatchantabledinnersorevents, 5. Expendituresfortrusteetravel, 6. Expendituresforentertainmentofguestsmthepresident'shome, 7. Expendituresformovingcosts,and 8. Expenditures for purchase or lease of motor vehicles for use by the president or other administrators. CategoriesofExpenditure • ExpendituresofaPersonalNature 1. Wheneverexpenditurewouldpersonallybenefitorappeartopersonallybenefitanindividual, thatpersonisprohibitedfromapprovingtheexpenditure. Inadditiontoanyboardapproval, an institutional official at a higher organizational level must approve the expenditure in advance. 2. In the case ofthe president, the Board ofTrustees must provide prior approval ofsuch expenditures. • GeneralCampusProjects 1. Facilities renovations, repairs, or decorations should be funded through the institution's appropriationfromtheCommonwealth. Whensuchexpendituresforthepresident'shomeor office or administrators' offices are to be made from trust funds, they must have prior approval oftheboardoftrustees,exceptmanemergency inwhichcasetheboardshouldbe informedassoonaspossible. Allsuchexpendituresshallconformtothecompetitive-biddmg policiesoftheCommonwealthandtoitsassociatedprocurementprocedures. 2. Contractorandconsultantfeespaidfromtrustfundsshouldconformtostatelawpertainingto suchactivities. 3. Publications, including president's reports, newsletters, advertisements, magazines, invitationsandothers,shouldavoidtheappearanceofextravagance. 4. An individual's membership fees forcivic, academic, professional organizationsmust have prior approval by the Board ofTrustees, except for such memberships ofthe president, so longasfeesarenotinexcessof$1000. 98-5062-3 -5- 5. Outrightcontributionstocharitableorganizationsareprohibited. However,whereattendance at a charitable event will further the public purpose ofthe institution, expenditure may be permittedsubjecttopriorapprovalbytheBoardofTrustees. 6. Contributionstoindividualsortheirassociatedcommitteesseekingelected,publicofficeare prohibited. 7. Contributionstopoliticalactioncommitteesorequivalentorganizationsareprohibited. • TravelandSubstanceCosts t EmploveeTravel 1. Ensure thatcosts fortravel to and from institutional business, are necessary, allowable, and theleastexpensivepracticalmodeoftransportation. 2. Establishmileageratesandperdiemcoststhatarereasonableandappropriate. 3. Requirethatallcostsaredocumentedandsupportedforinstitutionalbusiness. Non-EmployeeTravel 1. Spouseandpersonalguesttravelarenotpermitted. 2. Atthepresident's discretion, studenttravel maybe allowed. The chairman ofthe Board of Trusteesmustapprovetrusteetravel. Inallcases,theactivitiesandexpensesmustbeclearly relatedtothemissionoftheinstitution. • PersonalandStudentLoans 1. Personalloansshouldnotbegrantedtoinstitutionalstafforboardmembers. 2. Inrarecircumstances, itmaybepermissibletoprovidesalaryadvancestoemployees. Such advancesshouldberepaidpromptlytothetrustfund. 3. Student loans from trust funds can only be made by the president and only in exceptional circumstances. The financial aid office should make the determination ofneed and the businessofficeshouldberesponsibleforthecollectionoftheloan. • EmployeeandStudentRecognitionandActivities 1. Within moderate limits set by the Board ofTrustees, certain expenditures oftrust funds to enhanceemployeesandstudentmoraleortorecognizeachievement,longevity,performance, orretirementcanbemade. • EntertainmentofInstitutionalDonors,Alumni,Friends,GuestsandVisitors 1. Suchentertainmentshouldbemmoderationandmgoodtaste. 98-5062-3 -6- 2. It is appropriate for a college president to entertain guests in theirhouse aspart ofofficial duties. SuchexpendituresmustbeapprovedbytheBoardofTrustees. 3. Sports, theatre, and otherentertainment tickets cannot be purchased with trust funds unless theeventisbeingheldoncampusandtheexpenditurebenefitsthemissionoftheinstitution ordirectlysupportsitsinstructionalprograms. • Miscellaneous 1. Moving expenses are appropriate for the president and selected officials ofthe institution. The Board ofTrustees may approve the use oftrust funds for moving expense to attract individualsofhighqualityfromotherpartsofthecountry. Theexpensesshallnotexceedthe regional,averagecostofmovingbetweentwopoints. Competitivebidsformovingexpenses shouldbesoughtmallcases. Storagefeesarenotallowable. 2. Purchase or lease ofa motor vehicle for use by the president or other administrators must have prior approval ofthe Board ofTrustees. A full-sized, mid-priced automobile for the president is allowable. Ifa more expensive vehicle is desired, the president must pay the differencefrompersonalfunds. 3. Purchase of flowers, gifts, and cards in moderation from trust funds may be appropriate. Appropriateoccasionsincludebutarenotlimitedto: a) Death orillnessofan employee, student, trustee, orperson ofspecial importancetothe institution,orimmediatefamilyofsaidpersons;and b) Visitsofspecialguests. 4. Private clubs initiation fees and membership dues arenot an allowable expense. Although membership fees for professional or academic organizations and civic groups are an allowableexpense;anyinitiationfeeorannualmembershipfeeforthepresidentinexcessof $1,000musthavethepriorapprovaloftheboardoftrustees.Membershipfeesmanyamount foremployeesotherthanthepresidentmusthavepriorapproval. Our review of seven state colleges noted over 60 different trust fund categories and at the 15 communitycolleges,46varioustrustfundscategones. Theautonomyanduniquenessofeachinstitution enables them to manage their trust funds as they deem necessary to the operation ofthe individual institution. Moreover, eightofthe institutions,tobettercontrol trust funds, consolidatedthenumberof individual trust funds. Twocontrasting examplesofinstitutionswherethereview determinedthattrust fund policies and procedures were adequate are Bunker Hill Community College (20 trust funds were consolidated to four) and Westfield State College (44 trust funds). Administrators at Bunker Hill Community College stated that the consolidation was performed to create better accounting control

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