State of New York Office of the State Comptroller Division of Management Audit

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1 State of New York Office of the State Comptroller Division of Management Audit STATE UNIVERSITY OF NEW YORK AGENCY ACCOUNTS REPORT 94-S-66 H. Carl McCall Comptroller

2 State of New York Office of the State Comptroller Division of Management Audit Report 94-S-66 Dr. Thomas A. Bartlett Chancellor State University of New York State University Plaza Albany, NY Dear Dr. Bartlett: The following is our report on controls over agency accounts at selected State University of New York campuses. This audit was performed pursuant to the State Comptroller's authority as set forth in Section 1, Article V of the State Constitution and Section 8, Article 2 of the State Finance Law. Major contributors to this report are listed in Appendix A. December 29, 1995

3 Executive Summary State University of New York Agency Accounts Scope of Audit The State University of New York (SUNY) has 29 State-operated universities and colleges and five statutory colleges which are operated under contracts with a private university. SUNY campuses use agency accounts to receive, hold and disburse funds on behalf of students, faculty, staff members, or appropriately recognized organizations. The Research Foundation of SUNY, auxiliary service corporations, and campus-related foundations are the University-related organizations authorized to administer agency accounts. Agency accounts cannot be used to receive or disburse State funds, and their activities are not subject to State legislative or budgetary control or the State Comptroller's pre-audit review and approval processes. As of February 1994, there were over 1,500 agency accounts with annual receipts totaling $81 million at the 29 State-operated campuses. Our audit encompassed accounts meeting the general characteristics of agency accounts, regardless of whether the accounts were officially classified as agency accounts on SUNY or campus records, or whether the custodian organizations were duly authorized to maintain agency accounts. Our audit addressed the following questions about the management of agency accounts for the period January 1, 1992 through March 31, 1994:! Are controls in place to ensure that only appropriate funds are deposited into agency accounts?! Are internal controls over agency accounts adequate to ensure that disbursements are reasonable and consistent with the purpose of the accounts? Audit Observations and Conclusions Our audit revealed account management deficiencies at three of the seven campuses we visited. At the SUNY Health Science Center at Brooklyn (Brooklyn HSC) and at SUNY Stony Brook (Stony Brook), we found that State revenues and certain designated funds had been inappropriately deposited into agency accounts. Further, we found that disbursements, both at these two campuses and at SUNY Buffalo (Buffalo), are sometimes undocumented or inconsistent with the purposes for which the accounts were established. Our preliminary audit work indicated that account management practices are generally adequate at SUNY Binghamton, SUNY Health Science Center at Syracuse and the Colleges at New Paltz and Plattsburgh. At Brooklyn HSC, we found that over $1.3 million of Clinical Practice Management Plan income, $610,000 of State revenue, and $200,000 of research monies were inappropriately deposited into private not-for-profit foundation accounts. We found funds deposited into one such account were

4 used to pay bonuses, stipends, and extra service payments to both State and non-state employees. These payments were improper, not only because State employees are ineligible for bonuses, but also because the affected foundation's charter prohibits profit-taking practices. We also found that a number of disbursements did not have adequate supporting documentation or were not consistent with the purpose of the accounts. For example, almost $38,000 from one account was spent on parties, gifts, flowers, and personal loans. (See pp. 5-9) At Stony Brook, the Stony Brook Foundation (SBF), the Research Foundation of SUNY, and the Stony Brook Faculty Student Association (FSA) are the organizations that administer agency accounts. We found that State revenues totaling nearly $263,000 were inappropriately deposited into three SBF accounts. We also found that, while the SBF and the Stony Brook FSA have procedures to ensure that disbursements from agency accounts are documented and appropriate, they do not always follow these procedures. As a result, some agency account funds were used for gifts, flowers, or fruit baskets; items which were not related to the purposes of those accounts. (See pp ) At Buffalo, we found that the University at Buffalo Foundation (UBF), an organization that administers Buffalo's agency account activity, has detailed expenditure policies and procedures which describe to the account holder the process for disbursing agency account funds. However, some UBF disbursements were not adequately supported or were inconsistent with the purpose of the account. For example, two disbursements, totaling $5,587 from an account established to study document image understanding, were made for travel to India. However, there was no documentation to support that these expenditures were consistent with the purpose of the account. (See pp ) Comments of SUNY Officials SUNY officials agree with all of our recommendations and indicate they are taking steps to implement them.

5 Contents Introduction Brooklyn Health Science Center State University of New York at Stony Brook State University of New York at Buffalo Appendix A Background... 1 Audit Scope, Objectives and Methodology... 2 Response of SUNY Officials to Audit... 3 Revenues... 5 Disbursements... 7 Revenues Disbursements Major Contributors to This Report Appendix B Comments of SUNY Officials The comments of Agency Officials are not available in an electronic format. Please contact our Office if you would like us to mail you a copy of the report that contains their comments.

6 Introduction Background The State University of New York (SUNY) is one of the largest higher education systems in the nation. Its teaching, public service and research mission is conduced by 29 State-operated campuses and 5 statutory colleges which are operated under contracts with a private university. A 16-member Board of Trustees sets SUNY policy and a Central Administration Unit (SUNY Central) provides direction and leadership for the SUNY system. SUNY campuses use agency accounts to receive, hold and disburse funds on behalf of students, faculty, staff members, or appropriately-recognized organizations. Agency accounts exist because there is a relationship between SUNY and the activity from which the funds are derived. These non-state agency accounts are funded from activities such as conferences, child-care centers, student activity fees, orientation fees, and a number of other activities. Agency accounts are not to be used to receive, hold and disburse State funds. University-related organizations that are authorized to administer agency accounts at individual campuses include the Research Foundation of SUNY, auxiliary service corporations, Faculty Student Associations (FSA) and campusrelated foundations. The activities of agency accounts are not subject to State legislative or budgetary control or the State Comptroller's pre-audit review and approval processes. SUNY Central has established general guidelines which identify the type of activity and funding which is appropriate for agency accounts. However, there are no SUNY Central guidelines related to expenditures from these accounts. Expenditure decisions are left to the discretion of the individual campuses, campus organizations and employees who administer the accounts. However, SUNY officials concur with the precept that expenditures from agency accounts should be consistent with the intent and purpose of the account activity. As of February 1994, there were over 1,500 agency accounts with annual receipts totaling $81 million at the 29 State-operated campuses. This is a significant increase from the $30 million in agency account activity at the time of our prior audit (Report 86-S-61, issued in May 1987). The largest percentage of accounts and activity exist at the University centers at Albany, Binghamton, Buffalo and Stony Brook, and at the Health Science Centers at Brooklyn and Syracuse.

7 Audit Scope, Objectives and Methodology We audited the controls over SUNY agency accounts for the period January 1, 1992 through March 31, The primary objectives of our audit were to determine whether controls are in place to ensure that only appropriate funds are deposited into the agency accounts, and whether controls are adequate to ensure that disbursements are reasonable and consistent with the purpose of the accounts. To accomplish our objectives, we performed detailed audit testing at three SUNY campuses: the Health Science Center (HSC) at Brooklyn, and the University Centers at Buffalo and Stony Brook. At these campuses, we reviewed applicable policies, procedures, rules and regulations and interviewed campus and campus-related organization officials. We also interviewed SUNY Central officials and reviewed records pertaining to agency account financial transactions. Our audit encompassed accounts meeting the general characteristics of agency accounts, regardless of whether the accounts were officially classified as agency accounts on SUNY Central or campus records, and regardless of whether the custodian organizations were duly authorized to maintain agency accounts. We also performed audit survey work at SUNY Binghamton, Syracuse HSC, and the Colleges at New Paltz and Plattsburgh. Since our preliminary assessments indicated that, in general, agency accounts at these campuses are managed appropriately, we performed only a limited number of tests of transactions at these campuses. Where warranted, we have provided SUNY officials with detailed comments concerning the matters of lesser significance we identified that need improvement at these campuses. We conducted our audit in accordance with generally accepted government auditing standards. Such standards require that we plan and perform our audit to adequately assess SUNY operations which are included within our audit scope. Further, these standards require that we review and report on SUNY's internal control structure and compliance with those laws, rules and regulations that are relevant to those operations that are included in our audit scope. An audit includes examining, on a test basis, evidence supporting transactions recorded in the accounting and operating records and applying such other auditing procedures that we consider necessary in the circumstances. An audit also includes assessing the estimates, judgements, and decisions made by management. We believe that our audit provides a reasonable basis for our findings, conclusions and recommendations. We use a risk-based approach to select activities to be audited. This approach focuses our audit efforts on those operations that have been identified through a preliminary survey as having the greatest probability for needing improvement. Consequently, by design, finite audit resources are used to identify 2

8 where and how improvements can be made. Thus, little audit effort is devoted to reviewing operations that may be relatively efficient and effective. As a result, our audit reports are prepared on an "exception basis." This report, therefore, highlights those areas needing improvements and does not address activities that may be functioning properly. Response of SUNY Officials to Audit A draft copy of this report was provided to SUNY officials for their review and comment. Their comments have been considered in preparing this report and are included as Appendix B. In addition to the matters covered in this report, we are providing SUNY officials with detailed comments and recommendations concerning agency accounts at other campuses. Although these matters are of lesser significance, the recommendations should be implemented to improve controls. Within 90 days after the final release of this report, as required by Section 170 of the Executive Law, the Chancellor of the State University of New York shall report to the Governor, the State Comptroller, and the leaders of the Legislature and fiscal committees, advising what steps were taken to implement the recommendations contained herein, and where recommendations were not implemented, the reasons therefor. 3

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10 Brooklyn Health Science Center Revenues It is the responsibility of Health Science Center at Brooklyn (Brooklyn HSC) officials to ensure that only appropriate funds are deposited into agency accounts. State funds, or any monies required by SUNY or Brooklyn HSC policies to be deposited in designated accounts, are not to be deposited into campus agency accounts. Brooklyn HSC officials should also ensure that the agency accounts are used to serve the interests of the accounts' beneficiaries, and that disbursements and other transactions are adequately documented. The majority of the agency accounts at Brooklyn HSC are maintained by the Brooklyn Faculty Student Association (FSA). The Brooklyn FSA reported that it is custodian for 91 Trust and Agency accounts and 148 Beneficial Fund accounts used for campus-related activities. Our audit also identified five other agency-type accounts held by private not-for-profit foundations (Foundations) organized for the purpose of conducting research and education programs on Brooklyn HSC premises. We audited the accounts held by the Brooklyn FSA and four of the Foundation accounts (Brooklyn Medical, Surgical, Orthopedic, and Otolaryngologic Foundations) to determine their relationship to Brooklyn HSC, the source and nature of their revenues, and the nature of disbursements. We found that over $2.1 million ($1.3 million of Clinical Practice Management Plan income, $600,000 of State revenue, and $200,000 of research money) was inappropriately deposited into the four Foundation accounts during the time period we tested. We also found that disbursement transactions were not always adequately documented or consistent with the purpose of the account from which they were disbursed. Clinical Practice Management Plan Funds Brooklyn HSC has a Clinical Practice Management Plan (Plan) by which faculty of the College of Medicine are able to augment their salaries by providing medical care to patients. SUNY Board of Trustees Policies require that net income generated from the Plan be used for the benefit of the School of Medicine. Brooklyn HSC requires that net income be deposited into a President's Fund where all the disbursements are authorized by the President of the School of Medicine or a designee. However, we found that monies derived from the Plan are inappropriately deposited into the private Foundation accounts. For the most recent complete fiscal year available, the four Foundations we audited received over $1.3 million from the Plan. 5

11 Affiliation Agreements The SUNY Income Fund Reimbursable (IFR) program is a mechanism for SUNY to recover costs from agencies or organizations using University property or services. IFR guidelines require activities essential to campus operations and requiring University fiduciary responsibilities, such as hospital affiliation agreements, to be handled through the IFR program. Accordingly, revenue from hospital affiliation agreements is State revenue and must be accounted for through IFR accounts. We found, however, that monies received from State affiliation agreements with private local hospitals are deposited into the Brooklyn Medical Foundation's (BMF) private account. For example, Brooklyn HSC had an affiliation agreement with Brookdale Hospital for $567,000 to train Fellows to be Specialists. Of this amount, $113,000 was used to pay faculty members and administer the program, with the remainder used to pay Brooklyn Fellows working at Brookdale. There was a similar affiliation agreement for approximately $44,000 with Staten Island University Hospital that also was incorrectly deposited into the BMF account, rather than an IFR account. Research Grants Contributions An agreement between SUNY and the Research Foundation of SUNY (RFSUNY) requires that RFSUNY manage the funds for research programs carried out in a State-operated University by or under the direction of SUNY faculty members. However, we found that the BMF received over $200,000 in grants for research work that was performed by Brooklyn HSC staff using Brooklyn HSC facilities and employees. These funds were improperly deposited into the BMF account instead of the RFSUNY account. The research grant application, which was filed by BMF, listed Brooklyn HSC as the research site and also identified all research investigators as State employees. Brooklyn HSC authorized the Brooklyn Foundation to administer gifts. The Brooklyn Foundation has specific policies and procedures by which to account for the receipt and distribution of funds. However, we found that the BMF received $45,000 in gifts for unrestricted support of research and education, and $35,748 in gifts to sponsor symposiums, visiting professors' honoraria, etc. These revenues, which were deposited into BMF's account, should have been deposited into and administered through the authorized Brooklyn Foundation agency account. 6

12 Disbursements Foundation Accounts To assess the accuracy and appropriateness of disbursements for personal services made from Foundation accounts, we tested the BMF payroll for the period July 1, 1992 through June 30, 1993 and found:! Almost $92,000 was paid to 47 employees (13 of whom were State employees) in December 1992 for what was described as holiday bonuses. Of this amount, we identified a $17,000 payment made to a Brooklyn HSC Department Chairman. There was insufficient documentation to support the purpose of the payment. Upon further inquiry, we found that the monies, which were deposited into the Chairman's personal checking account, were used to pay bonuses to other employees. We also found that the 13 State employees received a total of $78,000 from BMF as year-end bonuses. These payments were improper, not only because State and RFSUNY employees are ineligible for bonuses, but also because the BMF Articles of Incorporation prohibits individuals from engaging in profit-taking practices.! From the $200,000 in research grant monies received by BMF that was described in the previous section on revenues, BMF paid stipends totaling $76,450 in 1992 to three Brooklyn HSC faculty members who were on SUNY's payroll as full-time faculty members. Since these physicians were already paid a State salary for instruction, research and community service activities, it appears these individuals received additional payments to which they were not entitled.! BMF also paid $36,300 to its employees, reportedly for extra personal services rendered. The evidence to support these payments did not fully explain the services rendered. Therefore, we could not determine if they were outside the employees' normal work responsibilities. To determine the accuracy and appropriateness of disbursements from Foundation accounts for other than personal services, we judgmentally sampled 404 transactions totaling $1,572,132 (33.6 percent of the total disbursements of $4,680,595) from the four Foundations. For our judgmental selection process, we focused on questionable funding sources and high-risk accounts. We found that 79 disbursements, totaling $85,526, lacked adequate original supporting documentation, and 24 disbursements, totaling $39,813, were not consistent with the purposes of the Foundations: $33,213 on various parties, gifts, meals, and flowers; and $6,600 for personal loans made to four individuals. In addition, we found that the internal controls over Foundation receipts and disbursements were generally in need of improvement, especially in the area of separation of duties. We found that Foundation fiscal activities were generally handled by one individual with little or no independent review of the transactions. This situation, coupled with the absence of a fiscal agent (like 7

13 FSA) and the lack of Brooklyn HSC oversight, results in an environment where there is a greater than reasonable risk that an impropriety could occur and go undetected. FSA Accounts Based on the Restricted Fund Account Agreement, the Brooklyn FSA has a fiduciary duty to ensure the proper use of funds in the accounts for which it serves as fiscal agent. In addition, FSA policies and procedures require that FSA officials review each payment request to confirm compliance with account purposes and restrictions prior to the disbursement of funds. However, we found that the FSA does not require original supporting documentation and sometimes disburses funds without any supporting documentation. In addition, an FSA official told us that the organizations that administer Beneficial Fund accounts claim that since the funds are for them, they can spend the money on anything they want. As a result, we found that some expenditures were inadequately documented or inconsistent with the purposes of the accounts. The FSA reported that the 91 Trust & Agency accounts it maintains had total disbursements of $2,106,994 during the period June 1, 1992 through November 30, We examined those accounts with the highest dollar volume: Clinical Practice Management Plan Governing Board, Children's Center, SAF Commencement, Nephrology Conference, and Pediatric-Finberg. We selected a sample of over 151 transactions totaling $1,178,472 (56% of total disbursements) and found the following 30 instances, totaling $67,267, in which transactions were not consistent with the account purpose or were not adequately supported.! Twenty-one transactions, totaling $15,780, were not consistent with the purpose of the account. These disbursements were for items such as gifts, flowers, fruit baskets, and loans.! Nine transactions, totaling $51,487, did not have adequate documentation. These transactions included a $20,000 transfer to RFSUNY that had no supporting documentation. Brooklyn HSC officials stated that purchases of flowers and fruit baskets and disbursements for loans are legitimate expenditures and in accordance with the intent of the accounts. In contrast, officials from the other SUNY campuses informed us that spending these funds for such items was not in keeping with the intent of the accounts. Beneficial Fund Accounts The 148 accounts in the Beneficial Fund had total disbursements of $2,485,938 for the period August 1, 1992 through March 16, We tested the appropriateness of 313 disbursements totaling $778,413 (31 percent of total disbursements) from the following five accounts: Parking, Dean's 200%, Dermatology, Reserve Operating, and Dean of Medicine. We found that 53 disbursements totaling $29,924 were not consistent with the purpose of the sampled account. For example, the Dean's 200% account, which is to support 8

14 the College of Medicine, spent $26,690 on food services, refreshments, dinners, etc. The documentation provided to us does not demonstrate that these disbursements were in support of the College of Medicine. We also found five disbursements, totaling $838, that did not have adequate supporting documentation. Recommendations 1. Enforce all established policies, guidelines, and agreements to ensure that State revenues, research funds and monies for the benefit of the Brooklyn HSC School of Medicine are administered appropriately. 2. Implement adequate controls over the Brooklyn HSC Foundation accounts to ensure that:! all disbursements from agency and restricted accounts comply with the purpose for which those accounts were established;! adequate supporting documentation accompany all disbursement requests; and! functions related to receipt and disbursement are adequately separated. 3. Identify and recover Plan income, State revenues, and research monies inappropriately deposited into Brooklyn HSC Foundation accounts. 4. Identify and recover improper payments made to State and RFSUNY employees by the BMF. 9

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16 State University of New York at Stony Brook The State University of New York at Stony Brook (Stony Brook) has designated the Stony Brook Foundation (SBF), RFSUNY, and the Stony Brook FSA as the organizations authorized to administer agency accounts. The SBF maintains seven trust and agency (T&A) fund accounts for campus affiliated non-profit organizations. During the fiscal year ended June 30, 1993, Stony Brook reported that the receipts to these accounts totaled $1,864,382 and disbursements totaled $1,735,909. SBF also maintains 451 restricted fund accounts which represent funds expendable for operating purposes, but restricted by donors or other outside agencies as to the specific purpose for which they may be expended. The FSA maintains a total of 22 agency accounts for various campus organizations. Between July 1992 and November 1993 the FSA reported these accounts had receipts of $1,512,137 and disbursements of $1,502,766. We reviewed all 7 T&A accounts and 6 of the 451 restricted fund accounts maintained by SBF and 17 of the 22 FSA agency accounts to determine the source and nature of revenues, and the controls over disbursements. We found that while both SBF and FSA have established reasonable procedures over receipt and disbursements for these accounts, they do not always follow their policies and procedures. As a result, some State revenues have been erroneously deposited into these accounts and some of the disbursements were inconsistent with the intent of the accounts. Revenues SUNY guidelines prohibit deposits of State revenues into agency accounts, except when provided for in a contract approved by SUNY Central and the Office of the State Comptroller (OSC). We reviewed the sources of revenue for each of the accounts we selected. We found that the following State revenues, totaling $262,986, that should have been deposited into SUNY IFR accounts, were instead deposited into three SBF restricted fund accounts. As a result, Stony Brook and SBF were able to operate programs with State funds without the required State expenditure review and approval process.! About $233,500 (25 percent) of the proceeds from an affiliation agreement between Stony Brook and Winthrop University Hospital (Winthrop) for a residency program in general surgery was deposited to a SBF restricted account (Surgery) instead of a SUNY IFR account. According to the affiliation agreement, when residents in Stony Brook's Surgery Department worked at Winthrop, Winthrop reimbursed Stony Brook to cover the costs of the residents' salaries and fringe benefits, as well as Stony Brook's administrative overhead and other costs of the residency program. The contract we examined does not appear to have been approved by SUNY Central and OSC in accordance with 11

17 SUNY contracting procedures. In addition, no provisions were made for any contract receipts to go to the Surgery account. (Stony Brook officials indicated that these funds were inadvertently deposited into the SBF account, and have since been transferred to the appropriate IFR account.)! Portions of the proceeds from hospital affiliation agreements between Stony Brook and two other hospitals, Huntington Hospital and St. Charles Hospital, each for a residency program in orthopedic surgery, were deposited into an SBF restricted account (Orthopedic Surgery). The copies of the contracts we obtained show that both were properly approved by SUNY Central and OSC; but contained no provisions for receipts to go to SBF. Under both agreements, the hospitals were to reimburse Stony Brook for the residents' salaries and fringe benefits, as well as Stony Brook's administrative overhead and the administrative cost of the residency program. During the SBF fiscal year, about $29,000 ($19,327 paid by Huntington Hospital and $9,664 paid by St. Charles Hospital) was inappropriately deposited into the Orthopedic Surgery account instead of a SUNY IFR account. Stony Brook officials replied to the draft report that the funds deposited into the SBF restricted account were separate and distinct from the contract amounts which were deposited into an appropriate IFR account. They stated that the hospitals made contributions beyond those provided for in the contracts, to support the residency programs. This practice contradicts the intent and purpose of IFR accounts. IFR accounts are established to capture all revenues and expenses generated from activities involving campus operations, such as affiliation agreements. All revenues generated as a result of agreements between SUNY at Stony Brook, representing itself as a State agency, and independent parties, should be deposited into a State IFR account.! Rental revenue of $500 from the November 1992 rental of the Staller Center (a Stony Brook facility) for a large technology conference should have been deposited into an appropriate SUNY IFR account. Instead, it was deposited into the Theater and Performing Arts account, a SBF restricted fund account. (Stony Brook officials stated that this was a clerical error and it will be corrected.) 12

18 Disbursements Stony Brook Foundation SBF guidelines for account directors require each disbursement request (Cash Payment Voucher) to include the reason for payment, the account director or other authorized signature, the original receipts or invoices, and, for payments to individuals, the social security number and permanent address. The guidelines also state that the purpose of the expenditure must comply with the purpose for which the account was established. SBF disbursement processing procedures include the review of all disbursement requests prior to payment. Such review entails ensuring the above guidelines have been met. We examined 15 disbursement transactions totaling $22,848 (1 percent) from the 7 T&A fund accounts and 99 disbursement transactions totaling $54,171 (17 percent) from the 6 selected restricted fund accounts. For each account, we judgmentally selected transactions from fiscal year expenditure reports. The reports showed disbursements by expense categories. We focused on transactions we believed to be at risk for being outside the purpose of the accounts (e.g., items classified as gifts, food and entertainment). Such items, if properly documented and business related, are acceptable uses of these accounts. In our review of T&A fund accounts, we found that internal controls over disbursements were adequate and operating as intended. We found all 15 sampled disbursement transactions were reasonable, appropriate and adequately supported. In our review of restricted fund accounts, we found that SBF officials have established reasonable procedures over disbursements from these accounts. However, they did not always follow their disbursement processing procedures and did not ensure disbursements complied with the purpose of an account. We identified the following 61 exceptions totaling $16,376 (31 percent) in our review and testing of restricted fund transactions:! Thirty-nine disbursements (totaling $2,116) from four accounts did not comply with the purposes for which the accounts were established. All 39 transactions were payments for gifts, of which 36 were for flowers or fruit baskets. Thirty-four of the gift purchases (totaling $1,870) were charged to the Surgery account which was established for the purpose of funding the surgical residency program.! Twenty-two disbursements (totaling $14,160) from four accounts were not adequately supported. Sixteen of these disbursements (totaling $10,454), from the University President's Fund account, were for luncheons and dinners. The supporting documentation did not have information to establish whether the meals had a business purpose. In addition, we found 11 disbursements that were made from the University President's Fund account to the campus President's wife for entertaining at their home. These disbursements included $2,303 paid to individuals to wait tables 13

19 and tend bar that were not appropriately identified as payments to individuals for services performed. Consequently, these payments circumvented SBF's process for identifying payments to individuals that require IRS reporting. FSA Accounts Stony Brook FSA guidelines for agency accounts state that each disbursement request from an agency account must clearly indicate the purpose of the expenditure, contain an authorized signature, and have sufficient, original documentation attached. The expenditure must also meet the purpose of the account. We audited a judgmentally-selected sample of 17 Stony Brook FSA agency accounts that accounted for nearly all of the $1.5 million in total disbursements. From these accounts, we examined 329 disbursements totaling $183,683. We found that the following 128 disbursements, totaling $32,958, were not properly supported or authorized and many of the disbursements were inconsistent with the purpose of the account from which they were disbursed.! Eighteen disbursements from nine accounts, totaling $7,096, did not contain sufficient, original documentation.! Twelve disbursements from the Harriman Cafe account, totaling $5,018, did not contain authorized signatures.! One hundred and four disbursements, totaling $21,471, did not appear to be consistent with the purpose of the account (six of these, totaling $627, are also included in the above 18 that lacked sufficient documentation). For example, 19 disbursements totaling $1,255 were for reimbursement to the account custodian for business breakfasts, lunches, and dinners. The meals appear to be personal in nature, and should not be paid for out of agency funds. Another disbursement ($4,890) was made for the purchase of athletic equipment from an account which is intended for travel-related expenditures. 14

20 Recommendations 5. Enforce the Stony Brook campus and SBF policies in place to ensure that State revenues are appropriately administered. 6. Enforce the SBF and Stony Brook FSA disbursement processing procedures to ensure that:! all disbursements from agency and restricted accounts comply with the purpose for which those accounts were established;! adequate supporting documentation accompany all disbursement requests;! authorized signatures are obtained for each disbursement request; and,! all payments to individuals are properly handled to ensure accurate tax reporting. 7. Identify and recover State revenues inappropriately deposited into SBF accounts. 15

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22 State University of New York at Buffalo The University at Buffalo Foundation (UBF), RFSUNY, and the Buffalo FSA administer agency account activity at the University at Buffalo. The UBF has detailed expenditure policies and procedures which describe to the account holder the process for disbursing agency account funds. They explain the type of documentation that is required to justify an expenditure and describe the kinds of expenditures that are allowable according to IRS Publication 463 (i.e., allowable travel, entertainment and gift expenses). Additionally, UBF provides guidelines for Vice-Provosts, Deans, Directors and other officers regarding the use of agency funds. Authorized account holder signatures and original documentation are required for reimbursement of direct purchases. Purposes of expenditures must be clearly detailed on the disbursement along with any necessary justification. UBF guidelines strictly state that expenditures that are personal in nature and benefit the individual rather than the University will not be reimbursed. As of November 30, 1993, UBF maintained a total of 299 agency accounts with a balance of over $7 million. These accounts consist primarily of funds related to programs sponsored by the University at Buffalo under authority delegated to UBF by RFSUNY. During the period from July 1, 1992 through November 30, 1993, these accounts had total disbursements and receipts of $17,848,910 and $21,224,141, respectively. As of June 30, 1993, UBF also maintained approximately 700 restricted accounts with a balance of $19,203,244. The funds from these accounts consist of gifts, grants, appropriations, endowment income, faculty practice income, fees for professional services, dues, and other miscellaneous income. At other SUNY campuses, accounts similar to these accounts are considered agency accounts. But, because of an exemption from the agency account guidelines, UBF is allowed to categorize these accounts as "restricted accounts." These restricted accounts were audited by SUNY's University Auditor. Their observations were similar in nature to those addressed by us in this section of the report. The purpose of our examination was to determine if UBF's internal controls over agency accounts are functioning adequately. We audited a judgmentallyselected sample of 40 agency accounts that equaled $15,619,994 (87.5 percent of total agency account disbursements). From these accounts, we examined 63 disbursements totaling $167,000. We found that the following disbursements were either not properly supported or inconsistent with the purpose of the account. 17

23 ! Signatures authorizing six disbursements totaling $4,627 from research account # did not appear to be those of the authorizing signers. (SUNY Buffalo officials reviewed these disbursements and determined that they were appropriate.)! Two disbursements from an account established for a study on Document Image Understanding, funded by the Eastman Kodak Company, were for travel to India and for per diem related expenses totaling $5,587. Our review concluded that these expenditures were not consistent with the intent and purpose of the account. To date, we have seen no documentation that these expenditures were approved project costs and, therefore, appropriate account expenditures. (In response to our draft report, SUNY Buffalo officials stated that these expenditures did not violate their agreement with the sponsor. They did not, however, provide documentation that the expenditures were consistent with the purpose of the account.) The Buffalo FSA maintains a total of 11 agency accounts for various campus organizations. As of November 30, 1993, the total ending balance for agency accounts was $78,405. During the period from May 31, 1992 through November 30, 1993, these accounts had total disbursements of $279,766 and total receipts of $269,819. We surveyed the Buffalo FSA agency account activity and performed a detailed examination of one of the most active accounts (the UBF Conferences account) which accounted for $85,950, or 31 percent of the total Buffalo FSA agency account disbursements. The purpose of the audit was to determine if internal controls over agency accounts are functioning as planned. Buffalo FSA procedures for administering agency accounts require each disbursement request from an agency account to clearly state how the funds will be used and identify how this use meets the purpose of the account. In addition, the disbursement must contain an authorized signature and have adequate, original supporting documentation attached. Our examination of the 89 disbursement transactions made during the period May 31, 1992 through November 30, 1993 found that 11 disbursements (12 percent) totaling $12,184 (14 percent) were made based on unauthorized signatures. 18

24 Recommendations 8. Enforce the UBF and the Buffalo FSA procedures for agency accounts to ensure that:! authorized signatures are obtained for each disbursement request; and,! disbursements agree with the purpose of the account from which they are expended. 9. Investigate the instances where disbursements were made based upon what appeared to be unauthorized signatures. 19

25 Major Contributors to This Report David DeStefano Frank Houston Seymour Peltin Jerry Barber Martin Chauvin William Furman Gene Brenenson Maureen Costello Melissa Little James Obeng Mary Roenick Karen Willard Nancy Varley Appendix A