Year 1992-93
UNIVERSITY OF MINNESOTA
BOARD OF REGENTS
Audit Committee
April 14, 1993
A meeting of the Audit Committee of the Board of Regents was
held on Wednesday, April 14, 1993, at 2:00 p.m. in Room 300,
Morrill Hall.
Regents present: Regent Page, presiding; Regents Craig,
Keffeler, and Kuderer.
Staff present: Senior Vice President Erickson; Executive
Director Muesing; Associate Executive Director Janzen; Associate
Vice President Pfutzenreuter; Assistant Vice President O'Connor;
and Director of Audits Patrick Spellacy.
Student Representatives present: Andrew Kuehnel and Brian
Swanson.
Others present: Mark Chronister and Miles Everson from the
firm of Coopers & Lybrand.
SENIOR VICE PRESIDENT'S REPORT
Senior Vice President Erickson reported on the progress and
status of action that the University has undertaken with regard to
the Fiscal Year 1992 Management Letter Comments provided by
Coopers & Lybrand. He reported that as of January 1993 there were
24 comments that needed to be addressed. As of April 1993, 10 of
those comments have been addressed, with 14 remaining. A summary
of each comment and response was provided.
He reported briefly on progress of the review of revenue-
generating departments, indicating that processing the
questionnaire has been completed and the number of departments to
be tested has been increased from 20 to 30, which includes 100
percent coverage of the Medical School departments.
Assistant Vice President O'Connor then presented a progress
report on the status and direction of CUFS. He stated that he had
hoped to report on detailed plans and milestones at this meeting,
but is unable to do so at this time. He reported that CUFS has
become a larger project than anticipated. The complexity and risks
associated with this endeavor are high. Management
infrastructure has been neglected so readiness is low. Resources
are in place but are insufficient to maintain the status quo. He
reported that major initiatives are underway with massive changes
beginning on three levels -- program, project, and maintenance.
Projects and estimated dollars required to finish the initial
installation of the system were provided.
Mr. O'Connor presented three approaches and timelines for
proceeding with the project, indicating that he would like some
guidance from the committee. After some discussion, it was the
consensus of the committee that milestones should be presented to
the committee at its next meeting and with those milestones
identified, the project should proceed as quickly and as prudently
as possible.
Regent Keffeler stated that Mr. O'Connor had presented a
very realistic and reasonable approach for proceeding with the
project. She further stated that when the University budget is
presented in June, it must include whatever is necessary to cover
CUFS personnel resources.
The committee voted unanimously to recommend approval of the
Senior Vice President's Report.
DIRECTOR OF AUDITS' QUARTERLY REPORT,
INCLUDING 15-MONTH INTERNAL AUDIT PLAN
AND COMPLIANCE REPORT
Patrick Spellacy, Director of Audits, presented the
Quarterly Report on internal audit activity which included three
items for discussion: 1) review and approval of the Audit Plan
for the next 15 months; review and approval of current audit
results and audit plans for the next three months; and 3)
discussion relating to revision of current mission statement for
the internal audit department.
Mr. Spellacy reviewed the proposed Audit Plan for the period
April 1993 to June 1994, which included the following key issues:
- Tailoring the audit approach to coincide with the
"Statement of Management Direction"
- Change from giving some audit coverage in many areas
to increased coverage in problem areas
- Increase allocation of audit resources to respond to
Regents and senior management requests and identified
operational issues
- Use results from audits to measure the overall control
environment of the University
- Devote a significant amount of our effort to identify
control weaknesses related to CUFS and its future
status and direction
- Expand the use of technology in audit activities
Mr. Spellacy reported that this revised Audit Plan should
result in an increased responsiveness to Regent and senior
management requests, a concentration on high payoff audits and
more closely monitored compliance with essential recommendations.
Centralized testing and diagnostics should be able to identify
potential problem areas faster, the increased use of technology
will enhance the audit process, and the University will move
towards more preventative types of activity such as training,
self-testing, and self-assessment. In addition, a more
proactive mission statement for the Department of Audits should be
explored.
Regent Keffeler stated she would like to see the audit
department take the approach of building the preventative and
periodic auditing aspects of the internal audit organization so
that its agenda is not preempted in major ways when investigative
needs arise, adding that external resources should be utilized for
major investigative needs.
Mr. Spellacy agreed with Regent Keffeler, adding that the
difficult decision is to determine at what point external
resources are needed. Mr. Chronister added that he also agrees
with Regent Keffeler, stating that in the past the internal and
external auditors have not been close. That has changed over the
past year and currently the two offices are working closely
together. He stated that he has reviewed Mr. Spellacy's proposed
plan and believes it will respond to Regent Keffeler's concern.
Mr. Spellacy continued his presentation, reporting on
current period results of audits and audit compliance.
The committee engaged in a discussion relating to
compliance. Regent Keffeler expressed concerns, indicating a need
for a higher sense of urgency with regard to compliance.
Individuals with operating responsibility for a depart-ment need
to appear before the committee when audit recommendations have not
been implemented. In addition, audit reports need to call the
committee's atten-tion to compelling issues and problem areas.
The reports need to be more quali-tative rather than only data
tables, and timetables need to be provided for follow-up on
implementation of recommendations.
Chair Page requested Mr. Spellacy to address the concerns
expressed by Regent Keffeler and return to the committee with a
plan for more proactive enforcement of audit reviews. Senior Vice
President Erickson suggested that the committee might want to
schedule a special meeting of the Audit Committee to discuss this
issue. It was the consensus of the committee that, on the
decision of the Chair, a special meeting may be scheduled in June.
In response to concerns raised about the completeness of the
Medical School Management Review, Senior Vice President Erickson
stated that all internal and external auditing factions would be
working together to assure that all areas are covered during the
review. Committee members said the result of various reviews and
audits of the Medical School needs to be a complete picture rather
than isolated reports.
A concern was raised by Mr. Chris Buse, from the Legislative
Auditor's office, that access to all information might not be
available in order to do an effective review of the Medical School
Practice Plans.
Regent Keffeler asked that administration review this
concern and inform the committee if there are any issues that
would stand between the ability of this board to know whether or
not procedures, policies, and agreements are being administered
and followed.
Regent Kuderer stated that a presentation will be made to
the Committee of the Whole on Friday relating to significant
changes in the reporting relationships, indicating that the
presentation may answer some of the concerns expressed.
The committee then voted unanimously to recommend approval
of the Director of Audits' Quarterly Report.
EXTERNAL AUDITOR'S REPORT
Mr. Mark Chronister and Mr. Miles Everson, Coopers &
Lybrand, presented the external auditor's report.
Before presenting his report, Mr. Chronister distributed a
document entitled "Summary of Emerging Issues for Colleges and
Universities" prepared by Coopers & Lybrand for the committee's
information.
He then summarized the terms and objectives of Coopers &
Lybrand's engagement with the University of Minnesota, including
the nature and scope of services to be provided for the year ended
June 30, 1993. The audit will focus on the following: 1)
business conditions and risk factors; 2) control conditions and
risk factors; 3) new developments; 4) unusual transactions; 5)
external influences; and 6) management estimates. Mr. Chronister
reviewed each area of the audit focus.
Mr. Everson provided an update on the revenue-producing
units risk assessment, indicating that a questionnaire has been
developed with the Department of Chemical Engineering to be used
as the basis for the assessment. He reported that the scope of
the assessment has been revised to include 30 departments instead
of the 20 originally planned and when completed, the results will
provide the groundwork for future audits and risk assessment for
the departments. Mr. Everson reported that a list of risks will
be reported to the committee when the assessment is completed.
In answer to a question from Regent Keffeler, Mr. Everson
stated that it is premature for Coopers & Lybrand to indicate if
there are any problem areas that will hinder this assessment. He
assured the committee if issues arise as the process is
progressing, administration and the Regents will be notified imme-
diately. Senior Vice President Erickson also indicated that
General Counsel Rotenberg may be able to respond to some of the
committee's concerns during the Committee of the Whole
presentation relating to the Practice Plans on Friday.
Mr. Everson also reviewed the timeline for the 1993 audit,
highlighting key changes from previous years.
RENEWAL OF EXTERNAL AUDITOR'S CONTRACT
The committee voted unanimously to recommend approval to
extend the contract for Coopers & Lybrand to be engaged as the
external auditor for the University for the 1993-94 fiscal year.
This action was brought to the committee pursuant to the original
engagement resolution approved by the Board of Regents November
10, 1989.
The meeting adjourned at 4:50 p.m.
BARBARA MUESING
Executive Director and
Corporate Secretary
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