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Sept. 10 , 2004
CONTACT: Ward Mullens

EMU Audit Response Fact Sheet

OAG Recommendations

The Office of the Auditor General (OAG) noted the following four recommendations relative to the University House project:

  1. To comply with capital outlay appropriations acts, the Auditor General recommended that the University obtain approval from the Michigan Department of Management and Budget (DMB) and the Joint Capital Outlay Subcommittee (JCOS) before using operating revenues to fund capital outlay projects.
  2. The Auditor General recommended that the University maintain sufficient budgetary control over expenditures related to capital outlay projects.
  3. The Auditor General recommended that the University comply with annual capital outlay appropriations acts with respect to capital outlay projects.
  4. The Auditor General recommended that the University improve its competitive bidding process for selecting contractors and awarding construction contracts.

The University agrees with each of these recommendations. Further, the University acknowledges that it: (i) failed to timely and accurately submit a Use and Finance Statement for approval of the University House Project; (ii) incurred growth in debt service through the refinancing of existing debt funded by general revenues, which partially include tuition and fees; and (iii) failed to properly document its adherence to University purchasing policies. In addition, the Board of Regents was not adequately informed regarding project specifics.

EMU Strategies for Improvement

The University already has implemented changes to strengthen its administrative procedures and oversight practices.

Specific strategies implemented to date include:

  • University officials have reviewed all Use and Finance Statement requirements to ensure complete understanding.
  • The process used by the University in opening accounts for new capital projects has been modified to provide for immediate and ongoing identification of projects that have capital outlay reporting requirements under state law, including an additional level of review and concurrence. If a project has Use and Finance Statement implications, the Statement is prepared and submitted for DMB and JCOS approval.
  • The Construction Project Progress Report, which is presented at each Board of Regents meeting, has been significantly revised to be much more comprehensive. This report now includes: (i) all capital projects exceeding $50,000, (ii) better project descriptions and status reports, (iii) original and revised budgets, (iv) expenditures to date (tied to the general ledger), (v) projected final expenditures, (vi) project surplus/deficit and (vii) date of JCOS approval, if necessary.
  • A senior manager has been assigned financial oversight responsibilities related to major project accounting and monitoring of the Construction Project Progress Report.
  • A vacant position has been reclassified to a construction accountant to provide additional administrative support.
  • Capital project document filing procedures have been strengthened to ensure that all supporting materials are properly accounted for in project files.
  • University purchasing policies and procedures have been reviewed against National Association of College and University Business Officers (NACUBO) standards for requirements and best practices. NACUBO best practices are being incorporated into the University’s purchasing procedures. Purchasing policies and procedures will be followed with future construction projects.
  • The University cooperated with the OAG’s review of Use and Finance Statement compliance at all 15 public universities and 28 community colleges. The University reported three projects that did not have Use and Finance Statements filed. These statements are being prepared for submission to DMB and JCOS.
  • The University submitted recommendations in response to the OAG’s request for statutory changes to the Use and Finance Statement process.
  • The Sarbanes-Oxley Act of 2002 applies only to publicly traded corporations; however, University management and the Board of Regents believe many of the principles are also appropriate for institutions of higher education. The University has adopted the principles of the Sarbanes-Oxley Act as recommended by NACUBO.
  • To compensate for the increase in debt service due to the refinancing of debt (a funding source for the University House project), ultimately funded by general revenues which partially include student tuition and fees, the general fund debt service account has been reimbursed from royalty reserves which do not include tuition and fees.
  • In the future, the University will ensure the description of the scope of a project is inclusive rather than segmented by budget account.
  • Finally, University officials have revised the Use and Finance Statement for the University House project, which includes all costs and financing totaling $5.3 million.

RELATED: EMU Issues Formal Audit Response

Eastern Michigan University is a public, comprehensive university that offers programs in the arts, sciences and professions. EMU prepares students with the intellectual skills and practical experiences to succeed in their career and lives, and to be better citizens.

Editor's Note: Looking for an expert source for a story? Check out EMU's Eastern Experts online at www.emich.edu/univcomm/easternexperts.

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