Sept. 10 , 2004
CONTACT: Ward Mullens
Audit Response Fact Sheet
The Office of the Auditor General (OAG) noted the following four recommendations
relative to the University House project:
- 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.
- The Auditor General recommended that the University maintain sufficient
budgetary control over expenditures related to capital outlay projects.
- The Auditor General recommended that the University comply with
annual capital outlay appropriations acts with respect to capital
- The Auditor General recommended that the University improve its
competitive bidding process for selecting contractors and awarding
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
- 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.
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