1. Student Affairs Buying 101 Where It All Begins Students First Topic 2 2-01 BIG PICTURE

2. Student Affairs Buying 101 Where It All Begins Students First Provide an overview of the “Big Picture” (Whose money is it?) Discuss key federal and state requirements Discuss impact of Sarbanes-Oxley Act Discuss key responsibilities identified by the State Board of Trustees University Purchasing Auditor of State Topic Objectives 2-02

3. Student Affairs Buying 101 Where It All Begins Students First The department’s money? The Vice President of Student Affairs money? The University’s money? The Student’s money? The Taxpayer’s money? Whose Money Is It? When we make or spend money in Student Affairs, whose money is it? 2-03

4. Student Affairs Buying 101 Where It All Begins Students First Whose Money Is It? Answer: A combination of the University, Student’s and Taxpayers – It is the “Public’s” Money Source of Funds: The University’s Board of Trustees is appointed as having management oversight. As public officials, we are all responsible for effectively managing our fiscal resources. Management of Funds: 2-04 Source: The Ohio State University Current Funds Budget 2006-2007, pg I.2. 17.9% of our money is derived from student fees. 23.5% of the money comes from government support and the remaining amount (58.6%) from other resources (e.g., auxiliary services, grants, health system, development, and department sales).

5. Student Affairs Buying 101 Students First We are all “Stewards” and have been entrusted with fiscal responsibilities for the University and the public. 2-05 Where It All Begins

6. Student Affairs Buying 101 Students First Whether we: request items to be purchased process the requests receive the items record or reconcile the transactions, or manage the staff We are “stewards” and have been entrusted with fiscal responsibilities for the University and the public. As “stewards,” we are responsible to ensure  We are operating within our approved budgets  We are getting the best goods and services for the best price  We are complying with federal, state, and University requirements 2-06 Where It All Begins

7. Student Affairs Buying 101 Where It All Begins Students First We receive federal money (from taxpayers) for various Grants Research Projects, and Our students receive federal money for various educational programs Because we have Employees, vendors, contributors, and students that pay taxes Investors (for bonds and other), other governmental agencies, and the public must be able to rely on our financial statements Why must we comply with Federal Requirements? What are some of the key federal business requirements? 2-07

8. Student Affairs Buying 101 Where It All Begins Students First Answers: What are some of the key federal business requirements? We must comply with Generally Accepted Accounting Principles (GAAP) We must implement Fund accounting We must comply with various ethics and records retention schedules We must comply with various laws, e.g., Sarbanes-Oxley Act of 2002 Are intended to provide standardized financial reporting formats so that the public is able to understand and compare our fiscal operations and status with other similar operations. Requires specific controls, such as Segregation of duties (including management reviews) Timely and independent reconciliations of detail transactions to the accounting system Properly record expenses to proper expense categories and revenue to proper revenue categories Generally Accepted Accounting Principles (GAAP): Fund accounting: Requires that funds be separated for specific intended purposes. 2-08

9. Student Affairs Buying 101 Where It All Begins Students First Who has heard of Enron? Why did its management get in trouble? 2-09

10. Student Affairs Buying 101 Where It All Begins Students First “Enron’s fall was ultimately precipitated by the company’s pervasive and sustained use of aggressive accounting tactics to generate misleading disclosures intended to hide the bad business decisions from shareholders. The failure of Enron points to an unparalleled breakdown at every level of the usual system of checks that investors, lenders, and employees rely on...”... “when a company loses the trust and confidence of the investing public because of discoveries of accounting wrongdoings, the net result on the company’s stock price and competitive position is mostly devastating and long-lasting. This is because accounting reports are the principal means by which investors evaluate the company’s past performance and future prospects, and a loss of trust effectively turns away investor interest in the company.” From: “Enron’s Accounting Issues – What Can We Learn to Prevent Future Enrons”, Prepared Testimony to the US House Energy and Commerce Committee’s Hearings on Enron Accounting, February 6, 2002, by Bala G. Dharan, J. Howard Creekmore Professor of Management, Rice University. Why did its management get in trouble? 2-10

11. Student Affairs Buying 101 Where It All Begins Students First Why did its management get in trouble? Enron’s management failed to implement appropriate management & accounting controls and procedures to ensure accurate accounting and reporting of their financial status, i.e., they failed to implement required generally accepted accounting principles. Investors were provided inaccurate & misleading financial information. What was the result of Enron? 2-11

12. Student Affairs Buying 101 Where It All Begins Students First What was the result of Enron? Because investors/public lost trust and confidence in the management of Enron and Arthur Andersen (Enron’s external auditors – one of the top 4 accounting firms in the world) Investors lost $$ billions Enron filed for bankruptcy Arthur Anderson forced out of business Enron & Anderson employees lost their jobs and retirement savings Enron and Anderson management were arrested External audit requirements (nationwide) were increased More conservative accounting requirements More conservative employee stock investment requirements More requirements for reviews of document retention procedures Sarbanes-Oxley Act of 2002 Question for consideration: As a public institution, would the results be different if it was OSU instead of Enron? 2-12

13. Student Affairs Buying 101 Where It All Begins Students First Sarbanes-Oxley Act of 2002 Implemented to help prevent future “Enrons” Signed into law on 7/30/2002 Introduced significant legislative changes to financial practices Introduced stringent new rules with stated objective of: “to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws.” 2-13 See Appendix C for Sarbanes-Oxley Information. “Although Sarbanes-Oxley was intended to address governance and accountability issues in the corporate sector, there are some provisions that should be incorporated into our procedures to improve our institutional governance and accountability.” (by Bill Shkurti, August 25, 2004, “Impacts of Sarbanes-Oxley Act of 2002”)

14. Student Affairs Buying 101 Where It All Begins Students First Sarbanes-Oxley Act of 2002 – at OSU 2-14 All deans and vice presidents, and their delegated fiscal representatives, must be able to certify that all of the activities on the checklist are being performed consistently and that their areas have sufficient internal control structures in place to effectively identify weaknesses in their financial processes and systems. Position descriptions for vice presidents, deans, and their designated senior fiscal officers now reflect importance of implementing and monitoring internal controls. Within Student Affairs, all AVPs and directors and their delegated fiscal representatives, must be able to certify that all of the activities on the checklist are being performed consistently and that their areas have sufficient internal control structures in place to effectively identify weaknesses in their financial processes and systems. Let’s now move from Federal to State requirements.

15. Student Affairs Buying 101 Where It All Begins Students First What does the State require? Ohio has adopted the Federal requirements and included these into State requirements. Additionally, the state has refined some federal requirements, and tailored them, such as: Ohio Ethics laws Minority Business Enterprise goals “Buy Ohio”, and etc. What are some of the key responsibilities established by the State? Each of these will be discussed in greater detail later during the course. 2-15

16. Student Affairs Buying 101 Where It All Begins Students First The State delegated key management of OSU to the Board of Trustees (BOT). The State, through the Board of Trustees, delegated purchasing rights to OSU. The Auditor of State is responsible for verifying that OSU is in compliance with its established State and Federal requirements. The Auditor of State often subcontracts reviews to our external auditors. What are some of the key responsibilities established by the State? 2-16

17. Student Affairs Buying 101 Where It All Begins Students First The BOT is responsible for establishing the University’s policies and procedures so that they comply with Federal and State requirements. Review and approve any exceptions to policies and procedures, such as waivers for bids. (Note that some of the reviews and approvals have been delegated to specific individuals, but the responsibility continues to rest with the Board of Trustees.) Ensure OSU management has implemented effective and accurate fiscal controls and procedures and provides accurate fiscal reporting. Approve budgets. Use the Department of Internal Audit (which reports to the audit committee of the BOT) to provide independent verification of compliance to University policies and procedures. What role does the Board of Trustees perform? (as it relates to business systems) 2-17

18. Student Affairs Buying 101 Where It All Begins Students First 1.Whose money is it? 2.What are the key federal and state requirements? 3.What is the role of the Board of Trustees? 4.Where is the University’s Purchasing authority derived? Topic Review Questions Review Concept Questions What could happen if we do not comply with purchasing policies and procedures? What could happen if we do not implement effective business controls? 2-18