1. University of Minnesota Internal\External Sales “The Internal Sales Review Process” An Overview of What Happens During the Review

2. Session Objectives: Keith Explain the process used for internal sales reviews Identify what can be done to improve the process

3. About the Reviews Keith Scope includes: Budget vs. Actuals vs. Rates Previous completed fiscal year Resource utilization Break-even analysis Margin analysis Identify the risks and the controls over those risks

4. “Which Internal Sales activities will be reviewed?” Keith Objective is to focus our review work on the areas of greatest risk to mitigate that risk Review all Internal Sales every 2 years Review any Internal Sales identified with issues by Internal Audit Review sales generated in Internal Sales account 500101 that do not have approval or meet requirements

5. Reviews Process Objective Keith Objective is to determine if the rate development methodology, accounting, and rate charging practices are compliant with OMB A-21 requirements, federal cost accounting standards, and University of Minnesota policy and procedures. OMB Circular A-21 is the publication: Cost Principles of Educational Institutions from the Office of Management & Budget

6. Prior to the Review Keith Request for information is sent to management in advance of expected review A request is made for review materials, including: Rate development Types of services and activity Assigned Business Manager / point of contact Transactional detail for selected vouchers Volume basis Fixed asset reconciliation/depreciation calculations Account structure used for ISO and ESO activity

7. Prior to the Review (continued) Keith Materials to be returned in 10-14 days to Internal Sales Electronic submission required Information is used during review

8. Meeting Before the review work has started but after receiving the requested information Typically the RRC Manager & main financial person Provides a chance to discuss the general review process Gives input to Internal Sales activities that will be reviewed Prior to the Review (continued) Keith

9. Review Process Keith Information sources: UMReports “Account Status for Current Non- Sponsored Funds Report” for budget, revenue and expenditures. Fixed Asset report from Inventory Services The request for information is sent to management with questions and information requested

10. Review Process (continued) Keith Activities reviewed: Unallowable and allowable costs Transfer codes Segregation of revenue and expenditures Rate volumes Depreciation Operating Margin Inclusion of all costs Impact of External Sales Budget vs. Actuals and Rate development Customer base and rate type Annual Requirements Monthly Invoicing

11. Request for Materials Preparation of review checklist Request meeting to go over open items and resolve questions Draft compliance memo CC draft to Business Manger and RRC Manager for feedback / questions Issue final compliance memo Follow up of Plan implementation Review Process (continued) Keith

12. Reviews Mary What to expect during the review? Length of time – 2 weeks after information received Transaction documentation Follow-up questions Communication of results Define solution to identified findings

13. Reviews (continued) Mary How do the results affect you? Awareness of policies / processes / best practices Changes needed to enhance compliance or efficiencies Update rate development Adjustments to cover surplus & deficits

14. What is in the Compliance Memo? Mary Description of the unit and the activity Summary of findings Recommendations Ratings of findings Management action plan response requirement Policy or procedure statement that defines requirement

15. Compliance Issue Examples Keith Expenses not included in rates or actuals Not charging all internal customers the same rate Depreciation rates not agreeing with Inventory Services, actuals or rate development Unallowable expenses in rates

16. Compliance Issue Examples Keith Not segregating revenues and expenses for Internal and External Sales Purchasing equipment directly to an Internal Sales account rather than an Internal Sales plant fund Set up with incorrect fund and accounts Not managing surpluses or deficits

17. Review Findings Rating System Mary Refer to handout ESSENTIAL Resolution will help avoid a potentially critical negative impact: –Loss of material assets –Loss of reputation –Loss of critical financial information –Inability to comply with important laws, policies or procedures

18. SIGNIFICANT Resolution will help avoid a potentially significant negative impact: –Loss of material assets –Loss of financial information –Inability to comply with important laws, policies or procedures Review Findings Rating System (continued) Mary

19. USEFUL Resolution will help improve controls and avoid problems in the unit’s operations Review Findings Rating System (continued) Mary

20. How is the Rating System Used? Mary Significant or Essential findings: –require a Management Action Plan No Significant or Essential findings: – the review is closed Useful findings: –Do not require a MAP but should be implemented by department

21. Who sees the Compliance Memo? Mary Dean/Department Head/Director Business Manager RRC Manager Budget Office Controllers Office Department of Audits Internal/External Sales Manager

22. Compliance Memo Response Jeff Management Action Plan is due 1 month from the date of the final memo ESSENTIAL findings must be corrected within three months of date of final memo SIGNIFICANT findings must be corrected during next budget cycle Surpluses greater than 15% must be paid back within three months of date of memo Deficits that will not be included in future rates must be paid before fiscal year end

23. Follow-up by the Reviewed Unit Jeff Review report findings, recommendations, and management action plan Retain documentation to support efforts towards implementation

24. Follow-up by the Reviewed Unit (continued) Jeff Communicate with Internal/External sales on ongoing progress Self-assess progress toward expected implementation date Explain obstacles preventing or delaying implementation

25. Follow-up by Internal Sales Jeff Documentation to support status as reported Review to confirm Summary report and assessment of progress

26. How to improve the review process Jeff Prompt responses Requested Materials Documentation Requests for information Requests for meetings

27. How to improve the review process (continued) Jeff Communicate Availability of key staff Completion of requests Concerns Explanations Issues

28. Take action Implement agreed-upon management action plan Do a review before the formal review and during the year Communicate progress How to improve the review process (continued) Jeff

29. Tips on how to prepare / stay prepared for the next review Jeff Adjust operations to ensure compliance Update items that have been requested Downsizing, restructuring, merging of functions can impact internal sales rates; review rates to ensure they are still proper Use U-wide systems and processes in lieu of developing in-house processes Monitor surpluses or deficits Training for key personnel Discuss any issues or concerns with Internal Sales

30. Other Items Keith Register for the “Internal Sales Seminar” on February 17 th ” Brown Bag Seminar “External Sales Agreement” (Contracts) January 27 th at 12:30. Internal Sales Training Courses at our website Procedure “ Reviewing Internal Sales Activity Annually”

31. Questions? Resources: Office of Internal Sales website http://www.finsys.umn.edu/sales/iso.html http://www.finsys.umn.edu/sales/iso.html This presentation is posted on the site.