University of Minnesota Internal\External Sales

“The Internal Sales Review Process”An Overview of What Happens

During the Review

Session Objectives: Keith

• Explain the process used for internal sales reviews

• Identify what can be done to improve the process

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

“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

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

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

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

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

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

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

• 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

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

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

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

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

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

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

• 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

• USEFUL

• Resolution will help improve controls and avoid problems in the unit’s operations

Review Findings Rating System (continued) Mary

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

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

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

Follow-up by the Reviewed Unit Jeff

• Review report findings, recommendations, and management action plan

• Retain documentation to support efforts towards implementation

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

Follow-up by Internal Sales Jeff

• Documentation to support status as reported

• Review to confirm

• Summary report and assessment of progress

How to improve the review process Jeff

Prompt responses

• Requested Materials

• Documentation

• Requests for information

• Requests for meetings

How to improve the review process (continued) Jeff

Communicate

• Availability of key staff

• Completion of requests

• Concerns

• Explanations

• Issues

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

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

Other Items Keith

• Register for the “Internal Sales Seminar” on February 17th”

• Brown Bag Seminar “External Sales Agreement” (Contracts) January 27th at 12:30.

• Internal Sales Training Courses at our website• Procedure “ Reviewing Internal Sales Activity

Annually”

Questions?

Resources: Office of Internal Sales website http://www.finsys.umn.edu/sales/iso.html

• This presentation is posted on the site.