Office of the Controller

Frequently Asked Questions

Statement on Auditing Standards No. 115 (formally SAS 112) “Communicating Internal Control Related Matters Identified in an Audit” establishes standards and provides guidance on communicating matters related to an entity’s internal control over financial reporting identified in an audit of financial statements. It is applicable whenever an auditor expresses an opinion on financial statements (including a disclaimer of opinion). In particular, this SAS:

  • defines the terms "significant deficiency" and "material weakness", incorporating the definitions already in use for public companies;
  • provides guidance on evaluating the severity of control deficiencies identified in an audit of financial statements; and
  • requires the auditor to communicate, in writing, to management and those charged with governance (e.g., Board of Regents), significant deficiencies and material weaknesses identified in an audit.

SAS 115 (formally SAS 112) changes the process for evaluating deficiencies that come to auditors’ attention and brings the thresholds for reporting control deficiencies in line with the thresholds required for public companies. As these revised thresholds effectively lower the bar, it is expected that the reporting of what are now defined as either significant deficiencies or material weaknesses will be become increasingly more prevalent. There is a possibility that items not previously identified as control deficiencies could rise to what has now been defined as a significant deficiency or a material weakness simply as a result of imposing a new definition on the auditor, not as a result of any deterioration in the University’s system of internal control. The materiality of the control deficiency is determined based on what potentially could go wrong, not just on the amount of actual misstatements.

Although these funds are “discretionary,” these funds are still the property of the UC Regents and fall under university policies and guidelines. As such, there are a number of issues surrounding payroll and hiring an employee, regardless of the funding source.

It is not ok to pay an employee with personal funds prior to the employee being hired in the Payroll Personnel System (PPS) for a number of reasons:

1) Upon hiring an employee for the university, certain forms are required to be completed prior to employment, such as the I-9, and the State Oath and Patent Agreement. The department and the university can be held liable if these forms are not completed.

2) Liability – What would happen if the employee is injured during the time he/she is not in the official payroll system? The employee would not be covered under the University’s Workers’ Compensation policy. The faculty member would then be liable for any injuries resulting to the employee or even potentially a 3rd party.

3) Benefits – If the graduate student is eligible for Graduate Student Fee Remission, this benefit would not be calculated correctly, resulting in the student having to pay all of their fees. In addition, if a graduate student is going to work over 50%, they will need to have an exception approved by the department.

4) Tax Reporting – The appropriate amount of taxes may not be withheld and/or reported.

5) Funding Source – What if the student has work study funds? His/her efforts would not be reported correctly under the federal work study program and could jeopardize the program for the entire campus.

If in fact, the professor needs to hire someone before the disbursement of money (such as a contract, grant, or other funds that won’t be disbursed right away), the professor can use the OR Form 203, “Request for Approval to Spend Funds” (RAS). In addition, certain gift funds may only be distributed once or twice a year, so depending on the time of year, the professor could be waiting a long time for reimbursement.

The department telephones are a University resource, and fall under the Electronic Communications Policy, allowing for incidental use. However, long distance toll calls for personal business do not fall under incidental use, and the University should be reimbursed by employees for personal calls.

In this situation, there are a couple of options. One, you could remind the employees of their need to reimburse the university for their personal calls and encourage the staff to use a personal cell phone, or a long distance calling card if they need to continue making these types of calls. In addition, if the personal long distance calls continue, you could work with Communications Services to block out-going long distance calls from those phones.

If they continue to choose not to reimburse the university, then the amount needed to cover the costs could be considered compensation and reported on their W-2 at the end of the year.

Productivity should also be a concern if the employees are spending work time on the phone. Employees should utilize their break time or their lunch period for personal calls.

This question involves several issues:

1) Having food at an office meeting
2) Using petty cash to purchase food
3) Purchasing food from Costco

Issue #1:
If food is provided at an office meeting, the meeting/food for the event needs to be consistent with the UC Entertainment policy. In this case, policy does allow light refreshments for recognition of service. A Payment Request for Business Meetings and Entertainment needs to be completed and approved in accordance with the policy (see instructions).

Issue #2:
It is never appropriate to use petty cash funds to purchase food. Petty cash funds are meant to provide for the purchase of certain low value items other than food. If an employee uses their own funds to purchase food and is approved for reimburs ement, a Payment Request for Business Meetings and Entertainment should be used. (Please refer to the campus Petty Cash Policy for additional information.)

Issue #3:
The Campus Food Policy states that University Center (UCEN) Catering, Residential Dining Special Events Catering, or the Faculty Club are the primary sources for al l food provided on campus. However, if none of the campus caterers are able to provide service for your event, the UCEN Catering Manager has a list of approved vendors that you may select as an alternate provider. These vendors have been approved becaus e they have the appropriate food and health permits and have the correct amount of liability insurance according to Business Services. Using a vendor not on the approved list subjects the University to liability and puts the department and employees at r isk - for among other things, accidental food poisoning!

The Campus Food Policy does allow the following:

"Individuals may provide light refreshments for meetings or have potlucks for department gatherings only when basic sanitary practices and campus and industry health standards are met. The Health and Safety Code may be obtained from Environmental Health and Safety."

Although using Costco can sometimes result in a financial savings to a department, there are other costs involved. Think about the time it takes for an employee to go to Costco and return to work, approximately 30 minutes to one hour. Everyone's time is valuable - is the department really saving money by not using a campus caterer? Second, what if an employee is injured during the trip to Costco, or gets into an accident? Just think about these additional costs/risks when making the decision to use ou tside caterers or to buy the food from a vendor such as Costco. Remember, if a department does choose to buy from Costco, the employee is reimbursed via a Miscellaneous Form -5, as described above in Issue #2.

It is the sole responsibility of each individual choosing to park on campus to obtain a parking permit. If a visitor chooses to park on campus without obtaining a permit, this is considered a violation of the California Vehicle Code, Section 21113 (a), w hich confers upon the University of California authority to regulate parking on its campus.

The Citation Appeal process is explained on the back of each citation. The Citation Appeal form may be found on the Parking Services Web site at: http://www.tps.ucsb.edu.

Parking Services offers a program to departments allowing them to set up an account for recharge of Complementary Parking permits for guests visiting campus. Once the department sets up an account with the Parking Services Events Coordinator, the department is asked for a list of staff authorized to order Complementary Permits by phone or E-mail. Once this process is complete, the department representative may request Complimentary Permits for visiting guests. A Courtesy Parking permit is recharged back to the department at the cost of the daily parking rate. When a department designate orders a Complimentary Permit for a guest and the permit is not redeemed, the department will not be charged.

Once a guest arrives to campus, the visitor provides the Kiosk Attendant with their name and the department they wish to visit. The Kiosk Attendant will issue the appropriate Courtesy Parking permit with lot-specific area designations. The attendant will provide a map with detailed directions to their destination and information about where their permit is valid.

Visitors may also arrange to purchase permits that are valid for extended stays. Please contact Traci Kellogg, Events and Outreach Coordinator for assistance. Traci can be reached by phone at 805-893-5389, or by E-mail at traci.kellogg@park.ucsb.edu.

There are several issues you want to think about before making the software purchase.

1. Purchasing Policy #5330 (Currently Under Review) states: "University credit, purchasing power, and facilities may not be used to purchase goods or services for non-University purposes." By making personal purchases, the University contract for the software prices is at risk.

2. If you make the purchase for the staff member, consider how are you going to get the money back to reimburse the department? What if the person leaves?

3. Confirm with the staff member that this software will not be used for ANY work-related purpose. If some work will be done using the software, then this purchase would be ok and the staff member would not be required to reimburse the department.

In all cases, you want to be able to explain the Purchasing policy. In our experience, just saying "NO" creates more aggravation and frustration. Many times there is a lack of knowledge that a specific policy exists and the situation just needs to be ex plained.

This is a dilemma! However you do have some options. The University Travel Policy (Business and Finance Bulletin G-28) states that reimbursement should be for actual costs only. This policy follows IRS regulations, limiting reimbursements to actual expenditures.

When meeting with the P.I., be prepared to show him/her the policy and explain why you are unable to reimburse the student for the full amount. If you are concerned about talking with the P.I., consider talking to your department MSO or department chair. You can also contact the Travel unit in Accounting, or our office if you need more guidance in understanding and interpreting the policy.

To preclude this type of situation in the future, here are some additional options:

1. Explain to the traveler prior to the trip, the reimbursement policy and the receipt documentation needed. If your department has an email distribution list, perhaps send out the policy information to all faculty and staff.

2. Provide travelers with a "Traveler Worksheet" which gives the traveler an area to record their daily meal expenditures and explains the meals and incidental expenses rule. (The Travel Unit in Accounting has samples of "Traveler Worksheets.")

3. If the traveler still claims the full amount, and certifies or signs that the voucher is an accurate recording of expenses, then the responsibility lies with the traveler and authorizing signature.

Departments should review the key processes and controls within their organization, the amount of existing documentation and training, and the steps that might be taken to improve the control environment in their area. Departments should already have the key processes and controls in place. However, they may not document that they are following these controls. For example, departments may review their general ledger activity, but may not retain any documentation noting that this occurred. Departments need to ensure that they maintain sufficient documentation for these key controls, possibly through a checklist, because if the documentation cannot be provided to the auditors it is as if it hasn’t been done.

No. Departments should have the key processes and controls in place within their organization. Departments will need to ensure that they maintain sufficient evidence of review for the key controls, which has not been required prior to SAS 115 (formally SAS 112).

SAS 115 (formally SAS 112) is effective for fiscal year 2006/07. Although effective for this fiscal year, departments should not go back and create documents. Going forward, departments should be document all reviews as suggested in the checklist, if they haven’t been already.

SAS115-The Auditing Standards Board has issued a statement on Auditing Standards (SAS) No. 115, 'Communicating Internal Control Related Matters Identified in an Audit.' SAS No. 115 supersedes SAS No.112 of the same title and was issued to eliminate differences within AICPA’s Audit and Attest Standards resulting from the issuance of Statement on Standards for Attestation Engagements (SSAE) No. 15.

  • General Ledger Reconciliation – Each month actual revenues and expenses are monitored against budgets General Ledger is reconciled by the department.
    • Actual revenues and expenses are monitored against budgets. Department reviews reports monthly for general propriety and accuracy. On comparison reports (monthly or annual), unexplained variances based on expectations (e.g. budget or prior period) are investigated to ensure accuracy.
    • Department reconciles the General Ledger for accuracy. Department verifies amounts to supporting documentation and resolves exceptions.
    • Overdraft Funds – Department reviews funds in overdraft status and takes follow-up action.
  • Distribution of Payroll Expense Reconciliation – Detailed payroll expenses are reviewed each month by the department for general propriety and to validate the accuracy of the charges. For example, departments review the accuracy of employee names and pay rates, and/or for possible other key entry errors.
  • Effort reports – Personnel Activity Reports (PARS) are certified each quarter by a responsible official with first hand knowledge of the work performed. Departments are responsible for maintaining these records in accordance with campus retention policy.
  • Physical Inventory – Physical Inventory is conducted by the department every two years. After the inventory is performed, the EQ920 is signed and returned to Equipment Management.
  • Purchase Orders and Accounts Payable Invoices – Requisitions, Purchase Orders, and Invoices are reviewed and approved at the department level. Invoices must be approved by the department responsible for the purchase.

No. These key controls are not the only controls that departments need to monitor. Other controls exist for governance and to comply with University Policy, Laws and Regulations. These are the key controls identified for the preparation of the financial statements and are subject to review under SAS 115 (formally SAS 112). Departments should not eliminate existing controls based on SAS 115 (formally SAS 112).