The City of New York Office of the Comptroller Bureau of Management Audit
Audit Report on the Borough of Manhattan Community College Auxiliary Enterprises Corporation
MG02-139A
June 21, 2002
EXECUTIVE SUMMARY
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Background
The City University of New York (CUNY) consists of 10 senior colleges,
six community colleges, one technical college, one graduate school,
one law school, an accelerated medical program, and a medical school.
The community colleges receive funding from the State and City and
most of their revenues from tuition and fees. They also receive
non-tax levy revenue from auxiliary enterprises such as food services,
bookstores, and other operations at the colleges. The Borough of
Manhattan Community College (BMCC) is one of the six community colleges
of CUNY. Its Auxiliary Enterprises Corporation, Inc., (Auxiliary)
manages its non-tax levy revenue. The Auxiliary’s day-to-day
fiscal affairs are run by the College’s fiscal office.
The Auxiliary receives non-tax levy revenue from commissions from:
payphones, photocopy machines, ice-cream vending machines, a bookstore,
and a cafeteria. It also receives revenue from facility rentals
and investment interest. For Fiscal Year 2001, the Auxiliary’s
financial statement reported revenue totaling $581,982 and expenses
totaling $779,507, resulting in a deficit of $197,525. This deficit
decreased the fund balance of $1,264,677 at the end of Fiscal Year
2000 to $1,067,152 by the end of Fiscal Year 2001.
The Auxiliary is governed by a 13-member Board of Directors consisting
of: the President of the College or designee, who serves as the
chair of the Board; four directors appointed by the President from
among the administrators of the College; two faculty members appointed
by the President from a panel of at least four teaching faculty
elected by the College’s Faculty Council; the President of
the Student Government Association; and five students who are elected
by the Student Senate.
In 1983, CUNY amended its bylaws to set up Auxiliary Enterprise
Boards such as the one established at BMCC. The Auxiliary Enterprise
Boards provide oversight in the management and monitoring of the
receipt and use of non-tax levy funds.
Objectives
The objectives of this audit were to determine whether revenues
and expenses were accurately recorded in the general ledger, whether
the internal control structure over the processing of revenues and
expenses is adequate, and whether expenses incurred by the Auxiliary
were reasonable, appropriate, and in compliance with prescribed
guidelines and bylaws.
Scope and Methodology
The scope of our audit was Fiscal Year 2001. To meet the audit
objectives, we reviewed the Auxiliary’s bylaws, procedural
manual, books, records, and accompanying data. We also interviewed
the Acting Director of Fiscal Services who is responsible for the
Auxiliary’s day-to-day operations.
To determine whether the revenue amounts were fairly stated, we
reviewed the cash receipts for the months of April, May, and June
2001. We traced the amounts in the general ledger to the cash receipts
journal, deposit slips, and bank statements. We also reviewed the
facility rental invoices and agreements for April, May, and June
2001.
To determine whether the amounts reported for expenses were fairly
stated, we reviewed the 90 cash disbursements for the months of
April, May, and June 2001. We traced the recorded amounts from the
general ledger to the cash disbursements journal, canceled checks,
and purchase requisitions.
To determine whether internal controls over the processing of revenues
and expenses were adequate, we reviewed the procedures relating
to cash receipts, cash disbursements, and payroll found in the "Fiscal
Services Department Procedural Manual for the BMCC Auxiliary Enterprises
Corporation." We performed limited tests of transactions to
determine whether responsibilities were adequately segregated, assets
were safeguarded, and the authorization and approval requirements
were met. We also reviewed purchase requisitions, and copies of
checks to make sure they had the proper authorization.
To determine whether the expenses incurred were in compliance with
prescribed guidelines and bylaws, we reviewed: CUNY "Guidelines
on the Use of Non-Tax Levy Funds," § 16.10 of the CUNY Board
of Trustees bylaws, applicable sections of the CUNY "Fiscal
Handbook for the Control and Accountability of Student Activity
Fees," and the Auxiliary bylaws.
In determining whether expenses were reasonable and appropriate,
we reviewed the purpose of each expenditure by examining purchasing
requisitions and receipts.
Results in
Brief
Based upon our review of the financial and operating practices
of the Auxiliary, we concluded that:
- There was adequate segregation of duties. The responsibilities
for the receipt and disbursement of cash and the accounting of
revenues and expenses were properly segregated.
- Transactions were posted daily to the cash receipts and disbursements
journals, monthly bank reconciliations were prepared, and monthly
financial reports summarizing the receipt and expenditure journal
entries were prepared.
- Revenues and expenses were accurately recorded in the general
ledger.
- Cash receipts were recorded and deposited daily.
- All time sheets were properly approved and all payroll checks
had the required signatures.
The Auxiliary had adequate supporting documents for most of the
90 expenditures made in April, May and June 2001, but did not document
the college-related purpose of the expenses, as required. While
most of the 90 expenditures were self-explanatory, the college-related
purpose of eight expenditures was questionable. These eight included
payments for food, dinner dances, and journal ads. In addition,
we identified some weaknesses in the Auxiliary’s internal control
structure.
The Auxiliary used a signature stamp on 76 of the 85 checks issued
during April, May, and June 2001. The use of this stamp was not
authorized by the Board and was not warranted, since the names on
the stamp were for persons who worked full time at the college.
Furthermore, we were told that the stamp was supposed to be used
only for purchases that were $2,500 or less. However, the stamp
was used for 18 (67%) of 27 checks that exceeded $2,500.
The Auxiliary has contracts with vendors who operate the cafeteria,
the ice-cream vending machines, the public phones, the photocopy
machines, and the bookstore at BMCC. During April, May, and June
2001, all of the vendors, except for the operator of the ice-cream
vending machines, made late commission payments to the Auxiliary.
Further, for those vendors whose contracts had provisions for penalties
for late payments, the Auxiliary assessed no penalties at all.
The Auxiliary also receives fees from facility rentals of BMCC
space, custodial services, and media services to companies and organizations
for conferences, social functions, and other events. In Fiscal Year
2001, the Auxiliary generated $581,982 in revenue, of which $336,589
(58%) came from facility rentals. Our review of rental documents
generated in April, May, and June 2001 showed that the Auxiliary
did not enter into license agreements for all facility rentals.
The review also showed that when license agreements were prepared,
they were not always signed by the organization renting the space
or requesting services. In addition, the Auxiliary did not always
collect full payment prior to the date of the events.
Lastly, at the end of Fiscal Year 2001, the Auxiliary had a fund
balance of more than a million dollars—$1,067,152. In that
same year, it earned $581,982 in revenue while expending $779,507.
Although the Auxiliary did decrease the fund balance by $197,507
in Fiscal Year 2001, it is still carrying a large fund balance.
The Auxiliary’s mission is to raise funds to assist in developing
the programs, resources, and facilities of BMCC to enable it to
provide more extensive educational opportunities and services. By
maintaining a large surplus of funds, the Auxiliary’s efforts
to achieve that mission are limited.
Recommendations
This audit makes eight recommendations, all of which are listed
below. The Auxiliary Board of Directors should:
- Require that all expenditures have adequate supporting documentation,
including the educational or college-related purpose of the expenditure.
- Discontinue the use of the signature stamp and require that
all checks have handwritten signatures.
- Enforce compliance with the terms and conditions that are stated
in its contracts with vendors. The Auxiliary should make greater
efforts to collect all revenues when they are due, and assess
penalties when appropriate.
- Assess and collect the penalty fees currently owed by the vendors
operating the photocopy machines and bookstore.
- Consider adding a penalty clause for late payments in its next
renewal contract with the operator of the public phones.
- Require that license agreements be prepared, properly signed
and approved, and maintained for all facility rental events.
- Require that all payments for facility rentals be collected
prior to the event, whenever possible.
- Reduce the Auxiliary’s fund balance by identifying areas
or programs that need additional resources.
BMCC Response
The matters covered in this report were discussed with officials
from BMCC during and at the conclusion of this audit. A preliminary
draft report was sent to the BMCC officials and was discussed at
an exit conference on May 21, 2002. On May 30, 2002, we submitted
a draft report to BMCC officials with a request for comments. We
received a written response from BMCC officials on June 12, 2002.
Overall, BMCC agreed with the recommendations except for recommendation
#8.
