Audit Report on the Borough of Manhattan Community College Auxiliary Enterprises Corporation

EXECUTIVE SUMMARY

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.

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.

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.

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 requiredsignatures.

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.

This audit makes eight recommendations, all of which are listed below. The Auxiliary Board of Directors should:

1. Require that all expenditures have adequate supporting documentation, including the educational or college-related purpose of the expenditure.
2. Discontinue the use of the signature stamp and require that all checks have handwritten signatures.
3. 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.
4. Assess and collect the penalty fees currently owed by the vendors operating the photocopy machines and bookstore.
5. Consider adding a penalty clause for late payments in its next renewal contract with the operator of the public phones.
6. Require that license agreements be prepared, properly signed and approved, and maintained for all facility rental events.
7. Require that all payments for facility rentals be collected prior to the event, whenever possible.
8. Reduce the Auxiliary’s fund balance by identifying areas or programs that need additional resources.

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.