Group Title: impact analysis of audit reports of selected Florida public community colleges /
Title: An Impact analysis of audit reports of selected Florida public community colleges /
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Title: An Impact analysis of audit reports of selected Florida public community colleges /
Physical Description: x, 187 leaves : ; 28 cm.
Language: English
Creator: Andress, Herman Roy, 1929-
Publication Date: 1976
Copyright Date: 1976
 Subjects
Subject: Auditing   ( lcsh )
Community colleges -- Accounting -- Florida   ( lcsh )
Educational Administration and Supervision thesis Ph. D   ( lcsh )
Dissertations, Academic -- Educational Administration and Supervision -- UF   ( lcsh )
Genre: bibliography   ( marcgt )
non-fiction   ( marcgt )
 Notes
Thesis: Thesis--University of Florida.
Bibliography: Bibliography: leaves 180-185.
Statement of Responsibility: by Herman Roy Andress.
General Note: Typescript.
General Note: Vita.
 Record Information
Bibliographic ID: UF00098289
Volume ID: VID00001
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: alephbibnum - 000176215
oclc - 03061863
notis - AAU2694

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AN IMPACT ANALYSIS OF AUDIT REPORTS
OF SELECTED FLORIDA PUBLIC
COMMUNITY COLLEGES












By

HERMAN ROY ANDRESS


A DISSERTATION PRESENTED TO TIE GRADUATE COUNCIL OF
THE UNIVERSITY OF FLORIDA IN PARTIAL
FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF
DOCTOR OF PHILOSOPHY




UNIVERSITY OF FLORIDA
1976

















ACKNOWLEDGMENTS


The writer wishes to express sincere appreciation to

the many persons whose cooperation and assistance made

this research possible. He is especially grateful for the

skilled guidance given by Dr. James L. Wattenbarger, the

chairman of his advisory committee. The helpful contribu-

tions of the other committee members, Dr. Ralph B. Kim-

brough and Dr. Jordan B. Ray, are also deeply appreciated.

To the Florida public community college chief busi-

ness officers whose participation made this study a

reality, goes a special thank you.

Others who deserve thanks for their contributions are

Mr. Alan J. Robertson, Mr. Joseph E. Dougheny, Mr. Thomas

M. Baker, and Mr. Leo T. Hury.

No words of thanks can display the gratitude the

writer feels for his wife, Cecilia, for her encouragement,

assistance, and devoted love.


















TABLE OF CONTENTS

Page

ACKNOWLEDGMENTS ...... . . . . . ii

LIST OF TABLES. . . . . . . . . .. v

LIST OF FIGURES . . . . . . . . . vi

ABSTRACT. . . . . . . . . ... . . vii

CHAPTER

I INTRODUCTION. . . . ... . . . 1
Statement of the Problem . . . . 4
Delimitations. . . . . . . . 5
Limitations. . . . . . . . 6
Definitions of Terms . . . . . 6
Procedures . . . . . . .. 10
Selection of Participating Colleges . 11
Obtaining Audit Reports . . . .. 11
On Campus Interviews. . . . .. 12
Treatment of Data Gathered. . . .. 13

IT REVIEW OF THE RELATED LITERATURE. . . .. 15
The Audit. .. . . . . . . . 16
The Audit Report . . . . . . 19
The Business Officer . . . . . 20
Financial Accounting . . . . .. 25
Accountability . . . . . . .. 27
The Nature of Change and the External
Change Agent . . . . . . .. 29
Conflict as a Result of Change . . .. 31
Generalizations. . . . . . .. 33

III THE AUDITING PROCESS AS IT RELATES TO GENERAL
SYSTEMS THEORY. . . . . . . .. 35













TABLE OF CONTENTS (Continued)


CHAPTER Page

IV DATA OBTAINED FROM THE EXAMINATION OF AUDIT
REPORTS. . . . . . . . . ... .. 45
Audit Report Classification of Adverse
Comments. . . . . . . . . . 46
Standard Audit Comment Classification of
Adverse Comments. . . . . . . .. 49
Classification of Responses to the Adverse
Comments. . . . . . . . . .. 52
Summary . . . . . . . . ... 57

V INTERVIEW RESPONSES OF THE COMMUNITY COLLEGE
BUSINESS OFFICERS. . . . . . . .. 60
Changes in Accounting Procedures. . . .. 61
Changes in Business Office Organization
Structure . . . . . . . . .. 63
Changes in Business Office Job Descriptions 65
Increased Business Office Efficiency. ... . 67
Audit Reports as a Tool of Management . 70
Audit Reports as Effective External Change
Agents for Business Office Accounting
Procedures. . . . . . . . .. 72
Future Audits . . . . . . .... 75
Relationship Between Adverse Comments and the
Change Process. . . . . . . .. 78
Summary . . . . . . . . .. 81

VI CONCLUSIONS, IMPLICATIONS, AND SUGGESTIONS FOR
FURTHER STUDY. . . . . . . . .. 84
Conclusions . . . . . . ... 84
Implications. . . . . . . . .. 89
Suggestions for Further Study . . . .. 92

APPENDICES

A INTERVIEW GUIDE USED FOR ON CAMPUS INTERVIEWS
WITH CHIEF BUSINESS OFFICERS . . . . .. 94

B ADVERSE COMMENTS FROM THE NINE AUDIT REPORTS .. 96

REFERENCES . . . . . . . . ... . . 180

BIOGRAPHICAL SKETCH. . . . . . . . . ... 186

















LIST OF TABLES


Table Page

4.1 Distribution of Adverse Comments According to
Audit Report Classification. . . . . ... 47

4.2 Distribution of Adverse Comments According to
Standardized Audit Comments. . . . . ... 50

4.3 Distribution of Responses to the Adverse
Comments . . . . . . . . ... . 53

5.1 Responses of Chief Business Officers Concerning
Changes in Accounting Procedures as a Result of
1973-1974 Audit Reports. . . ... . . 62

5.2 Responses of Chief Business Officers Concerning
Changes in Business Office Organization Struc-
ture as a Result of 1973-1974 Audit Reports. .. 64

5.3 Responses of Chief Business Officers Concerning
Changes in Business Office Job Descriptions as
a Result of 1973-1974 Audit Reports. . . .. 66

5.4 Responses of Chief Business Officers Concerning
More Efficient Functioning of Their Business
Offices as a Result of 1973-1974 Audit Reports 68

5.5 Responses of Chief Business Officers Concerning
Top-Level Administrators' Use of Audit Reports as
a Tool of Management . . . . . ... 71

5.6 Responses of Chief Business Officers Concerning
the Effectiveness of Audit Reports as External
Change Agents. . . . . . . .. 73

5.7 Distribution of Adverse Comments and Their
Tendency to Influence Change . . . . .. 79
















LIST OF FIGURES

Figure Page

3.1 Basic Control Cycle . . . . . .. 37

3.2 Auditing Process. . . . . . . ... 37

3.3 Feedback Loop in a System . . . . .. 42

3.4 Feedback Loop in a Business Office. ... . 42









Abstract of Dissertation Presented to the Graduate Council
of the University of Florida in Partial Fulfillment of the
Requirements for the Degree of Doctor of Philosophy

AN IMPACT ANALYSIS OF AUDIT REPORTS OF SELECTED
FLORIDA PUBLIC COMMUNITY COLLEGES

By

Herman Roy Andress

December, 1976

Chairman: James L. Wattenbarger
Major Department: Educational Administration & Supervision

The purpose of this study was to determine whether the

1973-1974 audits of the Auditor General of selected Florida

public community college business offices were effective as

(1) external change agents for business office operations

and (2) tools of management used to minimize conflict re-

sulting from change.

One institu ion was selected at random from each of the

nine audit divisions for public community colleges, and

through the cooperation of the Bureau of Fiscal Administra-

tion, Division of Community Colleges, Tallahassee, Florida,

and the Auditor General's office, Gainesville, Florida,

copies of the 1973-1974 audit reports were obtained. An

examination of the adverse comments found in the audit re-

ports was then made, and these comments were grouped accord-

ing to subheadings found in each of the audit reports.










The intent of the examination of audit report comments

was to measure the effectiveness of audit reports as an ex-

ternal change agent for business office accounting procedures;

to determine the nature of the adverse findings; and to iden-

tify the area of responsibility within the business office

in which the discrepancies occurred.

Audit reports show each adverse comment classified ac-

cording to one of twelve standard subheadings. Those com-

ments classified under the subheading of Expenditures

comprised 21% of the total discrepancies, followed by those

under Auxiliary Fund with 16%. No adverse findings were

made in the Debt Service Fund classification, and those

classified under Budgets account for only 1% of the total.

Other concepts of interest were disclosed by additional

analysis. One college's audit report revealed that 38% of

its discrepancies were classified as Expenditures, while

only 6% of another college's discrepancies were found in

this classification. One college was responsible for 20%

of the total adverse comments, and another college was re-

sponsible for only 4% of the total.

The adverse findings were also classified according to

standard audit comments, as found in The Audit Program, a

handbook used by the auditors. Adverse comments classified


viii











as violations of Procedures, Policies, and Internal Control

comprised 55% of the total. Violations of Rules of the

State Board of Education are second at 15% of the total,

while violations of American Council on Education recommenda-

tions and violations of College and University Business Ad-

ministration recommendations each contributed only 1% to

the total.

A classification of responses to the adverse comments

by the nine college presidents revealed that 57% of the

total adverse comments were responsible for changes in busi-

ness office operations. Another 12% of the comments re-

sulted in partial changes, making a total of 69% of all

adverse comments which brought about changes or partial

changes.

After examination of the audit reports, in-depth

interviews were conducted with the chief business officers

of the nine selected colleges. An interview guide was

developed to assist in measuring the extent of changes

resulting from the audit reports in the following areas:

business office accounting procedures; organization and

structure of the business office; job descriptions; and

business office efficiency. In addition, the chief business











officers were asked to indicate whether the presidents and

other top-level administrators of their colleges responded

to the audit reports by the use of audit reports as tools

of management.

The findings showed that five of the nine business

officers were of the opinion that audit reports were a

stimulus for change in business office accounting procedures.

Only one of the nine business offices had a change in its

organization structure and only two had job description

changes. Three of the nine reported increased efficiency

in business office operations, and three replied that their

top-level administrators view audit reports as effective

tools of management.















CHAPTER I

INTRODUCTION




The intent of this study was to determine whether the

1973-1974 audits of the Auditor General of selected Florida

public community college business offices were effective as

(1) external change agents for business office accounting

procedures and (2) tools of management used to minimize con-

flict resulting from change. In accomplishing this task, it

is hoped that the results of the research will serve as a

common denominator not only for those now in positions of

chief business officers, but also for future business offi-

cers and their staffs. A study that brings together common

audit discrepancies and subsequent changes in accounting

procedures may provide some insight into ways in which all

Florida public community colleges might improve their

future audit reports.

Legislative mandate requires that Florida's 28 public

community colleges submit to a biennial compliance audit

conducted by the Office of the Auditor General of the










State of Florida. If one views the network of Florida's

community colleges as a system, then the audit can be con-

sidered a process of control aimed at assuring that the

business activities of the individual colleges--or subsys-

tems--are being administered as prescribed by the Division

of Community Colleges--a suprasystem.

Where the performance of the individual college is in

accordance with the Accounting Manual for Florida's Public

Junior Colleges, 1968, it can be said that this subsystem

is in equilibrium with the suprasystem. Where it is not,

there is a disequilibrium and conflict.

If there is conflict, there are pressures for change.

Gibson, Ivancevich, and Donnelly (1973) classified these

forces into two groups, external and internal. Bennis

(1966) has stated that significant change depends on the

impetus generated by an external agent. It is argued that

"only a skilled outsider-consultant can provide the per-

spective, detachment, and energy so necessary to affect a

true alteration of existing patterns" (pp. 114-115).

Was the 1973-1974 audit such a change agent? Did it

serve to resolve conflict and establish equilibrium among

selected subsystems of the Division of Community Colleges?










If not, what prevented the changes recommended by the vari-

ous audit reports? Answers to these questions can be found

in later chapters of this study.

A community college business office is unique in that

it differs significantly from both a public school business

office and a university business office. Being a political

subdivision of the State of Florida, the community college

differs in basic philosophy and role and scope from those

of other state supported educational institutions. Business

offices in the private sector are only remotely comparable

to the community college business office.

The researcher's interest in this study is a result of

having been employed for a period of eight months as an

accountant in a Florida public community college business

office. Additionally, to the best of the researcher's

knowledge, this is the first attempt to research Florida

public community college audit reports, and thus contributes

to the knowledge and literature on the subject.

The research in this study involves an analysis of

selected adverse comments listed in the audit reports of

the participating colleges. Responses to these comments

by the presidents of the colleges clearly indicate what










changes in business office accounting procedures, if any,

were made subsequent to the audits. In addition, personal

interviews were made w th each of the chief business offi-

cers in order to acquire further insight into the effective-

ness of the audit as an external change agent. The personal

interview also helped significantly in determining how the

audit report is used as a tool of management to (1) effect

change, (2) reduce conflict, (3) eliminate disequilibrium,

and (4) improve future audit reports.


Statement of the Problem

The focus of this investigation was to identify changes

which have taken place in selected Florida public community

college business offices subsequent to the 1973-1974 audit

examinations conducted by the Office of the Auditor General.

Specifically, answers to the following questions were sought:

1. What changes in business office accounting pro-

cedures were a direct result of the 1973-1974

audit reports?

2. What changes in business office organization

structures were a direct result of the 1973-

1974 audit reports?











3. What changes in business office job descriptions

were a direct result of the 1973-1974 audit reports?

4. Do these business offices function in a more effi-

cient manner as a result of the 1973-1974 audit

reports?

5. Do top-level administrators at these colleges view

audit reports as effective tools of management?

6. Do the chief business officers at these colleges

view audit reports as effective external change

agents for business office accounting procedures?


Delimitations

This study was confined as follows:

(a) One public community college was selected at

random from each of the nine audit divisions

within the State of Florida.

(b) Information was gathered from a review of the

nine 1973-1974 audit reports on file in the

offices of the Division of Community Colleges,

Department of Education, Tallahassee.

(c) Information was gathered from personal interviews

with the nine chief business officers by use of

a structured interview guide.











Limitations

This study, being ex post facto in design, is limited

because a specific cause and effect relationship cannot be

shown. It is also limited in the number of colleges and in-

dividuals participating and, thus, generalization beyond

these participants is speculative.

Because nine different audit divisions are involved,

nine different audit teams have prepared the audit reports.

This may in fact be a weakness in that uniformity is not

insured, but it could also be considered a strength in that

breadth of scope of perception is assured.


Definitions of Terms

Accounting procedures. Those designed to fulfill the

requirements of generally accepted governmental accounting

principles and practices and good internal control and in

keeping with generally accepted accounting forms, accounts,

records, methods, and practices relating to colleges and

universities.

Audit. The examination of documents, records, reports,

systems of internal control, accounting procedures, and

other information to determine the propriety, legality, and

arithematical accuracy of transactions to ascertain whether











all transactions have been recorded and to determine whether

transactions are accurately reflected in the accounts and

in the financial statements drawn from them in accordance

with generally accepted accounting principles.

Balance sheet. A statement showing the financial posi-

tion of an institution at a given time, disclosing assets,

liabilities, and fund balances. In college accounting the

balance sheet should set forth the assets, liabilities,

and fund balances of each fund group in balanced sections.

Budget. A statement of proposed expenditures for a

fixed period or for a specific project, or program, and the

proposed means of financing the expenditures. When approved

by the proper authorities, budgets are authorizations to

incur the expenditures and to collect and apply the revenues

as set forth therein.

Change. A difference in the administration of finan-

cial operations of the college as prescribed by the Rules

of the State Board of Education and the Accounting Manual

for Florida's Public Junior Colleges, 1968.

Chief business officer. The college official who is

directly responsible for the financial operations, budget,

physical plant, nonacademic personnel, purchasing,










auxiliary enterprises, and other functions as determined by

his job description.

Compliance audit. An audit with findings and recommen-

dations limited to comments on the compliance with applicable

laws and regulations, verification of assets, errors in

accounting, and whether major policies and procedures are

controlled by the Board of Trustees.

Conflict. Sharp disagreement or opposition, as of the

vested interests and ideas of chief business officers and

Legislative auditors.

Current funds. Funds expendable for current operating

purposes, either unrestricted or restricted. This term is

not synonymous with current assets as used in commercial

accounting.

Disbursements. Payments in cash. In institutional

accounting it refers primarily to deductions from the

balances of the funds and all fund groups except the

current fund group, where the term expenditures is used.

Educational audit. An institutional objectives ap-

proach to management by objectives by means of statistical

reporting of measurable output and cost figures for

courses and programs.











Encumbrances. Obligations incurred in the form of

orders, contracts, and similar items that will become

payable when goods are delivered or services rendered.

Feedback. Information concerning the outputs or the

process of the system, which could lead to changes in the

process and/or future outputs.

Independent audit. An audit performed by an independ-

ent auditor, in contrast to an audit performed by an internal

auditor on the institution's staff.

Operational audit. A systematic review of and evalu-

ation of an organization, or subunit thereof, made with the

purpose of determining whether the organization is operating

efficiently. It is, in effect, an organized research for

efficiency-related problems within the organization, from

the viewpoint and perspectives of management.

Plant. The physical property owned by an institution

and used for institutional purposes, i.e., land, buildings,

improvements other than buildings, and equipment.

Political subdivision. A separate agency or unit of

local government created or established by law.

Public community college. An institution supported by

public funds and governed by a publicly appointed board,











which offers courses and/or programs limited to the first

two (2) years of postsecondary education in at least two

of the following areas: transfer, occupational-technical,

and community service.

Restricted current funds. Funds expendable for

operating purposes but restricted by an outside agency

or person as to use.

Standard. A desired level of performance.

State agency. A separate agency or unit of state

government created or established by law.

System. A complex of elements in mutual interaction,

e.g., the Florida system of public community colleges.

Unexpended plant funds. Funds specified by external

sources or designated by governing boards for the acqui-

sition or construction of physical properties to be used

for institutional purposes.



Procedures

The procedures section is divided into subsections

describing (1) the selection of the participating Florida

public community colleges, (2) obtaining and examining

audit reports, (3) on campus interviews with chief business

officers, and (4) treatment of data gathered from











examinations of audit reports and from interviews with

chief business officers.


Selection of Participating Colleges

One institution was selected at random from each of

the nine audit divisions for public community colleges

within the State of Florida, and a letter was mailed to

each of their chief business officers asking for coopera-

tion in making this study possible. If for any reason a

college was unable to participate, another within the same

audit division was selected at random.


Obtaining Audit Reports

Audit reports for all Florida public community colleges

are on file at the Department of Education, State of Florida,

Tallahassee. The researcher communicated with Thomas M.

Baker, Chief, Bureau of Fiscal Administration, and Kenneth C.

Jarrett, Consultant, Fiscal Affairs, and both agreed to

assist in any way possible. During examination of the audit

reports of the nine participating colleges, adverse comments

by the auditors were noted, plus other unusual and/or sig-

nificant comments which, in the researcher's opinion, could

enhance the value of the study. Adverse comments are

grouped under each of the following headings:











Fiscal Management

Budgets

Revenue

Expenditures

Educational and General Funds

Auxiliary Fund

Loan Fund

Scholarship and Endowment Fund

Agency Fund

Unexpended Plant Fund

Debt Service Fund

Invested in Plant Fund


On Campus Interviews

After examining the audit reports the researcher

visited the campuses of each of the nine colleges for an

in-depth interview with each of the nine chief business

officers. An interview guide (Appendix A) was developed

specifically to obtain information in the following cate-

gories:

1. Changes in business office accounting procedures

which have taken place subsequent to the 1973-

1974 audit reports.










2. Changes in accounting procedures, which in the

opinion of each of the chief business officers,

were a direct result of the 1973-74 audit reports.

3. The perceived influence of audit reports as:

(a) External change agents.

(b) Tools of management.

4. Ways in which future audit reports can better

serve Florida's public community colleges.


Treatment of Data Gathered

The analysis of data gathered from an examination of

the nine audit reports has been interpreted in such a way

as to arrive at the most frequently identified adverse

comments under each major heading. Responses from inter-

views with the nine chief business officers have been

segregated according to the manner in which each chief

business officer reacted to the list of preliminary and

tentative adverse audit findings submitted to the presi-

dents of the nine participating colleges by the Auditor

General subsequent to the 1973-1974 audit. Further analy-

sis of data includes changes in business office accounting

procedures subsequent to the audit reports and the relation-

ship, if any, of the changes with the reports. The






14




significance of the audit report as an external change

agent and as a tool of management has been evaluated at

this point, followed by suggestions as to how future audits

can better serve the community college system.

Neither the names of the participating colleges nor

their chief business officers will be revealed in this

study.

















CHAPTER II

REVIEW OF THE RELATED LITERATURE


A review of the literature contained herein will con-

centrate on audits of college and university business

offices, but will not be limited to the audit itself. In

order to develop a thorough understanding of the audit,

further emphasis must be placed on the total function of

the business office and its relationship to the audit as

an external change agent and as a tool of management. The

topical outline is organized as follows:

1. The Audit

2. The Audit Report

3. The Chief Business Officer

4. Financial Accounting

5. Accountability

6. The Nature of Change and the External Change Agent

7. Conflict as a Result of External Change










The Audit

In determining the relationship of accounting pro-

cedures and external audits, a workable definition of the

audit must be presented. McMickle and Elrod (1974) wrote

Auditing is an analytical processs consisting of
preparation, conduct (examination and evaluation),
reporting (communication), and settlement. The
basic elements of this process are: an independent,
competent, and professional auditor who executes
the process upon an auditee for an audit recipient.
The scope or area of concern can involve matters
of the following nature: financial (accounting
error, fraud, financial controls, fairness of
financial statements, etc.), and/or compliance
(faithful adherence to administrative and legal
requirements, policies, regulations, etc.), and/or
performance (economy, efficiency, and/or effective-
ness of operational controls, management information
systems, programs, etc.). The objective or purpose
of auditing can be some combination of accountabil-
ity and management control. (p. 34)

Most definitions of auditing attempt to provide an-

swers to four frequently asked questions: Why, What, Who,

and How? Every auditor, auditee, and audit recipient

should know the answers to these questions.

In describing the audit, Russell (1967) wrote

The primary purpose of the audit is to provide as-
surance to those responsible for the ultimate control
of the institution that the finances have been han-
dled exactly as reflected in the accounts and reports.
To this end not only should the audit test the ac-
curacy of the bookkeeping itself but it should deter-
mine whether all income received was actually entered
in the accounts, whether all the expenditures recorded
were actually made after being duly authorized,










whether the liabilities are completely and correctly
indicated. (pp. 108-109)

Auditing, as it is known today, is not the same as it

was 500 years ago, or even 20 years ago. The evolution of

auditing has accelerated rapidly during the last century.

Prior to 1900 auditing was concerned principally with de-

tection of fraud, but in the 20th century the direction of

auditing has turned toward a new goal of determining whether

financial statements give a fair picture of financial posi-

tion, operating results, and changes in financial position

(Meigs, Larsen, & Meigs, 1973).

In discussing the evolution of the audit, Brown (1905)

wrote

The origin of the audit goes back as far as 2,000
B.C., when the Egyptians employed a type of checking
process. Money was unknown at that time and a barter
economy existed. This system necessitated a large
number of government storehouses for the keeping of
the royal treasury. Shipments in and out of the
storehouses were carefully controlled. For example,
when grain was to be carried to a storehouse, each
sack was filled in the sight of an overseer; and noted
and recorded by a scribe. When the grain was delivered
to the storehouse, a scribe stationed there recorded
the amount received. Thus, the activities of one man
were checked--and, in a sense audited--by another.
(p. 74)

An audit can be used in any manner the auditee wishes.

Furthermore, an audit need include only those parts of the











accounting system that management wishes to have in-

spected. For example, only revenue and expenditure items

can be checked and verified. In another situation only

liabilities could be tested. A college business officer

may want to make the audit part of his closing procedure

at the end of the fiscal period. Many would question

whether the audit should serve as a bookkeeping function.

Jordan (1969), addressing himself to the topic of audits

wrote, "When the audit is conducted by representatives

of a state agency, the nature of the audit will be

determined by that agency" (p. 157). In summarizing

audits, Russell (1967) wrote

Whatever else the audit does, it must present a
truthful picture of the financial situation of the
institution. An audit without this basic quality
of truthfulness is worse than useless; it is
positively dangerous. Unfortunately, even a
certified public accountant has been known to
be induced to present an untruthful audit. Any
officer of the college who stoops to bring pres-
sure in this direction, even if he believes that
for the moment such an action is in the best in-
terests of the institution, is guilty of a serious
breach of the faith that has been reposed in him
by the constituency. Such an action is almost
certain not to prove of ultimate benefit to the
institution, for in the long run nothing is
gained by attempting to concel the true financial
situation of the institution from those responsible
for its control and maintenance. (p. 113)









The Audit Report

Upon completion of the audit examination an auditor

writes a report stating the results of the examination.

The audit report has been described by Silvoso and Bauer

(1965) as follows:

Normally all of the audit procedures undertaken in a
particular engagement are designed to enable an audi-
tor to express his opinion concerning the financial
statements under examination. Thus, the report of
the auditor is the focal point of audit procedures.
It is the major public evidence of the services per-
formed by the public accounting profession and is
relied upon whenever business decisions are based on
financial statements. Therefore, it is evident that
the report must be clear, concise, and reliable. Im-
portant qualifying or explanatory material must be
stated in a manner that creates the clearest Dossible
understanding in regard to the financial status and
results of operations of the entity under examination.
Any omission or deviation from generally accepted
auditing standards must be indicated in the report.
(p. 4)

The form of the audit report issued by the Office of

the Auditor General upon examination of accounts and records

in a Florida public community college business office will

not be exactly the same as the audit report submitted to

a commercial enterprise by an independent auditor. How-

ever, the essence of the audit report, the expression as to

whether the statements fairly present what they purport

to present, should be the same regardless of whether the

audit deals with a public or a private institution.










Brasseaux and Miles (1972), in discussing the audit

report, wrote

The auditor's report is the culmination of the audit.
It is the most critical part of the audit process for
it is the visible representation on which outsiders
will rely. Thus, the report must convey clearly the
scope of the work done and the responsibility assumed
by the auditor regarding the fairness of financial
statements. Each audit involves gathering evidence
about the client's financial statements through what-
ever means the auditor deems appropriate or necessary.
Once the evidence has been assembled, the auditor
must sift and weigh that evidence with professional
care. He must bring to bear his professional judge-
ment and experience to draw the appropriate conclu-
sions from the evidence he has accumulated. This
complex decision-making process carries a very high
degree of responsibility. (p. 3)

The auditor then communicates with the auditee and

the audit recipient by means of the audit report. In the

case of the Florida public community college, the auditor

also communicates with taxpayers and various elected and

appointed state officials.


The Business Officer

The person in whose hands can be found primary respon-

sibility for overall financial operation of the college is

the chief business officer. Although the president is

charged with total responsibility for the college, he

(president) will normally know little of such a technique

as accounting, and will not interfere with an expert in

this line.










The 1969-1970 fiscal year was the first that Florida's

public community colleges were audited as an entity separate

from the public schools. This resulted from the 1968 law

which established separate community college districts.

The Florida public community college business office has

been in existence only briefly when compared to the public

schools and universities. The Florida public community

college business officer has had a relatively short period

of time in which to learn the peculiarities of his duties

and responsibilities.

The actual functions normally assigned to a Florida

public community college chief business officer may vary

through the state due to location and enrollment size,

but chief business officers would be expected to carry out

most of the following duties:

1. Financial accounting

2. Assistance in the preparation of the annual budget

3. Internal auditing

4. Property control

5. Preparation of financial reports

6. Expenditure of college funds

7. Collection of revenues










8. Financial relations with students

9. Management of investments

10. Purchasing

11. Employment of career service personnel

12. Management of auxiliary services

13. Supervision of the physical plant

The list of essential and desirable characteristics of

a chief business officer could be quite extensive. Accord-

ing to the American Council on Education (1973) the prin-

cipal qualifications needed by a college business officer

are as follows:

In addition to special training, a position of re-
sponsibility in college and university business
management calls for certain personal qualities.
Among these, honesty and integrity are, of course,
first. In close succession follow the qualities of
tact, ability to cooperate, congeniality, and busi-
ness judgement. There must then be added the essen-
tial qualities of untiring industry, initiative, and
resourcefulness. An institutional business officer
has contacts with a wide variety of persons. He is
in contact with the members of the academic organiza-
tion, with boards of trustees made up chiefly of busi-
ness and professional men, with business concerns,
students, and alumni. If he is in a public institu-
tion he must have contact with members of the state
legislature and with state and federal officers.
A wide variety of problems and personalities present
themselves in rapid succession. (p. 10)











The rapid growth of Florida public community col-

leges has created a need for specialists within the

business office. The management and administration of

the various categories of responsibility make proper

training of the chief business officer more important

than ever before. College and University Business Ad-

ministration (1968) stated

The chief business officer cannot be a specialist
in all the operations for which he is responsible.
He must be aided by staff members with profes-
sional training and experience in the various
divisions into which the business and financial
operations of the institution are organized.
The main divisions of such operations are charac-
teristic of all educational institutions regard-
less of size and the complexity of their objectives,
programs, and organization. (p. 12)

The development of advanced office systems technology

has allowed the business office to assume many new roles.

Elmore (1970) wrote

Few can argue with the fact that the business office
today is the chief source of fiscal advice not on]
to the president, but also to the go'.: :i
We have graduated from bookkeepers to mi; .:.:; with,
in most cases, responsibilities and opportunities
for service broader in scope than our brothers in
business. Centralized purchasing and personnel
departments are coping with a volume of state and
federal regulations that stagger the imagination.










Sophisticated boards and legislatures are demanding
modern systems and business programs, including
planned program budgeting and planning models.
The role of our institutions in educating vast
numbers of students, in community affairs, and in
research, has forced the business office to employ
the most up-to-date advances in the areas of computers
and business equipment. Our physical plant, with its
laboratories, air conditioning, and problems connected
with vehicle parking, traffic control and power dis-
tribution requires the highest managerial and en-
gineering skills. Finally, and of greatest importance,
the business office has the responsibility for creating
an economic climate and a service organization that
will assist the institution in the fulfillment of its
academic goals. (pp. 3-4)

Scheps and Davidson (1971) concurred in stating

The internal organization of the business office has
a direct bearing on the adequacy of the accounting
system. An accounting system however scientific does
not operate itself. Accounting personnel however
competent and well trained cannot operate at peak
efficiency without carefully planned internal organi-
zation which clearly fixes responsibilities, eliminates
duplications, and avoids vacuums in the operations of
the business office. (p. 25)

As Florida public community college business offices

grow in size and complexity, so does the importance of the

biennial audit by the Office of the Auditor General as a

means of insuring adherence to the Accounting Manual for

Florida's Public Junior Colleges.










Financial Accounting

The preparation of the annual financial report is the

responsibility of the chief business officer. The report

ordinarily includes the balance sheet, statement of changes

in fund balances by fund groups, and the statement of cur-

rent funds revenues, expenditures, and transfers. The

report may also include other schedules which supplement

the three primary statements.

In defining financial reports, College and University

Business Administration (1968) states

The financial report of a college or university is
a summary of financial information covering the
operation of the institution for a period of time
and showing its financial position at the end of
that period. Colleges and universities are the
recipients of a variety of kinds of revenues: those
that may be expended for general institutional opera-
tions; gifts, appropriations, endowment funds income,
and other revenues that must be expended only for
restricted current purposes; and funds that must be
kept intact and invested, with only the income avail-
able for expenditures. Educational institutions
function as owners, operators, and trustees. Their
financial reports, therefore, must deal not only
with receipts and disbursements of other fund groups
and with the principal and balances of funds. (p. 16)

There can be no questioning the fact that financial

accounting as it is practiced in colleges and universities

is a highly specialized area of endeavor. Chambers (1968),

in discussing college and university accounting, wrote










Accounting is an exacting profession. Mastery of its
technicalities requires years of study and practice.
College and university accounting is a specialized
branch, or might perhaps better be called a separate
profession. This is because the main body of account-
ing knowledge and techniques has been developed for
use in business wherein the dollar profits or losses
usually quickly determine the fate of the enterprise;
whereas in higher education nearly all the institu-
tions are either public or private corporations, in
whose operation monetary gains to private individuals
are interdicted. (p. 49)

The chief business officer must see to it that the

accounting system of the institution is adequate. Watten-

barger (1972) wrote, "the development of soundly based

record keeping systems is essential. When the chief fiscal

officer learns to carry out this responsibility with a

high degree of skill, he will make his most important con-

tribution" (p. 284). In carrying out this responsibility

the requisites of the accounting system must be considered.

In this regard, Russell (1967) stated, "Three general charac-

teristics are requisite to a satisfactory accounting system:

(1) the system must safeguard the funds of the institution;

(2) it must yield the information that is necessary for

administrative control; (3) it must be as simple as pos-

sible" (p. 50).

A satisfactory accounting system is necessary to achieve

many desirable goals. Miller, Madden, and Kincheloe (1972)

wrote











Accurate accounts serve several purposes: (1) They
represent a prudent control upon public funds. Such
accounts, accurately audited periodically, give as-
surance that public servants handling the funds have
done so honestly in accordance with the will of the
people and the laws of the state. (2) They also
serve as a protection to the custodian of funds, for
he has objective proof of his faithful performance
whenever he may be challenged. (3) Such accounts
provide the basis for reporting to the public on the
condition of the schools and their needs. They pro-
vide the basis for filling out reports to the state
or to federal agencies entitled to such information.
(4) Accurate accounts provide the basis for analyzing
the business practice with an eye to making improve-
ments in it. (p. 319)


Accountability

The audit and the audit report are parts of the total

system of accountability. In attempting to arrive at a

workable definition of accountability, Kohler (1970) stated

The obligation of evidencing good management, con-
trol, or other performance imposed by law, agreement,
or regulation, as on corporate executives, trustees,
public officials, and other persons controlling the
financial policy of an organization or the deposit,
investment, or disposition of funds. In the interest
of maintaining good human relations and earning pub-
lic confidence, many persons in positions of respon-
sibility voluntarily explain their conduct of affairs
to others interested and to the public generally,
this practice often acquiring the force of custom.
(p. 6)

Public confidence in public education is a matter of

increasing importance to educators. Administrators should

welcome the opportunity to undergo an external audit. The











audit should not be considered a weapon to be used by per-

sons or agencies who seek to damage an institution of higher

education. The audit serves a useful purpose; it is a tool

of management which can be used for the good of the insti-

tution. Audits and accountability are characteristic of

the society in which we live. Roueche, Baker, and Brownell

(1971) stated, "accountability is nothing more than a com-

monly accepted ethic that we expect from other professions

and enforce by regulations in many segments of our society.

Education's acquired right to control the processes of our

schools rests upon a willingness to meet the needs of public

clients" (p. 6).

If educators are willing to look upon accountability

as an opportunity to restore public confidence in education,

the true purpose of audits can thus be realized. Roueche

et al. (1971) further stated "accountability implies that

two-year colleges must be accountable externally to the

community" (p. 8). Allen (1972) observed "the people have

a right to be assured that . increasingly large invest-

ments in public education . will produce results" (pp.

3-4). Lessinger (1972) stated "the American education sys-

tem today is experiencing the most sustained, diverse,











widespread, and persistent challenge ever to confront it.

Virtually everyone agrees that something has gone wrong,

that corrective action is needed" (p. 4).

The corrective action to which Lessinger alludes can

be benefited greatly by a proper acceptance of external

audits and the concept of accountability.


The Nature of Change and the
External Change Agent

Change is essential if one is to plan for the future.

Yet, one cannot completely predict the future of an organ-

ization by knowing its present state because [most] organ-

izations are open systems and therefore are continually

influenced by--and are in turn influencing--their environ-

ment (Bertalanffy, 1962).

Pressures for change affect people and the organiza-

tions in which they work. These pressures can create

problems, which,unless resolved, can bring about chaos and

confusion--because change requires adjustments to be made

if needs are to be met (Morphet et al., 1959).

Major obstacles to change include the habits, atti-

tudes, precedents, and belief systems of people, and as Gard-

ner (1963) wrote, "they are among the most powerful forces











producing rigidity [in organizations] and diminishing

capacity for change . these are the diseases of which

organizations and people die" (p. 53).

Because of resistance to change, the process of planned

change often involves a change agent, brought in to help a

client system, which refers to the target of change. The

change agent, in collaboration with the client system,

attempts to apply valid knowledge to the client's problems

(Bennis, 1966).

Often the client-system holds well-established views

of itself, which are hard to change. Yet they must be

changed if any lasting improvement is to occur. The change

agent must assess the client's readiness to enter into a

helping relationship, and he must determine whether or

not the client possesses sufficient motivation and capacity

to hold up its end of the partnership. The change agent's

ideas about how to help with change are intimately bound up

with his diagnosis of why the client system got into dif-

ficulty in the first place (Lippitt, 1958).










Conflict as a Result of Change

The audit, as an external change agent, may create

conflict.

The very fact of change creates two types of prob-
lem: (1) Less can be left to routine; careful
planning, deliberate orders, and elaborate communi-
cations are essential. Since personal experience
and tradition are less valued, there is a corre-
spondingly greater need for rules and regulations.
(2) People normally resist change, particularly
when it is imposed on them. Consequently, the
problems of motivating people to work together
have grown more complex. (Sayles & Strauss, 1966)

Boulding (1962), in developing a general theory of

conflict, observed that conflict is an activity that is

found almost everywhere:

Economics studies conflicts among economic organiza-
tions; political science studies conflict among states
and among subdivisions and departments within larger
organizations; sociology studies conflict within and
between families, racial and religious groups, and
conflicts within and between groups; anthropology
studies conflict of cultures; psychology studies
conflict within the individual; history is largely
the record of conflict; and conflict is an important
part of the specialized study of industrial relations,
international relations or any other relations. (p. 1)

Butler (1969) related control systems to conflict when

he wrote

The conflict of an individual with an organization
frequently stems from the various control devices
which hierarchical superiors employ to impose their
will and image on subordinates. An important example
of these control mechanisms is the budget, the
planned schedule of disbursements for various purposes











within a given time. If hierarchical superiors dis-
approve of subordinate activities, a threat to cut
off resources is an effective method of control. A
closely related method of control is the right to
hire and fire. Another important part of a control
system is the audit which supplies information about
the organization through an outside agency rather
than through the hierarchy or its own stuff. (p. 296)

If one is willing to accept the position that conflict

as a result of resistance to change is inevitable, then an

objective should be to seek ways to resolve this conflict.

According to Gorton, compromise is the key to conflict

resolution. When two or more parties are in dispute,

one or more of them must be willing to compromise their

differences in order to resolve the conflict successfully.

As long as no one is willing to modify his position, then

conflict cannot be resolved (1972). Bennis suggested

that adaptability may be the key to resolving conflict.

If change has now become a permanent and accelerating

factor in American life, then adaptability to change be-

comes increasingly the most important single determinant

of survival (1966).

In regard to the end of conflict, Butler (1969)

stated

Conflict itself does not end, for conflicts are
continually being recreated; however, each par-
ticular conflict can be viewed as having a life
cycle; it is conceived and born, it lives for a











time, and then dies, perhaps as a result of certain
processes which are probably inherent in its own
dynamic system. Resolution is only one way of
terminating conflicts, and it may not always be
clear which of the alternative methods for termi-
nating conflicts should be called "resolution."
Within organizations as well as between organizations,
the successful resolution of conflicts almost always
involves a combination of unilateral and organiza-
tional methods. Unless an organization has peace-
makers inside it, that is, persons who are capable
of unilateral conflict resolution, it is unlikely
to operate successfully. On the other hand, an
organization which lacks an adequate apparatus for
resolving conflicts will place too much of a burden
on the peacemakers, and may allow itself to be
destroyed by factional dispute. (p. 320)


Generalizations

Based on a review of the literature, the following

opinions appear to be valid:

1. The need for audits is as old as recordkeeping

itself.

2. Accounting for public institutions is signifi-

cantly different than accounting for private

business.

3. There is a useful purpose served by audits of

Florida public community college business offices.

4. The rapid growth of Florida's public community

colleges has greatly increased the complexity


of the functions of the business office.










5. The chief business officer should be a well-

trained specialist.

6. Audits and audit reports are a part of the concept

of accountability.

7. The process of planned change often involves a

change agent.

8. The process of planned change, together with a

change agent, often creates conflict within an

organization.

















CHAPTER III

THE AUDITING PROCESS AS IT RELATES
TO GENERAL SYSTEMS THEORY


The purpose of this chapter is to conceptualize the

auditing process as an agent for change and as a source of

conflict. This examination will follow along lines sug-

gested by the theories of general systems, change, and

conflict. The intention is to provide not only a struc-

tural design of the auditing process but also to allow for

a model against which the dynamics of the auditing process

and the data in this study may be interpreted.

The purpose of general systems theory is to create

a science using common elements found in all systems as a

starting point. It seeks to identify those general system

laws which will apply to any system of a certain type, ir-

respective of the particular properties of, or the elements

involved in, the system (Millman, 1962).

The auditing process is a form of control usually by

one system over another, such as control by the Division

of Community Colleges over each of the 28 public community.











colleges. Structurally this can be visualized as suggested

by Kast and Rosenzweig (1970) and as shown in Figure 3.1.

The auditing process is shown as a form of control because

the process is as Litterer (1965) stated "concerned not

only with events directly related to the accomplishment of

major purposes but also with maintaining the organization

in a condition in which it can function adequately to

achieve these major purposes" (p. 528).

Figure 3.1 is an illustration of a basic control cycle

showing how control can take place as a result of comparing

actual performance with predetermined standards of per-

formance.

An adaptation of this design to fit the demands of this

study is shown in Figure 3.2. A comparison of Figures 3.1

and 3.2 will show how the auditing process, through the

use of performance standards, serves as a form of control.

The cycle of events a business office experiences from

the start of the audit to the point where corrective action

is taken or resistance is offered can be compared to the

steps seen in the basic control cycle. There is a data-

gathering device generally referred to as a sensor, but

in this situation called the audit. Then follows an
































Figure 3.1 Basic Control Cycle


Set Standards




andard




n


Work






















Set Standards


Corrective
Action





FE




























Corrective
Action


Work


Figure 3.2 Auditing Process


Auditor Accounting Regulations
-- I I_










examination phase, where actual performance is compared with

expected performance by a unit referred to as a discrimina-

tor (audit). After comparison has taken place, a decision

is made regarding whatever action is to be taken. The

decision maker is the college's chief business officer, who

must compare standards (accounting regulations) with the

gathered data on performance (audit report), and take cor-

rective action when and where it is needed.

It is at the decision making step that conflict is most

likely to appear. In the case of the community college

audit, there is little or no probability that a standard

will be adjusted immediately following the point in the

cycle at which performance data were compared with stand-

ards--the reason being the time factor involved in changing

an accounting regulation. Changes in public community

college accounting regulations are made as a result of a

joint effort involving an accounting committee comprised

of community college business officers and the Office of

Fiscal Affairs in the Division of Community Colleges.

Where there are standards of performance, one tends

to find a control system. The auditing process is a form of

postcontrol, which occurs when there is an effort to check










on whether events did come out as desired. For example,

the business officer checks to see whether fund balances

were maintained at desired levels as of the end of the

fiscal year. Postcontrol is checking after the fact and

does not permit corrective action to take place in regard

to past performance. However, it does allow the business

officer an opportunity to evaluate the system and adjust

for future audits.

The business officer may choose not to adjust, and

allow conflict to occur. Suggestions made by the auditors

at the time of the audit, and adverse comments appearing in

the audit report, may be ignored. There can be many rea-

sons for allowing conflict to take place. Among these

are (1) lack of funds to staff properly the business office,

(2) lack of confidence in the auditors, (3) lack of con-

fidence in the accounting regulations, and (4) tradition

and vested interests. Gardner (1963) wrote

As an organization matures it develops settled ways
of doing things and becomes more orderly, more effi-
cient, more systematic. But it also becomes less
flexible, less innovative, less willing to look
freshly at each day's experience. Its increasingly
fixed routines are congealed in an elaborate body of
written rules. In the final stage of organizational
senility there is a rule or precedent for everything.
Someone has said that the last act of a dying organi-
zation is to get out a new and enlarged edition of
the rule book. (pp. 44-45)











Chin (1969) concurred when he wrote

The presence of tensions, stresses or strains,
and conflict within the system often are reacted
to by people in the system, as if they were shame-
ful and must be done away with. Tension reduction,
relief of stress and strain, and conflict resolution
become the working goals of practitioners but some-
times at the price of overlooking the possibility
of increasing tensions and conflict in order to
facilitate creativity, innovation, and social
change. (p. 204)

Regardless of the intent of the business officer

either to accept or to resist change, systems must have

two mechanisms which are often in conflict. Kast and

Rosenzweig (1970) in their discussion of these two mechan-

isms stated

First, in order to maintain an equilibrium, they
must have maintenance mechanisms which ensure that
the various subsystems are in balance and that the
total system is in accord with its environment.
The forces for maintenance are conservative and
attempt to prevent the system from changing so
rapidly that the various subsystems and total sys-
tem become out of balance. Second, adaptive
mechanisms are necessary in order to provide a
dynamic equilibrium, one which is changing over
time. Therefore, the system must have adaptive
mechanisms which allow it to respond to changing
internal and external requirements. (p. 117)

If the business office is large enough and if the college

budget allows, an internal auditor is on hand and charged

with the responsibility of the maintenance mechanism.

The chief business officer, usually with the cooperation










of the college president, and sometimes with indirect

assistance from the Board of Trustees, ensures that the

adaptive mechanism is functioning properly.

Inherent in systems theory is the process of feedback,

or as it is sometimes referred to, the concept of cyber-

netics. According to Banghart (1969), the essential and

distinguishing feature of cybernetics is that of feedback

derived from an internal communication network which pro-

vides constant monitoring of the internal activities and

the subsequent adjustments made to the system.

Feedback control operates in a system expected to make

errors, for the error is depended upon to bring about cor-

rection. The objective of such a system is to make the

error as small as possible within practical limits. The

relationship of the feedback loop may be illustrated by

Figure 3.3, as suggested by Johnson, Kast, and Rosenzweig

(1963). For the purposes of comparison, a feedback loop

for a community college business office is shown in Figure

3.4. The components of the feedback loop in Figure 3.3

may be defined as follows:

Input--the activity element

Processor--the operating system














INPUT PROCESSOR OUTPUT




COMPARATOR
Control Channel Measurement Channel


OBJECTIVE
OR
STANDARD



Figure 3.3 Feedback Loop in a System



















BUSINESS OFFICE BUSINESS FINANCIAL STATEMENTS,
ACCOUNTING PROCEDURES OFFICE STAFF REPORTS, ETC.




AUDITOR
Control Channel Measurement Channel


ACCOUNTING
REGULATIONS


Figure 3.4 Feedback Loop in a Business Office











Output--the accomplishment of the system

Measurement Channel--the sensor element

Comparator and Control Channel--the control group
element

Objective or Standard--the controlled item.

Whether or not the system of Florida's public community

colleges represents a closed loop or an open loop could be

argued at length. This same thought applies to the commun-

ity college business office. According to Kimbrough (1970),

systems have the nature of neither an open loop nor a

closed loop. He stated, "Actually, there is no such thing

as an absolutely closed or an absolutely open living system.

An absolutely closed system would be dead. An absolutely

open system would become so loaded with conflicting inputs

that it would cease to survive as a system" (p. 64).

It should be pointed out that the system of community

colleges does not subscribe to the concept of constant

monitoring, unless one is to consider a series of biennial

audits a process of constant monitoring. In the subsystem,

however, one can find constant monitoring in the activities

carried on daily by the internal auditor of the college.

The business office can be perceived as an open, con-

trived system with boundaries, in interaction with its











environment. In general, the business office is composed

of subsystems of a lower order, and is also part of a

suprasystem. The business office is able to adapt to

changes in its environment brought about by audit criti-

cisms and to maintain a continued dynamic equilibrium.

The business office has both adaptive and maintenance

mechanisms which together provide for change and prevent

the business office from changing so rapidly that its sub-

systems become out of balance.

Through the process of feedback both the business

office and its subsystems receive information from their

environment.

As the subsystems in meeting their objectives assist

the business office in meeting its central objective, so

then does the business office assist its suprasystem in

meeting its central objective.















CHAPTER IV

DATA OBTAINED FROM THE EXAMINATION OF AUDIT REPORTS




The purposes of this chapter are (1) to analyze

selected adverse comments shown on the nine audit reports

according to both audit report classification and stand-

arized audit comments, and (2) to analyze responses to these

comments made by the presidents of the participating col-

leges. A full text of these selected comments is shown

in Appendix B. Data from these audit report comments are

presented and discussed in the following sections.

These comments were subjected to content analysis to

classify them into the following: (1) audit report classi-

fication of adverse comments; (2) standard audit classifi-

cation of audit comments; and (3) classification of responses

to adverse audit comments. The intent of the examination of

audit report comments was to measure the effectiveness of

the audit reports as an external change agent for business

office accounting procedures; to determine the nature of

the adverse findings; and to identify the area of responsi-

bility within the business office in which the discrepancies

occurred.










The nine colleges are identified in this chapter by

Greek letters. This same means of identification was used

in Chapter V, Interview Responses of the Chief Business

Officers. With this means of identification, one can relate

adverse comments and responses to the personal interviews.


Audit Report Classification of
Adverse Comments

The data presented in Table 4.1 show how the adverse

findings of each college are classified according to audit

report classification. The classification of Expenditures

has been identified most often as the area of responsibility

within the business offices in which discrepancies occurred.

As a percent of total adverse findings, those classified

under Expenditures comprise 21% of the total findings,

followed by those under Auxiliary Fund with 16%, with those

under Fiscal Management and those under Invested in Plant

Fund, each with 13%. No adverse findings appeared in the

Debt Service Fund classification, and those classified

under Budgets account for only 1% of the total. Considering

the high volume of disbursements a college must make for

such purposes as salaries and operating expenses, one can

readily comprehend how the greatest number of discrepancies

occurred in the Expenditures classification. Conversely,










Table 4.1 Distribution of Adverse Comments According to Audit Report Classification



14 F Fa -
(u .-i c; T3 u


E
e






BETA C. C. O0

GAMMA C. C. 0

DELTA C. C. 3

EPSILON C. C. 8

ZETA C. C. 2

IOTA C. C. 1

THETA C. C. 0

ETA C. C. 2

TOTALS 1 19


a


Q
C:
0
n


0 0


1

0

0

1

0

0

0

2


0

3

2

2

3


0







1

2

4



1


0 3


0


o
4J rd








0



2

0

1


ra






1

2

0

6

2-

3

4


1 2 0 1

1 5 2 4 -

12 31 8 23


a









0

3

9
C








1
3






2

o


2U


0

0

1

0
1



1


0
0

1

0

1

1

0

0

0


an


S3P
40j
D C
1)n3
Sas


Q))
aU

4J~


1 0

0 0

0 0 _

1 0

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0 0

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c


o2




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4

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21

8

12

30

25

16

11


1 1 0 0 0 0 6

0 2 0 0 0 0 18

17 8 3 5 0 19 147










one would expect to find fewer discrepancies in those clas-

sifications representing less activity.

Additional analysis of the data disclosed other con-

cepts of interests. Alpha Community College's audit report

revealed that 38% of their discrepancies were classified as

Expenditures, while only 6% of Zeta Community College's dis-

crepancies were in the Expenditures classification. The

Invested in Plant Fund classification accounts for 63% of

Beta Community College's discrepancies; Fiscal Management

accounts for 32% of Epsilon's discrepancies; Auxiliary Fund

accounts for 36% of Iota's discrepancies; and Loan Fund and

Auxiliary Fund together represent 50% of Delta's discrepan-

cies. Weaknesses in the areas of responsibility within each

business office can easily be determined by an analysis of

adverse comments according to audit report classification.

Of the total adverse comments, Delta Community College

was responsible for 20% and Theta Community College for 4%.

These percentages represent the high and the low for the

nine colleges, and one can do no more than speculate as to

why Delta Community College had five times as many adverse

comments as Theta Community College. Many factors could

contribute to such a difference. Among these are lack

of competent personnel, including the chief business officer;










lack of funds to hire needed personnel; lack of an internal

auditor; lack of proper job descriptions; lack of a proper

organization chart; lack of support by the college presi-

dent and/or the Board of Trustees; and lack of attention

paid to rules, regulations, statutes, principles, pro-

cedures, and recommendations, which control the activities

of a community college chief business officer and his staff.

Finally, differences in attitudes of the various audit teams

should be given consideration. Again, one can do no more

than speculate as to what the results would have been had

Delta Community College and Theta Community College exchanged

audit teams prior to the 1973-1974 audits.


Standard Audit Comment Classification
of Adverse Comments

The data presented in Table 4.2 show how the adverse

findings of each college are classified according to

standard audit comments, as found in The Audit Program, a

handbook used by the auditors.

Adverse comments classified as violations of Procedures,

Policies, and Internal Control comprise 55% of the total

discrepancies. The bulk of the discrepancies in this

category involve internal control problems. This is

probably true because the smaller institutions cannot








Table 4.2 Dis


ALPHA C. C.

BETA C. C.

GAMMA C. C.

DELTA C. C.

EPSILON C. C.

ZETA C. C.

IOTA C. C.

THETA C. C.

ETA C. C.

TOTALS


;tribution of Adverse Comments


io



OC


Q) Id a
-1 4J 4J


3 0 0






1a 3
3 0















S14 4

11 43
3 0















5 0

Li3 1


10

81


2

22


40
0 (
m 0
r a
o

'on

4 -
2 0


2


1


0
0


1 3

0 0

3 0

0 0

3 0

11 9


3

1

2

2

3

20


0

0



0

0

2


0

0

1

0

0

2


25

16

11

6

18

147


i


According to Standardized Audit Comments



' )0 0 0 r O 0
C -4 1-1 a (D 4oJ .0 i



o 0 C3 U 0 0c OC
3 o i I o1i 0 3 0






2 2 0 1 21
S c2 1 0 8






03 0 0 U V
U 3 0 30
U 0 I E 01 0 3





3 2 1 0 30










afford to employ the services of an internal auditor.

Another factor to be considered in regard to internal con-

trol is that the smaller institutions also cannot afford to

employ sufficient business office personnel to provide

proper separation of duties. Without proper separation of

duties, the business office is left open to criticism by

the auditors not only for poor internal control but also

for failure to adhere to established procedures in carrying

out the day-by-day operations of the business office. With

the exception of Delta Community College and Zeta Community

College, the other seven colleges all showed that close

to one-half of their total discrepancies were classified

as violations of Procedures, Practices, and Internal Con-

trol. For Delta Community College, however, the figure is

63%, and for Zeta Community College the figure is even

higher at 75%.

Violations of Rules of the State Board of Education at

15% of the total, and violations of the Accounting Manual

for Florida's Public Junior Colleges, 1968, at 14% of the

total, are the second and third highest in violations. No

college showed a relatively high percentage of its total

discrepancies in either of these two classifications, as

was found under Procedures, Policies, and Internal Control.











One might conclude from these figures that all nine chief

business officers are fairly well acquainted with both the

Rules of the State Board of Education and the Accounting

Manual of Florida's Public Junior Colleges, 1968, and that

these discrepancies were a result of nothing more than not

keeping abreast of recent changes.

Violations of American Council on Education recommenda-

tions and violations of Collece and University Business Ad-

ministration recommendations each contributed approximately

1% to the total number of violations. These recommendations,

though admittedly helpful and significant, obviously are

not looked upon with great concern by either the auditors

of the chief business officers.

No further concepts of interest were revealed by the

study of adverse comments according to standardized audit

comments.


Classification of Responses to
the Adverse Comments

Table 4.3 shows a distribution of responses by the nine

college presidents to adverse comments in the audit re-

ports. After giving consideration to the discrepancies

found in his audit report, the president of each college

was required to resoond to the Auditor General's Office.













SrIVIOoj H


ijod@3 qrpnp oq;
Jo qT"nsOJ P Se
abueqO TpT^lpd




quawumoo
s,aoqTpnp aoq
o; qu@u=ioo ON


C Io C O Ln 1- 1



H ('


paqQou uoUT4 2 U
ou--anouo3





qaodai qTpn ; H ^ m O
0 Tns S -
opm OSBuPqo ON




s,3OqTpOn q
o Gsuodsaj O





;-4odao POTpn-e
s,_ r~ r-i c 7I i _
Ou4 oo ) TnsOU -i )
e sB opeuj a6ueq3


u

u uu u


E< I U E
(a, E- E, E EH










There are no standardized responses to audit criticisms--

how the president replies, if at all, is in words of his

choice.

This distribution of responses, combined with Chapter

V, Interview Responses of the Chief Business Officers, is

the basis for conclusions drawn in regard to the effective-

ness of the audit report as an external change agent.

The data presented in Table 4.3 show that 57% of the

total adverse comments were responsible for changes in

business office operations at the nine participating col-

leges. Another 12% of the comments resulted in partial

changes, making a total of 69% of all adverse comments

which brought about changes or partial changes. Consider-

ing that an additional 6% of the adverse comments were

replied to in a positive manner (Concur), one may conclude

that audit reports are serving as highly effective external

change agents, when based on audit report responses.

Among the nine colleges, however, the effectiveness

of the audit reports as external change agents varies sig-

nificantly. Alpha Community College, for example, showed

changes as a result of 90% of its adverse comments, while

Eta Community College showed changes derived from only 11%

of its comments. The examinations of audit reports do not










attempt to determine why changes in business office account-

ing procedures were or were not made. However, Chapter V,

Interview Responses of the Chief Business Officers, dis-

cusses this matter extensively.

Additional analysis of the data revealed other con-

cepts of interest in this study.

Again, referring to Eta Community College, one can see

that this college is responsible for 88% of the "No Re-

sponse" category of responses. In addition, Eta's "No

Response" responses make up 83% of their total responses to

audit report comments. This may be a matter that the Audi-

tor General wishes to investigate. The Auditor General has

no way of knowing what action, if any, was taken regarding

83% of Eta's criticisms. The Auditor General can wait for

the next biennial audit to learn the answer, but if the

purpose of the audit is to provide feedback to the Legis-

lature regarding the use of state tax dollars, then a

"No Response" response partially defeats the purpose of the

audit.

Delta Community College produced another concept of

interest. Fifty-three percent of Delta's responses were in

the categories "No Change," "Concur," and "No Comment."

These responses provide the Auditor General with very










little feedback in regard to changes in Delta's business

office accounting procedures.

As was discussed in Chapter III, feedback is an essen-

tial element in general systems theory. The "No Response"

and "No Comment" types of response tell the Auditor General

nothing. The audit criticism is there, but both the Auditor

General and the Legislature need to know what action was

taken as a result of the criticism. If no action was taken,

the Auditor General and the Legislature need to know why.

A failure on the part of the colleges to initiate change

based on audit criticisms could indicate a weakness in the

system, of which the colleges, the Office of the Auditor

General, and the Division of Community Colleges all are

part. The standards, which are used by the auditors, and

set by the Accounting Committee and the Division of Community

Colleges, could be unreasonable or impractical. If this is

the case, there exists another cause for the system to be in

disequilibrium.

The types of responses to adverse comments warrant a

careful evaluation by those who provide the feedback within

the system, and also by those who receive the feedback.










Summary

The conceptual analysis of the examination of audit re-

ports incorporated within this chapter focused on three

aspects: (1) audit report classification of adverse com-

ments; (2) standard audit comment classification of adverse

comments; and (3) responses to these comments made by the

presidents of the participating colleges.

Diversity is the most striking characteristic of the

examination of audit report comments and responses for the

nine participating colleges.

The audit report classification of Expenditures was

clearly shown as the area of responsibility in which dis-

crepancies most often occurred. Twenty-one percent of all

adverse comments were found in this classification. In the

opposite direction, no adverse findings appeared in the Debt

Service Fund classification. Furthermore, no common pattern

could be identified with respect to Expenditure classifica-

tion errors among the various business offices. Thirty-

eight percent of Alpha Community College's discrepancies

were classified as Expenditures, while only 6% of Zeta's

errors were found in this classification.

Of the total adverse comments, Delta Community College

was responsible for 20%, and Theta Community College for 4%.










These percentages represent the high and the low for the

nine colleges.

Regarding standard audit comment classification of ad-

verse comments, those classified as violations of Procedures,

Policies, and Internal Control accounted for 55% of the

total, while violations of American Council on Education

recommendations and violations of College and University

Business Administration recommendations each contributed

only 1% of the total. Some uniformity was noted when this

type of classification of audit comments was examined on a

college-by-college basis. With the exception of Delta and

Zeta, the remaining seven colleges all showed that close to

one-half of their discrepancies were classified as viola-

tions of Procedures, Practices, and Internal Control. Delta,

however, showed 63% of its violations in this category, and

Zeta showed even more, at 75%.

The conceptual analysis of responses by the nine

college presidents to adverse comments in the audit reports

showed that one may conclude that audit reports are serving

as highly effective external change agents. Of the total

comments, 57% were shown to be responsible for changes in

business office operations, and another 12% resulted in

partial changes. Among the nine colleges,however, the




59




effectiveness of audit reports as external change agents

varies significantly.

The analysis of responses further revealed a signi-

ficant lack of feedback on the part of some of the presi-

dents to the Office of the Auditor General. The nature of

some of the responses or the lack of responses, does not

allow the system as a whole to function properly, and pro-

vides cause for the system to be in disequilibrium.















CHAPTER V

INTERVIEW RESPONSES OF THE COMMUNITY COLLEGE
BUSINESS OFFICERS




As was discussed in Chapter I, personal interviews

were conducted with each of the chief business officers of

the nine selected colleges. The purposes of these inter-

views were to gauge the extent of changes resulting from

the 1973-1974 audit reports in the following areas:

business office accounting procedures; organization and

structure of the business office; job descriptions; and the

efficiency of the business office. In addition, the chief

business officers were asked to indicate whether the presi-

dents and other top-level administrators of their colleges

responded to the audit reports by the use of audit reports

as tools of management.

The chief business officers who participated in the

interviews reported that they had served in their positions

on an average of nine years, the range being five years to

twenty-four years. Three had previous teaching experience

and two had previous business experience. This group










represents a.professional commitment to this profession

since there is so little teaching and business experience.

It may be assumed that these individuals represent a typical

group of chief business officers in the Florida public

community colleges.


Changes in Accounting Procedures

The data presented in Table 5.1 show how each chief

business officer responded to the question that was asked as

follows:

What changes in your business office accounting

procedures have been made or will be made as a

direct result of the 1973-1974 audit report?

Five of the chief business officers were of the opinion

audit reports were a stimulus for change. One of these five

felt that because change is slow and difficult at his col-

lege, he needs the assistance of the audit report to be

successful in obtaining permission from top-level adminis-

tration and the Board of Trustees to make changes in account-

ing procedures. Another of these five was not previously

aware of the discrepancies cited in his audit report, and he

made the changes immediately after they were called to his

attention.








Table 5.1 Responses of Chief Business Officers Concerning Changes in Accounting
Procedures as a Result of 1973-1974 Audit Reports

All changes a Some changes a No changes
direct result of direct result of resulted f
the 1973-1974 the 1.973-1974 the 1973-1
audit report audit report audit repo

ALPHA C. C. X

BETA C. C. X

GAMMA C. C. X

DELTA C. C. X


EPSILON C. C.

ZETA C. C.

IOTA C. C.

THETA C. C.

ETA C. C.

TOTALS


X


X


X

x


5 2


rom
974
rt


X

2


~-i~_~


I_










Two business officers reported that some changes made

subsequent to the 1973-1974 audit were a result of the audit

report. One stated that changes had been contemplated prior

to the audit, and the audit report provided the impetus to

proceed with these changes. The other stated that more

changes would have been made if a better relationship had

existed between himself and the auditors.

Of the two business officers who reported no changes,

one stated that all changes were "self-generated," meaning

that he was aware of what had to be done before the audit,

and he had intended to make all changes. The other business

officer said that he knows accounting procedures and the

accounting manual as well as or better than the auditors,

and he was aware of the problems prior to the audit. He was

not able to make the changes because the college was short

of personnel. He further stated,however, that the audit re-

port should be given credit for speeding up these changes.


Changes in Business Office
Organization Structure

Table 5.2 shows how each business officer responded to

the following question:

What changes have been made in your business office









Table 5.2 Responses of Chief Business Officers Concerning Changes in Business
Office Organization Structure as a Result of 1973-1974 Audit Reports


Changes made in organi- No changes made in organi-
zation structure as a zation structure as a direct
direct result of the result of the 1973-1974
1973-1974 audit report audit report


ALPHA C. C. X

BETA C. C. X

GAMMA C. C. ___ X

DELTA C. C. X

EPSILON C. C. X


ZETA C. C.

IOTA C. C.

THETA C. C.

ETA C. C.

TOTAL


1


x

x






8
- --_- __ ____________ _____

_______________8 ________










organization structure as a result of the 1973-1974

audit report?

Only one of the nine business offices had a change in

its organization structure. Of the other eight, one said

there was a change, but it was a result of college initia-

tive, and not from the audit report. Another business

officer reported there were changes in his college's organi-

zation structure subsequent to the audit, but Health,

Education and Welfare guidelines were entirely responsible.

Iota Community College's business officer responded that a

change recommended by the auditors to alter the organization

structure was not followed by Iota's President and Board of

Trustees.


Changes in Business Office
Job Descriptions

The data presented in Table 5.3 show how the nine

business officers responded to the following question:

What changes have been made in job descriptions

within your business office as a result of the

1973-1974 audit report?

Two business officers replied that changes in job de-

scriptions has been made, and in each case new employees









Table 5.3 Responses of Chief Business Officers Concerning Changes in Business
Office Job Descriptions as a Result of 1973-1974 Audit Reports


Changes made in job No changes made in job
descriptions as a descriptions as a direct
direct result of the result of the 1973-1974
1973-1974 audit report audit report


ALPHA C. C. X

BETA C. C. X


2

2


x

x









x

7


GAMMA C.

DELTA C.

EPSILON

ZETA C.

IOTA C.

THETA C.

ETA C. C

TOTALS


C.


C.

C.

C. C.

C.

C.










were hired. At Alpha Community College some changes were

recommended, but Alpha's President decided not to comply

with the auditors' recommendations. At Eta Community Col-

lege a major change was recommended in the job description

of the chief business officer, but top-level administrators

at Eta believed this change was unworkable, and the auditors'

recommendation was not followed.


Increased Business Office Efficiency

Table 5.4 shows how each business officer responded

to the following question:

Does your business office function in a more efficient

manner as a result of the 1973-1974 audit report? If

your answer is yes, tell how it functions more

efficiently.

Three of the nine business officers said that their

business offices function more efficiently as a result of

the audit report. At Alpha Community College changes in

organization structure, and improved controls over payroll

have helped Alpha's efficiency. Epsilon's business officer

said they do not have an internal auditor, and the auditors

find problems that otherwise would be overlooked because of

the pressure of day-to-day details.









Table 5.4 Responses of Chief Business Officers Concerning More Efficient Functioning
of Their Business Offices as a Result of 1973-1974 Audit Reports


Does function more Does not function more
efficiently as a direct efficiently as a direct
result of the 1973-1974 result of the 1973-1974
audit report audit report


ALPHA C. C.

BETA C. C.

GAMMA C. C.

DELTA C. C.

EPSILON C. C.


ZETA C. C.

IOTA C. C.

THETA C. C.

ETA C. C.

TOTALS


X

_ __ __x


4r__~- I


X

X



X

X





6


- zx


'


c-----


3










Of the six who reported no increase in efficiency one

said his college's business office is now less efficient

than prior to the audit report because a new position was

created which necessitated the addition of another employee.

Although effectiveness has increased, efficiency has de-

creased. Another business officer also felt his business

office is less efficient because recommendations made by the

auditors have put into operation unnecessary changes which

have caused additional work. This additional work is wasted

because the college receives no benefit from it and, there-

fore, the rate of return from the college's investment is

less as a result of the audit report.

At Eta Community College, the business officer stated

that he is responsible for the efficiency of his business

office; the auditors cannot claim this honor. He further

named three obstacles to efficient business office opera-

tions: (1) lack of time; (2) lack of space; and (3) lack of

competent personnel.

Gamma's business officer replied that an audit report

will make no difference in the efficiency of his business

office, because he concerns himself with efficiency every

day of the year.










Audit Reports as a Tool of Manacement

The data presented in Table 5.5 show how each

business officer responded to the following question:

Do top-level administrators at your college view

audit reports as a tool of management? If your

answer is yes, tell how.

Three of the nine business officers responded in the

affirmative to this question. At Alpha Community, the

President, Vice-Presidents, and Provosts all share the

feeling that the audit reports can be used effectively as

tools of management to assist in the change process. At

another college both the President and the chief business

officer use the added clout of audit reports to help con-

vince the Board of Trustees that changes are needed.

Of those who responded in the negative, one business

officer stated that top-level administrators at his college

look upon audit reports as "evils" which are not needed, and

at auditors as persons who attempt to "disrupt" the organiza-

tion. At another college, top-level administrators see the

audit as an invasion of privacy, and audit reports as

casting doubts about their integrity. In addition, these

same administrators are convinced that many changes









Table 5.5 Responses of Chief Business Officers Concerning Top-Level Administrators'
Use of Audit Reports as a Tool of Management


X

X

X

X



X

6










recommended by the auditors cost the college additional

money, but did nothing to increase efficiency. Another

business officer reported that top-level administrators at

his college feel the audit reports have lost their effec-

tiveness as tools of management because the audit reports

contain so many "asinine" comments. At another college top-

level administrators have become offended by what they re-

ferred to as the auditors nit-picking attitude. These

administrators feel the auditors should present a helping

attitude rather than an adversarial attitude. A changed

attitude would then bring about an interest on the part of

top-level administrators in using the audit reports as a

tool of management. Finally, another business officer re-

plied that his President and the Deans view the audit and

audit reports as just something that has to be endured. The

audit reports are put to no practical use whatsoever.


Audit Reports as Effective External
Change Agents for Business Office
Accounting Procedures

Table 5.6 shows how each business officer responded to

the following question:

Are audit reports serving as effective external change









Table 5.6 Responses of Chief Business Officers Concerning the Effectiveness of Audit
Reports as External Change Agents


ALPHA C. C.

BETA C. C.

GAMMA C. C.

DELTA C. C.

EPSILON C. C.

ZETA C. C.

IOTA C. C.

THETA C. C.

ETA C. C.

TOTALS


Are serving as effec-
tive external change
agents


X


1--- ---- _


X


X

X


Are not serving as
effective external
change agents









X







X





___3


----C---










agents for business office accounting procedures?

If your answer is yes, tell how.

Of the nine business officers, six answered this

question affirmatively. At Beta Community College the

business officer said that audit reports assist him in

making change by the support the reports lend when he is

confronted with objections from his President or Board of

Trustees. At Gamma, the business officer's fear of a poor

audit causes changes to be made sooner than they would with-

out an audit report. At another college, the business

officer stated that his President would totally ignore

fiscal management if not for audit reports.

At both Delta and Eta, the business officers replied

that they were more capable than the auditors regarding the

proper operation of a community college business office, and,

therefore, audit reports are not needed to make changes. At

Zeta, the business officer said that audit reports could

serve as effective external change agents if the Office of

the Auditor General was willing to provide auditors with

helpful attitudes. He further stated that the auditors he

now gets are not there to help him and his staff, and this

is the key to whether the audit report serves effectively as

an external change agent.










Future Audits

The final question on the interview guide did not lend

itself to the use of a table, as did the preceding ques-

tions, but the responses produced many concepts of

interest. The final question was as follows:

How can audits better serve you and your staff in

the future?

Several business officers mentioned attitudes of the

auditors, and all said much the same in this regard. The

essence of what was said is that a good auditor will not

undertake an audit in a negative sense, meaning that he is

determined to find problems. Rather, the good auditor will

approach the audit concerned primarily with how he can help

the business officer and his staff. To carry this idea one

step further, Delta's business officer noted that the

auditors should function as though they were part of a team

effort at the college undergoing the audit. lie further

suggested that auditors should not feel that in order to con-

duct a successful audit they must find problems. This type

of attitude forces the colleges to seek opinions from the

college attorneys when there exists sharp disagreement with

the auditors. Some disagreements have become serious. On










this same concept Zeta's business officer asked that the

Auditor General send him better auditors with better atti-

tudes rather than policemen or enforcers. He believes that

the auditor should be someone who comes as a guest of the

college, who is friendly and courteous, and is ready to

help.

Another concept of interest that emerged from the re-

sponses relates to how well auditors are trained for their

duties. At Beta Community College, the business officer

mentioned that he should not be expected to teach an

auditor Beta's system so the auditor can audit the Beta

Community College business office. Further regarding

training, he felt the auditors should make the same recom-

mendations regarding accounting procedures as past auditors.

An auditor should not make a suggestion, and two years later

another auditor tell the business officer to do it dif-

ferently. Epsilon's business officer felt that some

auditors are unqualified to conduct an audit because they do

not know the accounting manual well enough. At Eta Com-

munity College, the business officer expressed the opinion

that the Auditor General should either use more experienced

auditors, or he should provide closer supervision for the

younger, less experienced auditors.










Another interesting concept which appeared in the re-

sponses involved the type of audit now being performed. As

was discussed in Chapter I the 28 community colleges under-

go a compliance audit. Epsilon's business officer has

asked for more management analysis, which evaluates people

rather than procedures. Theta's business officer alluded to

this same concept in suggesting that the auditors look more

closely at the way the duties of various business office

employees are performed in relation to both the job descrip-

tion and the need for each of these positions. For example,

the auditor can better serve a college by making recom-

mendations regarding the need for a certain position within

the business office organization structure. An outside,

objective review of a position or an employee can sometimes

reveal that which cannot be seen from within. Personnel

recommendations of the auditors should not be limited to

changes in job descriptions. An audit report recommending

elimination of an employee and/or a position could be used

by college officers as a tool in helping to convince the

Board of Trustees that such a change has merit. The audit

report would also take the "heat" away from college officers

in the event that such a recommended change is carried out.










Recommendations for personnel changes could accompany an

audit report in the form of an addendum.

The entire audit program should be updated according

to Iota's business officer. He suggested modern auditing

techniques which would accommodate today's fast-paced

business office activities. Modern techniques call for

sampling instead of a 100% audit, unless evidence indicates

otherwise. Many thousands of state tax dollars could be

saved in this manner.

Fortunately not all responses to the question were

negative. Gamma Community College's business officer said

the auditors should continue to do as they now do, i.e.,

not irritate him or his staff, and not nit-pick in order to

make adverse comments in the audit reports. He believes he

has had super auditors in past years and wants to continue

to work with only the best.


Relationship Between Adverse Comments
and the Change Process

The data presented in Table 5.7 show a summarization of

concepts of interest from both Chapters IV and V. In Table

5.7 the nine colleges have been ranked according to total

adverse comments. Beside this ranking are columns showing









Table 5.7 Distribution of Adverse Comments and Their Tendency to Influence Change


Organization
Structure
Changes


Job
Description
Changes


Audit
Comments
Used as
Tools of
Management


DELTA C. C. 30 None No No No


EPSILON C. C.

ALPHA C. C.

ETA C. C.


25 All


No

Yes


No

Yes


ZETA C. C. 16 Some No No

GAMMA C. C. 12 All No No

IOTA C. C. 1 Al L No No

BETA C. C. 8 All No No

THETA C. C. 6 All No Yes

TOTAL 147 --- ---


No

Yes

No

No

Yes

No

No

Yes


Total
Adverse
Comments


Accounting
Procedure
Changes


21

18


Some

None










how each business officer responded to questions relating

to changes in accounting procedures, organization struc-

ture, and job descriptions, plus the reaction of top-level

administrators to the use of audit reports as tools of

management.

The purpose of this type of analysis is to seek to de-

termine whether a large number of adverse comments produces

conflict in the business officers and their top-level admin-

istrators, which in turn would cause them to reject change.

On the other hand, a small number of adverse comments may

produce an opposite kind of perception by these same college

officers.

In comparing Delta, which had the highest number of

discrepancies, and Theta which had the lowest, one might be

persuaded that this theory has merit. With 30 adverse

comments, Delta's business officer reported that no changes

in accounting procedures, organization structure, and job

descriptions resulted from the audit report. In addition,

Delta's other top officers did not view audit reports as

effective tools of management. On the other hand, Theta's

business officer replied that all changes in accounting pro-

cedures were a direct result of the audit report, job de-

scription changes were made as a result of the audit report,










and Theta's other top-level officers view audit reports as

effective tools of management.

This theory fails to hold up when one looks further at

the data in Table 5.7. Epsilon, with the second highest

number of audit criticisms, indicated that all changes in

accounting procedures were a direct result of the audit.

And Alpha, with the third highest number of audit criticisms,

showed some accounting changes related to the audit report,

plus organization structure and job description changes. In

addition, Alpha's top officials look upon audit reports

favorably as tools of management.


Summary

In this chapter, audit reports were viewed within the

perspectives provided by the chief business officers of the

nine selected colleges. Personal interviews with the

business officers provided an opportunity to judge the ex-

tent of changes in business office operations and to evaluate

attitudes of top-level administrators toward the use of

audit reports as tools of management.

It was observed that only five of the nine business

officers felt that the audit reports were responsible for

all changes in accounting procedures made subsequent to the










1973-1974 audit reports. Two of the remaining business

officers, however, felt that at least some changes were

triggered by the audit reports. Thus, a clear majority of

the business officers perceived changes in accounting pro-

cedures as having been produced by the audit reports.

Extensive changes in business office organization

structure and job descriptions were not stimulated by the

audit reports.

Many interesting responses were received in regard to

the question involving improved business office efficiency.

Although three business officers reported increased effi-

ciency, there were others who felt their business offices

were less efficient because of recommendations made by the

auditors. Additional work and additional, unnecessary

business office personnel account for the decreased effi-

ciency.

The analysis of responses also revealed several inter-

esting comments relative to the views taken by top-level

administrators toward audit reports as tools of management.

At three of the colleges, top-level administrators all share

the feeling that audit reports can be used to assist in the

change process. At the other six colleges, however, hostility










could well describe the attitude toward audits, auditors,

and audit reports.

Responses to the final question on the interview guide

regarding future audits produced very informative concepts

of interests. The attitude of the auditors toward the

auditing process emerged as a most serious consideration.

In essence, a majority of the business officers want the

auditors to approach their task with a helping attitude

rather than an adversarial frame of mind. Lack of proper

training and lack of sufficient business office auditing

experience on the part of young auditors were also men-

tioned as problems faced by the business officers. Further

regarding future audit improvement, a change from today's

compliance audit to a management analysis type audit, was

suggested by several business officers. In this same con-

cept, it was further suggested that modern auditing tech-

niques, which involve sampling rather than a 100% audit, be

used unless evidence indicates otherwise.

Although no clear-cut conclusions can be reached, there

are indications that a high number of adverse comments pro-

duces greater resistance to change, and a small number of

criticisms produces a willingness to follow the auditors'

recommendations.















CHAPTER VI

CONCLUSIONS, IMPLICATIONS, AND SUGGESTIONS
FOR FURTHER STUDY




Conclusions

The following conclusions are presented relative to

this study.

1. As was pointed out in Chapter III, general systems

theory requires that the system provide itself

with feedback. This research shows that the

auditing process has failed to provide adequate

feedback to adverse comments found in the audit

reports as may be illustrated in some of the re-

sponses of the college presidents. The nature

of the response can indicate little or nothing in

the way of feedback, as was the case with both

Eta and Delta Community College. Of Eta's total

responses, 83% were in the "No Response" category.

Of Delta's total, 53% were in the categories "No

Change," "Concur," and "No Comment." The auditor

General and the Legislature need to know what










action has been taken because of the audit

criticism. If no action was taken, they need to

know why. A failure on the part of the responses

to provide proper feedback indicates a serious

weakness in the system and shows the systems

theory in this instance does not describe the situ-

ation as it currently exists.

Audit reports alone do not cause the system

to be in disequilibrium. The auditing process, as

an agent for change,however, does create conflict.

Resistance to change is manifested in the following

actions: (1) refusal by some of the colleges to

initiate change; (2) refusal by some of the col-

leges to provide the system with adequate feedback

to audit criticisms; (3) refusal by some of the

colleges to accept the system's standards; and (4)

refusal by some of the colleges to fully embrace

the philosophy inherent in the entire auditing

process.

As a form of control, the auditing process in

Florida's public community colleges cannot be con-

sidered satisfactory when one considers not only











the amount of resistance to change but also the

amount of hostility produced within the system by

the biennial audits.

The auditing process does not provide the

system with a means of constant monitoring as is

recommended by general systems theorists. With

audits now being conducted every other year, or in

some cases every third or fourth year, the central

objective of the system is lost.

2. Audit reports are serving as effective external

change agents for business office accounting pro-

cedures. Seven of the nine chief business officers

who participated in this study stated that their

1973-1974 audit report was in some way responsible

for change. One who answered in the negative

stated that the audit report could be an effective

change agent if the attitude of the auditors was

helpful rather than adversarial. The other who

denied the effectiveness of the audit report as

a change agent did comment, however, that outsiders

can sometimes detect minor problems that go un-

noticed by those on the job.











Responses by the presidents of the nine par-

ticipating colleges to the preliminary and tentative

audit findings also show that the audit reports are

serving as effective external change agents. In

examining a total of 147 selected audit findings,

the following was noted:

a. Fifty-seven percent of the responses indicated

that changes in business office accounting

procedures were made as a direct result of

the audit.

b. Twelve percent of the audit findings were

given no response by the president.

c. Twelve percent of the responses indicated

partial changes as a result of the audit

report.

d. Ten percent of the responses indicated that no

changes in business office accounting pro-

cedures were made as a result of the audit

report.

e. Six percent of the audit findings were

answered by an indication that the President

concurred with the auditor's comment.











f. Three percent of the audit findings were

answered with no comment.

3. Top-level administrators at the nine Florida public

community colleges that participated in this study

do not view audit reports as effective tools of

management. At only three of the nine colleges are

audit reports used to assist management in the

change process. It should be pointed out, however,

that at Epsilon Community College the chief business

officer reported that their top-level administrators

do not look upon the audit report as a tool of

management, but they do see the audit report as a

means of informing management of what is happening

so management can make changes.

4. The 1973-1974 audit report was not responsible for

major changes in business organizational structures

of the participating colleges. Only at Alpha Com-

munity College were any changes noted, and these

were considered minor.

5. Changes in business office job descriptions as a

result of the 1973-1974 audit reports were few.

Only at Alpha and Theta Community Colleges were










changes made, and these were minor. Changes were

recommended in the audit report for Beta Community

College, however, but were not acted upon by

Beta's president.

6. Six of the nine chief business officers stated their

business offices do not function in a more efficient

manner as a result of their 1973-1974 audit reports,

and two of these six felt that their business of-

fices function less efficiently as a result of their

audit reports. Beta's chief business officer con-

ceded, however, that his business office while func-

tioning less efficiently is now mrre effective.

7. Changes in the philosophical approach of auditors

to the auditing procedure and an upgrading of the

auditing skills of young auditors, in particular,

could go a long way toward improving the effec-

tiveness of audit reports as external change agents

and as tools of management.


Implications

The results of this study suggest that major changes

are needed in the entire auditing process of Florida's

public community colleges.




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