Group Title: ERP position papers
Title: Internal controls and business process re-engineering
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 Material Information
Title: Internal controls and business process re-engineering ERP position paper 2
Series Title: ERP position papers
Physical Description: Serial
Language: English
Creator: Office of Inspector General, University of Florida
Publisher: Office of Inspector General, University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: September 9, 2003
 Record Information
Bibliographic ID: UF00090031
Volume ID: VID00002
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.


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University of Florida Audit & Compliance Review

ERP Position Paoer #2 F SIe w Page I

Date: September 9, 2003
Topic: Internal Controls and Business
Process Re-engineering

The designing of business processes involves many decisions taken in connection with ex-
ternal requirements, organizational culture, and carefully balanced costs and benefits. In
all business processes, efficiency together with accuracy, validity, completeness, proper
authorization and documentation are key objectives. Depending on the process and its en-
vironment, a variety of key control options may address these key objectives. When key
controls are dictated to the organization from outside, such as legislated requirements, the
discussion of costs and benefits becomes a secondary issue and organizations design their
processes to comply.

Changes in the University's governing structure and implementation of the enterprise re-
source planning system currently underway have created unique opportunities for the Uni-
versity to streamline its business processes and improve its information management.
These developments make the discussion of key controls in these processes a relevant and
timely topic.

As internal auditors, our implementation role includes the identification of opportunities,
key control and policy issues to be addressed during the course of implementation. This is
our second position paper identifying opportunities for improved processes and informa-
tion management. The first one issued on December 20, 2002, proposed changes to the
University's accounting structure.

ERP implementation efforts, thus far, have been to incorporate many of the old processes
and business flows, and associated information. Elimination of costly and inefficient
shadow systems was one of the basic premises of the ERP implementation initiative. With-
out an identified champion of change with authority and persuasion to evaluate the oppor-
tunities and to challenge the historical control and compliance concerns that feed the crea-
tion and maintenance of shadow systems, such systems will most likely continue to exist.

With the changes underway, the University will be responsible for the processing, manage-
ment, and oversight of the entire expenditure cycle for more than sixty funds. This respon-
sibility previously was shared with the Office of the Comptroller. Total operating ex-
penses for fiscal year ended June 30, 2002, were $1.3 billion. There were additional oper-
ating expenses in the amount of $527 million as reported by direct support organizations
and Health Science Center affiliates.


University of Florida Audit & Compliance Review

ERP Position PaPer #2 Page 2

Date: September 9, 2003
Topic: Internal Controls and Business
Process Re-engineering

I 0

With the implementation of the PeopleSoft Enterprise Resource Planning (ERP) system
there is an opportunity to integrate business processes and various resources, generate com-
prehensive information and reporting system, and provide an efficient and effective proc-
essing environment with full recognition of different business rules applied to the resources
from various organizations. The reference here is to transactions of organizations such as
the University of Florida Foundation, University of Florida Research Foundation, and
clinical practice associations that are in direct support of University operations.

Currently, specific controls to meet the objectives stated in the first paragraph have not
been consistently established for the entire University community. Controls applied to
the use of funds have been tied to the source of those funds and differ significantly be-
tween the University and affiliated organizations. Controls should not be confused with
business rules that can vary with funding sources. Business rules include per diem rates or
restrictions on what can be purchased such as food, car leases. For example, Section
112.061, Florida Statutes, sets the business rules for travel expenses paid with funds re-
ceived in university accounts but they do not apply to funds received by the University's
affiliated organizations. The PeopleSoft implementation can be achieved with due recog-
nition of different business rules without promoting the business rules applicable to state
funded resources. Examples follow:


For travel using state or grant funds maintained in the university accounts, a Travel Au-
thorization Request (TAR) is required to be completedfor all travel, generally in advance
of the travel date. The TAR documents the authorization for an employee to be in travel
status, as well as the benefit to the University, and authorization of related travel expendi-
tures. For travel funded through other sources, such as University of Florida Foundation
or the University of Florida Research Foundation, controls provided i/ ith a TAR or
equivalent means do not exist. An employee does not have to have advance authorization
to be in travel status and away from his/her workplace or to spend these funds.

OCO Purchases

Purchases of operating capital outlay (OCO) items require a requisition and purchase or-
der when purchased through university accounts. This provides advance authorization for
spending funds, approval for purchase of hazardous items, controls to help ensure compli-
ance 1i ith University purchasing requirements, encumbrance of funds, and a procedure to
ensure that items are added to the personal property inventory. Items purchased through
direct support organizations or faculty practice plans are not subject to these controls.

University of Florida Audit & Compliance Review

ERP Position Paper #2
Date: September 9, 2003
Topic: Internal Controls and Business
Process Re-engineering

- Page 3

Other instances of differences include the commitment and authorization controls in the
disbursement processes among direct support organizations, faculty practice plan corpo-
rations and university processes. An example follows:

In the College of Dentistry Faculty Practice Plan, all expenditures, including salaries,
except for patient reimbursements, are processed through the University Disbursement
Services. However, for the College of Medicine Faculty Practice Plan many expenditures
are made directly by the Plan. In addition, disbursement controls for these units vary
and are not consistent i i/h the controls established by the University.


Disbursing all university-related expenditures through university accounts such as UFF,
UFRF and faculty practice plans would provide more consistent controls for the use of
funds supporting the University and allow more complete managerial reports while al-
lowing the application of separate business rules for the various organizations. As a
minimum, the transactional information benefiting University operations should be cap-
tured within PeopleSoft Applications.

Regardless of the funding source, the same level of basic internal control objectives
should exist across the University and its affiliates. The control systems of these organi-
zations should be reviewed and changes should be initiated to provide consistent controls
and improved reporting to help ensure that the goals and objectives of the University are

Other implementation concerns include careful analysis and documentation of:

* Trade-offs between increased processing efficiencies and partial loss of control objec-
* Identification and solicitation of all relevant viewpoints
* Documentation of final decision making and its supporting analysis

The implementation commitment of fiscal year 2003-2004 is fast approaching. System
design decisions need to be finalized and properly communicated to the UF Bridges team
to meet this goal.

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