Using Chapter 13 Part 1 outline, read pages 6A, 68 and 6C (KPMG Narrative of Client's Fixed Asset Process) Audit Assignment You are a Staff Auditor working on the Centegra Health System audit The Audit Manager has asked you to review the KPMG Narrative of Client's Fixed Asset Process that was prepared by another auditor and: I Identify 5 Internal Control Strengths and list them in the schedule below (There are plenty of internal controls discussed in narrative -I identified at least 20) Also, indicate why this is an Internal Control Strength The Audit Partner will be reviewing your PPE Internal Control analysis and then deciding whether or not to promote you to Audit Senior Here is an example of the one I discussed in the audios Internal Control Explanation CHS has an annual capital budgeting process The process of making long-run planning where all capital expenditures are pre-approved decisions for investments in projects prior to the beginning of the fiscal year and is Managers plan significant investments in part of Centegra's overall 5 year strategic plan projects that have long-term implications (Page 6A) such as the purchase of new equipment (PPE) Managers must carefully select those projects that promise the greatest future retum Decisions made by "Capital Committee which usually consists of CFO, COO, other VPs and Executive . kpmg Client Health System Prepared by Process Analysis Document-US (6/03 Rev) - Facilities management Periodical 6/30/2004 WIP reference 1-1 Date 5/04 The following memo is the result of discussions with Accountant, Budget/Financial Analyst, to obtain an understanding of the process as it relates to Facilities Management and related controls Activities - the following activities are described in detail throughout the document: Initiation of asset acquisition Receipt of assets Entrance into the fixed asset system Processing of payment Recording of transactions Monthly review and reconciliation Initiation of asset acquisition Sharon anual capital budgeting process where all capital expenditures are pre- oproved prior to the beginning of the fiscal year, and is a part of Centegre's overall year strategie projection. The budgeting process begins in the first week of February and begins with a meeting of finance with Initiation of asset acquisition CHS has an anual capital budgeting process where all capital expenditures are pre- approved prior to the beginning of the fiscal year, and is a part of Centegra's overall 5 year strategic projection. The budgeting process begins in the first week of February and begins with a meeting of finance with departmental leaders. At the meeting, Arlene communicates to the leaders the total funds that have been allotted to fixed assets Dollars are allocated first to the IT department, then to the affiliates, and the balance of the allocation to the hospitals based on net revenue. In addition to the budgeted amounts allocated, there is another allocation, which is included in the budget, for contingency spending. The contingency spending amounts are allocated to cover any unplanned emergency capital expenditure that may arise. The Senior Vice President of the departments will fill out a budget form itemizing planned expenditures for the upcoming fiscal year. This form is submitted to finance (Arlene) via email for final approval and inclusion in the annuel budget by the third week in February Non-budgeted capital expenditures require that an item of equal value in the budget be wubstituted for the purchase, and executive approval obtained, or the funds may be taken from the contingency budget. For Fiscal year 2004 departments were able to make expenditures using funds from the prior year budget that was not spent Thie hollover of prior year budgeted dollars will no longer be wailable in yeare subsequent to 2004 Trams casting $100.000 or order require an ROT analysis. Althohin lea may not meet ROI threshold, joint expenditures must meet established budgetary targets . The dollar threshold for classifying a purchase as a capital expenditure is any item costing $1,000 or more with a useful life of two or more years. All capital expenditure items require that an approved purchase requisition along with a PO, signed by the requesting departments Senior VP, be submitted to the finance department and VP Finance signs all requisitions before they are processed. Once a month Arlene performs a reconciliation between capital expenditures and the departments budget, ensuring that expenditures are made as budgeted, or there is necessary substitution of the purchased item with a budgeted item Capital expenditure related to computer related hardware and software must have approval from the Information Systems department, and purchases related to equipment with electrical applications and building renovations require approval from the Plant Operation/Biomedical department Self-constructed assets are capitalized using the some guidelines as listed above. Direct labor related to self-constructed assets is capitalized as a component of the broader underlying asset Receiving of assets The receiving department's Distribution Technicians must receive all purchases of products and enter receipt into the Infinium system: this process notifies accounting that CHS has received the product. All other purchases, which do not involve a physical product, such as leases and contracts are still received and tracked in the Infinium pystem, but requires departmental sign-off necessary, substitute for the PO, Entrance into the fixed asset system Entrance into the fixed asset system Once assets have been paid, they are entered into the fixed asset system, which is a component of Infinium. The acquisition date, asset description, asset cost and useful bite are all entered into the system. Entrance of such data into the system is reviewed on a monthly basis through comparison to budgeted capital request amounts and for overall reasonableness by the departments and by accounting, Processing of payment Once accounting matches up PC's, invoice and receiving report, or obtain the appropriate approval, the Accounts Payable clerks will perform a check run once a week on Friday. All documents (invoices, P.O.'s, receiving reports) are processed by authorized ndividuals and approved and are checked for accuracy prior to posting. To initiate the check run a Schedule of Payment Report (SPR)is generated from the Showcase report writing system, which downloads the information directly from Infinium and puts + inte report format, The SPR itemizes all invoices due for payment based on the respective due dates entered into the system at the time the invoice was keyed into Infinium. Payroll reviews this report for accuracy with the invoices and supporting documentation. The schedule of payment report is forwarded to either Treasurer, or Vice president Finance Director of Accounting, who performs a cursory review to ensure that there are no unreasonable disbursements included in the report. After their review the reviewer will go into the Infinium system and release the batch so that the checks can be printed. All invoices ( 2 for payment must be appropriately authorized. These individuals are the only ones with authority to release check batches. In addition to the above mentioned individuals, the system administrator has access to release payment batches All checks for amounts less than $25,000 ore signed using an electronic signature Checks for amounts > $25,000 requires one electronic signature and the signature of one officer. Checks for arounts) $100,000 require two manual signatures Recording of transactions The alp, fixed asset, and g/l systems are all through Infinium. Therefore, once the check register has been betched and approved, the expenses are posted to the general edger based on the fixed asset codes entered into the system. System interface between a/p, fixed asset, and the general ledger is properly designed, implemented monitored and subject to the appropriate change control procedures. all purchases which meet the capitalization thresholds and criteria are entered into the Fixed asset system. Depreciation is computed on the assets through the system and then interfaced with the general ledger on a monthly basis. Depreciation is then reviewed and trued-up to the budget on the general ledger on a monthly basis. At year and, all adjusting entries will be reversed and actual depreciation expense and related accumulated depreciation will be recorded through the journal transactions interfaced from the fixed asset system cost center charge codes, and 6L numbers are normally assigned to assets at the time the purchase orders are prepared. Purchases that do not require PO's are assigned cost center codes and l numbers primarily by the approving department, if this is not done then accounting will assign the Cost codes and numbers. The accounting clerks in consultation with the various departments code invoices that are submitted to accounting without the necessary cost center codes and Lumbers. Monthly review and reconciliation ONS Gre normally assigned to assets at the time the purchase orders are prepared. Purchases that do not require PO's are assigned cost center codes and Gl numbers primarily by the approving department, if this is not done then accounting will assign the Cost codes and Gl numbers. The accounting clerks in consultation with the various departments code invoices that are submitted to accounting without the necessary cost center codes and Gl numbers. Monthly review and reconciliation On a monthly basis, all department heads are required to answer to variance reports for all variances within their department which are $1.500 and 5% These must be submitted to administration on a monthly basis, accounting personnel reconcile the fixed asset listing to the general ledger. This reconciliation is reviewed by the controller. Computer Information systems Using Chapter 13 Part 1 outline, read pages 6A, 68 and 6C (KPMG Narrative of Client's Fixed Asset Process) Audit Assignment You are a Staff Auditor working on the Centegra Health System audit The Audit Manager has asked you to review the KPMG Narrative of Client's Fixed Asset Process that was prepared by another auditor and: I Identify 5 Internal Control Strengths and list them in the schedule below (There are plenty of internal controls discussed in narrative -I identified at least 20) Also, indicate why this is an Internal Control Strength The Audit Partner will be reviewing your PPE Internal Control analysis and then deciding whether or not to promote you to Audit Senior Here is an example of the one I discussed in the audios Internal Control Explanation CHS has an annual capital budgeting process The process of making long-run planning where all capital expenditures are pre-approved decisions for investments in projects prior to the beginning of the fiscal year and is Managers plan significant investments in part of Centegra's overall 5 year strategic plan projects that have long-term implications (Page 6A) such as the purchase of new equipment (PPE) Managers must carefully select those projects that promise the greatest future retum Decisions made by "Capital Committee which usually consists of CFO, COO, other VPs and Executive . kpmg Client Health System Prepared by Process Analysis Document-US (6/03 Rev) - Facilities management Periodical 6/30/2004 WIP reference 1-1 Date 5/04 The following memo is the result of discussions with Accountant, Budget/Financial Analyst, to obtain an understanding of the process as it relates to Facilities Management and related controls Activities - the following activities are described in detail throughout the document: Initiation of asset acquisition Receipt of assets Entrance into the fixed asset system Processing of payment Recording of transactions Monthly review and reconciliation Initiation of asset acquisition Sharon anual capital budgeting process where all capital expenditures are pre- oproved prior to the beginning of the fiscal year, and is a part of Centegre's overall year strategie projection. The budgeting process begins in the first week of February and begins with a meeting of finance with Initiation of asset acquisition CHS has an anual capital budgeting process where all capital expenditures are pre- approved prior to the beginning of the fiscal year, and is a part of Centegra's overall 5 year strategic projection. The budgeting process begins in the first week of February and begins with a meeting of finance with departmental leaders. At the meeting, Arlene communicates to the leaders the total funds that have been allotted to fixed assets Dollars are allocated first to the IT department, then to the affiliates, and the balance of the allocation to the hospitals based on net revenue. In addition to the budgeted amounts allocated, there is another allocation, which is included in the budget, for contingency spending. The contingency spending amounts are allocated to cover any unplanned emergency capital expenditure that may arise. The Senior Vice President of the departments will fill out a budget form itemizing planned expenditures for the upcoming fiscal year. This form is submitted to finance (Arlene) via email for final approval and inclusion in the annuel budget by the third week in February Non-budgeted capital expenditures require that an item of equal value in the budget be wubstituted for the purchase, and executive approval obtained, or the funds may be taken from the contingency budget. For Fiscal year 2004 departments were able to make expenditures using funds from the prior year budget that was not spent Thie hollover of prior year budgeted dollars will no longer be wailable in yeare subsequent to 2004 Trams casting $100.000 or order require an ROT analysis. Althohin lea may not meet ROI threshold, joint expenditures must meet established budgetary targets . The dollar threshold for classifying a purchase as a capital expenditure is any item costing $1,000 or more with a useful life of two or more years. All capital expenditure items require that an approved purchase requisition along with a PO, signed by the requesting departments Senior VP, be submitted to the finance department and VP Finance signs all requisitions before they are processed. Once a month Arlene performs a reconciliation between capital expenditures and the departments budget, ensuring that expenditures are made as budgeted, or there is necessary substitution of the purchased item with a budgeted item Capital expenditure related to computer related hardware and software must have approval from the Information Systems department, and purchases related to equipment with electrical applications and building renovations require approval from the Plant Operation/Biomedical department Self-constructed assets are capitalized using the some guidelines as listed above. Direct labor related to self-constructed assets is capitalized as a component of the broader underlying asset Receiving of assets The receiving department's Distribution Technicians must receive all purchases of products and enter receipt into the Infinium system: this process notifies accounting that CHS has received the product. All other purchases, which do not involve a physical product, such as leases and contracts are still received and tracked in the Infinium pystem, but requires departmental sign-off necessary, substitute for the PO, Entrance into the fixed asset system Entrance into the fixed asset system Once assets have been paid, they are entered into the fixed asset system, which is a component of Infinium. The acquisition date, asset description, asset cost and useful bite are all entered into the system. Entrance of such data into the system is reviewed on a monthly basis through comparison to budgeted capital request amounts and for overall reasonableness by the departments and by accounting, Processing of payment Once accounting matches up PC's, invoice and receiving report, or obtain the appropriate approval, the Accounts Payable clerks will perform a check run once a week on Friday. All documents (invoices, P.O.'s, receiving reports) are processed by authorized ndividuals and approved and are checked for accuracy prior to posting. To initiate the check run a Schedule of Payment Report (SPR)is generated from the Showcase report writing system, which downloads the information directly from Infinium and puts + inte report format, The SPR itemizes all invoices due for payment based on the respective due dates entered into the system at the time the invoice was keyed into Infinium. Payroll reviews this report for accuracy with the invoices and supporting documentation. The schedule of payment report is forwarded to either Treasurer, or Vice president Finance Director of Accounting, who performs a cursory review to ensure that there are no unreasonable disbursements included in the report. After their review the reviewer will go into the Infinium system and release the batch so that the checks can be printed. All invoices ( 2 for payment must be appropriately authorized. These individuals are the only ones with authority to release check batches. In addition to the above mentioned individuals, the system administrator has access to release payment batches All checks for amounts less than $25,000 ore signed using an electronic signature Checks for amounts > $25,000 requires one electronic signature and the signature of one officer. Checks for arounts) $100,000 require two manual signatures Recording of transactions The alp, fixed asset, and g/l systems are all through Infinium. Therefore, once the check register has been betched and approved, the expenses are posted to the general edger based on the fixed asset codes entered into the system. System interface between a/p, fixed asset, and the general ledger is properly designed, implemented monitored and subject to the appropriate change control procedures. all purchases which meet the capitalization thresholds and criteria are entered into the Fixed asset system. Depreciation is computed on the assets through the system and then interfaced with the general ledger on a monthly basis. Depreciation is then reviewed and trued-up to the budget on the general ledger on a monthly basis. At year and, all adjusting entries will be reversed and actual depreciation expense and related accumulated depreciation will be recorded through the journal transactions interfaced from the fixed asset system cost center charge codes, and 6L numbers are normally assigned to assets at the time the purchase orders are prepared. Purchases that do not require PO's are assigned cost center codes and l numbers primarily by the approving department, if this is not done then accounting will assign the Cost codes and numbers. The accounting clerks in consultation with the various departments code invoices that are submitted to accounting without the necessary cost center codes and Lumbers. Monthly review and reconciliation ONS Gre normally assigned to assets at the time the purchase orders are prepared. Purchases that do not require PO's are assigned cost center codes and Gl numbers primarily by the approving department, if this is not done then accounting will assign the Cost codes and Gl numbers. The accounting clerks in consultation with the various departments code invoices that are submitted to accounting without the necessary cost center codes and Gl numbers. Monthly review and reconciliation On a monthly basis, all department heads are required to answer to variance reports for all variances within their department which are $1.500 and 5% These must be submitted to administration on a monthly basis, accounting personnel reconcile the fixed asset listing to the general ledger. This reconciliation is reviewed by the controller. Computer Information systems