REPORT DIGEST

THE ALUMNI ASSOCIATION OF

SOUTHERN ILLINOIS UNIVERSITY AT EDWARDSVILLE

COMPLIANCE EXAMINATION AND FINANCIAL AUDIT

For The Period Ended June 30, 2007

FINANCIAL OPERATIONS (All Funds)	FY 2007	FY 2006
REVENUES
Operating revenues....................................................	$291,082	$193,299

EXPENSES
Operating expenses...................................................	326,553	191,619

Excess (deficiency) of revenue over expenses.......	($35,471)	$1,680

NON-OPERATING REVENUES
Contributions.............................................................	$31	$50
Investment Income....................................................	11,383	8,160
Net change in fair value of investments.......................	23,601	8,918
Total non-operating revenue................................	$35,015	$17,128

Increase (decrease in net assets)..........................	($456)	$18,808

NET ASSETS
Net Assets – beginning of year...................................	$260,544	$241,736

Net Assets – end of year...........................................	$260,088	$260,544

OTHER SIGNIFICANT ACCOUNT BALANCES	AT JUNE 30, 2007	AT JUNE 30, 2006
Cash and Investments...................................................... Total Assets.................................................................. Deferred Revenue............................................................ Total Liabilities............................................................ Net Assets – Unrestricted................................................ Total Net Assets...........................................................	$381,618 $385,899 $105,683 $125,811 $260,088 $260,088	$343,902 $348,708 $73,327 $88,164 $260,544 $260,544
EXECUTIVE DIRECTOR
During the audit: Mr. Steve Jankowski Currently: Mr. Steve Jankowski

No fraud risk assessment program in place

The Association relies on external audits for identification of control weaknesses

Audits are not a substitute for management controls

Cash reconciliations were completed more than 30 days after the statement date

The Alumni Association’s controls over journal entries allow for management override

Management override could result in inappropriate journal entries being made by management

INTRODUCTION

This digest covers our compliance examination and financial audit of the Alumni Association for the period ended June 30, 2007.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

FRAUD PREVENTION AND DETECTION PROGRAM

The Alumni Association does not have a fraud risk assessment program in place. According to Alumni Association management, the Alumni Association has established internal controls in order to prevent and detect fraud as well as errors that may occur; however, these controls and associated risks are not monitored on an on-going basis.

The Alumni Association relies on current internal controls that have been put in place to prevent and detect fraud. Additionally, Alumni Association management has relied on the external audits for identification of control weaknesses.

Accounting industry trends have increased organizations’ awareness of the prevalence of fraud. Many organizations rely in part on their auditors to uncover any internal fraud, but audits, even those of the highest quality, are not a substitute for management establishing good internal control.

The Alumni Association is responsible for the development of internal controls and the monitoring of their operating effectiveness. Additionally, it is management’s responsibility to prevent and detect fraud. (Finding No. 1, Page 21)

We recommended that management establish a continuous written fraud prevention, deterrence and detection program, and that the Board of Directors evaluate management's identification of fraud risks and its implementation of anti-fraud measures.

Alumni Association officials agreed with our recommendation.

BANK RECONCILIATIONS NOT COMPLETED TIMELY

The Alumni Association did not ensure that its cash reconciliations were performed on a timely basis. Specifically, nine out of the 12 (75%) monthly bank reconciliations were completed more than 30 days after the statement date.

Timely bank reconciliations:

· may uncover differences that may need further investigating;

·      help to safeguard cash by detecting errors on the part of the bank and/or the organization when recording activities in accounts;

·        identify recording errors and other problems;

·    help to create stronger internal control, whereby accountability over cash assets is greatly enhanced; and

·       help ensure that account balances are accurate, and that they reflect the true financial position of the organization, so governing bodies can make more informed decisions.

Although no errors were noted as a result of the untimely completion of the reconciliations, completing bank reconciliations in a timely fashion helps ensure that items such as these are discovered in a manner that would limit the adverse operational effects to the Alumni Association. (Finding No. 2, page 22)

We recommended that the Alumni Association implement procedures to ensure that bank reconciliation’s be completed no later than 30 days after the end of the statement period.

Alumni Association officials agreed with our recommendation.

MANAGEMENT OVERRIDE OF CONTROLS FOR JOURNAL ENTRIES

            The Alumni Association has designed and implemented a system of controls over the journal entry process that allows for management override. Specifically, the journal entry process in place at the Association does not restrict the Director of Financial Affairs from having the Authorization to approve a journal entry and the ability to post a journal entry into the general ledger. This demonstrates a weakness in the design of the control system. However, during our testing, no journal entries were noted that were posted by the Director of Financial Affairs.

            Strong internal controls require that in order for an entity to have effective control over a process, the control structure should be properly designed and control activities should be implemented. Thus, if the control structure over a process is not properly designed to restrict management from being able to override the control activities in place for that process, the entity would not have adequate control over preventing or detecting inappropriate actions made by management during that process.

            Alumni Association management indicated that since the Director of Financial Affairs does not make journal entries into the system, and due to the limited size of Alumni Association staff, restricting access would leave only one person available to process the entries.

This weakness in the design of the control system over the journal entry process could result in management override of controls and thus result in an inappropriate journal entry being made by management that is not prevented or detected by the entity.

We recommended the Alumni Association implement a system of controls to ensure that management does not have the ability to override the controls currently in place.

Alumni Association officials agreed with our recommendation.

AUDITORS’ OPINION

Our auditors stated the June 30, 2007 financial statements of the Alumni Association are fairly presented in all material respects.

____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:KAL :pp

SPECIAL ASSISTANT AUDITORS

Crowe Chizek & Co., LLC were our special assistant auditors for this audit.

SYNOPSIS