Savannah State University, Savannah, Georgia, management letter, December 18, 2007

RUSSELL W. HINTON
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
EDUCATION AUDIT DIVISION
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
December 18, 2007

RONALDE. WATSON
DIRECTOR (404) 656-2180

Members ofthe Board of Regents ofthe University System of Georgia
and Honorable Earl G. Yarbrough, Sr., President Savannah State University
Ladies and Gentlemen:
In planning and performing our audit of the financial statements of Savannah State University, an organizational unit ofthe State ofGeorgia, as ofand for the year ended June 30, 2007, in accordance with standards generally accepted in the United States of America, we considered Savannah State University's internal control over financial reporting as a basis for designing our audit procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness ofthe University's internal control. Accordingly, we do not express an opinion on the effectiveness of the Savannah State University's internal control.
Our consideration of internal control was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. Any identified deficiencies in internal controls that we consider to be significant deficiencies and/or material weaknesses will be communicated to management and those charged with governance within the findings section of our report on Savannah State University's basic financial statements dated December 18, 2007. We noted certain other matters involving the internal control and operations of Savannah State University that are presented in this management letter for your consideration. This letter does not affect our report dated December 18, 2007 on the financial statements of Savannah State University.
We will review the status of these comments during our next engagement. Our comments and recommendations, all ofwhich have been discussed with appropriate members ofmanagement, are intended to improve the entity's internal control or result in other operating efficiencies. We will be pleased to discuss these comments in further detail at your convenience. Our comments are summarized as follows:

Accounting Controls (Overall) - Internal Control Process Documentation As a result of our audit, we found a lack of formal documentation related to management's internal control process and procedures, risk assessments, and monitoring of key controls and processes identified by management. Management should formalize their documentation and monitoring of key controls over significant accounts, processes and financial statement disclosures that will be relied upon to ensure that Savannah State University's financial statements are fairly presented.
Internal Control Procedures for Banner Savannah State University does not have sufficient controls in place to ensure that the processes to interface the BANNER system and the GeorgiaFIRST system are performed on a daily basis. The Banner interface was tested for the months ofAugust 2006 and March 2007. Eleven instances were noted where the daily processes were not completed as required. In addition, the reconciliation of BANNER activity to the GeorgiaFIRST system was incomplete for July 2006. Several accounts contained unidentified variances. Management should properly monitor established policies and procedures to ensure that they are consistently applied and reconciling items are properly identified.
Management of Endowment Funds Policies and procedures were not properly established and/or implemented to ensure that endowment funds were maintained in accordance with the signed endowment agreements between the University and the donors. For the year under review, eighteen endowments, totaling $228,144.21, were not properly invested. Funds were deposited into the Operating bank account and none of the interest earned on these funds was allocated to these endowments. Additionally, the University inappropriately expended a large portion of the corpus of one endowment. Management should review the endowments to ensure that the University is compliant with the endowment agreements. Policies and procedures should be implemented to ensure that all endowments are properly established, recorded and invested.
Payroll Disbursements The University's control procedures related to payroll disbursements for terminating employees were not adequate to prevent salary overpayments. The University failed to provide timely notification to the payroll department of employees' termination dates. In addition, a policy change regarding the payroll disbursement dates did not adequately address employees terminated between pay dates. As a result of these deficiencies, a reconciling item for accounts receivable of $5,156.00 for salary overpayments was noted on the Reconciliation ofSalaries and Travel. Management should establish policies and procedures to ensure that terminated employees are paid correctly.
Purchasing Card Transactions A review of forty-two purchasing card transactions revealed that the University paid sales tax on five transactions and four transactions lacked adequate supporting documentation. Management should review and monitor accounting procedures in place to ensure that sales tax is not paid and adequate documentation is maintained on all p-card purchases.

Budgetary Overexpenditure The approved budget of Savannah State University provided for expenditures totaling $43,501,063.00. A comparison of anticipated funds available and expenditures by budgetary line item indicated that the Teaching category was overspent by $3,765,997.06. Units ofthe University System should closely monitor internal control procedures over budget operations to prevent expenditure of funds in excess of budget approval.
Reporting of Federal Financial Assistance The University's Schedule ofExpenditures ofFederal Awards did not include $7,051.57 ofFederal indirect costs. Management should establish appropriate internal controls and procedures to ensure that information reported on the Schedule of Expenditures of Federal Awards is accurate.
In the normal course ofthe audit process, the auditor is only required to obtain an understanding of internal control sufficient to plan the audit. This, however, does not imply that the auditor must perform any type oftest or other verification ofthe effectiveness ofthe internal control system. As such, we strongly recommend that management evaluate the effectiveness ofthe entity's system of internal controls. This evaluation should reaffirm management's responsibility for establishing and maintaining an adequate system of internal controls and financial reporting. Strong and effective internal controls are the responsibility of management and we believe that this practice, conducted on an annual basis, will be ofsignificant benefit in enhancing internal controls and preventing fraud and abuse.
We believe that the implementation of these recommendations will provide Savannah State University with a stronger system of internal accounting controls while also making its operations more efficient. This communication is intended solely for the information and use ofmanagement and others within the organization and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,
~~~/4~ Russell W. Hinton, CPA, CGFM State Auditor
cc: Claire Arnold Ron Stark, Associate Vice Chancellor for Internal Audits