April 2012 audit of the University of Hawaii Manoa Facilties Office

UNIVERSITY OF HAWAI‘I AT MĀNOA

OFFICE OF FACILITIES AND

GROUNDS REVIEW (Phase I)

April 2012

University of Hawai‘i ____________________________________________________ Office of Internal Audit

Office of Internal Audit

April 24, 2012

To the University of Hawai‘i Board of Regents and University of Hawai‘i at Mānoa Vice Chancellor for Adminstration, Finance and Operations This report supplements a June 2011 report prepared by the Office of Internal Audit (Internal Audit) assessing the Office of Facilities and Grounds (OFG) implementation of recommendations contained in an Accuity LLP (Accuity) agreed-upon procedures report dated October 12, 2009. Internal Audit’s June 2011 report concluded that 50% of Accuity’s recommendations were implemented. However, pursuant to correspondence dated October 18, 2011 and a presentation at the October 26, 2011 Board of Regents’ Committee on University Audits (Audit Committee) meeting, OFG personnel stated that all recommendations were implemented. Accordingly, this report evaluates this statement regarding OFG’s management and controls with respect to inventory. This report also addresses OFG’s management and monitoring of financial operations, in addition to certain human resource matters, such as employee monitoring and work performance evaluation. This report is organized to provide historical information on OFG reports issued in previous years and the status of recommendations noted in those reports, discussion of the timing of Internal Audit’s current year work, and related findings, observations and conclusions. The significant findings and observations by audit area are summarized below:

1. Inventory a. Improperly valued – lacked documentation supporting the valuation for inventory

items selected for testing. b. Control deficiency regarding inventory existence – unable to provide work orders and

invoices supporting the change in inventory quantities between the date of OFG’s physical inventory counts (September 30, 2011) and Internal Audit’s inventory counts (December 9, 2011).

c. Potential obsolescence – lacked analysis and evidence supporting inventory usage, turnover and optimum quantities.

2. Financial Reporting a. Lack of periodic analysis of OFG’s department wide financial information to verify

accuracy and completeness – evidenced by the five (5) plus months of preparation time to provide Statements of Revenues and Expenses for the years ended June 30, 2011 and 2010 and the reasonableness of OFG’s responses resulting from Internal Audit’s inquiries.

b. Monthly expenditure reports not reconciled to annual report – evidenced by OFG’s inability to reconcile monthly expenditure reports to the Statements of Revenues and Expenses. OFG was also unable to provide documentation supporting their assertion of monthly expenditure report review by OFG’s Budget Committee.

University of Hawai‘i at Mānoa Office of Facilities and Grounds Review (Phase I) April 2012

Background Accuity LLP (Accuity) issued an agreed-upon procedures report dated October 12, 2009 evaluating certain areas of the Office of Facilities and Grounds (OFG) operations. These areas are summarized below:

Budget - develop and implement written policies and procedures and distribute budget-to-actual expenditure reports.

Project management - develop and implement written procedures that outline the life cycle of each type of project, implement a system to track all projects and identify and monitor project milestones.

Procurement process - comply with the University Administrative Procedures Manual (APM) for small purchases and identify operational efficiencies and minimize the number of days it takes to procure goods/services.

Inventory - assess internal controls and processes and develop an inventory system to track inventory quantities and values, monitor key inventory ratios, and provide statistics on usage.

Human resources - maintain evidence of collection efforts and develop and implement policies to minimize future salary overpayments and report workers’ compensation claims in compliance with the University APM.

Accuity’s report covered the periods July 1, 2005 through June 30, 2006 and July 1, 2007 through June 30, 2008. OFG’s Management Response dated September 14, 2009 concurred with all findings and noted that corrective action to address all recommendations had already been or would be implemented by October 2010. During fiscal 2011, the Office of Internal Audit (Internal Audit) performed a follow-up audit to assess if Accuity’s recommendations were implemented. Internal Audit’s report dated June 7, 2011 (OFG fiscal 2011 report) concluded that 50% (budget, procurement of small purchases, salary overpayments and workers’ compensation) of Accuity’s recommendations had been implemented. Purpose of Report During the presentation and discussion of the OFG fiscal 2011 report at the October 26, 2011 Board of Regents’ Committee on University Audits (Audit Committee) meeting, the Assistant Vice Chancellor of OFG (AVC) stated that he disagreed with Internal Audit’s and Accuity’s conclusions. The October 26, 2011 meeting minutes document the following representations made by the AVC with respect to OFG inventory in response to the OFG fiscal 2011 report and pursuant to inquiries by Regents and the Vice President of Budget and Finance:

The AiM Work Order System records labor units and a count of material used by each work order.

OFG does control all projects and can provide reports on performance and actual expenditures, which is currently and were available in 2008 (during Accuity’s review).

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Shops reconcile shop stock by work orders and quarterly inventory reports. Work orders are reconciled during the closing process.

Usage of inventory is noted in work orders, such that inventory is tracked from the Central Warehouse to the field.

With no correspondence to Internal Audit, the AVC also submitted a letter dated October 18, 2011 directly to the Board of Regents (BOR) Office indicating that all of Accuity’s recommendations were implemented. Representations noted in the letter with respect to inventory are as follows:

OFG maintains extensive records of material, operating supplies and non-capitalized equipment.

There is adequate monitoring of all of our University assets. As a result of OFG’s representations differing from the findings documented in Internal Audit’s OFG fiscal 2011 report, the Audit Committee requested that Internal Audit work with OFG in resolving and reporting on these differences. Regents also requested Internal Audit report on the following:

OFG’s management and monitoring of financial results Number of employees and job performance evaluation of those employees

Accordingly, this report addresses OFG’s inventory, financial results and certain human resource processes (hiring/termination, performance evaluations, monitoring of work performed by employees). Internal Audit will address the project management and procurement process efficiencies in the Phase II report. Timing of Work On September 22, 2011, Internal Audit met with the University of Hawai‘i at Mānoa Vice Chancellor for Adminstration, Finance and Operations (UHMVCAFO) to discuss the OFG fiscal 2011 report and to inform her that a document requesting information from OFG would be forwarded the following day requesting information addressing certain unresolved Accuity findings and questions from the Regents. The UHMVCAFO did not request any revisions to the OFG 2011 report and stated that the AVC of OFG would attend the October 26, 2011 Audit Committee meeting to respond to questions. On October 31, 2011, Internal Audit distributed a Supplemental Request Listing to OFG requesting additional information to support assertions and representations made by OFG personnel at the October 26, 2011 Audit Committee meeting. The requested due date for the September 2011 and October 2011 requests were November 14, 2011 and November 30, 2011, respectively. Significant delays were encountered in the receipt of substantially all requested information except for information requested in connection with Internal Audit’s physical inventory

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observation of the Central Warehouse. The Director of Facilities and Grounds and Central Warehouse supervisor were responsive to Internal Audit’s requests. As a result of repeated requests to OFG regarding the status and expected receipt dates of the requested information, Internal Audit requested the UHMVCAFO to assist in expediting the receipt of the requested information. On January 18, 2012, the UHMVCAFO issued a letter proposing the deferral of Internal Audits’ inventory procedures due to the anticipated implementation of a new inventory software package, the anticipated submission dates of outstanding information requests and reasons for OFG’s unresponsiveness. Internal Audit informed the UHMVCAFO that OFG should understand their current inventory processes prior to implementing a new process and software package. Internal Audit received a majority of the pending information by the committed submission dates noted in the UHMVCAFO’s letter. However, a substantial portion of the provided information was incomplete and did not contain Internal Audit’s requested content. As of April 20, 2012, certain requested information remains pending. Report Format The following pages are segregated by topic: inventory, financial reports and human resources. The work performed by Internal Audit, findings, observations and conclusions are noted in each section. Excerpts of documentation (correspondence, e-mails, etc.) provided by OFG that are included in this report are identified. Areas or matters of emphasis are presented in boldface.

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Inventory Observations OFG’s inventory is stored at their Central Warehouse, Workshops and Landscaping department. We were told that OFG’s AiM system maintains perpetual inventory records only for the Central Warehouse. We were also told that OFG performs and documents an annual physical inventory every June 30th for the Central Warehouse and that the first physical inventory performed for the Workshops and Landscaping department was on September 30, 2011. Inventory is generally maintained at the Central Warehouse and requisitioned when needed by the Workshops and Landscaping department. Central Warehouse inventory consists of the following:

Electrical – light bulbs, breakers, fuses, switches, conduits, ballasts, wiring, etc. General merchandise – bolts, screws, drill bits, saw blades, glue, trash bags, paper towels,

tape, etc. Carpentry – door closers, sealants, hinges, screens, etc. Air conditioner repair – motors, belts, filters, bearings, duct tape, heater coils, copper

tubing, pressure gauges, etc. Plumbing – faucets, flush valves, cartridge assemblies, copper adapters, pipe connectors,

etc. OFG’s reported value of Central Warehouse inventory at June 30, 2011 and November 28, 2011 was approximately $945,000 and $934,000, respectively. Workshop inventory consists of the following:

Electrical – light bulbs, fixtures, circuit breakers, conduit, etc. Carpentry – lumber, doors, concrete, hollow tile, roofing materials, screens, etc. Painting – paint in one (1) and five (5) gallon cans, aerosol paint, thinner, acetone Maintenance Mechanical – re-bar, flat bar, etc. Air conditioner repair – belts, filters, bearings, heater coils, copper tubing, etc. Plumbing – pipes (PVC, ABS, copper, etc.), faucets, flush valves, copper adapters, pipe

connectors, etc.

OFG’s reported value of Workshop inventory at September 30, 2011 was approximately $102,000.

Landscape inventory consists of the following:

Grounds supplies – safety glasses, gloves, raincoats, etc. Irrigation supplies – PVC pipes, couplings, sprinklers, etc. Chemical supplies – herbicides

OFG’s reported value of Landscape inventory at September 30, 2011 was approximately $26,000.

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Accuity Observations and Recommendations: Management should assess internal controls and processes over supply inventory management, including the use of a centralized inventory management system for all types of supply inventory. The inventory management system should track inventory quantities and values, monitor key inventory ratios, and provide statistics on usage. This system should enable the Facilities Director to determine the appropriate standing inventory levels to maintain, minimize inventory storage locations, identify potential misappropriation of assets, assist in the budgetary process, and allocate resources more efficiently and effectively. In addition, a centralized inventory management system should be supported by a formal annual physical inventory count. Internal Audit Work performed: Inventory Observations: Central Warehouse: Internal Audit performed an inventory observation of the Central Warehouse on December 1, 2011. Warehouse employees assisting Internal Audit were able to locate all inventory identified by Internal Audit to observe and count. Internal Audit noted various items that were rusted and appeared out dated. Warehouse personnel were unable to verify if these items were useable and not obsolete and stated that Workshop personnel determine inventory obsolescence. Internal Audit noted boxes with acquisition dates prior to 2000 (i.e. 1997). Counts were performed for all inventory types and compared to OFG’s perpetual inventory reports as of November 28, 2011. Sealed boxes were opened on a test basis to verify quantities and contents. Several exceptions were detected during our counts. OFG personnel were able to provide documentation (inventory requisitions) supporting the reconciling differences between Internal Audit’s counts and the perpetual inventory reports. The inventory requisitions were dated November 29, 30 or December 1. Accordingly, the Central Warehouse’s perpetual inventory reports as of November 28, 2011 from a quantity perspective were deemed accurate. However, Internal Audit’s results must be tempered by OFG’s procedure of adjusting quantity discrepancies in their perpetual inventory reports during the year and not retaining documentation supporting the reason for the adjustments. Workshops and Landscaping: Internal Audit performed test counts of certain Workshops and Landscape inventory on December 9, 2011. Test counts were not performed for the Electrical and Air Conditioner Workshops as shop personnel were not available to assist Internal Audit locate inventory. Since perpetual inventory records for the Workshop and Landscaping inventory are not maintained, Internal Audit’s December 9, 2011 counts were provided to OFG to reconcile (purchases and usage) to their September 30, 2011 counts. OFG was unable to reconcile and support the change in Workshop and Landscaping inventory from October 1, 2011 through December 9, 2011.

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Inventory valuation: Internal Audit requested invoices and calculations to support the reported values for a sample of 70 inventory items. OFG supported the values of less than 3% (2 of 70) of the inventory items selected for testing. Internal Audit noted numerous instances in which OFG provided invoices that supported only a portion of quantities as of June 30, 2011 and September 30, 2011. In addition, OFG’s inventory calculations did not include product (inventoriable) costs, such as Hawai‘i general excise taxes, shipping and handling costs, etc. It also took OFG in excess of five (5) months from the date of Internal Audit’s request to determine their inventory accounting method and conclude that their method was inconsistent with the methods disclosed in the University’s Consolidated Financial Statements. Inventory ratios and usage statistics: OFG’s correspondence stated that inventory ratios such as turnover and number of days in stock are difficult to monitor due to the maintenance of older inventory stock. However, the age of inventory is irrelevant to this calculation. In addition, the purpose of the turnover and number of days in stock ratios are to identify old and slow moving inventory. Pursuant to additional Internal Audit inquiries, OFG stated that inventory ratios are not monitored. OFG also stated that inventory usage history is maintained in their AiM System and that inventory levels are managed with manual cards. However, documentation evidencing the optimum quantities by inventory type based on usage history was not provided to Internal Audit. Accordingly, Internal Audit could not assess whether inventory quantities documented on the manual cards were based on historical usage and purchase activity. Conclusions Internal Audit concludes that OFG lacks sufficient internal controls and processes over inventory valuation and existence. This conclusion is supported by the following:

OFG’s inability to support inventory values for a sample of inventory selected for testing. OFG’s inability to provide work orders and invoices supporting the change in Workshop

and Landscaping inventory quantities between the date of OFG’s physical inventory counts (September 30, 2011) and Internal Audit’s inventory observation (December 9, 2011).

Accordingly, the propriety of OFG’s inventory value (excess of $1,000,000) is questionable. In addition, the lack of control over the usage of inventory maintained at the Workshops and Landscaping department raises significant questions regarding the disposition of the inventory. The lack of analysis and evidence supporting inventory usage, turnover, and optimum quantities indicates that certain Central Warehouse inventory is potentially old and obsolete. This conclusion is further supported by Internal Audit’s Central Warehouse inventory observation on December 1, 2011.

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Financial Reports Background During fiscal 2011, OFG provided Internal Audit with their written policies and procedures with respect to OFG’s budgeting process in addition to providing a sample of monthly budget-to-actual reports distributed to department managers. Documentation supporting the budgeting process was provided to Internal Audit in response to recommendations noted in Accuity’s report. Internal Audit requested OFG provide Statements of Revenues and Expenses for the years ended June 30, 2011 and 2010 to determine if OFG was reviewing and analyzing the results of their overall operations on a periodic basis in addition to determining if OFG reconciles their budget-to-actual reports to year-end financial reports that ultimately roll up to the University’s Consolidated Financial Statements. Internal Audit Work performed: Observations: During November 2011, OFG provided Internal Audit with financial reports representing an insignificant portion of their operations (Special Funded operations). On January 31, 2012, OFG informed Internal Audit that they requested assistance from the General Accounting and Loan Collection office as they were unable to provide the financial information requested by Internal Audit. OFG provided preliminary Statements of Revenues and Expenses for the years ended June 30, 2011 and 2010 in February 2012. OFG provided revised Statements of Revenues and Expenses (see next page) during March 2012. OFG attributed the delay in providing the requested information to OFG historically not preparing Statements of Revenues and Expenses due to their non-revenue generating purpose. However, Internal Audit believes that financial operations on a department-wide basis should be monitored and analyzed on a periodic basis irrespective of the department’s operational objectives. OFG’s written documentation notes that expenditure reports are analyzed monthly, compared to budgeted amounts and discussed at monthly Budget Committee meetings. Meeting minutes, agendas, and summaries evidencing the matters discussed and conclusions reached at the monthly Budget Committee meetings were not provided to Internal Audit. Internal Audit requested OFG to aggregate and reconcile the fiscal 2011 monthly expenditure reports to the provided Statements of Revenues and Expenses for the year ended June 30, 2011. OFG responded that the requested reconciliation would be prepared and forwarded to Internal Audit. As of April 20, 2012, Internal Audit has not received this reconciliation.

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UNIVERSITY OF HAWAI‘IFGS and Facilities & PlanningSTATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS

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ce

Years Ended June 30, 2011 and 2010

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cePrepared by the Office of Facilities and Grounds

(Unaudited) 2011 2010REVENUE:

FEDERAL GRANTS & CONTRACTS -$ 3,524$ SALES & SVCS 209,549 147,681

TOTAL REVENUE 209,549 151,205

EXPENSES:SALARIES/WAGES 12,319,573 12,592,555RECEIPTS FROM CHARGEABLE WORK ORDERS 1 (55,868) (42,911)WAGE ADJ/RECLASSES (1,121) (5,076)EMPL FRINGE BENEFITS 4,581,315 4,629,351WORKERS COMP ASSESSMENTS 49,923 61,356UNEMPLOY INS ASSESSMENTS 50,861 36,214OTHER EMPLOYEE FRINGES 122,095 31,866 COMPENSATION AND BENEFITS 17,066,778 17,303,355OTHER FEE SERVICES 359,464 88,570ADVERTISING 1,045 812PRINTING & BINDING 26,650 14,102SUPPLIES 2 1,580,727 1,027,398RECEIPTS FROM CHARGEABLE WORK ORDERS 1 (30,822) (15,251)DUES & SUBSCRIPTIONS 8,596 8,190FREIGHT, DELIVERY, POSTAGE 148 124TRAVEL, CAR MILEAGE 7,630 2,597TRAVEL, INTRA-STATE 1,315 2,024TRAVEL, OUT-OF-STATE 23,782 13,528TRAVEL, OTHER 3,255 4,380REPAIRS & MAINTENANCE 3 2,906,122 2,187,331TELEPHONE & TELEGRAPH 91,661 68,611UTILITIES 4 25,900,415 21,999,905RENTALS 140,622 143,102INSURANCE 8,221 4,733CONTROLLED PROP EQUIP PURCH 61,321 16,375OTHER OPERATING EXP 77,837 5,080

TOTAL EXPENSES 48,234,767 42,874,966OPERATING LOSS (48,025,218) (42,723,761)

NONOPERATING REVENUE:STATE APPROPRIATIONS 5 13,247,979 12,665,458INVESTMENT INCOME 29,228 25,421TFR FROM/TO STATE-NIMP FRIN 5 4,547,733 4,663,005INSUR PROCEEDS FOR PROPERTY 6 0 2,600,341

TOTAL 17,824,940 19,954,225

OTHER REVENUES AND (EXPENSES):CINA ITEMS REQUIRING ADJUSTMENTS 5 34,573,556 33,581,336CLEARING-NONCINA FOR TOTAL UH 7 (662,155) (3,896,769)EXTRAORDINARY EXPENSE - OTHER 29,651 (139,079)

CHANCE IN NET ASSETS 3,740,774$ 6,775,952$

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ce

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Review of Statements of Revenues and Expenses Various inquiries arose in connection with Internal Audit’s review of the Statements of Revenues and Expenses primarily with respect to the nature of the transactions impacting account balances. Internal Audit inquiries and OFG’s explanations (italicized) of certain account balances are summarized below. The numbers correspond to the account balances noted on the accompanying Statements of Revenues and Expenses. (IA: inquiry by Internal Audit, OFG: OFG’s response, IA comment: comments to address OFG’s response) 1. IA: Are recoveries related to services rendered by OFG personnel and the billable inventory

related to those services? For payroll recoveries, are fringes included in the recovered amount? Please describe the policy and criteria for billing work orders and how the billed amounts are determined. Do invoices support these charges and how are the amounts charged settled?

OFG: Recoveries represent the amounts recorded on billable work orders for labor hours and materials. Labor rates do not include fringes since employee salaries are paid on General Funds. Journal Voucher’s (JV’s) are generated to charge the billable amounts to the requesting department unless non-UH accounts are identified on the work order. In these cases, an invoice is generated and forwarded to the requesting department. Labor rate is based on the hourly rate of the lowest paid employee of the shop or unit rendering the service. Materials are charged at cost plus a mark-up. Work Requests are screened by the Work Coordination Center to determine if they are billable. Requests that are for the repair and maintenance of existing facilities are not billed. Requests that are made by a department for the installation of new facilities, or the alteration of existing facilities, are considered billable to the department. IA comment: OFG provided their “Billable Work Order” policy dated November 14, 2011, which is consistent with the requested due date of the September 23, 2011 information request. This policy does describe the type of alterations and renovations that are chargeable but does not describe the process to determine the labor rates or material costs to be charged to the Work Order originator.

2. IA: Describe the types of supply charges included in this account.

OFG: Includes both operational supplies (for example, office supplies or computer software) and materials or supplies purchased for work orders. If the work order is deemed billable, the cost of the material or supply will be recharged to the requesting department.

3. IA: Describe the types of charges included in the repairs and maintenance account.

OFG: Most of these expenses relate to contracts for repair and maintenance work (for example, elevator maintenance contracts). Occasionally a work order will require hiring a contractor to perform repair and maintenance activities.

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4. IA: Describe the types of utility charges included in this account and if these charges are recovered.

OFG: Includes electricity, water, gas and refuse services for the Mānoa campus, as well as several off-site locations. The funding source of the utility charges is tuition revenue allocated to OFG (see #5)

5. IA: Describe the sources of revenues included in these accounts.

OFG: The State Appropriations category summarizes the amount of General Funds expended/encumbered as of the close of the fiscal year, less the amount of funds encumbered at the end of the prior fiscal year but lapsed in the current fiscal year.

The Transfer From/To State-NIMP (non-imposed) Fringe category shows the fringe benefit amounts paid by the State for UH employees charged to General funds).

“CINA (Changes in Net Assets) Items Requiring Adjustments” primarily represents tuition revenues transferred to OFG. Transfers are done via JV. IA comment: Generally and consistent with the presentation in the University’s Consolidated Financial Statements, State Appropriations in a Statement of Revenues and Expenses reflect total funds (less lapses) allocated to the department rather than only the expended and encumbered (committed) amounts. OFG’s annual budget for fiscal 2011 and 2010 approximates $50 million. As noted in #4, a significant portion of the appropriated funds are for utility payments.

6. IA: What do the insurance proceeds relate to? Is the amount received equivalent to the

disbursements made to repair or replace damaged property?

OFG: The insurance proceeds received in FY 2010 represent a portion of the insurance moneys received for the Lab School fire that occurred in June 2006. IA comment: OFG could not explain why they received these proceeds.

7. IA: Describe the components of this account and the reason for the significant fluctuation.

OFG: The large difference in Clearing-Non CINA items between FY 2011 and FY 2010 is due primarily to Hamilton Library construction in process at FY 2010. The project was capitalized upon completion and therefore did not appear in FY 2011. IA comment: Based on Internal Audit inquiry, OFG was not aware that disbursements for capital asset additions should not be reflected on the Statements of Revenues and Expenses.

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Conclusions Internal Audit concludes that OFG does not review or analyze their departmental financial operations on a periodic basis based on the following:

The five (5) plus months to prepare Statements of Revenues and Expenses for the years ended June 30, 2011 and 2010.

The inability to reconcile monthly financial reports that OFG asserts that they review monthly to the annual reports.

Responses provided to certain Internal Audit questions noted above raise questions as to accuracy and completeness of OFG’s financial transactions reflected in the University’s general ledger as well as the OFG’s fiscal accounting processes and controls.

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Human Resources Background During fiscal 2011, OFG provided Internal Audit with their written policies and procedures to address recommendations noted in Accuity’s report with respect to Salary Overpayments and Workers’ Compensation claims reporting non-compliance. The following human resource processes are addressed in this report:

Employee hiring and termination Annual performance evaluation preparation Timesheet review and approval

Documentation from OFG was received from November 2011 through March 2012. Pursuant to correspondence dated November 30, 2011, OFG provided their Organization Chart dated as of July 1, 2011. This Organization Chart notes the following:

358 FTE general funded positions the Director of Facilities and Grounds reports to the Assistant Vice Chancellor for

Facilities and Grounds the Administrative Services, Facilities Management and Buildings and Ground

Management departments report directly to the Director of Facilities and Grounds OFG staffing consists of architects, engineers, tradespersons (carpenters, plumbers, painters, electricians, etc.), buildings and grounds management staff (groundskeepers, refuse, janitors, and landscapers) and professional staff. As of November 2011, OFG correspondence noted that 289 full-time personnel were employed. Organization The OFG website includes an organization chart that differs from the approved July 1, 2011 Organization Chart. The following describes the significant difference between the organization charts:

deletion of the Facilities and Grounds department, and the Administrative Services, Facilities Management and Buildings and Grounds Management

departments reporting directly to the Assistant Vice Chancellor for Facilities and Grounds.

OFG personnel informed Internal Audit that they have been operating and reporting pursuant to the website’s organization chart prior to July 1, 2011. Policies and Procedures During November 2011, OFG provided Internal Audit with documentation that was not responsive to Internal Audit’s request. Policies and procedures initially provided were all dated

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November 14, 2011 which is consistent with the requested due date of the September 23, 2011 information request. OFG provided revised and redated policies and procedures in January and February 2012 with final documentation in March 2012. The “OFG correspondence and representations” noted below represent documentation (memorandums and e-mails) provided by OFG pursuant to Internal Audit requests and inquiries. Hiring and termination: OFG correspondence and representations: OFG employees fall into two broad categories: Administrative, Professional and Technical (APT) employees and Civil Service employees. The initial decision to fill a vacancy is made by the supervisor of the position. The supervisor will initiate a Personnel Action Request and obtain applicable Manager, Director, Fiscal Officer and AVC approvals. All recruitments are conducted by a selection committee designated by the supervisor of the position. OFG uses a selection committee for all hires and promotions in order to ensure selection of the most qualified candidate who is also the best fit for the work team (For Janitor II candidates applying to Janitor III vacancies, a selection committee ensures that no candidate has been pre-selected for the position and that a fair and unbiased process is in place). The final approval of the selection/appointment is made by the AVC. With respect to terminations, OFG’s Personnel Officer updates PeopleSoft records and coordinates with the fiscal staff regarding any applicable vacation payouts. Payment or transfer of excess vacation must be approved by the appropriate Director and Fiscal Officer. The Personnel Officer coordinates the completion of the termination checklist (dated April 2011) to ensure that all forms and procedures associated with personnel terminating employment at the University have been completed. Internal Audit observations: OFG provided Internal Audit with a listing of employees hired since January 1, 2009. Internal Audit requested selection committee files for 10 employees noting that the files appeared complete as they generally contained the following:

1) Memorandum recommending hire 2) Minimum qualification matrix (list all minimum qualification included in the position

description and indicates whether candidates meet the minimum qualifications) 3) Interview questions and candidate responses prepared by members of the selection

committee 4) Ranking sheet to support candidate selection 5) Reference checks 6) Rejection letters

Internal Audit was informed that the AVC may override the decisions of the selection committee. In addition, utilizing a selection committee for all hires and promotions may not be an effective use of resources.

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Annual performance review: OFG correspondence and representations: The AVC establishes overall expectations for OFG. These expectations then flow through each level within OFG. The evaluation period for APT employees is November 1st through October 31st. The evaluation period for Civil Service employees is their hire date. Evaluations were completed in 2011 for 97% of all OFG APT employees. OFG does not track the completion percentage for civil service employees. Internal Audit observations: Internal Audit requested to review the expectations established by the AVC as these expectations would need to be communicated to all OFG employees and would serve as the basis to determine if OFG employees had met their expectations. OFG informed Internal Audit that the AVC’s expectations are not written. OFG provided Internal Audit with a listing of employees as of November 2011. Internal Audit requested the annual performance reviews for 16 employees. Eight are classified as APT employees and eight as Civil Service employees. For the APT employees, all eight evaluations were completed. One (1) Civil Service evaluation was completed. We were informed that the last evaluation performed for certain Civil Service employees selected for testing was 1998. Accordingly, employees that are performing as expected or exceeding expectations are not acknowledged. However, employees that are not meeting expectations will continue to perform poorly as corrective action to improve work performance will not be provided and monitored. Internal Audit also noted that for two APT employees, the employees’ expectations were submitted on October 31, 2011 and November 25, 2011 while the submission date of the evaluation was October 31, 2011 and December 5, 2011, respectively. Accordingly, expectations for these employees were not prepared or submitted on a timely basis. Timesheet preparation and review: OFG correspondence and representations: In order to implement a timesheet requirement, the UH System Office of Human Resources would have to consult with the applicable unions as this is a negotiable item within collective bargaining. With regard to how OFG determines whether their employees are working the required eight hours a day, this falls within the supervisor’s responsibility and is generally assured by reviewing the work quantity and quality as well as observations of attendance. APT architectural and engineering staff complete timesheets of hours worked on specific projects, in order to track time expended per project. Internal Audit observations: Observations of attendance and daily oversight may be sufficient in determining if any employee is working eight hours a day for employees working in the same work area. However, OFG lacks objective measurements to monitor the daily activities of personnel (e.g., tradespersons,

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groundskeepers, etc.) working throughout the campus. In addition, we were told that hours recorded on Work Orders are not evaluated to determine if an employee worked for eight hours a day. OFG should consider establishing controls to assist in determining if personnel are working effectively and efficiently for eight hours a day. Conclusions Internal Audit concludes the following with respect to the OFG human resource processes described above

OFG’s operating structure is inconsistent with the Organization Chart dated July 1, 2011. Expectations established by the AVC are not written. Accordingly, communicating

expectations in a consistent manner to all OFG personnel is not possible. In addition, comparing performance against expectations during the annual performance evaluation is not supportable without written expectations.

Extremely poor performance in the preparation and communication of annual evaluations for Civil Service employees. Fair and timely preparation and communication of annual evaluations may mitigate the need of convening a selection committee to support employee promotions.

Lack of objective monitoring of employee work productivity.

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April 2012 audit of the University of Hawaii Manoa Facilties Office

Documents

Transcript of April 2012 audit of the University of Hawaii Manoa Facilties Office