Missouri State University missed out on the opportunity to generate $10,000 in tuition and fees during the last school year when the band program did not charge fees to its members, a new review suggests. The scenario further highlights the need for internal audit software to avoid these potential situations.
The nine-page audit was released to the Missouri News-Leader last week, and discovered the band program's practices and procedures were not followed properly in regards to the fall 2010 and spring 2011 terms. While no funds were missing, there were a number of areas where the organization lost out on opportunities.
"In 2010-2011, the program failed to charge all members of the Pride Marching Band the band activities fees of $335. The fees… cover the cost of the band camp, including housing, meals, clothing and travel," the source notes. "If correctly assessed, the fees would have raised $93,600. Instead, the university collected $88,240."
For educational institutions, improper procedures can cost thousands of dollars. For example, a recent audit of Georgia-based Kennesaw State University found weak protocols cost the university nearly $70,000.
Running a successful corporation is a risky proposition, especially in 2012, with the economy still on the mend and the pace of doing business quickening. Organizations must ask themselves: How much risk is acceptable in order to pursue and accomplish business objectives?
According to the Committee of Sponsoring Organizations of the Treadway Commission – a group of five private sector companies aimed to provide leadership guidance – corporations must consider its risk appetite while it decides which goals to pursue. This is a three step process, which involves developing risk appetite, communicating it and then monitoring and updating it, the COSO report notes.
"As an organization decides on its objectives and its approach to achieving strategic goals, it should consider the risks involved, and its appetite for such risks, as a basis
for making those important decisions," the committee suggests.
To that end, it may be worth the time to reconsider risk management programs. The start of a new year presents new challenges, and more efficient risk assessment software can help better identify potential issues in advance.
A perfect storm consisting of widespread downsizing and economic recession may lead to more internal fraud worldwide, highlighting the need for better risk identification strategies, Risk.net reports.
Financial stress, operation change in organizations and the ever-looming threat of a double-dip recession may change how some people perceive their employers and jobs, making them more likely to engage in fraudulent behaviors. This translates into major risks for financial institutions, KPMG suggests
"It's highly likely that fraud, especially the internal threat, is going to continue to increase as economic pressures increase over the coming year," Hitesh Patel, a partner at KPMG, told the news source. "The possibility of a double-dip recession is likely to put further strain on households, driving more people to turn to fraud … to make ends meet."
With many companies just now beginning to recover from the 2008 recession, it's crucial they monitor internal activities. Fraud could further damage their relationships with investors and shareholders, not to mention their bottom lines.
Several disparaging reports about the conditions of the Saratoga Springs Housing Authority in New York have led to the town's mayor to call for an internal audit of the organization.
Reports of bedbugs in Stonequist Aparments were the first sign that something may be wrong with the authority's financial budget and practices. There are several other concerns as well, including salary, compensation, travel and business expenses, as well as claims of nepotism, Mayor Scott Johnson told the Times Union.
Al Calluci, a city resident and a critic of the authority, was also included into the organization's seven-member board.
"Quite honestly, I don't know what the oversight has been. Absolutely, the state has to be involved," Calluci told the news source, referencing the U.S. Department of Housing and Urban Development.
HUD is a cabinet department formed in 1965 for the explicit purpose of developing and executing policies to support housing in metropolises. It is supposed to prevent buildings and properties under its control from becoming decrepit and uninhabitable.
Ronn Motor Company is in the process of becoming a "reporting company," and to achieve that goal, the technology firm is conducting a two-year financial and transactional review spanning from 2009 to 2011 using internal audit software.
The two-year review will cover all financial transactions, while transactions between shareholders from the past three years will be audited as a part of the initiative. The financial audit is tentatively scheduled to be completed within the first quarter, which will enable the company to complete a Form S-1 filing with the SEC.
"Bringing integrity and confidence in our financial reporting and financial processes is a critical action our company must take," said David McGee, CEO of Ronn Motor Company. "We believe the team we've assembled will conduct this audit process in a professional and efficient manner and further positions us toward being a 'Reporting Company' – a key objective for us."
The review should improve corporate governance and establish greater confidence among shareholders. After the economic collapse, many companies lost the trust of their investors, so performing audits and enhancing governance can help organizations reconnect with these individuals.
Despite the wide-reaching impact of the 2008 economic recession, many corporate leaders still feel their organizations have a ways to go to create a company that values the importance of risk awareness.
According to a recent survey conducted by Zurich Financial Services Group, approximately two-thirds of the executives surveyed said risk identification has become paramount over the past three years. Despite the growing importance of risk assessment, only one in 10 thought their management was effective in the creation of a risk-aware culture.
Additionally, many respondents believed it was crucial to link risk information to strategic decision making, but only 14 percent said their companies actually did that in an effective manner.
"There is no doubt that in today's challenging environment customers, shareholders and employees expect clear commitment to comprehensive and forward-looking risk management from top management and board," said Axel Lehmann, chief risk officer at Zurich.
IndustryWeek recently suggested assigning a corporate "risk champion." This individual would work toward achieving better risk awareness throughout the company and getting each department to work together to create a comprehensive risk strategy.
Renewed importance has been placed on risk management after the approval of recent legislation that is designed to prevent future financial meltdowns. However, when it comes to risk governance, corporations often assign the task to various individuals and department without any clear expectations.
As IndustryWeek notes, various studies show the inefficiency of which risk governance is carried out. Seven percent of company revenue is devoted to risk identification and governance, but few firms work together to tackle these key issues and the matter tends to get pushed to the lowest levels of the organization.
David Young, senior vice president of insurance firm Willis, suggests appointing risk champions who will take control of the issue.
"Ignorance has never been a defense of the law. You should have known," Young told the news source.
Conversely, however, businesses shouldn't relegate all the responsibility on a certain person – there is a difference between having an individual take care of risk assessment and a person who will motivate others to address it. The risk champion should rally everyone else together to tackle the issue.
Financial institutions came under fire after the economic collapse in 2007 and 2008, and now investors are encouraging them to make greater use of their risk assessment software to prevent a similar scenario in the future. However, it is more difficult to determine the correlation between operational risk and macroeconomic factors than many think, says expert Marcelo Cruz.
Data is the primary obstacle in that regard. Though some progress has been made to improve operational loss data, issues such as completeness, collection thresholds, dates and natural scarcity still prevent operational risk assessments from being as cut-and-dry as many financial institutions would like.
"For several important operational risk types, the lag that exists between a macroeconomic event and the losses can be many years, well beyond the scope of the exercise proposed by the regulators. One example is litigation losses (mostly under the ‘clients, products and business practices' risk type)," Cruz writes tor Risk.net.
With that in mind, transparency can also help ease relationships with investors. Corporations shouldn't try to hide risks or downplay them. Being straightforward is the best way to bolster confidence.
In any large corporation, there comes a time when executives must consider global expansion. This is now even more so the case, with the U.S economy struggling to recover and foreign markets such as India and China beginning to boom.
As RiskCenter notes, however, embarking on new objectives such as globalization opens corporations up to new risk. Some are obvious – like the tip of an iceberg – while others are less so – like the submerged core of the iceberg. Being able to perform risk identification for both types of dangers is crucial.
"While every business prepares elaborately for perceptible issues, few businesses take the initiative to develop an awareness and sensitivity to all that lies below, hidden from view, and waiting to cause chaos," the news source explains. "People don't know what they don't know. Worse yet, no one can plan for something that has never been anticipated."
In that regard, it's crucial that corporations use the most up-to-date risk workshop software to help prepare for all the possible scenarios.
Shortly after taking office, Oregon governor John Kitzhaber proposed a bill that would create jobs while making local schools more energy efficient. In addition to buoying local employment, the modifications will also result in significant savings for the city, a new audit suggests.
The improvements would cost approximately $40 million to carry out and create approximately 400 to 600 yearlong jobs, the Bend Bulletin reports. Once the improvements are done, they would save local schools nearly $4 million a year. Moreover, the state would be able to pay for most of the renovations through low-interest loans.
However, school boards are skeptical of the savings, especially when considering the fact that planned improvements would require them to take on additional debt in a rocky economic climate.
"Quite frankly, it didn’t tell us anything more than we already knew," Gary Heldt, an engineer for Eugene School District, told the news source in regards to the recent audit.
With more organizations looking to save money, internal audit software can be a valuable asset. Running these reviews regularly can help determine how various policies and procedures may affect the bottom line.