Sec. 13b.07.03.02. Auditing Guidelines (Not Applicable to Baltimore City Community College)

A. A college shall submit annually a signed financial and enrollment audit in accordance with this chapter.

B. Performance of the Audit.

(1) The audit is to be conducted by an independent certified public accountant, and the cost of the audit shall be the responsibility of each college.

(2) An annual audit performed by an official auditor of a county shall satisfy the annual audit requirement if it otherwise meets the requirements of the statutes and this chapter and if the official auditor is approved by the Commission with the concurrence of the Legislative Auditor.

(3) The Legislative Auditor may perform the required annual audits. However, the Legislative Auditor shall give notice of the Auditor's intent to perform the annual audit of a college before the start of the fiscal year to be audited. The cost of this audit is the responsibility of each college.

(4) The Legislative Auditor may be directed to undertake special audits of a college by the Joint Budget and Audit Committee of the General Assembly. These audits are conducted at State expense.

C. Selection of the Independent Certified Public Accountant.

(1) The selection of the independent certified public accountant who will conduct the audit is the responsibility of the local board of trustees for each college.

(2) The arrangements made with the independent certified public accountant shall:

(a) Be in writing;

(b) Specify that these regulations are being followed; and

(c) Be approved in advance by the college's board of trustees.

(3) The independent certified public accountant shall determine the nature and extent of the review required to render an opinion.

D. Audit Requirements.

(1) An audit of a college shall be conducted in accordance with the American Institute of Certified Public Accountants Industry Audit Guide: Audits of Colleges and Universities, and in compliance with generally accepted auditing standards.

(2) If the auditor is unable to express an unqualified opinion on financial statements, a separate letter shall be submitted to the Commission by the college which indicates in detail management's plan to correct the problem so that the auditor can issue an unqualified opinion in the future. These letters shall accompany the financial statements when they are submitted to the Commission.

(3) Management Letter.

(a) A college shall require the independent certified public accountant to issue a management letter to the college which shall contain a listing of all material weaknesses in the college's system of internal controls. A copy of the auditor's management letter and the college's response to each item in the management letter shall be filed with the Commission.

(b) The auditor shall follow up on previous material weaknesses, the college's response, and the action taken by the Commission in ensuing years to ensure that controls have been implemented. Noncompliance with the auditor's recommendations shall be noted in future management letters.

(4) Each board of trustees shall engage the independent certified public accountant to perform an audit on the Annual Financial Report to the Commission (form MHEC-CC-4) which is a special purpose report required by the Commission. The independent certified public accountant shall render a report on the scope of the accountant's examination of the Annual Financial Report (form MHEC-CC-4) and express the accountant's opinion as to the fairness of the Summary Statement of Revenues and Expenditures and the enrollment data. Explicit references are required with regard to enrollment data and whether the principles and procedures governing the interrelationship between the current unrestricted general fund and the auxiliary enterprise fund result in a fair presentation of the current unrestricted general fund revenues and expenditures. The independent certified public accountant also shall prepare a reconciliation of any differences in total current general unrestricted revenues and expenditures as shown in the Annual Financial Report (form MHEC-CC-4) and those same revenues and expenditures as reflected in the audited financial statements. For purposes of expressing an opinion on the Annual Financial Report (MHEC-CC-4), the independent certified public accountant shall comply with §D(5)-----(15) of this regulation.

(5) Full-time equivalent student enrollment shall be audited with the same diligence as applied to the financial statements, that is, the general standards and standards of field work apply to the enrollment audit. The specific tests of the enrollment records and the auditing procedures to be applied to the enrollment records are the responsibility of the independent certified public accountant.

(6) Full-time equivalent students equal total student credit or equated credit hours generated in a fiscal year divided by 30.

(7) Full-time equivalent enrollment:

(a) Is measured as of the end of the third week of classes each semester and after 20 percent of the time has lapsed for shorter sessions; and

(b) In credit or equated credit courses which continue for a period of time which is more or less than a semester, is measured at a point in time which is 20 percent of the total course time.

(8) Except as provided in COMAR 13B.07.02.03F and G, students shall be classified by their geographic area of residence to ensure that out-of-State students do not enter into the computation of full-time equivalent students for State aid purposes.

(9) A faculty or staff member, or dependents of the faculty or staff member of the college enrolled without tuition charge, may not be included in the computation of full-time equivalent students for the purposes of State aid.

(10) A college may not enter into a contractual agreement with an organization or institution which offers instruction resulting in credit or equated credit submitted for State aid to the college without the prior approval of the Commission.

(11) A college may not submit for State aid credits awarded to students for:

(a) Satisfactory completion of standardized tests of college-level performance, competency, or aptitude; or

(b) Work experience or life experience which does not require direct college instruction or supervision.

(12) Unless otherwise approved by the Commission, full-time equivalent enrollment is to be reported to the Commission within the fiscal year in which the courses are taught. Full-time equivalent enrollment in credit or equated credit courses that are conducted over the fiscal year end shall be reported in the fiscal year in which the courses are predominantly taught.

(13) An auditor shall direct particular attention to sections of the Commission general policies regarding contractual agreements with organizations offering instruction, State or federally funded contracts, and maintenance of effort by local subdivisions.

(14) When local, State, or federally funded contracts or grants, or both, pay for program or course costs, or both, State aid is not paid for that proportion of full-time equivalent students whose total costs are funded by the grant or contract.

(15) There is a clear distinction between the State's participation in support of current expenses and in support of construction projects, and this distinction shall be maintained in the college's accounts and reports.

(16) Transfer expenditures are included in adjusted current unrestricted operating expenditures only if the nature of the transfer coincides with the definition of an expenditure defined as a current general unrestricted fund expenditure.

(17) Encumbrances outstanding at year end shall be substantiated by written and approved purchase orders or contracts for the future delivery of goods or services not received as of June 30. In the preparation of financial statements, open encumbrances are to be reported under generally accepted accounting principles as a reservation of fund balance, since the commitments will be honored through subsequent year's expenditures. Open encumbrances outstanding at year end do not constitute expenditures or liabilities in the financial statements or in the Annual Financial Report (MHEC-CC-4).

E. Filing Requirements.

(1) Three copies of the formal audit report, the financial statements, the management letter, recommendations, and the college's response to the management letter shall be filed with the Commission within 90 days of the close of each fiscal year.

(2) Three copies of the Annual Financial Report (form MHEC-CC-4) shall be filed with the Commission within 90 days of the close of each fiscal year. The copies shall be accompanied by a transmittal letter signed by the president of the college which indicates that the president is aware of the contents of the report.

(3) The Commission shall forward copies of the required reports to the Legislative Auditor to fulfill the requirements of the statutes.

(4) Extensions.

(a) A written request for an extension of time to file the required reports and the management letter shall be received by the staff of the Commission before the original due date.

(b) An extension of time is not normally granted for the Annual Financial Report (form MHEC-CC-4).

(c) A request for an extension of time for the Annual Financial Report may be considered if:

(i) Detailed reasons are stated that indicate why the reporting deadline cannot be met;

(ii) The request indicates the estimated date the audit will be completed and the report filed; and

(iii) The request is signed by the president of the college.