EXECUTIVE SUMMARY:
This report presents the results of our audit of the cash management system at Harvard University (University). The objectives of our audit were to determine whether the University’s cash management policies and procedures were in accordance with Office of Management and Budget (OMB) Circular A-l10, Uniform Administrative Requirements for Grants and Other Agreements with Institutions of Higher Education, Hospitals and Other Non-Profit Organizations, to (1) limit requests for Federal funds to the minimum amounts needed to carry out the purpose of approved Federal programs and projects, (2) maintain advances of Federal funds in interest bearing accounts, and (3) remit interest earned to the Department of Health and Human Services (HHS), Payment Management System (PMS).
The University limits its cash requests for HHS funds to the amount of issued checks at the time of the cash requests. While the University posts issued checks to the cash disbursements report daily, the University averaged about five requests for HHS cash per month (every six days). We reviewed 100 Accounts Payable (A/P) checks and found that checks did not clear the bank for about 15 days after the transactions were posted to the cash disbursements report. We found that 40 of the 100 checks cleared before the request for Federal funds and for the remaining 60 checks the University received Federal funds an average of 11 days prior to the check clearing. Thus, the University earned interest on a portion of HHS funds (depending upon the date HHS funds are received and the actual date checks cleared the bank). However, the University did not remit the interest earned, as required, to the Federal government. This occurred because the University, in determining whether it earned interest, utilized the cash disbursements report, which includes disbursements as of the date the University issued checks, rather than using the date the bank cleared the checks. As such, the University earned interest on the uncashed checks and related indirect costs but retained the interest income for its own use rather than submit the interest earned to PMS.
We recommend that the University calculate interest earned using a method which considers the date that the bank clears checks rather than the date the University issues checks, and as appropriate, remit interest earned to PMS.
In response to our draft report, University officials recognize that the reported conditions support our recommendation. Further, they believe that initiatives currently underway will directly address the reported conditions and that significant improvements will be made over the next year to the University’s cash management processes that will preclude the necessity of performing an interest calculation for letter of credit. We are pleased that the University is in the process of improving its cash management system, and we agree that once fully operational, the initiatives should eliminate interest earned on Federal funds. However, until those initiatives are fully operational, it is the University’s responsibility to calculate interest earned on Federal funds and remit interest earned, which exceeds $250, to PMS.