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Institutional Information: Internal Controls & Audit Process

The University of Tennessee is a component unit of the State of Tennessee and an integral part of the state’s Comprehensive Annual Financial Report (CAFR).  The governance of the University of Tennessee is vested in the University of Tennessee Board of Trustees.  In 1968, the board reorganized the institution into a university system, giving a central administrative staff the responsibility for the entire operation of the university.  In 2000, the university was reorganized into three accredited units: the University of Tennessee, the University of Tennessee at Chattanooga, and the University of Tennessee at Martin.

The university’s highly developed system of internal accounting controls provides reasonable assurance that assets are protected and that transactions and events are properly recorded. Establishing sound fiscal policies and procedures and communicating them clearly, carefully selecting qualified financial staff, and implementing an extensive program of internal audits and management reviews ensure that the system of internal controls is maintained.  Financial statements have been audited by the State of Tennessee, Comptroller of the Treasury, Division of State Audit. The auditor’s opinion is based on audit procedures that include understanding university systems, procedures, and internal controls and performing tests and other auditing procedures sufficient to provide reasonable assurance that the financial statements are not materially misleading nor do they contain material errors.

The University of Tennessee’s policies apply to all campuses and institutes and provide university employees guidance to:

  • Ensure compliance with state and federal laws and regulations
  • Maintain adequate internal controls to safeguard the university’s assets
  • Provide consistent management of resources transactions across the system
  • Understand the university’s expectations for conducting university business
  • Communicate these expectations to others as needed

Fifty-five fiscal policies address topics from accounts receivable to use of university vehicles.  Specific policy F10130, established in 2006, provides policies on fraud, waste, and abuse regarding university resources and establishes reporting requirements for illegal, improper, wasteful, or fraudulent activity regarding university resources.

Auditors and management are required to assess the risk of fraud in the operations of the institution.  The risk assessment is based on a critical review of operations considering what frauds could be perpetrated in the absence of adequate controls.  The auditors’ risk assessment is limited to the period during which the audit is conducted and is limited to the transactions that the auditors are able to test during that period.  The risk assessment by management is the primary method by which the institution is protected from fraud, waste, and abuse.  Since new programs may be established at any time by management or older programs may be discontinued, that assessment is ongoing as part of the daily operations of the institution.  Risks of fraud, waste, and abuse are mitigated by effective internal controls. T he risk assessments and the actions of management in designing, implementing, and monitoring the controls are documented to provide an audit trail both for auditors and for management, in the event that there is a change in management or staff, and to maintain a record of areas that are particularly problematic.

The Office of Research through its Sponsored Programs Office is responsible for subcontract monitoring and will ensure that all applicable terms and conditions are incorporated and flowed down to subcontractors.  All subcontractors are verified on the Excluded Parties List prior to UT issuing a subcontract.  This ensures that we do not do business with companies that have been debarred, suspended, or otherwise excluded from or ineligible for participation in federal assistance programs or activities.

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