Basis of Accounting and Internal Controls

The Division of Finance and Administration plays a central role in assuring that the Board of Regents meet their fiduciary responsibilities to donors, government officials, students, employees, and the public. As such, the Division of Finance and Administration establishes the business policies and procedures for the University. Written accounting procedures provide guidelines that clearly define the process and assign responsibility for each accounting function in the organization. The accounting manual documents policies and procedures which:

• Standardize methods so that accurate and efficient procedures are consistently used.
• Help training accounting personnel, including current and new staff.
• Serve as a reference guide to non-accounting personnel.
• Provide management with a tool for control of fiscal operations which prescribe procedures, provides the steps for approving changes, and allows detection of deviation from procedures.

Policy

The accounting procedures used by Kentucky State University (KSU, the university) conform to Generally Accepted Accounting Principles (GAAP) as prescribed by the Governmental Accounting Standards Board (GASB), including Statement No. 34 Basic Financial Statement and Management's Discussion and Analysis for State and Local Governments, and Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis of Public Colleges and Universities, issued June and November 1999, respectively. The University reports as a Business Type Activity (BTA), as defined by GASB Statement No. 35. BTA's are those activities financed in whole or in part by fees charged to external parties for goods and services.

The University uses the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when an obligation has been incurred. This method of recording revenue and expenses is without regard to date of receipt or payment of cash.

Internal Control System

Internal controls protect the employees and the organization. The concept of internal control affects all the assets of an organization, its liabilities, its revenue and expenses, and every aspect of operations. Internal control ensures that the entire organization operates in accordance with management's plan and policies. A sound system of internal control provides assurance to management that business decisions being made are based on dependable financial information.

The system of internal control includes all measures taken by an organization for the purpose of:

• Protecting its resources against waste, fraud, and inefficiency,
• Ensuring accuracy and reliability in accounting and operating data.
• Complying with established policies, and
• Evaluating the level of performance in all divisions of the organization.

Internal controls fall into two basic categories: administrative controls and accounting controls. Administrative controls increase operational efficiency and guide compliance with policies in all