Background

After the University of California announced in January 2003 that it would commission an independent assessment of key business processes at the Los Alamos National Laboratory, management at the Lawrence Livermore National Laboratory requested a similar assessment of its business processes. The firm of Ernst & Young LLP, retained for the review at Los Alamos, was commissioned to conduct a similar study of compliance and operational analysis of processes and internal controls in the following areas:

Procurement business process and application controls Interfaces between Procurement and Property Management Interfaces between Procurement and Accounts Payable Property Management and Property Accounting Accounts Payable and Disbursements Cash Receipts

Following approximately two months of analysis by a team of up to 10 consultants, Ernst & Young LLP has provided the University with a report containing 38 observations and recommendations. A summary of the key recommendations follows:

University of California Conclusions and Next Steps

The Ernst & Young LLP review provides useful recommendations to further strengthen the control environment surrounding core business practices at the Lawrence Livermore National Laboratory. Some of the recommendations have already been implemented, and management plans to study the remaining recommendations and develop a plan for implementation.

Summary of Ernst & Young Study Key Recommendations

Acquisition

Strengthen system controls to require positive approval confirmation when requisitions are entered to the property system. Develop procedures to review and approve changes to system approval tables. Remove the ability for employees to turn off automated e-mail notifications when certain requisitions are created.

Receipt of Property

Establish an acceptable period of time to resolve releasing distressed or damaged property. Refine, as necessary, current routing of deliveries of property to users. Define and publish all drop-off locations.

Use of Purchase Cards

Revise the policy manual to further define the reconciliation process and steps to perform to complete the reconciliation. Develop formal reconciliation procedures for orders charged to the main Lab credit card, including defining responsibilities for reconciling the card. Develop and implement a monthly change history report that identifies all credit card transactions that were revised subsequent to the order being posted to the general ledger.

Property Management

Develop procedures or desk instructions for the property system quality tasks performed by the Property Control Group Administrators. Develop and implement an automated process for the existing property screening process. Document existing procedures and the user-training module.

Tracking and Control of Work in Process Inventory

Define and implement a single Work in Process inventory control methodology that is based on lab-wide standards.

Property Accounting

Develop and implement additional reports and controls to be used by Property Accounting to monitor and identify property items early in the acquisition process that may not be assigned to the correct project account. Identify and examine those instances where cost transfers have occurred in fiscal year 2002/03, and develop and implement policies and procedures for cost transfers.

Accounts Payable – Disbursement

Establish additional controls for the proper classification of vendors in the Oracle system, including new vendors added during the year, to ensure appropriate 1099 reporting. Review Accounts Payable system access needs. Limit system access to eliminate current system access with incompatible functions. Enhance control procedures so that the check generation process is performed under dual control.

Cash Receipts

Identify working level procedures that address control and operating needs, such as segregation of duties and actions required for system suspense items and other control reports. Consider obtaining a lock box account at a bank for receipt of checks.

Information Technologies General Controls

Review user access procedures and develop improvements for document retention and user access monitoring. Develop written program change procedures and standards, and consider standardizing them across all applications.

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