In response to new legislation arising from recent corporate
accounting scandals, Emory is strengthening its financial reporting
system by adopting several practices from the for-profit world,
and the changes should be in place by the end of this fiscal year.
Chief among them is that President Jim Wagner and Mike Mandl, executive vice
president for finance and administration, will sign future University audit report
certifications; Michael Johns, executive vice president for health affairs, and
John Fox, president of Emory Healthcare (EHC), will do the same for EHC certifications,
taking accountability for the validity of the University’s financial numbers.
The Sarbanes-Oxley Act of 2002 was passed to improve the accuracy and reliability
of corporate financial disclosures, thereby protecting investors. The act mandates
the independence of auditors and calls for codes of ethics for business practices,
as well as several other “good-governance” standards.
“Today the act doesn’t apply to colleges and universities, but it
is inevitable it will in the future and we should get out in front and adapt
as many of these good-governance policies as make sense,” Mandl said.
That was the thought last fall when the Board of Trustees (BOT) asked several
upper-level administrators to look into streamlining Emory’s financial
reporting. According to Bill Mulcahy, chief audit officer, many board members
deal with Sarbanes-Oxley in their for-profit businesses, so they are familiar
with the guidelines.
“We’re taking things like ethics, conflict-of-interest policies and
auditor independence very seriously,” Mulcahy said. “There is no
reason we shouldn’t do the same things for-profit businesses do.”
Emory used an advisory report by the National Association of College and University
Business Officers (NACUBO) to help determine best practices. The University already
engages in many of them (ensuring the independence of its financial auditor,
KMPG, is a longtime business practice), but the audit committee’s examination
revealed some activities that can be streamlined.
The new certification process includes more than upper administrators. The process
also includes subcertification, where financial managers from across campus will
sign off on their financial reports. Mulcahy, along with members of Mandl’s
been hosting training sessions for these financial managers.
“We live in a very decentralized, distributed internal-control system,” Mulcahy
said. “Many people outside the central administration are the ones actually
doing the work and are responsible for things.”
The subcertification process doesn’t change any financial processes, but
the addition of a signature gives the signer ownership of the work. “Many
people’s reaction is, ‘If I have to sign that, I need to take a closer
look,’” Mulcahy said. “This is kind
of a pyramid for internal controls. The top administrative people sign off, but
they need a basis for that signature.”
“I don’t think I could ask anyone to do something I wouldn’t
be willing to do myself,” Mandl said about signing Emory’s final
financials. “This raises everyone’s responsibility.”
These new documentation processes will be reviewed over the summer,
so that any necessary changes can be input before fiscal-year end,
Aug. 31. The audit reports that are finalized by Oct. 10 will include
On May 26, financial managers held a question-and-answer meeting
in Woodruff Library’s Jones Room. The informative session
generated a great deal of discussion, and Mulcahy is compiling
a FAQ for distribution.
Other efforts in response to Sarbanes-Oxley include developing a written code
of ethics for investment and financial managers, and expanding an EHC auditing/
accounting/internal controls complaint hotline (sometimes known as “whistleblowing”)
to cover the rest of the University community. Financial experts also will
be identified for both the University and EHC audit committees. These efforts
are planned for an Aug. 31 rollout as well.
“Emory is not a public company, but we are asking people to invest in us,” Mandl
said. “They should be assured that we have ethical management and quality
One bonus of these changes is that most come free of charge. Significant
costs would only occur if Emory chooses to audit internal controls—something
required of many for-profit companies, but which to date no university has
performed. Mulcahy said while Emory, along with several other schools, is
at the forefront of instilling the best practices brought on by
Sarbanes-Oxley, there is no intention to be a pioneer in the area
of costly internal-control auditing. But, he added, Emory will
keep an eye on the wider academic community, and if it becomes
an accepted practice, the University may follow suit.