Excellence in
Financial Stewardship


Stanford Financial Management Services (FMS) provides this quarterly newsletter as a part of its vision to inspire and enable excellence in financial stewardship.

Issue 3 | Fall 2021

Foundational Concepts

As we begin the new fiscal year, it presents a wonderful opportunity to revisit some key foundational concepts related to excellence in financial stewardship: governance and roles and responsibilities.
  • Governance is the structure and processes by which an organization operates to achieve its objectives, mission and goals, ensuring excellence in financial stewardship and appropriately mitigating risks.
  • Roles and responsibilities are the defined areas of oversight and supporting tasks that work together to actualize the policies and processes within that structure.
With over 15,000 staff and faculty, seven schools and a wide range of activities including the institutes, the arts and athletics, a robust governance structure is necessary to keep Stanford aligned toward its mission while ensuring compliance with appropriate policies, laws and regulations.

In this issue of the newsletter, we review Stanford’s governance model, the integral role you play in this process, and how this contributes to excellence in financial stewardship.
Anne Sweeney-Hoy
Senior Associate Vice President of Finance
Governance at Stanford
Under the Founding Grant, the Board of Trustees (“Board”) is custodian of the endowment and all the properties of Stanford University. The Board delegates broad authority to the president to operate the university and to the faculty on certain academic matters.
As described in Administrative Guide 1.2.1 University Organization, the university’s Board of Trustees and Senior Management set the tone for how business is conducted at Stanford. All members of the university community are responsible for sustaining the high ethical standards of the institution and of the broader community in which it functions.

Stanford’s high ethical standards and values are captured in the university’s Code of Conduct, which serves as a “shared statement of our commitment to upholding the ethical, professional and legal standards we use as the basis for our daily and long-term decisions and actions.” The Code of Conduct also describes components of excellence in financial stewardship: “We all must be aware of and comply with the relevant policies, standards, laws and regulations that guide our work.”
 

Distributed and Central Roles

Under oversight of the Board, university senior management ensures that each of their units and functions have the appropriate structures, resources and policies to achieve objectives while managing the related risks. This distributed management model is employed at the university to enable schools and departments to manage their unique business requirements in support of the university’s mission. This structure includes dean’s offices at the university’s schools, who are closer to the needs and operations of their areas.

The “central” functions serve the university at the infrastructure level. For example, a robust Enterprise Risk Management (ERM) process helps senior management identify and address university-wide risks that could interfere with achieving our mission and objectives. As another example, Stanford Financial Management Services (FMS) serves as the administrator of the policies, processes and systems that support the university’s financial ecosystem.

As two important layers of university management, distributed and central functions work together to uphold the shared responsibility for financial management and sound stewardship. It is critical that roles and responsibilities for financial management, including managing risks, are clearly defined and understood to avoid duplication of effort or gaps in oversight.
 

Key Responsibilities

  • Schools and Departments work within our business ecosystem to own and manage operating risks, mindful of budget and stewardship of university resources. They are the first line of “checks and balances” when it comes to financial stewardship.
  • Central Financial Administration, which includes Financial Management Services (FMS), establishes and evolves our financial infrastructure to effectively balance controls with operational efficiency. Layered upon this is oversight, expertise and monitoring of compliance, financial and operating risks.
  • The Office of the Chief Risk Officer (OCRO), which includes Internal Audit and Ethics and Compliance, provides independent and objective assurance and advice on matters related to achievement of the university’s objectives (e.g., mission, compliance, etc.). 
These three groups or ‘lines’ work in concert to provide assurance to senior management in mitigating our risk, ensuring compliance and achieving our objectives.

Applying the model: Purchasing Cards (PCards)

To illustrate Stanford’s governance model and key roles and responsibilities, let’s look at the university Purchasing Card (PCard) Program, which provides an efficient alternative purchasing method for small dollar items not available from Amazon Business and SmartMart catalog suppliers.

Due to the nature of purchasing activity conducted on a PCard, which are smaller dollar transactions for off-the-shelf items related to conducting department business, it is appropriate that most of the roles and responsibilities for managing these transactions are in the schools and departments. However, ‘ecosystem’ controls, such as managing card spending limits, monitoring accounts and partnering with the card issuer to implement fraud protection services reside at the central level. Then, the third line of oversight controls occurs with OCRO’s Internal Audit team who may select PCard transactions for review in connection with their annual audit plan. They are also typically involved in fraud investigations.

The three lines of PCard

First Line
 Schools and Departments 
Second Line
 Central Administration 
Third Line
 Internal Audit and
Ethics & Compliance
(OCRO) 
  • PCard cardholder 
  • Department PCard 
    custodian
  • Verifier
  • Financial approver 
  • Department finance  
    manager
  • VP/Dean's office or designee 

Deep Dive: PCard Roles

Here are some examples of PCard roles and responsibilities in practice:
  • Example: Transaction Monitoring
    • Before the card is charged: At the School or Department level, the Cardholder follows the procedures for originating transactions, ensuring they comply with the university's policy and guidance, or the Department PCard Custodian provides this level of guidance to any authorized user of the card to prevent instances of inappropriate use.
    • After the card is charged: The verifier reviews the transaction and supporting documentation to ensure it is complete and to prepare it for approval and reports any fraudulent charges immediately to the cardholder/custodian. Then, the financial approver examines transactions to ensure that charges are appropriate and comply with university policies, and return any transaction that needs further verification. In some cases, certain transactions may have additional layers of review, such as when the funding source is restricted or sponsored.
    • Monitoring the transactions: The verifiers, approvers and finance managers should monitor and manage outstanding aging transactions with tools such as My Pending Transactions and OBI Financial Reporting. FMS Card Services provides an additional monitoring control by sampling transactions for audit. In the case of an investigation, OCRO coordinates resources to support all necessary reviews.
       
  • Example: Lost or Stolen PCard
    • The Cardholder or the Department PCard Custodian, who is responsible for keeping the card secure, tracking its usage and location and reporting any issues, immediately notifies JPMorgan Chase that a card may be lost or stolen. They work directly with JPMorgan Chase to identify fraudulent charges and next steps, then notify the FMS Card Services Team.
    • The FMS Card Services Team coordinates with JPMorgan and the Cardholder or Custodian on the fraud process and facilitates new card delivery.
Helpful resources for the PCard include: Administrative Guide Memo 5.3.3: Purchasing Cards, the Fingate PCard Program and Policy pages, updated PCard course and Protect Your Purchasing Card from Fraud Over Winter Closure are available to support the roles involved in this activity.

Applying the model: Donor gifts

In a previous newsletter, we reviewed best practices for processing donor gifts and the importance of following donor wishes, which are two critical components of proper gift stewardship. Administrators in schools and departments ensure that expenditures comply with the donor’s wishes, and are supported by various central offices, including the Office of Development (OOD) and FMS.

For example, OOD’s Donor Relations Officers monitor the expenditure of funds to ensure that spending is in accordance with donor intent, analyze the usage and spend of gift funds and review and recommend revisions to gift terms. They also partner with colleagues across the university to ensure donors are appropriately updated on the use of their philanthropic support to the university.

The three lines of Gift Stewardship

First Line
Schools and Departments
Second Line
Central Administration
Third Line
 Internal Audit (OCRO) 
  • Department finance manager
  • Department financial analyst
  • Program administrator ("contact")
  • May review the use
    of gift funds as part of their audits

Deep Dive: Gift Stewardship Roles

Here are some examples of this partnership in practice.

  • Example: Unused gift funds
    • A Department Finance Administrator monitors their funds with the Revenue and Fund Management Dashboard (for endowment gifts, the report used to identify unspent payout is the Unused and Underwater Endowment Funds Dashboard; for expendable gifts, this can be identified using the Award at a Glance Report).
    • When the Finance Administrator identifies significant unspent monies, they contact the school’s Donor Relations Officer to obtain background on the donor’s intent for the gift.
    • Together, and with the assistance of Office of Planned Giving staff who work on restricted fund issues, they explore options for spending the funds.
       
  • Example: Annual review of gift expenditures
    • Annually, a Donor Relations Officer creates a report for the donor explaining how a gift fund has been used and includes a narrative that brings to life the impact of those expenditures.
    • Before writing this narrative, the Donor Relations Officer contacts the Department Finance Administrator and Financial Analyst to understand how the fund was used and document a breakdown of expenditures.
    • During this process, if the Donor Relations Officer identifies certain expenditures that may not seem consistent with the donor’s intent, they bring this to the Department Finance Administrator’s attention and work with the Office of Planned Giving staff to resolve the issue, either clarifying how it supports the donor’s intent or moving it to a more appropriate funding source.
Working together, administrative staff in schools and departments, OOD and FMS ensure that gifts are stewarded properly. Exercising this fiduciary responsibility builds trust and transparency with Stanford’s donors, a key component to growing a philanthropic relationship.
Key takeaways
Schools and departments, central administration and internal audit work together in the three lines model to strike the necessary balance between controls and operational efficiency and hold varying roles and responsibilities depending on the financial activity and its unique needs. Understanding how the lines connect and rely upon one another is critical to our broader ability to uphold excellence in financial stewardship.

As a reminder, concerns around financial transactions should always be raised to management or reported to the University Ethics & Compliance Helpline.
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