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Transaction Sampling: Assessing Your Risk

Understand "risk" as it applies to fiscal responsibilities.

University business officers must ensure good stewardship of the university's limited resources. This can be a challenge because business officers also have limited resources to carry out their duties. Consequently, UCSD must have sound business processes that:

  • Have strong internal controls and
  • Periodically monitor the effectiveness of the business processes and controls on a risk basis

Fiscal risk

"Fiscal risk" can be defined as the failure to achieve UCSD's key business objectives. These objectives fall into 3 main categories:

  1. Operational effectiveness and efficiency
  2. Accurate financial reporting
  3. Compliance with all laws, regulations, and other requirements

These key objectives directly affect business officers, who must ensure that financial activities are accurate, in compliance, and reportable. Errors in these duties can jeopardize UCSD because the university may have to return funds that have already been spent.

Risk management

Risk management includes assessing risk as well as acting on the results of the assessment to eliminate or reduce those risks. Risk management includes activities such as:

  • Evaluating insurance needs
  • Maintaining consistent business practices
  • Reconciling a financial operating ledger:
    • Identifying incorrect or non-compliant (risky) transactions
    • Correcting errors to mitigate the risk

Regarding the last item above, some UCSD departments identify and review all transactions on all ledgers, demonstrating a zero tolerance for risk but intensively using campus resources. An alternate campus process — transaction sampling — assumes a willingness to absorb some risk. This increased risk tolerance frees up valuable time and resources while upholding UCSD's objective of operational effectiveness and efficiency.

Risk is relative

The transaction sampling process also recognizes that risk is relative. Higher risk examples include:

  • Federal funds because of stringent regulations on spending
  • Higher-dollar purchases, such as purchases over $500, $1,000, or more
  • Foreign travel charged to federal funds as opposed to domestic travel charged to other funds

Assessing relative risk at the department level should be based on fund sources, dollar value of activity, and types of activity.