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Business Officer Magazine

Steps to Financial Stewardship

By Kimberly Dight and Sue Menditto

Comparing Financial Statements

In one educational session, speakers zeroed in on the annual audited financial statement, one of the most visible products produced by the business office. Understanding and comparing the financial statements of colleges and universities is difficult due to the different standards followed by public and independent institutions. Comparability problems began in 1993 when the Financial Accounting Standards Board issued Statement No. 117. FASB 117 required independent colleges and universities to adopt a new entitywide reporting model, while public institutions continued to report under the AICPA’s fund-based model.

In 1999, the Governmental Accounting Standards Board issued Statement No. 35. The GASB standard moved the models a bit closer; however, significant differences continue to exist. Larry Goldstein, NACUBO senior fellow and president of Campus Strategies, focused on the accounting and reporting differences between FASB and GASB requirements for higher education.

Regan predicted that 91 countries would adopt international accounting standards by 2005. China and Russia are leading this effort. In the United States, standard-setting bodies are engaged in a process of convergence or comparing of international and U.S. standards. That process gained momentum when the International Accounting Standards Board and the Financial Accounting Foundation met in June.

International standards could influence uniform standards for all colleges and universities. Regan told a story of legislators questioning the complexity of accounting principles in this country and thereby leaving room for loopholes. On the other hand, European standards can be quite simple and may serve as a good model for adoption here.

FASB and GASB Guidance

During the FASB update session, Senior Project Manager Ronald Bossio reinforced that the objective of the international standard-setting convergence project is a single set of high-quality accounting standards. Bossio also provided an update on accounting and disclosure requirements related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Institutions that provide prescription drug benefits to retirees can expect final authoritative guidance later this year. William Holder, a GASB board member, offered an update on affiliated organizations, other post-employment benefits, deposit and investment risk disclosures, and capital asset impairments. Participants raised questions about implementing GASB 39. Holder commented that professional judgment is necessary when considering whether certain affiliated organizations are significant to an institution.

Reporting Performance Indicators

The standard-setting bodies are also concerned with the reporting of nonfinancial measures, or performance indicators. This information, such as employee turnover or customer satisfaction, is much easier for the general public to understand than a balance sheet or a statement of cash flow. As public attention to accountability continues to increase, performance measurement will take on a larger role.

Baruch College is the headquarters of FASB’s project on nonfinancial measures referred to as enhanced business reporting. GASB has a similar project under way and has developed suggested criteria for performance measurement. Regan values performance measures because managers use this kind of information to run their businesses. He anticipates that performance measures will be required in annual financial statements within 5 to 10 years.

NACUBO’s Performance Measurement Committee, a project team of the Accounting Principles Council (APC), presented findings from its recent survey and research on performance measurement. The survey gathered opinions on GASB criteria and sought to determine the most widely used key performance indicators. Building on the survey and a subsequent data scan for common indicators, the project team will develop a higher education performance measurement reporting template. The template, along with survey findings, will be presented to GASB next year.

To be useful without being a burden, a performance measurement template might include key performance indicators that draw on readily available information. To that end, the session on the Integrated Postsecondary Education Data System will prove valuable to participants as they return to their campuses. Cathy Statham, a statistician at the National Center for Education Statistics, explained how to navigate IPEDS, including how business officers can define their own criteria and peer group. Participants can download that information into various types of software for analysis and benchmarking.

Internal Controls a Priority

Another project team of APC highlighted NACUBO’s Advisory Report on the Sarbanes-Oxley Act and offered success stories from the field. While the act does not apply to higher education, NACUBO leaders believe that the issues surrounding accountability and governance need to be addressed on campuses. Two recurring themes emerged in the panelists’ presentations: the need for well-documented internal controls and some type of whistle-blower mechanism.

William Hogan, comptroller, University of Chicago, reminded participants that because the legislation does not specifically apply to higher education, institutions can implement changes slowly, undertaking some tasks in-house to minimize costs. He pointed out that the corporate sector does not have this luxury.

The University of Chicago began the internal controls documentation process by getting a rough sketch of its controls from the auditors, who summarized prior years’ work papers. That document will now be turned over to university staff to finalize. To formalize a code of ethics, the University of Chicago is combining an existing conflict-of-interest policy and statement of responsibilities for individual trustees into one comprehensive document.

Indiana University has taken a similar approach. Kathleen McNeely, managing director for financial services, discussed her success in implementing key provisions of Sarbanes-Oxley through training and open dialogue with both Indiana’s board and fiscal officers. Again, the institution tackled documentation of internal controls first, because this step is considered critical to large, decentralized environments. Indiana University does have a fiscal misconduct policy in place. To alleviate concern about the assurance of confidentiality, the university is preparing a cost/benefit analysis of third-party administration of the complaint line. The fee for such a service is substantial, as it is directly related to the number of employees.

Implementing Sarbanes-Oxley on a Shoestring

Dale Larson, director of finance at the University of Dallas, explained the challenge of implementing Sarbanes-Oxley on a shoestring budget. Larson shared his implementation plan, beginning with a NACUBO checklist “gap” analysis, and directed the audience to existing resources that may be helpful. His institution began by assessing internal controls and looking closely at the whistle-blower mechanism. The University of Dallas chose an e-mail system to keep costs down.

The Sarbanes-Oxley panelists suggested that higher education should be past the point of talking about the act. Implementation has begun, and best practices are being developed. Their suggestion: Look at what other institutions are doing and borrow what fits the needs of your institution.

Stretching Limited Resources

At the small institutions’ roundtable, participants explored how to cope with limited resources, particularly in staffing. Outsourcing was discussed as an option that provides flexibility in directing resources for short-term projects in areas such as IT management, security, or investment management. One participant noted that outsourcing can offer many benefits, but cost savings will not likely be among them.

Other options suggested for coping with limited resources include:

  • Create a consortium with other institutions in the area. This can be administratively challenging initially but prove beneficial down the line.
  • Be deliberate about work assignments. Understand the strengths and weaknesses of the staff and make assignments accordingly.
  • Continually prioritize work since there will always be something that doesn’t get done.

To find the following resources mentioned in this article, go to, click on Business Topics, then click on Accounting:

  • NACUBO’s Advisory Report on the Sarbanes-Oxley Act
  • NACUBO checklist “gap” analysis
  • NACUBO’s Cost of College model

The Relationship Between Cost and Price

During an update on legislative matters, Matthew Hamill, NACUBO’s vice president of external affairs, helped attendees see the connection between accountability and transparency and congressional work reauthorizing the Higher Education Act. Because Congress is focusing on issues such as cost and tuition price, two sessions addressed the relationship between these elements. Roger Patterson, associate vice chancellor of finance at the University of North Carolina, Chapel Hill, and Charles Tegen, comptroller at Clemson University, South Carolina, presented an overview of NACUBO’s Cost of College model. Both have found it helpful to use the model to compare price to cost and illustrate that higher education is subsidized by donors and government.

The University of Miami, Ohio, has developed an innovative pricing strategy to make attendance more affordable to low- and middle-income Ohioans, thereby increasing diversity. Richard Norman and Dale Hinrichs presented their approach and the rationale behind their pricing transformation. Miami bills all students at the same rate rather than charging in-state tuition and discounts tuition for in-state students in the form of a resident scholarship. Once that discount has been applied, a “leadership” or need-based scholarship is awarded.

Some of the challenges of implementation include requiring all students to submit a financial aid form, communicating the revised system, and dealing with reduced hours or a student who leaves and then returns to the university. Business officers around the country are increasingly aware of and attentive to the implementation of this model.

Who is driving the priorities of business officers in higher education? Regan believes three constituencies—the government, the board of trustees, and the general public—are forcing changes on issues from governance to reporting and pricing. Regan asked, “Has the pendulum swung too far? Is there too much government intervention in our economy?” Questions worth pondering.

Author Bios Kimberly Dight is manager, accounting policy, and Sue Menditto is director, accounting policy, at NACUBO.