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Toward Clarity in Reporting

Sessions in this track surveyed current issues and best practices in the core business office functions of accounting, tax administration, and compliance.

A Fresh Start to Financial Reporting

Sessions on accounting updates for public and independent institutions featured a new approach to financial reporting known as the Blank Slate Project. NACUBO's Accounting Principles Council has created a set of innovative financial statements, with key disclosures, in an attempt to better explain higher education's mission and financial results to stakeholders.

The project began as an advocacy effort aimed at the Financial Accounting Standard Board's (FASB) work on the not-for-profit (NFP) reporting model. Because public colleges and universities follow Governmental Accounting Standards Board (GASB) pronouncements—and higher education is one industry—the new concepts have also been presented to GASB representatives.

Presenters noted how discussing the Blank Slate model with both boards helps to educate the standard setters about user issues and questions that financial reporting ought to be addressing. The concern is that although NACUBO may assist the FASB in its quest for enhanced financial reporting and transparency, a changed NFP reporting model would ultimately widen the reporting schism between public and independent institutions.

The Blank Slate reporting model focuses on an institution's resources and describing how resources are used or conserved for a future period. Resources are multifaceted and are categorized based upon either internally or externally imposed restrictions or utility. The broad categories are:

  • Undesignated resources.
  • Designated resources (external and internal).
  • Endowment (external and internal).
  • Net property plant and equipment (all assets with service value net of related debt).

Further, communicating an operating metric is the fundamental purpose of an income statement that is designed to help the public understand and distinguish among support revenue, fee-for-service revenue, endowment spending, and gains and losses that can be related to either future obligations and/or resources. A new statement that explains how resources change from year to year is added and enhanced disclosures clarify how students pay for college, institutional aid, liquidity, and educational expenses. 

Minding Your Defined Benefit Pension Plan

Coping with the financial liability of an underfunded defined benefit retirement plan, even those closed to new participants for some time, requires colleges and universities to consider a range of issues before settling on a strategy.

Participating in the session "Stakeholder Views and Institutional Responses to Underfunded Pension Plans" were Giselle Tremblay, a senior pension specialist with Bank of America Merrill Lynch; John Shipley, vice president and treasurer at the University of Miami; Diane Viacava, a vice president and senior credit officer in Moody's; and Frank Williams, a senior vice president with Bank of America Merrill Lynch.

After reviewing the various reasons why many defined benefit plans have become increasingly underfunded, panelists explored the potential advantages, and disadvantages, of borrowing in today's low-interest-rate environment to secure the capital needed to bring a pension plan back into balance. Their conclusions: Consider implications for your cash flow, your key financial ratios and how they will be perceived by various stakeholders, your investment policy (particularly if you borrow to prefund this liability), and your risk tolerance.

Within the institution, practical questions to engage others in a broader conversation about pension benefits and long-term cost implications include these: Is the board fully informed of the situation and the options? Are the benefits offered in our defined benefit plan richer than other plans the university offers, and/or richer than what other universities offer? What other retirement options can we offer?

Thinking through best approaches for funding and managing your defined benefit plan or transitioning employees to other plan options is a necessary step to minimizing your balance sheet risk.

Two Different Languages

Imagine that the development office reports to the trustees that they met all the campaign fundraising goals, but then the business office reports that there's no money on hand. What is the issue? This was the topic explored in the session, "Bridging the GAAP Between the Development and Accounting Departments."

"The issue really comes down to development 'counting' gifts versus accounting 'recognition,'" said presenter Pete Ugo, partner with Crowe Horwath LLP. "You can't pay the bills with pledges and bequests."

The accounting method is to follow generally accepted accounting principles (GAAP) for contributions, with a preference for unconditional, nonreciprocal gifts that cannot be rescinded. Development officers focus on relationships with donors and recognition for their intention to give, which can lead to counting a gift both when it is pledged and when it is collected.

The two different approaches can lead to audited financial statements that are inconsistent with internal reports, as well as other questions such as when to give naming rights in a capital campaign or when to start construction of a building.

"At DePauw, we have a policy of having 100 percent commitment and 75 percent cash on hand before beginning construction," said presenter Brad Keilsheimer, vice president for finance and administration DePauw University, Greencastle, Indiana.

The session included suggestions for "bridging the GAAP," such as:

  • Understand the fundraising goal and what will actually be available to spend.
  • Keep the board informed, including the amounts of deferred gifts and planned gifts.
  • Reconcile often between development records and accounting records.
  • Develop and document a gift-counting policy and a gift acceptance policy.

Virtual Sessions Still Available

On Tuesday, July 16, more than 180 individuals participated in the NACUBO 2013 Annual Meeting Online. The fully interactive online event incorporated 15 video sessions recorded during the meeting, as well as live chats with general session speaker Frans Johansson and six concurrent session presenters. The NACUBO virtual booth provided participants with access to book chapters, presentations, articles, and other resources that were available immediately.

For those who want to experience the annual meeting in their own offices, once one person on your campus registers at the full price ($250 for members, $350 for nonmembers), other staff can register for free. Each additional registrant must complete the online registration process to have full access to the event.

All attendees, both online and live in Indianapolis, will continue to have access to the content on the NACUBO Web site  under the Distance Learning tab through Oct. 16, 2013.

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