The USM budget is a mess.
The administration says so. Faculty and department heads say so. PricewaterhouseCoopers, an independent firm hired to perform an audit on the university, agrees.
At a recent Student Senate meeting, interim Provost Mark Lapping spread his hands out over a row of 2-seat-wide Luther Bonney tables. “Right now, we have a table-and-a-half covered in data,” he said. “This place is a mess.”
The PricewaterhouseCoopers audit was a $40,000 job paid for by the Board of Trustees and system chancellor Richard Pattenaude, USM’s former president. It aimed to give the administration and the public a better look at USM’s financial situation and help USM regain financial footing.
Not only looking to demystify the university’s finances, PricewaterhouseCoopers was asked to give recommendations on how USM can improve its budget and financial reporting practices.
The first of the six recommendations listed in the audit calls for USM to identify the full amount of its deficit.
This revealing recommendation sheds light on the ethereal, intangible reporting and budgetary practices that have governed USM finances and left the school without a clear idea of exactly how deep in the red it is.
The audit says that USM had “reportedly little consequences for failing to meet budgets,” and that this practice “over time, created an expectation at the departments that other surpluses would be available to make up their deficits.”
Treating the budget as a sort of pool, moving money around when and where it needed to be in order to balance the budget, USM was able to get by, despite the difficulties in accounting for the movement.
When enrollment started dropping, the numbers got harder to fudge.
How USM got here
In a Sept. 2006 report to the Faculty Senate, then-Chief Financial Officer Sam Andrews said that enrollment was down 1.5 percent – when it was only predicted to be a .25 percent decrease. Also mentioned is a $2 million short-fall, which he said a hiring freeze would help soften.
It didn’t make enough of a dent, enrollment continued to decrease and financial practices remained difficult to account for.
Following the Andrews’ retirement in February 2007, the breadth of the mess began coming to light.
Since Dick Campbell took over as CFO, USM has been made more and more aware of the depth of its financial hole: the most recently reported numbers put it at $8.2 million.
In an effort to leave incoming President Selma Botman with a cleaner table to work from, interim President Joe Wood and the university administration is planning to cut nearly $7 million from next year’s budget.
According to Provost Mark Lapping, this will be done primarily through cuts to administrative offices, by cutting full-time staff to part-time hours (while maintaining their fringe benefits), suspension of a small number of programs and through picking “low-hanging fruit” – the non-strategic, temporarily convenient “savings” from retiring faculty and staff who, under the hiring freeze, will not be replaced.
Feeling helpless
The historically “opaque” nature of the USM budget, according to Lorrayne Carroll, has been a cause of concern for some faculty at USM.
Carroll, the interim director of the women and gender studies program, realized just how ingrained the poor accountability system was when she stepped into her interim job in January.
“I asked the director and provost to explain the budgeting system to me, and they replied with a shrug, throwing their hands in the air.”
This helpless response from administrative higher-ups left Carroll discouraged.
“If a provost is flummoxed about the budget, that translates to everyone at every level.”
“The budget has been a problem because it is both deeply inadequate, confusing, and obscure,” said Carroll, although she recognized that the PricewaterhouseCoopers report is a step towards understanding it.
Adding that the budget process “is mysterious and infantilizing,” Carroll emphasized that some departments were left feeling a little lost.
It also left departments without any sense of which funds they were entitled too, a practice Carroll likened to an Oliver Twist-esque atmosphere in which departments were pleading “please sir, I want some more.”
Reacting to the audit
“The more we deal with this now, the better,” said CFO Campbell. “If it turns out we need to change our plan as new information emerges, that is fine.”
He said USM is in the early stages of having a system implemented in which departments report directly to the CFO.
“We are looking for ways to standardize the reporting practices,” said Campbell, a move he hopes will lead to greater accountability within programs.
Campbell sees the audit as a valuable tool that can help dictate budgetary policy and lead to a stronger, better organized financial structure.
“It’s like developing a garden, you need to encourage growth in some areas, and prune back in others.
The audit suggests that oversight should be improved in order to identify possible financial problems in the future, calling on the UMaine System to implement an effective governance structure and make improvements where necessary.
The report also advocates an internal audit to “provide objective monitoring of key risk areas throughout the system.”
Few administrators admit to knowing how or why USM found itself operating under such confusing budgetary and reporting practices, but the audit – and the university’s response to it, makes it clear that the system must change.
Provost Lapping is confident in Campbell’s ability to clean things up.
In front of the Student Senate, waving his arms over the table to signify the mess in which USM has found itself, he paused and rested his hands on the wood-veneer desktop. “I believe, with some degree of assurity, that Dick Campbell with have a budget like this,” he said, indicating a small, neat stack of papers with his hands. “We’ll finally be able to see what a budget looks like.”
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The audit says
1. The full amount of the deficit must be identified
– Calling for a concrete assessment of USM finances, USM needs to reconcile all the positions in the current budget with personnel who are actually being paid, including their fringe benefits.
– Calls for actual costs of running programs to be established, instead of just relying on what amount was submitted in the budget process.
2. Budgets should more directly reflect the strategic priorities of the institution.
– The executive management team, led by the president, should set academic, strategic, and fiscal goals for FY 2009.
– The budget should also be reviewed by the USM president, Provost, CFO, Vice President, and a budget manager to determine what is required to run the university as it is currently structured.
– Decisions should also be made on how to remedy the operating deficit.
– All capital projects should be assessed to determine their current status against the budget, and a plan should be put forward for any projects that are over-budget or do not have enough funding to complete.
3. Budget and reporting disciplines must be greatly improved.
– A bottom-up baseline operating budget should be complied by each Vice President and major budget manager that incorporates all known and projected cost increases.
– Guidelines should be established by the president and UMaine System CFO for analysis of proposed and existing programs and initiatives, which specify how to prepare financial projects and report on progress.
– Monthly, actual to budget reporting should be implemented from all departments to the USM CFO.
-Spending controls should be established to ensure that purchases in excess of remaining budget allowances cannot be made without approval from USM CFO.
– The measurement and rewards for budget owners should be tied to their responsibilities for managing their budgets.
4. The finance function at USM should be improved.
– An analysis capability should be created to enable the office of the CFO to prepare or assess these reports.
– The UMaine System, along with institution’s CFOs, should develop common standards for financial reporting.
5. Peoplesoft should be fully implemented.
– The implementation of Position Management within Peoplesoft should be completed.
6. Oversight should be improved.
– The UMaine System should evaluate its governance and oversight mechanisms and make improvements where necessary.
– An internal audit function should be re-constituted to provide objective monitoring of key risk areas throughout the system.
– A task force should be established to monitor the recommendations of the PWC audit.
– System-wide discussions with the presidents and CFOs should take place to share ideas and practices addressed in the recommendations and actions that might follow.