University of North Florida
Board of Trustees
Finance and Audit Committee
September 15, 2004
University Center at 2:30 p.m.
Committee members present
O’Neal Douglas, Wilfredo Gonzalez, Steve Halverson, Wanyonyi Kendrick, Kevin Twomey
Committee members absent
Chair Twomey asked for a motion to approve the minutes from the June 16 meeting and workshop. The motion was offered by Trustee Gonzalez and seconded by Trustee Halverson. The minutes were approved unanimously.
Chair Twomey said there was an item on the agenda to appoint a vice chair to the committee. He reminded committee members that an amendment to the bylaws had been passed in the spring allowing the committees to select vice chairs if desired. He said he wished to make a suggestion for purposes of discussion by the group. Stating that he was guilty of bringing up the item back in the spring, he said he had been unable to attend meetings or important functions on a couple of occasions during the year. On those occasions, Trustee Kendrick had attended in his stead. Chair Twomey said he would like to nominate Ms. Kendrick for vice chair of the Finance and Audit Committee. Trustee Douglas proffered the motion and it was seconded by Trustee Halverson, who then asked Trustee Kendrick if she was willing to accept the position. Ms. Kendrick replied that she had a passion for education and for UNF. As she and Chair Twomey had worked together for over a year, she said she felt very comfortable and would be honored to support him in his duties as chair. The group applauded Trustee Kendrick and the committee voted in favor of the motion.
End of Year Financial Reports
Vice President Shuman indicated the attached report, stating that it was broken down by unit. At the end of the year, she said, the president had done very well and had not spent the entire budget. She said the same was true of ERP and Plant Management. Overall, the University was within budget. Trustee Halverson asked if additional monies would be available through the Legislature for the higher enrollments.
President Delaney said there would be no additional funds, for last year or for this year. He said next year the University would not be given credit for students that were already enrolled and unfunded for the current year. He suggested that the issue of student enrollment be examined at a future meeting.
Vice President Shuman said her office was still working on the report on auxiliaries; she planned to present at the next meeting along with reserves and commitments for future projects. Chair Twomey asked her to pick one or two of the larger auxiliaries and go over them one at a time at subsequent meetings. He suggested beginning with housing, followed by parking, then perhaps the bookstore, just to give the committee an idea how the reserves were set.
Trustee Douglas asked Vice President Shuman to discuss the difference between reserves and overhead as delineated in the document. He said it appeared to be a double reserve. Trustee Halverson and Vice Chair Kendrick agreed. She replied that the units were charged overhead for operating expenses to help support the positions, which were from E & G. She said she would bring a schedule next time that would better explain the figures. President Delaney said he had inherited the accounting system and hoped to change to a cost accounting system in the future. He said the problem stemmed from taking a flat percentage of revenue from each unit rather than requiring exact amounts. Vice Chair Kendrick asked why the overhead account contained a balance at the end of the year. Vice President Shuman answered that those monies were available for expenses that could not be paid through E & G funds. For example, she said, the preparation of the field for the NFL and the monies to fix the drainage could not have been taken from E & G.
Chair Twomey said he had met with the TSI board and the Foundation Executive and Audit committees the day before to go over the DSO audits and asked Ms. Shuman to discuss the TSI and Foundation audits. Vice President Shuman said that in the case of the Foundation audit, the most important thing was that the DSO had received an unqualified opinion. Although not required to do so, the auditors did examine according to Sarbanes-Oxley accounting standards. She said there were no management letter comments on either audit, though there was one adjustment done at the University’s request in regard to removing some assets that were not totally within the institution’s trust. Vice President Shuman acknowledged that the audits were not easily comprehended and offered the highlights. She said one notable was the cash decline from 2003 to 2004. Restricted assets increased from $40 to $45 million. Permanent endowments grew as well. She said that non-operating revenue went from $3.9 to $7.5 million, as the University had done very well in investments this year in comparison to last year. State matching also did well. She noted that under current and non-current liabilities the numbers were pretty significant. She said those numbers were for outstanding bonds.
Chair Twomey verified that no action was required from the committee, that the audits were primarily for informational purposes. Trustee Douglas observed that Foundation did a great job for the University. Trustee Kendrick confirmed that the Foundation had not received any comments in the audit for last year either. Ms. Shuman complimented Beverly Evans, the director of TSI and Foundation Accounting, stating that she deserved most of the credit for having such good audits.
Regarding TSI, Ms. Shuman said the DSO made money primarily through classes. She said it was a very exciting company. Currently the program was managed by one of the founding two partners. This partner planned to retire next year, at which point the organization would be run entirely by UNF. President Delaney said that the two key principals had run the company for the last twenty years, stating that he hoped the University did not lose any of the current contracts in the transition. Trustee Douglas agreed that was an important goal. Vice President Shuman noted that the management company had made an unsuccessful run at succession and said she planned to have more information on the transition in about six months.
Continuing with the next audit, Ms. Shuman said the TSI audit also had an unqualified opinion and had looked at Sarbanes-Oxley standards. There was no change in accounting policies, though there was a comment that the valuation used for certain accounts was too conservative. Ms. Shuman said the policy in question had been set a few years ago and would be examined in the coming year. She noted that the accounts receivable net had gone down, stating that this was due to the loan from RDA to TSI, which was paid off in return for UNF’s purchase of TSI land holdings. She said the amount for operating revenue would always fluctuate. She gave examples, stating that one of the major grants from the DOT would not be available this year, although that particular grant gave the University recognition rather than dollars, and the contracts were almost double what they had been at this point last year. President Delaney added that, as the instructors were generally subcontracted, the organization was able to hire only as many as needed, thus keeping expenses down. Ms. Shuman said that though the director of the organization had come to her at one point and said he thought he would have to show a loss for the year, that had not been the case. She said that the assets had done well in the market for TSI as well.
Update on Auditor General’s Operational Audit
Vice President Shuman reported that Dr. Khan, the Inspector General, was on active duty so was unable to attend the committee meeting. She went over the implementation status of the Auditor General’s recommendations. Regarding the first finding to closely monitor ERP’s performance, she said the finding had not been acted upon as the University disagreed and felt the auditors were wrong, that the appropriate controls were in place. Finding 2 related to the University Center’s controls over the cash collection had been implemented. For Finding 3, she said the contract had been signed with Chartwells.
Additionally, the University was able to take care of all of the construction issues successfully. Ms. Shuman mentioned that overpayments were always difficult to get back in relation to Finding 5 on the overpayment of two employees. Finding 9 was a simple item to implement, Ms. Shuman said, and had been accomplished. Significant progress had been made in implementing Finding 10; an inventory from all divisions was about 95 percent completed. No action had been required for Finding 11, and Finding 12 had been implemented. Finding 13 was partially implemented. Ms. Shuman said the University would not violate Florida statutes again; the procedures had been completed and a new facilities manager had been hired from Dartmouth College. She said 14 had to do with the same type of procedures as Finding 13. For the last finding, she said progress had been made as the University had begun to get money back from both of the people involved in the impropriety.
Chair Twomey announced that Dr. Khan had received his doctorate over the summer and the committee offered their congratulations. Trustee Kendrick said that the first module of ERP had been finished and no comments had been received so she knew that the contract was on track. Dr. Campbell was focusing on changes to the policies and procedures. She said she wished to applaud Vice President Shuman for a job well done on the tangible property inventory. Ms. Shuman thanked her and said the first ERP module had been the easiest module to bring up with the least complaints. She remarked that the real test would be in January when payroll came online. She said the plan was ahead of schedule and would proceed in January with four full parallels.
Division I Application
President Delaney reminded committee members of previous discussions about application to Division I. Two years ago when the move was first talked about, the University had an interim president, provost, and vice president of finance. Five factors were of concern in deciding to proceed with the application: Division I would not include football; there could be no impact on academics, as UNF’s student athletes have historically had higher GPAs and SATs than average; funding must come from the student athletic fee or from private dollars; the University must be able to compete, with facilities comparable to those of the Atlantic Sun Conference; and the number of scholarships must be equivalent to other conference schools. President Delaney said that one applicant interviewed for the presidency had referred to Division II as a sort of no man’s land – not voluntary like Division III and without the recognition of Division I.
President Delaney stated that his first concern had been the finances, but at this point, the finances looked much the same whether moving to Division I or remaining in Division II. President Delaney indicated that he leaned toward application to Division I at this point. He said the financial projections presented were conservative estimates of revenue and liberal estimates of expenses. He commented that the final draft was somewhere between the tenth and twentieth permutation and asked Vice President Shuman to go over the calculations based on remaining in Division II with no fee increase, remaining in Division II with an increase of 50 cents a year for four years, and moving to Division I with the four 50 cent increases compressed into one $2 fee. He added that the Student Fee Committee had been asked whether they would authorize the $2 increase and the committee had voted unanimously in favor of it. The Boosters were very enthusiastic to say the least, he said, when Dr. Gropper checked with them to gauge interest in stronger fundraising activities to support Division I. Thus the only other consideration was increasing the average number of scholarships to equal other Sun Conference schools. Whether the University remained a Division II school or moved to Division I, two positions would be needed: one for compliance issues and another for advising.
Vice President Shuman began with the worst case scenario for staying in Division II. She said that the athletics program had not had sufficient funds last year and was expected to have an even greater shortfall this year. Under the proposal given, with no fee increase, the Boosters would have to raise $290,000 the first year and more for each year thereafter to keep the reserve stable. She noted that as tuition went up, the amount needed for scholarships also went up. President Delaney said that the University would need to add approximately twenty scholarships if the Board decided to move to Division I and only a few if the school remained Division II.
In response to a question from Chair Twomey about the term, Ms. Shuman said “game guarantees” were payments from other teams to play UNF in basketball. She said these teams would be willing to pay the University assuming they would beat UNF, but, she said, the other teams didn’t know what they were up against. She said she had been very conservative in estimating the revenue side, not including sponsorships, etc. She added that the concession contract would need to be reevaluated based on whether there were more seats in two years.
Chair Twomey noticed that an amount from the Boosters was not given under the projection for a move to Division I. Vice President Shuman said that was because any funds from the Boosters under that option would be income positive for the University, showing as a positive gain that would be added to the unrestricted reserve. Ms. Shuman said the reason the committee had been shown the projection for remaining in Division II with no fee increase was due to the cap on student fees of 40 percent of the matriculation fee. She said the University was almost at the cap and, with the student union, there may be no increase available for athletics.
In examining the calculations for remaining Division II with a 50 cent increase each year for four years, Ms. Shuman pointed out that the athletics programs would not begin making money again until 2009-10. She said the main difference in the projection for moving to Division I was the $2 fee option, which was outside of the cap. She noted that the fee would not be covered under Bright Futures and some other scholarships. She added that Student Government fully supported the fee increase. The Student Fee Committee had passed the one time $2 fee increase unanimously. Other differences resulted from the addition of game guarantees, an amount considerably more than what resulted from the loss of post season travel, as well as the addition of the NCAA allocation, which would begin in 2009-10. The amount needed for scholarships would increase as the University would not want to go to Division I and be under the average for scholarships. Even so, the projection showed operational gains rather than a negative balance. The amount raised by the Boosters could be used for a variety of applications, including scholarships, to raise UNF to a level far superior to others in the Sun Conference.
Chair Twomey said he thought it would be fair to assume the University would get more revenues than those given if it moved to Division I. He asked what the next step was after the discussion. President Delaney asked if there was further data the committee would be interested in, then suggested presenting the issue before the full Board either at a special meeting or at the regularly scheduled meeting in October, as a letter would be required by December 1 in order to consider this year as the exploratory year.
Trustee Halverson asked for information about other similar institutions that had moved to Division I without football. He said he would like to know if the schools had found the proposition to be more expensive than anticipated, as he had heard that becoming a Division I school was expensive. Though he did know that football was very expensive, he was unsure if his impression was primarily in reference to institutions that had included football or to any university moving to Division I.
President Delaney said the fact that had struck both he and Vice President Gonzalez was that there would be a budget issue by remaining in Division II that would not be there with a move to Division I. The athletics programs were in operational deficit this year. He said Dr. Gonzalez would send the information as soon as possible before the BOT meeting. Both Chair Twomey and Board Vice Chair Halverson said they did not see an issue with the increase in scholarships needed for a move to Division I. Trustee Douglas asked for the timeframe for putting the item before the full Board. President Delaney said the issue could be presented at the October meeting, but said he didn’t wish to put pressure on the trustees so could hold a special meeting in November if necessary. All of the committee members expressed greater comfort with the decision than they had been in previous years if the figures given were validated. Chair Twomey asked if it was likely that the money available to the Boosters would increase with a move to Division I. He wondered if donors who weren’t Boosters would be more likely to donate. President Delaney thought they would. He said he was very interested in the benefit the move could have on campus life as well. With the conclusion of the discussion, Chair Twomey adjourned the meeting.