Financial Resources January 28, 1988 Table of Contents 8-1.0 Introduction . . . . . . . . . . . . . . . . . . 8-1 8-2.0 Institutional Advancement (6.2) . . . . . . . . 8-3 8-2.1 Development And University Relations . . . . . . 8-3 8-2.1.1 Background and Organization of the Develop- ment Program . . . . . . . . . . . . . . . . . . . . 8-3 8-2.1.1.1 Ancillary Components of the University Development Office . . . . . . . . . . . . . . . . 8-5 8-2.1.2 Status of Fund-Raising Activities . . . . . 8-6 8-2.1.3 Relationship of Fund-Raising Activities to the Virginia Tech Foundation and Status of the Foundation . . . . . . . . . . . . . . . . . . . . . 8-9 8-2.1.4 University Compliance with Recommendations of the 1975-76 Self-Study . . . . . . . . . . . . 8-10 8-2.1.5 Discussion and Recommendations . . . . . 8-14 8-3.0 Financial Administration (6.3) . . . . . . . . 8-17 8-3.1 Budget And Financial Planning (6.3.2) . . . . 8-17 8-3.1.1 History . . . . . . . . . . . . . . . . . 8-19 8-3.1.2 Issues And Recommendations . . . . . . . 8-22 8-3.1.3 Acquisition . . . . . . . . . . . . . . . 8-22 8-3.1.4 Allocation . . . . . . . . . . . . . . . 8-26 8-3.1.5 Management . . . . . . . . . . . . . . . 8-30 8-3.1.6 Fiscal Status . . . . . . . . . . . . . . 8-32 8-3.1.7 Conclusions . . . . . . . . . . . . . . . 8-37 8-3.2 Controller/Accounting And Auditing (6.3.5) . . 8-38 8-3.2.1 Description of the Controller's Office and Function . . . . . . . . . . . . . . . . . . . . . 8-38 8-3.2.2 SACS Criteria - Accounting, Reporting and Auditing (6.3.5) . . . . . . . . . . . . . . . . . 8-40 8-3.2.3 Historical Perspective Since 1975-76 Self- Study . . . . . . . . . . . . . . . . . . . . . . 8-41 8-3.2.4 Discussion And Recommendations . . . . . 8-42 8-3.2.4.1 Financial Oversight of Non-Public University Funds . . . . . . . . . . . . . . . . 8-42 8-3.2.4.2 Relocation of the Payroll Function into the Controller's Office . . . . . . . . . . . . 8-44 8-3.2.4.3 Central Invoicing, Central Receiving, Prompt Pay and Fixed-Asset Management . . . . . 8-45 8-3.2.4.4 Compliance with Management Letters and Computer System . . . . . . . . . . . . . . . . 8-46 8-3.3 Audit . . . . . . . . . . . . . . . . . . . . 8-47 8-3.3.1 Discussion and Recommendations . . . . . 8-47 8-3.4 Treasurer . . . . . . . . . . . . . . . . . . 8-49 8-3.4.1 Treasury . . . . . . . . . . . . . . . . 8-49 8-3.4.1.1 Discussion . . . . . . . . . . . . . . 8-50 8-3.4.1.2 Recommendations . . . . . . . . . . . 8-51 8-3.4.2 Virginia Tech Foundation . . . . . . . . 8-51 8-3.4.2.1 Discussion . . . . . . . . . . . . . . 8-52 8-3.4.2.2 Evaluation and Recommendations . . . . 8-53 8-3.4.3 Risk Management . . . . . . . . . . . . . 8-54 8-3.4.3.1 Discussion . . . . . . . . . . . . . . 8-54 8-3.4.3.2 Evaluation and Recommendation . . . . 8-55 8-3.5 Summary . . . . . . . . . . . . . . . . . . . 8-55 8-4.0 Appendix A . . . . . . . . . . . . . . . . . . 8-57 List of Illustrations Figure 8-1. Office of Development and University Relations Organizational Structure . . . 8-8 Figure 8-2. Vice President for Finance Organizational Structure . . . . . . . . . . . . . . . 8-20 List of Tables Table 8-1. Private Funds Received by the University Development Office . . . . . . . . . . . . 8-8 Table 8-2. Private Funds Received by the Virginia Tech Alumni Association . . . . . . . . . . . . 8-8 Table 8-3. Private Funds Received by the Virginia Tech Student Aid Association . . . . . . . . . 8-9 Table 8-4. Virginia Tech Foundation Income . . . . . 8-11 Table 8-5. Virginia Tech Foundation Assets And Agency Funds . . . . . . . . . . . . . . . . . 8-11 Table 8-6. Endowment Fund Market Value . . . . . . . 8-12 Table 8-7. Virginia Tech Foundation Expenditures . . 8-12 Table 8-8. Virginia Tech Foundation Balanced Fund Performance . . . . . . . . . . . . . . 8-13 Table 8-9. Revenues And Expenditures, 1975-76 to 1985-86 . . . . . . . . . . . . . . . . 8-34 Table 8-10. Tuition And Fee Analysis, 1975-76 to 1985-86 . . . . . . . . . . . . . . . . 8-35 Table 8-11. Expenditures for Instruction, Student Services, and Scholarships . . . . . . . 8-37 8-1.0 Introduction The charge to the Financial Resources Committee included the following two major categories of SACS criteria: 6.2 - Institutional Advancement 6.3 - Financial Resources The SACS criteria areas studied correspond for the most part to the organizational units reporting to the following two senior institutional officers: * Vice President for Development and University Relations * Vice President for Finance The study effort was organized into several sub-committees that addressed the following areas: * Development and University Relations Includes all areas under criteria 6.2 - Institutional Advancement * Budget and Financial Planning Includes the following SACS criteria: 6.3.2 - Budget Planning 6.3.3 - Budget Control 6.3.4 - Relation of the Institution to External Budgetary Control * Controller/Accounting and Auditing Including 6.3.5 - Accounting, Reporting, and Auditing * Treasurer Includes the following SACS criteria: 6.3.7 - Refund Policy 6.3.8 - Cashiering 6.3.9 - Investment Management 6.3.10 - Risk Management & Insurance In addition to the above, criteria item 6.3.1, Organization for the Administration of Financial Resources was considered by the Committee as a whole. Also, item 6.3.6 - Purchasing and Inven- tory Control was considered by the Administrative Processes Self-Study Committee. The report is organized into sections corresponding for the most part to the categories of study effort. The first part of the report relates entirely to item 6.2 - Institutional Advancement, while the remaining parts relate to areas within item 6.3 - Financial Resources. 8-2.0 Institutional Advancement (6.2) 8-2.1 Development And University Relations The University Development Subcommittee of the Financial Resources Committee of the 1987 University Self-Study interviewed the following University officials: * Charles M. Forbes, Vice President for Development and Univer- sity Relations, and Executive Vice President of Virginia Tech Foundation; * Minnis E. Ridenour, Vice President for Finance; * Dr. Raymond D. Smoot, Jr., Associate Vice President for Finance, and University Treasurer; * F. Duke Perry, Associate Vice President for Development; * William T. Walker, Director of Educational Communications; * G. E. Russell, Executive Vice President, Virginia Tech Alumni Association; * Jack Prater, Executive Director, Virginia Tech Student Aid Association; * Robert K. Lewis, Director of Public Affairs; 8-2.1.1 Background and Organization of the Development Program As a public institution, Virginia Polytechnic Institute and State University has traditionally relied upon the Commonwealth of Virginia for the largest portion of its financial resources. However, state appropriations now represent less than 50 percent of the total expenditures of the University (see Table 8-9 for a detailed summary of the sources of funds for the University). The University also receives financial assistance from various federal and state agencies in the form of student assistance, grants, and contracts. In addition, like other public insti- tutions of higher education in the United states, VPI&SU receives fiscal support from private sources, including alumni, friends, and corporations. However, it was not until the late 1940s that VPI&SU commenced a serious effort to attract private funds to the University. In 1948, the VPI Educational Foundation, Inc. was formed and chartered as a tax-exempt corporation to assist the University in obtaining private support and to receive, manage, and distribute on behalf of the University any gifts received for institutional development. In the early 1950s, the position of Director of Development was created in the administrative structure, but duties in addition to fund-raising were attached to the position. In 1968, the director of development became a full-time position and was assigned the responsibility to coordinate all fund-raising activ- ities, except for fund-raising efforts of the Alumni Association and the Student Aid Association. During the early 1960s, the VPI Development Council was formed, composed of the executive committee of the Board of Visitors, the executive committee of the Board of Directors of the Alumni Association, the executive committee of the Educational Founda- tion, and the president of the Virginia Tech Student Aid Associ- ation. The Council was created to provide overall coordination of the development program through review of programs, provision of advice and counsel, and encouragement of efforts of the members on behalf of the University. Partially due to the recommendations made in the 1975-76 Self- Study, in the late 1970s VPI&SU began to place greater emphasis on the efforts made to obtain private fiscal support for the University. In 1979, the position of director of development was elevated to Vice President for Development and University Relations, and in 1984 the Vice President for Development and University Relations was also appointed as executive vice presi- dent of the Virginia Tech Foundation. In 1985, the VPI Development Council was phased out and replaced with the executive committee of the Virginia Tech Foundation, Inc., composed of chairman of the board, president of the Founda- tion, president of the University, rector of the Board of Visitors, president of the Alumni Association, president of Student Aid Association, and four other persons elected by the Executive Committee. While most of the private fiscal support obtained by the Univer- sity is through the University Development Office, the Research Division, the Virginia Tech Alumni Association and the Virginia Tech Student Aid Association also attract considerable private funds to the University. While all three offices share a common goal, that is, to attract private support to the University, the purposes of the Alumni Association and Student Aid Association are somewhat different from the purpose of the University Devel- opment Office. The central and long-range purpose of the Univer- sity Development Office is simply to attract as much private support to the University as possible. In contrast, the purpose of the Alumni Association is two-fold: to serve the alumni and friends of the University, and to attract private support to the University. The purpose of the Student Aid Association is solely to attract private support to the athletic programs of the University in the form of scholarships and other financial assistance. The Vice President for Development and University Relations is administratively responsible to the President of the University, while the executive director of the Virginia Tech Alumni Associ- ation and executive director of the Virginia Tech Student Aid Association are administratively responsible to their respective boards of directors. Although some communication occurs between the University Development Office and the other fund-raising agencies, both the Virginia Tech Alumni Association and the Virginia Tech Student Aid Association operate independently. The organizational structure of the Office of Development and Univer- sity Relations is is shown in Figure 8-1; the organizational structures for the Virginia Tech Alumni Association, and the Virginia Tech Student Aid Association are discussed in the chapter on Administrative Processes. 8-2.1.1.1 Ancillary Components of the University Development Office Contained within the organizational structure of the University Development Office are two components, which lend direct support to fund-raising activities: (1) Educational Communications, and (2) Public Affairs (see Figure 8-1). Both components serve the entire University community but are linked administratively to the Development office. There are four units in Educational Communications: 1. Publications, 2. Photography, 3. Radio-TV-Film, and 4. Extension Information. Currently, Educational Communications is staffed with seven professionals and nine supporting personnel, a reduction of five people over the past five years. Although there has been decrease in staff, there has been an increased demand for services. Public Affairs is organized into four units: 1. WVTF, 2. Internal Information, 3. Special Events, and 4. News Bureau. Additionally, a number of public affairs personnel are assigned to the colleges of the University. Currently, Public Affairs is staffed with 14 professionals and three supporting personnel. 8-2.1.2 Status of Fund-Raising Activities All three fund-raising agencies, University Development Office, Virginia Tech Alumni Association, and Virginia Tech Student Aid Association have recorded considerable success in obtaining private support since the 1975-76 Self-Study. Brief profiles of the private funds raised by the three agencies are presented below. University Development Office: The University Development Office has experienced extraordinary success in its fund-raising activ- ities since the 1975-76 self-study (see Table 8-1). From 1974-75 to 1985-86, private funds obtained by the University Development Office grew from $3,441,275 to $14,394,865. Virginia Tech Alumni Association: The growth of private funds obtained by the Virginia Tech Alumni Association was more modest than the growth recorded by the University Development Office (see Table 8-2). From 1974-75 to 1985-86, private funds obtained by the Virginia Tech Alumni Association grew from $363,816 to $1,931,102. Virginia Tech Student Aid Association: The growth of private funds obtained by the Virginia Tech Student Aid Association recorded more modest growth (see Table 8-3). From 1974-75 to 1985-86, private funds obtained by the Virginia Tech Student Aid Association grew from $575,810 to $1,459,407. 8-2.1.4 University Compliance with Recommendations of the 1975-76 Self-Study The following four recommendations affecting the University Development Office were contained within the 1975-76 Self-Study. Each of the recommendations has been evaluated in regard to the level of compliance obtained by the University. "Recommendation 9: That concerted efforts be made to increase the amount of private support for the University." Without question, the University has complied with Recommendation 9. The University expanded significantly the role of the Univer- sity Development Office. Additional resources, both financial and personnel, were added, and a concerted effort was made to attract additional private funds into the University. The result has been a remarkable increase in the overall level of private support for the University. "Suggestion 10: That the staffing and functions of the Develop- ment Office be studied and appropriate action taken to enhance its effectiveness." Following the 1975-76 Self-Study, the University studied the structure and staffing of the University Development Office, which resulted in the allocation of considerable additional resources. In 1975, the University Development Office was staffed by two staff members and three clerical assistants. Currently, the University Development Office is staffed by eight staff members and 10 clerical personnel, an increased personnel allocation of nearly 300 percent. Additional expansion of personnel is anticipated, as the University Development Office is now in the process of recruiting one development officer and two professionals. The latter two professionals will be assigned to work directly with the College of Veterinary Medicine and the College of Engineering. Ultimately, the University Development Office will have personnel assigned to all University colleges, consistent with a suggestion made in the 1975-76 Self-Study. In 1975, the Virginia Tech Alumni Association was staffed by two staff members involved with fund-raising and two staff members assigned to alumni activities not directly linked to attracting private support into the University. An additional eight clerical assistants were employed by the Alumni Office. Currently, the Alumni Association employs five professionals and a support staff of 10 clerical personnel. There are no immediate plans to expand the personnel of the Alumni Association. In 1975, the Virginia Tech Student Aid Association office was staffed by two staff members and two clerical assistants, all involved in the annual drive for the student aid fund. Currently, the Student Aid Association employs two professionals and four clerical assistants. "Suggestion 11: That the Development Office make greater use of members of the academic community in raising funds from private sources." The University Development Office has complied with the suggestion to make greater use of the academic community to attract private support into the University. Perhaps the best example of the greater involvement of the academic community in private fund-raising has been the highly successful Campaign for Excellence, in which faculty input and financial support were requested. "Suggestion 12: That the Development Office coordinate the activities of the administrative staff, college and departmental staffs, and the faculty who seek private support from corpo- rations, foundations, and individuals." Coupled with the expansion of personnel in the University Devel- opment Office, an increased level of communication among the various fund-raising offices and colleges has occurred. However, while communication has increased significantly since the 1975-76 Self-Study, a fully-coordinated effort to attract private funds to the University has not been realized. As noted previously, the Virginia Tech Alumni Association and the Virginia Tech Student Aid Association operate somewhat independently of the University Development Office. The disadvantages of the current loosely-coordinated structure include the following: * duplication of staffing, data systems, and efforts; * perception of some alumni that they are being "pestered" by several fund-raising components of the University; and * maximum generation of contributions are not being realized from the private sector. 8-2.1.5 Discussion and Recommendations Despite a remarkable growth of private funding, additional efforts to attract private support are warranted, and in fact, are now being planned by the fund-raising components of the University. Consideration and implementation of the following recommendations should expedite better coordination of the University efforts to attract additional private support. As noted above and in the chapter on Administrative Processes, the Virginia Tech Alumni Association and the Virginia Tech Student Aid Association operate somewhat independently of the University Development Office. Both the Administrative Processes committee and the Financial Resources committee discussed the possibility that a more efficient and effective development effort could be achieved by having the Executive Vice President of the Alumni Association and the Executive Director of the Student Aid Association report to the Vice Present for Develop- ment and University Relations. Both committees rejected this proposition because of the unique contribution that these two organizations make to the fund raising efforts. This uniqueness dictates the need for both to be organizationally independent. However, while rejecting this proposition, both committees felt that there was a need for better coordination in the fund-raising efforts in order to eliminate the possible perception that certain alumni are being "pestered" by the various fund-raising components of the University. Recommendation 8-1: That the University Development Office, the Alumni Association, and the Student Aid Association seek to improve the coordination of the various fund-raising efforts of the University. With the exception of endowment funds received by the Virginia Tech Student Aid Association, all private funds received by the University are managed and invested by the Virginia Tech Founda- tion. It is unlikely that any single fund-raising component of the University will be able match the investment yield of the consolidated resources of the Foundation. Recommendation 8-2: That all private funds received by fund- raising components of the University be deposited with the Virginia Tech Foundation. The name of the Virginia Tech Student Aid Association creates confusion among both Virginia Tech alumni and faculty. As noted previously, private funds obtained by the Student Aid Association are used exclusively for VPI&SU athletic programs. However, there are alumni and faculty who assume that funds provided the Student Aid Association are used to provide financial assistance to all needy students, and are not restricted to student- athletes. The name of the Virginia Tech Student Aid Association should be changed to Virginia Tech Student-Athlete Assistance Association, or some similar title that reflects more accurately the purpose of the organization. As other fund-raising efforts are carried out to generate fiscal support for certain University components, e.g., College of Veterinary Medicine, etc., care should be taken to ensure that both faculty and potential donors realize the purpose of the campaign. Recommendation 8-3: That the names and titles of University fund-raising campaigns and/or components reflect their respective purposes. Other reports prepared for the current Self-Study have addressed weaknesses of systematic and comprehensive planning by the University. The rather casual and highly centralized planning that has characterized other areas of the University is also present in University development efforts. While it is likely that considerable planning has preceded most University develop- ment efforts, many faculty have little knowledge regarding either short-range or long-range development plans of the University. There also is little knowledge or involvement of faculty regard- ing how development priorities are established or how funds are allocated from the Virginia Tech Foundation. It is not commonly known, for example, that approximately 90 percent of the donations to the University are restricted by the donor. Thus, of the total of $115 million to $120 million available, less than 10 percent is discretionary. Recommendation 8-4: That an effort be made to involve and to better inform the faculty of both short-range and long-range University development plans. Recommendation 8-5: That methods be developed to track all donations to the University that are earmarked for scholar- ships - particularly small donations or those that mature at some point in the future - in order to determine if these donations are being used for the reasons they were intended. Educational Communications occupies a unique position in the University. Administratively, Educational Communications is responsible to the Office of University Development, but opera- tionally, Educational Communications provides assistance to the entire University community. The self-study of the Learning Resources Center was not conducted by this committee, but it is understood that both Educational Communications and the Learning Resources Center provide similar services. As noted earlier, Educational Communications has experienced a loss of personnel, and has had to operate with "level-funded" budgets for the past several years. While more sophisticated hardware has been provided to Educational Communications, the functions performed by this office remain primarily labor-intensive. While the services provided by Educational Communications are provided without charge to the University community, a portion of Learning Resources Center funds are obtained through user charges. If a study of Educational Communications and the Learning Resources Center shows the need for additional personnel and financial resources, one alternative would be for the University to install an intra-agency funding system for many of the services provided by Educational Communications. Recommendation 8-6: That a study of Educational Communications and the Learning Resources Center be conducted to determine: (1) whether there is overlap of functions that could be more efficiently coordinated; and (2) whether sufficient personnel and financial resources are being provided for proper conduct of their assigned functions. 8-3.0 Financial Administration (6.3) The Vice President for Finance is the chief financial officer for the institution. The Vice President for Finance reports to the University President. The organizational units that report to the Vice President for Finance include: * Budget and Financial Planning * University Controller * Internal Audit (also reports to Board of Visitors) * University Treasurer * Business Affairs The organization chart for financial administration is shown in Figure 8-2. It was the judgement of the Financial Resources Committee that the organization for the administration of Financial Resources is appropriate and adequate for the financial operations of the organization. However, there was some concern that the Vice President for Finance may become overextended during the periods when he must travel to Richmond for the legislative sessions, and in situations where special projects arise in which the Vice President for Finance must become heavily involved. For this reason, it was suggested that the organization might be modified to provide for some consolidation of reporting responsibilities by the various units reporting to the Vice President for Finance. Recommendation 8-7: That serious consideration be given to having fewer organizational units (and individuals) reporting directly to the Vice President for Finance. 8-3.1 Budget And Financial Planning (6.3.2) The Budget subcommittee of the Financial Resources self-study committee has addressed the following SACS criteria in its review of the University's budgeting process and operation: * Budget Planning (6.3.2) Sound educational planning precedes the preparation and execution of a detailed annual budget. The chief executive officer presents the budget via proper channels to the top governing board for final approval. * Budget Control (6.3.3) The institution maintains a system of budget control. The accounting officer renders periodic interim budget state- ments to department heads. Budgetary control is the responsibility of the adminis- tration. When actual conditions require budget revisions, the institu- tion makes the necessary changes to the budget and communi- cates the nature of the changes to those affected within the institution. * Relation of an Institution to External Budgetary Control (6.3.4) Once funds have been appropriated, the institution, operating under the jurisdiction of the governing board and subject to its policies, is responsible for budget making, establishment of priorities and the control of expenditures. Financial officials outside the institution do not use budgetary techniques or other controls to control the educa- tional function of the institution. Sources Of Information Interviews were conducted with the following administrators: * Katherine Johnston, Budget Director; * Minnis Ridenour, Vice President for Finance, and Budget Director at the time of the 1975-76 Self-Study; * Mitchell Geasler, Vice Provost for Extension; * John Perry, Associate Provost; * David Ford, Assistant Provost. Documents reviewed were as follows: * Financial Resources section of the 1975-76 Self-Study; * Information Exchange Procedures (IEP) Cost Study for 1984-1985; * Memorandum to Commission on Research from Associate Provost Alan W. Steiss reviewing 1985-1986 revenues and expenditures and expected revenues and expenditures for 1987-1988; * President's Report 1984-1985; * Biennial Report 1982-1984; * Several reports prepared by Institutional Research comparing tuition and fees among institutions; * Data on Extension Division resources for 1966-1967, 1976-1977, and 1986-1987, prepared by the Extension Division. Members of the Financial Resources committee helped to identify issues of concern in various precincts of the University. 8-3.1.1 History Since the 1975-76 Self-Study, there have been major changes in the financial affairs administrative structure of the University. At the time of the last self-study, the Budget Director reported directly to the Vice President for Special Projects, but worked directly with the President as well. Subsequent reorganization reactivated the position of Vice President for Finance and the Budget Director was named to this position. The Vice President for Finance reports directly to the President. The position of Budget Director was redefined and now reports to the Vice President for Finance, as do the directors of Internal Audit, Business Affairs, Controller, and Treasury (see Figure 8-2). In 1975, all directors reported to the Vice President for Special Projects. This reorganization and subsequent strengthening of the roles of the directors have enabled the University to seek funding for existing programs and new initiatives more aggressively, and to take a more active role in developing budget guidelines and formulas at the state level. The Vice President for Finance delegates authority to directors to conduct daily financial business for the three agencies of Instruction, Extension and Research, and concentrates his attention on working with the state legislature and those state offices charged with establish- ing funding guidelines for institutions of higher education. The Vice President, as advisor to the President, plays a major role in setting institutional priorities and in allocating resources to support them. The Budget Director oversees the preparation of all budget submissions to the state for all three agencies, oversees the internal distribution of funds and positions, makes funding and position allocation recommendations to the Vice President, and monitors the expenditure of all funds and positions. In addition to preparing the University's budget plan, the Budget Director is also responsible for financial planning involving estimation, tracking, and development of models to project future sources and uses of funds. The staff of the Budget Director is characterized by the Vice President as being lean and efficient, relying heavily on computerization for budget coordination and planning, the two primary functions of the office. Major factors influencing acquisition, allocation and management of University resources have been: * level state funding since 1982 of operating budgets for institutions of higher education, * the goal to achieve status as a comprehensive land grant university with significant graduate and research components, and * the commitment to upgrade the quality of academic programs and student life while minimizing the resulting cost to students. These factors have led to more creative financing and financial management and a stronger development program to secure private monies to supplement state funding. These emphases have enabled the University to increase resources needed to meet goals and to demonstrate to the state legislature and administrative offices that the University has a commitment to quality and the ability to help itself when the state can not. Two major recommendations from the 1975-76 Self-Study were reactivation of the position of Vice President for Finance and more appropriate staffing of the Budget Office. These recommen- dations were made in recognition that improvements were needed in budget planning, preparation, and control in order to meet the needs of a major comprehensive university. The recommendations were fully implemented. Other budget-related recommendations were that priority be given to the acquisition of funds for library expansion and other critical space needs, that budget implications of the impending enrollment ceiling be studied, and that the relative expenditure of funds for student financial aid be increased. The University library is now recognized as capable of supporting a major research institution, having become a member of the American Association of Research Libraries. Space needs have been met, in part, with application of the in-fill planning concept for business, engineering and chemistry building additions. The value of projects under construction has increased from $64 million in 1981 to an authorized $103 million in 1987. Scholar- ship funds have grown from $2.5 million in 1975-1976 to $10.5 million in 1985-1986. Implications of the enrollment ceiling have been addressed by decreasing reliance on formula-funded state appropriations. Two final recommendations were that the costs of new programs be more realistically assessed and that there be guidelines to allocate discretionary resources. These are not recommendations that lend themselves to documentation; however, the Vice Presi- dent for Finance is comfortable with processes in place to project costs of new initiatives and to allocate discretionary funds. The latter is done in consultation with the Provost or vice presidents, who help the President identify University funding priorities. 8-3.1.2 Issues And Recommendations There were many questions posed by the subcommittee about the budgeting process. Besides those pertaining to SACS criteria, questions were related to two main issues: 1. Has the institution been successful in providing a strong financial base to meet its objectives, and is it positioned to address future goals successfully? 2. Are the budgeting activities of acquisition, allocation and management driven by and responsive to the broader University community? 8-3.1.3 Acquisition Every two years the University must submit to the state a budget for the upcoming biennium and, in addition, must project its needs through two additional budget cycles. During the second year of the biennium, requests are considered to be adjustments to the current biennium budget and are not as detailed. (A more detailed description of the budgeting process at the state level may be found in the section on Institutional Effectiveness as it relates to planning.) Internally, the official budget request process begins at the department level. Departments submit detailed requests to college deans and deans in turn submit a college request to the Budget and Provost's offices. Nonacademic units submit budget requests through vice presidents. The Budget Office prepares the submission to the state using selected information provided by individual units and aggregated data for requests common to many or all units. Funding priorities are determined by the President in consulta- tion primarily with the Provost and the Vice President for Finance, with general University goals and objectives having been agreed upon at regular meetings of the President, Provost, vice presidents, and deans. Academic goals are set by the Provost and are guided by college and department goals that deans develop with input from faculty and department heads. There is no formal, written University planning document that guides requests for state resources, only general agreed-upon priorities at the central administration level. These priorities are thought to be those held by the University academic commu- nity. Resource requests are not a function solely of the Univer- sity's priorities, but are also determined by state priorities for higher education and legislative politics of the moment. It is the view of the President that greater flexibility in struc- turing budget requests is maintained without an official, detailed, internal planning document. As mentioned earlier, the overriding mission of the finance area is to support the University's "quest for quality," while at the same time passing along to students as little of the necessary cost as possible. The University can, therefore, remain a "bargain" for academically strong students. Because the state funding formula requires students to contribute 37.9 percent of the University's instructional funding, and enrollment is at the maximum allowable by the state, requests for increases in state funding require an increase in tuition and fees. Rather than pass along all costs to students, the University has developed and successfully carried out creative financing plans for the acquisition of equipment, certain capital improvement projects, and housing and dining operations. By committing or using private funds to back such plans, the University has demonstrated to the state that it is serious about academic quality and controlling costs to students and will find the means to do what needs to be done. It is the view of the Vice President for Finance that the state has been responsive to this attitude by supporting subsequent requests for equipment funds and capital improvements. There is ample evidence that the University has been successful in acquiring funds to support specific priorities identified as necessary to achieve the primary goal of recognition as a major research institution: substantial increases have been realized in faculty salary levels, library holdings and services, comput- ing and communication capabilities, scientific equipment additions and replacements, sponsored research activity and graduate enrollment. The creativity and responsiveness of the University to the state's recent moratorium on increased operat- ing funding for higher education is commendable. In addition, substantial increases in funding for capital projects and the state's adoption of an equipment funding plan for higher educa- tion, much like the University's of three years ago, indicate that the University's efforts to help itself have paid off. The Vice President for Finance provided much input when state guide- lines were established for formula funding of higher education institutions, which has resulted in more favorable formulas for special programs. The decision to focus the vice president's energies on state-level activities that affect VPI&SU's financial health was a wise one. Issue 1 The absence of a more formal planning procedure within the University, although it provides flexibility to tailor budget requests to the state, has several drawbacks. The first is the lack of participation felt by the academic community, including deans, department heads and faculty, to determine the overall direction of the institution as well as in the decision-making process. While it may be true that the community would respond vociferously to unpopular goals and objectives, and, therefore, lends its implicit support, and that the University's direction is based on attitudes that "bubble up," starting with individual faculty, there is a sense that compromises are made in decisions about funding priorities and that such decisions should be made formally by a more representative group. Compounding this problem is a lack of understanding about the acquisition process. Faculty feel uninformed about decisions that are made and why they are made. For example, there is confusion about the extent to which the five-year level-funding of operating budgets has resulted from failure of the state to appropriate an increase or from the administration's failure to make an increase for operations its highest priority. The faculty at-large are not generally aware that the University must present it's funding plans and requests within the framework of the priorities previously established by the state. Recommendation 8-8: That discussion and setting of the Univer- sity's goals and objectives take place among a representative group of the University community; that these goals and objectives be the basis for funding priorities in University budget requests and other fund-raising efforts; and goals, objectives and funding priorities be widely communicated to the academic community. Issue 2 Although the University is achieving its goal of being recognized as a major research institution during a period of stable enroll- ments and level-funding for operations, serious problems remain or have been created as a result of movement toward this goal. It may be that open discussion and debate during a more formal planning process would have predicted these results of strength- ening the University's research status, and perhaps, made them more palatable. While VPI&SU is now ranked 49th among institutions in research funding, a continuing critical space shortage, especially for research, jeopardizes the University's position. Furthermore, the objective to increase graduate enrollment supports an empha- sis on research; however, the level of graduate student support in many fields is inadequate for the recruitment of talented students. Faculty identify the primary problem as the inability to waive tuition for graduate students who are offered assistantships. There is also the sense that continued expectations for the University to be a leader in academic computing may have placed heavy burdens on the central computing operation, to the extent that services previously provided are now being discontinued. As use of computer technology has increased across campus, an increasingly greater proportion of individual unit budgets have had to be spent on computing needs. At the same time, the Computing Center is divesting itself of previous responsibil- ities, such as maintenance of centralized laboratories and certain hardware and software support. The net effect of this transfer of responsibility can only be increased costs to individual units, not to mention possible inefficiency and unnec- essary duplication. The impression is that VPI&SU continues to move forward in computing by shifting routine services and their costs to departments. Whether the current space, graduate student support, and comput- ing problems result from lack of foresight and planning or a shortfall in expected resources, they nonetheless are threatening to faculty morale and program quality. Innovative and aggressive efforts to resolve space and graduate student support deficien- cies are needed, in much the same manner as creative efforts to acquire resources for other needs. Recommendation 8-9: That the appropriateness of continuing to encourage increases in sponsored funding, graduate student enrollment, and computing capabilities be assessed in the face of research space deficiencies, inadequate graduate student support, the shift of computing responsibilities to the colleges, and other unsolved problems created in part by past emphasis on these activities. Issue 3 The need for increased funding for operations in all three divisions is critical, and is so recognized by the central admin- istration. The Vice President for Finance is optimistic that in the next biennium the state will address this general need for operating dollars among Virginia institutions of higher educa- tion. There has been no meaningful increase in operating funds since 1981-1982. Increases in revenues that could be earmarked for operations have gone primarily to salaries, which absorb approxi- mately 80 percent of the budget. Increases for faculty salaries and graduate assistant stipends were determined to be more critical needs than operating funds during each of the past three years since 1982-1983 when salaries were frozen; in 1985-1986, the state specifically designated additional funds for salaries, thereby making the funds unavailable for other uses. The Extension and Research divisions in particular find themselves strapped as a result of the state's failure to increase operating revenues. Not only have fixed budgets of both divisions been adversely affected by inflation and communication deregulation, but cuts in expected levels of federal funding have forced the use of existing operating dollars for salary increases to match those funded with state dollars. The Research Division expects a decrease in monies available for operations in 1987-1988. The Extension Division has had available for operations $5.4 million dollars for the past five years. By freezing hiring and holding positions vacant to accumulate salary dollars, Extension will for the first time in five years be able to continue the present level of services into next year. Services performed statewide by the division are suffering substantially. The decision to return savings from vacant positions to colleges for operations is commended, but funds from this source are unreliable and should not be considered a permanent solution. In addition, positions have been at a premium for several years and cannot easily be left unfilled. Some colleges have come to rely heavily on research overhead dollars simply to continue routine operations, but these funds too are unreliable and are being diverted from research support to which they should be dedicated. Recommendation 8-10: That high priority be given to increasing the operating monies in all three agencies. Issue 4 The failure of the state to address the unique needs of the Research and Extension divisions has led to the opinion by the Vice President for Finance and the Budget Director that separate budget requests for the three agencies should be abandoned for one combined request. It is their view that one request would be more favorably considered because of the reduction in the number of requests and because research and extension activities are not currently in favor at the state level. The Vice Provost for Extension, however, feels that the Extension Division may be at a disadvantage should a combined request be made. Recommendation 8-11: That an in-depth study be made of the pros and cons of continuing to seek state funding separately for the three agencies. 8-3.1.4 Allocation Monies and positions appropriated annually by the state, with a few exceptions, are not designated for specific uses. Internal allocation of resources to the vice presidential level is largely determined by the President and the Vice President for Finance, in consultation with the Provost. The Budget Director collects data from comparable institutions to assist in the equitable distribution of funds. Proportions of income allocated to various functions are examined. The Budget Director also makes recommendations for the expenditure of new money to the Vice President for Finance based on a study of unit budget requests. Allocations are made to the Provost for distribution to colleges and to vice presidents under whom fall central, nonacademic units of the University. Academic programs receive highest priority for all resources. Only in the case of critical shortages will a nonacademic unit be allocated resources also needed by an academic program. State-appropriated funds for the Extension and Research divisions are allocated by the Provost as well. Reserve or contingency funds are held back by the Vice President for Finance for emergencies. Contingency funds are allocated to the Provost for distribution toward the end of the fiscal year. Internal budgeting may best be described as incremental rather than programmatic, although the specific needs of each unit are assessed. Reallocations resulting in lost resources for an individual unit may at times be made, but usually only as a result of large enrollment shifts considered to be permanent. The Vice Provost oversees for the Provost the distribution and monitoring of operating monies; faculty salary dollars; faculty, classified and assistantship positions; equipment monies; and computer funds to colleges and other academic units of the University. The Vice Provost relies heavily on deans to assess individual college needs accurately. Operating dollars are allocated to colleges on a per-faculty basis. The amount per faculty differs among colleges, based upon program costs. The resulting allocation amount is fine-tuned by knowledge of special needs and new initiatives that reflect the Provost's and, presumably, the University's priorities. Faculty positions are allocated to colleges based on weighted student credit hours generated, number of majors, number of graduate students and number of assistantships. Data from similar programs at comparable institutions are used in decision- making as well. Classified positions are distributed using faculty-to-classified-position ratios and knowledge of special needs required by the character of individual programs. Computer funds are allocated on an incremental basis using previ- ous year's usage as a guide. Redistributions are made toward the end of the fiscal year if necessary. Equipment funds are allocated based on instructional needs. The number and nature of laboratory courses, state of current equip- ment, graduate education needs and equipment costs are consid- ered. Faculty salary increase money is distributed with some recogni- tion of the level required for disciplines to remain competitive. This factor is not allowed undue influence in the recognition of merit, however. The Provost is also responsible for the allocation of space. The Assistant Provost oversees the assignment of new space. Recomm- endations are made by a central administration committee and recently an advisory committee of college representatives was formed. Allocations are based on perceived need and are not guided by a plan. Data from the state Council of Higher Educa- tion on space needs for different disciplines are used as a guide, but are not in a helpful form. Costs to move or remodel space for a unit required to move are borne by a special budget for the purpose. Expenditure decisions are decentralized. Heads of units that receive budget allocations from the Vice President for Finance are responsible for deciding how expenditures will be made. The same is true of allocations made from the Provost's Office. Issue 5 As with the acquisition of funds, no formal, written document guides the allocation of resources at the central level or by the Provost. In both instances, equitable distribution of resources is dependent upon the good judgement and common sense of the individuals responsible for allocation. Quantitative data serve as a preliminary guide, but must be supplemented by knowledge about individual programs and units. It is the committee's view that the Vice President for Finance, the Vice Provost, and the Assistant Provost go to a great deal of effort to ensure equita- ble distribution. The committee feels, however, that communi- cation gaps exist between the central administration and other units of the University, and that these may be filled with a more formal planning and budgeting process. The President and Provost emphasize that the faculty set the agenda for the colleges and, therefore, for the University. University priorities and resource requests are said to be a reflection of faculty and college goals. The faculty, however, perceive priorities to be set by the central administration. One reason for this perception appears to be the absence of any formal acknowledgement about what University priorities are, how each unit and college contributes or should contribute to realiz- ing them, and how priorities are related to resources. Without clear identification and agreement on University and college priorities, the budget process becomes meaningless for many. There is no context for requests, no feedback on requests and no connection made between allocations and requests. This problem appears to exist between colleges and departments as well as at the central level in all three agencies. Another by-product of confusion about priorities is suspicion about funding for nonacademic functions. This is especially true when academic budgets are tight. Appropriations from the state are not in the form of a line-item budget; therefore, internal allocations of the state appropriation are largely made at the discretion of the President and his staff. There is not widespread knowledge of decisions about support to nonacademic units, decisions that may affect the level of operating funds available for academic units, nor is there a feeling of having contributed to such decisions. A clear integration of department, college, and university prior- ities, along with their resource implications, should aid those charged with resource allocation from the central to the depart- ment level. As new resources become available, it will become increasingly difficult to make decisions among competing and equally worthy requests. On the mechanical side of this major allocation issue are two problems. The first is confusion about the budget submission and distribution processes. To those who prepare budgets, it is often unclear which office in the chainggdean's office, the Budget Office, the Vice President for Finance's office, the Provost's office, the Research Division or the Extension Divisionggand who is to be contacted in each office to answer questions. Second, after initial allocations are made, it is unclear to whom requests should be addressed for support of special or unexpected needs that arise during the yearggVice President for Finance, Vice President for Development, the Educa- tion Foundation treasurer, the Vice Provost for Research, or the Vice Provost for Extensionggand from whom the request should originateggdean, department head, faculty member. Recommendation 8-12: That a more structured and effective process of financial planning be implemented. It is specifically recommended that internal budget allocations from the Provost, the Vice Provost for Research and the Vice Provost for Extension to colleges and from college deans to departments be closely tied to requests that have been discussed and prioritized in light of agreed-upon University, college, and department goals and objectives. The same recommendation is made for requests from units under Vice Presidents. The Provost, vice provosts, vice presidents, and college deans would then serve to coordinate the goals and objectives of colleges, departments, and nonacademic units with University goals. In conjunction, it is recommended that allocations to nonacademic units and the relationship of these allocations to academic priorities be fully explained to the academic community. Finally, it is recommended that more effective guidelines be written for the budget submission and distribution process and for special or unexpected requests for additional funds after initial allocations are made. Issue 6 The Commonwealth of Virginia operates under a strict position control system for classified staff and faculty. Positions are formally allocated to the institution in the Appropriations Act as "Maximum Employment Levels". This system lacks the flexibil- ity needed for the University to respond to ever-changing condi- tions. For example, programs may dictate the need for two junior professors, who may be hired for the same dollar amount as one senior professor; however, if only one position is available, only one person may be hired. Constraints external to the University and its mission, therefore, exert considerable control. Additionally, because the University has not received its author- ized appropriation of classified positions, many departments have to rely on wage employees. Besides the negative impact a nonsal- aried position has on the welfare of the employee, high turnover and low morale affect the level of service that units provide. The implications of continuing to hire large numbers of full-time employees on wages be should be studied, with the goal of using wages only for short-term, temporary personnel, as was originally intended. Recommendation 8-13: That the University continue efforts to remove state-level control over the creation of positions and establish a local system of position control that is related to the institution's needs, its physical plant, and its financial resources. Issue 7 This issue pertains to the state requirement that state-allocated funds not spent by the end of the fiscal year revert to the Commonwealth's general fund. This policy often forces hurried and unwise expenditures of operating dollars as June 30th approaches. A change in policy to allow carry-over of a small percentage of funds from one year to the next is currently under discussion as part of the state's deliberations on decentrali- zation of authority. It appears that the carry-over privilege will be granted only if certain conditions evidencing fiscal responsibility are met. Recommendation 8-14: That the University develop procedures to meet requirements for decentralization, so the privilege to carry over funds will be granted by the Commonwealth. 8-3.1.5 Management Control over allocated resources is maintained through careful budgeting and monitoring. Units to whom resources have been allocated decide how resources will be deployed, but the Control- ler's Office monitors expenditures closely, and quickly identi- fies units in danger of overspending. Any unit that depletes its funds before the end of the fiscal year may be assisted, but must "pay back" the loan from the next year's funds. For auxiliary operations, the Assistant Vice President for Finance oversees the preparation of budgets; ensures sound finan- cial planning, including the setting aside of reserve funds for such needs as long-term maintenance and equipment purchases; and monitors expenditures. Auxiliaries work directly with a member of the finance area staff. The Budget Office assumed the additional responsibility of finan- cial planning a year ago. Various financial planning models are used to forecast and track income and expenditures to allow more efficient and profitable money management. Planning and monitoring of budgets and positions is largely computerized, consequently the Budget Office operates with a relatively small staff consisting of: * the budget director, * a budget coordinator, * a financial planning coordinator, * three budget analysts, * one programmer analyst, and * two secretaries. The Budget Office operates as a service rather than as a policing unit, with personnel responsive to requests for service. Issue 8 Regular reports, that show income and expenditures for all accounts, are provided to department heads. Departments may also check account balances daily by computer, although there is a considerable lag between the department's submission of a bill for payment and the appearance of the debit. A new source-point- entry accounting system will soon be in place to provide more immediate, accurate feedback on account balances. Since instal- lation is imminent, no recommendation on this issue will be made at this time. Issue 9 Position use and salary savings are monitored by the Budget Office. Accurate analysis of both are dependent on the personnel data base under the control of the Employee Relations Office. Departments do not receive reports from the position control system because available information lags well behind initiation of paperwork on personnel changes. Currently, many units maintain their own position control and salary savings monitoring systems. A plan to provide salary expenditure data to colleges and departments to verify salary savings has not yet been approved by the Budget Office. Eventually, direct computer entry of personnel transactions may help to solve these problems. This system may require that the personnel data base become the responsibility of the Budget Office. Recommendation 8-15: That position and salary savings monitor- ing systems be improved to provide feedback to colleges and other units that must now duplicate the personnel data base system. 8-3.1.6 Fiscal Status Total current fund revenues and expenditures have tripled since the 1975-76 Self-Study (see Table 8-9). It should be noted that the percentages of the total revenue attributable to state and federal government appropriations have decreased while those for tuition and fees, contracts and grants, and private giving have increased. For 1985-1986, tuition and fees, contract and grant, and private giving revenues were each more than four times the amount in 1975-1976. State and federal appropriations increased less than three times the amount in 1975-1976. The change in the percentage of funds contributed by the various sources is not unexpected. In 1975-1976, students paid 24.2 percent of instructional program costs. Because of legislative mandates, they now pay 37.9 percent. Since the 1975-76 Self- Study, the University has focused attention on strengthening ties with business, industry and government to attract research oppor- tunities and funding, and on securing a strong private funding base. Revenue figures show that efforts have been fruitful. The analysis of tuition and fees for 1975-1976, 1980-1981, and 1985-1986 shows that other than increases that resulted from changes by the state in the tuition policy, tuition and fee costs have risen only at the rate of inflation (see Table 8-10). The current tuition and fee rates, however, have made it difficult for the University to remain competitive for the high-quality students it wishes to attract. VPI&SU tuitions are among the highest for state public institutions. With fees included, the picture improves. Currently, it is room and board rates that make VPI&SU a bargain, at least for on-campus undergraduate students. When room and board are included in costs to students, VPI&SU becomes the second-least-expensive public institution in Virginia. The recognition that major increases in tuition cannot be afforded has led the University to aggressively and success- fully seek outside sources of funding. As for expenditures, only those for public service (see Table 8-9) have decreased markedly. This decline is attributable to significant decreases in state and federal funding for cooper- ative extension. The magnitude of the increases in expenditures in most other categories is due largely to faculty-level salary increases (approximately 80 percent of University expenditures are for salaries). The scholarship category, however, is not affected by salaries, which means that support to students has increased dramatically from $2.5 million to $10.5 million since 1975-1976. With the increase in graduate enrollment since 1975, a concom- itant increase in expenditure per FTE student would be desirable and expected (see Table 8-11). Data on expenditures for instruc- tion have been adjusted to 1986 dollars using the Higher Educa- tion Price Index. Significant increases in expenditures for student services and scholarships are obvious without adjustment. The figures in Table 8-11, and in Table 8-9 that show the general stability of expenditures within category over the last 10 years, indicate there has been no relative decline in any of the major services provided by the University, except in the area of public service. Issue 10 State appropriations have not grown to meet the needs or the desires of the University. They have served, however, as a firm foundation from which to launch successful initiatives to attract funding from outside sources. Movement toward less reliance on state and federal appropriations, as indicated in Table 8-9, raises important questions about the appropriate degree to which VPI&SU's affairs should be controlled by the state, but more importantly, to some, about the degree to which the University is moving further from the traditional character of a land-grant institution and the security of state-appropriated revenues. The University must consider the appropriate degree of control that the state should have over activities funded primarily by non-state revenues, and the effect of the University's quest for academic quality and status as a major research institution on traditional expectations of a land-grant institution. Recommendation 8-16: That a committee study in depth the impli- cations of continued reliance on non-state funds for support. 8-3.1.7 Conclusions Main issues addressed by the budget subcommittee were University compliance with SACS criteria related to budget, the present and future financial strength of the institution and the responsive- ness of the budgeting process to the broader University commu- nity. Conclusions are as follows: 1. SACS criteria related to budgeting are being met. With regard to the criterion of strong educational planning, the committee believes that planning does occur, but in the case of acquisition and allocation of nonrestricted funds, it is more informal than formal. 2. During a period of decreased state support for higher educa- tion, the University has managed to secure resources to meet objectives related to enhanced quality of academic programs and student life. 3. The decentralized budgeting and management philosophy of the finance area and the Provost's Office give decision-making responsibility to those who know most about specific programs in their charge. 4. Those charged with the allocation of resources show a genuine concern for equity and are cooperative and personally respon- sive. 5. The finance area is run efficiently and maximizes resources allocated to it to conduct the University's financial business. Recommendations addressed the following three conclusions: 1. The University has some well-recognized critical needs that threaten both the adequate maintenance of existing programs as well as new initiatives and strides made toward its visibility as a quality institution. 2. Weaknesses in the budget process center around the absence of clearly identified and generally accepted priorities for funding, both University- and college-level, and the short- and long-term budget implications of plans at both levels. 3. While the finance area has exhibited strong and creative leadership in resource acquisition and management, the increasing reliance on non-state sources of revenue raises questions about the institution's future and the propriety of some types of state control over operations. 8-3.2 Controller/Accounting And Auditing (6.3.5) The controller subcommittee of the Financial Resources Committee of the 1987 Self-Study interviewed three University officials: * Raymond Smoot - Associate Vice President of Finance and Treasurer; * Dwight Shelton - University Controller; * Wayne Bishop - Assistant Director, Employee Relations. The committee reviewed management letters prepared by the Auditor of Public Accounts and the summary responses to the management letters, as well as the other materials that were provided to the entire financial affairs subcommittee. These materials, as well as the several interviews, serve as the basis of this report. 8-3.2.1 Description of the Controller's Office and Function The Office of the University Controller has undergone significant expansion and reorganization since the 1975-76 Self-Study. At that time, the Controller function was managed by 10 professional-level personnel with 39 supporting and clerical staff. The focus of the University's controller activity was the management of the University's expenditures from primarily appro- priated and grant/contract projects totaling $97 million annually. In 1986-87, management of all University expenditures continues to be a major function of the Controller's Office. However, just as the University has evolved during the last 10 years into a major research institution, the Controller's Office has evolved to meet the changing needs of the University and the operating environment of the 1980s. During the 1980s, the Controller's Office went through a major restructuring effort, including the reclassification and reassignment of several staff members, to meet the new demands placed upon it. Today the office is organ- ized into five sections that address the responsibilities listed below. Currently, the Controller's Office is staffed by 31 professional staff members and 44 clerical support staff. Appro- priated and grant/contract funding expenditures totalled approxi- mately $323 million as of June 30, 1986; total expenditure transactions for that fiscal year exceeded 150,000. The major functions of the Controller's Office are: * Financial Reporting and Control This section is responsible for: 1. The preparation of both internal and external financial statements for the entire University, as well as specific components when such reports are required; 2. Cost-accounting functions, which include preparation and negotiation of federal and state indirect cost rate proposals and the establishment of service center rates; 3. Fixed-asset accounting, which includes monitoring and tagging of all fixed assets and maintenance of the University's automated fixed-assets accounting system; and 4. Establishment and maintenance of the University's system of internal controls, which includes major responsibility for resolution of internal and external audit report comments. * Accounting Services This section is responsible for the daily processing of revenue and expenditure transactions through the University accounting system and on to the state, the monitoring of annual budgets and year-end closeout procedures, vendor inquiries, and compliance with a wide range of University and state rules and regulations, such as the Prompt Payment Act of Virginia. * Systems Support This section provides daily maintenance procedures for production systems for the Controller's Office and the Purchasing Department, performs minor to moderate systems development work, provides ad hoc management data to depart- ments through tape and hard-copy report formats, and manages the centralized data entry function for the accounting system. * Student Accounts and Accounts Receivable This section manages the student tuition and fees filing and collections process, as well as maintaining receivables systems for Virginia Tech Electric Service and the miscella- neous receivables system. * Financial Systems Development This section is responsible for all application systems that support the Controller's function, including one major, special projectggthe development or purchase and installation of new, automated accounting systems software. As such, this section is in charge of the implementation (now in progress) of a new central accounting system, a new general accounts receivable system, a purchasing system to be integrated with the new central accounting system, and a cash receipts control system. 8-3.2.2 SACS Criteria - Accounting, Reporting and Auditing (6.3.5) * "Institution's accounting system follows generally accepted principles of institutional accounting as they appear in College and University Business Administration." Conditional YES: The institution does follow the American Institute of Certified Public Accountants (AICPA) audit guidelines for Colleges and Universities. However, the institution has consistently been criticized for its inade- quate general ledger and miscellaneous receivable systems (excluding student systems) by its external auditors since external audits were begun for the fiscal year ending 1978-79. After a number of years of analysis and review, a new system has been purchased for installation in July 1988, which will finally provide the University an acceptable general ledger and receivables system. * "The chief business officer (University Controller) is responsible for preparing financial reports for appropriate institutional officials, board officers and outside agencies." Yes: The Office of the Controller provides this function under the direction of the University's Vice President for Finance. * "The chief executive officer of the institution receives periodic written financial reports." Yes: The Office of the Controller provides these reports under the direction of the University's Vice President for Finance. Reports are prepared quarterly and are forwarded to the Vice President for Finance, the President and members of the Audit and Finance Subcommittee of the Board of Visitors. * "Competent certified public accountants or an appropriate governmental auditing agency conduct an annual audit and produce a certified report." Yes: The University annually commits to an outside auditing authority, the Auditor of Public Accounts (APA), to perform an audit for the purposes of obtaining an independent opinion on the University's financial activities and financial state- ments. The APA has statutory authority to conduct audit activities for all state agencies and the University there- fore has no authority to acquire the services of an outside private firm for the annual audit. Audits of the Universi- ty's financial statements were conducted by outside audit firms in the 1979-82 fiscal years, with the APA conducting all audits since 1983. * "The auditors are not directly connected with the institution either personally or professionally." Correct: The University follows the AICPA statement of criteria for selection of outside auditing firms, which specifically prohibits any relationship of the auditing team. * "All funds for which the institution is responsible are audited on a fiscal-year basis." Yes: All audits of the University's material (appropriated, private, and earned) funds are conducted annually on the University's fiscal year (July 1 - June 30) basis. The only exception is the Student Aid Association, which is audited on a January 1 - December 31 basis. 8-3.2.3 Historical Perspective Since 1975-76 Self-Study The "Accounting, Reporting, and Auditing" section of the 1975-76 Self-Study included one recommendation and one suggestion: "Recommendation 7: That the University prepare an annual or biennial financial report in accordance with the recommendations for colleges and universities developed by the American Institute of Certified Public Accountants and the National Association of College and University Business Officers." "Suggestion 5: That the University have periodic management-type audits conducted by a firm of certified public accountants." In review, the intent of both of these recommendations has been implemented by the University, including the introduction of an audit subcommittee of the Board of Visitors, coupled with the introduction of an Internal Audit department, to provide oversight to the audit activities and strengthen the validity of the audit function. Annual reports are now prepared in a corpo- rate style with financial statements included. These reports are distributed widely within and outside the university community. The current Self-Study subcommittee would recommend further that the University give particular care to the selection and appoint- ment of members of the Board of Visitors to serve on its audit subcommittee. Given the complexity of the University's financial environment, it is imperative that this Board subcommittee include individuals with appropriate credentials and experience. 8-3.2.4 Discussion And Recommendations In the course of the subcommittee's activity, four more signif- icant issues were defined and investigated. 8-3.2.4.1 Financial Oversight of Non-Public University Funds Virginia Polytechnic Institute & State University, as a compre- hensive university as well as a land-grant institution, is expanding its non-appropriated funding base at a rapid pace through successful efforts in development, research, and alumni activities. A part of that success has been the expanded private funding of professorship and scholarship endowments, expansion of the University's use of private resources to match or lever additional appropriated resources for capital projects and research activities, and the expansion of the role of the Founda- tion to manage sometimes-disparate "gifts" and other "directed" funds. Additionally, the University is using its primary private resource, the Virginia Tech Foundation, to support and/or oversee the management of the Virginia Tech Corporate Research Center, to expand the opportunities for the University to strengthen its programs and services to the state and nation. This expanded non-general-fund financial activity generates two questions: 1. Are these private funds and activities exposed to the same rigor of oversight as are the public funds of the institu- tion? 2. How are the financial activitiesggaccounting, receivables, payables, payrollggof these private entities coordinated with those same activities provided to the publicly financed activities of the University, considering that many Univer- sity programs and activities are funded from multiple sources? In the first case, the University has moved to bring to these private corporate entities the same level of oversight by: * Consolidating the treasurer function of almost all the private entities under one officer of the institution -- the University treasurer (exceptions are the Athletic Associ- ation, Student Aid Association, and Alumni Association); * Requiring each entity to conduct an annual audit performed by an outside auditing firm with the results reported to the University; and * Assuring that each entity reports financially to the Board of Visitors through the Office of the Vice President for Finance. Recommendation 8-17: That the administration continue its action to consolidate the financial management function of all the institution's private entities to ensure integrity of the composite University financial environment, as well as to ensure coordination of financial activities. In the second case, additional attention needs to be directed to the development of the "working relationships," both among the financial components of these private entities themselves and between the financial components of the private entities and the public University. The committee discovered some confusion within the academic community as to how financial activities performed by some of these private entitiesggrevenue collection, the payment of certain expenses, endowment management, etc.ggare currently handled; and how transactions of various types within/among the different private entities are recorded and/or public-private joint-funded activities are managed. For example, it is often not clear to many how the designated and undesignated gifts solicited in the Campaign for Excellence have been recorded and allocated to various accounts. In a similar manner, it is not clear to many how to determine the source of funds for various endowments. It should be pointed out that records are maintained by the Virginia Tech Foundation on every endowment, including the sources of funds for the endowment. Further, there is the perception that the various business, accounting, and development staffs of the private entities are distributed in different locations across campus, with some even reporting to different financial officers. One can thus understand how commu- nications have become confused and coordination of such efforts has become a significant challenge. Recommendation 8-18: That the Vice President for Finance work toward coordination of the logistics and accounting of all University funds and University-related funds, so that the same level of information, access, documentation, and commu- nication is to provided users, regardless of the source or designation of funds. 8-3.2.4.2 Relocation of the Payroll Function into the Controller's Office VPI&SU has operated for many years with the payroll function reporting to the Employee Relations (Personnel) director. A more common organizational arrangement in most state government agencies and higher education institutions is for the payroll function to report to the institutional controller, to provide the controller operational oversight of all institutional expend- itures. As one might expect, there are benefits to both organ- izational arrangements. The arrangement with payroll reporting to the controller enhances the capability of the institution to assure that the salary and wage expenditure functions are properly accounted and dispersed. The payroll function generically is an accounting activity with most of the technical and policy issues discussed in the account- ing profession arenaggprofessional meetings, workshops, etc. It would seem logical that if the payroll function is relocated into the controller's area, the relationship would provide a better support system for the continued development of the payroll system. On the other hand, the arrangement with payroll reporting to the personnel director appears to enhance the capability of the institution to link the salary and wage position authorization and employment process to the payroll expenditure process. In some environments where payroll reports to the controller, when a problem arises with paying someone, both partiesggpayroll and personnelggoften blame the other for the procedural breakdowns. An apparent example of this is the Commonwealth itself. A recent directive was initiated to merge the two functions with the introduction of the new Commonwealth Integrated Personnel and Payroll System (CIPPS), a system with the expressed objective to overcome at the state level many of the procedural difficulties generally occurring between the personnel and payroll divisions. Unfortunately, the development of the CIPPS has been stalled by technical problems (the Commonwealth's payroll and personnel divisions use different software and computer systems), as well as additional procedural issues. Furthermore, the new CIPPS apparently will not have the complexity to handle many of the reporting requirements mandated by the University's sponsored programs, and as a result will probably never be extended to VPI&SU. With the advent of the University's automated personnel and payroll system operating from a single personnel database, the procedural issues which have resulted from separate personnel and payroll processes are largely resolved. However, with the intro- duction of the new accounting system in July 1988, significant systems work will again need to be performed to adjust or create the linkages between the existing personnel database and the new accounting system. Having the payroll office report to the controller would encourage and accelerate that adjustment process. Recommendation 8-19: That the payroll function of the Payroll and Personnel Records office be reorganized to report to the University Controller in order to improve the coordination of payroll/accounting activities, as well as to speed the devel- opment of further automated systems to serve the University in the payroll area. 8-3.2.4.3 Central Invoicing, Central Receiving, Prompt Pay and Fixed-Asset Management The opportunity for the University to achieve some administrative decentralization status as articulated by the Commonwealth involves the achievement of several benchmark procedural stand- ards, one of the most problematic of which is the standard that the University achieve a 95 percent effectiveness rating in paying its bills on time (Prompt Payment Act). With the advent of the new accounting system, the technical capacity to centrally invoice all purchases will be achievable, a process that would measurably improve the ability of the institution to reach this difficult standard. Collaterally, the need exists for the University to upgrade its equipment inventory (fixed asset) system to keep pace with the introduction of significantly more equipment as a result of the new Equipment Trust Fund Authority. The data accumulated through the equipment inventory system is becoming a critical element of the formula to fund equipment allocations, particularly funding to replace obsolete equipment. Additionally, the introduction of additional equipment through the University's expanding research program and Foundation donations also suggests that more atten- tion needs to be directed to this sometimes-overlooked procedure. One issue in this regard is the fact that VPI&SU is limited to changes in the software that are accommodated by the state's Fixed-Asset Accounting Cost System (FAACS). In the opinion of the committee, a logical element that would improve the equipment inventory system would be the establishment of a central receiv- ing procedure, where equipment items would be received at one location, checked for damage, entered into the inventory and eventually delivered to the appropriate department. The burden of maintenance of the current equipment inventory is on the individual departments, who must audit and update their equipment lists; an honor system that often is less-than-enthusiastically followed. Additional staff needs to be assigned to this task to assist the departments in the maintenance of their equipment inventories, staff that may also be able to double as receiving clerks. Finally, central receiving would improve the central invoicing process, and thereby improve the University's prompt pay performance. Recommendation 8-20: That the University move to: 1. Initiate, with the introduction of the new accounting system, a system for the central invoicing of all purchases. 2. Perform a cost-benefit analysis of the establishment of a central receiving procedure to improve the monitoring and designation of fixed assets and speed the central invoic- ing activity. 3. Strengthen its equipment inventory (fixed-asset manage- ment) system to move away from reliance on a departmental-based self-audit procedure. 8-3.2.4.4 Compliance with Management Letters and Computer System The University moved in part in 1978 to meet SACS criteria by seeking the services of an outside auditor to undertake a compre- hensive audit under the guidelines of the American Institute of Certified Public Accountants. This audit was in addition to numerous years of oversight by the State Controller and the Auditor of Public Accounts and led to numerous recommendations and comments for improvements in university procedures. One of the several recurring comments from the outside audit firm and the APA is the requirement of the University to upgrade its University Accounting System to achieve a central uniform accounting system, as well integrate into the new system many of the receivable and payable activities currently being done on a distributed basis across many departments. It is unfortunate that it has taken so many years for the University to evolve to the current actionggthe decision to procure an outside systems vendor and accounting package to achieve this most-fundamental requirement. However, even though the decision has been reached and an adequate accounting package purchased, the computing environment may not be sufficient to provide the user community the level of support and access that will allow the full function of the new system. Finally, and most importantly, it is clear that many of the recommendations included in this Self-Study report will not be possible without the implementation of a new computerized accounting system. Therefore, the following recommendation is given. Recommendation 8-21: That the administration continue its emphasis on the development of a central uniform accounting system that will both meet the requirements of the APA as well as improve services to the expanding number of Univer- sity community users, and that all reasonable care be directed to establish/direct adequate computing resources to make certain that the new system is fully functional and that it will receive the necessary level of system support at later stages of development. 8-3.3 Audit The audit subcommittee of the financial resources committee for the 1987 University Self-Study interviewed the following individ- uals: * David Goodyear - Director, Internal Auditing * Dwight Shelton - University Controller * Minnis Ridenour - Vice President for Finance The following documents were reviewed: "Review of the Internal Audit Function - March 1979," which was prepared by Peat, Marwick, Mitchell & Co.; summary responses to the management letters from the external auditors for the last 10 years; and other material that was provided to the entire financial affairs subcommittee. This material, the interviews conducted by the audit subcommittee, and interviews conducted by the financial resources committee served as the basis for this report. 8-3.3.1 Discussion and Recommendations Financial Accounting System After a review of the management letters from the external auditors and the responses of the University administration, the subcommittee concludes that for an extended period there have been serious difficulties in the University's accounting system. Although limited progress has been made with several subsystems (payroll, accounts receivable, fixed assets), in the subcommit- tee's opinion, serious problems still remain. External Audit In the past, the external audit has been conducted by a public accounting firm or the Auditor of Public Accountants. After reviewing the management letters, the subcommittee concludes that the Auditor of Public Accounts focuses more on compliance with regulation of the Commonwealth, while the public accounting firm focuses more on management and internal control issues. Both types of audits are beneficial and, in the subcommittee's opinion, University financial records should periodically be subject to both types of audits. Recommendation 8-22: That the University administration encour- age the Auditor of Public Accounts to establish a policy of rotating external auditors between the Auditor of Public Accounts and certified public accounting firms. Internal Auditing and Management Services Department After the 1975-76 Self-Study, the University established an internal audit group that reports to the Vice President for Finance and the audit committee of the Board of Visitors. In the subcommittee's opinion, this structure assures the independence of the internal auditing department. For the internal audit function to be effective, this independence must be maintained. This group is staffed with highly trained professionals who have developed a risk assessment (audit plan) for the University. This audit plan specifies a five-year audit cycle for the Univer- sity. There is reason to believe that the audit plan can be carried out with the authorized staff if resources are not diverted to numerous special projects and requested positions are filled. However, it is the subcommittee's opinion that the five-year audit cycle is maximum and should not be extended. Recommendation 8-23: That the administration take steps to assure that adequate professional staffing is available in the internal audit department so that the audit plan can be carried out within the five-year cycle. In auditing, the concept of peer review or auditing the auditors, is generally accepted. Although the University has a well- trained professional staff of internal auditors, they should, in the subcommittee's opinion, be subject to a peer review. The Department of the State Internal Auditor for the Commonwealth of Virginia conducts a peer review of the University's Internal Audit Department every three years. Recommendation 8-24: That the administration adopt a policy that states that a peer review of the internal audit depart- ment will be conducted every three years. Performance Audits Academic units with the University are subject to a periodic review as part of the accreditation process. The current self- study is an example of a University-wide performance evaluation and review. However, there is no evidence that service units within the University are subjected to such reviews. Adequate professional staff should be made available so a University-wide performance audit plan could be developed and carried out. However, Internal Audit should first analyze the requirements for effectively conducting operational audits, determine the availability of assistance from within the Univer- sity community, and assess potential savings to the University before adding any staff to conduct operational audits. Recommendation 8-25: That the University Internal Audit depart- ment be charged to conduct periodic performance (efficiency and effectiveness) audits of service units within the Univer- sity. University Transfer Pricing System Administration policy requires that instructional and research units purchase certain goods and services from University service units (i.e. transportation, printing, communications, food services, and remodeling). There is no formal policy to estab- lish the transfer prices employed to charge for these goods and services. The current system is often viewed as arbitrary and causes friction among operating units within the University. Recommendation 8-26: That the administration establish a formal procedure to implement and maintain a market-based transfer pricing system and that all market-based transfer prices be reviewed by the Internal Audit department on a biannual basis. 8-3.4 Treasurer The Treasurer subcommittee examined treasury operations, Virginia Tech Foundation, and risk management. These functions are most directly related to Sections 6.3.8, 6.3.9, and 6.3.10 of the SACS criteria. We find all SACS criteria satisfied. 8-3.4.1 Treasury The study of treasury operations was broken down into the follow- ing categories: (1) cashiering, (2) investment/debt management, and (3) other treasury functions. The following documents were examined: * Organizational chart of treasurer and vice president; * VPI Educational Foundation Short-Term Investment Policy (12/9/82); * Numerous "Management Responses to External Audit Reports", for example, #12, October 1986. As part of the study, the committee interviewed Raymond D. Smoot. 8-3.4.1.1 Discussion Cashiering The cashiering function relates primarily to the collection and disbursement of funds for the University. This includes collection of payments for student tuition, University services, traffic fines, electric service, and purchases of University products. Disbursements from this area include all payrolls, guaranteed student loans, financial aid checks, tuition refunds, stipends, assistantships, and travel loans/advances. Several innovative programs have been successfully introduced in this area. Examples include: * direct deposit of paychecks, * undergraduate student fee pre-payment plan, * graduate student deferred fee payment plan, * three computer-equipment financing plans, * a satellite office for the collection of Electric Service payments and collection of Electric Service payments by all area banks, * acceptance of credit cards for tuition payments, * decentralized distribution of payroll checks on a depart- mental basis, * standardized University cash-handling procedures, * direct departmental deposits of receipts to a concentration bank account, * a program to replace the former travel loan program in which purchase of travelers checks may be charged to an employee's corporate credit card. Investment/Debt Management The management of cash within the University for investment purposes during the last 10 years exhibits two general character- istics. First, an integrated zero-balance cash-management plan exists across several of the corporations within the University. Cash balances, both state and local, are effectively managed. Secondly, excess cash is aggressively invested in appropriate liquid investments, such as those given in the Educational Foundation's "Short-Term Investment Policy." The management of debt and the investment of debt proceeds has changed dramatically over the last several years with the increase in debt financing activities at the University. Several innovative debt financing programs have been instituted. Proceeds are aggressively invested in appropriate investments. Other Treasury Functions All federally funded loan programs are operated from the Treasury Management office. These include the National Direct Student Loan and Health Profession Student Loan programs. The University has contracted with an independent billing agency to handle the bulk of services in this area. Additionally, all delinquent accounts receivable for the University are monitored and aggres- sively pursued. Three outside collection agencies are used. Collection efforts are pursued through collection agencies, as well as through the state tax set-off program. Referrals of delinquent federal loans are processed through the U.S. Depart- ment of Education. The subcommittee notes a frequent item appearing in the Manage- ment Responses to External Audit Reports cites the collection procedures for bad debts. The College of Veterinary Medicine is cited specifically. This problem area was also brought to the subcommittee's attention by the Internal Audit director. 8-3.4.1.2 Recommendations There are no recommendations. 8-3.4.2 Virginia Tech Foundation The following documents were examined: * Investment Policy and Objectives for the Virginia Tech Foundation Consolidated Endowment Account; * Investment Policy and Objectives for the Virginia Tech Foundation Pratt Estate Fund; * VPI Educational Foundation Short-Term Investment Policy (12/9/82); * Investment Guidelines: Fixed Income Portion-Consolidated Endowment (July 1, 1986); * Performance Rankings of the Pratt Estate and Endowment Fund; * Consolidated Endowment Fund and Pratt Fund Performance Summary as of September 30, 1986; * Purchase Proposal for the Doniphan Building in Alexandria, Virginia; * Virginia Tech Foundation Annual Report 1985-1986; * Organizational chart of the Virginia Tech Foundation, includ- ing the several corporations under its control. As part of the study, the subcommittee interviewed Charles M. Forbes, M. E. Ridenour, and Raymond D. Smoot. 8-3.4.2.1 Discussion During the last decade, the Virginia Tech Foundation has experi- enced extraordinary growth in managed funds, which has continued into 1987. The effective management of Foundation funds is by the very size of the endowment critically important to the future of the University. Financial Assets Between 1981-1986, managed funds of the Foundation increased from $34.6 million to $90.9 million, an average annual growth of more than 21 percent. Goals, policies, and guidelines for the invest- ment of available funds in financial assets are clearly set forth in the investment policy documents examined by the committee. Performance measures for funds invested in financial securities are compared against market-determined results by the Universi- ty's investment committee. It is the subcommittee's opinion that investment goals are adhered to by the investment managers, and that the investment managers are fully aware of their fiduciary responsibility for the institution. Between 1981 and 1986, the Foundation's investment in financial assets earned a compound annual rate of return of 21.4 percent. This return exceeds generally accepted market indexes and, given the diversity of the portfolio, probably reflects average market risk. Capital Assets The criteria associated with investment in capital assets is less clear than for financial assets. Indeed, investment in capital assets is viewed more as a necessity associated with University programs than as a straightforward investment. This is not to say that the capital asset evaluation process itself is not rigorous. Quite the opposite appears to be the case. Further- more, the foundation investment committee must indicate written approval of each project. A good example is the purchase of the Doniphan Building in Alexandria. While the numbers presented in the report were not evaluated for accuracy, the method of analy- sis is sound. The subcommittee was assured that equally rigorous analysis has been applied to other capital asset acquisitions, such as the Virginia Tech Corporate Research Center. Initially, the subcommittee was unsure about the guidelines used by the Foundation to evaluate capital assets. Also, there was a question about the standard of comparison the Foundation's board uses to evaluate capital investment projects. Further discussions with the administrators listed above disclosed that decisions concerning purchase of capital assets are based on programmatic needs. Subsequently, the investment return or cost is determined. It should be kept in mind that even though the risks of capital asset investment are typically greater than a broadly diversified portfolio of stocks and bonds, the amount invested in capital assets currently represents a relatively small amount of the Foundation's total managed funds. It is the subcommittee's opinion that the University community is largely uninformed about the availability of project funding by the Virginia Tech Foundation. 8-3.4.2.2 Evaluation and Recommendations The Virginia Tech Educational Foundation is expertly managed and has enjoyed unparalleled success during the last 10 years. The 1986 unqualified opinion of Peat, Marwick and Mitchell & Company was previously noted. While there has been ample information about the Foundation's very successful fund-raising and additional publicity about several of the Foundation's capital investment projects, information about investment performance or the availability of Foundation funds to finance special projects or programs within the University is sparse. Recommendation 8-27: That the Educational Foundation take steps to better inform the University of its financial standing and basic operations through such steps as: * Publishing a performance summary of the Endowment Fund and the Pratt Fund in Spectrum every six months, * Preparing information about the availability of Founda- tion funds for special programs or projects and the disbursement of these funds, * Establishing a specific set of guidelines for capital investment by the Foundation, which would define capital investment and include the requirement that capital projects accepted by the Virginia Tech Foundation have a Net Present Value greater than or equal to zero. 8-3.4.3 Risk Management The following documents were examined: * Statement of 1985-86 Risk Management Objectives; * Director of Risk Management position description; * Office of Business Affairs organizational chart; * Virginia Tech Insurance Information 1986-87; * Insurance and Risk Management, NACUBO, Atlanta, GA seminar, December 8-9, 1986; * Conceptual Overview of Risk Management, NACUBO, 1986; * Selected memoranda and correspondence. As part of the study, Fred G. Weaver, Director of Risk Manage- ment, was interviewed. 8-3.4.3.1 Discussion The Office of Risk Management was created in 1984 as an entity in the Office of Business Affairs. Risk management contributes to the financial stability of the University by identifying the risk (exposure to potential losses) associated with various operations and activities within the University. In performing this activ- ity, the Office of Risk Management evaluates potential losses and engages in activities to reduce exposure to losses. An important responsibility of the Office of Risk Management includes the administration of claims for losses incurred by University departments. Finally, an additional responsibility of this office is the management of leased property. The Office of Risk Management operates under a set of objectives that give it purpose and direction. The establishment of a separate Office of Risk Management has given this function greater visibility within the University. The Director is an individual who has knowledge and experience in the area of risk management. A strong record of claim recovery has been estab- lished since the Office of Risk Management was created. Although steady progress has been made toward development of a comprehensive risk analysis of the University, it is, according to the director, years from completion. Given the director's important and seemingly expansive duties of risk management, the subcommittee questions the wisdom of having the director also responsible for managing leased property. Also, the separation of responsibility for safety and risk management limits the overall effectiveness of these two closely related and important programs. 8-3.4.3.2 Evaluation and Recommendation It is evident that the decision to create an Office of Risk Management has proven to be a wise one. The record of claims recovery since creation of the office speaks well for the direc- tor. The annual set of management objectives provides a useful framework for operation. Recommendation 8-28: That a comprehensive risk analysis of the entire University be undertaken. Recommendation 8-29: That the responsibilities and staffing requirements of the Office of Risk Management be reviewed, with particular emphasis on the functional relationship between the Office of Health and Safety and the Office of Risk Management. 8-3.5 Summary The subcommittee finds the SACS criteria for cashiering, invest- ment and debt management, and risk management to be fully satis- fied. Cash management is a highly efficient operation. The management of the University's endowment follows generally accepted investment management guidelines. Formal investment criteria should be established for capital assets investment. The recent creation of the Office of Risk Management has resulted in significant improvement in claims collection. The evaluation of University risk exposure should proceed at a rapid pace. 8-4.0 Appendix A Published and unpublished documents furnished to the subcommittee reviewing Development and University Relations.