UA is assured office’s books back in black

Chancellor says no budgets cut, new oversight planned

— The University of Arkansas at Fayetteville has corrected deficit-spending in its Advancement Division without affecting the budgets of academic departments and colleges and will establish long-term fiscal controls, officials said this week.

On Monday, UA Chancellor G. David Gearhart posted an electronic message to the campus community saying he had reassigned his chief fundraiser and a budget officer after a review found the Advancement Division had overspent its $10 million budget by more than 30 percent at the close of the 2012 fiscal year on June 30.

“Be assured that we will not be reducing campus budgets to address this situation,” Gearhart wrote to faculty members, students, alumni and staff members in the university’s e-mail feed, Arkansas Newswire, adding that financial solutions include immediate and future actions.

“Instead, funds needed to close the gap between the Advancement Division’s current resources and needs will involve establishing a cost-recovery assessment on certain types of future nonendowment cash gifts.”

Gearhart told the Arkansas Democrat-Gazette that the shortfall involved no misappropriation of funds or malfeasance.

And he said he reassigned his vice chancellor for advancement, Brad Choate, and the division’s budget officer for the “benefit of the university” but that their appointments would not be renewed after June 30 , 2013, the close of the current fiscal year.

The chancellor and other top Fayetteville campus officials outlined a number of steps they have taken and will take, including the reassignments and shoring up the $3.1 million deficit that otherwise would have grown to $4.3 million by the fiscal year’s end.

Gearhart, the Advancement Division’s former chief, also will reassume direct management of the office for the “foreseeable future.”

The chancellor’s message Monday came just four months after UA commenced the “silent phase” of its forthcoming capital fundraising campaign.

Also called a “quiet phase” in philanthropic circles, such a period is a common runup to a major fundraising initiative. It involves not only organization and plan- ning, but actual fundraising until the entity kicks off the formal campaign with the announcement of the dollar amount that will be its goal and a deadline.

UA’s quiet phase coincided with the beginning of the current state fiscal year July 1. Gearhart estimated the eight-year campaign’s official start is likely two or three years away.

NOTIFIED ‘PROMPTLY’

The chronology UA officials have offered thus far began around the time the University of Arkansas Foundation froze the advancement office’s account, refusing to transfer what amounted to an advance on its allowance.

Don Pederson, the Fayetteville campus’s vice chancellor for finance and administration, said a small portion of the university’s endowment funds held by the foundation is carved out to support the Advancement Division’s fundraising activities, but added it is smaller than what one would see in private-sector fundraising.

According to Gearhart’s message, Choate notified him “promptly” of the shortfall in his office about June 30, 2012, as soon as Choate became aware of it. But the chancellor said in an interview that Choate should have known his budget’s revenue and spending sides were out of balance before then.

The Fayetteville campus’s chief spokesman, John Diamond, said he believed the responsibilities of Choate’s budget officer, Joy Sharp, were first shifted within the advancement office in early August, when she went from handling budget matters to human resources work there.

Meantime, Choate had been working with Pederson and his staff to help with their review of the advancement office’s books, to try to determine what had occurred.

“That process, which was very complicated, basically concluded sometime in October,” Diamond said. “At that point, there was enough information ... and the chancellor began weighing his options.”

Choate and Sharp were given their new assignments “on or around” Nov. 9 — Choate’s within the Advancement Division and Sharp’s outside that office. She was transferred to UA’s campuswide human-resources office. Her salary has been reduced from $91,086 to $68,314.

FUNDING SOURCES

The advancement office’s $10 million budget is funded by $5 million in public money, which includes student tuition and fees, and state appropriations that come from Revenue Stabilization Act general revenue and the Educational Excellence Trust Fund.

The second primary source of its funding comes from $4.5 million in private revenue from the University of Arkansas Foundation, a University of Arkansas System entity that holds endowment accounts for the Fayetteville campus and other participating universities and colleges it oversees.

The short-term financial rescue for the advancement office came about in part by UA leaders tapping some general university reserves, Gearhart said.

Such reserves are created when Fayetteville campus departments and other units have surplus funds because of conservative budgeting, Diamond said, and the leftover dollars are pooled.

Usually the funds are used for emergencies, and not to bail a unit out of a deficit, he said, but in this instance an exception was made “only for this one occasion,” he continued. However, the advancement office will have to pay it back.

“There needs to be some accountability for that shortfall,” Diamond said.

Gearhart said the advancement office had beefed up its staff in preparation for the capital campaign, which was a valid expense and one that Choate should have foreseen in time to request a budget increase to finance it.

Another source of surplus funds, about $1 million, came from Provost Sharon Gaber’s budget, the chancellor said: “We just had some reserves because of enrollment growth.”

Diamond added that campus leaders learned of the advancement office’s budget imbalance too late in the year to rectify it through spending cuts or other traditional solutions.

“The university had to utilize what a family would call the savings account,” he said.

NEW OVERSIGHT

Another corrective step the university will take is bringing Pederson’s finance and administration division to directly oversee the advancement office’s Division of Advancement’s budget, Gearhart said.

This involves another reassignment, that of Denise Reynolds, an employee in the business-affairs office, Pederson said. Business affairs is among eight units Pederson’s division directly supervises.

“She’s very good,” Gearhart said of Reynolds. “I’ve been impressed with her.”

Reynolds earns a $96,776 compensation package that is $74,500 salary and 29.9 percent in benefits, Pederson said. Not all of this is entirely new expenditures for the university, he added. Reynolds will now report dually to him and to Gearhart in his role as advancement chief.

Choate will continue earning his $348,175 salary and reporting to the office until June 30 or until he finds another job, the chancellor said, adding that, meantime, he can use Choate’s help in courting major gift prospects and continuing key work in planning the campaign.

“Brad’s a good fundraiser,” Gearhart said. “This doesn’t mean that Brad’s a bad person. ... He just had a budget-management problem. It is what it is.”

UA will probably start a national search for a new advancement vice chancellor after the first of the year, he added.

Arkansas, Pages 9 on 12/05/2012

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