UA division looks to erase deficit

Long-term fix is $2 million more in yearly revenue, chief says

The fundraising division at the University of Arkansas at Fayetteville will need an additional $2 million a year in revenue to operate without an annual deficit, said the division’s head.




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Chris Wyrick, vice chancellor for Advancement, was referring to fiscal 2015 and beyond. A $2.2 million transfer from university reserves has already been approved to see the Advancement Division through fiscal 2014, which ends June 30. By then, Wyrick said he expects a solution.

“I’m looking for permanent funding,” he said. “Where it comes from and how it’s determined is not my call, but I want to be made whole as soon as the university is in a position to make us whole.”

That decision must ultimately be made by the UA System board of trustees.

When Wyrick began his job in April, he inherited a division in financial distress. The Advancement Division had a cumulative deficit of $4.2 million as of June 30, 2012, according to state auditors.

Since then, the division has been spending about $2 million more every year than its revenue. Wyrick said he has cut costs and is operating within his $14 million annual budget, but UA hasn’t provided enough money to make that budget work.

Wyrick said he doesn’t want to keep drawing from reserve funds every year.

“I don’t view the term ‘reserve’ as a debt silo I’m pulling out of,” he said.

But, Wyrick said, the Advancement Division’s fundraising helped create the reserves by generating donations.

“We’re drawing from our savings account,” he said.

OTHER PUBLIC FUNDS

The Advancement Division’s primary function is raising private funds for the university. In addition, it handles public relations, special events and the Alumni Association.

Mark Rushing, a UA spokesman, said the additional $2 million annually likely will come from tuition, fees, state appropriations and other public funds, rather than private donations to the university.

“In order to provide the ongoing funding required to support the fundraising efforts of the division, the university will likely utilize educational and general revenue funds not previously budgeted for the division,” Rushing said in an email. “So the funding mechanisms will remain the same, only the percentages of existing revenue sources allocated to the division will change in the future, in large part due to the growth of the educational and general revenue funds related to the growth of enrollment.”

What percentage of Advancement Division funding will come from educational and general revenue in fiscal 2015 isn’t known yet, said Don Pederson, UA’s vice chancellor for finance and administration. In the current fiscal year, it’s 66 percent, he said.

In fiscal 2013, UA’s educational and general revenue funding was 58 percent tuition and fees and 35 percent public or state funds. The remainder came from other sources.

University reserves also are made up of tuition, fees, state appropriations and other public funds. The difference is the $2 million would be “permanent” funding that the Advancement Division could expect every year instead of drawing from reserves.

The Advancement Division deficit was caused primarily by hiring people for a fundraising drive without revenue to pay those salaries, university officials have said. There have been no layoffs as a result of the deficit, said Wyrick.

Chancellor G. David Gearhart has said the additional employees were needed for the fundraising drive.

Salaries and benefits for the added positions increased the Advancement Division’s annual budget from about $10 million to $14 million. Budget cuts and other savings measures have offset about half of that increase, said Wyrick, but the university hasn’t provided permanent funding to cover the rest.

“The real savings came from guys like me who are making less than the people we replaced,” said Wyrick. “I’m making $100,000 less than Brad [Choate] did.”

Wyrick, whose compensation is $299,000 a year, was referring to his predecessor, Brad Choate, who was dismissed from his job as vice chancellor after the multimillion-dollar deficit was discovered.

COVERING THE DEFICIT

In January, UA transferred $4 million in reserves to the Advancement Division to cover an operating deficit for fiscal 2013 and pay off $1.9 million owed to the University of Arkansas Foundation.

Also in fiscal 2013, the Advancement Division got a $526,747 windfall after it was discovered that disbursements from the UA endowment had been lower than they should have been because of a spreadsheet error, said Rushing. That meant about $1.4 million from reserves was needed to offset overspending that year.

Part of the $4 million transfer was applied to the cumulative deficit, lowering it to $3.2 million as of June 30, 2013, said Rushing.

For the current fiscal year, the division’s budget is $14.3 million, said Wyrick. About $6 million of that amount will come from private sources, according to a working budget summary UA provided.

As of Oct. 31, UA had $13.3 million in reserves that is available for “unexpected expenditures” in fiscal 2014, said Rushing. The total will decrease after the $2 million is transferred.

From fiscal 2009 to fiscal 2012, the division’s expenditures jumped from $7.94 million to $13.23 million, while revenue remained fairly constant, averaging $9.96 million per year, according to a Legislative Audit Division investigation of the overspending.

Unfunded salaries over multiple years accounted for most of the $5.3 million increase in expenditures in the Advancement Division from fiscal 2009-12, the audit shows.

University officials have said Choate could have asked for more funding before new hiring, but he didn’t.

Gearhart dismissed Choate from administrative duties in November 2012 because of the deficit. Both Choate and his budget officer, Joy Sharp, did not have their appointments renewed at the end of fiscal 2013.

The Advancement Division has been the subject of four investigations since UA officials discovered the deficit. UA conducted an internal investigation completed in fall 2012, and Gearhart requested audits by state and UA System auditors in February.

David Bercaw, deputy prosecutor in Washington County, is investigating whether there was any criminal activity in relation to the deficit. He also is investigating an allegation by John Diamond, former chief UA spokesman, that Gearhart ordered documents to be destroyed to keep them from auditors and public view.

Bercaw said his investigation will be completed by Thursday, when the Legislative Joint Auditing Committee is scheduled to meet in Little Rock and discuss the Advancement Division’s deficit.

Front Section, Pages 1 on 12/08/2013

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