The University of Arkansas at Fayetteville will transfer $2 million from its publicly funded reserves to offset overspending in its Advancement Division this fiscal year, said Mark Rushing, a UA spokesman.
A total of $6 million from reserves has been committed to the Advancement Division since a multimillion-dollar deficit was discovered in the division in July 2012. A $4 million transfer was made from reserves in January.
The greater part of the transferred money hasn’t gone toward the $4.2 million cumulative deficit. Instead, the transfers are being used primarily to augment the division’s operating budgets for fiscal 2013 and fiscal 2014.
The Advancement Division continues to spend more money than it would receive under normal circumstances, but Rushing said efforts are being made to “rectify the situation.” The division has been cutting costs on a variety of things - it even saved $3,000 a year by substituting Folgers coffee for Java Dave’s at the development office.
The division’s budget was $14.4 million in fiscal 2013 and is $13.6 million in the current 2014 fiscal year. Before the discovery of the deficit in 2012, UA officials have said, the Advancement Division’s budget was around $10 million, funded from both public and private sources.
The deficit spending apparently started in 2010when the division began hiring staff members for a fundraising drive without money in the budget to pay for those salaries, UA officials have said. The employees with “unfunded” salaries are still on the payroll because university administrators say they’re needed for the fundraising drive.
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.
Unbudgeted 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 said.
University officials have said the division’s former vice chancellor, Brad Choate, could have asked for more funding, but he didn’t. Chancellor G. David 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.
Another transfer from reserves will be necessary during fiscal 2014, which ends June 30, to cover the division’s cumulative deficit. But the final amount will depend on factors such as spending cuts and income from investments, according to an email from Rushing.
UA had $36.7 million in reserves as of Oct. 31. Of that amount, $13.3 million is “budgeted contingency,” which means it’s available for “unexpected expenditures” in fiscal 2014, said Rushing. The total will decrease after the $2 million is transferred.
PAYING DOWN THE DEFICIT
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 any criminal activity took place in relation to the deficit.
He is also 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 before Christmas.
Gearhart has said that the unbudgeted spending went for necessary purposes and that no fraud occurred.
In both fiscal 2011 and 2012, the division spent about $2 million more than it had available for each year’s operations, resulting in the cumulative deficit of $4.2 million as of June 30, 2012. Fiscal 2013 was on a similar track, but the infusion of $4 million from reserves in January averted increasing the cumulative deficit.
From the $4 million transfer in January, $1.9 million was used to offset money that would have come from the University of Arkansas Foundation, $1.4 million went toward fiscal 2013 operations and the remainder was applied to the cumulative deficit.
The division also got an unexpected $526,747 in fiscal 2013 after it was discovered that disbursements from the UA Foundation had been lower than they should have been because of a spreadsheet error, said Rushing. That meant the division needed $1.4 million from the $4 million in reserves to offset its overspending that year, according to numbers provided by Donald Pederson, UA’s vice chancellor for finance and administration.
The division used $1.9 million to replace funds that would normally have come from the UA Foundation. Rushing said this was necessary because of a shift in budgeting procedures recommended by the Legislative Audit Division.
The university has changed the timing in which the division receives disbursements of earnings from UA Foundation investments. Those disbursements historically have come in after a fiscal quarter ended, but the disbursements were posted by the university to the previous quarter.
The procedure is normal in accrual-based accounting, and Rushing said it’s standard practice for universities across the country.
Beginning with fiscal 2013,the foundation earnings were posted in the quarter in which they were received. That shift meant the division ended fiscal 2012 with a negative cash balance of $1.9 million in its foundation account. Investment earnings from fiscal 2012 that the division received early in fiscal 2013 were booked in 2013 instead of 2012, which had been the previous policy.
Because state money can’t be used to pay off a foundation debt, $1.9 million of the $4 million transfer from reserves went to the division, which then requested $1.9 million less from the foundation. So, instead of disbursing the $3.9 million available to the division in fiscal 2013, the foundation disbursed about $2 million, and “zeroed out” the $1.9 million owed, said Rushing.
“We couldn’t just write a check from state funds to the foundation,” said Rushing. “Technically, the way we had to do it was not request as much money until our account was zeroed.”FLUID ACCOUNTS
Rushing said the state funds are available if needed during the ebb and flow of stock market fluctuations that affect UA Foundation earnings. If the market fell and the division’s disbursement from investments dropped dramatically, its funding could be supplemented with state money, he said.
Of the amount left over from the $4 million transfer, $667,650 was applied to the cumulative deficit, lowering it to $3.2 million as of June 30, 2013, said Pederson.
The university uses different accounting methods than state auditors, who came up with the $4.2 million deficit figure for fiscal 2012. The UA says the cumulative deficit as of June 30, 2012, was $3.8 million.
Front Section, Pages 1 on 11/20/2013