The University of Arkansas at Fayetteville has created a new position for an in-house financial planner to help it proactively prevent the kind of budget crisis it has faced in its Advancement Division.
Four finalists for the position interviewed between Aug. 21 and Aug. 29, UA officials confirmed this week.
The position title is associate vice chancellor for budget and financial planning, said UA spokesman Mark Rushing.
The new job’s salary was described as “competitive” and as not falling within the state’s pay scale for classified employees. UA’s human-resources chief, Barbara Abercrombie, said Wednesday that the legislative line-item maximum for a position similar to this one is $131,334.
The person hired will report to UA finance chief Don Pederson. Pederson said that as far back as 2006, when he read a feasibility study, he had been considering making a switch in the budgeting style to one that would be tied to individual departments’ success.
After he learned in July 2012 that the Advancement Division, the campus’s fundraising arm, had a multimillion-dollar deficit because of overspending, he decided it was time for the change.
“I had been thinking about this kind of position for quite some time, at least several years, and had not quite pulled the trigger on it,” said Pederson, UA’s vice chancellor for Finance and Administration, adding that a transition to an outcomes-based budgeting system will take many years. “We don’t have anybody that can really address the strategic aspects of budgeting.”
“But clearly the Advancement situation moved that up,” he said. “It became clear it just had to be done now. … The original idea didn’t have anything to do with Advancement - clearly moving on it did.”
Asked later whether he expected a pending audit by the state’s Legislative Audit Division to recommend the creation of such a position, Pederson responded in an email: “I do not believe we should be answering questions about what the legislative audit will have in it.”
KINDS OF BUDGETING
UA Chancellor G. David Gearhart requested the audit in February, more than six months after first learning of the Advancement Division’s deficit, which totaled $3.37 million in fiscal 2012. The chancellor had already notified the two employees found to be responsible for the deficit that their appointments wouldn’t be renewed after June 30.
Pederson said he had put ideas about a new position on paper at least as far back as November 2012, which was well before Gearhart requested the legislative audit.
Pederson already had seen the results of a lengthy feasibility study by Doyle Williams,dean emeritus of UA’s Sam M. Walton College of Business. Williams enlisted the help of a graduate student and released “Responsibility Center Management: A Review and Implementation Strategy” on June 30, 2006.
Williams was dean of the Walton College from 1993 to August 2005, when he began handling special projects for the university, according to newspaper archives. He retired in 2006.
The Fayetteville campus currently uses what Pederson describes as an “incremental funding” style of budgeting for its divisions, departments and other units, which range from academic colleges to support units such as the office that maintains its buildings and grounds and the Advancement Division, which focuses on external relations such as fundraising, marketing, public relations and alumni relationships.
“A unit would get its previous year’s budget plus [some for] any new activity [productivity] that was considered a university priority,” Pederson said. “That is the predominant way that universities budget in this country.”
He said he’s seen various estimates that between 10 percent and 20 percent of universities use other kinds of budgeting, under names such as responsibility-centered management, responsibility-centered budgeting and activity-based budgeting. According to hanoverresearch.com, alternative university budgeting models include zero-based budgeting, centralized budgeting, activity-based budgeting, responsibility center management and performance-based budgeting.
With the incremental style, Pederson said, a unit that is decreasing in performance might still get the same funding on its next year’s budget, and perhaps more money, while another unit that is doing an excellent job of meeting its share of the university’s goals would be treated the same.
“It has some defects,” he said of the current budgeting system. “It does not tie the spending to the current need.”
A report on the Advancement Division deficit by UA treasurer Jean Shook found that the former Advancement chief, Brad Choate, had provided “essentially no oversight” of the division’s finances and had gone so far as to give his computer log-in credentials for approving high-dollar transactions to his budget director, Joy Sharp. Choate blamed Sharp for the problems, and Sharp acknowledged making mistakes. The university fired both, but allowed them to work until the close of fiscal 2013, which was June 30 of this year.
PROS AND CONS
All means of budgeting have their pros and their cons, Pederson said.
In his 58-page summary of the 2006 feasibility study, Williams defined “responsibility center management” as a “financial management philosophy that focuses on operational decentralization.”
Responsibility-center management aims to support “primary” academic priorities, he wrote.
“It seeks to link academic decisions with the financial impact of those decisions,” the study continued. “In contrast, a traditional budgeting model authority for financial planning, execution, and control is vested in executive management” and “income is controlled at the university level.”
“Executive management must deal with surpluses or deficits created during the fiscal year,” Williams’ feasibility study also noted.
The new financial planner that UA will hire will not only shepherd any budgeting transition that the university makes, but also help Pederson’s office review budgets on a monthly basis to catch any problems well in advance.
“We’ve already been experimenting with this on a limited basis,” Pederson said, referring to the past few years.
As an example, he mentioned Provost Sharon Gaber’s experiments with having the academic deans give her monthly budget reports that are tied to efforts to increase summer enrollments.
At first, the reports were all formatted differently, he said, so his office developed a common format for them to use that saved time and standardized the reports.
With the new budget planner, Pederson said, he hopes to introduce the monthly reports to other university units, but in a less time-consuming way than what the deans went through during the experiment.
“I think if we had put this person in place years ago, you would have had the revenue listed all in one place,” Pederson said, and the Advancement Division’s overspending could have been caught earlier. “Plus, monthly reviews could have picked up something quicker than at the end of the fiscal year.”
The legislative audit is expected to be released within the next week.
UA officials have estimated that the Advancement Division deficit was $3.37 million in fiscal 2012 alone, roughly a third of the unit’s $10 million budget. University records indicate that the 2012 deficit could have reached as high as $4.34 million.
According to email correspondence that UA released in December, the university found that the units under the Advancement Division had been operating without budgets going back to 2006.
In an interview in early December, Pederson said that meant that the division’s units weren’t given beginning-of the-year budgets that forecast revenue. “There was no documentation,” he said.
“To the units’ credit, they were operating to some extent off of their own budgets,” Pederson said at the time, referring to their spending histories. “But those budgets weren’t connected to revenues.”
Front Section, Pages 1 on 09/05/2013