UA unit got $4 million transfer; two more expected

The University of Arkansas at Fayetteville transferred $4 million from reserves in January to offset overspending in its Advancement Division for fiscal 2013, said Mark Rushing, a spokesman for the university.

“Basically, we did add $4 million to account for what they had been spending as they began to run up the deficit,” he said.

The infusion of cash pushed the division’s available revenue to $14.37 million for fiscal 2013 and enabled it to balance its annual budget, but it didn’t resolve a $3.21 million deficit accumulated from previous years.

Before the discovery of the deficit spending in 2012, UA officials have said, the Advancement Division’s budget was around $10 million, funded from both public and private sources.

According to documents UA provided Friday after a request was filed under the Arkansas Freedom of Information Act, the $4 million transfer was approved Jan. 30. Of that amount, $2.96 million went to the Development Office, which does fundraising for the university.

A July 25 news release about the balanced budget didn’t mention the $4 million transfer or how much was spent that fiscal year.

When asked about the omission in the news release, Vice Chancellor for Advancement Chris Wyrick responded by email: “I did not write the release therefore do not feel I am the correct person to offer a response.”

When Rushing was asked about it, he responded by email: “The release … was primarily to announce that the Advancement Division was able to balance its budget. It was not meant to be a comprehensive fiscal-year ending report. It was simply an update on an issue that had received a good bit of attention.”

In addition to the $14.37 million available for spending in fiscal 2013, the Advancement Division had $13.49million in expenditures, resulting in a cash balance of $881 , 383, said Rushing. From the balance, $667,450 was applied to the cumulative deficit,reducing it to $3.21 million as of June 30, according to the UA.

Rushing said he expects there to be two transfers from reserves to the Advancement Division in fiscal 2014, which began July 1. One transfer will cover operating expenses for the fiscal year, and that transfer is expected to be less than $4 million.

“Then we expect another transfer of an unknown amount that will be close to the cumulative deficit,” Rushing said.

“We were able to reduce the cumulative deficit by approximately $600,000 in fiscal year 2013, and we hope to reduce it or eliminate it in the next year or two,” he said.

At a Sept. 13 meeting of the Legislative Joint Auditing Committee in Little Rock, UA Chancellor G. David Gearhart and Donald Pederson, vice chancellor for finance, told legislators that the university had ample reserves to cover the deficit.

The UA had $36.8 million in reserves as of Monday. Of that amount, $13.3 million is “budgeted contingency,” which means available for“unexpected expenditures” in fiscal 2014, according to an email from Rushing.

UNFUNDED STAFFING

UA officials realized that there were problems with the Advancement Division in 2012 when the University of Arkansas Foundation froze one of the Advancement Division’s accounts because of a lack of funds.

The foundation supplements the division’s budget with earnings from private funds.

An investigative report by the Arkansas Legislative Audit Division found a $4.19 million cumulative deficit for the Advancement Division as of June 30, 2012, the end of fiscal 2012. The total deficit had increased from $2.14 million at the end of fiscal 2011, according to Legislative Audit.

Gearhart said no money was stolen, and no fraud occurred. An internal review by UA Treasurer Jean Schook found “no evidence of intentional acts to misappropriate resources for personal gain.”

“It was a case of overspending,” Gearhart said at a Sept. 10 news conference. “Is it acceptable to overspend your budget? No. And two employees lost their jobs over it.”

Gearhart was referring to Brad Choate, the former vice chancellor for the Advancement Division, and Joy Sharp, a budget officer who worked in that division.

In 2010, Choate began hiring staffing in preparation for Campaign Arkansas, the campus’s current fundraising drive, but he didn’t request corresponding budget increases, said Rushing. Instead, Choate let deficits accumulate as employees whose salaries were “unfunded” went to work for the Advancement Division.

“Our budget should have been increasing every year at the level these unfunded salaries were being added,” said Rushing. “But they were being added without documentation. … We’ve got the reserves to pay for them, so that’s what we’re doing. It’s the same reserves that Choate could have asked for at any time.”

From fiscal 2009-12, the Advancement 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 the legislative audit report.

UA officials said 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 report from Legislative Audit seemed to miss that, according to the UA’s response to that report.

An “unidentified increase of $2.72 million” represents “unfunded salaries over multiple years that was not considered by [Legislative Audit] as a contributor to the cumulative deficit,” according to the UA’s response.

“An unfunded position added in fiscal year 2010 impacts deficit amounts each year for a total of three years unfunded expenses,” the response continued.

“Clearly, when the cumulative effect of unfunded positions held over multiple years is considered, the significant driver of the accumulated deficit was overspending of payroll costs that were not supported by budget or private funding.”

Choate blamed the deficit on Sharp, saying she didn’t keep him informed of the division’s financial situation. Gearhart has said Sharp was “in over her head.”

“I think it happened because of two employees that weren’t watching the bottom line,” Gearhart said at the Sept. 10 news conference.

Legislative Audit made recommendations about how to catch problems like this sooner, and the UA is following those recommendations.

FUNDS TRANSFERS

The Advancement Division has reduced expenses, though Wyrick has said he didn’t cut any jobs in the division.

For fiscal 2014, the Advancement Division was able to cut a half-million dollars from its $13.3 million budget by shifting some costs to eight university colleges and other outside units that historically have partnered to fund certain positions, officials said.

Six academic colleges, the athletic department and the Student Affairs Division agreed to take on a greater share of paying for 16 positions, which could save the Advancement Division a total of $505,137 in fiscal 2014, which took effect July 1, Wyrick has said.

The operating budget for fiscal 2013 may be balanced, but the $3.12 million deficit that the Advancement Division accumulated over two years remains.

Rushing said the deficit was $3.88 million at the end of fiscal 2012. That last number is different from the $4.19 million cited in the investigative report because the UA has begun using some new accounting methods recommended by the Legislative Audit Division.

Beginning with fiscal 2013, UA is including transfers of private funds from the UA Foundation only in the fiscal year they are received. From fiscal 2009-12, that wasn’t the case. A transfer in July of each year was applied to spending in the April-June quarter of the previous year.

The foundation makes quarterly transfers of funds to the Advancement Division. The amounts fluctuate based on income from capital gains, dividends and interest.

State auditors and the UA use different accounting methods, so their numbers vary slightly.

Front Section, Pages 1 on 09/25/2013

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