LITTLE ROCK — University of Arkansas at Fayetteville officials say the costs of hiring new staff members drove a $3.37 million budget deficit in the school’s fundraising division last year.
But school records of salary and fringe benefit increases obtained by the Arkansas Democrat-Gazette don’t account for that much overspending.
Records show a $1.09 million increase in all pay and benefits for the Division of University Advancement in fiscal 2012, or less than one-third of the division’s deficit.
Tracing back to 2008, when Vice Chancellor for Advancement Brad Choate was hired, the four-year rise in salaries and benefits totaled about $2 million.
The salary and benefit increases examined by the newspaper cover more than new hires. They include pay for promotions, cost-of-living raises and other increases for existing staff members.
The university’s chief spokesman, John Diamond, declined a request by the newspaper last week to interview finance officials about the deficit-spending issues. Vice Chancellor for Finance Don Pederson and school treasurer Jean Schook plan to wait until a state audit into the spending deficit is complete, Diamond said Friday.
After reviewing the newspaper’s findings, Diamond wrote: “The university has never said that salaries and wages were the only contributor to advancement’s deficit. ... When personnel costs go up, so too do the costs associated with their work. That’s especially true in [fundraising] work, which involves considerable travel and related expenses.”
Officials have said they plan no job cuts as a result of the deficit. They also say they have made other budget cuts, but they haven’t detailed them.
The Advancement Division’s overspending of its roughly $10 million budget in fiscal 2012 is “one of the largest deficits of any unit in recent university history,” according to an Aug. 8 email by Chancellor G. David Gearhart.
Since university officials discovered the shortfall in early July, Gearhart and other officials have singled out costs of hiring new employees as the driving factor.
E-mails and budget documents obtained by the newspaper, as well as interviews, have not identified other areas of overspending. The records also do not detail the costs of new hires.
University documents show that one other possible explanation for the deficit has been discounted: Officials say they have found no evidence of fraud.
QUESTIONS RAISED
UA-Fayetteville’s only formal report examining the deficit is by school treasurer Schook. It noted: “historical data suggests the primary driver of accumulated deficit balances was the addition of staff with no permanent funding.”
Her Oct. 19 report points to the division’s 20 new hires between fiscal 2008 and 2012. Records show more than half - 11 - took place in 2012.
When he announced the financial shortfall Dec. 3, Gearhart cited the addition of staff members needed to support a major fundraising campaign. His statement also disclosed another problem: the Advancement Division borrowed future revenue from its private University of Arkansas Foundation accounts to pay for current expenses, “to close the division’s end-of-year budget gap.”
The chancellor reassigned the Advancement Division’s chief, Choate, and former budget officer Joy Sharp in November, records show. Gearhart said the university won’t renew their job appointments after those contracts expire June 30.
Choate and Sharp have declined the newspaper’s requests for interviews.
Two months after announcing the deficit, Gearharton Feb. 5 asked auditors from two state agencies to examine the Advancement Division’s spending.
The state’s Legislative Audit Division is leading the review with the assistance ofthe University of Arkansas System’s internal audit division. Auditors have said the work will take several weeks.
Since the spending problem was announced, the Democrat-Gazette has requested under Arkansas’ Freedom of Information Act any documents related to the problem.
The newspaper also filed a lawsuit Feb. 11 asking for Schook’s report into the deficit issue. UA-Fayetteville officials had maintained that the report was a job-performance evaluation that was exempt from public inspection. On Feb. 15, UA officials obtained permission from three employees and released the report.
Those records and others provide information and raise questions about how the Advancement Division’s hiring costs related to its $3.37 million deficit. Among the issues are:
When did the division’s financial shortfall begin and how did hiring affect it?
The Schook report says all 20 Advancement Division hires from 2008-12 were made “without determining if sufficient budget or other resources were available for permanent funding.”
Gearhart’s Aug. 8 e-mail to Choate suggests that the division’s finances got in trouble later, in 2011. Gearhart headed the Advancement Division for 10 years before becoming chancellor in 2008. He hired Choate as his replacement.
“Keep in mind that you were balanced in fiscal year 2010,” Gearhart wrote. “The deficit began in fiscal 2011 and became even larger in fiscal 2012.”
For the 2010-12 period, university records show pay and fringe benefits climbed by about $1.47 million, or about 44 percent of the division’s fiscal 2012 deficit.
How much did other costs of new hires - beyond salaries and fringe benefits - affect the Advancement Division’s budget?
A budget worksheet for fiscal 2012 shows salaries and benefits were by far the Advancement Division’s largest overall expenditure.
The worksheet listed personnel expenses from public funds at $8.68 million. All other expenses paid from public accounts totaled $1.16 million.
The largest categories after pay included: $555,688 in overhead, $306,693 for traveland $200,057 for software, according to the document.
DEFICIT EXPECTED
UA-Fayetteville officials have said they expect another deficit in the Advancement Division this fiscal year, even as they try to cut costs. Gearhart predicts that the fiscal 2013 shortfall will be smaller than in 2012. The Division of University Advancement oversees fundraising, communications, alumni affairs and other outreach efforts.
“To be clear, the anticipated budget deficit this year is a consequence of the cumulative budget impact of the hiring and associated operating costs incurred in advancement in recent years, realized only after [fiscal 2013] had begun,” Diamond wrote Friday. “The practice of borrowing on future foundation disbursements - noted by Jean Schook in her report and in the chancellor’s public statements - had a cumulative effect on advancement’s [fiscal 2012 and fiscal2013] budgets.”
UA officials hope to solve the division’s budget problems by fiscal 2014, Diamond added.
“The budget adjustments and other changes taking place within advancement are designed to ensure that the division balances its annual budget in FY14,” he wrote.
Arkansas’ Legislative Audit Division director Roger Norman won’t comment on his agency’s examination of the Advancement Division while it’s under way.
Finance experts have said the audit will likely look at what caused the overspending and what the university could have done to prevent it.
The report will be available to the public after it is completed, Norman has said.
Front Section, Pages 1 on 03/10/2013