Dear Campus Community,
Several of you have voiced concerns about the story in the Democrat-Gazette concerning our budget controls audit that was on the Board of Trustees agenda last week. I want to take this opportunity to clarify several issues and offer additional explanation of what the audit means (and does not mean).
First, it is important to note that the audit findings were based on the Fiscal Year 2019 budget (last year’s budget), not the Fiscal Year 2020 budget (this year’s budget). We have corrected the budget process for this year and the budget we have in our Banner system matches what was approved by the Board of Trustees last spring. In other words, we have corrected the budgeting process that was previously in place that generated concerns with the UA System auditors.
Second, it is also important to note that the audit findings concern the budgeting process and the way we represented it (which I’ll explain below), not the actual financial bottom line. In other words, we are still looking at the same financial deficit at the same amount as we were before. That is, an estimated $5 million revenue shortfall due to a 9% decline in enrollment, plus the $5.6 net position deficit that we carried over from last year.
What was the Problem with the Budget Process?
The UA System and the Board of Trustees requires that we submit an annual budget for approval each spring. Once the budget is approved, we then load that budget into our ERP system (Banner) which then serves as our budget guide (controls) for the new fiscal year. If a change to the budget is required, for instance to indicate more or less revenue, we are required to submit a revised budget for Board approval. The budget we load is supposed to reflect only those funds we expect to spend within the fiscal year. All reserve funds or other funds that we do not plan to expend, should not be reflected in the budget.
Until we changed it last spring, our practice for many years had been to load that budget and then roll into Banner all of the remaining balances from reserve accounts such as plant funds, designated accounts, restricted accounts, the general reserves, etc. The consequence of this is that our Banner budget was many millions more than what was approved by the Trustees. We did not spend most of that additional amount, but it was rolled into budget to make it available in case we needed to spend from those reserves. To use a simple analogy, let’s say you set your personal budget by placing a certain amount of funds in your checking account each month and you spend from that account according to your best estimate of what your expenses will be. You keep the rest of your funds in a savings account and if you need to adjust your budget, you might move funds between accounts once a month or once every several months. Now, assume that instead of that method, you used only one account, a checking account, so that all of your savings and other liquid assets were placed in your checking account. You still have the same amount of money, and the same estimates of expenditures, but now your checking account does not represent your monthly budget. Our UA Little Rock budget must follow the first method (albeit on an annual basis, not monthly) instead of the second method.
Those of you who manage university budget accounts may recall that last spring we started budgeting all types of fund accounts that we expected to expend, so that we would be in compliance with auditor requirements. There are other recommendations in the audit report that we are in the process of implementing such as putting into place a formal budgeting policy and process. All of the recommendations have either already been implemented or are scheduled to be implemented this year.
Another issue that was mentioned in the Democrat-Gazette is the use of secondary financial software such as Quicken or Quick Books. The System auditors prefer that everyone use the same system for budgeting (currently Banner, soon to be Workday) rather than using other types of software. We will comply with this requirement of course, but I want to be clear that everyone uses Banner as their official budgeting resource. Secondary budget tracking software was used by some units because it was more user friendly, but these were always reconciled with the official Banner budget. Once the financial module of Workday is implemented this summer, there shouldn’t be a need for secondary software since Workday has a more accessible interface for budgeting.
After the Thanksgiving break, Vice Chancellor McClellan will schedule an open forum to answer any questions you may have about the budget audit or the budget in general. In the meantime, you may submit questions to Improve UA Little Rock at: https://ualr.edu/about/improvement/. I’m still waiting for the final draft of the audit report to be sent to me, but I am attaching the draft report which should be identical to the report that was released to the Democrat-Gazette on Friday afternoon. Please know that we are working diligently to update our processes in many areas across campus. In the case of the budget process, the audit did what it was supposed to do, it identified issues that we needed to address and are addressing. We are now following the correct budget procedures and will make other necessary adjustments as we prepare next year’s budget.
I wish you all a very Happy Thanksgiving.
Christina S. Drale | Chancellor
University of Arkansas at Little Rock | 501-916-3200 | email@example.com