BOARD OF TRUSTEES MEETING AGENDA WEDNESDAY, JANUARY 21, 2009 1:00 P.M. SAINT PAUL COLLEGE 235 MARSHALL AVENUE SAINT PAUL, MN Consent Agenda All matters listed under Consent Agenda will be enacted by one motion in the form listed below. Any trustee may request that an item or items be removed from the Consent Agenda for independent consideration. a. Minnesota State University, Mankato Construction Contract Approval (pp. 1-3) b. Minnesota State College - Southeast Technical Property Disposition (pp. 3-8) c. Metropolitan State University Contract Approval (pp. 9-11) d. FY 2009 Unallotment Action (pp. 12-15) e. Select Internal Audit Topic for FY 2009 (pp. 16-21)
Transcript
BOARD OF TRUSTEES MEETING AGENDA
WEDNESDAY, JANUARY 21, 2009 1:00 P.M.
SAINT PAUL COLLEGE
235 MARSHALL AVENUE SAINT PAUL, MN
Consent Agenda All matters listed under Consent Agenda will be enacted by one motion in the form listed below. Any trustee may request that an item or items be removed from the Consent Agenda for independent consideration.
a. Minnesota State University, Mankato Construction Contract Approval (pp. 1-3) b. Minnesota State College - Southeast Technical Property Disposition (pp. 3-8) c. Metropolitan State University Contract Approval (pp. 9-11) d. FY 2009 Unallotment Action (pp. 12-15) e. Select Internal Audit Topic for FY 2009 (pp. 16-21)
MINNESOTA STATE COLLEGES AND UNIVERSITIES BOARD OF TRUSTEES
Agenda Item Summary Sheet
Committee: Finance, Facilities and Technology Date of Meeting: January 21, 2009 Agenda Item: Minnesota State University, Mankato Construction Contract Approval
Proposed Approvals Other Monitoring Policy Change Required by Approvals Policy Information
Cite policy requirement, or explain why item is on the Board agenda: Board Policy 5.14, Procurement and Contracts, requires pre-approval by the Board of Trustees for contracts, including amendments, with values greater than $2,000,000. Scheduled Presenter(s): Laura M. King, Vice Chancellor – Chief Financial Officer
Allan Johnson, Associate Vice Chancellor Facilities Outline of Key Points/Policy Issues: This request is to seek Board of Trustees approval of a proposed construction project to renovate portions of the McElroy Residence Community, “H” and “I” Wings, at Minnesota State University, Mankato. Background Information: The project will include significant upgrades of interior areas for floors 1 through 4 in both the “H” and “I” wings of the residence hall and will generally include improvements to lounge windows, flooring, walls, ceilings, doors and hardware, plumbing, heating, ventilation, air conditioning, lighting, telecommunications and card access systems. Built-in closets and furniture replacement is also included in the project. Design and construction of the project will be funded by the University using $5,252,000 of Revenue Fund operating reserves, and repair and replacement funds. The construction contract is estimated at $3,800,000.
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BOARD OF TRUSTEES MINNESOTA STATE COLLEGES AND UNIVERSITIES
BOARD ACTION
Minnesota State University, Mankato Construction Contract
BACKGROUND: The purpose of this report is to seek Board of Trustees approval of a proposed construction project to renovate portions of the McElroy Residence Community, “H” and “I” Wings, at Minnesota State University, Mankato (MSU,M). Board approval is necessary because the project includes a construction contract valued over $2 million. This is similar to the March 2008 approval of the renovation of the Crawford Residence Community for $4.1 million. This is consistent with the University’s long term plan for renovation of existing campus housing. The University continues to evaluate the benefits of replacing older housing with new as feasible. The project will include significant upgrades of interior areas for floors 1 through 4 in both the “H” and “I” wings of the residence hall and will generally include improvements to lounge windows, flooring, walls, ceilings, doors and hardware, plumbing, heating, ventilation, air conditioning, lighting, telecommunications and card access systems. Built-in closets and furniture replacement is also included in the project. Design and construction of the project will be funded by the University using $5,252,000 of Revenue Fund operating reserves, and repair and replacement funds which have been specifically planned and earmarked for this project. The construction contract is estimated at $3,800,000. State universities have a choice of financing this type of capital improvement, either through Revenue Fund operating reserves accumulated over time or the use of revenue bond proceeds with resultant debt. Expenditure of these funds will not impact the University’s ability to maintain required reserve levels. No state appropriation or tuition funds will be used for the project. Because this project is funded through student room and board fees, student consultation is required. MSU, M indicated that consultation has taken place and students are in support of the planned renovation work. The design, construction, inspection, testing, and installation of furnishings and equipment will be managed by University personnel in accordance with Minnesota State Colleges and Universities’ design and construction standards. A project predesign study was completed to define the scope and costs of the project and will be used as a basis for the design. The proposed schedule for design, construction, and related contract awards is as follows: design – winter 2009; begin construction - May 2009; and substantial completion - July 2010.
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RECOMMENDED COMMITTEE ACTION: The Facilities/Finance Policy Committee recommends that the Board of Trustees adopt the following motion. RECOMMENDED MOTION: The Board of Trustees approves the construction contract to renovate McElroy Residence Community, “H” & “I” Wings on the campus of Minnesota State University, Mankato as described herein. Date Presented to the Board: January 21, 2009
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MINNESOTA STATE COLLEGES AND UNIVERSITIES BOARD OF TRUSTEES
Agenda Item Summary Sheet
Committee: Finance, Facilities and Technology Date of Meeting: January 21, 2009 Agenda Item: Minnesota State College – Southeast Technical Property Disposition
Proposed Approvals Other Monitoring Policy Change Required by Approvals Policy Information
Cite policy requirement, or explain why item is on the Board agenda: The Board may designate as “surplus” and approve the sale of real property under its control pursuant to Minnesota Statute §136F.60, subdivision 5. Under Board of Trustees Policy 6.7, Real Estate Transactions, Board approval is required for all sales of real property valued at or greater than $250,000. Scheduled Presenter(s): Laura M. King, Vice Chancellor – Chief Financial Officer
Allan Johnson, Associate Vice Chancellor Facilities Outline of Key Points/Policy Issues: The Board is asked to declare Minnesota State College – Southeast Technical’s Aviation Training Center located on the city airport property in Winona, Minnesota as “surplus” and authorize the building for sale. Background Information: Minnesota State College – Southeast Technical decided to close the aviation maintenance program in 2006. After the closure of the program, the college backfilled the facility with programs in drafting, industrial maintenance, nursing and carpentry, but it was determined that there were cost savings to selling the building and consolidating at the main campus. There are two major impediments to a sale. First, the ground lease requires the college to continue to use the facility for public vocational education or the lease terminates. Second, any sale would trigger the repayment of the original state bond investment pursuant to Minnesota Statutes 16A.695, Subdivision 3, which would obligate the college to reimburse the state up to its $4.67 million appropriation from any proceeds generated from the sale The College and the Office of the Chancellor are working with the city of Winona and the state legislature to resolve the impediments. Sale to the Port Authority via the city is the anticipated result, with sale proceeds to be used for a capital project at the main Winona campus.
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BOARD OF TRUSTEES MINNESOTA STATE COLLEGES AND UNIVERSITIES
BOARD ACTION
Minnesota State College – Southeast Technical Property Disposition
BACKGROUND The Board is asked to declare Minnesota State College – Southeast Technical’s Aviation Training Center property located in Winona, Minnesota as “surplus” and authorize the building for sale, subject to the conditions described in this report. See Attachment A for the location of the Aviation Training Center in relationship to the college. The Board may designate as “surplus” and approve the sale of real property and improvements under its control pursuant to Minnesota Statutes §136F.60, subdivision 5. Under Board of Trustees Policy 6.7, Real Estate Transactions, Board approval is required for all sales of real property. After the Board declares a parcel of real property “surplus,” the property is offered for sale at appraised value to the city, county, township and school district in the jurisdiction where the property is located. Local governmental units have two weeks to express their interest in purchasing the property. If the local governmental units decline or fail to express an interest, the property is advertised to the public for a period of four weeks. There is reasonable discretion in the method of sale, such as a sealed bid or auction. Upon receipt of an acceptable offer, a sale is consummated, and the transaction is closed. DETAILS The Aviation Training Center facility is located on airport land leased from the City of Winona on a 100-year lease that began November 9, 1990. The 71,650 square foot facility opened in 1992. Ground rent is $1.00 per year. During the 1990 session, the Minnesota legislature appropriated $4,666,000 for the remodeling and construction of the Aviation Training Center at the Winona Municipal Airport, known as Max Conrad Field. The project cost was $5,489,000, with state appropriation accounting for 85% of the funding and the remaining $823,000, a 15% match, coming from local funding sources. Enrollment for the aviation maintenance programs peaked at about 250-275 FYE with 7 instructors, and was at 20-25 FYE and 1 ½ instructors in 2006 when the college decided to close the program. After the closure of the program, the college backfilled the facility with programs in drafting, industrial maintenance, nursing and carpentry, but it was determined that there were cost savings to selling the building and consolidating at the
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main campus. The college determined students would be better served by selling the facility, using proceeds from the sale to consolidate, remodel or construct space at the main campus in Winona, and upgrade the main campus facilities to better address allied health careers. With the help of Office of the Chancellor staff, the college explored the idea of selling the building and examined the potential hurdles to a possible sale. Two major impediments were discovered. First, the ground lease requires the college to continue to use the facility for public vocational education or the lease terminates. Second, any sale would trigger the repayment of the original state bond investment pursuant to Minnesota Statutes 16A.695, Subdivision 3, which would obligate the college to reimburse the state up to its $4.67 million appropriation from any proceeds generated from the sale. To address the first issue, the college has initiated discussions with the City of Winona and the Port Authority, which has jurisdictional control over the airport. The city is supportive of the college’s proposal to sell the building, and have expressed an interest in acquiring the facility via the Port Authority. It is expected that the Port Authority would simultaneously sell the facility to an area business. If the city (via the Port Authority) were to purchase the facility, the lease issue would be satisfactorily addressed, as the city would agree to amend the lease to accommodate the new buyer. Any purchase would be based on the appraised value. To address the second issue, the Office of the Chancellor is taking a two-part approach: proposing either a statutory change to exempt MnSCU from the full repayment obligation of the original bond investment or, as an alternative, a specific session law that would specifically exempt the college from the bond repayment provisions of the statute, provided that the campus uses the sale proceeds for a capital project. These approaches will be pursued during the current 2009 legislative session. RECOMMENDED COMMITTEE ACTION: The Facilities/Finance Policy Committee recommends that the Board of Trustees adopt the following motion. RECOMMENDED MOTION: The Board of Trustees approves the designation as surplus and authorizes for sale the Aviation Training Facility operated by Minnesota State College – Southeast Technical at the Winona Municipal Airport, subject to legislative exemption of the repayment provisions under Minnesota Statutes §16A.695, subdivision 3, and directs the Chancellor or his designee to execute all necessary documents to complete the conveyance in compliance with such laws.
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MINNESOTA STATE COLLEGES AND UNIVERSITIES BOARD OF TRUSTEES
Agenda Item Summary Sheet
Committee: Finance, Facilities and Technology Date of Meeting: January 21, 2009
Agenda Item: Metropolitan State University Contract Approval
Proposed Approvals Other Monitoring Policy Change Required by Approvals Policy Information
Cite policy requirement, or explain why item is on the Board agenda: Board Policy 5.14, Procurement and Contracts, Subdivision 3, requires Board of Trustees approval of all contracts valued greater than $2 million. Scheduled Presenter(s): Laura M. King, Vice Chancellor – Chief Financial Officer
Sue Hammersmith, President, Metropolitan State University Murtuzza Siddiqui, Interim Vice President for
Administration and Finance Outline of Key Points/Policy Issues: Metropolitan State University is requesting approval of a professional/technical services contract estimated to total $4,500,000 through the end of the current contract, which is in effect through December 31, 2010. The contract with Bryant Rolstad Consultants, LLC is to educate Wound, Ostomy and Continence (WOC) Nursing students through the Web. WOC Nursing is a specialty within nursing dedicated to the care of patients with a wound or ulcer, ostomy and bowel or bladder incontinence. Background Information: As part of an Office of the Legislative Auditor compliance audit of professional/technical contracts of various state agencies, the auditors raised three issues regarding a contract between Metropolitan State University and with Bryant Rolstad, Consultants, LLC: • No RFP – the contract was not competitively bid and was not identified as a sole
source contract; • the contract duration exceeded five years; • Metropolitan State University exceeded its signature authority of $50,000. The lack of an RFP or sole source approval for the current contract period cannot be remedied. The term of the contract can be approved by the Vice Chancellor – Chief Financial Officer, albeit retroactively. The value of the contract is now expected to exceed the Board policy threshold of $2 million and requires approval by the Board of Trustees.
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BOARD OF TRUSTEES MINNESOTA STATE COLLEGES AND UNIVERSITIES
BOARD ACTION
Metropolitan State University Contract Approval
BACKGROUND Board Policy 5.14, Procurement and Contracts, requires prior approval by the Board of Trustees for contracts exceeding $2,000,000. The proposed action item is for Board approval of a professional/technical services contract estimated to total $4,500,000 through the end of the current contract, which is in effect through December 31, 2010. Since 2001, Metropolitan State University has engaged in a contractual relationship with Bryant Rolstad Consultants, LLC to educate Wound, Ostomy and Continence (WOC) Nursing students in an online format. WOC Nursing is a specialty within nursing dedicated to the care of patients with a wound or ulcer, ostomy and bowel or bladder incontinence. The webWOC Nursing Education Program at Metropolitan State University premiered in the summer of 2001 with four students. According to the terms of the contract, the contractor is paid 92% of the tuition collected from the students. The University keeps the remaining 8% for the administration. Since the inception of the program, the number of enrolled students significantly exceeded the expectations and has grown to a range of 160 to 240 students annually, depending upon the course. The contractors have been paid an average of $250,000 annually since 2001. However, over the past couple of years, the number of students enrolled has increased significantly. The University estimates that the annual average for 2009 and 2010 will be about $900,000 for each year. The contract has been in place since 2001 and will terminate at the end of 2010. Last year, the Office of the Legislative Auditor conducted a compliance audit of professional/technical contracts of various state agencies, including selected contracts at certain MnSCU institutions. As part of this audit, the auditors raised three issues regarding the contract between Metropolitan State University and Bryant Rolstad, Consultants, LLC: • No RFP – the contract was not competitively bid; • the contract duration exceeded five years; • Metropolitan State University exceeded its signature authority of $50,000. The first, issue, lack of an RFP (or sole source approval, if that would have been an appropriate consideration) for the current contract period, cannot be remedied retroactively. The second issue regarding the term of the contract can be resolved through approval by the Vice Chancellor – Chief Financial Officer, albeit retroactively. The third issue requires approval by the Board of
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Trustees, since the value of the contract is now expected to exceed the Board policy threshold of $2 million. Due to a high volume of staff turnover in the University’s Financial Management Office, the University indicated it had been a challenge to maintain continuity and retain adequate staff knowledge. The University acknowledges that it was not in compliance with Board policies and the related system procedures. Since the audit, Metropolitan State University has implemented a number of system improvements. 1. The University has hired an experienced contracts and grants manager to oversee the procurement and contracting areas; 2. The University has undertaken a diligent effort to educate staff regarding the Board policies, pertaining to procurement, with defined dollar thresholds and signature authority; 3. Procurement staff received training and guidance from the Vice Chancellor’s staff; 4. The University has also installed an organized method of defining and tracking delegation of authority. The University has already made significant improvements in this area and is committed to continuous improvement. The University is in the process of preparing an RFP to continue this program after the expiration of the current term of the contract. The University has been in contact and has been seeking guidance from Vice Chancellor King’s office over the past few months as it proceeds to remedy this situation as well as implement proper procedures to prevent this situation from repeating. Although there have been procedural problems with the contract, the services paid for have been provided and the program has been very successful from an educational perspective. As the University prepares an RFP for the new contract, it will be mindful of its obligations to follow appropriate procedures and obtain necessary approvals, and its commitments to students already admitted to this specialty program. RECOMMENDED COMMITTEE ACTION The Finance/Facilities Policy Committee recommends that the Board of Trustees approve the current contract between Metropolitan State University and Bryant Rolstad Consultants, LLC for estimated total expenditures not to exceed $4,500,000. RECOMMENDED BOARD ACTION The Board of Trustees approves the current contract between Metropolitan State University and Bryant Rolstad Consultants, LLC for estimated total expenditures not to exceed $4,500,000. Date Presented to the Board: January 21, 2009
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MINNESOTA STATE COLLEGES AND UNIVERSITIES
BOARD OF TRUSTEES
Agenda Item Summary Sheet Committee: Finance, Facilities and Technology Date of Meeting: January 21, 2009 Agenda Item: FY 2009 Unallotment Action
Proposed Approvals Other Monitoring Policy Change Required by Approvals Policy Information
Cite policy requirement, or explain why item is on the Board agenda: A $426.3 million deficit is projected for the state’s general fund during the current fiscal. The Minnesota State Colleges and Universities will receive a reduction of $20 million in the current fiscal year.
Scheduled Presenter(s): Laura M. King, Vice Chancellor - Chief Financial Officer Judy Borgen, Associate Vice Chancellor Budget Karen Kedrowski, System Budget Director
Outline of Key Points/Policy Issues: The Board is being asked to consider a distribution methodology for the $20 million unallotment.
Background Information: Governor Pawlenty recently announced reductions that would be made to the state’s general fund budget for fiscal year 2009 in light of the projected deficit of $426.3 million. The Minnesota State Colleges and Universities will receive a reduction of $20 million in the current fiscal year.
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BOARD OF TRUSTEES MINNESOTA STATE COLLEGES AND UNIVERSITIES
BOARD ACTION
FY 2009 Unallotment Action
BACKGROUND The state of Minnesota is projecting a deficit in the current fiscal year of $426.3 million. Governor Tim Pawlenty recently announced reductions that would be made to the state’s general fund budget for fiscal year 2009 in order comply with the constitutional requirement of a balanced budget. The Minnesota State Colleges and Universities will receive a reduction of $20 million in the current fiscal year. The Governor’s actions are effective immediately. The funds will be withdrawn from the system’s account in early January 2009. The purpose of this Board report is to provide the proposed distribution methodology to the Board of Trustees for review and approval. DISTRIBUTION METHODOLOGY The $20 million reduction represents 2.9 percent of this year’s state appropriation of $688.3 million. Since it is all being taken in the last six months, this reduction amounts to a 5.8 percent budget impact. The unallottment represents a 1.5 percent reduction to annual expected revenue (3.0 percent of last six months) when evaluated on the basis of the total state support and tuition revenue available to the colleges and universities and the system. Three principles are recommended to guide the system’s academic and financial planning work in the months ahead:
• Decisions will be made in a way that best serves students; • Decisions will strive to take into account the system’s mission to serve the
economic development needs of the state and its communities; and • Planning will take a multi-year approach, positioning the system for long-term
financial viability. The Vice Chancellor – Chief Financial Officer, after consultation with the Chancellor, Chair of the Board of Trustees and the Chair and several members of the Finance, Facilities and Technology Committee of the Board of Trustees as well as consultation with the Finance and Administration Committee of the Leadership Council, recommends the following proposed distribution:
• Colleges and universities: $16.27 million • Systemwide debt service savings: $2.8 million • Office of the Chancellor/Shared Services: $.93 million
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Several years ago, the Finance and Administration Committee of the Leadership Council approved an overall framework for funding the Office of the Chancellor/Shared Services. The operations of the Office of the Chancellor/Shared Services are fully supported by appropriation compared to both appropriation and tuition support available to colleges and universities. The overall funding framework takes into account both appropriation and tuition. The framework is designed to distribute both increases and decreases in state resources. The framework provides for the funding of the Office of the Chancellor/Shared Services to increase at a lesser rate than what the colleges and universities experience. Conversely, funding of the Office of the Chancellor/Shared Services decreases at a greater rate than the colleges and universities. In terms of total tuition and appropriation revenue, the unallotment represents a 1.5 percent reduction to the Office of the Chancellor/Shared Services compared to an overall average of 1.4 percent reduction to colleges and universities. Attachment 1 displays the impact of the unallotment for each college and university. The debt service savings is a result of over-estimating the system’s share of debt on the general obligation bonds issued by the state of Minnesota. As part of the annual operating budget cycle, the system estimates a funding level needed for the debt payment made to Minnesota Management and Budget considering factors such as the timing and structure of future bond sales, planned construction execution schedule and the estimated impact of new capital projects. It is the responsibility of Minnesota Management and Budget to sell/issue bonds for all of state government and assess the system its appropriate share of the debt obligation. The Chancellor has informed the colleges and university presidents that there should be very limited use of reserves to absorb the $20 million reduction. As the system approaches the 2010-2011 biennium and the state is faced with a projected shortfall of $4.8 billion, reserves will be a more critical part of budget planning and transition. The Chancellor will regularly report to the Board of Trustees during the next six months on the status of the 2009-2011 budget planning. An expectation of that reporting will be identification of the specific steps taken at each of the colleges and universities and in the Office of the Chancellor/Shared Services to absorb the fiscal year 2009 reduction. RECOMMENDED COMMITTEE ACTION: The Finance, Facilities and Technology Policy Committee recommends that the Board of Trustees adopt the following motion: RECOMMENDED MOTION: The Board of Trustees approves the recommended distribution methodology for the $20 million unallotment during the current fiscal year. Date Presented to the Board of Trustees: January 21, 2009
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15
MINNESOTA STATE COLLEGES AND UNIVERSITIES
BOARD OF TRUSTEES
Agenda Item Summary Sheet Committee: Audit Committee Date of Meeting: January 21, 2009 Agenda Item: Select Internal Audit Topic for Fiscal Year 2009
Proposed Approvals Other Monitoring Policy Change Required by Approvals Policy Information
Cite policy requirement, or explain why item is on the Board agenda: According to Board Policies 1A2, Part 5, Subpart E and 1D, the Audit Committee oversees the services of the Office of Internal Auditing. Scheduled Presenter(s): John Asmussen, Executive Director, Office of Internal Auditing Outline of Key Points/Policy Issues: Internal Auditing has some capacity to conduct system-wide studies. Audit Committee
approval is sought in order to select a topic that would be most useful to the system. Background Information: The fiscal year 2009 audit plan was approved by the Audit Committee in September
2008. It provided that the Office of Internal Auditing would recommend a project topic to the audit committee in January 2009.
x
16
BOARD OF TRUSTEES MINNESOTA STATE COLLEGES AND UNIVERSITIES
BOARD INFORMATION
SELECT INTERNAL AUDIT TOPIC FOR FISCAL YEAR 2009
Each year, Internal Auditing schedules a study of a topic of major system-wide interest. The fiscal year 2009 audit plan, approved by the Board of Trustees in September 2008, provided that Internal Auditing would recommend a project topic to the audit committee in January 2009. The Internal Auditing capacity for conducting a system-wide study has been eroded somewhat due to a commitment to support audits of eight colleges by the Legislative Auditor; much of that work will occur in February 2009. Internal Auditing expects to have some time available in March – May 2009 to conduct a system-wide project. The project recommended for this system-wide study pertains to auxiliary revenues. It is described in more detail in the attached project proposal. This project was selected because of interest in learning more about auxiliary and supplemental revenue sources and to ensure that the most significant sources, e.g. bookstores and food services, maintain adequate internal controls and compliance with existing board policies. Other potential topics that were considered for system-wide studies, included:
Information Technology Services project management, Information Technology Services quality assurance methods, Spending on diversity programs, Use of credit cards for purchasing goods and services, Executive spending accounts, and Post secondary enrollment options program.
Using Internal Auditing to study these topics is not recommended at this time for various reasons. Some of the topics remain in formative stages, e.g., the information technology topics and diversity spending, and a system-wide audit would be somewhat premature until they have more established foundations. The credit card usage topic is currently subject to another review by the system’s compliance officer. Executive spending is a very small dollar amount in the system. Internal Auditing has previously studied the Post Secondary enrollment options program.
17
RECOMMENDED COMMITTEE ACTION: The Audit Committee has reviewed topics that Internal Auditing could study as possible system-wide projects in fiscal year 2009. Based on its review, the committee recommends that the Board of Trustees adopt the following motion: RECOMMENDED MOTION: Based on the review and recommendation of the Audit Committee, the Board of Trustees approves the Office of Internal Auditing conducting a system-wide study of auxiliary revenues during fiscal year 2009. Date Presented to the Board of Trustee: January 21, 2009
18
1
Minnesota State Colleges & Universities Office of Internal Auditing
Proposal for a System-wide Audit Topic – Fiscal Year 2009
AUXILIARY REVENUE SOURCES
In these tough economic times, colleges and universities must be aggressive and innovative in maintaining balanced budgets. Two basic strategies are available to adjust underlying financial structures: expense management and revenue enhancement. Because severe constraints are expected for the three primary revenue categories -- state appropriations, student charges for tuition/fees, and federal/state/private grants -- much of the focus for solutions has been directed to managing expenses. There will be, however, opportunities to enhance revenues from secondary or auxiliary sources. In fiscal year 2008, colleges and universities in the Minnesota State Colleges and Universities system generated $1.8 billion of revenues. Based on the limited analysis shown in Table 1, about $79 million, or less than 5%, of those resources were generated from supplemental revenue sources. Enterprise Funds include bookstores, campus stores, food services, and parking activities. Other income in the General and Special Revenue Funds may be attributed to ancillary revenues from extracurricular activities, like intercollegiate athletics and theatre, health services, and revenues generated as byproducts of educational programs, e.g., building houses in construction programs, providing dental hygiene services to the general public, repairing automobiles, etc.
Table 1: Supplemental Revenue Sources (2) – Fiscal Year 2008 ($ in Thousands)
Revenue Source FY 2007 FY 2008 Enterprise Funds – Operating Revenues $48,469 $50,102General Fund – Other Income 10,511 11,700Special Revenue Funds – Other Income 1,868 1,229Interest Income (1) 17,112 14,869Gain on Disposal of Assets (1) 267 1,274 Subtotal – Supplemental Revenues $78,227 $79,174(1) Excludes Revenue Fund earnings (2) The Table shows only supplemental revenue sources that are readily apparent from categories presented in the audited financial statements. Additional amounts may be blended into some of the primary revenue categories. Source: MnSCU Supplements to the Annual Financial Reports FY 2007 and 2008 Due to the relatively small amounts, supplemental revenue sources do not receive much attention from external auditors. The Legislative Auditor has, however, cited some deficiencies in internal controls for supplemental revenues, particularly when cash collection operations are maintained outside of the business offices. Some board policies and procedures also may have a bearing on supplemental revenue sources. Policy 7.6 on Business Activities delegates much of the authority and
19
MnSCU Office of Internal Auditing FY 2009 System-wide Audit Topic
2
responsibility for managing business activities to college and university presidents, but creates some boundaries on competition with the private sector. Procedure 7.3.2 establishes several provisions related to auxiliary operations, including criteria for identifying allowable activities and expectations for maintaining appropriate levels of retained earnings. Policy 3.26 on Intellectual Property establishes conditions under which institutions may share in revenues generated by research activities. Procedure 5.14.1 governs the selling and leasing of computers. Other board policies and procedures may affect certain other revenue sources. Objectives This project will focus on institutional practices for managing supplemental revenue sources. In large part, it will provide descriptive information about current supplemental revenue sources established throughout the system. It also will provide particular focus on some of the most significant auxiliary revenue sources, such as bookstores and food services and test them for adequate internal controls and policy compliance. Phase I: Institutional practices for auxiliary revenue sources. The project will address on the following questions:
To what extent have colleges and universities generated auxiliary revenues? What are the most significant sources of these revenues?
Have colleges and universities established sufficient institutional policies and
practices regarding controls and compliance for auxiliary revenues?
Phase II: Major auxiliary revenue sources, such as bookstores and food services. The project will address the following questions:
What are the primary strategic and operational features of these activities, such as owning vs. contracting the services, pricing practices, operating margins, levels of retained earnings, extent of institutional support, indirect cost recoveries, etc., for these activities?
Have colleges and universities established sufficient internal controls to protect
their assets and ensure compliance with major legal and policy provisions? Methodology To address these questions, Internal Auditing will perform the following procedures:
Compile data and inventory auxiliary revenue sources generated by each college and university;
20
MnSCU Office of Internal Auditing FY 2009 System-wide Audit Topic
3
Identify major auxiliary revenue sources, beyond bookstores and food services, for each college and university;
Conduct a literature review to identify potential sources of revenue being generated by public colleges and universities;
Gain an understanding of institutional practices regarding controls and compliance matters for auxiliary revenue sources;
Test internal controls and compliance for major auxiliary revenue sources,
including bookstores and food services; Develop recommendations for the Office of the Chancellor and college and
university presidents, as warranted, and
Identify policy issues for consideration by the Board of Trustees. Timeline and schedule Fieldwork for this project will be conducted from March through May 2009. A preliminary report may be issued in May 2009 focused primarily on the objectives for Phase I. A final report, addressing all objectives will be presented to the Board of Trustees Audit Committee in September 2009.
