2.1 Introduction

2.2 Budget Process

2.3 Financial Planning

2.4 Faculty Participation

2.5 Control of Expenditures

2.6 Operating Revenues and Expenditures

2.7 Financial Aid

2.8 Direct Instructional Costs

2.9 Operating Gifts and Endowments

2.10 Net Assets

2.11 Indebtedness

2.12 Summary of Recommendations

2.13 List of Supporting Documents (which should presently be on file in self study

office).

The Vice President for Administration and Finance is responsible for the financial concerns of the university. In support, seven offices report to the vice president:

1. Administrative Information Technology and Controller’s Office: Provides a system for financial reporting and accounting of university funds and supports administrative computing activities.
1. Administrative Services: Provides administrative services to the university; e.g., mail, purchasing, police, and printing.
1. Facilities Management: Oversees the operation of university facilities, parking, and physical plant.
1. Financial Services: Generates financial projections and analysis, assists departments in financial management, assists in preparing written agreements and contracts, and monitors capital projects and their funding.
1. Lawlor Events Center: Manages the use of Lawlor Events Center.
1. Personnel Services: Develops and maintains personnel programs, maintains employee records, and provides financial and benefit counseling.
1. Planning, Budget, and Analysis: Coordinates academic and fiscal planning, develops and monitors the university’s budget; and conducts studies that evaluate the operation and performance of the university.

The heart of university finance is the budget. It is both the primary financial planning tool and the primary determinant of how resources are allocated. The Office of Planning, Budget, and Analysis and the Controller’s Office are responsible for the preparation and monitoring of the university’s budget.

The budget process is two fold: one part acquisition, one part allocation. The "biennial budget request" is the instrument used to acquire state funds for UNR, while the "state appropriated operating budget" is the primary instrument used to allocate funds within UNR.

The UNR biennial budget request is part of a system-wide request for the University and Community College System of Nevada (UCCSN). UNR’s primary state appropriation is the "UNR Instruction" appropriation. It provides funding for instructional departments, the library, and the various university offices---the president, the vice presidents, the deans, student services, physical plant, and scholarships. Funding for UNR Instruction includes state general fund revenues, student registration fees, non-resident tuition, a portion of indirect cost recovery funds, recharge revenue from residence halls and UNR affiliated agencies, and miscellaneous fees.

In addition to UNR Instruction, the state provides appropriations for the School of Medicine, Intercollegiate Athletics, Statewide Programs, the Agricultural Experiment Station, Nevada Cooperative Extension, Business Center North, and the Radiation Safety Program. UNR also receives special state appropriations for specific projects such as the UCCSN Writing Project and Lawlor Events Center.

All state entities must follow a particular process when requesting state funds. For UNR, this process consists of three steps:

1. Develop an "adjusted base budget"
1. Increase the adjusted base budget for "maintenance"
1. Request "enhancements"

The Office of Planning, Budget, and Analysis develops the UNR budget request through the first two steps. Broader participation in the budget process occurs primarily in the development of the enhancements request.

The adjusted base budget is developed by starting with the actual expenditures for the most recently completed fiscal year. Adjustments allowed by state law are then made. The primary adjustments include (a) cost of living increases for UNR employees, (b) merit and longevity increases for classified personnel, and (c) legislatively approved increases.

Maintenance adjustments are increases in the adjusted base budget, which are allowed under state law to maintain the quality of UNR. Primarily, these include increases to (a) offset inflation and (b) cover the cost of new mandates arising from either federal regulations or court actions.

Enhancements are increases in the budget which go beyond maintenance. Budget "parameters" and "priorities" are used to organize the enhancements request. The parameters are the operating assumptions used to construct the request. Faculty members primarily influence the process through their department chairs and college deans by identifying key problems, opportunities, needs, and wants. College deans act as filters and advocates for their respective schools. They determine priorities for their colleges and lobby through the Council of Deans for budget parameters which address those priorities. The Planning and Budget Team acts as a filter for the university, considering the requests of the deans, developing campus-wide priorities, ultimately making recommendations to the president.

The Office of Planning, Budget, and Analysis is responsible for submitting the appropriate budget forms to the Chancellor’s Office. The UCCSN Council of Presidents then reviews the UNR request, along with those of the other Nevada institutions. Once approved by the Chancellor’s Office, the request is reviewed and approved by the Board of Regents. The request is then sent to the governor’s budget office, which reviews it and submits it to the legislature. Changes can and do occur at each stage of this process. Legislative action and final approval by the governor results in a biennial budget for UNR.

Based upon the appropriations received from the legislature, annual operating budgets are developed for UNR. The state appropriated operating budget is prepared annually and must equal the amount approved by the state legislature. The preparation process has two parts: (1) the calculation of divisional allocations for the president and each vice president, and (2) the development of individual department budgets.

Divisional budget allocations are equal to the allocation for previous year, plus specified increments, plus uncommitted funds. Specified increments could include monies for salary increases, state-mandated assessments, institutional fixed costs, and specific legislative approved items (e.g., new space, student financial assistance, new programs). Uncommitted funds are allocated by the President to the vice presidents for specific priorities within their respective divisions.

Departmental budgets are based primarily upon personnel. A "position list" is developed which allows salaries and fringe budgets to be calculated for each department. The amounts for graduate assistants, wages, and operating expenses are then rolled forward from the previous year, typically at the same levels.

The detailed departmental budgets are combined by division, with the total being compared to the divisional allocation. If the total exceeds the divisional allocation, then the divisional vice president is asked to reallocate funds within the division so that the divisional allocation is met. Once the departmental budgets are balanced to the allocations, the UNR budget is entered into the UCCSN budget and transmitted to the Chancellor’s Office for submission to the Board of Regents. The operating budget is then entered into the university’s financial system.

UNR financial planning seeks to "use process to eliminate ambiguity and uncertainty." The Office of Planning, Budget, and Analysis is responsible for UNR financial planning. The Academic Master Plan, most recently prepared for 1997-2001, establishes the academic priorities and goals for UNR. The Vice President for Administration and Finance recognizes the Academic Master Plan as the primary guide for the future allocation of funds within the university.

Presently, the Academic Master Plan is broad in scope and expresses priorities and goals in general terms. There is no direct relationship between the Academic Master Plan and the budget request. Thus, the Academic Master Plan is more of a philosophical statement of goals than an operational, strategic plan. Of course, academic planning cannot anticipate every contingency, and there is a need to be able to take advantage of opportunities which arise outside any plan. However, to become a more effective planning document---i.e., to further reduce ambiguity and uncertainty---the academic master plan needs to be more specific, more operational, and have goals stated in a manner which allows progress to be assessed.

At present, the future of UNR depends heavily upon the particular people who occupy the university’s upper level administrative positions, the Vice President for Administration and Finance in particular. A goal of the Office of Planning, Budget, and Analysis is to create processes so that UNR’s success is not dependent upon the particular people involved in the process. Achieving this goal will require not only more specific planning, but also greater faculty participation in the budget planning and allocation processes.

Decision-making power in the present UNR budget process is focused at the vice presidential level, creating both strengths and weaknesses. This centralization (a) enables quick responses to budget problems and (b) enhances the university’s ability to focus resources on new programs or on efforts to improve existing programs. However, it also means (a) individual faculty members are not motivated to participate in the budget process because they have little chance of affecting it, (b) the quality of some programs can be sacrificed as resources are shifted to favored programs, and (c) accountability problems can arise when resources are allocated by discretion as opposed to strategic plans.

There have been attempts by the administration to broaden input into the budget acquisition and allocation processes. Specifically, two university committees exist which are intended provide opportunities for faculty involvement:

• Planning and Budget Team: This committee is co-chaired by the Vice President for Academic Affairs (VPAA) and the Vice President for Administration and Finance (VPAF). Its composition has varied, but currently includes the Vice President for Student Services, the Vice President for University Advancement, the chair and vice-chair of the Faculty Senate, the chair of the Staff Employees’ Council, the President of the Graduate Student Association, and the President of the Associated Students of the University of Nevada, and two department chairs appointed by the President. The team is an advisory body to the president and meets at the request of the two co-chairs. The team develops recommendations for budget parameters and priorities in the biennial budget request process and makes recommendations concerning internal fiscal problems.

• Institutional Budgets (107) Committee: This Faculty Senate policy committee develops policies and procedures for faculty participation in the preparation of university budget documents and conducts studies on the short and long term fiscal effects of new programs and program modifications.

Faculty participation in the budget process has not occurred to the extent that the formal descriptions of these two committees might indicate. The Planning and Budget Team does meet every two years when the biennial budget request is being developed. However, it otherwise does not meet regularly, nor does it automatically meet when allocation problems arise. Rather, it meets only if the VPAA and VPAF agree that it should meet. Moreover, the membership of the team has been evolving, primarily out of an effort to find a team which is effective. At present, faculty members do not exert much influence on the budget process through the Planning and Budget Team. Deans too desire more systematic participation in the budget allocation process. The Institutional Budgets Committee is charged with developing policies and procedures for faculty participation. However, the faculty have not actively sought greater participation through this committee, instead the committee has primarily addressed rather detailed budgetary questions---e.g., which recharge centers must the faculty use and why?

At present, the individual faculty member influences the budget process primarily through the administration. A faculty member’s priority must become a department priority, which must become a college priority, which must become a priority of the VPAA. During the acquisition process, this priority could then become an enhancement request in the university budget request. Having this priority included in the Academic Master Plan is helpful, but does not ensure that the priority will be part of the budget request. In the allocation process, department chairs, college deans, and the VPAA each have some discretionary spending power. Influence over this discretionary spending depends upon convincing the appropriate authority that the priority is worth funding.

Recently, UNR has been blessed with good upper-level administrators and firm financial support from the State of Nevada. Consequently, few faculty have complained about the centralization of decision-making power in the budget process. Overall, the faculty are busy with their own research and teaching interests, relatively unconcerned about the budget process. However, greater faculty involvement offers the potential for even better decision-making and would at least provide a greater check against bad administrative decision-making. Such involvement would also mitigate the negative impacts on morale during any future budget cutting phase.

During the 1991-93 biennium, budget cuts were implemented at UNR with significant faculty involvement, primarily through the Faculty Senate. These events demonstrate that the faculty can effectively participate in the budget allocation process. To help ensure an effective faculty response during any future budget cutting effort and to help improve UNR’s strategic financial planning, efforts to systematically involve the faculty in the budget allocation and acquisition processes should continue.

A specific faculty involvement issue raised during this self study concerns the allocation of indirect cost recovery monies within UNR. In particular, there are considerable variations in the actual percentage allocations of indirect cost money to colleges, departments, and principal investigators. Perceived inequities may discourage grant activity. A consistent well publicized policy should be developed with faculty input (see Standard X).

The Controller’s Office and the Office of Planning, Budget and Analysis share the responsibility for monitoring, reporting, and controlling university expenditures. The university follows generally accepted principles of institutional accounting as they appear in College and University Business Administration, published by the National Association of College and University Business Officers. In accounting for expenditures, three different account types are recognized:

• State appropriated funds and self-supporting budget accounts;
• grant and contract funds accounts; and
• non-budgeted accounts

Within each set of budgeted accounts, "expense budget lines" are established for various items; e.g., professional salaries, travel, operating. The accounting system will not allow transactions to be processed in excess of the current uncommitted amount in any specific expense budget line. To increase the budget in a specific expense budget line, a formal transfer request must be initiated and approved.

State-appropriated funds must be expended or committed prior to the end of each fiscal year. For all other accounts, the year-end balances carry forward to the next fiscal year. Self-supporting budget accounts are regularly monitored to assure that sufficient revenues are being realized to cover budgeted expenses.

A signature authority is attached to each account. No money may be spent without the proper signature(s). To facilitate good financial management, monthly status reports are distributed to those who maintain signature authority over the accounts; e.g., vice presidents, deans, department chairs, principal investigators. On-line access to account data is available in most cases.

External and internal audits are performed to ensure the quality of the accounting process and compliance with recognized accounting practices. The findings of all audits are reported to the Board of Regents Audit Committee.

External audits are conducted annually. The external auditor, currently Coopers and Lybrand, reviews the financial statements of the university and presents the Board of Regents with a "management letter" or a "constructive service agreement" which addresses the university’s shortcomings. To monitor the compliance with federal guidelines, an external auditor periodically performs an A-133 audit of the university’s (1) federal grants and contracts and (2) Office of Financial Aid (This audit was previously referred to as the A-110 audit). Intermittent audits are performed by the State to examine the expenditure of state appropriated funds. A copy of UNR’s latest financial statement, a copy of the auditor’s latest management letter, a copy of the latest complete audited financial report, and copies of the financial section of the IPEDS reports for the past 5 years are on file for the accreditors.

Internal audits occur at the direction of the Chancellor’s Office. The Chancellor’s Office seeks to audit a selected number of departments every five years, with the selection based upon the Coopers and Lybrand Risk Assessment Model. Internal audits are also conducted to address specific concerns.

The current computer software and hardware are inadequate to meet the current and future informational needs of the university. The College and University Financial System (CUFS) software---introduced in 1992---cannot accommodate the date change to the year 2000. Moreover, report writing in this system is hampered by the fact that its programming language is difficult to use. A related need is the replacement of two other record keeping systems--- the Human Resource System (HRS) the Student Information System (SIS). Overall, a problem is that CUFS, HRS, and SIS are not integrated, hampering information access. The UCCSN is currently purchasing a CUFS upgrade. At this point, it not clear that the upgrade will significantly enhance UNR record keeping and information access.

Table II-1 presents UNR "current funds revenues" for fiscal years 1992-93 through 1995-96. Total revenue increased 23% over the period---from $188,996,159 to $232,231,287. Overall, UNR funding is stable and reliable.

Revenues are received from several sources. In 1995-96, the more significant sources were State of Nevada appropriations (39%), federal government grants and contracts (18%), and tuition and fees (13%). Over the examination period, the composition of UNR revenues have not significantly changed. Growth has occurred in each major revenue source and in nearly all minor sources as well.

Stability in state government appropriations is partly attributable to "formula funding" based upon enrollment, which was developed in the 1980s. The growth in tuition and fees similarly reflect student enrollment. Nevada has been the fastest growing state in the U.S. for nearly two decades. Expectations are that this relatively high rate of growth will continue into the foreseeable future. However, while the ability of UNR revenues to keep pace with Nevada’s growing educational needs is enhanced by formula funding, it is also important to recognize that many critical areas are not funded by formulas. Moreover, the formulas which do exist are not fully funded. Thus, UNR must continue to work on stabilizing funding sources.

Recognizing the effectiveness of formula funding and the changing nature of education due to technological advancements, a new funding formula category---technical support--- should be introduced. In the pursuit of teaching and research goals, the UNR faculty and the UNR library are becoming increasingly reliant upon computer information technologies. UNR faculty and administration have been successful at acquiring "seed money" through grants and private donations for innovative applications of new technology in teaching and research---e.g., smart classrooms, computing labs, computing networks, distance education, and multimedia workstations. However, the equipment obtained quickly becomes obsolete, and the equipment---new or old---requires maintenance personnel. Preliminary to the most recent Academic Master Plan, an Information and Resources Technologies task force was formed to study UNR’s opportunities and needs due to technological change. Their report recommends formula funding for "technical support", defined as a broad category including technical personnel, on-going training, and on-going equipment replacement (see Standard X).

The growth of government grants and contracts revenue reflects UNR’s increasingly competitive research programs. However, because the majority of these funds are obtained from federal sources, some uncertainty exists as to their stability amidst efforts are being made to reduce the federal budget deficit.

Recognizing that private gifts, grants, contracts, and endowments can expedite advancement efforts, UNR has an aggressive fund raising program through the UNR Foundation. This program has resulted in a 31% increase in combined "private gifts, grants, and contracts" and "endowment income" from 1992-93 to 1995-96. Although this increase is impressive, such funding contributes only about 8% of UNR total revenue. UNR remains heavily reliant upon the State of Nevada for its maintenance and improvement.

Table II-2 presents UNR "current funds expenditures and transfers" for fiscal years 1992-93 through 1995-96. For each year except 1995-96, total expenditure and transfers are less than total revenues. By state law, UNR cannot run deficits in state appropriated accounts. UNR budgets state appropriations so that surpluses also do not occur. Small surpluses can accumulate and carry over from one year to the next in self-supporting budget accounts. Any self supporting budget deficit must be eliminated in the following year. Expenditures exceeded revenues in 1995-96 because some expenditures were financed with accumulated surpluses in self-supporting accounts and because of the accounting methods used to record the timing of receipts and expenditures. Overall, current accumulations result from past self-supporting budget surpluses, unspent grant and contract funds, and unspent private gifts and endowment income.

Eight major expenditure categories are recognized. In 1995-96, the largest category was educational and general instruction (33% of the total ), followed by public service (17%), research (14%), academic support (8%), institutional support (6%), plant operation and maintenance (3%), and student services (3%). These expenditure patterns have not varied significantly over the examination period.

Table II-3 presents the sources of financial aid for four academic years---1992-93 through 1995-96. Over the period, total financial aid increased by 29%---from $5.6 million to $7.2 million. Most of this increase was due to increases in Annual Private Contributions and government state aid. Federal aid in 1995-96 was 19% lower than in 1992-93. Consequently, the composition of financial aid has substantially shifted away from federal sources toward state and local sources. This is a concern because Nevada has consistently been ranked near the bottom of the 50 states with regard to state funds allocated to financial aid. However, state aid has increased substantially over the period---171%. Because education costs are expected to continue to increase while federal aid is expected to remain stagnant or decline, maintaining or improving the quality of the university’s financial aid program will require further increases in funding from the state and from private sources.

The typical UNR student has shifted away from grants, work, and scholarships toward loans to finance education costs. Consequently, compared to students in the past, more UNR students have larger loans to pay off upon graduation (see Standard IX).

Tables II-4, II-5, and II-6 present data on direct instructional costs and hours taught by department or instructional area. The direct instructional costs shown in column D of each table are equal to the amounts allocated for "instruction" in annual operating budget for given fiscal year. (The numbers shown in the other columns are defined in the footnotes of the tables.) Direct instructional costs include professional salaries, classified salaries, fringe benefits, graduate assistant monies, student wages, and operating funds. They do not include monies for research, public service, academic support, student services, institutional support, plant operation and maintenance, or scholarships. Inclusion of funds in the latter categories would, of course, affect the final figures for each department.

For UNR as a whole, the average cost per credit hour was $163 in 1995-96, up 15.3% from 1993-94. This increase occurred both because of a 12.3% increase in total direct costs and because of a 3.7% decrease in the number of credit hours taught. The structure and trends of costs within the university can be examined by comparing the average costs per credit hour of the various instructional areas to those for the university as a whole.

With regard to structure, 24 instructional areas had an average cost per credit hour which exceeded the university average, while 19 instructional areas were below average. The more costly instructional areas tended to be those with relatively high instructor costs, or a relatively small number of students, or both. In 1995-96, the areas with an average cost per credit hour greater than $300 include mining engineering ($1,106), chemical/metallurgical engineering ($922), women’s studies ($714), cellular-molecular biology ($445), mechanical engineering ($336), electrical engineering ($325), and geological sciences ($303). Four areas experienced costs less than $100 per credit

hour---western traditions ($16), military science ($74) , math ($79), and criminal justice ($87).

The exceptionally low cost for western traditions is the result of an existing accounting problem. The western traditions faculty are drawn from a number of departments---History, Foreign Language and Literature, Philosophy, and English. Teaching assistants are also provided by the Political Science Department. The costs of these faculty and teaching assistants are charged to the respective departments, while the credit hours are allocated to the western traditions program. Consequently, the per credit hour costs for western traditions are understated, while the costs for the History, Philosophy, English, Political Science, and Foreign Languages and Literatures programs are overstated. This accounting problem affects all interdisciplinary programs and associated departments, not just western traditions. Another accounting problem is that higher per credit costs for some programs reflect the equipment costs necessary to support appropriate instruction in technical fields; yet, these numbers do not take into account that many of these programs also generate a high proportion of UNR’s grant and contract funds.

An appropriate accounting of a program’s costs of per credit hour is essential if the cost effectiveness of programs is to be evaluated. Recently, UNR has initiated a program review process through which programs will be systematically evaluated. To promote an efficient allocation of UNR resources, this assessment process needs to be refined so that the successes and failures of individual programs can be judged equitably and more systematically. In particular, the method used to account for program costs should be revised.

Over the period of inquiry---1993-94 through 1995-96, 8 instructional areas experienced decreases in average costs per credit hour, 12 experienced increases but at a rate below the university average, and 23 experienced increases at a rate above the university average. All 8 of the areas experiencing decreasing costs were expanding programs---i.e., more credit hours taught. The largest decreases in costs were experienced by mining engineering (33%) and counseling and educational psychology (23%). All but 3 of the 23 areas experiencing increasing costs were contracting programs. Only nutrition, psychology, and physics experienced both an increase in credit hours taught and an increase in the average cost per credit hour. The largest increases in costs were experienced by women’s studies (84%), which hired its first director during this period, and cellular and molecular biology (58%), which also expereinced an increase in costs due to expansion.

As a whole, UNR did not achieve its projected enrollment in the academic year 1995-96 and will again fall short in 1996-97. These enrollment shortfalls contribute to higher costs per student per credit hour as student-teacher ratios are higher than planned in instructional areas most affected by enrollment shortfalls. Steps have been taken to rectify this temporary problem. which resulted in part from changes in out of state tuition policy by UCCSN, and is not expected to recur after 1996-1997.