THE CHAIRS LAMENT

May those who love us--love us. And for those who don’t love us --may God turn their hearts to love us. And for those whose hearts can’t be turned, may He turn their ankles THAT THEY MAY BE KNOWN BY THEIR LIMPS.

INTRODUCTION

Of the most often asked questions from individuals new to Departmental administration, budget management, innovative budget approaches, and overall budgetary models is typically at the top of the list. A major thesis of this presentation is that while it is not necessary for Department chairs to obtain a degree in accounting to be effective leaders of academics and academic leaders, a general understanding of budgeting principles, the overall budget process within the University, the sources of budget allocation decision points, and the like are important for effective budgetary stewardship. To this end, this presentation is divided into three major sections: (1) overview of some of the basic accounting principles and definitions; (2) a presentation of one model for providing financial incentives to faculty for successful grant writing, and (3) a discussion of some of the potential revenue sources for Departments outside the institutions budget allocation process.

• Arming with general accounting
• The budget allocation process
• Introduction to management accounting
• DLPs - Departmental Leadership Points
• Grants management
• Income sources
• Group discussions

GENERAL ACCOUNTING DEFINITIONS

GAAP: Generally Accepted Accounting Principles

GASB: Governmental Accounting Standards Board

GOVERNMENT VS BUSINESS ACCOUNTING

• Governmental units may choose not to use an authorized resource but nay not choose to utilize an unauthorized resource. The measurement focus of governmental fund accounting is on the flow of financial resources where as the measurement focus of business is the determination of net income
• Governmental funds are expendable--no expectation that they will be returned
• Recognized on the "modified accrual" basis of accounting

MANAGEMENT ACCOUNTING IN THE ACADEMIC DEPARTMENT

• Efficiency: Managers must do things right.
• Effectiveness: Leaders must to the right thing.
• Necessity: It takes both to be successful.
• Management Accounting: Focuses on the development, reporting, and use of accounting information that is useful for decision making

COMMON BUDGETING SYSTEMS IN ACADEMIA

• Incremental Budgeting: Uses last years expenditures as base-estimates and justifies and increase (increment) above the base. This requires little analysis or review of goals and is widely used in universities due to convenience. It is a low brainer.
• Zero-Base Budgeting System (ZBBS): Objectives determine the budget. In each budget cycle one must determine costs and benefits for each goal as it relates to the effectiveness of each program. Incremental base is not taken for granted in ZBBS. The problem in the academy is that faculty salaries (major portion of the budget) are not zero based--regardless of what faculty say.
• Planning, Programming, Budgeting Systems (PPBS): Incorporates the concept of zero-base budgeting in that the budget is based on the cost of achieving institutional goals or outcomes during a given fiscal year rather than by the cost of maintaining organizational units (departments). Where ZBBS is annual-PBBS contains a long-range planning component (e.g., 5 years) with interim (e.g., annual) goals.

BUDGETING STRATEGIES FOR DEPARTMENTAL SUPPORT

Formula Based Budgets:

Goal: Develop an argument for additional faculty lines on the basis of a formula based FTE analysis

• student FTE drives faculty FTE in formula funded departments
• can use FTE analysis to make argument for positions even if university on incremental budget process

HYPOTHETICAL DEPARTMENTAL BUDGET REQUEST PROCESS

Example Justifying 1.0 instructional FTE based on above -

Total FTE justified = 1.05 FTE/yr

ADDITIONAL FTE ALLOCATION CONSIDERATIONS

DOWNSIDE OF FORMULA FUNDING APPROACHES

• SCH productivity factors (SCH needed for 1.0 FTE) should be discipline normed. Florida set these factors on the basis of actual counts of average students in classes by discipline.
• The fixed costs associated with providing classes that may exceed funding. Some universities set minimum enrollment based on these data.
• Institutional history and tradition; 1.0 student FTE may be based on an enrollment of 15 at one institution and 12 at another.
• Zero-based budgets have no factors to account for institutional priorities which leads to special considerations.

Very little, if any, data across several studies indicate that any existing cost analysis-formula driven systems are effective at improving or managing higher education. However, many states still use this approach and most have student FTE somewhere in their allocation process. The result is usually a reward to the teaching institutions to the detriment of research institutions.

Good news: Several states/institutions ( North Carolina is one of first) have established different systems/formulas as function of the type of institution (i.e., RI, RII, Comprehensive I, etc.).

RESEARCH I UNIVERSITIES SUMMARY

Total Budget Institut. Support Other Support Faculty Salaries FTE

RI $467,821.00 $355,464.00 $112,357.00 $313,688.00 4.73

$810,243.00 $661,903.00 $148,340.00 $616,360.00 8.85

$869,911.00 $466,384.00 $403,527.00 $456,046.00 6.53

$873,366.00 $655,706.00 $217,660.00 $631,993.00 9.015

$2,885,018.00 $1,510,878.00 $1,374,140.00 $1,219,455.00 13.15

$2,964,007.00 $611,719.00 $2,352,288.00 $567,361.00 11.65

$2,075,964.00 $508,345.00 $1,567,619.00 $1,229,639.00 12.97

$2,979,184.00 $794,276.00 $2,184,908.00 $754,123.00 11.00

$930,169.00 $510,505.00 $419,664.00 $492,324.00 7.88

Avg $1,650,631.44 $675,020.00 $975,611.44 $697,887.67 $9.53

RESEARCH II UNIVERSITIES SUMMARY

RII $1,253,545.00 $863,449.00 $390,096.00 $762,777.00 12.76 $1,463,727.00 $1,294,733.00 $168,994.00 $1,268,412.00 14.15 $571,641.00 $513,853.00 $57,788.00 $493,356.00 6.83 $1,946,529.00 $1,379,635.00 $566,894.00 $1,284,635.00 23.1

$453,174.00 $371,453.00 $81,721.00 $268,101.00 4.5

$727,193.00 $679,026.00 $48,167.00 $630,727.00 5.75

$379,106.00 $379,160.00 $304,106.00 6.725

$406,342.00 $402,342.00 $4,000.00 $359,822.00 3.55

$2,496,674.00 $2,121,983.00 $374,691.00 $871,536.00 10.9

$483,000.00 $410,600.00 $72,400.00 $410,600.00 7.7

$590,781.00 $551,881.00 $38,900.00 $519,971.00 7.0

$338,603.00 $187,050.00 $151,553.00 $178,938.00 6.75

$895,989.00 $742,155.00 $153,834.00 $710,155.00 12.40

$446,161.00 $412,569.00 $33,592.00 $384,569.00 5.45

$269,952.00 $242,656.00 $27,296.00 $221,256.00 5.50

$2,125,072.00 $1,018,136.00 $1,106,936.00 $996,136.00 17.44

$545,532.00 $511,411.00 $34,121.00 $424,256.00 12.10

$355,644.00 $327,239.00 $28,405.00 $308,644.00 4.75

$661,532.00 $475,412.00 $186,120.00 $411,375.00 6.50

$621,136.00 $306,358.00 $314,778.00 $284,630.00 4.40

$542,961.00 $538,596.00 $4,365.00 $458,048.00 6.17

$615,829.00 $600,282.00 $15,547.00 $534,718.00 6.80

$592,731.00 $582,011.00 $10,720.00 $568,275.00 4.95

$288,748.00 $271,548.00 $17,200.00 $230,340.00 2.32

$298,764.00 $168,410.00 $130,354.00 $164,681.00 3.00

$706,746.20 $565,013.90 $141,735.00 $462,044.20 $7.23

University of Kansas Medical Center

• Enhancement policy is compatible with policies of the funding agency.
• Salary released through grants is returned to P.I.’s Department.
• Chairperson has control of released funds.

The first priority in utilizing grant salary-release money is to assure that there are adequate replacement costs for any release time (i.e., if replacement costs and salary enhancement are greater than the total funds released by the grant, the salary enhancement will be reduced accordingly).

The maximum salary enhancement will be equivalent to a cap of 25% of the faculty member’s base salary for 12 months (e.g., if a faculty member is earning $50,000/year, the maximum new salary would be $62,500/year).

A salary reduction will be necessary for each month that the faculty member is "released" by the grant. Salary reduction will be 1/3 of the monthly salary times the number of months released (up to 3 months).

The new yearly salary will be computed based on the new monthly salary.

CASE 1

• P.I.’s grant allows for 20% salary release time (base salary = $52,217/year; amount released = $10,982).
• 20% release time corresponds to 2.5 months (therefore, adjusted salary will be based on a 9.5-month appointment).
• Maximum allowable enhancement is $9,161.

Base salary is reduced for each month P.I. is released by 1/3 of the monthly salary times the number of months released:

CASE 2

• P.I. Earning $50,000/year receives an NIH First Award that provides for a 50% salary release ($25,000)
• P.I. qualifies for maximum salary enhancement of 25% ($12,500)
• Amount of release remaining after enhancement = $12,500
• Summary of budget for salary release:

ITEM AMOUNT ($)

Salary adjustment for P.I. 12,500

Graduate Teaching Assistant 4,000

Secretaries 4,000

Administrative Assistant 2,000

Dept operating expenses 2,500

TOTAL 25,000

ADVANTAGES OF THE SYSTEM

• Motivates faculty to apply for grants.
• Tangible rewards (financial and other) for obtaining grants.
• Helps Department/University maintain competitive salaries for funded researchers.
• Allows for investment of leftover dollars back into Department/P.I.’s laboratory.

AREAS OF CONCERN

• Salary reverts to base when grant expires.
• P.I. must understand/accept that budget for release dollars must be negotiated with and approved by Chair.
• Chair must insure that replacement costs and other Dept. needs are covered before approving salary enhancement.
• University must insure that policy is in compliance with granting agency policies.