WORKSHOPS: HOT TOPICS IN A CLIMATE OF CHANGE
Budgeting for the Academic Department
Richard E. Talbott, Ph.D.
University of Oklahoma Health Sciences Center
John Ferrarro, Ph.D.
University of Kansas Medical Center
Nicholas Bankson, Ph.D.
James Madison University
THE CHAIRS LAMENT
May those who love us--love us. And for those who donít love us --may God turn their hearts to love us. And for those whose hearts canít be turned, may He turn their ankles THAT THEY MAY BE KNOWN BY THEIR LIMPS.
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.
SECTION 1- OVERVIEW OF BASIC ACCOUNTING
Note: The definitions and examples presented are from the reference texts listed at the end of the paper.
GENERAL ACCOUNTING DEFINITIONS
GAAP: Generally Accepted Accounting Principles
GASB: Governmental Accounting Standards Board
AICPA: American Institute of Certified Public Accountants - recognizes GASB as the designated body to establish accounting principles for state and local governments
FUND: Fiscal and accounting entity with a self balancing set of accounts recording each and every financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations
ACCRUAL BASIS: The basis of accounting under which revenues are recorded when earned and expenditures (or expenses) are recorded as soon as they result in liabilities for benefits received, notwithstanding that the receipt of cash or the payment of cash may take place, in whole or in part, in another accounting period
CASH BASIS: The basis of accounting under which revenues are recorded when received in cash and expenditures (or expenses) are recorded when cash is disbursed
MODIFIED ACCRUAL BASIS: Revenues are recognized in the period in which they become available and measurable, and expenditures are recognized at the time a liability is incurred pursuant to appropriation authority
MODIFIED CASH BASIS: A plan where revenues are recognized on the cash basis, but expenditures (expenses) are recognized on the accrual basis
BUDGETARY ACCOUNTS: Those that reflect budgetary operations and conditions, such as estimated revenues, appropriations, and encumbrances, as distinguished from proprietary accounts
PROPRIETARY ACCOUNTS: Those that show actual financial position and operations, such as actual assets, liabilities, reserves, fund balances, revenues, and expenditures
INDIRECT COST: A cost incurred that cannot be identified specifically with a cost objective but rather benefits multiple cost objectives (e.g., data processing department, accounting department, etc.)
OVERHEAD: Those elements of cost necessary in the production of an article or the performance of a service that are of such a nature that the amount applicable to the product or service cannot be determined accurately or readily. Usually they relate to those objects of expenditures that do not become an integral part of the finished product or service, such as rent, heat, management, etc.
ZERO BASED BUDGETING: A budget based on the concept that the very existence of each activity must be justified each year, as well as the amounts of resources requested to be allocated to each activity
RESTRICTED FUND: A fund established to account for assets whose use is limited by the requirements of donors or grantors. Institutions may have three types of restricted funds: specific purpose funds, endowment funds, and plant replacement and expansion funds
SINGLE AUDIT: An audit prescribed by federal law for state and local governmental units, colleges and universities, and not-for-profit organizations that receive federal financial assistance above a specified amount. Such an audit is conducted on an organization-wide basis rather than on the former grant-by-grant basis. The single audit act of 1984 imposes uniform, and rigorous, requirements for conducting and reporting on single audits
GOVERNMENT VS BUSINESS ACCOUNTING
MANAGEMENT ACCOUNTING IN THE ACADEMIC DEPARTMENT
COMMON BUDGETING SYSTEMS IN ACADEMIA
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
HYPOTHETICAL DEPARTMENTAL BUDGET REQUEST PROCESS
Assumptions Underlying FTE Analyses:
Normative workload factors: student FTE needed to generate 1.0 FTE
Typical: 400 student credit hours (SCH) - (credit hours per class x number of students in class)-- freshman/sophomore
300 SCH for junior or senior
200 SCH for beginning graduate
100 SCH for advanced graduate
Example Justifying 1.0 instructional FTE based on above -
One undergraduate course: 3 CH x 54 students = 162 SCH/400 =.405 FTE
One masters level course: 3 CH x 20 students = 60 SCH/200 = .30 FTE
One doctoral level course: 3 CH x 10 students = 30 SCH/100 = .30 FTE
Total FTE justified = 1.05 FTE/yr
ADDITIONAL FTE ALLOCATION CONSIDERATIONS
Supervision: FTE must account for actual supervision time, student conference time, report review, general administrative time, etc. It is best to relate supervision in some way to SCH if possible since this is "the coin of the realm."
Research, Administration, Support Personnel: Usually based on some ratio to instructional FTE. For example, 1.0 research FTE for each 5 instructional positions, or one administrative FTE for each 10 instructional FTE, or one support FTE for every four instructional FTE.
DLP: Ratios must be varied as a function of the mission of the department and as a reflection of the mission of the organization (i.e., RI, RII, MI).
DOWNSIDE OF FORMULA FUNDING APPROACHES
DLP : Most effective chairs know not only the formula but the zeitgeist.
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
Avg $1,084,671.00 $923,292.00 $161,379.00 $755,856.00 7.135
MASTER COMPREHENSIVE I
$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
SECTION 2- SALARY INCENTIVE POLICY AND PROCEDURES (An Example)
School of Allied Health
University of Kansas Medical Center
Policy for Faculty Salary Incentives
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 memberís 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).
Determination of Salary Enhancement: Time Reduction
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).
Determination of Salary Enhancement: New Salary
The new yearly salary will be computed based on the new monthly salary.
Base salary is reduced for each month P.I. is released by 1/3 of the monthly salary times the number of months released:
- Base salary: $52,217/year or $4,351/month
- Number of months released: 2.5
- 1/3 of monthly salary X months released: $1,450 X 2.5 = $3,626
- Adjusted salary for 9.5 months: $52,217 - $3,626 = $48,491
- New 9.5 month salary: $48,491
- New monthly salary: $48,491/9.5 = $5,115
- New 12 month salary based on adjusted monthly salary: $5,115 X 12 = $61,378
- New yearly salary: $61,378
- Salary enhancement: $61,378 - $52,217 = $9,161 (17.5% of base salary)
- Leftover release dollars: $10,982 - $9,161 = $1,820 (used for clerical support)
ITEM AMOUNT ($)
Salary adjustment for P.I. 12,500
Graduate Teaching Assistant 4,000
Administrative Assistant 2,000
Dept operating expenses 2,500
ADVANTAGES OF THE SYSTEM
AREAS OF CONCERN
SECTION 3-SOURCES OF INCOME (supplementary to the departmental budget)
Grants from the State Department of Education
- All states get money from USDE through IDEA legislation.
- All states have plans and priorities, but given the shortages of SLP Personnel in the schools, it is not uncommon for some of these funds to be directed toward educating speech-language pathologists.
- This source is going to become even more important as there is talk that the Part D funding we are familiar with is going to go in a block grant to the states.
- Presently James Madison University is receiving state money for these projects:
(1) Development of a video-based course to prepare clinical supervisors, especially those who will supervise SLPAís
(2) Determining the efficacy of various proficiency criteria for sign language personnel
(3) Money to support teaching courses for part-time students who work in school settings. This also provides the department with supervisory assistance
(4) We are receiving approximately $100,00 per year
- These are designated monies that are donated to a university/department, often for specific uses. They involve enough money that they can support a funding objective year after year.
2. Distinguished Chair (Southeastern Louisiana, Northwestern)
3. Clinic (Barkley Foundation at U. of Nebraska Ė building, faculty, clinic support)
- Universities often have Foundation monies that represent contributions from alums. Sometimes departments can tap these, particularly those donated by their own alums
- Usually such monies may be donated toward a specific cause, or are general contributions, but not large enough to be self perpetuating
_ Scottish Rite Foundation Ė summer program, scholarships, clinics, faculty
- A means for faculty to supplement their income and for the department/ clinic to allow students the opportunity to capitalize on faculty expertise.
- A problem in a research based university if tenure track people want to do this.
- Typically involves some splitting of fees between the faculty provider and the clinic.
- It also allows the department to hire someone "full-time" (e.g. supervisors) by sharing them with a clinical enterprise.
- Can be a mixed bag. Conflict of interest in terms of time allocation, recommendations on clients.
- Central Issue: How much is generated? Where do the funds go? Do they supplement the university monies or are they a replacement?
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