ERIC ED469346: Presentation and Analysis of Financial Management Information. 2nd Edition.

243 Pages·2002·4.9 MB·English

by  ERIC

DOCUMENT RESUME
ED 469 346
HE 035 306
Kenton, Jay D.
AUTHOR
Presentation and Analysis of Financial Management
TITLE
Information. 2nd Edition.
National Association of Coll. and Univ. Business Officers,
INSTITUTION
Washington, DC.
ISBN-1-56972-021-5
ISBN
2002-00-00
PUB DATE
NOTE
242p.
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*College Administration; *Educational Finance; *Financial
DESCRIPTORS
Policy; *Higher Education; Management Information Systems;
*Reports
ABSTRACT
This book is designed to help financial and other managers of
colleges and universities in identifying and responding to the needs of
individuals and groups requesting management information. The book attempts
to facilitate the communication process through management reports. In
addition to guidance on report preparation and data analysis, the book
provides guidance on effective presentation techniques, on how to analyze and
present information, and on how to assess the adequacy of existing reports
and reporting practices. Model report formats are presented to illustrate
"The Nature and Role of Financial
these processes. The chapters are:
(1)
"Importance of Monitoring and Reporting";
Management Information";
(3)
(2)
(4) "Indicators of Academic Performance";
"Financial Management Information";
"Evaluation and Reporting Criteria for Noninstructional Units"; and (6)
(5)
"Synthesis and Conclusions." Six appendixes contain three sample reports and
discussions of motivations and activities, data for strategic management, and
a theoretical model for evaluating productivity. (Contains 64 exhibits and 48
references.)
(SLD)
Reproductions supplied by EDRS are the best that can be made
from the original document.
'resentation and Analysis of Ffinancial Management Information
2nd edition
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Office of Educational Research and Improvement
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Points of view or opinions stated in this
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official OERI position or policy.
TO THE EDUCATIONAL RESOURCES
INFORMATION CENTER (ERIC)
1
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NACUBO
Nati, onal Atsuritnittn
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BEST COPY ikyLk!LA§LE
Presentation and Analysis
of Financial Management
Information
2ND edition
By Jay D. Kenton
NACUBO
National Association
of College and University
PI usines5 Officers
3
© 2002 by NACUBO
All rights reserved.
No part of this book may be reproduced or transmitted in any
form or by any means, electronic or mechanical,
including photocopying, recording, or by any information
storage and retrieval system, without permission
in writing from the publisher.
National Association of
College and University Business Officers
Washington, DC
www.nacubo.org
Printed in the United States of America
ISBN 1-56972-021-5
I
TABLE OF CONTENTS
Evaluation of Financial Performance
vii
ACKNOWLEDGMENTS
Operating Statement Ratios
24
ix
PREFACE
Net Operating Ratio
24
CHAPTER 1: THE NATURE AND ROLE OF FINANCIAL
Contribution Ratios
24
MANAGEMENT INFORMATION
1
Demand Ratios
25
Characteristics of Useful Management Information
1
Evaluation of Creditworthiness:
Purposes of Financial Management Information
1
Creditworthiness Ratios
25
Considerations in Financial Management
Financial Ratios: Viability Ratios
25
Information Reporting
1
Financial Ratios: Debt Burden Ratio
25
Sources of Financial Management Information
2
Financial Ratios: Debt Coverage Ratio
26
Need for Financial Management Information
3
Student Demand Ratios
26
Desirable Qualities of Financial Management Information
. 4
26
Debt Policies
Recipients of Financial Management Information
4
Service Efforts and Accomplishments Reporting
27
Summary
5
FASB's Business Reporting Research Project
28
CHAPTER 2: IMPORTANCE OF MONITORING
28
Summary
AND REPORTING
7
Cost and Accountability Pressures and Demands
7
CHAPTER 4: INDICATORS OF ACADEMIC PERFORMANCE. 29
Addressing the Value of Higher Education
Reporting Academic Accomplishments
9
29
Competition for Students and Faculty
Reporting on Teaching, Mentoring, and
9
Curricular Activities
30
Global Economic Issues
9
38
Assessing Academic Quality
Performance and Managerial Control
9
Assessing Research, Scholarship, and Other
Internal Reporting
9
Creative Activities
39
External Reporting
10
Evaluating Public Service and Community Outreach
41
Benchmarking
10
Evaluating Library Operations
41
Summary
11
42
Summary
CHAPTER 3: FINANCIAL MANAGEMENT INFORMATION .
13
CHAPTER 5: EVALUATION AND REPORTING CRITERIA
Basis of Accounting
13
43
FOR NONINSTRUCTIONAL UNITS
College and University Financial Statements
13
Academic Support Functions
44
Statement of Net Assets
15
Graduate Studies
44
Analyzing the Statement of Net Assets
15
Research and Sponsored Projects Support
44
Statement of Revenues, Expenses, and Changes in Net Assets
17
Computing Support
44
Analyzing the Statement of Revenues, Expenses,
Student Services
44
and Changes in Net Assets
18
Admissions and Records
44
Statement of Cash Flows
19
Advising
50
Notes to the Financial Statements
19
Career Center
50
Analyzing College and University Finances
19
Financial Aid
50
Recommended Fiscal Policies
20
Student Affairs
51
20
Revenue Policies
Student Counseling
53
Debt, Reserve, and Expenditure Policies
21
Plant Operation and Maintenance
53
22
Ratio Analysis
Facilities
53
Assessment of Overall Financial Condition Ratios
22
Institutional Support and Development Activities
61
Current Ratio
22
Accounts Payable
61
22
Primary Reserve Ratio
Alumni Relations
61
Return on Net Assets Ratio
23
Budget Office
61
Viability Ratio
23
Collections
BIBLIOGRAPHY
64
95
Development Office
65
APPENDIX A:
General Accounting
65
Oregon University System Financial Statements
97
Human Resources
66
APPENDIX B:
Mail Services
68
Grand Valley State University Annual Report
113
Payroll
68
APPENDIX C:
Security
68
Stanford University Annual Report
159
Purchasing
68
APPENDIX D:
Treasury Services
69
Understanding Institutions and Faculty
Activities and Motivations
Auxiliary Enterprises and Internal Service Activities
231
71
Athletics
71
APPENDIX E:
Data Necessary for Strategic Institutional Management
Bookstores
237
72
Food Services
72
APPENDIX F:
Housing Operations
Theoretical Model for Evaluating Institutional Productivity.
73
. 241
Parking
74
Student Health Services
74
Student Union Operations
74
Summary
74
CHAPTER 6: SYNTHESIS AND CONCLUSIONS
75
Blending Financial and Performance Information
75
Sources and Uses of Peer Information
77
Comparative Financial Information
80
Understanding Institutional Revenue and Cost Structures
80
.
. .
Categories of Revenue and Cost Bases
86
Indirect Revenues and Costs
86
Unrestricted, Restricted, and Temporarily Restricted Funds
86
.
Designated and Undesignated Funds
87
Hard and Soft Revenues and Expenses
87
Fixed and Variable Revenues and Costs
87
Budgeted and Unbudgeted Revenues and Costs
87
Historical and Fair/Current Market Values and Costs
87
Controllable and Non-Controllable Costs
87
Opportunity and Sunk Costs
87
Different Views of Institutional Revenues and Expenses
88
Analyzing Trends in Financial Management Indicators
90
Prospective Financial Management
91
Looking Forward with Projections
91
Setting Goals and Monitoring Outcomes
92
Providing Meaningful Financial Information for
Management Decision-Making
92
The Costs and the Benefits of Information
94
6
iv
EXHIBITS
Facility Operating Cost per Square Foot
5.9:
CHAPTER 3
Compared to Peer Institutions: 1999-2000
55
3.1: Financial Statement Reporting Model
56
5.10: Investment in Facilities: June 2001
14
Comparison
Percent of Building Valuation in Deferred
3.2: Statement of Fixed Assets
16
5.11:
Maintenance
57
3.3: Tuition and Required Fee Comparison with
5.12: Type of Space by Department and by Usage
Competitor Institutions
21
57
22
5.13: Education and General Fund Budget
3.4: Current Ratio
60
by Program
23
3.5: Primary Reserve Ratio
5.14: Education and General Fund Budget
3.6: Return on Net Assets Ratio
23
60
by Organization
23
3.7: Viability Ratio
5.15: Income Projections
61
3.8: Net Operating Ratio
24
5.16: Revenue, Expenditure, and Transfers for the
3.9: Contribution Ratio of Student Tuition
62
Past 10 Years
24
and Fees to Operating Expenses
5.17: Revenues by Source 1991-92
63
3.10: Demand Ratios-Instruction and Research
5.18: Revenues by Source 2000-01
63
Expenses to Operating Revenues
25
5.19: Expenditures by Object-1991-2001
64
26
3.11: Debt Burden Ratio
5.20: Expenditures by Function 2000-01
64
26
3.12: Debt Coverage Ratio
5.21: Expenditures by Function 1992-2001
65
CHAPTER 4
5.22: Accounts Receivable Aging Analysis
66
4.1: Three-term Credit Hours by School/College,
5.23: Accounts Receivable Aging Analysis
30
Department, and Student Level
(bar graph)
67
4.2: Three-term Enrollment by School/College,
Gifts and Pledges 1994-2001
67
5.24:
Department, and Course Level: 1996-2001
32
Private Support: 1993-2001
68
5.25:
4.3: Enrollment by Major/Program and
Faculty Salary Comparisons by Discipline
5.26:
34
Student Level
and Rank
69
4.4: Unduplicated Headcount Enrollment: 2000-01
36
5.27: Employee Health and Dental Insurance
4.5: Degrees Conferred by Type and Program
36
Costs by Institution
70
4.6: Degrees Granted by School and College: 1996-2001 .
. 37
.
5.28: Employee Retirement Costs by Institution
70
4.7: Sponsored Research Expenditures by
5.29: Crime Statistics-1996
71
Department: 1994-2001
38
5.30: Analysis of Athletic Budgets
72
Library Building Use (Headcount): 1996-2001
39
4.8:
5.31: Occupancy of Student Residential
Library Building Use: 1996-2001
39
4.9:
Buildings: 1995-2000
73
4.10: Inventory of Library Holdings:
40
1996-97 to 2000-01
CHAPTER 6
4.11: Library Circulation Transactions: 1996-2001
41
Departmental Statistics
75
6.1:
4.12: Library Circulation Transactions: 1996-2001
6.2: Comprehensive Library Statistics
77
42
(line graph)
6.3: IPEDS Revenues by Source by
Peer Institutions
81
CHAPTER 5
6.4: IPEDS Expenditures by Function by
5.1: Sources of New Students by Student Level
45
Peer Institutions
82
5.2: New Freshman Profile
46
6.5: Budget by Organization
88
5.3: Student Profile
47
6.6: Budget by Function
89
5.4: Enrollment by Student Level and Gender
47
6.7: Budget by Object of Revenue
89
5.5: Enrollment by Declared Major/Program and
6.8: Budget by Object of Expenditure
90
48
Student Level
6.9: Revenue Forecasting Model
92
5.6: End of Term Enrollment: 1946-2001
51
5.7: Financial Aid Awarded by Program Type and
Ethnicity
52
5.8: Summary of Student Aid by Type
53
7
ACKNOWLEDGMENTS
I would like to recognize the many contributions without which this manuscript would not have been
completed. Many individuals assisted with this endeavor by providing information, reviewing drafts, or
providing exhibits and other materials.
I would like to begin by thanking Ron Smith, vice president for finance at Berea College for providing
the framework and introductory materials for this manuscript. Ron's work formed the foundation upon
which the balance of this text was built.
I would also like to recognize Tom Anderes, Mike Green, and Gary Rogers of the Oregon University
System (OUS) for allowing me to use the OUS financial reports in this text. Similarly, I would also like to
thank Randy Livingston, vice president of business affairs and CFO at Stanford University, and Timothy
Shad, vice president for finance at Grand Valley State University, for allowing me to use their annual finan-
cial reports as appendices to this text. A special appreciation goes to Ed Poppell, vice president at University
of Florida for permitting me to use the many management reports from their Web site; the University of
Florida maintains one of the most comprehensive Web sites containing financial management information
that I have encountered.
I would like to thank the staff of Portland State University's (PSU) Office of Institutional Research and
Planning for providing many exhibits. This office, directed by Kathi Ketcheson, and staffed by David
Burgess, Jolliet Storing, and Lina Lu was most helpful throughout the process of writing this text. Other
individuals who deserve recognition at PSU, include George Persteiner, vice president of finance and admin-
istration; Brian Chase, director of facilities; Dee Wendler, director of business affairs; Pat Soto, bursar; John
Fowler, director of campus public safety; Judy Ngai, senior financial analyst; Alan Kolibaba, financial
analyst; and Tom Palm, faculty emeritus. The contributions and assistance provided by this group of
colleagues was critical to the development of this material.
I would also like to express my gratitude to Michael Carbine, editor extraordinaire for his patience and
persistence in helping make my unrefined drafts into something useable. I also want to recognize two indi-
viduals who reviewed drafts of this text. Gina Kranitz, president of Paradise Valley Community College, and
Charles Tegan, comptroller at Clemson University, offered valuable insights and comments that substan-
tially improved my draft materials.
Finally, I would like to acknowledge and thank both Donna Klinger and Elissa Fitzgerald of the National
Association of College and University Business Officers (NACUBO) for the assistance they provided
throughout the development of this manuscript. Without the contributions of these many individuals this
work would not have been completed.
Jay Kenton
June 2002
8
vii
PREFACE
To many individuals, a college or university's financial statements or annual reports are the most
identifiable type of management report; with the increasing complexity of college and university
operations, a need for additional and various types of management reports has developed. Governing
boards are not just interested in financial information but in information on enrollment projections,
endowment management, student recruitment and retention, and myriad other topics. Increased concern
information
over the cost of higher education has prompted colleges and universities to provide additional
on the relationship of the cost of higher education to services and programs provided. Similarly, increasing
competition for students, faculty, and resources have necessitated that universities and colleges manage
their affairs more effectively. These trends coupled with improved information processing capabilities has
provided the stimulus for many colleges and universities to better understand and analyze financial
management information as a strategic resource for the enterprise.
Presentation and Analysis of Financial Management Information, now updated in a second edition, was written
to assist financial and other managers of colleges and universities in identifying and responding to the needs
of individuals and groups requesting management information. Presentation and Analysis of Financial
Management Information focuses on effective communication in institutional management, specifically in
colleges and universities. A productive management report is informative, succinct, and relevant. This book
attempts to facilitate the communication process through management reports.
It is important to view communication in a holistic context. Communication is more than just collecting
and recording data; for communication to be effective, data must be analyzed and interpreted.
Interpretation is the basis for management reporting and presentation. Strategic considerations, or the ways
that information can be used to facilitate decision making, should dictate how information is arrayed and
the order in which it is presented. Comparing standard information against similar information from peer
institutions and other examples of contrasting information against benchmark data are provided to facilitate
the understanding and meaningfulness of information being presented. The approach used in this book is
based on strategic considerations, not on the random compilation of data into report formats.
In addition to guidance on report preparation and data analysis, Presentation and Analysis of Financial
Management Information provides guidance on effective presentation techniques, on how to analyze and
present information, and on how to assess the adequacy of existing reports and reporting practices. Model
report formats are presented to facilitate this process.
ix
CHAPTER 1
THE NATURE AND ROLE OF FINANCIAL MANAGEMENT INFORMATION
about both the primary and secondary activities of the
According to Jody Blazek, author of Financial Planning
institution.
for Nonprofit Organizations, financial management is "the
This book discusses the analysis and presentation of
administration of financial affairs through planning, budg-
financial management information from the perspective of
eting, recording, reporting, and analyzing an entity's flow
college and university administrators. Executive adminis-
of funds. It can also mean safeguarding the resources or
trators and board members are accountable to a number of
properties owned by the organization, using the funds for
stakeholders and constituents, all requiring financial infor-
the purposes to which they were dedicated, accumulating
mation with different degrees of complexity. Similarly,
necessary information concerning work performed, and
other college and university administrators are accountable
submitting whatever reports are required by funders and
to a diverse clientele, including faculty, students, parents,
governmental authorities" (1996, p. 3). Thus, the term
legislative leaders, board members, and the general public.
encompasses a broad range of activities and purposes.
The analysis and presentation of financial information
Throughout this book, financial management informa-
should take into account the perspective of these stake-
tion will include basic financial information as well as pro-
holders, as well as the reasons why the information is being
ductivity reports that are not necessarily measured in mon-
analyzed and presented.
etary terms. The latter constitute units of production which
create value or costs for the institution, since they represent
PURPOSES OF FINANCIAL MANAGEMENT
methods by which colleges and universities attract and
INFORMATION
retain faculty, students, financial resources, and political
The goal of managerial financial reporting is to evaluate
support. As a result, it is important to report these types of
and measure institutional, financial, and managerial per-
value- and cost-adding activities in addition to basic finan-
formance. In addition, and perhaps most importantly,
cial information.
financial management information is used to enhance the
effectiveness of institutional decision-making and to facili-
CHARACTERISTICS OF USEFUL MANAGEMENT
tate goal setting, thereby enabling the institution to excel
INFORMATION
in achieving its mission(s). Beyond these basic purposes,
James A. Hyatt writes, "a key characteristic of good man-
financial management information and reporting also are
agement information is the ability to communicate in a
used to help the institution:
clear and concise manner. Such communication should
maintain control of institutional finances and other
seek to inform and facilitate decision-making. Unfortu-
institutional services;
nately, many financial managers and other administrators
lack or fail to exercise good communication skills" (1989,
define accountability for specific initiatives and
p. xiii). Management information should also facilitate a
responsibilities;
deeper understanding of the enterprise and the opportuni-
maintain compliance with established standards and
ties, challenges, and risks inherent in its operations. Many
regulations; and
of those engaged in college and university finance may lack
enhance communications regarding important initiatives,
exposure to, experience with, and a fundamental under-
objectives, and goals of the institution.
standing of the scope and complexity of the activities of
the faculty as well as with their attitudes, beliefs, and val-
ues. While colleges and universities engage primarily in
CONSIDERATIONS IN FINANCIAL MANAGEMENT
instructional, research, and service activities, many second-
INFORMATION REPORTING
ary, or auxiliary, activities are important as well. Thus,
Factors to be considered in financial management infor-
mation reporting include the types of information being
financial management information should inform readers
0--
1