Independent State Auditor's report on the Board of Education's policies and procedures pertaining to trust funds at the Massachusetts public colleges and community colleges

22 Pages·2000·0.75 MB·English

by  Massachusetts. Department of the State Auditor

AUDITOR OF THE COMMONWEALTH
ONEASHBURTONPLACE. ROOM 1819
BOSTON 02108
A.JOSEPHDeNUCCI [phone]
AUDITOR
NO.98-5062-3
INDEPENDENTSTATEAUDITOR'S
REPORTONTHEBOARDOFHIGHEREDUCATION'S
POLICIESANDPROCEDURESPERTAININGTO
TRUSTFUNDSATTHEMASSACHUSETTSPUBLIC
COLLEGESANDCOMMUNITYCOLLEGES
OFFICIAL AUDIT REPORT
MAY - 2 2000
ISSUEDBYTHE
DepartmentoftheStateAuditor

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TABLEOFCONTENTS/EXECUTIVESUMMARY
INTRODUCTION
The Massachusetts Board ofHigherEducation is apohcy setting agency. Its domain
includes the five University ofMassachusetts campuses, nine state colleges, and 15
community colleges. Our review focused on the policies, procedures, and controls
concerning trust funds at seven ofthe state colleges and the 15 community colleges.
Thetermtrustfunds,asusedinpubliceducation,referstononappropriatedfundsheld
bythe institutions. Thepurposeoftrustfundsaretocomplement state appropriations
in order to ensure sufficient funding of an institution's programmatic needs. The
statutory authority for trust funds is Chapter, 15A, Section 9(n) and 22(e), of the
MassachusettsGeneralLawsandvariousotherstatutesforpublicinstitutionsofhigher
education.ThesestatutesallowtheBoardofHigherEducationandinstitutionalboards
ofttustees to create and account forcertaincampusprojects,programs, andactivities.
For fiscal years 1998 and 1999 state colleges and community colleges received
departmentalandmiscellaneousrevenue(excludingfederalgrantsandreimbursements)
of approximately $368,163,000 and $368,054,000 respectively. Expenditures from
nonappropriated funds are for items such as salaries, admmistt-ative expenses, energy
costs, space rentals, facility operational supplies, consultant services, equipment
purchases,leases,andmaintenanceandrepairs.
Dunngthe 1980s, considerableconcernwasraisedaboutallegedmisuseoftrustfunds
at various Massachusetts campuses. In 1989, the Massachusetts BoardofRegents of
Higher Education, in an effort to address these concerns, formed a "Blue Ribbon
Commission."Thepurposeofthecommissionwastostudyandissuerecommendations
concerning the management of trust funds throughout the state system of higher
education.
Thepurposeofourauditwastoreviewthepolicies,procedures,andupdatesthatwere
initiatedfromtheCommission'sreport.
AUDITRESULTS
1. TrustFundGuidelinesHaveNotBeenUpdated SinceNovember 1992: Although
the individual institutions havebecome morerelianton trust funds andtrust fund
policy has evolved, the Board ofHigherEducationhadnotrevised itsTrust Fund
GuidelinessincetheissuanceofthelastrevisionmNovember 1992. Ourreviewof
these guidelines disclosed some instances wherethe Board ofHigherEducation's
practicesdidnotcomplywithitsownguidelines.
2. Lack of Oversight by the Board of Higher Education Has Resulted m Four
Institutions Maintaining Incomplete and Inadequately Documented Trust Fund
Policies and Procedures: Ofthe 22 institutions we reviewed, we determined that
18 of the institutions have developed adequate ttiast fund policies that were
approvedbytheirrespectiveboardsoftrustees. MassachusettsCollegeofLiberal
Arts, Middlesex Community College, and Roxbury Community College did not
have documented trust fund policies and procedures. Although at Frammgham
State College theBoard ofTrustees issuedtt-ust fundpoliciesandprocedures,not
allHigherEducationTrustFundGuidelineswereaddressed.
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TABLEOFCONTENTS/EXECUTIVESUMMARY(Continued)
3. Trust Fund Agreements Could Not be Located at Two Institutions: Certain 11
agreements for individual trust funds at Worcester State College and
Quinsigamond Community College could not be located. Trust fund reports we
reviewed revealed that Worcester State College listed 17 active trust funds of
which eight lacked documentation and Quinsigamond Community College listed
12 ofwhich three lacked documentation. Each trust fund created at an individual
institutionis forauniquepurposewithspecifiedsourcesofrevenueandrestricted
uses ofthe funds. Sound accounting practices advocate that each specific trust
fund have a documented agreement. At a minimum, the trust fund agreement
should include: the name of the trust fund, intended purpose ofthe trust fund,
sourceoffunds,allowableexpendituresofthefunds,anyrestrictionsonthefunds,
andthecustodianofthetrustfund.
SCHEDULEA-ListingofInstitutionsReviewed 13
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INTRODUCTION
Background
TheMassachusettsBoardofHigherEducationisapohcysettingagency. Itsdomainincludesthefive
University of Massachusetts campuses, nine state colleges, and 15 community colleges. Our review
focusedonthepolicies,procedures,andcontrolsconcerningtrustfundsatsevenofthestatecollegesand
the 15communitycolleges. ThetermTrustFunds,asusedinpubliceducation,referstononappropnated
fundsheldbytheinstitutions. Thetrustfund'spurposeistocomplementstateappropriationsinorderto
ensuresufficientfundingofaninstitution'sprogrammaticneeds. Thestatutoryauthontyfortrustfundsis
Chapter 15A, Section 9(n) and 22(e), ofthe Massachusetts General Laws and various other statutes for
public institutions of higher education. These statutes allow the Board of Higher Education and
institutionalboardsoftrusteestocreateandaccountforcertaincampusprojects,programs,andactivities.
For fiscal years 1998 and 1999 state colleges and community colleges received departmental and
miscellaneousrevenue(excludingfederalgrantsandreimbursements)ofapproximately$368,163,000and
$368,054,000 respectively. Expenditures from nonappropnated funds are for items such as salaries,
administrative expenses, energy costs, space rentals, facility operational supplies, consultant services,
equipmentpurchases,leases,andmaintenanceandrepairs.
During the 1980s considerable concern was raised about alleged misuse oftrust funds at various
Massachusettscampuses. In 1989,theMassachusettsBoardofRegentsofHigherEducation,' maneffort
toaddresstheseconcerns, formeda"BlueRibbonCommission."Thepurposeofthecommissionwasto
studyandissuerecommendationsconcerningthemanagementoftrustfundsthroughoutthestatesystem
of higher education. The commission was composed of the Senior Vice President/Treasurer, John
Hancock Insurance Company; President, Wellesley College; and Chairman, GenRad Inc. The
commission contracted withan independentaccountanttocomplete an in-depth studyofthe adequacies
ThegoverningbodyoftheMassachusettsHigherEducationSystemchangedfromtheBoardofRegentstothe
HigherEducationCoordinatingCounciltothecurrentBoardofHigherEducation.
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and faults ofthe existing system. At the conclusion ofthe commission's review, Standardsfor the
ExpenditureofTrustFundswasissuedtotheMassachusettsBoardofRegentsonMay2, 1989. Included
in thereportwas a senesofstandards concerningthemanagementofhighereducationtrustfunds. The
statedpurposeofthestandardsfortheexpenditureofTrustFundswere:
1. To provide some guidance and suggestions on selected expenditures made m the interest of
promotingthemissionoftheinstitution.
2. To outline recommended standards for the expenditures that have the appearance ofproviding
personalbenefitstocollegeofficialsandfriends,orofbeinglavishorextravagantinnature.
Thereportadditionallystatedthat:
These standards should be consideredminimum standards. Local Boards ofTrustees must
developinstitutionalguidelinesandstandardswhichmaybemorebutnotlessrestrictive.
Thereportwentontofurtherstateanumberofimportantprinciplesthatunderliethestandards:
1. Institutional autonomyand flexibilityaswell aslocal decisionmakingareimportantandshould
beencouraged.
2. No set of general or detailed guidelines can be a substitute for personal ethics and sound
judgment.
3. Local BoardsofTrustees havetheresponsibilitytoissueclearguidelines fortheexpendimreof
trustfundsandtoestablishthemechanismsandstructuretoactivelyreviewtheseexpenditures.
4. State colleges and universities are members ofand participants in the larger communities they
serve.
5. State institutions, like private institutions, must engage in activities that promote employee
morale,generatephilanthropicsupport,andenhancethewellbeingoftheinstitution.
6. Trust funds shouldnotbespentinamannerthatgivestheimpressionoflavishorextravagance
spending.
Using the report of the Blue Ribbon Commission as a standard, on May 9, 1989, the Board of
RegentsofHigherEducationissuedStandardsfortheExpendituresofTrustFunds. Thesestandardshave
beenrevisedandreissuedonJune6, 1990andNovember2, 1992.
The Higher Education Trust Fund Guidelines, issued on November 2, 1992, were established to
provide a basis forthe public highereducational institutions to developpolicies andprocedures forthe
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management oftrust funds. They outline the minimum standards in two areas (1) responsibility and
reporting and (2) categories ofexpenditures. The highlights that are included in the guidelines are as
follows:
ResponsibilityandReporting
:
• The institution's board oftrustees is responsible for the specific trust fund guidelines, which
should include policies and procedures concerning trust fund revenue sources, appropriate and
inappropriate expenditures, bank accounts, spending approval levels, and required
documentation.
• Responsibility fortrust fund administrationrestswiththepresident/chancellorofthe institution.
Records shall be maintained m accordance with proper accounting procedures with adequate
documentation.
• All trustfundactivitiesshallbeavailableforregularauditandinspection.
• Clear goals and objectives for trust funds should be established by the institution and, where
feasible, anannualbudgetshouldbedeveloped: reviewedbythepresident, andsubmittedtothe
board oftrustees for approval. The budgets should include sufficient detail to support major
expenditures.
• Thepresidentshallprovideadetailedaccountoftrustfundexpenditurestotheboardoftrustees
onaquarterlybasisandtheBoardofHigherEducationonanannualbasis.
• The level ofdetail ofthe report should satisfy theneeds ofthe Board ofTrustees and it should
also include: (1) certification by the president that all records were maintained in accordance
withproperaccountingprocedures,includingdocumentationofreceipts,disbursements,andbank
accounts, and (2) relationship ofthe expenditures to the institutional mission should be clearly
statedorevident.
• Thequarterlyreportshouldbereviewedbyanappropriatesubcommitteeoftheboardoftrustees
and approvedbythe full board. Inaddition, theboard shouldreport all violations oftrust fund
expenditurestandardsaswellasthefollow-upactiontakentoaddresseachviolationtotheBoard
ofHigherEducation.
• Whereverthese standardsrequire Board ofTrustee approval, approval maybe givenby the full
board,asubcommittee,oradesignatedtrustee. Theapprovalprocessshouldbedocumented.
• Wherever these standards require prior approval, the approved annual budget satisfies the
approvalrequirementaslongassufficientdetailisincludedinthebudget.
• The president or designee should have discretion over trust fund expenditures up to a ceiling
specified by the Board ofTrustees, except inthe following circumstances thatrequire approval
regardlessoftheamountoftheexpenditures:
1. Expendituresthatpersonallybenefitthepresident,
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2. Expenditures for renovations, repairs, or decoration of the president's office or home or
administrators'offices,
3. Expenditures foran individual's membership dues m any amount foremployees otherthan
thepresidentandforamountsinexcessof$1,000forthepresident,
4. Expendituresforattendanceatchantabledinnersorevents,
5. Expendituresfortrusteetravel,
6. Expendituresforentertainmentofguestsmthepresident'shome,
7. Expendituresformovingcosts,and
8. Expenditures for purchase or lease of motor vehicles for use by the president or other
administrators.
CategoriesofExpenditure
• ExpendituresofaPersonalNature
1. Wheneverexpenditurewouldpersonallybenefitorappeartopersonallybenefitanindividual,
thatpersonisprohibitedfromapprovingtheexpenditure. Inadditiontoanyboardapproval,
an institutional official at a higher organizational level must approve the expenditure in
advance.
2. In the case ofthe president, the Board ofTrustees must provide prior approval ofsuch
expenditures.
• GeneralCampusProjects
1. Facilities renovations, repairs, or decorations should be funded through the institution's
appropriationfromtheCommonwealth. Whensuchexpendituresforthepresident'shomeor
office or administrators' offices are to be made from trust funds, they must have prior
approval oftheboardoftrustees,exceptmanemergency inwhichcasetheboardshouldbe
informedassoonaspossible. Allsuchexpendituresshallconformtothecompetitive-biddmg
policiesoftheCommonwealthandtoitsassociatedprocurementprocedures.
2. Contractorandconsultantfeespaidfromtrustfundsshouldconformtostatelawpertainingto
suchactivities.
3. Publications, including president's reports, newsletters, advertisements, magazines,
invitationsandothers,shouldavoidtheappearanceofextravagance.
4. An individual's membership fees forcivic, academic, professional organizationsmust have
prior approval by the Board ofTrustees, except for such memberships ofthe president, so
longasfeesarenotinexcessof$1000.
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5. Outrightcontributionstocharitableorganizationsareprohibited. However,whereattendance
at a charitable event will further the public purpose ofthe institution, expenditure may be
permittedsubjecttopriorapprovalbytheBoardofTrustees.
6. Contributionstoindividualsortheirassociatedcommitteesseekingelected,publicofficeare
prohibited.
7. Contributionstopoliticalactioncommitteesorequivalentorganizationsareprohibited.
• TravelandSubstanceCosts t
EmploveeTravel
1. Ensure thatcosts fortravel to and from institutional business, are necessary, allowable, and
theleastexpensivepracticalmodeoftransportation.
2. Establishmileageratesandperdiemcoststhatarereasonableandappropriate.
3. Requirethatallcostsaredocumentedandsupportedforinstitutionalbusiness.
Non-EmployeeTravel
1. Spouseandpersonalguesttravelarenotpermitted.
2. Atthepresident's discretion, studenttravel maybe allowed. The chairman ofthe Board of
Trusteesmustapprovetrusteetravel. Inallcases,theactivitiesandexpensesmustbeclearly
relatedtothemissionoftheinstitution.
• PersonalandStudentLoans
1. Personalloansshouldnotbegrantedtoinstitutionalstafforboardmembers.
2. Inrarecircumstances, itmaybepermissibletoprovidesalaryadvancestoemployees. Such
advancesshouldberepaidpromptlytothetrustfund.
3. Student loans from trust funds can only be made by the president and only in exceptional
circumstances. The financial aid office should make the determination ofneed and the
businessofficeshouldberesponsibleforthecollectionoftheloan.
• EmployeeandStudentRecognitionandActivities
1. Within moderate limits set by the Board ofTrustees, certain expenditures oftrust funds to
enhanceemployeesandstudentmoraleortorecognizeachievement,longevity,performance,
orretirementcanbemade.
• EntertainmentofInstitutionalDonors,Alumni,Friends,GuestsandVisitors
1. Suchentertainmentshouldbemmoderationandmgoodtaste.
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2. It is appropriate for a college president to entertain guests in theirhouse aspart ofofficial
duties. SuchexpendituresmustbeapprovedbytheBoardofTrustees.
3. Sports, theatre, and otherentertainment tickets cannot be purchased with trust funds unless
theeventisbeingheldoncampusandtheexpenditurebenefitsthemissionoftheinstitution
ordirectlysupportsitsinstructionalprograms.
• Miscellaneous
1. Moving expenses are appropriate for the president and selected officials ofthe institution.
The Board ofTrustees may approve the use oftrust funds for moving expense to attract
individualsofhighqualityfromotherpartsofthecountry. Theexpensesshallnotexceedthe
regional,averagecostofmovingbetweentwopoints. Competitivebidsformovingexpenses
shouldbesoughtmallcases. Storagefeesarenotallowable.
2. Purchase or lease ofa motor vehicle for use by the president or other administrators must
have prior approval ofthe Board ofTrustees. A full-sized, mid-priced automobile for the
president is allowable. Ifa more expensive vehicle is desired, the president must pay the
differencefrompersonalfunds.
3. Purchase of flowers, gifts, and cards in moderation from trust funds may be appropriate.
Appropriateoccasionsincludebutarenotlimitedto:
a) Death orillnessofan employee, student, trustee, orperson ofspecial importancetothe
institution,orimmediatefamilyofsaidpersons;and
b) Visitsofspecialguests.
4. Private clubs initiation fees and membership dues arenot an allowable expense. Although
membership fees for professional or academic organizations and civic groups are an
allowableexpense;anyinitiationfeeorannualmembershipfeeforthepresidentinexcessof
$1,000musthavethepriorapprovaloftheboardoftrustees.Membershipfeesmanyamount
foremployeesotherthanthepresidentmusthavepriorapproval.
Our review of seven state colleges noted over 60 different trust fund categories and at the 15
communitycolleges,46varioustrustfundscategones. Theautonomyanduniquenessofeachinstitution
enables them to manage their trust funds as they deem necessary to the operation ofthe individual
institution. Moreover, eightofthe institutions,tobettercontrol trust funds, consolidatedthenumberof
individual trust funds. Twocontrasting examplesofinstitutionswherethereview determinedthattrust
fund policies and procedures were adequate are Bunker Hill Community College (20 trust funds were
consolidated to four) and Westfield State College (44 trust funds). Administrators at Bunker Hill
Community College stated that the consolidation was performed to create better accounting control