Tuesday, June 26, 2007

Anatomy of a Budget Deficit (Part Two)

Train Wreck

{This is the second in a series on the college's financial difficulties. Flagstiffed has relied on reports from people with knowledge of the situation. Some sources have confirmed other sources but Flagstiffed has not asked the college's administration for comment.}

Put simply there appears to be two causes to the college’s current deficit. The administration created a budget whose income and expense projections were bogus and the current budget management was not able to do cash projections in order to insure that cash on hand matched expenses. Freight train meets passenger train on the same pair of tracks.

The president has reportedly claimed that mismanagement by a previous administration and previous uncollected monies owed to the college are to blame for this deficit. But uncollected debts are only a problem if you make bogus projections about how much youre going to collect on those “receivables” and then include those bogus projections as anticipated income in your budget.

The administration insisted on doing both despite the fact that at least one employee (no longer employed there) at the time reportedly warned them not to use those numbers. And now it faces a big budget hole that its trying to fill by temporarily cutting parttime employees, delaying adjunct faculty paychecks, delaying paying vendors and delaying purchases and hiring until next year (which is just postponing the inevitable to the end of next year). Perhaps the president hopes to have a new job in another state by the time the collection agency comes calling on his current college.

What really confused college employees was that for months the president and his finance staff had been reporting good news. Problems in the business office had been fixed. Numerous audit findings had been corrected. Something that the president was calling a “Dream Team” had visited the campus and now everything was OK.

But wait, theres more. college employees report that in recent months they also heard nothing but good news about record enrollment increases. Those increases look good on paper and they looked good when the budget included them as income. But not all enrollments are fully paying enrollments, yet the administration’s budget counted them anyway. Now he’s saying that record enrollments caused the deficit. Huh? One explanation, according to several employees, is that the enrollment numbers were not accurate or were not an accurate reflection of tuition income. Apparently the college has been claiming something called “dual enrollments” that make the numbers look better but that aren’t bringing in the tuition. Plus one of Flagstiffed’s readers has pointed out that enrollment numbers calculate APPROPRIATIONS which aren’t income. Paying enrollment, these employees have reported to Flagstiffed, have been flat, not rising.

But thats only part of the problem. A bogus budget is definitely going to end in a train wreck, but a good budget manager is like a sharp eyed railroad engineer who can put the breaks on the train as soon as he sees trouble ahead. At the college that did not happen. A whole new budget and business office staff hired over the past year apparently have not had enough time to get a handle on regular cash projections, according to sources with knowledge of this subject. Information databases apparently don’t talk to each other either creating problems with billing. One database runs registration. Another older database runs the accounting. In one instance, it has been reported that over $100,000 owed to the college for services that it has rendered to clients has not been billed. Other substantial unbilled accounts have recently been reported.

The timing of the “discovery” of the deficit, just after the arrival of a new vice president of finance, can’t be coincidental. Several sources report to Flagstiffed that he discovered the problem. Why didn’t the previous VP for finance and the college’s board see this and intervene sooner? In fact, it has been reported that one board member resigned in disgust at what he saw coming down the train tracks.

The saddest thing to report is that the college’s administration was warned last summer and again last winter that the budget was not achievable, according to informed sources who have communicated with Flagstiffed. The college’s administration was warned of other financial problems 2 or 3 years ago, according to those same sources. It was warned of potential audit problems 3 years ago, according to other sources. However, sources report that the president chooses who he trusts-usually his cronies-and listens to those who tell him what he wants to hear. They report that he doesn’t like people who stand in his way; he makes them go away. Poof!

Next time: Business Econ 101

Sunday, June 10, 2007

Anatomy of a Budget Deficit (Part One)

Budget by Ponzi: A Designer Deficit

Several week after the president of the college, announced that his administration suddenly discovered that his 2006-2007 budget had a big hole, amounting to nearly a million dollars, people are still scratching their heads. How did such a big deficit suddenly appear? Who discovered it? More important, why didn’t somebody discover it sooner? Was noone able to predict it? What caused the deficit? How can the college keep this from happening again?
The fact that the college president has provided different versions of this problem, has people even more confused and angry. At first they were told it had something to do with unpaid money due to the college but uncollected by previous admininstrators. Then they were told that it was a normal end of the year budget adjustment. Then they read in the paper that the deficit was the result of having booming enrollments (that the administration reportedly had been bragging about for months).
To repair this years budget deficit the administration proposed to delay purchases and hiring until the new budget year (and postpone paying the piper again, some employees wondered). To cut the hours of parttime employees (who can least afford it) and then to delay paying adjunct faculty.
Based on reports provided by a variety of sources (some unconfirmed at this time) with knowledge and experience in the subject, Flagstiffed staff have put together the following report. We will provide you with this report in several installments. It’s complx. It’s unfolding. It sounds a little bit like a scheme cooked up by Charles Ponzi, the guy who paid first investors with the cash paid by later investors. We don’t want your eyes to glaze over so we’ll break it down for you in bite size pieces. Follow the money, (like Deep Throat said to Bob Woodward) over the next couple of installments.