In addition, reductions in state budgets in the past several years have forced the University to reassess and make reductions in many services and programs. Lower levels of tax revenue have led to smaller allocations for the university system, and in some years, as a result of inaccurate revenue projections, the state has had to ask its units for reversions of already-allocated funds. In addition, the state has asked the university system to absorb losses or to make up lost state funds through increases in tuition charges. Recently, the state mandated a freeze on student fees and a thorough review of the rationale for charging such fees before increases would be permitted.
The University has dealt with state-mandated budget cuts by requesting reversions from individual units, and by extensive budget planning and review, as promoted under the annual budget-planning process. If the University wishes to initiate new programs, it must either reallocate existing resources (at the risk of compromising the quality of programs from which funds have been transferred) or obtain additional funding through "change-budget" requests.
Such responses to fiscal crisis have their limits. Should NCSU continue to face cuts in state appropriations, key University programs will be affected. When faced with the necessity of making budget cuts, the University has always placed its highest priority on retaining and maintaining strong academic activities, but continued limits on state funding will force cutbacks in the quality and diversity of NCSU's academic offerings.
At present, the budget crisis seems to be abating. In the 1993 session of the North Carolina General Assembly, improved economic circumstances led to small increases in University funding, although new money for NCSU Libraries was voted on a one-time, not a recurring, basis. In the fall of 1993 the voters of North Carolina passed a bond issue that provided some $50 million for capital construction on the NCSU campus. Current economic forecasts point to more legislative budgetary flexibility during the 1994 session.
Nonetheless, NCSU should learn from past crises how important planning can be in effective use of financial resources. Without access to new funds from a variety of sources, including state appropriations, the University will place at risk the quality of its current activities, not to mention its aspirations to enhance its effectiveness and achieve institutional preeminence.
If increased funding is not available in the next few years, the University will be challenged to maintain and enhance the quality of its programs and instructional support activities. Processes need to be in place to provide effective strategies for preserving the quality of the University's essential programs.
If increased funding becomes available to improve facilities, to attract and retain outstanding faculty members, and to support faculty initiatives for program enhancement and institutional development, the University should benefit from lessons learned in leaner budgetary times and use the new funds effectively.
Recommendation 12.8: NCSU should become more effective in pursuing funding for all its activities mandated by the University's Mission Statement.
Recommendation 12.9: NCSU should establish mechanisms for maintaining the quality of essential programs during times of economic constraint. NCSU should establish mechanisms for ensuring that new funds be used effectively to enhance institutional quality and promote the achievement of institutional preeminence.
Much emphasis has been placed on the University's becoming a premier research institution, and great strides have been made in that area. NCSU's strength in research definitely provides opportunities for alternative means of financing through outside funding. This has had a discernible effect in NCSU's ability to support graduate education. The danger, however, is that the University's commitment to research may begin to divert state funds from undergraduate education.
Recommendation 12.10: NCSU should develop a plan to ensure that restricted funds (research funds) adequately cover the cost of research and do not detract from the University's teaching mission.
In the long term, NCSU will find it difficult to maintain the quality of education for undergraduate students unless state funding increases. The University has tried to cope by increasing enrollment, since the state provides funding based on a actual enrollment. Now that a cap has been placed on enrollment, the University cannot increase funding in this manner.
Tables 12.1 and 12.2 summarize NCSU's revenues and expenditures for the past four years [6.3.1.2]. External funding sources have increasingly provided additional funds.
The University participates in the UNC General Administration's "flexibility budgeting," which allows changes in resource allocation between purpose codes and line items. This process has provided the University with opportunities to manage its allocations more effectively.
Revenue sources 1993 1992 1991 1990 1989--------------------------------------------------------------------------------- State appropriations $239,414 $228,263 $231,524 $227,802 $214,863
Tuition and fees $53,000 $48,476 $39,486 $36,028 $31,640
Federal appropriations $19,958 $20,206 $19,303 $17,851 $18,577
Federal contracts and grants $62,419 $53,259 $49,553 $45,163 $39,772
State contracts and grants $8,621 $6,091 $5,383 $5,024 $4,108
Local contracts and grants $656 $265 $261 $154 $96
Private contracts and grants $29,247 $23,915 $41,941 $18,047 $18,010
Private gifts $19,388 $19,488 -- $17,572 $16,848
Endowment income $920 $539 $862 $1,071 $881
Sales and services $79,544 $73,582 $68,832 $65,482 $72,495
Investment earnings $2,578 $2,394 $3,082 $3,287 --
Other revenues $4,289 $3,247 $2,974 $2,355 --
Total current services $520,034 $479,725 $463,201 $439,836 $417,290
Expenditures 1993 1992 1991 1990 1989--------------------------------------------------------------------------------- Instruction $144,198 $136,305 $133,983 $128,020 $119,464
Organized research $119,821 $110,654 $109,266 $105,995 $100,319
Public service $64,173 $58,715 $59,146 $53,932 $50,971
Academic support $27,904 $24,354 $22,042 $21,833 $22,502
Student services $8,338 $7,555 $7,383 $6,990 $6,358
Institutional support $27,317 $22,727 $23,817 $21,925 $21,950
Physical plant operations $29,910 $28,257 $27,035 $25,786 $23,319
Student financial aid $18,174 $17,433 $15,315 $13,881 $12,693
Mandatory transfers $1,736 $919 $2,022 -- --
Auxiliary enterprises $53,081 $50,992 $44,605 $52,364 $49,908
Internal service $10,244 $9,609 $15,413 -- --
Total $504,896 $467,520 $460,027 $430,726 $407,484
The vice-chancellor for finance and business reports directly to the chancellor and is responsible for the NCSU divisions of Facilities, Business, Finance, Human Resources, Resource Management, and Information Systems [6.3.2.3]. The Centennial Campus coordinator and the internal auditor also report to the vice-chancellor for finance and business.
The vice-chancellor for finance and business has demonstrated his training and experience in numerous finance functions during his thirty-year tenure at North Carolina State University. There is no doubt that he more than sufficiently serves the educational goals of the University and assists in furthering its stated goals.
The vice-chancellor for finance and business joins the chancellor in meeting regularly with the NCSU Board of Trustees to report on University operations, and with the UNC Board of Governors by invitation [6.3.2.3]. Although current systems for handling financial operations such as purchasing are adequate, operations would be greatly improved if such processes were automated according to the best available systems.
Annual planning and budgeting begins when individual colleges and units, in conjunction with their respective departments, prepare an annual plan [6.3.3.2]. This plan includes a mission, long-range goals, annual objectives, performance targets, a resource plan, and a long-range space plan. The plan is submitted to the director of the Budget Office and the director for University Planning and Analysis for review and recommendations for changes, clarifications, etc.
After the review has been completed and accepted, the plan is proposed to the chancellor's plan-review committee. Budget hearings are held with the dean of each college or the head of each administrative unit prior to final approval. In the biennial change-budget process, the chancellor, after the budget hearings, and in conjunction with his administrative officers, prepares a University budget, which he submits to the Board of Governors [6.3.3.4].
When approved by the Board of Governors, the budget is then submitted to the governor of North Carolina (see self-study library for a more detailed description of this process).
The Budget Office sends a detailed budget report monthly to all colleges and divisions of the University [6.3.4.2]. Designed to provide sufficient information to maintain internal control of individual budgets, the report shows the approved budget, monthly expenditures, year-to-date expenditures and balance. The accounting records are maintained in automated form through the Financial Accounting System (FAS), which allows on-line access to individual budgets for better control.
The Budget Office approves requests for budget revisions and reflects those revisions in the monthly budget reports and via the automated system [6.3.4.3]. The budget director, or his designees, work with the Office of State Budget and Management in interpreting and revising the budget.
The University has adequate budgetary controls. The budget director and the University controller work together to ensure an adequate standard of control for both the budget and the expenditures incurred [6.3.4.2]. Additionally, the University's Internal Audit division performs regularly scheduled audits of individual college's or unit's accounting practices and processes.
The University operates in compliance with the laws of the state of North Carolina and the policies and regulations of the State Budget and Management Office, the UNC General Administration, and other federal regulatory agencies [6.3.5.1]. By General Statute, the State Auditor's Office performs an annual audit of the University [6.3.5.2].
The vice-chancellor for finance and business prepares an annual financial report that is submitted to the NCSU Board of Trustees by the chancellor. The Office of the State Auditor also prepares an annual financial audit report for the attention of the chancellor, the Board of Trustees, the Board of Governors, the president of the University of North Carolina, and the governor [6.3.6.4].
Annual fiscal-year audits are conducted by certified public accountants or an appropriate governmental auditing agency, employing as a guide Audits of Colleges and Universities, published by the American Institute of Certified Public Accountants [6.3.6.5]. These auditors are not directly connected with the institution [6.3.6.8]. Examples of those audit reports include NCSU 1992 Financial Report and State of North Carolina, 1992 Financial Audit Report (see self-study library for copies of these reports).
NCSU maintains an internal auditing program to provide an independent review of the University's system of internal control and to provide a system that assists in the safeguarding of University assets. Policies and procedures relative to internal auditing are outlined in the NCSU 1992 Internal Audit Division brochure and are described thoroughly in the NCSU Policies and Procedures Manual, Internal Audit Division [6.3.6.10]. Although current systems for accounting and personnel are adequate, operations would be greatly improved if such processes were automated according to the best available systems.
The Purchasing Department follows guidelines provided by the North Carolina General Statutes, article 3 (GS 143-48 to GS 143-64.34), administered by the state's Purchase and Contract Division in the North Carolina Department of Administration. Those statutes are interpreted to appropriate University personnel through sections K and M of the Administrative Procedures Manual (see self-study library for copies of article 3 of the North Carolina General Statutes and the NCSU Administrative Procedures Manual).
The University maintains an inventory of over 3,000 commonly used office and laboratory items with retail value of $400,000 at its Central Stores facility. Central Stores has an automated inventory system to maintain and control inventory [6.3.7.1]. Other significant storerooms of specialized supplies and materials are maintained by Physical Plant and NCSU Libraries. All storeroom operations are operated in compliance with policies and procedures as stated in the NCSU Administrative Procedures Manual, sections K and M.
Individual colleges, schools and academic departments maintain storerooms for supplies, materials and shared-use equipment.
An inventory of all capital assets having a purchase cost of $500 or more is managed through the Capital-Asset Management System Office (CAMS), which maintains a database of all University purchases and inventory. The CAMS system involves an annual inventory of tagged assets to determine current location and condition. Procedures for the CAMS system, and for retiring outdated or damaged equipment, are outlined in section A of the Administrative Procedures Manual.
North Carolina General Statutes require that items costing $500 or more must be competitively bid, unless the item is available on state contract. Competitive bidding takes staff time and has a built-in time lag. Such delays negatively affect the productivity and efficiency of the person or unit requesting the purchase. In addition, faculty and staff complain that receipt of items to various campus locations is sometimes unpredictable.
Student cashiering functions are operated under the authority of the Student Bank, which is responsible for receiving, depositing, and safeguarding of student funds. The role of the Student Bank is described in the Administrative Procedures Manual.
In 1978, in accordance with General Statute 116-36, the Board of Trustees of North Carolina State University appointed a Board of Trustees of the Endowment Fund of NCSU. Any gift to the University, unless designated to a specific administrative unit or for a specific purpose, becomes the property of the NCSU Endowment Fund.
The Board of Trustees of the Endowment Fund has written investment objectives that are reviewed regularly [6.3.10.2]. The investment objectives outline the investment goals of the fund. Members of the board are aware of their fiduciary responsibility.
As of June 30, 1993, the total assets of the Endowment Fund at market value were $60 million, of which $937,796 were transferred to the University for scholarships, fellowships, professorships, and other educational endeavors during that fiscal year.
North Carolina General Statute 58-4 establishes the state's Department of Insurance, which executes all state laws pertaining to insurance, and regulates the insurance industry in the state for the general protection and welfare of North Carolina citizens.
The North Carolina Association of Insurance Agents, Inc., is the state's agent of record. This association works closely with the Department of Insurance and acts only as a service agency for the state. It does not solicit or procure insurance for anyone else.
North Carolina State University actively participates in the insurance and risk-management programs of the state and the UNC system. Principal management responsibility for risk management and insurance programs lies with the Office of Finance and Business, specifically the director of insurance and risk management.
In interpreting its responsibility for insurance and risk management, the administration of North Carolina State University requires the highest possible concern for the safety of its students, employees and the public, combined with a concern that maximum protection be afforded University-owned property to prevent financial loss.
The University is exposed to various risks that may be prevented, reduced, insured, not insured, or not insurable. Such risks are evaluated primarily from the standpoint of the effect on the entire University, rather than on any one department. In managing risk, the University takes proactive steps to:
At a minimum, all University-owned buildings are protected against loss from fire and lightning up to the replacement value of the building. For rating and informational purposes, the Department of Insurance calculates the replacement value for a given building as equal to the cost to construct a replacement building of equal quality, function, and size. The Department of Insurance uses values for all state-owned buildings based on average costs for various North Carolina areas. A building-loss settlement, however, depends on the actual cost of replacement, and not necessarily the value that has been calculated using the average cost.
On the other hand, NCSU is responsible for determining the replacement value of building contents. Since 1987 the University has used the Capital Assets Management System's current replacement new (CRN) values as the declared value on building contents for insurance purposes. Departments may also elect to add to CAMS values to cover items not listed by CAMS (items valued under $500). The University recommends that each department periodically review the CAMS listing to ensure adequate coverage.
North Carolina government does not consider extended insurance coverage to buildings and contents valued at less than $1,100,000 to be cost effective. Buildings and contents valued at less than $1,100,000 are covered by the perils of wind and hail only. This coverage is also subject to a deductible of $100,000 per building with a maximum of $500,000 per occurrence. If a department wants extended coverage (including wind, hail, aircraft, riot, vehicle, explosion, and smoke) with a $500 deductible per occurrence for a building valued at under $1,100,000, the department is required to pay a premium charge based on the total value of the building as established by the Department of Insurance and the contents value reported by the department.
Property insurance may further be endorsed at an additional premium to include, for example, coverage for vandalism and malicious mischief, water-pipe damage, theft, "all risk," and business interruption.
Coverage under this category of insurance may be through the Department of Insurance or a commercial insurer through the State's Agent of Record based on the particular need; i.e., the value and type of property, and the type of coverage and the deductible coverage. Assets being insured must be listed on the All-Risk Insurance Equipment Listing Form, which may be obtained from the Insurance and Risk Management Department. Examples of property protected under this type of coverage are fine arts; computers; musical instruments; and video, scientific, and other valuable equipment.
Recommendation 12.11: NCSU should review its system of purchasing and inventory control to ensure accuracy, consistency, and efficiency.
Refund Policy
The University's guidelines for refunding student fees and charges are clearly stated in numerous publications including the Undergraduate Catalog and the Graduate Catalog, which are published biannually [6.3.8.1; 6.3.8.2]. Updated guidelines are also published each semester in the Schedule of Courses. The refund policies specify deadlines for requesting refunds and amounts of refunds for tuition and fees, housing, and meal plans. Students can bring special requests for refunds to the University Fee Appeals Committee. Functioning as an objective intermediary between the student and the University, the committee's role is to determine the validity of special student appeals and to relate outcomes to established policies and procedures so as to protect the rights of both the student and the University.
Cashiering
Under the direction of the assistant vice-chancellor for finance, University Accounting is responsible for the receipt, deposit, and dispersal of institutional funds [6.3.9.1]. Within the University Accounting Office, the Accounts Payable Office is responsible for paying bills for materials and services; the General Accounting Office is responsible for depositing payments on invoices, administering petty cash accounts, the transfer of funds, distributing financial reports and processing billings; the Capital Assets Management Office is responsible for maintaining capital assets records; and the Financial Reporting and Trust Funds Office is responsible for producing all financial and statistical reports and the establishing all noncontract and grant trust funds. In compliance with General Statute 147-77, funds received by any unit of the University must be deposited at the University's Cashier's Office [6.3.9.2].
Investment Management
By legislative statute, all funds except athletic funds, medical-practice-plan funds, and endowments are required to be on deposit with the State Treasurer, who invests the funds. Athletic and medical-practice-plan funds at NCSU are also deposited with the State Treasurer. Endowment funds operate under written investment policies approved by their governing boards [6.3.10.1].
Risk Management and Insurance
NCSU has adequate replacement protection for all physical facilities, covered by appropriate levels of insurance or appropriate provisions for obtaining funds.
Fire and Lightning Coverage
Fire and lightning coverage for academic, research, and office buildings is provided to the University through the State Property Fire Insurance Fund at no cost, unless the building was erected and/or is operated with "special operating funds" (funds derived from sources other than the general fund). Insurance premiums for departmental buildings in this category are paid through the appropriate departmental or University budget.
Extended Coverage
Each University building and its contents valued at $1,100,000 and over is protected for extended coverage, which includes protection against loss or damage by the perils of wind, hail, aircraft, riot, vehicle, explosion, and smoke, with a deductible of $100,000 per building and a maximum of $500,000 per occurrence.
"All-Risk" Coverage
All-risk, or "open-perils" insurance, is usually desirable coverage for assets exposed to high risk. All-risk insurance on University-owned property covers potential loss or damage as a result of perils not specifically excluded. Specifically excluded perils in the State Department of Insurance coverage are normal wear and tear, mechanical failure, dishonest or criminal acts by the insured, delay or loss of market (business interruption), war, nuclear radiation or radioactive contamination, processing operations, or work upon the property, unless the damage is caused by fire or explosion and then only for damage caused by the fire or explosion, and error in machine programming. Coverage through commercial insurers varies in perils specifically excluded.Recommendation 12.12: NCSU should develop a formal comprehensive risk-management program that integrates applicable databases such as insurance and capital-asset information.
Building Design
Sound architectural and engineering design of buildings and facilities is a fundamental component of NCSU's risk control. Planning and construction of buildings, provision of the basic building services, and maintenance of University facilities are managed primarily through the cooperative efforts of the units of the Facilities Division (which include Campus Planning, Construction Management, Physical Plant, Space Planning, Transportation, Telecommunications, and Real Estate). To ensure maximum protection in facilities campuswide, the Facilities Division reviews and approves all departmental plans for new construction and renovations of existing facilities. As a part of their review, the Facilities Division seeks a required review by the North Carolina Department of Insurance for compliance with the North Carolina State Building Code and the National Fire Code as dictated by General Statute 58-19B, as well as any applicable modifications required for insurance underwriting.
