Obfuscation as a PASSHE Art Form
According to Merriam-Webster, to “obfuscate” is to “render obscure, unclear, or unintelligible.”
I mention this because the document which PASSHE provided to me in response to my July 21, 2012 RTK request is masterful at rendering the simplest financial information obscure, unclear or unintelligible.
Merriam-Webster defines “art form” as “an undertaking or activity enhanced by a high level of skill or refinement.” By using that term in the above heading, I was recognizing PASSHE for the shameless way in which it regularly attempts, and frequently succeeds, in keeping troublesome public information private.
PASSHE’s obfuscation in this case operates on two different levels: 1) The document claimed to be compliant with my RTK request for actual revenues and expenditures for PASSHE’s “central office” in Harrisburg—defined as the Office of the Chancellor plus the PASSHE Board of Governors (OOC+BOG)—contained instead¹ a Budget Request Summary; and 2) The Budget Request Summary listed up to three different entries for the same statistic while abruptly changing the definitions of other key statistics.
PASSHE is very Skilled at Hiding Public
Information from the Public
Although the Summary Budget Request document that I received is totally different from the actual revenues and expenses of OOC+BOG that I requested but never received, the Summary Budget Request nicely reveals some of the tricks PASSHE has used for years to obfuscate and hide information, primarily financial data that if made public, would raise legitimate but embarrassing questions regarding the actions and motives of PASSHE leaders in the Office of the Chancellor and PASSHE Board of Governors.
As stated in last week’s blog post, it is very instructive to compare different official PASSHE documents in order to shine light on the obfuscation tricks referred to above. Let us now consider Document #1.
Document #1: OOC+BOG - Budget Request Summary - FY 1993 to
FY 2013
This document² is a condensed, one-page version of PASSHE’s 19-page Budget Request Summary¹ which I have prepared to enable ready comparison with other official PASSHE documents. A close look at this one-page spreadsheet quickly establishes the following financial patterns regarding the budget requests from the OOC+BOG for the twenty-one Fiscal Years between 1993 and 2013:
· For Fiscal Years 1993 to 1999, PASSHE’s reporting is consistent, straightforward, and understandable. Over those seven years, OOC+BOG recorded the following average values: Revenue = $4,462,253; Expenses = $4,300,396; FTE Employees = 51.5; Personnel Costs = $3,526,187; Personnel Cost % = 82%; All Other Cost % = 18%; Revenue minus Expenses = $161,857; and Operating Margin = 3.5%.
·
Note during this initial seven-year period that
the average amount of money that could be saved each year was $161,857. And if they did that for seven years, they
could add $1,132,999 to their fund balance.
And if they were to do that every year for twenty-one years in a row,
they could expect to put a total of $3,398,997 into their fund balance by the
year 2013, an amount of money equal to 79% of their average annual revenue for
those first seven years!
·
Note that an Operating Margin of 3.5% is close
to the upper limit of 4.00% that, until recently, the Board of Governors imposed
on the fund balances of the fourteen PASSHE universities.
·
Notice also that personnel costs accounted for
82% of all expenses and All Other expenses (such as Services/Supplies and
Capital/Transfers) accounted for the remaining 18%. Note also that Personnel and All Other expenses
accounted for all but 3.5% of revenue, meaning that in realistic budgets with
large recurring expenses, the ability of management to create large fund
balances is severely limited.
·
For Fiscal Years 2000 to
2005, however, there are suddenly major changes in PASSHE’s reporting format
regarding OOC+BOG. Suddenly, Revenue and
Expenses are exactly equal to each other, meaning that Revenue minus Expenses =
0 and also that Operating Margin = 0.
·
How likely do you think it
would be for the actual expenses for any organization to be equal to the actual
revenues, down to the last penny, for five years in a row? About as likely as you or I winning the
Multi-Million-Dollar-Lottery five years in a row!
·
Proof that the zero
difference between revenue and expenses for those five years was contrived by
an accounting ploy is very easy to find. Just go back to the original Budget Request
Summary pages for those five years and you will notice that new categories of “revenue”
and “expenses”— which had not appeared in any previous fiscal years—have now
suddenly been introduced! For example:
·
In FY 2000, the following
new revenue item suddenly appears: “Use of Carryforward Fund Balance.” The same
new “revenue source” appears in the other 4 years where “revenue minus expenses
= zero.”
·
Then in FY 2001, a new stand-alone
“expense category” suddenly appears entitled “Transfers.”
·
A close look at the numbers
in the original Budget Request Summary for all those years reveals that the
Revenues and Expenses were made equal (and can always be made equal) by putting
the correct “Carryforward” entries into the revenue and/or expense lines.
·
This is actually a familiar
accounting practice which, of itself, does not necessarily imply deception. It does however hide information about the true
Revenue minus Expense figure and Operating Margin for a given fiscal year. It also hides information about any surplus (e.g.,
unrestricted) funds available for transfer to fund balance by treating them as
restricted when in fact they are not.
·
The bottom line is this: Whenever
financial documents employ accounting practices that artificially make total
revenues equal to total expenses, it becomes necessary to consult other
financial records that reveal the transfers into and out of the fund balance of
the entity in question.
And we will do exactly that in next week’s blog post.
To be continued.
² https://www.keepandshare.com/doc/7762337/ooc-bog-budget-request-summary-fy-1993-to-fy-2013-january-2-2016-pdf-199k.
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