“Tis a lesson you should heed:
Try, try, try again.
If at first you don't succeed,
Try, try, try again.”
The above proverb was popularized by
British writer W.E. Hickson (1803-1870), and I can recall it being recited to me and
my classmates by teachers in elementary school.
I was reminded of this proverb the other day when I remembered that I
first experienced PASSHE’s attempts to muddy the waters about “fund balances” during
FY 1992-93, the very first of my twenty years as a PASSHE university president.
The relevance of this proverb to PASSHE’s attempts to muddy the waters about its embarrassing fund balances is seen in its most recent (2015) audited financial statements, although not in the main body of the 52-page audit report itself, but rather in Management’s 14-page response to the audit report¹ which is included in the overall report but appears under the following heading, exactly as presented below:
“MANAGEMENT’S DISCUSSION AND ANALYSIS
(Unaudited)”
For the
benefit of those who may not know how the auditing game is played, the auditing
firm puts its reputation on the line when it comes to any conclusions contained in
the body of the main audit report.
But by using the term “(Unaudited),” the auditing firm is clearly taking no responsibility for what PASSHE’s management has to say about itself, or anything else the auditors may have touched upon in their report.
By its very
nature—as an un-contradicted opportunity for management to paint the rosiest
possible picture of itself—an unaudited “Management Discussion and Analysis”
often resembles a PR piece.
But the term “(Unaudited)” flashes a bright red “Caveat Emptor” sign, Latin for “Let the buyer beware.”
Governor Casey and the Board of Governors Clash in FY1992
over PASSHE’s Fund Balance
As described in an earlier blog post, the issue of large PASSHE fund balances had become a hot topic the year before my arrival in August of 1992 over Gov. Casey learning that PASSHE was sitting on a combined total fund balance of $90 million, while asking for more and more State Appropriation dollars every year.
My university inherited a fund balance of $2.5 million, or 5% of its $50 million annual revenue, while one other university with similar annual revenue was sitting on $19 million (21%) of PASSHE’s $90 million total!
To my way of thinking, PASSHE’s fund-balance problem, together with its solution, was totally obvious.
The Obvious Problem
Gov. Casey’s reported anger at PASSHE for hoarding large amounts of money, while continuing to ask for more money each year, was completely understandable for any number of reasons including these:
·
The only way to add to fund balance is to have annual
revenues that are larger than annual expenses.
·
That might happen occasionally, but not so frequently
that huge fund balances would be generated.
·
A pattern of ever-increasing fund balances can only mean
that one or both of the following two things were happening: 1) That your annual
revenues were too large for your legitimate expenses; or 2) That your annual revenues
were adequate, but decisions were being made to skimp on those legitimate
expenses in order to hoard money for purposes “other” than legitimate ones.
·
If Item 1) were true, that would mean that the State was
already giving the universities more money than they legitimately needed—in
which case they shouldn’t be asking for more money, for to do so would be to
play the State, the Governor and Pennsylvania’s Taxpayers for fools.
·
If Item 2) were true, that would mean that although the
revenues were adequate to cover legitimate expenses—such as those needed to
fulfill PASSHE’s Act 188² Statutory Purpose: “To provide high quality education
at the lowest possible cost to the students”—decisions were being made to
ignore Act 188 and to divert money into the unrestricted fund balance, that
could then be spent on virtually anything!
·
But to skimp on PASSHE’s Statutory Purpose is to play
100,000+ PASSHE students, parents and private donors, primarily PASSHE alumni, for
fools.
To my mind, the solution to PASSHE’s obvious money-hoarding problem was simply to make a decision to “straighten up and fly right,” to quote the advice regularly given to high school students in an earlier era.
Around this time, while Chancellor James McCormick and his financial people were briefing the fourteen presidents on what Gov. Casey could or might do to punish PASSHE for having too large a fund balance, I tried to help by bringing up the following two-step proposal: 1) Seek an agreement with the Gov. Casey as to what an appropriate level of fund balance, as a percent of annual revenue, might be; and then 2) Ask the Board of Governors to approve a policy limiting PASSHE fund balances to the agreed-upon level.
That solution
might help soften Gov. Casey’s anger and would also guarantee that PASSHE would
no longer run the risk of insulting the State, the Governor and Pennsylvania’s
taxpayers with its fund balance.
PASSHE’s First Attempt to Change the Definition of “Fund
Balance
PASSHE’s then Vice-Chancellor for Administration and Finance, Wayne Failor, argued against my proposal and began to make a totally different case from the one that I had just made. In effect, Failor argued that Gov. Casey was wrong and that PASSHE’s fund balance was not too large at all, for the following reason: PASSHE had incurred enormous pension and postretirement obligations that amount to many millions of dollars, and that PASSHE’s fund balance, compared to those future liabilities, was in fact too small.
I replied in rebuttal that PASSHE having enough fund balance to cover future pension & postretirement obligations was equivalent to a homeowner having enough money in the bank to pay off the home mortgage.
The reader may not be surprised to learn that my proposal did not carry the day.
If at first you don’t succeed, Try, try, try again
Failor’s 1992 proposal may have been PASSHE’s first attempt to change the definition of “fund balance” from covering occasional current revenue shortfalls, to covering all current and future revenue shortfalls, even those that wouldn’t need to be paid until many years in the future—when future annual revenues would be available to pay them!
While Failor’s attempt to change the definition of fund balance 23 years ago did not succeed, PASSHE’s 2015 “Unaudited Management Discussion and Analysis” suggests that PASSHE is determined to Try, try, try again.
To be continued.
² https://www.keepandshare.com/doc/6772880/act188-pdf-405k.
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