SECTION 6.3: FINANCIAL RESOURCES

CONTENTS: SECTION 6.3

INTRODUCTION
FINDINGS OF THE FINANCIAL RESOURCES COMMITTEE

6.3.1 FINANCIAL RESOURCES
6.3.2 ORGANIZATION FOR THE ADMINISTRATION OF FINANCIAL RESOURCES
6.3.3 BUDGET PLANNING
6.3.4 BUDGET CONTROL
6.3.5 THE RELATION OF AN INSTITUTION TO EXTERNAL BUDGETARY CONTROL
6.3.6 ACCOUNTING, REPORTING, AND AUDITING
6.3.7 PURCHASING AND INVENTORY CONTROL
6.3.8 REFUND POLICY
6.3.9 CASHIERING
6.3.10 INVESTMENT MANAGEMENT
6.3.11 RISK MANAGEMENT AND INSURANCE
6.3.12 AUXILIARY ENTERPRISES

COMPLIANCE TABLES: SECTIONS 6.3.1—6.3.12

INTRODUCTION

Sam Houston State University clearly understands that an institution of higher learning cannot fulfill its stated mission without adequate financial resources and without able management of those resources. The comprehensive examination of the institution’s financial resources which follows suggests that the University enjoys both financial stability and experienced and capable management of its resources. Its systematic budget planning, implementation, and control processes ensure that financial resources are used in ways best suited to serve its students, faculty, and staff and to fulfill the stated mission of the institution.

FINDINGS OF THE FINANCIAL RESOURCES COMMITTEE

The following sections report the Financial Resources Committee’s findings in the major areas outlined in section 6.3 of the SACS Criteria for Accreditation: Financial Resources (6.3.1); Organization for the Administration of Financial Resources (6.3.2); Budget Planning (6.3.3); Budget Control (6.3.4); The Relation of an Institution to External Budgetary Control (6.3.5); Accounting, Reporting, and Auditing (6.3.6); Purchasing and Inventory Control (6.3.7); Refund Policy (6.3.8); Cashiering (6.3.9); Investment Management (6.3.10); Risk Management and Insurance (6.3.11); and Auxiliary Enterprises (6.3.12). The Committee addresses "must" statements from each of the sections (and, as appropriate, "should" statements) and, in the order in which the statements appear in the Criteria, reports on the University’s compliance or noncompliance with these imperatives. Following each series of "must" statements and findings, the Committee makes recommendations and/or offers suggestions, according to the University’s compliance status.

6.3.1 FINANCIAL RESOURCES

1. Because the financial resources of an institution influence the quality of its educational program, each institution must possess sufficient financial resources to support all of its programs (Criteria 71).

2. The recent financial history of the institution must also demonstrate the financial stability essential to its successful operation (Criteria 71).

The Financial Resources Committee determined that the University complies with these two imperatives. The total budget for Sam Houston State University increased from $70 million to $96 million during the five-year funding period 1993-1994 through 1997-98, as shown in Table 6.3.1.a:

Table 6.3.1.a

Composition of SHSU Budget 1993-94 through 1997-98

(Amounts in Thousands)

Budget Category	1993-94	1994-95	1995-96	1996-97	1997-98
Educational and General	$41,430 59%	$44,124 59%	$52,216 61%	$54,833 60%	$59,632 62%
Non-pledged	$8,302 12%	$8,736 12%	$9,462 11%	$9,976 11%	$10,526 11%
Pledged Revenue	$8,188 12%	$9,048 12%	$11,087 13%	$12,114 13%	$12,731 13%
Designated Funds	$12,400 18%	$12,848 17%	$13,032 15%	$14,070 16%	$13,549 14%
Totals (100%) Percentage Change	$70,322	$74,758 +6.3%	$85,798 +14.8%	$90,995 +6.1%	$96,439 +6.0%

1 Source: Sam Houston State University Recommended Budget 1993-94 through 1997-98

The year-to-year increase measured in the lower 6% range except for 1995-96, when the increase was almost 15%. When the 2% or less average annual rate of inflation is considered, the growth in total funding was approximately 2% per year. In addition to the pattern of increase in total budget, it is important to note that the percentage allocated to the Educational and General Fund increased from 59% to 62% during this period. In a broad sense, it appears that the educational core (that is, the Educational and General Fund) is receiving totally and proportionally more of the total budget.

The single term which best describes the University budget over the recent five-year period is stability. The stability of the budget closely parallels the pattern of student enrollment and the ratio of faculty to students, as shown in Table 6.3.1.b, below. The University has been able to maintain this stable enrollment in spite of recent increased junior college availability in the Harris and Montgomery county region immediately south of the University. Moreover, the corresponding decline in lower-level enrollment has been offset by three significant initiatives over the last five years. The first and second of these initiatives, the additions of two doctoral programs (making a total of three doctoral programs), have been accompanied by increased enrollment at the doctoral level, as well as increased enrollments at the advanced undergraduate and master’s levels as students prepare for entry into the doctoral programs. The third and most recent initiative is The University Center (TUC), a cooperative arrangement with five other universities in the region. TUC is conveniently located in The Woodlands area, a major growth region forty miles south of Huntsville, in the center of SHSU’s primary source of students. SHSU had a Fall 1997 enrollment at TUC of 510 students and a Spring 1998 enrollment of 800 students. These numbers are expected to increase in the future.

Further evidence of the University’s fiscal commitment to providing outstanding educational services is found in the faculty-to-student ratio and the total number of full-time equivalent teachers, as shown in Table 6.3.1.b.

Table 6.3.1.b

Selected Enrollment and Faculty Numbers

for Fall 1993 through Fall 1997

College	Fall 1993	Fall 1994	Fall 1995	Fall 1996	Fall 1997
Arts and Sciences	4,975	4,965	4,741	5,356	5,326
Business Administration	2,081	1,903	1,719	1,883	2,125
Criminal Justice	1,624	1,682	1,684	993	850
Education and Applied Science	4,120	4,356	4,295	4,332	4,407
Total	12,800	12,906	12,439	12,564	12,708
Full-Time Students (Equated)	10,266	10,263	9,952	10,100	10,120
Faculty: Student Ratio	1:23	1:22	1:21	1:21	1:21
Total Number of Full-Time Teachers (Equated)	452.79	468.59	471.60	472.79	488.01

1 Source: Institutional Mini-Profiles at (available http://www.shsu.edu/~ird_www/ college5.html)

 

As the table indicates, the faculty-to-student ratio decreased from 1:23 in Fall 1993 to 1:21 in Fall 1997. Considering stable enrollment, this decrease is the result of an increase in full-time equivalent teachers from 452.79 (Fall 1993) to 488.01 (Fall 1997).

Having determined that the University complies with the imperatives in this section of the Criteria, the Financial Resources Committee has no recommendations.

6.3.2 ORGANIZATION FOR THE ADMINISTRATION OF FINANCIAL RESOURCES

1. All business and financial functions of the institution should be centralized under a chief business officer reporting to the chief executive officer (Criteria 71).

2. The organization of the business office must be consistent with the purpose of the institution, the size of the institution, and the volume of transactions of a business or financial nature (Criteria 71).

The Committee found that the University complies with both of these imperatives.

The Vice President for Finance and Operations (VPFO) is one of three vice president positions at Sam Houston State University. The VPFO is responsible for eight functional areas: accounting, business office, business services, computer services, human resources, physical plant, purchasing and stores, and the Sam Houston Press. Each of these functional areas supports the mission of the University.

3. The chief executive officer must report regularly to the governing board on the financial and business operations of the institution (Criteria 71).

The Committee determined that the University complies with this "must" statement.

The VPFO is responsible for preparing financial reports on a regular basis. These reports are submitted to the President of the University, who then reports to the Board of Regents of The Texas State University System. The required reports include biennial appropriations requests, annual operating budgets, annual financial reports, monthly operating reports, sinking fund reports, and investment reports.

4. The chief business officer should have experience or training in handling educational business affairs sufficient to enable the business office to serve the educational goals of the institution and assist in furthering its stated purpose (Criteria 71).

The Financial Resources Committee found that the University complies with this imperative.

The VPFO holds a master’s degree and is a certified public accountant with thirty-two years of experience in business affairs at the University. Several of the functional department supervisors are also certified in their respective functional areas. The eight department supervisors average 17.375 years of work experience at the University (Table 6.3.2).

 

Table 6.3.2

Finance and Operations Supervisor/Department Head

Background Information

Title/Position	Degrees/Certification	Years of SHSU Service
Vice President for Finance and Operations (VPFO)	BBA, MEd CPA	32
Assistant to VPFO	BBA CPS	8
Director of Administrative Accounting	BS, MA CPA	26
Director of Business Office	BBA	26
Director of Business Services	BBA, JD CPA	15
Director of Computer Services	BA, MS	28
Director of Human Resources	BBA	21
Director of Physical Plant	BS, MBA	8
Director of Purchasing and Stores	BBA CPPO	6
Director of SHSU Press	BS	9

Having determined that the University complies fully with the criteria in this section, the Financial Resources Committee has no recommendations.

6.3.3 BUDGET PLANNING

1. An institution must prepare an appropriately detailed annual budget (Criteria 72).

2. Its preparation and execution must be preceded by sound educational planning (Criteria 72).

3. It follows that the instructional budget should be substantively developed by academic officers or deans, working cooperatively with department heads, appropriate members of the faculty and administration, and representatives of the business office (Criteria 72).

4. Procedures for budget planning must be evaluated regularly (Criteria 72).

5. Similarly, budgets for other areas should be developed after consultation with appropriate officers in the institution (Criteria 72).

6. The budget is presented by the chief executive officer through proper channels to the governing board for final approval. In reviewing the budget, the governing board should focus on matters of broad policy and normally should not concern itself with details (Criteria 72).

The Financial Resources Committee determined that the University complies with all six of these imperatives.

The larger framework of the Sam Houston State University budget planning process is formulated by the State of Texas through House Bill No. 1 (General Appropriations Act). The budget process begins when the State of Texas Request for Legislative Appropriations is sent to each institution. This budgetary request operates on a funding cycle some eighteen months before the beginning of the designated fiscal year. The House Bill No. 1 (General Appropriations Act) not only provides the grand totals of appropriations, but also itemizes the method of financing: General Revenue Fund; General Revenue Fund-Dedicated-Law Enforcement Management Institute Account; General Revenue Fund-Dedicated-Estimated Statutory Tuition Increases Account; General Revenue Fund-Dedicated-Estimated Other Educational and General Income Account).

Preparation of the budget at Sam Houston State University comprises two processes, a top-down and a base-up, which work simultaneously, complementing and supporting each other. The top-down process moves from the state legislature to the individual University departments; the base-up process starts with the departments’ offering input and submitting budget change requests and then moves upward.

Once the State Appropriations Bill is printed, a copy is forwarded to the President’s office and is shared with the Vice President for Finance and Operations and the University Budget Committee. The Budget Committee consists of seven members: Vice President for Academic Affairs, Vice President for Finance and Operations (Chair), Vice President for Student Services, Executive Director of University Advancement, Chair and Chair-Elect of the Faculty Senate, and President of the Student Government Association. To ensure that the University’s educational mission is reflected in the budget, the Budget Committee works closely with the Strategic Planning Committee. The establishment of the Strategic Planning Committee in 1991 initiated a significant improvement in the synchronization of the University’s mission and educational goals and the budget. The budget ultimately ensures the realization of the mission and the educational goals.

Input from the Strategic Planning Committee and the Budget Committee ensures that both the preparation and execution of the budget are based on solid educational planning. The Strategic Planning Committee formulates initiatives for allocation considerations and for reallocations of funds within the scope of the University’s mission, including its academic goals, advancement, and operations and maintenance. The Budget Committee reviews, ranks, and prioritizes these initiatives and then allocates the moneys. The recently adopted strategic planning model will ensure continuous coordination of strategic planning and operational budgeting. The fact that a number of administrators serve on both the Strategic Planning Committee and the Budget Committee ensures cohesion between the strategic planning and the budget allocation processes.

Whether the Strategic Planning Committee receives adequate input from the parties affected by the budget (deans, chairs, faculty, staff, and students) is questionable. Questionnaire responses by chairs/coordinators indicated that a large majority of respondents did not believe that their input was sought in preparation of either college or the University budget (Table 6.3.3).

Table 6.3.3

Chair/Coordinator Responses to Budget Statements in Questionnaire

Statement	Strongly Agree Or Agree	Neither Agree Nor Disagree	Disagree Or Strongly Disagree
"Over and beyond capital equipment, my input is sought in preparing the college budget."	13.79%	13.79%	72.42%
"Over and beyond capital equipment, my input is sought in preparing the University budget."	0.00%	17.24%	82.76%
"The budget reflects the needs of my faculty."	31.03%	20.69%	48.28%

 

To initiate the budget planning process, deans and directors are asked to submit budget requests. In turn, they invite department chairs and heads to submit departmental requests. Ultimately, the requests are collected by the respective vice presidents, who submit them to the Budget Committee. In theory, this base-up process should work very well; however, in practice, it has been reported that the overall departmental and college allocations are based on prior year funding. This constraint could result in the budgeting process’s being slow to adapt to the needs of a changing University.

Once the moneys have been allocated to reflect the prioritized goals of the strategic plan and the budget requests of the vice presidents, the Budget Committee prepares the budget in sufficient detail and recommends it to the President of the University. After the President approves the budget, it is presented to the Board of Regents for final approval. That the Board of Regents has never failed to accept any budget seems to affirm that the budget planning process at Sam Houston State University is adequate and appropriate.

RECOMMENDATIONS AND SUGGESTIONS: SECTION 6.3.3

The Financial Resources Committee found that the University complies fully with all of the imperatives in this section of the Criteria; therefore, there are no recommendations. However, the Committee makes the following suggestion:

Questionnaire responses indicated that a significant portion of the department chairs and directors feel that neither they nor their faculties have enough input into the budget planning process. Within the last year, a new budgeting and strategic planning process has been implemented which should address the concerns identified in the questionnaire. The 1998-99 academic year is the first during which the new process will have been fully in effect. The Budget Committee and the Strategic Planning Committee should pay close attention to ensuring that the new process extends fully to the department level.

6.3.4 BUDGET CONTROL

1. After the budget has been approved by the chief executive officer and adopted by the governing board, a system of control must be established (Criteria 72).

2. The business officer must render interim budget statements on a periodic basis to department heads for their guidance in staying within budgetary allocations (Criteria 72).

3. Budgetary control is an administrative function, not a board function (Criteria 72).

4. Necessary budget revisions must be made when actual conditions require such change and must be communicated to those affected within the institution (Criteria 72).

The Financial Resources Committee determined that the University complies with all four of these criteria.

The Budget Committee evaluates the budget process and procedures and monitors the budget implementation to ensure that it reflects the spirit of the financial plan. Additionally, The Board of Regents, the Vice President for Finance and Operations, and the Director of Internal Audit are actively involved in overseeing the multi-layered budget control process.

Budget control is no longer a laborious manual process. The computer system has become an integral component of effective budget management, and information about the status of each account is readily available on-line. Interim budget statements are available on demand through the computer. This ready accessibility offers department heads and directors guidance in staying within budgetary allocations. The Budget Balance Report, which has been on-line since 1992, can be accessed by any administrative officer.

Account Balance Reports also provide a flexible manual control system. Should an account (for example, hourly wages) run in the deficit, as is sometimes necessary in order to provide for needed flexibility, the account is monitored and a budget transfer can be completed before the account is closed at the end of the fiscal year. At any given time, there are very few negative accounts, and the deficit amount at SHSU is quite small.

An operating report is submitted monthly to The Texas State University System Office in Austin by the Administrative Accounting Office at SHSU. This report shows, as of the last day of the preceding month, "a summary statement of budget position, general ledger trial balance by fund groups, statement of realization of estimated income, and statement of departmental and other balances." Although the Board of Regents has final approval of the budget and of any budget changes of $5,000 or more, budget control is the responsibility of the administration, not the Board.

The annual budget provides general guidelines for the University’s multiple operations. It is a flexible system which, within the overall allocations, allows for reallocation of funds when necessary. Changes in the budget occur daily, reflecting evolving needs that have been communicated to those who have authority to request the budget changes.

Department heads initiate budget changes by simply filling out and submitting "Sam Houston State University Change of Budget Request" forms. These forms become supplements to the budget as they document the dates and amounts of the budget changes. Budget changes of $5,000 or more require the President’s approval. Four times a year, budget changes are presented to the Board of Regents for approval.

The change of budget requests ensure that necessary budget revisions are made within the appropriate overall departmental allocations. The communication of those changes takes place most conveniently through on-line access to the account information. While the budget change process allows for flexibility, there are also controls in place to ensure the integrity and correctness of all transactions.

RECOMMENDATIONS AND SUGGESTIONS: SECTION 6.3.4

Having found that the University complies with all imperatives in this section of the Criteria, the Financial Resources Committee makes no recommendations. The Committee has one suggestion:

Every effort should be made to communicate budget changes in a timely fashion to all affected parties.

6.3.5 THE RELATION OF AN INSTITUTION TO EXTERNAL BUDGETARY CONTROL

1. No outside or superimposed agency should exercise specific and detailed control over the financial affairs of an institution (Criteria 72).

2. Once funds have been appropriated, creating a budget, establishing priorities, and controlling expenditures become the responsibility of the institution—operating under the jurisdiction of the governing board and subject to its policies (Criteria 72).

3. Enforcement of budgetary law is imperative; however, the educational function of an organization must not be controlled through the use of budgetary techniques or controls by financial officials outside the institution (Criteria 72).

The Financial Resources Committee found that the University complies with all three criteria.

Based on formula funding, the Texas State Legislature dictates the amount of money that the University spends. While the University is held accountable by the legislature (that is, state and federal laws), no entity or person outside Sam Houston State University exerts control over the budget process and the financial affairs of the University.

Once the funds have been appropriated, Sam Houston State University assumes responsibility for creating the budget, establishing priorities, and controlling expenditures, subject to the jurisdiction and policies of The Texas State University System’s Board of Regents.

Although it is imperative that budgetary law is followed, the educational function of Sam Houston State University is not controlled through any budgetary technique or by any outside financial officials.

RECOMMENDATIONS AND SUGGESTIONS: SECTION 6.3.5

Having determined that the University complies with the imperatives in this section of the Criteria, the Financial Resources Committee has no recommendations.

6.3.6 ACCOUNTING, REPORTING, AND AUDITING

1. An institution must adopt an accounting system that follows generally accepted principles of institutional accounting as they appear in College of University Business Administration, published by the National Association of College and University Business Officers (Criteria 73).

2. Institutions exempted from the use of the required accounting system must arrange to provide comparable information (Criteria 73).

3. All proprietary institutions must provide revenue/expenditure reports consistent with NACUBO/AICPA publications, either independently certified in the audit report or included as supplemental data in the audit report (Criteria 73).

4. The chief business officer is responsible for preparing financial reports for appropriate institutional officials, board officers and outside agencies (Criteria 73).

5. Periodic written reports to the chief executive officer of the institution are essential (Criteria 73).

6. An annual fiscal year audit must be made by independent public accountants, or an appropriate government auditing agency, employing as a guide for institutions under the jurisdiction of the Financial Accounting Standards Board (FASB), Audits of Not-For-Profit Organizations, published by the American Institute of Certified Public Accountants (AICPA) (Criteria 73).

7. If an institution is subject to Statement of Financial Accounting Standards (SFAS) No. 117 and elects to use the single column "Corporate" Statement of Financial Position in its report, it must provide an additional Statement of Financial Position using one of the four highest levels of disaggregation illustrated in F.A.R.M. (Criteria 74).

8. The additional statement must be included either in the audit report as an audited supplemental schedule or independently certified if not included in the audit report (Criteria 74).

9. A for-profit institution and its corporate parent, if any, must add to their audit report a separate schedule indicating the disposition of profits, including detailed information on corporate income taxes paid, both state and federal, and on dividends distributed to stockholders (Criteria 74).

10. A public institution included in a statewide or systemwide audited financial report, for which a separate institutional audit report is not available for the fiscal year ending immediately prior to the committee visit, must have available, in lieu of audited financial statements, a Standard Review Report, in accordance with AICPA Professional Standards AR 100.35 to include current funds expenditure classifications and amounts in accordance with generally accepted principles of institutional accounting, and the institution’s current fund balance sheet (Criteria 74).

11. Institutions in this category must provide either a separate or a consolidated balance sheet (Criteria 74).

12. The auditors must not be directly connected with the institution either personally or professionally (Criteria 75).

13. An effective program of internal auditing and financial control must be maintained to complement the accounting system and the annual external audit (Criteria 75).

14. However, in those cases in which a public institution’s financial report is included as part of a comprehensive certified state or system financial report and a separate annual audited report is not available, the institution must have an established procedure to ensure the effectiveness of internal controls (Criteria 75).

Criteria 2, 3, 7, 8, and 9 do not apply to Sam Houston State University. The Financial Resources Committee determined that the University complies with all other imperatives in this section of the Criteria.

Sam Houston State University, as an agency of the State of Texas, follows the uniform accounting and reporting procedures prescribed by the Comptroller of Public Accounts. These procedures conform substantially with Governmental Accounting Standards Board (GASB) statements and with the AICPA industry audit guide, Audits of Colleges and Universities (1973 Edition), as amended by AICPA Statement of Position 74-8, Financial Accounting and Reporting by Colleges and Universities, and as modified by applicable Financial Accounting Standards Board (FASB) pronouncements issued through November 30, 1989, and as modified by all applicable Governmental Accounting Standards Board (GASB) pronouncements cited in Codification Section No. 5, "Colleges and Universities." Insofar as possible, these policies and procedures conform with the provisions of the Financial Accounting and Reporting Manual for Higher Education, published by the National Association of College and University Business Officers.

The Vice President for Finance and Operations is the chief business officer responsible for preparing financial reports for appropriate institutional officials, Board of Regents officers, and outside agencies. Monthly statements of operations and cash flows are prepared for the Board of Regents. A complete annual financial report is prepared and filed with the Governor, the State Auditor, and the Legislative Budget Board. Additionally, an inventory report is prepared and filed annually with the Comptroller of Public Accounts. Written reports are submitted to the President upon request; however, the financial reports are computerized and are available on-line at all times.

Sam Houston State University is included in the Texas statewide audited financial report, and a separate audit report for SHSU is unavailable. The University has made arrangements with the State Auditor to provide a special report on the financial statements for the year ended August 31, 1998, as required by the Southern Association of Colleges and Schools for ten-year accreditation. The state auditors have scheduled their work to ensure a timely report.

The State Auditor engaged to provide the special report is not directly connected with the University either personally or professionally.

An effective program of internal auditing and financial control must be maintained to complement the accounting system and the annual external audit. In the State of Texas management audit dated March 26, 1997, Sam Houston State University’s internal audit function was cited as ineffective in addressing University risks because of executive management’s limited participation in oversight and the Internal Audit Department’s failure to follow standards fully. Additionally, the Management Audit reported that neither executive management nor internal audit was proactive in using the internal audit function to reduce risk. Furthermore, the report alleged that the internal audit had an impaired risk assessment process, that it did not always collect sufficient evidence and documentation to support audit conclusions, and that it had not received a peer review as of November 1996. Eleven recommendations were made to improve the effectiveness of the Internal Audit Department.

Management of Sam Houston State University responded by implementing many of the recommendations to assure an effective program of internal auditing. A follow-up management audit will be conducted in June 1998, to provide additional feedback to corrective action.

Sam Houston State University has an effective program of financial control, as evidenced by controls established to assure the following: that expenditures do not exceed budgeted amounts; that transactions are authorized, accurate, and complete; that assets and records are physically safeguarded; and that the duties of authorization and recording of the transaction and the custody of assets are separate. Additionally, controls exist to assure that transactions are recorded, processed, summarized, and reported correctly and that accountability of related assets and liabilities is maintained. Most importantly, the presence of factors including integrity and ethical values, assignment of authority and responsibility, management’s philosophy and operating style, the Board of Regents’ participation, and the organizational structure suggest a commitment by Sam Houston State University to have and maintain effective controls.

RECOMMENDATIONS AND SUGGESTIONS: SECTION 6.3.6

Having determined that the University complies with the criteria in this section, the Financial Resources Committee has no recommendations. The Committee makes the following suggestion, however:

Sam Houston State University should be subject to a periodic review or audit (perhaps annually) that results in the issuing of a standard review report or of an independent audit report. When included in the Texas statewide audited financial report, SHSU becomes immaterial, and state auditors do not even visit the campus. It would be reassuring to have periodic, independent scrutiny of the University’s financial statements.

6.3.7 PURCHASING AND INVENTORY CONTROL

1. An institution must maintain proper control over purchasing and inventory management (Criteria 75).

2. The administration and governing board should protect responsible purchasing officials from the improper pressures of external political or business interests (Criteria 75).

3. A logical adjunct of the purchasing function is a system of well-organized storerooms such as those for physical plant, library and office and laboratory supplies, as well as an inventory system appropriate to safeguard the institution from loss of equipment (Criteria 75).

The Financial Resources Committee determined that the University complies with all of these imperatives.

The University’s purchasing and inventory control objectives, as outlined in Section 3c of the Purchasing and Stores Procedures, are to (1) conduct purchasing without favoritism and without arbitrariness or caprice; (2) acquire goods and services in an effective, efficient, and economical manner; (3) store and protect assets while in the possession of purchasing and stores; and (4) obtain value for surplus or obsolete items.

Section 5, Article V, House Bill No. 1, Seventy-second Legislature, Section 8.03(a), states that each agency head is responsible for the proper custody, care, maintenance, and safekeeping of the state property possessed by his agency. In addition, Section III of the Sam Houston State University Policies and Procedures Manual establishes property guidelines.

Policy outlined in the University Purchasing and Stores Procedures, Section 3c, accords with the above regulations: Responsibility and authority to purchase, lease, or rent materials, supplies, equipment, or services is placed with the Division of Finance and Operations, Purchasing and Stores Department. Purchasing is centralized to (1) realize economy, efficiency, and effectiveness in procurement; (2) pursue quality assurance and standardization; (3) maintain the highest standards of ethics; and (4) assure compliance with Board of Regents, state, and federal purchasing statutes, rules, and regulations.

According to the University Purchasing and Stores Procedures, purchases must be made on a competitive basis, as defined by the Supreme Court of Texas. Purchasing transactions in which the terms, conditions, or specifications prevent competition, favor a vendor or manufacturer, or increase the cost of the purchase items, are not consistent with University policy.

The University Store purchases and warehouses expendable supplies and materials most commonly used by various departments. These items generally include building materials, maintenance supplies, janitorial supplies, and office supplies.

The Property Control Supervisor, who is responsible for inventory control, must follow the State Purchasing and General Services Commission’s Personal Property Accounting Systems Manual of Instruction regarding the custody and maintenance of the University’s inventory and required records. The Property Office is responsible for tagging and recording in property records all property costing $500.00 or more. University procedures provide that personal property is appropriately tagged with an inventory control number when it is received.

Section 5, Article V, House Bill No. 1, Seventy-second Legislature, Section 8.03(f) states that each agency shall make a complete physical inventory of all property in its possession once a year; accordingly, all departments at Sam Houston State University take an annual inventory of personal property. The Property Control Supervisor matches the inventories taken by the departments against the property records, and then compiles an annual inventory report. Appropriate procedures exist for reporting missing or stolen property to the Department of Public Safety Services and to the Property Office.

RECOMMENDATIONS AND SUGGESTIONS: SECTION 6.3.7

The Financial Resources Committee found that the University complies fully with the imperatives in this section of the Criteria; there are no recommendations.

6.3.8 REFUND POLICY

1. The institution must adhere to a published policy and procedure for refunding fees and charges to students who withdraw from enrollment (Criteria 76).

2. The policy and procedure must be in keeping with generally accepted refund practices in the higher education community, applicable to all students, and clearly stated in appropriate official publications (Criteria 76).

The Committee determined that the University complies with both of the "must" statements.

Sam Houston State University observes a refund policy established by Senate Bill No. 604 of the 65th Legislature and adopted by the Board of Regents, The Texas State University System, in August 1977.

The refund policy specifies the exact proportion of money that will be refunded, as determined by the number of days into the semester. The policy applies to both students who officially withdraw from the University and those who drop one or more classes. This policy appears in the 1997-1999 Graduate Catalogue (38-40) and the 1998-2000 Undergraduate Catalogue (62-65).

RECOMMENDATIONS AND SUGGESTIONS: SECTION 6.3.8

The Financial Resources Committee determined that the University complies with the imperatives in this section of the Criteria; there are no recommendations.

6.3.9 CASHIERING

1. There must be a suitable organization and adequate procedures for the management of all funds belonging to the institution (Criteria 76).

2. The cashiering function should be centralized in the business office, and there must be a carefully developed system for the receipt, deposit and safeguarding of institutional funds (Criteria 76).

3. All persons handling institutional funds must be adequately bonded (Criteria 76).

The Financial Resources Committee determined that Sam Houston State University satisfies these three criteria.

The University complies with an established set of procedures for the management of all funds of the University. The procedures include organization under and within the Office of the Vice President for Finance ad Operations. All employees having responsibility for moneys are bonded according to requirements established by the Board of Regents.

RECOMMENDATIONS AND SUGGESTIONS: SECTION 6.3.9

Having determined that the University complies with the imperatives in this section of the Criteria, the Committee has no recommendations.

6.3.10 INVESTMENT MANAGEMENT

1. The institution must have a written statement of its investment policies and guidelines approved by the board (Criteria 76).

2. Investment policies and guidelines must be evaluated regularly (Criteria 76).

The Committee found that the University complies with these two "must" statements.

Sam Houston State University has a written investment policy statement, Investment Policies and Procedures, approved by the Board on November 3, 1995, and last revised September 1, 1997. The policy statement identifies primary investment objectives as including safety of principle, liquidity, and maximization of yield. The Vice President for Finance and Operations (VPFO) is the individual responsible for activities relating to investment management decisions and activities.

The investment policy statement contains a specific section on delegation of authority which describes the granting or withholding of investment authority as well as prohibited or restricted transactions. Authorized investments of SHSU are outlined in detail. SHSU is allowed to invest funds through TexPool (State of Texas Investment Pool, subject to the Public Finance Investment Act). Performance evaluation is addressed in quarterly and annual reports by the VPFO that are submitted to The Texas State University System’s Director of Finance. These reports are then consolidated into a system-wide report submitted to the Finance Committee of the Board of Regents. The Texas Higher Education Coordinating Board provides training for The Texas State University System Board members and the VPFO of SHSU. This training includes education in investment controls, security and strategy risks, market risks, and compliance with the Texas Public Funds Investment Act.

The Audit Report on Management Controls at Sam Houston State University issued by the Texas State Auditor’s office in March 1997 commended SHSU management for its quick response to recommendations for strengthening internal controls over investments and communicating expectations regarding ethics and conflicts of interest. The report also called for the Board of Regents, President of SHSU, and VPFO to "work together to establish realistic benchmarks for the University’s investment portfolio."

RECOMMENDATIONS AND SUGGESTIONS: SECTION 6.3.10

Having determined that the University complies with the "must" statements in this section of the Criteria, the Financial Resources Committee has no recommendations.

6.3.11 RISK MANAGEMENT AND INSURANCE

1. The institution should have a comprehensive risk management program which includes risk evaluation, risk avoidance and insurance (Criteria 77).

2. Adequate replacement protection for all physical facilities should be covered by appropriate levels of insurance or appropriate provisions for obtaining funds (Criteria 77).

The Committee found that the University complies with these two criteria.

The University has a comprehensive risk management policy which has the purpose of minimizing harm to physical, human, fiscal, and environmental resources of the University and of minimizing the total cost of risk. This policy provides for appointment of a "Risk Manager" who is delegated the authority and responsibility to create and carry out the risk management program.

Risk management practices identified in the policy include identifying perils and risks, avoiding unnecessary exposures, preventing harmful events and losses, initiating reasonable and appropriate loss control techniques, and insuring, where appropriate, individual or aggregate exposures in cases in which large potential losses exist.

Texas has a State Office of Risk Management (SORM), which periodically conducts site visits and review of state agencies. Following an April 1998 review of the University, SORM congratulated SHSU "on its methods of actively managing its risks by developing, implementing, and maintaining a risk management program, a safety and health program, and an approved return to work program meeting the guidelines developed by the State Office of Risk Management."

RECOMMENDATIONS AND SUGGESTIONS: SECTION 6.3.11

Having determined that the University complies with the imperatives in this section of the Criteria, the Financial Resources Committee has no recommendations.

6.3.12 AUXILIARY ENTERPRISES

1. The institution may operate, or have contracted for operation, activities that may have a significant impact on the operations of the institution. These activities may include, but are not limited to, the following: bookstores, residence halls, food service operations, printing/duplicating services, child care and transportation services. These activities, when operated by or for the institution, must be documented and operated in a fiscally responsible manner (Criteria 77).

The Committee found that the University complies with this "must" statement.

There are 116 auxiliary accounts at Sam Houston State University. Careful documentation is maintained on all 116 accounts by the Administrative Accounting Office.

Fiscal responsibility in this case is determined by whether or not revenues exceed expenses. Each year a budget based on the history of the enterprise is developed. Periodically, actual revenues and expenses are compared with budgeted amounts. Because some auxiliary accounts do not generate revenue, they are not allowed to exceed their budgets. Revenue-generating accounts, however, are sometimes permitted to overspend if they can reasonably expect to generate sufficient revenue to overcome the deficit before the end of the fiscal year.

A March 1997 management controls audit performed by the Office of the State (Texas) Auditor identified two problem areas in the management of SHSU auxiliary enterprises: the Bearkitten Academy and the Department of Music’s Twirling-Cheerleading Summer Camp Program. The Bearkitten Academy, a University-sponsored day care center which has been operating at a deficit, requires supplemental funding. The auditors recommended that the University not only establish a realistic budget for the Academy, but also reëvaluate its function and viability. The University is looking for other means of funding through grants and donations and is considering possible mergers with other existing programs on campus.

The second auxiliary enterprise cited as a problem area in the management controls audit is the Department of Music’s Twirling-Cheerleading Summer Camp Program. This enterprise had an accumulated deficit fund balance of $111,315 as of August 31, 1996. Presently, these camps no longer operate at a deficit, and a plan for repaying the accumulated debt has been established.

RECOMMENDATIONS AND SUGGESTIONS: SECTION 6.3.12

Having determined that the University complies with the "must" statements in this section of the Criteria, the Financial Resources Committee has no recommendations. The Committee offers the following suggestions, however:

The University should carefully evaluate the operation of the Bearkitten Academy to determine its continuation and budgetary support.

The University should continue to monitor the operation of the Twirling-Cheerleading Summer Camps to ensure their continued fiscal solvency.

COMPLIANCE TABLES: SECTIONS 6.3.1—6.3.12

 

6.3.1: Financial Resources

Imperative	Statement of Compliance	Supporting Documentation
1. Because the financial resources of an institution influence the quality of its educational program, each institution must possess sufficient financial resources to support all of its programs.	Compliance	Tables 6.3.1.a and 6.3.2, above SHSU Recommended Budgets for 1993-94 through 1997-98
2. The recent financial history of the institution must also demonstrate the financial stability essential to its successful operation.	Compliance	Table 6.3.1.a, above SHSU Recommended Budgets for 1993-94 through 1997-98

6.3.2: Organization for the Administration and Financial Function

Imperative	Statement of Compliance	Supporting Documentation
1. All business and financial functions of the institution should be centralized under a chief business officer reporting to the chief executive officer.	Compliance	SHSU Organization Chart Rules and Regulations, The Texas State University System Academic Policy Manual
2. The organization of the business office must be consistent with the purpose of the institution, the size of the institution, and the volume of transactions of a business or financial nature.	Compliance	SHSU Organization Chart Rules and Regulations, The Texas State University System Academic Policy Manual
3. The chief executive officer must report regularly to the governing board on the financial and business operations of the institution.	Compliance	SHSU Organization Chart Rules and Regulations, The Texas State University System Academic Policy Manual
4. The chief business officer should have experience or training in handling educational business affairs sufficient to enable the business office to serve the educational goals of the institution and assist in furthering its stated purpose.	Compliance	Table 6.3.2, above

 

6.3.3: Budget Planning

Imperative	Statement of Compliance	Supporting Documentation
1. An institution must prepare an appropriately detailed annual budget.	Compliance	SHSU Budget Rules and Regulations, The Texas State University System Administrative Policies and Procedures (Section 3) Minutes of SHSU Strategic Planning and Budget Committees
2. Its preparation and execution must be preceded by sound educational planning.	Compliance	Minutes of SHSU Strategic Planning and Budget Committees
3. The instructional budget should be substantively developed by academic officers or deans, working cooperatively with department heads, appropriate members of the faculty and administration and representatives of the business office.	Compliance	Minutes of SHSU Budget Committee
4. Procedures for budget planning must be evaluated regularly.	Compliance	Administrative Policies and Procedures (Section 3) Minutes of SHSU Strategic Planning and Budget Committees
5. Similarly, budgets for other areas should be developed after consultation with appropriate officers of the institution.	Compliance	Administrative Policies and Procedures (Section 3) Minutes of SHSU Budget Committee
6. The budget is presented by the chief executive officer through proper channels to the governing board for final approval. In reviewing the budget, the governing board should focus on matters of broad policy and normally should not concern itself with details.	Compliance	Rules and Regulations, The Texas State University System Administrative Policies and Procedures (Section 3)

6.3.4 Budget Control

Imperative	Statement of Compliance	Supporting Documentation
1. After the budget has been approved by the chief executive officer and adopted by the governing board, a system of control must be established.	Compliance	Rules and Regulations, The Texas State University System Administrative Policies and Procedures (Section 3)
2. The business offices must render interim budget statements on a periodic basis to department heads for their guidance in staying within budget allocations.	Compliance	Budget Statements Available On-line Administrative Policies and Procedures (Section 3)
3. Budgetary control is an administrative function, not a board function.	Compliance	Administrative Policies and Procedures (Section 3)
4. Necessary budget revisions must be made when actual conditions require such change and must be communicated to those affected within the institution.	Compliance	Administrative Policies and Procedures (Section 3)

 

6.3.5: The Relation of an Institution to External Budgetary Control

Imperative	Statement of Compliance	Supporting Documentation
1. No outside or superimposed agency should exercise specific and detailed control over the financial affairs of an institution.	Compliance	Rules and Regulations, The Texas State University System Administrative Policies and Procedures (Section 3)
2. Once funds have been appropriated, creating a budget, establishing priorities, and controlling expenditures become the responsibility of the institution—operating under the jurisdiction of the governing board and subject to its policies.	Compliance	Rules and Regulations, The Texas State University System Administrative Policies and Procedures (Section 3)
3. Enforcement of budgetary law is imperative; however, the educational function of an institution must not be controlled through the use of budgetary techniques or controls by financial officials outside the institution.	Compliance	Rules and Regulations, The Texas State University System Administrative Policies and Procedures (Section 3)

 

 

6.3.6: Accounting, Reporting, and Auditing

Imperative	Statement of Compliance	Supporting Documentation
1. An institution must adopt an accounting system that follows generally accepted principles of institutional accounting as they appear in College and University Business Administration, published by the National Association of College and University Business Officers.	Compliance	Administrative Policies and Procedures (Section 1) Rules and Regulations, The Texas State University System
2. Institutions exempted from the use of the required accounting system must arrange to provide comparable information.	Not applicable
3. All proprietary institutions must provide revenue/expenditure reports consistent with NACUBO/AICPA publications, either independently certified in the audit report or included as supplemental data in the audit report.	Not applicable
4. The chief business officer is responsible for preparing financial reports for appropriate institutional officials, board officers and outside agencies.	Compliance	Administrative Policies and Procedures (Section 3)
5. Periodic written reports to the chief executive officer of the institution are essential.	Compliance	Financial Reports Available On-line
6. An annual fiscal year audit must be made by independent public accountants, or an appropriate government auditing agency, employing as a guide for institutions under the jurisdiction of the Financial Accounting Standards Board (FASB), Audits of Not-For-Profit Organizations, published by the American Institute of Certified Public Accountants (AICPA).	Compliance	Administrative Policies and Procedures (Section 3) Minutes of SHSU Strategic Planning and Budget Committees Annual Texas Audited Financial Report (Since SHSU is included in the Texas statewide audited financial report, see supporting documentation for Criterion 10, below.)
7. If an institution is subject to Statement of Financial Accounting Standards (SFAS) No. 117 and elects to use the single column "Corporate" Statement of Financial Position in its report, it must provide an additional Statement of Financial Position using one of the four highest levels of disaggregation illustrated in F.A.R.M.	Not applicable
8. The additional statement must be included either in the audit report as an audited supplemental schedule or independently certified if not included in the audit report.	Not applicable
9. A for-profit institution and its corporate parent, if any, must add to their audit report a separate schedule indicating the disposition of profits, including detailed information on corporate income taxes paid, both state and federal, and on dividends distributed to stockholders.	Not applicable
10. A public institution included in a statewide or systemwide audited financial report, for which a separate institutional audit report is not available for the fiscal year ending immediately prior to the committee visit, must have available, in lieu of audited financial statements, a Standard Review Report, in accordance with AICPA Professional Standards AR 100.35 to include current funds expenditure classifications and amounts in accordance with generally accepted principles of institutional accounting, and the institution’s current fund balance sheet.	Compliance (conditional)	Annual Texas Audited Financial Report	Rules and Regulations, The Texas State University System Administrative Policies and Procedures (Section 3) The (Texas) State Auditor has been engaged to provide a Special Report on SHSU’s financial statements for the year ended August 31, 1998, as required by SACS for ten-year accreditation.
11. Institutions in this category must provide either a separate or a consolidated balance sheet.	Compliance (conditional)	The (Texas) State Auditor has been engaged to provide a Special Report on SHSU’s financial statements for the year ended August 31, 1998, as required by SACS for ten-year accreditation.
12. The auditors must not be directly connected with the institution either personally or professionally.	Compliance	Audits performed by the Office of the State Auditor
13. An effective program of internal auditing and financial control must be maintained to complement the accounting system and the annual external audit.	Compliance (conditional)	SHSU Organization Chart Rules and Regulations, The Texas State University System Administrative Policies and Procedures (Sections 1 and 3) The (State) Audit Report on Management Controls dated March 1997 cited SHSU’s internal audit function as being ineffective and made eleven recommendations. A follow-up Audit Report on Management Controls dated October 1998 stated that SHSU has implemented or is in the process of implementing most of the recommendations related to improving the internal audit function.
14. However, in those cases in which a public institution’s financial report is included as part of a comprehensive certified state or system financial report and a separate annual audited report is not available, the institution must have an established procedure to ensure the effectiveness of internal controls.	Compliance (conditional)	SHSU Organization Chart Rules and Regulations, The Texas State University System Administrative Policies and Procedures (Sections 1 and 3) The (State) Audit Report on Management Controls dated March 1997 cited SHSU’s internal audit function as being ineffective and made eleven recommendations. A follow-up Audit Report on Management Controls dated October 1998 stated that SHSU has implemented or is in the process of implementing most of the recommendations related to improving the internal audit function.

6.3.7: Purchasing and Inventory Control

Imperative	Statement of Compliance	Supporting Documentation
1. An institution must maintain proper control over purchasing and inventory management.	Compliance	Administrative Policies and Procedures (Section 3)
2. The administration and governing board should protect responsible purchasing officials from the improper pressures of external political or business interests.	Compliance	Administrative Policies and Procedures (Section 3)
3. A logical adjunct of the purchasing function is a system of well-organized storerooms such as those for physical plant, library and office and laboratory supplies, as well as an inventory system appropriate to safeguard the institution from loss of equipment	Compliance	Physical Existence of Storerooms Administrative Policies and Procedures (Section 3)

 

6.3.8: Refund Policy

Imperative	Statement of Compliance	Supporting Documentation
1. The institution must adhere to a published policy and procedure for refunding fees and charges to students who withdraw from enrollment.	Compliance	SHSU Undergraduate and Graduate Catalogues
2. The policy and procedure must be in keeping with generally accepted refund practices in the higher education community, applicable to all students, and clearly stated in appropriate publications.	Compliance	SHSU Undergraduate and Graduate Catalogues

6.3.9: Cashiering

Imperative	Statement of Compliance	Supporting Documentation
1. There must be a suitable organization and adequate procedures for the management of all funds belonging to the institution.	Compliance	Administrative Policies and Procedures (Section 3)
2. The cashiering function should be centralized in the business office, and there must be a carefully developed system for the receipt, deposit and safeguarding of institutional funds.	Compliance	Administrative Policies and Procedures (Section 3)
3. All persons handling institutional funds must be adequately bonded.	Compliance	Administrative Policies and Procedures (Section 3)

 

6.3.10: Investment Management

Imperative	Statement of Compliance	Supporting Documentation
1. The institution must have a written statement of its investment policies and guidelines approved by the board.	Compliance	SHSU Investment Policies and Procedures (Rev. 9/1/97)
2. Investment policies and guidelines must be evaluated regularly.	Compliance	SHSU Investment Policies and Procedures (Rev. 9/1/97)

 

6.3.11: Risk Management and Insurance

Imperative	Statement of Compliance	Supporting Documentation
1. The institution should have a comprehensive risk management program which includes risk evaluation, risk avoidance and insurance.	Compliance	SHSU Risk Management Policy Review Report from State Office of Risk Management (May 13, 1998)
2. Adequate replacement protection for all physical facilities should be covered by appropriate levels of insurance or appropriate provisions for obtaining funds.	Compliance	SHSU Risk Management Policy Review Report from State Office of Risk Management (May 13, 1998)

6.3.12: Auxiliary Enterprises

Imperative	Statement of Compliance	Supporting Documentation
1. The institution may operate, or have contracted for operation, activities that may have a significant impact on the operations of the institution. These activities may include, but are not limited to, the following: bookstores, residence halls, food service operations, printing/ duplicating services, child care and transportation services. These activities, when operated by or for the institution, must be documented and operated in a fiscally responsible manner.	Compliance	Financial Records in the Administrative Accounting and Business Offices State Audit Report on Management Controls (March 1997) Follow-up State Audit Report on Management Controls (October 1998)