A budget officer’s reconstruction of the University of Arkansas Advancement Division’s fiscal 2012 budget shows that the key reason for a roughly $3 million deficit was that its fundraising department spent five times what was authorized.
The financial record supports an assertion Fayetteville campus officials made Dec. 3 that the main reason for the overspending was the fundraising department’s addition of staff members — without budgeted funds in place — in preparation for a capital campaign.
The deficit-spending in the division’s Development Office was greater than the bottom-line figure of $3.1 million university officials have given for the fiscal year that ended June 30. Underspending on some line items within the division’s other departments allowed budget employees performing a forensic analysis to mitigate $4.2 million in overspending in the Development Office’s budget.
While the Development Office’s budget authorized $912,372 in spending, the office spent more than $5.1 million in 2012, according to the reconstruction. It budgeted $678,392 for salaries but spent $3.4 million, the record shows.
The reconstruction shows the Advancement Division’s budget and the five offices within it actually had a deficit of $3,290,314 for fiscal 2012, according to financial documents the university released.
University officials have not answered questions about how many employees were added to support the capital campaign. An e-mail from John Diamond, the university’s chief spokesman, said the Advancement Division overall had 138 employees in fiscal 2009 and 2010, 155 in fiscal 2011, 156 in fiscal 2012 and 154 in fiscal 2013.
University officials said this week that positions added in the Advancement Division were approved both by the provost and chancellor.
The campus instituted a temporary hiring freeze about two years ago, Provost Sharon Gaber said, so vice chancellors seeking to add a position had to cite a critical need and state whether there was money available in the budget.
She said she relied on the vice chancellors to tell her if the money was available.
“There is an assumption that when a vice chancellor makes a request for a position and the vice chancellor says the money is there, that it is there,” Diamond said.
Don Pederson, the univer- sity’s chief financial officer, declined to answer questions this week from the Arkansas Democrat-Gazette on the budget reconstruction, but Diamond answered some of them.
Diamond said Monday that the university regularly makes transfers in the days after the close of a fiscal year to even out year-end actual budgets closer to the original projected budgets, so that some units with surplus funds can cover others that end up in the red.
Typically this is done within a division’s departments, he said. But, campus officials have said previously that they have not encountered a budget deficit of the magnitude of the Advancement Division’s deficit in fiscal 2012.
University administrators became aware of the deficit sometime around the fiscal year’s end in June. They spent several weeks investigating how the overspending occurred without the Advancement Division’s department heads realizing it, concluding the financial review sometime in October.
They said the division overspent its $10 million budget by roughly one-third because Vice Chancellor for Advancement Brad Choate and his chief budget officer, Joy Sharp, had been using anticipated investment revenue from the budget’s privately funded side to meet current obligations.
“Under that practice, the combination of overcommitments and the use of future revenues to close the division’s end-of-year budget gap compounded quickly,” Chancellor G. David Gearhart wrote in a Dec. 3 explanation distributed to the campus the same day Arkansas Business published a story about the budget deficit.
“The resulting imbalance was not detected because the division’s budget officers did not carefully monitor the flow of revenues and expenditures,” Gearhart wrote, adding that there was no misappropriation, fraud, theft or any private benefit.
Sometime around Nov. 9, Choate and Sharp were reassigned and told their appointments to the university would not be renewed after June 30, 2013. Choate retained his $348,175 salary, and Sharp’s was reduced from $91,086 to $68,314.
Gearhart said he would assume direct management of the Advancement Division, his previous role at the university, and said Pederson’s Office of Finance and Administration would manage the division’s budget directly and heighten fiscal monitoring.
University administrators covered the fiscal 2012 deficit with a mix of one-time transfers and loans from within campus. In December, they predicted the division’s fiscal 2013 budget would be reworked by this month.
Diamond said this week that the university hasn’t yet finalized the division’s budget for fiscal 2013, which began July 1. E-mails obtained previously show administrators discussed possible cuts to the Advancement Division’s fiscal 2013 budget, including limiting travel and not filling positions.
Administrators also haven’t finalized plans for a “cost recovery assessment” on some cash gifts to create a new revenue stream to fund the Advancement Division. Such an assessment would set aside a percentage of donations to support the Advancement Division’s budget.
It is possible the new fee would be retroactive to Jan. 1, which is the start of the second half of fiscal 2013, Diamond said.
The division’s $10 million budget has two main revenue sources: about $5 million in public funds derived from state appropriations and students’ tuition and fees, and about $4.5 million in private UA Foundation funds.
Since the Democrat-Gazette first asked last month for a detailed list of Advancement Division positions added beyond the budgeted allotments, the university has not provided one.
On Tuesday, Diamond gave an overall number of employees within the Advancement Division between fiscal 2009 and fiscal 2013. The information does not detail how many positions were added during those years or which departments within the division added positions.
Arkansas, Pages 9 on 01/09/2013