1. Meeting of the Finance Committee New Internal Financial Model November 8, 2012
Victoria Harker to open meeting.
Pat Hogan:
Pleased to be here with you in my role as EVP-COO for our first Board meeting together
We have a strong agenda planned; our first topic is a report on our FY11-12 audited financial statements and first quarter FY12-13 sources and uses.
Dave Boling, our comptroller, will present the audited financial statements.
There are no material changes from the unaudited figures presented in September. This presentation, however, also includes some ten-year trend data.
Before Dave starts, I will highlight that we shortly receive an audit opinion from the Auditor of Public Accounts, likely the beginning of next week. We expect it to be unqualified/clean.
I understand that the Auditor of Public Accounts will attend the Audit Committee meeting in February, as is his custom, to share his review of the University’s financial statements.
Thank you, Dave.

2. New Internal Financial Model
Objectives:
Align resources with activity
Promote prudent stewardship of University resources
Ensure transparent decision-making
Colette & John

3. Tuition and State General Funds
Current Model
Central
Admin.
School A
School B
Service Center B
Service Center A
Tuition and State General Funds
$$$ $$ $
Colette & John

4. Why Change? Concerns with Current Model
Target budgets are historically based and do not reflect actual activity
Does not provide consistent incentives for all units to be innovative in revenue creation
Does not consider all available funds
Does not link sources and uses
Does not align authority, responsibility, accountability
Desire for a more transparent decision-making process
Colette & John

5. What Will Not Change? How we generate most revenue will not change
State appropriation
Tuition from students
Federal funding
Philanthropy
Basic cost structure will remain the same
Faculty and staff costs
Facilities and support costs
Financial aid
Colette & John

6. What Will Change? Distribution of revenue will reward:
Developing new programs
Maximizing external opportunities
Allocation of costs will:
Increase awareness of consumption
Make transparent institutional commitment
Encourage efficient and competitive services
Priorities will be set closer to where activity occurs
Hiring will be aligned with priorities
Colette & John

7. Tuition and State General Funds
Central
Admin.
School A
School B
Service Center B
Service Center A
Tuition and State General Funds
Proposed New Model $$
tax $
direct payment
Colette & John
Revenue centers (schools, auxiliaries) will generate revenues
Revenue centers will pay direct, facilities, and indirect costs
Service centers will be funded by charges/assessments to revenue centers
Law & Darden live within this system under financial self-sufficiency agreements. $

8. Challenges Easier to implement in times of growing resources
Encourage and fund strategic priorities and inter- disciplinary activities
Do not incentivize unnecessary duplication of services – academic, student, and administrative
Encourage collaboration, not competition
Regularly assess performance of revenue centers and cost centers
Colette & John
Subventions: Appropriately subsidize areas of high strategic priority, but do not establish entitlements
In early years, must balance significant re-allocations
Duplication of services will be tempting as schools gain control of revenues --

9. New Financial Model Timeline
FY14 – Phase I, units receive the same amount of funds as under the current model
Attribute revenues based on agreed methods
Allocate some costs based on agreed metrics
Assess revenue centers for unallocated central costs
Determine hold harmless/subvention provisions
Colette & John
Plan is to implement in two phases.
Phase I will be implemented for the FY14 budget.
At the end of the day each unit will get the same amount of funds as under the current budget allocation model.
The manner in which they receive those funds will be different.
Revenues will follow activity (e.g. tuition will be credited to the schools with a share following student credit hours and a share going to the school where the student is enrolled)
A number of major cost centers will be allocated to revenue centers based on certain metrics (e.g. facilities costs will be allocated on a per square foot charge, human resources will be allocated based on number of employees)
Revenue centers will be assessed an amount to cover unallocated central services.
Certain hold harmless provisions will need to be in place which will lead to explicit subventions of certain schools or activities.

10. New Financial Model Timeline
FY15 – Phase II
Attribute revenues as in Phase I
Allocate additional costs based on agreed metrics
Assess revenue centers for unallocated central costs
Begin to phase out hold harmless provisions
Make subventions transparent
FY16 and beyond – continue to mature the model
Colette & John
Plan is to implement in two phases.
Phase II will be implemented for the FY15 budget.
We will continue to attribute revenues to the activities that generate them (e.g. tuition will be credited to the schools with a share following student credit hours and a share going to the school where the student is enrolled)
We will identify additional major service centers whose costs can be allocated on a reasonable basis.
This will result in a smaller assessment to revenue centers in order to fund unallocated central services.
We will begin to phase out the hold harmless provisions which will result in some explicit subventions that will be transparent to everyone.
We recognize this is a model that will require continual assessment and fine tuning into the future.