2025 REP: Financial Oversight and Accountability: Best Practices for Financial Stewardship

Overview (Higher-ed financial oversight & accountability)

• The session frames university finance as an ecosystem with multiple “budget legs” and reporting layers beyond what most board members see in a single topline budget.
• Emphasis is on board-ready reporting: timely, accurate, and easy to understand, plus strong oversight of:
  • audits
  • compliance
  • tuition-setting
  • cash reserves
  • capital planning
  • resource allocation

Organizational structure & “where the money lives”

Operating “education” categories (enterprise view)

• Part 1: Traditional academic instruction

  • Includes items like endowed chairs/professorships, tuition & fees, and terms such as tuition discounting.

• Part 2: Grants / sponsored programs / federal aid

  • Includes grants, Pell awards, and compliance-heavy research/sponsored activity.
  • Mentions Facilities & Administrative (F&A) cost recovery studies:
    • Institutions recover only about $0.58 per $1 of F&A costs studied.
    • Negotiated reimbursement rates are around 44–47%.

“Service units / auxiliary enterprises” (internal quasi-businesses)

Universities run units like self-supporting business operations:

• Internal-facing: e.g., facilities management, spreading utility costs.
• External-facing: e.g., student housing, dining, athletics.

Key expectation: auxiliaries should be self-sufficient—meaning revenue and demand management matter operationally (not just academically).

Private money governance (foundations & endowment trust)

Private funding is mission-critical but requires accountability:

• Foundations receive private gifts.
• Endowment trust fund supports endowed chairs/professorships.
• Agency funds hold money for others (e.g., student organizations) requiring fiduciary responsibility.

Core revenue model (the “three-legged stool”)

Three primary revenue sources to the CFO-level perspective

1. State support (state appropriations)

   • For comprehensive institutions: around 12–15% of total budgets.
   • Often 40–50% for other tiers like 2-year/4-year regionals.

2. Self-generated revenue

   • Tuition & mandatory fees (with tuition waivers/discounting as a major lever).
   • Athletics, housing, dining, auxiliary fees/ticketing.

3. Private support

   • Endowment & foundation funding (scholarships, endowed faculty support, departmental support).

Cash flow as an operational KPI (not just accounting profit)

• Universities commonly fund activities upfront and get reimbursed after the fact.
• As a result, cash flow management is framed as critical “lifeblood” oversight.

Budgeting granularity: operating at the fund level

• Boards may see rolled-up totals, but real operations happen at the fund level.
• Example: one institution may show a ~$1.9B total budget figure, while budgeting runs at finer “thousands-of-funds” detail.
• Board-facing narrative includes:
  • operating budgets by component units (auxiliaries, service units, etc.)
  • capital planning layers and dedicated revenue streams

Athletics as a special financial operating challenge

Revenue sharing impacts operating costs

• A settlement (“revenue sharing”) added $20M to athletics expense budgets:
  • escalates at roughly ~4% annually for the next 10 years
  • expected to top out around ~$30M in ten years
• NIL is separate and outside the institution’s direct structure.

Practical implication / governance warning

• Even Division I programs described as “sustainable” are characterized as not truly self-sufficient:
  • typically still rely on $40M–$60M in private support.
• Coaching/personnel change risk:
  • private support and cash needs can vary significantly with staffing changes.

Tuition & affordability strategy (tuition-setting playbook)

What boards approve vs what matters under the hood

• Tuition and mandatory fees are the headline approval:
  • often approved in June
  • then moved to state regents for approval.
• Separately, academic service fees (course/lab-specific fees) are treated differently:
  • e.g., chemistry lab fees, instrument/class-specific fees.

Statutory caps / peer-group constraints

• Tuition & mandatory fees face legal peer constraints:
  • resident tuition is set relative to average resident rates of defined peers (described as “Big 12” style peer group)
  • nonresident tuition is described as 105% of the nonresident peer average
• Academic services fees are excluded from those limits (not covered by the same cap structure).

Tuition discounting = waiver strategy (framed as “coupons”)

• Waivers are framed as a market-price tool:
  • boards don’t set every “real price” students pay—waivers determine it.
• Example institutional waiver magnitudes (incoming freshmen):
  • ~44% of nonresident tuition waived (for average freshman)
  • ~54% of resident tuition waived (for incoming freshmen)
• A third-party econometric partner estimates market price based on demand:
  • resident demand described as relatively inelastic
  • nonresident demand described as elastic

Net price transparency tools

• Boards are encouraged to use net-cost reporting similar to:
  • College Board “net tuition” studies (net cost after discounts)
• Internally produced materials show:
  • sticker price vs actual real price students pay
  • tuition waiver/discount amounts

“Sweet spot” framework (Venn diagram)

A board-level recruitment/enrollment optimization concept:

• revenue
• quality of student class / academic preparedness
• size of class

Warning: maximizing only one dimension harms others (e.g., maximizing revenue via excessive waivers can reduce quality or enrollment objectives).

Auxiliary pricing & affordability (often overlooked)

• Housing/dining:
  • not necessarily approved through the same state regents process as tuition
  • positioned as market-priced and often higher than tuition for resident students (example cited: $13–$15K/year)
• Recommendation: track housing/dining trends because they materially drive cost of attendance.

Student outcomes & debt disclosure (high-level)

• A state-level “story” cited:
  • 56% of undergraduate students graduate without debt.
• Future compliance/public reporting:
  • Financial Value Transparency in Gainful Employment reporting (Dept. of Ed database)
  • two metrics expected to become public:
    • debt-to-earnings ratio
    • earnings premium vs no-degree baseline
• Boards are encouraged to use an ROI lens for incoming students.

Financial oversight & reporting cadence

Board information quality principles

• CFO messaging principle:
  • timely, accurate, and easy to understand
• Concern flagged:
  • audited statements can be accurate but not timely (reporting lag).

Quarterly financial analysis “close the loop”

• Internal quarterly analysis prepared at quarter-end dates (examples):
  • Sept 30, Dec 31, Mar 31
• Includes:
  • budget vs actual
  • variance analysis (called out as critical—no variance explanation makes it hard for boards to “peek under the hood”)

EMG budget nuance (operating “heartbeat” vs total institutional budget)

• Total institutional budgets can look positive while EMG operating budgets are tighter.
• Example ranges:
  • total budget: ~$1.4B
  • EMG “heartbeat” budget: ~$650M–$700M
• Recommendation: look beyond topline audited/reported revenue to understand the operating core.

Audit and controls playbooks

External audit (financial statements + Single Audit A-133)

External auditors are responsible for:

• financial statements being free from material misstatement
• Single Audit (A-133) compliance testing for federal funds

Board question to ask auditors:

“Were there any findings, even if not communicated at the board level?”

Finding severity taxonomy referenced:

• internal control deficiency → significant deficiency → material weakness

Goal: avoid material weakness.

Internal audit (annual plan as a governance control)

• Strong internal audit is described as:
  • a board-approved annual audit plan
  • includes dialogue with management about:
    • regulatory risk
    • new lines of business
    • operational changes (e.g., bursar cash collection procedures)
• The internal audit plan should be monitored with progress reports to governance.

Compliance with state laws

• Audits also include compliance; auditors issue an unmodified report (conceptually similar to “unqualified”).
• Emphasis: any modified audit opinion is a major red flag.

KPI framework for boards

Cash on hand (Days cash on hand)

• Purpose: measures cash relative to daily operating expenses (“how many days can we operate without new revenue?”)
• Benchmarks mentioned:
  • Arizona policy: ~150 days
  • Oklahoma institutions rarely reach that number
• Target mentioned:
  • aspirational goal: ~120 days
• Example metric:
  • breaching the 100-day mark for June 30, 2025
• Peer correction example:
  • University of Arizona initially claimed 170 days, then corrected to 109 days (context matters)

Debt ratios (debt service coverage)

• High-level metric referenced:
  • debt service coverage = (revenues after operating expenses) / (principal + interest)
• Typical target guidance: ~5x or 6x
• Context: higher education debt may remain manageable, influenced by:
  • deferred maintenance funding
  • limited capital reserves
  • priorities like athletics/major projects

Composite Financial Index (CFI)

• Higher-ed metric:
  • scale roughly -4 to 10
  • negative four described as “bankrupt,” ten as “Texas” (illustrative framing)
• Composition:
  • ~70% balance sheet weight
  • ~30% income statement
  • Days cash on hand contributes ~35% (as referenced)
• Rule-of-thumb threshold:
  • CFI ~3 as an important reference point (with nuance in calculation)

Capital planning & debt governance

Campus Master Plan (annual reporting)

• A state-regents-facing report submitted annually:
  • not a full consultant-style narrative master plan
  • essentially an inventory of top projects to inform funding asks

Project-level scrutiny and credit rating modeling

• For major projects, regents/community colleges evaluate impacts on:
  • debt service coverage ratios
  • credit ratings (e.g., S&P)
• Boards may use third parties for credit rating impact analysis.

Section 13 / capital funding structure (Oklahoma-specific)

• Section 13 funds reserved for capital.
• Institutions receive direct allocations and/or allocations via Section 13 offset.

Deferred maintenance funding

• Legislature provides deferred maintenance funding.
• Still described as a continuing challenge due to aging facilities and limited repair resources.

Master Lease Program (structured financing playbook)

• Debt-like mechanism that spreads cost over asset life:
  • initially equipment, later expanded to real property (housing/projects)
• Benefit highlighted:
  • for smaller institutions, enables collective issuing under the State Regents umbrella
  • combined projects → easier market access for bond issuance
  • better interest rates/ratings due to scale and rating strength

Investment, procurement & ethics/control policies

Investment policy (cash balances)

• When investing within state guidelines:
  • emphasize risk-averse, government securities
  • prioritize preservation, not maximizing yield.

Endowment investment policy coordination

• Endowments operate under a distinct philosophy via foundations.
• Two constraints must align:
  • spending policy (example cited: 4.5% distribution)
  • investment policy (needs to generate ~8% annually to offset inflation and admin costs)
• Core idea: inflation erosion is real; distributions require higher returns to maintain real value.

Procurement & contracting (leverage spend)

• Universities leverage procurement by packaging more spend for better discounts.
• Larger systems negotiate deeper discounts for smaller institutions.

Financial ethics & conflicts of interest

Governance needs:

• a confidential reporting mechanism (internal auditing/legal counsel independent of day-to-day)
• an annual conflicts of interest disclosure process

Resource management & operational efficiency

“Stool” metaphor reframed as multi-source sustainability

Reframed as a four-legged stool:

• state
• students
• external revenue
• donors

When increasing tuition or seeking appropriations, demonstrate internal savings or consolidation, often framed as efficiency improvements enabled by technology/process redesign.

Example: graduate admissions process efficiency

• Problem: undergraduate review centralized; graduate review more decentralized → administrative strain.
• Action: implement system/technology to manage graduate application review.
• Principle: efficiency changes should enable growth without unnecessary position elimination (technology leverage).

Functional expenses / institutional support investment metric

Board-level spending mix framework

• Distinction:
  • natural expense classification vs functional expense classification
• Functional categories referenced:
  • instruction, academic support, institutional support (overhead), etc.

Board monitoring recommendation:

• track institutional support spend per student
• look at:
  • trends over time
  • peer comparisons
  • medians to reduce noise

Interpretation guidance:

• higher institutional overhead may be acceptable if the institution invests in core mission outcomes (faculty/research expansion).

Concrete actionable recommendations (recurring)

• Request variance explanations with quarterly budget vs actual reporting.
• Track the EMG operating core separately from total institutional budget optics.
• Use net price analysis (sticker vs real price after waivers) for tuition decisions.
• Monitor Days cash on hand versus peers/benchmarks and avoid calculation errors.
• Ensure audit governance questions include:
  • any findings (even below board-communication thresholds)
  • severity grading outcomes and internal control risks
• For major capital projects:
  • model debt service coverage and credit rating impacts before approval.
• For efficiency/resource management:
  • prioritize process redesign and technology leverage, not only headcount savings.

Key metrics / KPIs and targets mentioned

• State support share of total budgets
  • ~12–15% for comprehensive institutions
  • ~40–50% for 2-year/4-year regionals
• F&A recovery example
  • ~$0.58 per $1 studied
  • negotiated recovery ~44–47%
• Budget examples
  • total budget shown around $1.9B (presentation example)
  • operating total budget example: $1.4B
  • EMG operating core: ~$650M–$700M
• Tuition setting / waiver examples (incoming freshmen)
  • ~44% nonresident tuition waived
  • ~54% resident tuition waived
• Athletics
  • revenue sharing adds $20M, ~4% annually for 10 years → ~$30M cap by year 10
• Cash on hand (Days cash on hand)
  • breaching 100 days (as of June 30, 2025)
  • aspirational target: 120 days
  • Arizona benchmark: 150 days
  • peer correction example: 170 → 109 days
• Debt service coverage
  • general guidance: ~5x–6x
• Composite Financial Index (CFI)
  • scale roughly -4 to 10
  • threshold referenced: ~3
• Endowment spending/investment policy
  • distribution example: 4.5%
  • needed return to preserve real value: ~8%
• Student debt
  • 56% of undergrads graduate without debt

Presenters / sources

• Stewart Burkinshaw (University of Oklahoma) — Senior Vice President for Strategy, Finance, and Chief Financial Officer
• Chris Whitty (Oklahoma State University System) — Senior Vice President and Chief Financial Administrative Officer
• Mentioned but not presented:
  • Deloitte (manages the NIL portal referenced)
  • College Board (net tuition study source)