University Unrestricted Reserves
May 27, 2005
Mr. James R. Roth
Woodard, Hernandez, Roth and Day
257 North Broadway, Suite 300
Wichita KS 67202
Dear Mr. Roth:
I have enclosed an evaluation of President Jerry Farley that I think the Board should consider as his FY06 compensation is determined. Although his cheerleading skills are strong, students and taxpayers expect more accountability for his stewardship of public funds, especially as the Board approaches determination of the FY06 tuition rate.
Over the past several years, Board members have raised questions about the university reserves, especially as they continue to be significantly committed to various capital projects. Oftentimes, President Farley gives the Board a quick summary of the balance and an even quicker assurance that reserves are adequate for contingencies and/or cash flow.
However, a simple written projection of the reserve balance has never been provided to the Board. Determining the actual uncommitted reserve balance is confusing when the reported figures for FY03 change with no explanation (see Exhibit I) (pdf). However, based upon the FY04 audit report, the uncommitted reserve balance was $20.9 million, a decrease of $1.6 million from the FY03 balance of $22.5 million.
With the recent Board approval of the reserve funds for the WEA and Stoffer renovation projects, at $1.3 and $9.8 million respectively, nearly 53% of the uncommitted reserve balance has been consumed by these two projects alone. The following allocation of the unrestricted net assets was provided on page 6 of the FY04 audit report:
| Allocated to: | Percentage | Amount |
|---|---|---|
| Working Capital | 41.6% | $ 8,699,046 |
| Future Capital Projects | 29.2% | 6,106,061 |
| Regent's Contingency/Marketing | 10.3% | 2,153,850 |
| Sales Tax Smoothing Fund | 7.1% | 1,484,693 |
| Law School Renovation | 5.9% | 1,233,759 |
| Auxiliaries | 5.9% | 1,233,759 |
| Total Reserves | 100.0% | $20,911,168 |
With $11.3 million approved from a balance for future capital projects of $6.1 million, who or what pays for the balance of $5.2 million? It doesn't seem that any resources will be available for the Henderson Resource Learning Center and Mabee Library capital projects that remain on the horizon.
This analysis of reserves doesn't take into account the apparent funding shortfalls that are in the Building and Construction fund. For example, the following projects were reported as overexpended on page 3-1 of the university's FY04 Financial Report.
| Project | Amount |
| Art Building Project | $ 599,035 |
| Equipment Repair & Replacement | 14,287 |
| Law School Renovation (2004) | 466,610 |
| Lee Arena Athletic Center | 592,321 |
| Living Learning Center | 629,779 |
| LLC Major Repairs | 30,694 |
| Moore Bowl Improvement | 1,249,465 |
| Carole Chapel | 119,563 |
| Residence Halls | 5,918 |
| White Concert Hall | 13,740 |
| FY03 Miscellaneous Projects | 88,771 |
| FY03 ETC | 210,759 |
| Unallocated | 278,511 |
| Total Amount Overexpended | $ 4,299,453 |
While there is a receivable from WEA of $2,760,525 in this fund, this still leaves $1.5 million funded from other projects or from reserves. An explanation for these overexpeditures should be provided to the Board, including the amount of fundraising that remains uncollected. If such a report has been given to the Board, I would like to know, so that I may request a copy of it.
Sincerely,
Mary Lou Herring