These minutes reflect
discussion and debate at a meeting of a committee of the
Minutes
Present:
Charles Speaks (chair), Prince Amattoe, Stanley Bonnema, Robert Cudeck, Daniel Feeney, Greg
Fox, Gary Jahn, Cynthia Jara, Thomas Klein, Elo Charity Oju, Richard Pfutzenreuter, Terry Roe, Susan VanVoorhis, Michael
Volna, Warren Warwick, Susan Carlson Weinberg
Absent:
Brittny McCarthy Barnes, Jean Bauer, Charles Campbell,
David Chapman, Wendell
Johnson, Michael Korth, Marvin Marshak,
J. Peter Zetterberg
[In
these minutes: (1) sponsored projects
debt collection; (2) new financial system; (3) budget and capital request
issues]
Professor Speaks convened the
meeting at 2:35; part-way into it, he called for introductions for the new
members, Mr. Klein, Ms. Van Voorhis, and Professor Warwick.
1. Sponsored Projects Collections
Professor Speaks now welcomed Mr.
Volna to discuss collections of receivables for sponsored projects.
Mr. Volna distributed copies of
slides and walked the Committee through them.
He noted that the University has about $400 million in sponsored
activities, so there is a great deal of collection required. If a sponsored project is current, there is
never a problem: the University sends a
bill and it is paid. What happens,
however, if a sponsor does not pay (which might occur because of financial
difficulties, computer problems, etc.)?
Mr. Volna explained that a process redesign project has
been underway in Sponsored Financial Reporting (SFR) since 2000. The expected project outcomes include
improved systems and technology,
changes to policies and procedures, and clarifications or changes to roles and
responsibilities. Implementation began
in June 2001.
The current collections process: Collection activity on past-due accounts is
handled by a special unit within Sponsored Financial Reporting (SFR). First action is taken on unpaid invoices more
than 60 days old, and will typically be a collection letter or telephone call. Collection activities increase progressively,
as the age and/or amount of the unpaid balance increases. SFR works closely with the department and
Principal Investigator on collections.
There are deficiencies in the current process, Mr.
Volna told the Committee. There is inadequate
capture and communication of information on sponsor history; action is always
after the fact. There is no history on
sponsors, similar to a Dun and Bradstreet credit history; the University needs
to be able to identify sponsors who do not pay.
Is there a particular class of sponsors who do not pay, Professor Speaks
asked? Business and industry and
non-profit foundations, Mr. Volna said; the federal government is NEVER
delinquent. In addition, most federal
funds require one report per year while some business and industry projects may
require one report per month--there is a much higher workload for the money
from business and industry.
Existing policies are weak, Mr. Volna said. Current policies only cover incurred
uncollectibles and there is no definition of roles and responsibilities for
PREVENTING uncollectibles. As a result,
the University is subject to financial risk because spending continues on
awards that are delinquent and may become uncollectible and there is the potential
that new awards may be accepted from sponsors with poor payment performance.
Mr. Volna reported that he is proposing policy and
procedure changes (that have already been presented to the research associate
deans and to Vice President Maziar; they will also go to the deans). The changes include establishing mechanisms
for communicating sponsor payment information to SPA, PIs, departments, and
deans, defining conditions under which spending on existing awards will be
limited or stopped, identifying circumstances in which acceptance of future
awards may be prohibited, and codification of roles and responsibilities for
making decisions on spending and acceptance of awards.
How much of a problem is this, Professor Roe
asked? At any one time the University
has about $5 - 10 million in uncollectibles, Mr. Volna said. Why not wait for the funds to be delivered
before starting work, Professor Cudeck asked?
That would be possible, Mr. Volna agreed; information would have to be
provided to Sponsored Projects Administration (SPA). SPA, however, will also say that that issue
is negotiable; because they have not had data, they have not negotiated such
requirements. Mr. Pfutzenreuter agreed
and wondered how much research money the University would lose if it imposed
such a requirement. The University
should have reasonable assurance it will be paid or it should not do the
research. This is a lot of money,
Professor Cudeck concluded; the University could run its athletic programs on
the uncollectibles.
The reasons for the proposed changes are to better
utilize and disseminate collections and sponsor payment information, establish
clear roles, responsibilities, policies and procedures relative to collection
activities, to reduce financial risks to the University, departments, and
colleges, and to minimize the risk that sponsored project activities will be
disrupted for financial reasons. The
tentative timing of the process is this:
In May - July 2002 there will be initial communication with stakeholders
and affected parties, in July - October 2002 there will be documentation
(policies, procedures, etc.) completed, and in late 2002 or early 2003 the new
process, policies, and procedures will be implemented.
Mr. Volna then explained a matrix
his office had developed identifying roles and responsibilities with respect to
outstanding receivables, depending on the status of the payment (delinquent,
default with a payment plan in place, default with no payment plan, and legal
action). He said he hopes to put the
matrix in place once there is a database on sponsors available.
Professor Speaks asked what
proportion of receivables more than 120 days delinquent and with no payment
plan in pace are resolved in favor of the University. Virtually none ENTIRELY in the University's
favor, Mr. Volna said. Professor Speaks
suggested that the proposed University response on new awards from the same
sponsor (requiring 100% funding at the time of the award and/or full payment of
outstanding invoices or a proposal will be rejected) was too lenient. Professor Cudeck said it was sad for everyone
when legal action is required; is use of legal counsel reserved for big cases,
he asked? The legal response does vary
with the size of the amount due, Mr. Volna agreed. Mr. Pfutzenreuter agreed with Professor
Speaks about the leniency of the response; he suggested the University should
say it will only accept the project if it receives 100% of the money in advance
AND the sponsor pays off any outstanding obligations. Mr. Volna said he would like to get the
policy proposals in place first and then change them later, if need be.
Professor Speaks inquired about the
$5 - 10 million in uncollectibles: Is
that the amount the University loses each year or the amount outstanding at any
one point? The latter, Mr. Volna said, and
not all become uncollectible. How much
money does the University never collect, on an annual basis, Professor Speaks
asked? Mr. Pfutzenreuter said the amount
is episodic; Mr. Volna said he would supply the information from the
University's audit reports.
2. New Financial System
Mr. Volna turned next to the issue
of the financial system replacement, about which he said there has been
considerable discussion. There will be a
steering committee on a new financial system.
There are five enterprise systems
at the University (student, grants management, human resources, libraries, and
financial); all but the financial system have recently been reworked or
replaced.
Mr. Volna reviewed the history of the current
financial system. CUFS was implemented
in November, 1991; the "Button Up CUFS" effort was in place during
1993-94; the data warehouse was enhanced and WEB reporting operationalized in
1996; CUFS was made Y2K compliant during 1998-99; Financial FormsNirvana was mandated
for grants in 1999; and evaluations to replace CUFS have been going on since
1996.
There are a number of
reasons to put in a new system, Mr. Volna explained to the Committee. First, there are increasing risks with
existing systems. They have looked, for
example, at the number of times there has been an impact on departments because
CUFS has been down; it happens about once per month. If the system were to be down for 3-4 days,
there would be financial risk for the University. Second, there is limited internal and no
external support for the systems. Third,
it is mainframe technology that uses Cobol and a proprietary
code; there are not a lot of people fluent with the necessary language. Fourth, a new system would provide an opportunity
to "increase functionality."
Finally, the cost of operation would decline; CUFS is the last
University system on a mainframe computer, which means the University is supporting
multiple computing environments and needs to find and retain unique expertise
to support the systems.
The University is pursuing a dual strategy in
seeking to replace the system. One is
the usual option of purchasing from one of the vendors currently marketing to higher
education (Oracle, PeopleSoft, SAP, SCT, or J.D. Edwards). The other is to participate in a multi-school
consortium that is exploring rewriting a system currently running at two large
research universities. They are in the
process of developing an RFP; once there are responses, a demonstration will be
required. If that is positive, the
schools could decide to negotiate a contract.
The consortium would consist of up to seven
institutions and one commercial vendor: UC-Davis,
Indiana University, University of Iowa, Michigan State University, Northwestern
University, Purdue University, and the University of Minnesota; the vendor
would be IMI, a niche vendor specializing in higher education that has ownership
rights to portions of the system code the consortium would use. In the Big Ten,
The benefits of a consortium, Mr. Volna
recapitulated, include substantially-reduced software acquisition costs because
development costs would be shared, conversion of an existing financial system
with "mature functionality" to a new technology, the opportunity to
enhance "functionality" with the new technology, increased control
over future costs and upgrades, and addressing similar needs for similar
institutions.
There are caveats to the consortium idea, Mr. Volna
cautioned, and it could turn out to be a non-starter. It can be difficult to make consortia work,
the motives of the vendor and the institutions in the consortium are not the
same, the institutions are at different points of readiness (and even though
they are all research universities, they all do things slightly differently),
and there are legal and business risks. But for now the University faces little
cost in pursuing the option; until it must sign up, it is a low-cost option to
pursue.
What is the size of the
What would the new financial system cost, Professor
Cudeck asked? It is too early to tell,
Mr. Pfutzenreuter said. It would not be
a small amount, probably between $10 and 30 million. They hope to have a figure identified by the
end of the year (or sooner). He also
told the Committee that he has been harping about the cost of hiring
consultants for these computer systems and the failure of the University to
build a core staff. This year the
University is putting in money to build a core staff who
can be used for upgrades and then new systems.
It is better to have staff than to pay consultants, he said.
Mr. Volna reported that the timeline calls for determining
the best (vendor versus consortium) by the May - November, 2002, period. Later would come confirmation of
institutional support for proceeding (December 2002 - early 2003),
identification of a funding model (January - May 2003), completion of the procurement
process and implementation planning (January - June 2003), and beginning of implementation
(July 2003). When should this issue come
back to the Committee, Professor Speaks asked?
It should come back twice, Mr. Pfutzenreuter said--in September and
November. This Committee is important,
he said. They should know by September
if the consortium idea will work.
Will this go to the Board of Regents for
information, Professor Speaks asked? One
question is whether this item could be included in the biennial request, Mr.
Pfutzenreuter said. The legislature
might be interested in it, and it would require only one-time money.
Every university has to perform these functions,
Professor Cudeck observed. Are these the
two alternatives that other research universities face as well, he asked? So the next steps look prudent in relation to
other activities? Mr. Volna said they
are and they do.
As the consortium idea is pursued, Professor Jahn
asked, has thought been given to future support? If the University has its own experts, could
there be a group in the consortium that could handle problems even at a
distance? There could be, Mr. Volna
replied. The schools want to build their
own support and share it--and give it to other schools. The vendor, of course, wants to sell support.
Professor Speaks thanked Mr. Volna for his
presentation.
3. Budget and Capital Request Issues
Professor Speaks turned to Mr.
Pfutzenreuter for a review of the final capital appropriation and the budget.
Mr. Pfutzenreuter reviewed the
capital items for which the University received funding, after the legislature
acted and the Governor vetoed certain items.
The University is trying to keep the Translational Research Facility
moving along despite the Governor's veto; it is also trying to figure out how
it can spend the $10 million appropriated for the $24-million project of
renovating Nicholson Hall.
The next six-year capital plan is
due to the Board of Regents in September, including the 2004 request, which
will be affected by how many projects were vetoed or not funded in the 2002
request. It is not clear how the process
will work with the President leaving.
The six-year capital plan was not prepared last year, but it cannot be
skipped again or the University will not have plans ready for the 2004
legislative session.
In terms of the biennial request, it appears the
University will have an interim president while the request is being prepared
but a permanent president when the request goes to the legislature.
What was the reason for the Governor's vetoes, Mr.
Amattoey asked? The state did not have
the money or the projects were not reasonable?
Is he required to give a reason, Professor Speaks added? He is not, Mr. Pfutzenreuter said, but the
Governor said the legislature did not balance the budget so did not have money
for debt service on buildings.
Mr. Pfutzenreuter then reviewed the timeline for the
development of the 2003-2005 biennial request; the Regents approve the final
request at their October meeting. He
noted that as with 1996, a new president will probably come in at the very end
of the development of the request, so the new administration will have a
request developed by the previous administration.
Mr. Pfutzenreuter said he had not heard that there
would be any reverberations from President Yudof's departure for the approval
of the 2002-03 budget.
He also reported that the University has started to form a football
steering committee (which will have faculty and student representation as well
as representatives from the athletic department) because the legislature
required the University and the Vikings to proceed on stadium predesign and to
develop a memorandum of agreement. The
legislature also appropriated funds for a stadium and provided that proceeds
from the sale of the HHH Metrodome would go into an account for a new stadium. All of the work must be completed by
December.
The Committee agreed it would meet in July and
August to review the status of the development of the biennial request.
Professor Speaks adjourned the meeting at
--
Gary Engstrand
University
of Minnesota