These minutes reflect
discussion and debate at a meeting of a committee of the
Minutes
Senate Committee on Finance and Planning
Tuesday, January 25, 2005
2:30 – 4:15
238A Morrill Hall
Present:
Charles Campbell (chair), David Chapman, Arthur
Erdman, Steve Fitzgerald, Lincoln Kallsen, Joseph Konstan, Ian McMillan, Cleon
Melsa, Kathleen O'Brien, Diane Parker, Richard Pfutzenreuter, Terry Roe, Charles
Speaks, Alfred Sullivan, Kate VandenBosch, Susan Van Voorhis, Warren Warwick
Absent:
Calvin Alexander, Kendal Beer, Rose Blixt, Daniel
Feeney, Scott Fine, Seth Haskell, Joshua Jacobsen, Thomas Klein, Michael Korth,
Thomas Stinson, Michael Volna
Guests:
Julie Tonneson (Office of Budget and Finance); President
Robert Bruininks (briefly); Gail Klatt (Director of Audits), Tom Schumacher
(Director of Compliance)
[In these minutes: (1) candidacy for an administrative position;
(2) finances of academic program moves; (3) enrollment-based budget adjustment;
(4) strategic planning task force for administrative units; (5) assessment of
institutional risk]
1. Candidacy for Administrative Position
Professor
Campbell convened the meeting at 2:30 and began by drawing attention to the
announcement of the four candidates for the position of Vice Provost for
Faculty and Academic Affairs. He is one
of the candidates, he noted, and said it is important the Committee is aware of
that fact. He may need to recuse himself
from some Committee business, and if selected for the position will have to
resign from the Committee.
2. Finances of Academic Program Moves
Professor
Konstan asked if there is any University policy governing what happens when an
academic unit moves from one college to another, and in particular with respect
to budgets. The issue may come up, he
said. He has heard discussion about
possibly moving one unit to another college; what happens to state funding and
so on? Committee members noted
department moves that have taken place but no one was aware of any
institutional policy or guidelines.
3. Enrollment Adjustment
Professor
Campbell turned to Ms. Tonneson for an explanation of the Enrollment Adjustment
in University funding.
Ms.
Tonneson explained that
Committee
members discussed the risk to the University that the recurring appropriation
could decline if enrollment were to decline.
The
University calculates the enrollment adjustments each year; in the past, the
amount of money involved was only $2-3 million.
Where does the money go—to the colleges, in proportion to the enrollment
increases, Professor Campbell asked? In
the past, it has simply become part of the overall appropriation, Ms. Tonneson
said, and is not allocated to colleges.
So a college could have a large enrollment increase, generating money
for the University, and not receive the yield in state funds, Professor Speaks
asked? That is correct, Ms. Tonneson said.
Presumably
as enrollment increases, instructional costs increase, Professor Speaks
commented; is there a match between what the state provides and instructional
costs? The state divides the
appropriation into instructional and non-instructional cost ratios, with data
provided by the University, Ms. Tonneson related, so the appropriation is not
based on what it costs to instruct each student but there is a paper trail of
numbers. If there is an imperfect alignment
between costs and enrollment, why would the University want to increase
enrollment, Professor Speaks asked? Are
there some colleges that are under-enrolled and that need more students? Absent that factor, Ms. Tonneson said, the
arguments one hears are about programmatic reasons.
What
is to prevent the legislature from giving the University the money—and then
subtracting it from the appropriation, Professor Speaks asked? That is precisely the point, Ms. Tonneson
responded; the discussion about the enrollment adjustment has become moot with
the Governor's budget recommendation, which recommends increased funding for
the University but does not grant the enrollment adjustments. The legislature can decide not to grant the
funding, and if the Governor's budget is approved, it will not be provided. The Governor is not recommending the
enrollment adjustment but does call for funding about 90% of the University's
request ($113 million out of $126 million requested). That is strong support, but the enrollment
adjustment is now a non-issue.
Did
anything come of the proposal that money should follow the students rather than
be provided to institutions, Professor Campbell asked? It appears not, Ms. Tonneson said; the funds
would have to be taken from the institutions and there is no proposal to do so.
Professor
Chapman asked Ms. Tonneson to speculate about what might happen to the
Governor's budget recommendation in the legislature. She said that the Governor has a very high
success rate with his budget recommendations.
She said she did not know what the rest of the budget looks like. The President and other officials have been
aggressive about presenting the University's needs, Professor Chapman noted;
did she have any sense whether that led to this relatively supportive budget
recommendation? Ms. Tonneson said she
thought it did.
This
is good news, Professor Campbell said, and asked Ms. Tonneson to convey the
Committee's congratulations to all who worked on the request.
President
Bruininks joined the Committee briefly to talk about the Governor's budget
recommendation, the legislative prospects, the proposal to change the state
grant program to increase funding flowing to students and away from
institutions (no budget recommendations along that line have been made and
there are no new funds proposed for the state grant program). Professor Campbell thanked the President for
briefing the Committee, and he thanked Ms. Tonneson for providing information
about the enrollment adjustment.
4. Administrative Strategic Planning Task
Force
Professor
Campbell turned next to Vice President O'Brien and Executive Associate Vice
President Sullivan to lead a discussion about the strategic planning task force
that will look at the administrative units of the University.
Dr.
Sullivan said he would provide an update; he invited Committee members to
provide thoughts and suggestions because this is a group that thinks a lot
about the issues the task force will tackle.
The overall strategic planning effort is being headed by Provost
Sullivan (there have been about 35 presentations on the process). Two pieces of the effort are task forces, one
to look at the academic side of the University and one for the administrative
side. The academic task force has three
faculty members (Professor Marshak, Regents' Professors Hampl and Tilman). The administrative task force, which he and
Vice President O'Brien co-chair, is working on the alignment of support and
service units with the mission, optimizing their activities, and making them
more effective.
The
President's charge letter to the task force outlines four responsibilities,
which Dr. Sullivan reviewed. One,
"examine the findings of recent task forces on administrative policies and
procedures, management practices, and support services"; two, "assess
trends, opportunities, and threats that will impact administrative services and
support throughout the University"; three, "identify short- and
long-term opportunities to achieve greater efficiency and effectiveness in our
central administration and academic unit support services"; and four,
"make specific recommendations to me to transform the University's support
services within central administration and at the academic unit
level." With respect to the first,
there have been a lot of reports, the recommendations of some of which have not
been implemented (in part because of transitions in the central
administration); they will get back to these reports.
There
are a lot of talented people working on this effort, Dr. Sullivan said, and the
word "transformation" comes up frequently. He predicted there will be some
"wow's" when the work is done.
People will be held accountable for units and responding to
challenges.
They
are appointing eight subgroups, drawing on the units, to obtain
cross-fertilization of views. What they
are doing, Dr. Sullivan commented, is similar to simultaneously designing,
building, and flying an airplane. They
are meeting weekly and the work is under way.
Ultimately the work of this task force will come together with the work of
the academic task force and will go to the Board of Regents in May or June.
Vice
President O'Brien said the Committee should note the aggressive agenda: the work of the task force is due March
20. It will be possible to meet the
deadline because of the work that has been done before (such as the report on
support and service units produced by the task force that she and Regents'
Professor Tom Clayton co-chaired last year).
She related that she had recently seen a strategic planning kind of
report from another major research university; of the 15 recommendations it
contained, many were already completed here or are things the University is
working on. This task force is really
looking at how to get to the next stage.
Dr. Sullivan added that in a first draft of principles, the task force identified
as one principle the understanding that everything is on the table.
How
does the task force discussion link to the budget model discussion, Professor
Roe inquired? Or is it independent of
it? Many of the individuals on the task
force are also on the budget model task force, Vice President O'Brien
observed. The recommendations of the
strategic planning task force will inform the budget model discussion. They will converge at the end, Dr. Sullivan
said. Some recommendations will be
dependent on the budget model, Mr. Kallsen added, while some will be
independent of them.
This
is a system-wide effort, Dr. Sullivan said, and there is a specific working
group for the coordinate campuses. But
there will not be silos, and the reports will be brought together by the March
deadline.
Professor
Konstan said that one trend he hears complaints about is the distribution of
centrally-provided functions to departments—but without funding and without
concern for the dynamics and working conditions in the departments (e.g., the
certified approver program has turned people who were former "allies"
of the faculty in departments into "opponents"). He said he would be concerned if the task
force does not take a comprehensive look at this issue. The University can do better with central
services rather than create more work in departments (that sometimes leads to
the loss of personnel). Dr. Sullivan
agreed the problem must be confronted and said the task force has talked about
it. They have talked with subgroup
leaders about what should be done where and they will try to bring some
rationality to the system. This issue
leads to the budget model discussion, Professor Konstan observed, in terms of
when activities should be centralized or decentralized and how internal taxes
should be structured. Vice President
O'Brien agreed with Dr. Sullivan and said this is a major set of issues that
the task force must address; they will not have a full solution by the end of
March but they will identify a way to address them.
Professor
Speaks noted that Dr. Sullivan had talked about alignment of support and
service units. Alignment with what, he
asked? At the loftiest level, it means
aligning administrative support units with the goal of being one of the top
three public research universities in the world, Dr. Sullivan said. Does it mean alignment with academic
priorities, Professor Speaks asked? Dr.
Sullivan said it did.
The task force is composed entirely of
Morrill Hall or Morrill-Hall-like people, Professor Speaks said, with only one
from a college and none from departments; he said he hoped there would be a
mechanism to obtain the views of those at the department level about
administrative efficiencies, problems, and solutions. There will be many instances where the impact
of shifting responsibilities to departments will not be obvious to Morrill
Hall. Dr. Sullivan said they are trying
to address this point.
Professor Speaks also commented that if
the work of this task force, the budget model, and the strategic planning
vision are not aligned with academic priorities, this will all be a wasted
effort. And there must be consultation
with the faculty on this alignment. Dr.
Sullivan agreed that all of the efforts needed to be aligned. There is overlapping membership on the task
forces and their work must come together at the end. Alignment with academic priorities means that
support and service units must analyze whether their functions support the
academic function; they could be doing things very well that do not support the
academic mission. What should they do,
how they do it, how it should be funded, and so on, will be the subject of
discussion.
Professor
Campbell asked that the Committee be provided a list of the subgroups and their
membership. Ms. O'Brien said they are
not yet all appointed but that the list will be provided.
Professor
Konstan said it might make sense for the subgroups to have open meetings so
that those who feel strongly about issues have a chance to speak. Vice President O'Brien said she believed in
having such hearings but that they have a time problem; they will try to get as
many ideas as possible.
Professor
Campbell wished them good luck and said the Committee would be glad to help in any
way it could. Dr. Sullivan said that if
the Committee were to develop a list of things it believes the task force
should examine, they would welcome it.
5. Assessment of Institutional Risk
Professor Campbell welcomed Gail Klatt,
the Director of Audits, and Tom Schumacher, the Director of Compliance, to talk
about assessment of institutional risk.
Ms. Klatt distributed copies of several
items, two of which were risk profiles or "heat maps," one by the
University's external auditors and one from Mr. Schumacher's office. In both cases, the X axis measured impact
(low to high, of an error or misconduct) and the Y axis measured risk (the
probability that something will happen, from low to high). Units/activities appeared at various places
on the grid. Both heat maps had a green
swath (from low impact/high risk to high risk/low impact), a yellow swath (essentially
moderate risk and impact), and a red portion (moderate to high impact, moderate
to high risk). Any activity or unit in
the red zone warrants careful attention.
(The location of activities on the heat map varied between the two
versions because the sources were considering different factors. The external auditors included such things as
sponsored receivables, liability/self-insurance, associated organizations,
retaining competent audit and finance personnel, and the like. The compliance office heat map included in
the red zone environmental health and safety, athletics, information technology
security, grants administration, clinical services, and clinical research.)
The heat maps are visual schematics
developed for the Board of Regents, Ms. Klatt explained. The Board set as one of its goals
understanding the myriad risks the University (the Board) must manage in order
to carry out its legal and fiduciary responsibilities. The Board's Audit Committee will hear four
different reports on the subject during this academic year and will then
prepare its own heat map indicating what is important to it. The administration, in turn, will then help provide
information to the Board on how the University is managing those risks in
addition to Audit Committee ensuring that internal and external audits are
focused on areas the Board is most concerned about.
The external auditors would typically
put something like PeopleSoft implementation as a high risk, Ms. Klatt said,
because system implementation is usually difficult, expensive, and fraught with
problems. For the University, however,
it was rated as lower risk, even though high impact.
Professor Konstan noted that the
external auditors ranked a HIPAA violation as low risk and low impact. Is that because they believe the University
could get around such a violation, or not be fined much, or that there is not much
risk financially or to the University's reputation? The question is how well the University would
manage a violation, Ms. Klatt responded; if the University identifies a problem
and corrects it quickly, it can minimize the impact. The heat map also assesses the institution's
CAPABILITY to react, Mr. Kallsen added.
Why is a HIPAA violation low on one
heat map and high on the other, Professor Speaks asked? It depends on one's position, Ms. Klatt
said. The auditors do not see it as
having a major impact on financial reporting (the focus of their heat map); Mr.
Schumacher is more concerned about it.
The Board Audit Committee must discuss what the INSTITUTIONAL position
on such a violation would be. Mr.
Schumacher explained that his heat map is based on LEGAL risk. What is the probability that a University
employee will violate HIPAA? It is a
certainty. The question is the likely
impact on the University. One can look
at financial impact, reputational impact, health and safety issues, and so
on—there are different metrics to assess risk. So this is not an assessment of the WORST
POSSIBLE risk but rather the risk of a likely violation, Professor Konstan
asked? Mr. Schumacher said he was
correct.
All of the activities on his heat map
are highly regulated, Mr. Schumacher observed, and all would have a vague
institutional impact. The question was
how to start the discussion with the Audit Committee. The risk to the institution as an entity,
Professor Konstan asked? Yes, Mr.
Schumacher affirmed. So if there is one
incident that causes the University to lose an international student, for
example, there would not be a big institutional impact, Professor Konstan
commented. But if the University
breeched its obligation to report on the status of international students, the
impact would be worse, Mr. Schumacher said.
Ms. VanVoorhis inquired about the
provenance of the compliance office heat map.
Mr. Schumacher said he put it together.
He looked at what other major research universities have identified as
risky activities and has conducted risk assessments and interviews with the
groups that appear on his heat map; he also looked at what work they need to do
on infrastructure. The point is the
RELATIVE relationship among risks. Each
of the units did an assessment that informed the construction of his heat map,
Mr. Schumacher explained.
How are they using the data that each
unit provided, Ms. VanVoorhis asked?
They used a multi-dimensional analysis, not just the inherent risk, Ms.
Klatt said. They looked at how the
University handles things, whether it is prepared for a problem, and its track
record. It is important to realize that
much of what people do can lower risk levels, Mr. Schumacher said. For example, athletics might be at the
highest risk level at another institution; it is at a lower risk level here
because it has a strong compliance program.
Professor McMillan inquired about the
colored bands on the heat maps. Ms.
Klatt said that the red zone indicates activities the institution should focus
on whereas units in the green zone are more "business as usual." But it was said the location of the
units/activities was somewhat arbitrary, so moving one of them a centimeter
would put it in the red zone. If their
sense is that the risk is higher than average, the unit or activity falls in
the red zone, Ms. Klatt said. Average by
what standard, Professor McMillan asked?
That of other institutions' and the University's own experience, she
said. Mr. Schumacher cautioned that one
should not look for statistical validity and the impact of moving a unit or
activity one centimeter here or there.
The placement on the heat map is based on an assessment.
There used to be a sign on
Where
do they go when the drill down farther, Professor Konstan asked? For example, in grants management, some areas
are high financial risk and some are low.
Is there something below these heat maps that identifies specific targets? He also said it would be helpful to see
alternatives. To take a trivial example,
one could reduce the risks in athletics by abolishing athletics or sending a
monitor to accompany each athlete all the time.
Other alternatives, however, might not be trivial. There are two sources of risk when dealing
with external auditing or compliance. One risk is that the University's
policy and controls are viewed as inadequate (an institutional problem).
The other is that individuals are found not to comply with the policy (an
individual problem). These are
related. Different universities interpret rules differently, and creating
a policy that is less burdensome to comply probably reduces the second type of
risk. For example, would we do a better job with effort certification if
our policy were one that simply had faculty sign off on a check box once a year
rather than go through burdensome forms?
Mr. Schumacher agreed that there are
parts of grant administration that are more and less risky; they have identified
the more particular risks and obligations.
With respect to the question of control versus benefits, that is part of
what risk assessment is about. The
University tends to have high control levels in areas of high risk. The issue is not simply whether it will
satisfy an auditor. Another factor is
what risk will the faculty be put in.
For example, if faculty sign some certification on research, the faculty
member is primarily responsible for what he or she certified. So a loose University policy has consequences
that have an impact on faculty as well, and may create more individual risk for
them.
Ms. Klatt said the University must be
cognizant of its appetite for risk and at what cost. This discussion is at a high policy level,
not at the level of how people do their work.
She said they do not intend to make the University risk-free; the
question is what impact will the controls have to reach certain levels of
risk. And who pays for them, Professor
Konstan added. He said he knows faculty
who put themselves at risk with respect to letters of recommendation: if he receives an email asking for a letter,
he asks the person if it is OK to talk about class performance; some faculty do
not ask, but he believes the law requires that one do so. That process could be handled centrally, but
faculty would not like it—one can go to extremes. It is possible to over-protect against risk
and it is important to look at the budget for risk aversion that one can
expect. Ms. Klatt agreed that it is an
economic decision. It is also a
psychological decision, Professor Konstan said; people can be so overloaded
with concern about risk that they do not see the distinction between different
levels of risk and tune out the whole subject.
Mr.
Schumacher said that one of the risks the University has not dealt with, from
the perspective of the compliance program, is those associated with
research: there has been a growth in
research but no correlated increase in funds to support the compliance work associated
with that research—and the government, to date, has not paid for it. Who will pay for this? That is a real challenge.
Professor
Campbell said he appreciated Ms. Klatt and Mr. Schumacher joining the Committee
for an interesting discussion. He
adjourned the meeting at 4:10.
--
Gary Engstrand