Regents take action on universities’ accounting questions
During the 2014 legislative session, an article in the State Legislatures magazine prompted members to take a much closer examination of the financial standings of the state’s three public universities. Legislators in Wisconsin and Idaho had found their states’ universities had significant cash reserves, which caused many states to ask what reserves their schools had. Iowa Legislators asked that question, and found the answer was not that clear.
In Iowa, the search for the answer starts with the annual financial reports filed by all three universities. These can be found by visiting the state auditor’s search engine for audits and reports - http://auditor.iowa.gov/reports/search.php - selecting “Financial Statements” in the Audit Category, and entering the school’s formal name (State University of Iowa, Iowa State University or University of Northern Iowa).
The university’s financial standing is annually reported in each school’s financial report. These extensive reports provide significant amounts of information on each institution’s financial standing. But they do not come out and explicitly identify a number as the school’s “cash reserve.” The closest thing to an actual cash reserve line is the listing of Cash and Cash Equivalents in the Current Assets section of the Statement of Net Position. There is also a listing for Investments within the current assets section of the Statement of Net Position.
Questions about these figures from the FY 2013 financial reports prompted a significant amount of discussion between legislators, the Board of Regents, and the three universities. In particular, there was much talk as to whether the figure reported by the University of Iowa was a valid reflection of the school’s financial position.
In light of these questions and the discussion about them, the Iowa Board of Regents asked the state auditor’s office to work with the board office and the three universities to review the accounting practices of the schools to ensure these funds were being accounted for correctly and consistently.
The report, issued on June 30, but not made public until the September board meeting, found that each of the schools was accounting for cash and cash equivalents in a manner consistent with the accounting rules established by the Governmental Accounting Standards Board (GASB). But the report also found that within the rules, there was flexibility on how to account for the funds and that how each school handled them was not consistent.
In response to this finding, the regents changed the board’s investment policy to create a consistent definition of cash equivalents. Under the new policy, internally managed funds purchased and maturing within 90 days will be considered as cash and cash equivalents. For those funds managed outside of the universities will be considered as investments, even if they are cash or short-term securities that would fit the definition of cash equivalents.
As a result of the changes, the board announced that the FY 2014 financial reports will include revised numbers for FY 2013 using the new policy. What does this mean in term of the numbers? The auditor’s report states that at the end of FY 2013, the University of Iowa’s cash and cash equivalent number is $733,281,340. This is somewhat larger than the previous reported number of $611.1 million. Iowa State’s cash and cash equivalent number also grew in this report, from $135.9 million to $211,579,162. Northern Iowa’s number stayed the same at $27.2 million.
The change in policy by the regents will help provide Iowans with a consistent view of the financial standing of each university going forwards. The board’s response also shows the continued need for the Legislature to exercise its oversight function when it comes to these institutions and the funding taxpayers provide to higher education. As a result of House Republicans asking questions and pushing for answers, Iowans have a clearer picture of Regents finances.
If you have any questions or concerns, please contact me. Home phone: 515-382-2352. E-mail: Dave.Deyoe@legis.iowa.gov.