This blog entry was actually posted on December 8, 2015.
This article is from the WLUFA Advocate 1.2 December 2012.
William Salatka, Associate Professor, Accounting, & Vice-President of WLUFA
At the OCUFA Finance Committee Workshop on November 2, I presented on the use of financial statements and the role of budgets in bargaining to help other faculty associations’ bargaining teams analyze their universities’ financial statements and use that analysis in bargaining.
I used the Laurier financial statements as an example. Four participants shared their institutions’ financial statements with me. What was striking about the four financial statements was the common theme of large cash transfers out of the general fund for capital asset and other spending. The financial statements of all universities are organized by fund; each fund is a separate area of responsibility: (1) general (operational) fund, which is the primary source of academic funding for the university; (2) “internally restricted” funds, which in fact are not restricted at all; (3) capital asset funds; and (4) endowment funds, which are legally restricted.
A commitment to the academic mission of the university would keep cash, generated by the general fund, in the general fund, to support the university’s academic function, which includes operations, employees and students. Substantial amounts of cash should not be transferred out of the general fund since it is the primary source of academic funding for the university.
What I saw in the financial statements of the other four universities is very similar to what we see below in information derived from Laurier’s financial statements.
DATA FROM STATEMENT OF CHANGES IN NET ASSETS (AN ACCRUAL ACCOUNTING ANALYSIS):
2011$19,527,000-$11,859,000-$10,531,000=$-2,863,000
| Year Fund | Surplus inGeneral Fund | Cash TransferredOut to Capital Fund | Cash TransferredOut to Internally Restricted | Total AmountRemaining in General Fund |
| 2009 | $6,061,000 | -$7,285,000 | -$1,193,000 | =$-2,417,000 |
| 2010 | $17,894,000 | -$16,240,000 | -$11,205,000 | =$-9,551,000 |
| 2012 | $16,379,000 | -$30,002,000 | -$3,595,000 | =$-17,218,000 |
| Totals | $59,861,000 | -$65,386,000 | -$26,584,000 | =$-32,049,000 |
The accrual accounting approach shown above includes all actual cash in-flows and actual cash outflows, in addition to estimates of future cash in-flows and estimates of future cash outflows.
What we observe from the accrual analysis is that over the last four years, total cash transferred out of the general fund to the capital fund is $65,386,000, and the total cash transferred to the internally restricted fund is $26,584,000, a total of $ 91,970,000, far exceeding the surplus generated in the general fund over the last four years of $59,861,000. This has at least three implications: (1) the shortfall will result in taking on debt; (2) a key priority of the Administration is the purchase of capital assets; and (3) the current spending level of the Administration is not sustainable.
The accrual approach requires estimates of future cash inflows and future cash outflows made by the Administration, which can be criticized as arbitrary. Another way to look at this issue is to use only actual cash inflow and actual cash outflow data from the Statement of Cash Flows below:
DATA FROM STATEMENT OF CASH FLOWS (A CASH FLOW ANALYSIS):
Difference Between
Cash Inflow Purchase of Cash Inflow from Operations
Year from Operations Capital Assets and Purchase of Capital Assets
2011$31,324,000-$28,337,000=$2,987,000
| Year | Cash Inflowfrom Operations | Purchase ofCapital Assets | Difference BetweenCash Inflow from Operations
and Purchase of Capital Assets |
| 2009 | $12,800,000 | -$13,083,000 | =$-283,000 |
| 2010 | $28,039,000 | -$32,282,000 | =$4,243,000 |
| 2012 | $19,507,000 | -$88,580,000 | =$-69,073,000 |
Over the past four years, the cash flow analysis shows that the purchase of capital assets amounted to $162,282,000, far exceeding the cash inflow generated by the operations of the University in the amount of $91,670,000.
Thus, the actual cash flow analysis yields the same implications that were observed for the accrual analysis above: (1) the cash spending shortfall will result in taking on debt; (2) a key priority of the Administration is the purchase of capital assets; and (3) the current spending level of the Administration is not sustainable.
Overall, what we observe from the accrual accounting view and cash flow view is the same and the implications are the same. Thus, we can have more confidence in the observations made since these are very different accounting measurement processes.
These observations are identical to the observations I made of the four other universities’ financial statements. My observations are obviously anecdotal, and not generalizable to all Ontario universities, but to me the consistency of the theme and the similarity to Laurier is striking.
In all five cases, cash is desperately needed in the general fund since it is the primary source of funding for each university’s academic mission.
When significant amounts of cash are removed from the general fund, we need to ask the question: “Why are large amounts of cash diverted from the academic mission of the
University?“
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