Ethics-related Policies and Procedures - Standard 2.B Related
COMMISSION ON COLLEGES AND UNIVERSITIES
8060 165th Avenue NE, Suite 100
Redmond, WA 98052-3935
Standard Seven - Finance
Standard 7.A Financial Planning
Financial planning and budgeting are ongoing, realistic, and based upon the mission and goals of the institution.
7.A.1 Governing boards and, where applicable, state agencies have given the institution appropriate autonomy in financial planning and budgeting matters within overall mandates and priorities.
7.A.2 The institution demonstrates that financial planning for the future is a strategically guided process. This planning includes a minimum of a three-year projection of major categories of income, specific plans for major categories of expenditures, and plans for the management of capital revenue and expenditures. Short and long-range capital budgets reflect the institution's goals and objectives and relate to the plans for physical facilities and acquisition of equipment.
7.A.3 The institution publishes an annual budget distributed to appropriate constituencies, and the policies, guidelines, and processes for developing the budget are clearly defined and followed. Budget revisions are made promptly, and, when necessary, a revised budget or schedule of budget changes is developed and distributed to appropriate constituencies.
7.A.4 Debt for capital outlay purposes is periodically reviewed, carefully controlled, and justified, so as not to create an unreasonable drain on resources available for educational purposes. The institution has a governing board policy guiding the use and limit of debt.
Standard 7.B Adequacy of Financial Resources
The adequacy of financial resources is judged in relation to the mission and goals of the institution, the scope and diversity of its programs and services, and the number and kind of its students.
7.B.1 The institution provides evidence that it seeks and utilizes different sources of funds adequate to support its programs and services. The commitment of those resources among programs and services reflects appropriately the mission and goals and priorities of the institution.
7.B.2 Adequate resources are available to meet debt service requirements of short-term and long-term indebtedness without adversely affecting the quality of educational programs. A minimum of three years' history of the amount borrowed (whether internally or externally) for capital outlay and for operating funds is maintained. A five-year projection of future debt repayments is maintained.
7.B.3 Financial statements indicate a history of financial stability for the past five years. If an accumulated deficit has been recorded, a realistic plan to eliminate the deficit is approved by the governing board.
7.B.4 Transfers among the major funds and interfund borrowing are legal and guided by clearly stated policies in accordance with prudent financial planning and control.
7.B.5 The institution demonstrates the adequacy of financial resources for the support of all of its offerings including specialized occupational, technical, and professional programs.
7.B.6 The institution identifies the sources of its student financial aid for current enrollments and provides evidence of planning for future financial aid in light of projected enrollments. It monitors and controls the relationship between unfunded student financial aid and tuition revenues.
7.B.7 The institution maintains adequate financial reserves to meet fluctuations in operating revenue, expenses, and debt service.
7.B.8 The institution demonstrates an understanding of the financial relationship between its education and general operations and its auxiliary enterprises and their respective contributions to the overall operations of the institution. This includes the institution's recognition of whether it is dependent on auxiliary enterprise income to balance education and general operations or whether the institution has to use education and general operations income to balance auxiliary enterprises.
Standard 7.C. Financial Management
The financial organization and management, as well as the system of reporting, ensure the integrity of institutional finances, create appropriate control mechanisms, and provide a basis for sound financial decision-making.
7.C.1 The president reports regularly to the governing board about the financial adequacy and stability of the institution.
7.C.2 Financial functions are centralized and are under a single qualified financial officer responsible to the president. Institutional business functions are under one or more qualified officers, are well organized, and function effectively. The complexity of the business organization reflects the size of the institution and the significance of its transactions.
7.C.3 All expenditures and income from whatever source, and the administration of scholarships, grants in aid, loans, and student employment, are fully controlled by the institution and are included in its regular planning, budgeting, accounting, and auditing procedures.
7.C.4 The institution has clearly defined and implemented policies regarding cash management and investments which have been approved by the governing board.
7.C.5 The institution's accounting system follows generally accepted principles of accounting.
7.C.6 For independent institutions, the governing board is responsible for the selection of an auditing firm and receives the annual audit report.
7.C.7 Independent institutions are audited annually by an independent certified public accountant and the audit is conducted in accordance with generally accepted auditing standards. The audit includes a management letter. A summary of the latest audited financial statement is made available to the public.
7.C.8 A proprietary institution makes available annually a financial summary which includes, as a minimum, a list of company officers, a statement of profit and loss, expenditures, indebtedness, and companies which have a controlling interest in the institution.
7.C.9 If public institutions are, by law, audited by a state agency, an independent audit is not required except for any funds not subject to governmental audit.
7.C.10 All funds for financial aid and other specific programs not subject to governmental audit are audited annually by an independent certified public accountant and include a management letter.
7.C.11 The institution demonstrates a well-organized program of internal audit (where appropriate) and control that complements the accounting system and the external audit.
7.C.12 The institution demonstrates that recommendations in the auditor's management letter accompanying the audit report have been adequately considered.
7.C.13 Federal, state, external, and internal audit reports are made available for examination as part of any evaluation conducted by the Commission on Colleges and Universities.
7.D Fundraising and Development
Any organized development program to seek financial support from outside sources is closely coordinated with academic planning and reflects the mission and goals of the institution.
7.D.1 All college/university fundraising activities are governed by institutional policies, comply with governmental requirements, and are conducted in a professional and ethical manner.
7.D.2 Endowment and life income funds and their investments are administered by an appropriate institutional officer, foundation, or committee designated by the governing board. The organization maintains complete records concerning these funds and complies with applicable legal requirements.
7.D.3 The institution has a clearly defined relationship with any foundation bearing its name or which has as its major purpose the raising of funds for the institution.
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Ratios and Tables for Private Institutions
Effective with fiscal year 1995-96, most private colleges and universities were required to report financial conditions according to Financial Accounting Standards (FAS) 116, Accounting for Contributions Received and Contributions Made, and FAS 117, Financial Statements for Not-for-Profit Organizations. These standards, which are not applicable to public institutions, significantly affect the appearance of the audited financial statements that accompany institutional self-study reports. In order to enable the Commission to interpret these new financial reports, the Commission modified its financial reporting forms for private institutions and requires additional materials to be submitted with audited financial statements.
Additional Requirements for Financial Reporting for Private/Independent Institutions:
All member and candidate institutions submitting audited financial statements under FASB are also required to supply:
1. A breakdown of all net assets; e.g., unrestricted, plant, loan, life income funds, endowment funds, and agency funds.
2. A breakdown of all pledges by year of expected collection.
3. Data, if not already contained in the audited financial statement, on:
a. Net investment in plant
b. Unappropriated net gain on endowment
c. Scholarship and fellowship expense funded from tuition revenue
d. Cumulative unrealized appreciation (depreciation) of investments.
e. Annual excess of endowment total return over (under) spending policy
f. Maximum aggregate annual debt service
4. Copies of the institution's Federal Form 990 (required of tax-exempt organizations).
5. For purposes of internal comparisons, certain ratios for each of the three years prior to the year of the full-scale evaluation. These ratios are important to the Commission in determining the financial health of the institution.
Ratio 1 : Change in Net Assets - Fiscal Year
Beginning Total of Net Assets
This ratio measures the institution's performance in generating net assets.
Ratio 2 : Expandable Fund Balances
This ratio is a fundamental indication of the financial strength of the institution. A ratio of 1:1 indicates an institution has sufficient liquid assets to satisfy all related liabilities as well as Long Term Plant Debt. Thus, the institution is financially viable.
Ratio 3 : Net Investment in Plant Balance
This ratio is useful in assessing the institution's ability to obtain long-term financing and measuring the burden of the existing long-term debt of the institution.
Ratio 4 : Educational Services Expense
Educational and General Total Expense
This ratio measures resources allocated to the educational mission. The numerator includes instruction, research, and public service. The denominator is comprised of total unrestricted revenues and net assets released from restrictions.
If the institution's internal financial reporting system does not accommodate an item in any of the ratios, the institution is advised to calculate the ratio using data as approximate as possible and to indicate where and how modifications have been made in the calculations.
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Supporting Documentation for Standard Seven
1. Completed Table #1, Current Funds Revenues - Public Institutions Only, reporting sources of operating revenue according to IPEDS definitions for the past three fiscal years and estimated operating revenue for the fiscal year during which the institution will be evaluated.
2. Completed Table #2, Current Funds Expenditures and Transfers - Public Institutions Only, reporting operating expenses according to IPEDS definitions and estimates operating expenses for the fiscal year during which the institution will be evaluated.
3. Completed Table #3, Summary Report of Revenues and Expenditures Public and Private Institutions, reporting the operating surplus or deficit for education and general, auxiliary enterprises, and the institution as a whole for the past three fiscal years and for the fiscal year during which the institution will be evaluated.
4. Completed Table #4, Sources of Financial Aid - Public and Private Institutions, showing the sources of financial aid for the past three fiscal years and the evaluation year.
5. Completed Table #5, Undergraduate Enrollment, Tuition, and Unfunded Financial Aid. This table is to be completed by private institutions only.
6. Completed Table #6, Revenues - Private Institutions Only.
7. Completed Table #7, Expenditures - Private Institutions Only.
8. Completed Table #8, Assets, Liabilities and Net Assets - Private Institutions Only.
9. Completed Table #9, Operating Gifts and Endowments - Public and Private Institutions(if applicable), showing a summary of annual contributions and endowment fund balances.
10. Completed Table #10, Capital Investments - All Institutions, showing your actual and projected Capital Investments.
11. If a proprietary institution, indicate the amount and percentage of income distributed to stockholders for the past three fiscal years. Estimate the amount for the fiscal year during which the institution will be evaluated.
12. A debt service schedule for the past three years and a projection for the next five years.
13. An endowment and life income fund report for the past three years showing fund balances and income distributions for each year.
14. The institution should indicate whether financial statements are provided on an accrual basis. Provide supplementary documentation of year-end accruals.
15. A list and description of financial and management reports regularly provided to the governing board.
1. Copies of the financial section of the IPEDS report for the past three years.
2. Summary of the latest audited financial statement, a copy of the auditor's management letter, and have available the latest complete audited financial report. Audits should include those for corporations or foundations under institutional control.
3. Detailed current operating budget, including budget for off-campus programs, summer sessions, and other special programs.
4. Current operating budgets for auxiliary organizations including foundations, business investments, or satellite corporations under institutional control, with supplemental documentation including annual reports and audits.
5. Default rate for the two most recent years as provided by the U. S. Department of Education.