Spring Management Report Meeting. March 25

Transcription

1 Spring Management Report Meeting March

2 The Financial Year at UAF in Context When it comes to financial matters, FY09 at UAF can best be characterized as principled, dynamic and progressive. Significant attention is being devoted to reshaping how financial and capital resources are viewed, understood and used. We have developed basic principles and initiated review of our financial operations, budget structure and financial management based upon them. A rigorous review of all recharge centers is an objective measure of our efforts to date. We started with centers managed by the Geophysical Institute. That review is completed and we are now focusing on our facilities and utilities centers. All auxiliaries will be subjected to a similar review in the near future. Budget management principles designed to drive decision making to the most effective level and incent focused and effective use of financial resources have been drafted and are under review. The Chancellor s Budget and Planning Committee has been reshaped and its purpose refined. Our intent is that the group will fill a critical advisory and communication role. We recognized that structure was required to communicate and enforce appropriate levels of carryforward at our units. Our action was to create clear principles containing minimum and maximum carryforward levels and the consequences for operating outside those levels. We are taking every opportunity to break the concept of space ownership and are exploring methods to heighten the awareness of what it costs to operate and maintain our facilities with the goal of advancing the most effective use of this resource. Finally, we are working to rationalize the budget process. Our intent is to establish clarity of definition, process and purpose throughout this critical function. One of the first steps we have taken is to begin increasing the understanding of non-general fund unrestricted revenue sources. We are advancing the concept of directly allocating tuition revenue to the units so that they immediately see the consequences of their academic decisions. Our intent is to increase the understanding of this important revenue source in context, primarily, with general fund so as to improve its management and, without sacrificing quality, incent growth. 2

3 1. Carryforward Analysis UAF s January management report projects a carryforward of $10.6M in F1. However, as UAF is actively managing its balances, by year-end, carryforward will be approximately $7M. This represents 3.0% of projected F1 revenue. While anecdotal evidence indicates that our units are more closely managing their available funds and projecting more accurately than in prior years, historical patterns suggest that active management is required to meet our projected carryforward. Our newly adopted carryforward policy coupled with development of shovel ready projects will ensure that UAF ends FY09 with carryforward within projected levels. As in prior years the bulk of FY09 carryforward will be returned back to the contributing units. The units with deficits from FY09 will be required to submit a repayment plan that includes identifying contributing factors and the steps they will take to remediate those factors in future years. Distributions from central carryforward will be approved via the Chancellor s Cabinet. The funding priorities are identified during the budget development process and in response to new investment opportunities such as; facilities and space needs (including energy efficiencies), climate, energy engineering and biomedical priorities. 2. FY09 Budget Building Process and Status Some FY08 carryforward was used to balance the FY09 budget. Although this action pulled central reserves below 2%, effort has been devoted to replenishing it over the course of the year. At this time, central reserves are $1.8M or 1% of unrestricted funds. In significant part this low balance is due to covering half of the investment loss with centrally held resources. 100% of the FY09 salary and benefit cost increase was also funded centrally. Although 1% appears low, our overall carryforward is projected to be 3.0%. We believe this provides sufficient financial protection for the balance of the fiscal year. No additional flexibility was realized from new revenue sources. Higher than anticipated tuition revenue which would have otherwise provided some flexibility was devoted to helping offset the investment loss. 3. Management of Contingencies The initial budget contained a $1.5M contingency reserve, which is part of the $1.8M reserve above. Approximately $700K in additional funds has become available due to higher than anticipated tuition revenue. However, we are at risk of $800K for the utility supplemental which will impact this amount if not funded. Once again, these funds helped offset the investment loss in addition to covering 100% of the salary and benefit increases. Decisions on use of additional contingency funds which may become available are driven by ongoing commitments, prioritization and one-time funding requests. With the exception of managing to the targeted 3

4 $7M in carryforward, we do not anticipate significant additional contingency funding will be available for the balance of the fiscal year. 4. FY09 Initiative and Initiative Pool, SB137 Status We are projecting to fully expend all initiative pool and SB137 funds. We will continue to monitor. 5. Specify Debt Strategies and Plans We are projecting debt service obligations well within acceptable limits. See attachment A for detailed information. 6. FY10 Initial Budget Analysis Significant initiatives have been taken to reshape the budget building and management process. Basic principles to guide the budget building and management process have been drafted and are under review (Attachment B). The UAF Planning and Budget Committee has been reshaped into an effective review, communication and advisory mechanism. Specific carryforward guidelines have been adopted (Attachment C). They delineate minimum and maximum carryforward targets and the consequences for missing them. FY09 carryforward may be needed to balance FY10 due to reduced endowment payouts for development activities or in the event the FY10 trigger mechanism is not increased from its current proposed levels. Besides the basic legislative vagaries, we are not aware of any extraordinary circumstances which warrant significant action concerning the building of the FY10 budget. One unknown factor at this point is the significance of cost shifts from SW. We will analyze that impact once the Business Council clarifies this subject in the coming months. It is important that UAF has decision influence on these changes. New and innovative mechanisms for gathering a reallocation pool to meet PBB related and other priorities are being explored. 7. Accounts Receivable Analysis We believe our restricted fund accounts receivable balance is reasonable. See Attachment D for additional information. 8. Impact of Reduced Endowment Payouts and UA Foundation Available Funds for the Development Function We envision serious impact due to reduced endowment payout. See attachment E for additional information. 4

5 9. Other Auxiliaries The UAF bookstore underwent significant change for the Fall semester. Textbook sales were outsourced. Although still being improved, the initiative was successfully implemented. This move has allowed the elimination of six positions and a significant reduction in inventory. The Bookstore is projecting a deficit this year. The full effect of the savings will be realized in FY10 and we anticipate a much improved financial status at that time. Still outstanding is a final accounting of textbooks on hand which have little or no financial value. Our best estimate at this time is that we will have approximately $200K to write off. The Technology Center will be closed this Fall. A formal notification of our intent to exit the program has been communicated to Apple. Recharge Centers A review of all UAF recharge centers was initiated this year. The review is focused on financial viability, compliance with UA Accounting Procedures, compliance with Board of Regents Policy and adherence with UAF recharge principles. The centers falling under the Geophysical Institute were the first to be reviewed. The report is included as Attachment F. At this time the facilities and utility centers are being reviewed. 5

6 Attachment A - Debt Service University of Alaska Fairbanks Debt Payments FY09 to FY19 Amount to Total Project Cost be Debt Financed FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 Current Debt SERIES H - CCD Project Diesel Engine Generator SERIES J - Refinance A & B SERIES K - WRRB, Refinance C & I 1, , , , , SERIES L - WRRB, Athletics, CRA, Electric Line SERIES M - Hutchison Upgrade, IAB (Reallocated) SERIES N - Intertie, Chiller, BiRD, Patty Ice, Aurora, Elvey 1, , , , , , , , , , ,341.4 SERIES O - Lena Point, Museum, Arctic Health, Virology Sub-Total: Existing Debt Service 5, , , , , , , , , , ,115.0 Projects with Anticipated Debt Funding Life Sciences Innovation and Learning 102, , , , , , , , , , ,650.0 Energy Facility 30, , , , , , , , , , ,224.0 Sub-Total: Debt Service on Proposed New Debt Financing - - 2, , , , , , , , ,874.0 Total: Debt Service on Existing Plus New Critical Debt Financing 5, , , , , , , , , , ,989.0 Total Unrestricted Revenue 251, , , , , , , , , , ,806.2 Debt Service as % of Unrestricted Revenue 2.2% 2.1% 3.0% 2.9% 2.8% 2.5% 2.3% 2.3% 2.1% 2.0% 1.7% Projects with Potential Debt Funding Critical Electrical Distribution 31, , BiRD Buildout 4, , UAF Virology ABSL-3 Labs Space Buildout 11, , Fairbanks Campus Main Waste Line Repairs 8, , Sub-Total: Debt Service on other Possible New Debt Financing - - 2, , , , , , , , ,240.0 Total: Debt Service on Existing Plus New Critical and Other Debt Financing 5, , , , , , , , , , ,229.0 Total Unrestricted Revenue (FY08 = $239,605.2) 251, , , , , , , , , , ,806.2 Debt Service as % of Unrestricted Revenue 2.2% 2.1% 3.9% 3.7% 3.5% 3.2% 3.0% 2.9% 2.7% 2.6% 2.3% Additional Notes: All amounts in thousands ($1,000) Assumes 5% annualized growth in unrestricted revenues Assumes debt service at $80,000 per $1,000,000 project costs 1

7 Attachment A - Debt Service UAF FY10 Debt Plan for Facilities Improvements State Capital Funding FY10 Possible Bond Package for FY10 If UA Receives $8M, UAF Projects Receive $5. 194M Bond Bundle Project Name Total Project Cost Project Name Total Projected Debt Approx. Yearly Debt Fairbanks Campus Main Waste Line Repairs Critical Electrical Distribution Community Campus Energy Conservation Interior Aleutians Campus Deferred Renewal $2,000,000 $3,018,100 $125,900 $50,000 Alaska Center for Energy and Power Life Sciences for Innovation a nd Learning Total $15,300,000 $20,625,000 $35,925,000 $1,224,000 $1,650,000 $2,874,000 Total $5,194,000 Bond Bundle #1 Project Name Total Projected Debt Approx. Yearly Debt Fairbanks Campus Main Waste Line Repairs $3,000,000 $240,000 If UA Receives $0, UAF Projects Receive $0 Critical Electrical Distribution $10,000,000 $800,000 Project Name Total Project Cost Alaska Center for Energy and Power $15,300,000 $1,224,000 Fairbanks Campus Main Waste Line Repairs $0 Total $28,300,000 $2,264,000 Critical Electrical D istribution $0 Community Campus Energy Conservation $0 Interior Aleutians Campus Defe rred Renewal $0 Bond Bundle #2 Total $0 Project Name Total Projected Debt Approx. Yearly Debt Life Sciences for Innovation a nd Learning $20,625,000 $1,650,000 UAF Virology and BiRD Lab Sp ace Buildout $15,000,000 $1,200,000 Total $35,625,000 $2,850,000 2

8 Attachment B Budget Principles Coordination 1. Direction A clear set of short and long term objectives will be developed. 2. Community The assignment of responsibilities and authority and the allocation of resources will explicitly reflect the relationship of the parts to the whole. The model will incorporate mechanisms which recognize and incent partnerships and cooperative activities between units. 3. Mission Focus Central management will hold sufficient resources to ensure achievement of institutional goals and to support performance based budgeting requirements. Motivation 4. Value and Reward Growth and Quality Improvement The system will incent and reward efficiency, effectiveness and growth with particular emphasis in areas which specifically meet institutional mission and goals. It will incorporate straightforward and easily understood mechanisms designed to automatically recognize and reward effective performance. 5. Stability To maximize motivation of desired behavior and ensure operational stability and predictability, the assignment of responsibility, authority and the rules for budget distribution will be known, remain constant and be enforced. Decision Making 6. Decentralization To optimize decision making and efficiency of operations the system will allow for the distribution of authority and responsibility to the maximum extent possible and reasonable. The closer the point of an operating decision is to the point of implementation, the better that decision is likely to be. Decentralization will be done with a clear sense of purpose and with the intent to avoid duplication of function. 1

9 7. Knowledge Information is needed to allow decision makers to arrive at decisions which promote UAF objectives. The system will have processes in place which generate and communicate data in an effective and timely manner. Stewardship 8. Fiscal Accountability The model will encourage units to generate carry forward amounts within established limits and will contain clear sanctions for units which deficit spend or whose projections deviate from actual in amounts greater than established variances. 9. Space Accountability Space is a limiting factor for the delivery of programs and services at UAF. The model will encourage efficient and prioritized use of available space. UAF Budget Transition 1. Adhere to UAF budget principles. 2. Use existing program and budget committee to develop, design and implement budget process consistent with these principles. 3. Rationalize existing base budgets consistent with these principles. 4. Implement and monitor rigorous management reporting processes and align with unit plans (ongoing). 5. Implement and monitor rigorous recharge and auxiliary business plans and fiscal status (all recharges must have business plan by April). 2

10 Attachment C Carry Forward Management Principles UAF Carry Forward Management Principles January 2009 Fiscal Stewardship at all times know with accuracy what your fiscal position is and will be at year end Positive Fiscal Position complete the year in a positive fiscal position Manage to an appropriate year-end balance 1. Minimum Carry Forward A reasonable amount of annual carry forward is prudent and expected. Each unit will strive to have a minimum amount of carry forward equivalent to 1% of its total operating budget each fiscal year. All units are expected to end the fiscal year with a positive balance. Units will be required to repay any year end deficit in excess of $10, Maximum Carry Forward Excessive carry forward represents a failure to invest available resources in expected program deliveries and enhancements. For those reasons, maximum carry forward guidelines have been established. Units purposely managing to an identified resource level for major equipment purchases, facility renewal, faculty start-ups or other extraordinary expense may submit a request for exception to the maximum guideline along with the April management report. The Vice Chancellor for Administrative Services will review the requests and make recommendations to the Chancellor by May 15. Maximum carry forward guidelines are set at: 4% of total operating budget for heavily NGF units (Revenue total is less than 50% from GF and Tuition) 2% of total operating budget of heavily GF units 3. Projection Accuracy - The University has an obligation to appropriately manage its financial resources. Applying this obligation to management of carry forward requires that it be accurately projected so that reasonable and prudent plans can be made for its expenditure. Doing so will help ensure that funds are properly expended in the succeeding fiscal year. Failure to accurately project carry forward will adversely impact efficient use of funds by the unit and the institution. While some variance between projected and actual is to be expected, deviation of carry forward at year end from April projections is expected to be within the following guidelines: 2% of total operating budget for heavily NGF units (Revenue total is less than 50% from GF and Tuition) 1.5% of total operating budget of heavily GF units 4. Central Monitoring and Management - To assure rigorous fiscal management, a portion of carry forward may be redirected to central administration. Portions of carry forward will be 1

11 redirected when carry forward at year end deviates in excess of established variances from April projections or when carry forward exceeds maximum guidelines. Redirected funds will be returned to the central fund for distribution by the Chancellor for strategic priorities. The amount of carry forward funds being swept will be determined as follows: 1. High Accuracy a. No carry forward will be swept if the amount of carry forward is within established guidelines b. 80% of carry forward over the maximum guideline will be swept 2. Low Accuracy 50% of total carry forward 2

12 Attachment D Restricted Fund Receivables Historically, total revenue for restricted Accounts Receivables has been greater during the first and second quarters, than during the third and fourth quarters. The size of the first two quarters is attributed primarily to increased expenditures during the summer research field season and an increase in funding tied to the start of the federal fiscal year on October 1. Outstanding Receivables remained constant during fiscal years 2007 and During that time two federal agencies, Minerals Management Services (MMS) and NASA, had a reorganization of their payment system which caused numerous delays in payments. In addition, National Park Service reorganized their business and banking structure in calendar year Since these agencies have completely reorganized, their outstanding accounts receivables will contribute to Accounts Receivables declining during the remainder of fiscal year The average restricted revenue in relation to restricted receivables had an increase of 6% in fiscal year 2008 but is anticipated to decrease in fiscal year 2009 by 4%. Please note that restricted revenue includes revenue generated from unfunded expenditures and existing over expenditures. During the past year, OGCA management has been proactive in monitoring unfunded and over expenditures. It should be noted that the decline in revenue has a direct tie to the elimination of these items. In addition, OGCA staff has been diligent in reviewing the delinquent outstanding vouchers and working on the collection of outstanding receivables. The majority of outstanding Accounts Receivable in the past was due to large amounts of uncollected revenue from private entities. Most of these are billed on a semi annual or annual basis per the agency s request. The entities included other universities, native corporations, non profits and corporations. OGCA anticipates a decrease of delinquent receivables in the next two quarters attributable to the restructurings of the above federal entities and OGCAs ongoing collection and monitoring policy. 1

13 35,000.0 University of Alaska UAF Accounts Receivable (Restricted Funds) FY07 FY09 (as of 12/31/08) in 1000's 30, , , ,000.0 Dollars 10, , Sept 30 Dec 31 Mar 31 June 30 Sept 30 FY07 Dec 31 Mar 31 FY08 June 30 Sept 30 Dec 31 Fiscal Year Quarter Ended FY09 FY07 FY08 FY09 Sept 30 Dec 31 Mar 31 June 30 Sept 30 Dec 31 Mar 31 June 30 Sept 30 Dec 31 Accounts Receivable 28, , , , , , , , , ,650.2 FY09 as of Projected FY07 FY08 12/31/08 FY09 * Restricted G&C Revenue ,883.2 * Avg G&C Receivable ,226.0 Avg G&C Rec as % of G&C Rev 18.7% 19.8% 36.2% 19.1% * Dollars in thousands Note: Revenue includes over and unfunded expenditures

14 Annual Revenue by Fiscal Year in 1000's 116, , ,000.0 ousands In Th 110, , , , , ,000.0 As of June 30, 2007 As of June, 2008 Project Revenue as for FY 09 Federal 114, , ,377.2 Federal

15 Annual Revenue by Fiscal Year in 1000's 10, , , ,000.0 In Thousands 6, , , , , , Corporat e Foreign Govt's Foundati ons Non Profits Other Universit ies Private State and Local As of June 30, , , , , , , , As of June, , , , , , , , Project Revenue as for FY 09 2, , , , , , , Other As of June 30, 2007 As of June, 2008 Project Revenue as for FY 09

16 Attachment E Impact of Reduced Endowment Payout Reduced Endowment Payout Impact At this time we anticipate funds will be underwater and will not provide funds for scholarship or program support. We will continue to investigate the market impact and look for alternative funds to cover these short falls. UA Foundation Funding of Development UAF Development s budget for FY09 was $1.4 million. In December of 2008, $200K was returned to the Foundation at their request, leaving our budget balance at $1.2 million. Of this budget, $900K of the funding is from the UA Foundation. The impacts on UAF are: Reduction of UAF Development staff by 33% (7 out of 15 positions). Positions effected: Loss of two revenue-generating personnel o Associate Vice Chancellor for Development will not be rehired (merged with director position) o Development Officer, Annual Giving not hired Loss of three support positions o Stewardship Director o Records Specialist o Student Position The Senior Development Officer assumed additional duties of AVC (merged to Director of Development position) which reduces time available to focus on fundraising. Momentum of raising new funds will be affected. We will adjust our efforts to maintaining existing funds and limit our planned increase efforts for attracting new dollars for UAF. Maintaining existing funds and stewarding existing donors will be a priority given the budget reductions and economic situation. The reduction of development personnel will significantly reduce the ability to take on new fundraising projects. A loss of private funding is projected. The reductions of staff and resources will affect our ability to maintain the level of funds donated (over $7 million raised last year, $8 million projected for FY09) by approximately 25 percent. UAF is continuing to investigate additional savings and sources of new income to offset the reduced funding. Additionally, the UA Foundation has developed a consolidation plan for Advancement Services as set forth by the Advancement Services Task Force. 1

17 Attachment F Geophysical Institute Recharge Center Report UNIVERSITY OF ALASKA FAIRBANKS FINANCIAL SERVICES Analysis of Geophysical Institute Recharge Centers Stuart Roberts, Phill Harrington, Thomas Gleason 3/9/2009 1

18 I Executive Summary All Geophysical Institute (GI) recharge centers were evaluated for financial viability, compliance with UA Accounting Procedures, compliance with Board of Regents Policy and adherence with UAF recharge principles. Fifteen of the seventeen centers reviewed have deficit fund balances. Twelve of the deficit centers are operational in nature; three represent enterprise activities. Established policy and sound business practices require operational centers to break even over the course of their business cycle. Should a deficit occur, plans to eliminate it must be developed and implemented by the subsequent business cycle. Our review indicates that this has not occurred with those GI centers which currently have deficit fund balances. Deficits in the operational centers represent costs which have not been appropriately allocated to the departments which have used the services provided by those centers. GI management has inappropriately allowed costs to accumulate in the recharge center fund balances. Given the significance of the accumulated deficits, we believe it is reasonable and prudent to allow GI management until June 30, 2012 to fully eliminate it. Appropriate action includes pricing services provided by the centers such that the deficits are eliminated over time, a subsidy from GI unrestricted funding sources or a combination of the two. Ultimately, all these centers must be operated on a break even basis without subsidy. Several GI centers offer services which are available from other UAF recharge centers. We recommend the elimination of this duplication. We also recommend closing several centers which do not fit the definition of a recharge center. Specific recommendations on each center can be found in the next section of this report. Those recommendations are summarized in the following chart: FY08 Fund Deficit Elimination Fund Center Title Balance Recommendation Miscellaneous Recharge <2.2K> Close by June 30, 2009 By June 30, Proposal Office $5.3K Close by June 30, 2009 N/A Electronic Shop <$113.2K> Revise by June 30, 2009 By June 30, Electronic Shop R&D <$224.0K> Revise by June 30, 2009 By June 30, Machine Shop <$139.0K> Revise by June 30, 2009 By June 30, Machine Shop R&D <$529.6K> Revise by June 30, 2009 By June 30, Digital Design <$26.9K> Revise by June 30, 2009 By June 30, Computer Resource <$59.4K> Close by June 30, 2009 By June 30, Vehicle <$39.8K> Close by June 30, 2009 By June 30, Stockroom <$11.1K> Close by June 30, 2009 By June 30, Copy Pool <$64.6K> Close by June 30, 2009 By June 30, Map Office <$42.6K> Close by June 30, 2009 By June 30,

19 Time and Material <$1.0K> Close by June 30, 2009 By June 30, Chaparral Physics Enterprise $49.8K Review Business Model N/A Chaparral Physics R&D <$32.4K> Review Business Model By June 30, ASF Enterprise <$447.2K> Review Business Model By June 30, ASF enterprise R&D <$200.6K> Review Business Model By June 30, 2012 Total <$ K> II Specific Recommendations Miscellaneous Recharge This center is a holdover from before GI converted to Banner. It is no longer actively used. We recommend this center be closed and its deficit fund balance be eliminated on or before June 30, Proposal Office This center primarily exists to provide support for the preparation of project proposals by GI and other organizations at UAF. Using a recharge model for this activity is inconsistent with how it is done at the other UAF research units. The other units conduct this activity using unrestricted funds. We believe this inconsistency may create an environment in which restricted funds are directly charged the cost of preparing proposals. In addition, UAF has an obligation to be consistent in how costs related to restricted funds are handled. We recommend that this center be closed on or before June 30, Electronic Shop This center exists to provide specialized electronics work for sponsored projects. Work ranges from development of remote power systems to satellite downlink maintenance and development of remote video systems. This center operated in a deficit in FY07 and FY08. We recommend that the FY10 rate proposal include a rate structure and/or commitment of unrestricted fund subsidy which will result in the center operating on a break even basis beginning in FY10 and the elimination of the negative fund balance by June 30, Electronics Shop R&D This center exists to account for the development and marketing of various pieces of electronic equipment including a Data Logger. Designation as a standard recharge center is inappropriate for this type of activity. We recommend that by June 30, 2009; Fund is reclassified as an enterprise fund (type FE). 3

20 A full analysis of all activity in funds and be conducted to ensure all activity has been appropriately recorded. A matching operational FE fund is created to account the business aspects of this activity. A comprehensive business plan is developed by June 30, 2009 which clearly projects how activity in this center will eliminate its existing deficit through revenue enhancement and/or unrestricted fund subsidy. We believe it is reasonable for the business plan to demonstrate elimination the of deficit fund balance by June 30, Machine Shop This center provides precision machine work for research activities. Center staff manufactures such items as precision space instruments and ice coring drills. This center operated in a deficit every year since FY04. We recommend that the FY10 rate proposal include a rate structure and/or commitment of unrestricted fund subsidy which will result in the center operating on a break even basis beginning in FY10 and the elimination of the negative fund balance by June 30, Machine Shop R&D This center exists to account for the development and marketing of various pieces of mechanical equipment including the Pin Bone device. Designation as a standard recharge center is inappropriate for this type of activity. We recommend that that by June 30, 2009; Fund is reclassified as an enterprise fund (type FE). A full analysis of all activity in funds and fund be conducted to ensure all activity has been appropriately recorded. A matching operational FE fund is created to account for the business aspects of this activity. A comprehensive business plan is developed by June 30, 2009 which clearly projects how activity in this center will eliminate its existing deficit through revenue enhancement and/or unrestricted fund subsidy. We believe it is reasonable for the business plan to demonstrate elimination of the deficit fund balance by June 30, Digital Design Recharge Center This center exists to provide digital design services including scientific illustrations, technical drawing, rendering and animation. This center operated in a deficit in FY07 and FY08. We believe the availability of services the center provides are becoming more available in the private sector. This fact may be contributing to the centers difficulty breaking even. 4

21 We recommend that the FY10 rate proposal include a rate structure and/or commitment of unrestricted fund subsidy which will result in the center operating on a break even basis beginning in FY10 and elimination of the deficit fund balance by June 30, Should it not be possible to develop a rate structure which results in break even operation, the center should be closed. Computer Resource Center This center exists to provide computing, communication and information management services. The cost of providing the type of services provided by this center is incorporated into the F&A rate. The other UAF research units predominantly fund this activity via unrestricted revenue sources. Therefore, GI is inconsistent with the rest of UAF in how it is accounting for this activity. To ensure consistency with the rest of UAF and compliance with established cost allocation principles, we recommend this recharge center be closed by June 30, 2009 and, to the extent required, all center activities be funded via unrestricted fund sources. To the extent a project includes a provision for it, directly charging the project for this service may be appropriate, however, to the extent projects do not include a line item for this activity it is inappropriate to charge them. The balance of this centers costs should be covered via transfers to unrestricted fund sources. GI management should commit sufficient unrestricted funds to eliminate the negative fund balance by June 30, Vehicle Center This center exists to provide GI with a motor pool operation. This service is a duplication of that provided by the UAF motor pool. We recommend this center be closed by June 30, GI management should commit sufficient unrestricted funds to eliminate the negative fund balance in this center by June 30, Stockroom Center This center provides inventory for project supplies. The level of activity processed by the center is insufficient to justify a recharge center. We recommend this recharge center be closed and its deficit fund balance be eliminated by June 30, To the extent appropriate, restricted funds should be direct billed for the services provided by the center. Copy Pool Center This center exists to provide duplicating support. Center staff maintains and operates copy machines throughout the GI. This service is a duplication of that provided by the UAF copy pool operation. 5

22 We recommend this recharge center be closed by June 30, GI management should commit sufficient unrestricted funds to eliminate the negative fund balance in this center by June 30, To the extent appropriate, restricted funds should be direct billed for the services provided by the center. Map Office Center This center exists to provide maps to the Fairbanks community. This center does not fit the definition of a recharge center. Over 90% of sales by the center are external to UAF. By definition, the sole purpose of a recharge center is to allocate the cost of providing a service to campus operations which use that service. If virtually no UAF operations use the services provided by the center, there is no basis for operating that center. We recommend that this center be closed by June 30, GI management should commit sufficient unrestricted funds to eliminate the negative fund balance in this center by June 30, If there is interest in continuing to sell maps to the public, it should be done as an auxiliary operation. Options for accomplishing this include utilizing the UAF bookstore auxiliary accounting structure combined with management oversight by GI administration or perhaps by merging the function with an existing GI enterprise operation. We do not believe it is appropriate to create an auxiliary operation dedicated to conducting this activity. Time and Materials Center This center exists to facilitate the billing of small projects at GI. This activity does not qualify as a recharge center. It would appear it was set up as a convenient way to process multiple small projects awarded to various operations within the GI. The proper manner to process these projects are as independent financial transactions within the accounting system. Individual funds should be established and activity on those funds should be billed via standard procedures used for similar projects across UAF. We recommend this center be closed and its deficit fund balance eliminated by June 30, Chaparral physics Enterprise Center This center exists to manufacture, market and repair state of the art infrasound microphone sensors at a profit. We recommend GI administration develop a comprehensive business plan by June 30, 2009 to inform UAF administration of the plans for this center. We believe it is reasonable for this plan to eliminate the deficit fund balance by June 30, 2012 either via profit from the centers activity or application of a subsidy of GI unrestricted funds. 6

23 Chaparral Physics R&D This center exists to provide research and development on products sold through the Chaparral Physics Enterprise Center. We recommend this center be evaluated in conjunction with its matching enterprise center. Alaska Satellite Facility Enterprise This center exists to process and sell satellite data to U.S. Government and other customers. We recommend GI administration develop a comprehensive business plan by June 30, 2009 to inform UAF administration of the plans for this center. We believe it is reasonable for this plan to eliminate the deficit fund balance by June 30, 2012 either via profit from the centers activity or application of a subsidy of GI unrestricted funds. Alaska Satellite Facility R&D This center exists to provide research and development support to the Alaska Satellite Facility Enterprise. We recommend this center be evaluated in conjunction with its matching enterprise center. III Additional Comments/Clarifications 1. As noted, two non-enterprise GI recharge centers have enterprise type activity associated with them. The Electronic Shop has a separate research and development (R&D) fund established within it to accommodate activities associated with the development, construction and sale of data logger devices. The Machine Shop center has an identical situation with the Pin Bone device. Our recommendation is that the existing R&D funds be disassociated from their parent centers and reclassified as enterprise funds. Each new enterprise operation should also have a related production fund to handle the business end of each activity. This action would properly segregate this enterprise activity from routine recharge center activity and create some consistency with the other enterprise activities which exist within GI. Some consideration should be given to transactions in the existing R&D funds and their parent funds. Effort should be made to ensure all transactions are appropriately accounted for. 2. We have reason to believe that the Alaska Satellite Facility (ASF) operation has the potential to generate excess revenue over expenditures. We do not have knowledge of any plans or agreements which may or may not govern how such excess revenue would be used. We recommend that this potential revenue source be investigated with the intent of determining whether or not such revenue can be reprogrammed to facilitate GI in its financial efforts in general and with eliminating recharge fund balance deficits specifically. On a related note, the UA system has not specifically addressed the financial management of enterprise funds. System wide guidance is needed in this area. An effort to provide that guidance is now underway and we anticipate the policy and process for both managing the funds and extracting any excess revenue will be developed in the near future. 7

24 3. There is indication that both sides of a number of individual transactions are recorded in a single center. This would have the effect of inappropriately inflating both the revenue and expense of the center. This action does not improve the centers bottom line; however it does artificially inflate the center s level of activity. That measure is an important factor in determining the viability of the center and the type of operation which is appropriate for the center. To the extent such practice is occurring we recommend that it terminate immediately. IV UAF Recharge Center Principles Basis for Creating a Recharge Center and Continuing its Operation A clear and justifiable benefit to a viable number of UAF departments exists. The services of the proposed center are not available from any other existing UAF recharge center. There is clear alignment with recharge center principles. o Primarily provides service to internal customers o Designed to operate on a break even basis A sufficient volume of transactions to justify recharge center support and reporting requirements exists. A sufficient annual dollar value of transactions to justify recharge center support and reporting requirements exists. There is a reasonable absence of competition with the private sector. Where a potentially competitive situation exists, the nature of that competition will be fully described along with proposed efforts to ensure that appropriate sensitivity and good faith is exercised when dealing with the affected members of the private sector. The approval of the Vice Chancellor of Administrative Services will be secured prior to the creation of any new recharge center. Basic Operating Requirements All recharge centers will operate in full compliance with UA Statewide Manual Procedure P112 Service/Recharge Centers and UA Board of Regents policy Auxiliary Service Enterprises, Recharge centers, and Self-Funded Activities. All annual recharge center rate proposals for the following fiscal year will be due by the second Friday each April. Failure to submit a proposal will result in termination of recharge activities. Recharge centers will be operated as discreet operating units. Only those revenue, expenses and transfer transactions which are directly related to recharge center activities will be posted to the recharge fund. Any transactions which are not directly related to recharge activities will be reviewed by the UAF CFO prior to their entry. Annual recharge center rate proposals will include plans for elimination of any deficit fund balance which exists or is projected to exist. Prior to entry, any transfer into or out of a recharge center fund will be Incorporated into an annual rate proposal or, in extraordinary circumstances, a special inter operating cycle rate proposal. The impact of the transfer will be fully incorporated into the centers financial statements including its impact on the rates in the subsequent operating cycle. 8