DRAFT. Ms. Amber Lee Douglas. Committee Members Absent: Ms. Betsy E. Flynn, Committee Vice-Chair

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1 MINUTES KCTCS Board of Regents Finance, Technology, and Human Resources Committee March 14, 2013 Committee Members Present: Ms. Doris C. Thomas, Committee Chair Mr. Elijah Buell, Jr. Mr. Robert G. Cooper Ms. Amber Lee Douglas Committee Members Absent: Ms. Betsy E. Flynn, Committee Vice-Chair Mr. John P. Dove Mr. Porter G. Peeples, Sr. Ms. Marcia L. Roth CALL TO ORDER Committee Chair Thomas called to order the meeting of the Kentucky Community and Technical College System Board of Regents Finance, Technology, and Human Resources Committee at 2:10 p.m. (ET) on March 14, The meeting was held in Conference Room 102B of the KCTCS System Office in Versailles, Kentucky. The press was notified of the meeting on March 6, Hon. Pamela M. Duncan, KCTCS Staff Attorney, served as parliamentarian. There being a quorum present, Finance, Technology, and Human Resources Committee business began with the approval of minutes. APPROVAL OF MINUTES Chair Thomas called for a motion to approve the minutes of the December 6, 2012, meeting of the Finance, Technology, and Human Resources Committee. MOTION: Ms. Roth moved and Mr. Peeples seconded that the minutes of the December 6, 2012, KCTCS Board of Regents Finance, Technology, and Human Resources Committee be approved. VOTE: The motion was approved unanimously. ADDITIONS OR CHANGES TO THE AGENDA ACTION: RATIFICATION OF PERSONNEL ACTIONS There were no additions or changes to the agenda. RECOMMENDATION: That the KCTCS Board of Regents ratify the personnel actions listed in the agenda materials. Chair Thomas called on KCTCS President Michael B. McCall to present the item. KCTCS Vice President Ken Walker assisted with the presentation. It was noted that the personnel actions presented were in accordance with reporting guidelines and policies adopted by the KCTCS Board of Regents. Chair Thomas called for a motion. MOTION: Mr. Cooper moved and Mr. Dove seconded that the Finance, Technology, and Human Resources Committee recommend that the 37

2 KCTCS Board of Regents ratify the personnel actions listed in the agenda materials distributed at the meeting. VOTE: The motion was approved unanimously. UPDATE: TECHNOLOGY SOLUTIONS Chair Thomas called on President McCall to present the report. Mr. Paul Czarapata, KCTCS Vice President, assisted with the presentation. The System Office Technology Solutions 2012 Accomplishments that was presented to the Board highlights personnel, services provided, projects delivered, and 2013 major projects being planned or under way. The committee was informed that Phase I of the KCTCS Student Mobile Application (app) for students was released and made available for Apple, Android, and Blackberry devices. Features include access to class schedules, homework assignments, discussion boards, a college directory, YouTube videos, maps of the college, and social media (Facebook & Twitter) as well as helpful links to the bookstore and digital library services. Phase II planning is currently in process. In March 2012, KCTCS Technology Solutions initiated an analysis of system and college-level business processes that use PeopleSoft Campus Solutions in order to identify critical business processes that can be redesigned for increased efficiency and effectiveness. Technology Solutions staff have already begun to implement recommendations from the analysis and plan to get input from faculty and staff to prioritize the other recommendations for future implementation. It was reported that visits to the KCTCS college web sites from mobile devices account for over 10 percent of all traffic. Collectively, the college sites receive over 240,000 visits per day. With nearly 25,000 visits per day coming from mobile devices, the audience is huge and will only continue to grow. To meet this demand, mobile versions of the college web sites were developed and deployed in late May and early June. Web pages automatically determine whether the user is on a full size computer or a handheld device and render the pages in a way that is optimal for viewing. A unified help desk for all Technology Solutions service systems was implemented combining systems used by web services, administrative systems (PeopleSoft), infrastructure, and desktop support into one web site. As of January 31, 2013, there have been over 95,000 tickets submitted by KCTCS faculty and staff. Chair Thomas called for questions and discussion. During the discussion, there were questions regarding the KCTCS Mobile App. It was clarified that the apps are available to students at all of the colleges. The committee was very complimentary of KCTCS Technology Solutions innovative efforts. 38

3 UPDATE: OFFICE FOR AUDIT SERVICES REPORT Chair Thomas called on Mr. Glenn Paige, Office of Audit Services Director, to provide a semi-annual report on the activities of the Office of Audit Services. He highlighted the following items: The committee was provided an overview of the Audit Services risk assessment methodology and audit plan. The External Auditors, Dean Dorton Allen Ford, recommended that the Office of Audit Services reconsider its method of selecting audits in order to provide a more balanced, risk- sensitive approach among college and system-level operations and programs. The goal of risk assessment is to identify those areas exposed to higher risk and to allocate audit resources appropriate to that level of risk. As the colleges have been audited on a regular basis from the beginning, they will initially rate as lower risk and less emphasis will be placed upon them until more balance has been achieved between the colleges and the System Office units. Audits of colleges with leadership changes will continue, and audits for Southcentral Kentucky Community and Technical College and Southeast Kentucky Community and Technical College will be scheduled in due to presidential leadership changes. A list of auditable units KCTCS colleges and system-level offices has been established. Rating categories were developed to assign a level of relative risk for each auditable unit based on the following risks: o Control Risk Quality and stability of control environment (40% weighting). o Operational Risk - Complexity/diversity of operations (20% weighting). o Financial Risk Impact of errors, omissions, and losses (20% weighting). o Regulatory Risk Level of regulatory concerns (20% weighting). Each auditable unit was assigned a risk rating from between one and five, with one representing the lowest risk and five the highest risk. Other factors (such as management concerns, prior audit coverage, number of audit findings, changes in management, and relative materiality) were also taken into account when assigning the ratings. The weighted scores were then totaled and ranked from highest risk to lowest. Using results from the risk assessment, as well as other necessary activities, the audit plan for fiscal year is as follows: 1. Student Financial Aid (focusing on System Office operations). 2. Human Resources (focusing on System Office operations). 3. Grant Accounting and Management (selected segments). 4. Property and Facilities Management (selected segments). 5. Southcentral Kentucky Community and Technical College. 6. Southeast Kentucky Community and Technical College. 7. Review the KCTCS President s travel and procurement card expenses. 8. Special Reviews/Investigations (as events arise). 39

4 9. External Audit Assistance. Chair Thomas called for questions and discussion. During the discussion, there were questions regarding the processes followed by the colleges. Other questions were raised about the list given for and whether other areas could be added. INFORMATION: KCTCS BUDGET DEVELOPMENT SCENARIOS Chair Thomas called on President McCall to present the item. KCTCS Vice President Ken Walker assisted with the presentation. It was noted that the fiscal year budget would direct the use of financial resources available to KCTCS to help achieve the mission and vision of KCTCS. The KCTCS Board of Regents discussion of the following factors was needed in order to provide guidance in the development of a proposed budget for consideration at the June 14, 2013, Board meeting. President McCall provided an overview of the and state appropriations to KCTCS enacted during the 2012 Regular Session of the Kentucky General Assembly: Budget Year Original * State Appropriation State Appropriation Revised * State Appropriation Enacted $204,546,700 $200,584, $191,455, $191,455,700 *Reflects recurring base transfer of $80,000 to Eastern Kentucky University and $80,000 to the University of Kentucky for Physical Therapy programs at these universities. All postsecondary education institutions, including KCTCS, received a 6.4 percent cut from the original base state appropriation (approximately $13.1 million). The state appropriation is the same as the state appropriation. There is no further reduction, and there is no increase. The state appropriation is the first appropriation since that was not a decrease from the previous year. The second primary source of funds to support the KCTCS operating budget is tuition revenue. The Council on Postsecondary Education (CPE) is to establish parameters for tuition rates for at a future meeting. Last year CPE approved a $5.00 per credit hour increase that would be a four percent increase in tuition for the fiscal year. Each $1.00 increase in the KCTCS tuition per credit hour rate in for Kentucky residents (with corresponding rate increases for out-of-state students) will generate approximately $1.5 million in new tuition revenue. A third funding source used to support Board priorities for expenditure is the reallocation of the existing funding base. 40

5 41 Fixed costs in certain employee benefits are estimated to increase in Current estimates indicate that utilities and property insurance costs will increase by approximately $0.9 million in , a 6.0 percent increase. Therefore, fixed costs in employee benefits and utilities and property insurance will increase by an estimated $4.8 million in , a 7.7 percent increase. Employee benefits include the increased cost of health insurance coverage for continued participation in the state and University of Kentucky health insurance plans, workers compensation, long-term disability, and unemployment insurance. Current estimates indicate that these employee benefit costs, including the impact of the Affordable Care Act, could increase by $3.9 million in , an 8.2 percent increase. The Kentucky Employee Retirement System (KERS) employer contribution rate increases from percent in to percent in The Kentucky Teacher Retirement System (KTRS) employer contribution rate increases from percent to percent in KCTCS will have an additional cost of $0.3 million in retirement contributions for current employees assuming no salary increase for The fixed costs in employee benefits, utilities, property insurance, and KERS rate change is estimated at $6 million in These costs would increase further with an increase in KCTCS salaries in As in the past, the Board must determine compensation increases for KCTCS faculty and staff for Systemwide, each 1 percent salary increase for full-time faculty and staff would cost $2.2 million in Additionally, each year since the Board of Regents has funded the cost of faculty promotion in rank. In fiscal year , the cost of faculty promotions will be approximately $1.0 million. The Board of Regents may also consider providing funds for nonrecurring merit bonuses for high performing faculty and staff in all personnel systems, as it has done in the past several KCTCS budgets. Funding for nonrecurring merit bonuses is not included in the recurring budget; the funds that were used for this in the past were used to support recurring salary increases in In 2003, KCTCS contracted with Mercer Human Resource Consultants to complete a systemwide Classification and Compensation study. In the fall of 2012, KCTCS engaged Hanna Resource Group to conduct a systemwide Compensation and Classification study as a comprehensive update to the 2003 study. The study is expected to be completed sometime later in calendar year 2013.The Board is responsible for determining the implementation of the Classification and Compensation study. A chart with the history of the Fixed Cost and Employee Compensation increases since is provided in the agenda materials. Chair Thomas called for questions and discussion. During the discussion of the budget scenarios, the uncertainty regarding the direct impact of the federal funding sequester on KCTCS was discussed. It was noted that the potential impact on federally-funded programs such as financial aid was more certain. There was also a request for an update on

6 the Merit Bonus program. President McCall indicated that more information on that would be provided at the full Board meeting. The committee also indicated that a raise for full-time faculty and staff would be important to include in the budget. UPDATE: KCTCS QUARTERLY FINANCIAL REPORT Chair Thomas called on President McCall to present the Quarterly Financial Report. KCTCS Vice President Walker assisted him with the presentation. It was reported that information for the second quarter of fiscal year , which ended December 31, 2012, was derived from the KCTCS Administrative Financial System. The Statement of Revenues and Expenditures reflects the actual program and operational expenditures compared to the fiscal year budget approved by the KCTCS Board of Regents on June 15, Total revenues of $515 million reflect 56 percent of the budgeted revenue and appropriated funds. Current fund expenditures and budget reserve through the fiscal year total $413 million, 45 percent of the expenditures budgeted for the year. As of the end of the second quarter, KCTCS has received 83 percent of budgeted tuition revenue; and 48 percent of the total budgeted financial aid has been received and expended. A total of 100 percent of the nonrecurring budget reserve from prior year funds is in place. The Statement of Net Assets presented reflects the overall financial position of the System and includes assets, liabilities, and net assets as of December 31, UPDATE: SUPPLIER DIVERSITY REPORT Chair Thomas called on President McCall to present an update on KCTCS Supplier Diversity efforts. KCTCS Vice President Mr. Ken Walker assisted with the presentation. KCTCS defines diverse suppliers as those businesses owned by ethnic minorities, women, veterans, or the physically challenged. Data for the first and second quarters of (July 1, 2012 through September 30, 2012 and October 1, 2012 through December 31, 2012) were presented in the agenda materials as Attachment A. The highlight of as compared to was a $506,344 (22.1 percent) increase in diverse suppliers. Of this amount, the dollar amount spent with Physically Challenged Owned businesses increased percent, Women Owned businesses increased 0.5 percent, and Veteran Owned businesses decreased 72.0 percent. A diverse supplier outreach workshop was held at West Kentucky Community and Technical College in November to encourage participation by diverse suppliers in the competitive procurement process for the capital construction work scheduled for the college. Another workshop is scheduled for Bluegrass Community and Technical College for construction and furnishings for their Newtown Campus. As a follow-up to KCTCS Board Chair Peeples November 2011 letter and subsequent meeting with Kentucky Finance and Administration Cabinet Secretary Flanery, it was reported that the Cabinet has recently expanded its 42

7 supplier diversity program with guidelines to allow executive branch agencies to use their small purchase authority to expand business with ethnic minority businesses. KCTCS had already extended this small purchase authority to its colleges as part of its supplier diversity initiative. It was noted that the National Diversity Solutions (NDS) staff have been visiting the colleges to discuss how best to enhance supplier diversity within the college s service area. The total number of diverse suppliers within the KCTCS master supplier list has been increased, enabling proactive notification to diverse suppliers of new opportunities as they occur. UPDATE: OTHER POSTEMPLOYMENT BENEFIT (OPEB) TRUST Chair Thomas called on President McCall to present an update on the Other Postemployment Benefit (OPEB) Trust. KCTCS Vice President Mr. Ken Walker assisted with the presentation. As reported previously, a request for proposals (RFP) was issued for the selection of a financial institution to serve as trustee for the OPEB Trust; and First Financial Bank was selected. Customized trust and custodial agreements have since been developed and executed. KCTCS staff are now working with First Financial Bank and with Commonfund, as the investment manager, to execute all aspects of the Trust. KCTCS has annually set aside monies to fund the accrued liability for this postemployment benefit and will use these accumulated funds, approximately $163 million (principal and interest), as the initial funding of the trust. KCTCS staff are currently working with Dean Dorton Allen Ford (DDAF) and Clarity in Numbers (the actuary hired to conduct the update of the actuarial valuation) to calculate the remaining unfunded liability. Based on the remaining unfunded liability as calculated from the new actuarial valuation (expected to be completed in August 2013), KCTCS intends to transfer as soon as possible an amount sufficient to fully fund the trust in order to take full advantage of the projected savings from establishing and funding the trust. NEXT MEETING The next regularly scheduled Finance, Technology, and Human Resources Committee meeting is June 13, 2013, at Southeast Kentucky Community and Technical College, Cumberland, Kentucky. 43

8 ADJOURNMENT Ms. Roth moved and Mr. Cooper seconded that the Finance, Technology, and Human Resources Committee adjourn. VOTE: The motion was approved unanimously. The Finance, Technology, and Human Resources Committee meeting adjourned at 4:00 p.m. (ET). 06/13/13 Date Approved by the Finance, Technology, and Human Resources Committee Doris C. Thomas Committee Chair 44