USF Board of Trustees Finance & Audit Workgroup NOTES Thursday, February 25, 2016 Tampa Campus - Marshall Student Center, Room #3707

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1 USF Board of Trustees Finance & Audit Workgroup NOTES Thursday, February 25, 2016 Tampa Campus - Marshall Student Center, Room #3707 I. Call to Order and Comments The meeting of the Finance and Audit Workgroup was called to order by Chair Hal Mullis at 9:06 am. The following members and liaisons were present: Hal Mullis, Stephanie Goforth, Scott Hopes, John Ramil, Judy Genshaft, Alan Bomstein, Roy Binger, Dipayan Biswas, Carl Pacini and Ninon Sutton. Trustee Steve Mitchell was also present. Chair Mullis acknowledged Gerard Solis who was in attendance as the new General Counsel. II. Public Comments Subject to USF Procedure No requests for public comments were received. III. New Business Action Items a. Approval of November 12, 2015 Meeting Notes Chair Mullis requested changes to the draft meeting notes and hearing none called for a motion for approval, it was seconded and the November 12th meeting notes were approved as submitted. b. Acceptance of Performance-Based Funding Data Integrity Audit and Approval of Data Integrity Certification Debra Gula, Executive Director of University Audit & Compliance (UAC), presented the results of the data integrity audit performed by UAC at the request of the Board of Governors (BOG) on the PBF measures. The audit is complete. This is the second year of audit and required only half the time as last year. UAC followed its standard risk assessment, audit program and reporting protocols. The primary audit objectives (which were the same as last year) were to (1) determine whether the processes and internal controls established by the university ensure the completeness, accuracy, and timeliness of data submissions to the BOG which support the PBF measures; and (2) provide an objective basis of support for the President and Board of Trustees (BOT) Chair to sign the representations included in the Data Integrity Certification. UAC s overall plan was to identify and evaluate any material changes to the controls and processes in place in the prior year. Risk assessment and fraud risk assessment were updated to identify areas for detailed testing: Hours to Degree file (Measure 9); Retention Cohort Change file (Measure 6); and Postdoctoral Scholars (Measure 10). These were the three areas of testing (did not have to test all). Also looked for any needed changes in processes and controls. No problems or issues were found.

2 UAC s overall conclusion was that there were no high risk issues and there was an adequate system of internal controls in place. UAC made one recommendation (medium risk) for improvement in their Management Letter. The recommendation is related to post-doctoral scholars (measure 10). None of the issues identified for management attention increased or decreased the achievement score within the PBF model; no impact to results achieved with the PBF model and allocation of dollars. UAC recommends the university develop and distribute a written procedure that will enhance oversight and monitoring of the GSS survey responses from affiliates (non-compensated post docs), including, but not limited to, the following: USF Health validating the list of Moffitt postdoctoral scholars; USF Office of Research and Innovation ensuring adequate documentation of the research affiliations between externallyfunded postdoctoral scholars and USF; and tracking externally-funded postdoctoral scholars in GEMS. The focus is on affiliates as they are not in GEMS for job coding. UAC would like to see affiliation agreements strengthened. This issue has now been resolved and UAC will update their management letter following the BOT meeting. Ms. Gula noted the lag in time from year of reporting (Fall 2013); therefore constantly chasing control structure after the fact. Trustee Ramil asked if we have a way to look ahead at things that might change so we are not chasing the control structure. Provost Wilcox responded yes, we have now and are looking ahead to be able to provide better data we have a robust and comprehensive pool of data. Chair Mullis stated that USF s audit team is one of the most robust in the SUS. He then asked if other SUS universities engage outside assistance for this audit. Ms. Gula responded yes, smaller universities (New College, FGCU) have outsourced this audit (which is allowed). Provost Wilcox added that USF has an added complexity as we have four separate institutions and consolidated system data. He further remarked that our audit team does an excellent job. A motion was made to accept the audit report as amended to indicate that the recommendation on Measure 10 has been resolved. The motion was seconded. The motion passed. A motion was made to approve the completed Data Integrity Certification. The motion was seconded. The motion passed. c. Fee Reductions 1. Material & Supply Fees i. USF Tampa ii. USF St. Petersburg 2. Facilities & Equipment Use Fees i. USF Tamps ii. USF St. Petersburg Senior Vice President and Chief Operating Officer John Long introduced the fee reductions agenda item. Mr. Long stated that these fees are not required by statute to come to the BOT and asked if we should look at a materiality level for fees coming to the board in the future. For three years, there have been no fee increases, only eliminations and reductions. We also have not increased housing rents in three years which is becoming

3 problematic. We need to have a discussion for going forward as we are struggling to provide quality services (housing and educational experience). President Genshaft stated that she would like these Material & Supply fees and Facility & Equipment Use fees to be information items. She further stated that when we have a new course phasing out and we are adding a new course in its place, we eliminate the old fee and cannot add a new fee. We would like to have the existing course fee transferred to the new course, this is not increasing fees overall, just adjusting for new curriculum. Provost Wilcox stated that the moratorium on Material & Supply fees and Facility & Equipment Use fees has paralyzed new curriculum, especially in STEM programs. If we can remain net neutral and provide some opportunity for new fees (particularly in STEM at USF Sarasota-Manatee); this would be tremendous benefit to students and programs. Trustee Hopes asked how we currently budget for new course development / implementation. Provost Wilcox responded that it has three components: 1) instruction / cost of faculty member (covered from tuition and state appropriations); 2) space and facilities (covered from construction / capital funds); and 3) supplies, consumables, state of the art technology (not covered above). Mr. Long stated that Material & Supply fees and Facility & Equipment Use fees are selfpoliced. The fees go through a rigorous review and vetting process by the campuses and financial analysis office. President Genshaft explained that the current issues are due to our own rules and regulations. Trustee Ramil recommended that the university develop a process to correct this situation, as it would further our goals. Two issues to be addressed: 1) transfer of fees to replacement courses; and 2) new fees for STEM courses. Provost Wilcox commented that currently we are stifling growth and not serving our communities effectively. Chair Mullis stated that we need to be respectful of the directives of the legislature, governor s office, etc., but we have to be mindful of where this is taking us, especially housing rents. We need to have these discussions with the state. Trustee Hopes would like the staff to come up with a recommendation to modify our internal processes to give us the needed flexibility with needed controls in place. Mr. Long reported that Trustee Lamb suggested a materiality threshold for fees needing BOT approval. Trustee Ramil explained that we need to constantly be looking at things to see what we can stop doing in order to do something else. Provost Wilcox stated that we are currently doing this with degree programs looking at what we can eliminate. Trustee Hopes stated that we should address our internal processes and if something is hindering us at the legislative level, we should address this too. Mr. Long explained that Housing is an auxiliary, and auxiliary business doesn t usually go to university boards; so others have been able to increase housing rents (these are rents not fees).

4 Trustee Mitchell agreed that a materiality clause is necessary, and we need to have cost of living increases automatically. Trustee Ramil noted that we constantly look at market rates, rates at other universities and costs when determining the need to increase housing rents. Mr. Long stated that not increasing housing rents is significantly affecting deferred maintenance. Trustee Ramil would like an update on housing rents and what the other universities are doing in terms of governance and rents. Given the above the discussions, Chair Mullis deferred the Fee Reduction agenda item to be re-presented at a later meeting. IV. New Business Information Items a. DSO Mid-Year Forecasts Fell Stubbs, University Treasurer, introduced the agenda item. This is a 6-month update on FY16 financial plans for the DSOs with an updated forecast. Mr. Stubbs explained that the DSO presentations will address bottom line profit, net changes in cash, and other key issues of interest to the Trustees. Mr. Long noted that there is a lot of red for unrealized losses due to the fluctuations of the market. 1. Joann Strobbe presented the mid-year forecast for USF Health Professions Conferencing Corp. (HPCC). In FY16, revenue from Continuing Professional Development is declining (this is a national trend), revenue from academic programming represents 40% of the total and is increasing, and industry revenue is growing, but not as much as initially thought. HPCC is projecting a decrease in expenses largely due to a decrease in direct program expense with is a pass through from continuing professional development. HPCC is projecting a breakeven budget for the year as well as a slim cash projection with ending cash of $289K. HPCC is making sure that all of its payables are current. The $1M difference in projected vs plan year end cash is due to a reduction in deferred revenue deposits (previously Tampa General). Ed Funai gave an update on CAMLS. The plan is to maximize USF Health assets downtown and continue our hosting of industry and innovation. No programs are being deleted from CAMLS mission. CAMLS is being used as a staging area for the new downtown center. Trustee Mitchell stated he feels very comfortable with the current direction of CAMLS and it meeting its intended purpose. 2. Pat Downing, CFO for UMSA/MSSC, presented the mid-year forecast for University Medical Services Assoc., Inc. (UMSA). UMSA s forecast operating profit is equal to plan. UMSA is projecting a small shortfall in revenues with a similar reduction for expenses. Dr. Funai reported that the EPIC medical records transition went very well. Also, UMSA has gone from a 30% call abandonment rate to 5% and all calls are answered within 30 seconds. 3. Pat Downing also presented the mid-year forecast for USF Medical Services Support Corp (MSSC). Effective 01/01/16, MSSC transferred its operations into UMSA; all

5 costs now will reside on UMSA financial statements. All personnel have been transferred; still need to transfer assets and liabilities. Transfers will be completed by June 30, 2016 with cash also transferred to UMSA. 4. Yulander Wells, CFO for USF Athletics, presented the mid-year forecast for Sun Dome, Inc. (SDI). Revenue is on plan as are expenses. Cash is also on plan. SDI will have ample cash flow for repairs, transfers to the university, etc. Trent Merritt, general manager for Spectra was also present. SDI operates the arena with Spectra. Mr. Merritt stated that this is the fourth year since the renovation of the arena and the fourth year of growing revenue. Mr. Merritt gave a brief report on the recent Donald Trump event held in the Sun Dome. The event generated $50K in net profit. It took a team approach to support the event in a short time frame. Mr. Trump s campaign staff said it was one of the best events they ve had. Present Genshaft praised all the local law enforcement agencies (Hillsborough Sheriff s Office, Tampa Police, Temple Terrace Police, and USF Police) for their cooperation in ensuring a safe, successful event. Mr. Merritt also noted that 10,970 people filled the Sun Dome for the event and 3,000 people were turned away. Mr. Wells distributed the Sun Dome Annual Report (FY15) and the marketing plan (FY16). 5. Bill McCausland presented the mid-year forecast for USF Alumni Association, Inc. The Alumni Association is having a strong year. Membership dues were raised in October, yet memberships are still increasing 8% increase in annual memberships as well as an increase in life memberships. It took 21 years to get the first 2,000 life memberships and just 3 ½ years to get the second 2,000. Revenues are projected to be $50K short of plan largely due to a decrease in sponsorships. Mr. Long explained that the Alumni Association is not a revenue generator, but a friend generator, which benefits the university in all areas. 6. Mr. Stubbs presented the mid-year forecast for USF Financing Corp. & USF Property Corp. The Financing Corp. and the Property Corp. operate jointly as conduit entities for the university, with revenues matching expenditures. The Property Corp. is owned by the Financing Corp. The Financing Corp. manages the cash flow of DSOs or auxiliaries that financed the long-term debt. The Financing Corp. plans to refund / reissue $41 M of the Series 2013A Health bonds in July The key objectives are to lock in current lower market interest rates and reduce risks in the current variable rate bonds. A rate lock agreement was executed on November 25, 2015 with JPMorgan Chase Bank, committing the bank to a 10-year rate of 2.31% (currently 4.23%). Present value savings will total $7.2 M, or 18.9%, reducing annual debt service payments by approximately $500,000 over the next 10 years. 7. Dr. Paul Sanberg and Patricia Gamble presented the mid-year forecast for USF Research Foundation, Inc. The Research Foundation is on track to achieve its plan financial goals. FY16 Rental revenues will increase 6.5% over FY15. The forecast shows a 1% reduction in expenses from plan. Yearend cash is forecast to increase (strengthening liquidity, reserves). 8. Joel Momberg and CFO Rob Fischman presented the mid-year forecast for USF Foundation, Inc. Mr. Momberg reported that the Foundation has crossed the $900M mark in our $1B capital campaign. This is 90% of the total in 80% of the time (ahead of schedule). Mr. Fischman reported that gifts & donations revenue is projected slightly lower than the financial plan due to the Foundation being named as a

6 beneficiary in several revocable planned gifts that were anticipated to be irrevocable gift instruments. Despite the recent negative investment performance of the market, the Foundation is projecting a positive return of 1% for the fiscal year. The Foundation is still outperforming peer institutions and is still in the top quartile. Alan Bomstein presented the NACUBO results for endowment returns for the period ending June 30, 2015, noting that USF falls in the $ M group. USF has outperformed each of the state universities. He further stated that asset allocation is essential for performance and it is done well at the USF Foundation (thanks to Rob Fischman and Wilshire Associates). b. Operational Audit Update Mr. Long and Mr. Trivunovich gave an update on the operational audit. The last operational audit had 9 findings / recommendations. This audit has 5 findings / recommendations 2 findings we disagree with (IT related and confidential we believe we are right and the auditors are wrong and we will pursue); 1 finding relates to Latin American/Caribbean Scholarships on which we disagree on definition and are working to resolve; and 2 are appropriate findings that we need to address (background checks and severance payments). For background checks, we previously had a person-dependent process and are now moving to a process-dependent process. We have to solve for gaps and we have begun the mitigation process. For severance payments, we can t provide more than 20 weeks. This mostly refers to Athletics (paid with non-state funds). There is a disagreement between auditors and universities on this definition we consider these liquidated damages. This is a repeat finding. We did receive a good, clean audit on financial processes and controls no findings. PCard and purchase order findings are no longer occurring. V. Adjournment Having no further business, Chair Mullis adjourned the Finance and Audit Workgroup meeting at 11:09 am.