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Chapter 5
FINANCIAL MANAGEMENT

This chapter reviews the financial management functions of the Alamo Community College District (ACCD) in the following sections:

A. Organization and Management
B. Budgeting and Planning
C. Tax Rate and Tuition
D. Internal and External Auditing
E. Accounting Operations

Financial management is critical for any organization. In a community college financial management involves budgeting and planning; accounting operations; such as accounts payable, payroll, grant accounting and student receivables; tax rate and collections; and internal and external auditing. The overall goal of financial management is to ensure that monetary resources are properly planned, managed, recorded, controlled and safeguarded so that the mission of the organization can be more easily achieved. Effective financial management enables a community college to plan for its future, extract greater outcomes from limited resources, manage diverse commitments and achieve its various purposes.

BACKGROUND

ACCD must follow financial accounting policies and standards set by various regulatory bodies. The Texas Higher Education Coordinating Board (THECB) for Texas Public Community and Junior Colleges, for example, publishes requirements for financial accounting and reporting in their manual, "Annual Financial Reporting Requirements for Texas Public Community Colleges." The manual provides a comprehensive set of definitions, rules, formats and illustrations for public community and junior colleges in Texas to use for consistent and uniform reporting.

During 2001-02, ACCD implemented a major financial reporting requirement of the Governmental Standards Accounting Board (GASB) as a result of two important rulings. In June 1999, the GASB issued Statement No. 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments (GASB 34), which makes dramatic changes to the way state and local governments report their finances to the public. Originally, public colleges and universities were excluded from the scope of the statement. However, in November 1999, GASB issued Statement 35, Basic Financial Statements-and Management's Discussion and Analysis-for Public Colleges and Universities, which removed the exclusion and required public colleges and universities to follow the special-purpose government provisions of GASB 34. As special-purpose entities, most colleges and universities that charge tuition may elect to follow the requirements of GASB 34 related to special-purpose governments engaged only in business-type activities. ACCD's audited financial statements for 2001-02 reflect the college's compliance with GASB 34.

THECB requires colleges and universities to classify expenditures in the functional categories described in Exhibit 5-1. These categories allow comparison of expenditures of all colleges and institutions of higher education in Texas.

Exhibit 5-1
THECB's Functional Expenditure Category Descriptions
Category Description
Instruction Includes expenditures for all activities related to an institution's instruction program. Includes expenditures for credit and non-credit courses, academic, vocational and technical instruction, for developmental and tutorial instruction, and for regular, special and extension sessions.
Research Includes expenditures for research-related activities sponsored either internally or externally.
Public services Includes cost of activities designed primarily to serve the general public, such as correspondence courses, adult study courses, public lectures, radio and television stations, workshops, demonstrations and similar activities.
Academic support services Includes cost to operate libraries, instructional administrative expense, and faculty development leaves.
Student services Includes cost to administer activities such as admission and registration, student financial services and other activities for the benefit of students.
Institutional support services Includes expenditures for central, executive-level management and long-range planning; fiscal operations; administrative data processing; space management; employee personnel and records; procurement; safety; printing and other services that support the institution.
Operational and maintenance of plant Includes cost for plant support services, building maintenance, custodial services, ground maintenance and utilities.
Scholarships and fellowships Includes financial aid to students.
Auxiliary enterprise expenditures Includes operational cost of self-supporting activities for the benefit of students, faculty, and staff such as campus bookstores and food services.
Source: Texas Higher Education Coordinating Board (THECB), Annual Financial Reporting Requirements for Texas Public Community Colleges.

ACCD groups these accounts into funds. A fund is a self-balancing group of accounts established to provide separate accountability for assets, liabilities, fund balances, revenues and expenditures. Like most not-for-profit entities, community colleges use fund accounting to observe legal and policy restrictions placed on its resources. Exhibit 5-2 provides fund descriptions.

Exhibit 5-2
Fund Descriptions
Fund Group Description
Current Funds Expendable for current operating purposes. May be restricted or unrestricted and include auxiliary enterprises.
Loan Funds Available for loans to students, faculty and staff.
Endowment Funds Funds for which a donor, external agency or governing board stipulates a particular use and for which only the income from investments may be expended unless stipulated otherwise by the donor, external agency or governing board.
Annuity Funds Funds donated to an institution on condition that the institution pays a stipulated amount to the donor or designated individuals for a specified time or until the death of the annuitant.
Plant Funds Funds for the construction, rehabilitation, acquisition, renewal and replacement of long-lived assets.
Agency Funds Funds held as custodian or fiscal agent for others, for example student organizations, individual students or faculty members.
Source: THECB, Annual Financial Reporting Requirements for Texas Public Community Colleges.

ACCD receives revenue from state reimbursements, student tuition, property taxes and grants and contracts. State reimbursement revenues are allocated through a funding formula developed by THECB. The formula is based on a biennial cost study, known as the All Funds Expenditure Report, of all community colleges in the state. Each community college provides THECB with the per-contact-hour cost of teaching and administering courses in 26 specified academic and technical disciplines. The median cost for each discipline is then applied to the number of contact hours taught in each discipline during the "base year" immediately before the legislative session. Contact hours represent time spent with an instructor. The Legislature appropriates money directly to the community college - not to THECB - but THECB distributes the funds. Tuition and fees are collected from students at rates the board approves. Local property taxes are based on local property values and the district's tax rate. Contracts and grants are received from federal, state, local and private sources and are used for financial aid, student work-study programs, technology and other programs that promote the district's mission.

During 2001-02, ACCD received 34 cents of every dollar from state appropriations, 13 cents from tuition and fees, 24 cents from property taxes and 26 cents from contracts and grants. Instruction expenditures were 41 percent of total expenditures during 2001-02, while expenditures for scholarships were 14 percent. Institutional support and student services were 11 and 10 percent, of total expenditures, respectively. Exhibits 5-3 and 5-4 present ACCD's revenue sources and expenditures for 2001-02.

Exhibit 5-3
Revenues
2001-02
Revenues
Source: ACCD, Audited Financial Statements-Managements Discussion and Analysis, 2001-02.

Exhibit 5-4
Expenditures
2001-02
Expenditures
Source: ACCD, Audited Financial Statements-Managements Discussion and Analysis, 2001-02.

Exhibit 5-5 provides an overview of ACCD actual revenues and expenses for 2000-01 and 2001-02. The district restated 2000-01 amounts so that they are comparable to 2001-02 amounts, which are reported under the GASB 34 format. The amounts include total operating and non-operating revenues and expenditures.

Exhibit 5-5
ACCD Actual Revenues and Expenditure
2000-01 and 2001-02
Amounts in Millions
Description 2000-01 2001-02
Revenue    
State Appropriations $68.5 $75.6
Net Tuition and Fees $27.2 $29.3
Grants and Contracts $45.5 $57.0
Auxiliary Enterprises $2.1 $2.3
Property Taxes $51.1 $54.4
Other $4.7 $5.2
Total Revenues $199.1 $223.8
Expenditures    
Instruction $78.6 $89.8
Public Service $3.6 $3.7
Academic Support $14.9 $17.7
Student Services $19.0 $21.0
Institutional Support $19.9 $24.7
Operation & Plant Maintenance $12.4 $17.2
Depreciation $9.9 $6.7
Scholarships & Fellowships $22.7 $29.5
Auxiliary Enterprises $1.4 $1.7
Interest on Capital Debt $5.0 $5.5
Total Expenditures $187.4 $217.5
Revenues over Expenditures $11.7 $6.3
Source: ACCD, Audited Financial Statements, 2000-01 and 2001-02.

Fund balance is the difference between a fund's assets and liabilities. It represents what a fund would have remaining after all assets were liquidated and all liabilities satisfied. Since 1995-96, ACCD's undesignated fund balance has increased as a percentage of the following year's expenditures. The undesignated fund balance is that portion not restricted by law or board policy that can be spent for any lawful purpose. The August 31, 1997 undesignated fund balance was 9.1 percent of 1997-98 expenditures, while the August 31, 2002 fund balance is 17.9 percent of adopted budget expenditures for 2002-03. Board policy CC Local establishes the level for the undesignated fund balance as 25 percent of the annual adopted budget. Exhibit 5-6 provides a historical summary of ACCD's undesignated fund balance.

Exhibit 5-6
Analysis of Undesignated Fund Balance
1996-97 through 2001-02
Fiscal Year Undesignated Fund
Balance at August 31		 Following Year's
Unrestricted Expenditures
and Transfers		 Percent Description
1997 $11,038,746 $120,934,798 9.1% 8/31/97 Fund Balance/FY 98 Expenses and Transfer
1998 $12,427,677 $133,541,545 9.3% 8/31/98 Fund Balance/FY 99 Expenses and Transfer
1999 $10,769,198 $133,170,271 8.1% 8/31/99 Fund Balance/FY 00 Expenses and Transfer
2000 $17,631,194 $142,443,272 12.4% 8/31/2000 Fund Balance/FY 01 Expenses and Transfer
2001 $25,113,828 $155,829,411 16.1% 8/31/01 Fund Balance/FY 02 Expenses and Transfer
2002 $29,952,147 $167,779,477 17.9% 8/31/02 Fund Balance/FY 03 Adopted Budget Expenses
Source: ACCD, Audited Financial Statements for applicable years and Information provided by the Fiscal Affairs Department, February 2003.
*As restated under GASB 34
** Represents budgeted expenditures for 2002-03 from the adopted budget.

State appropriations account for 34 percent of ACCD's revenue compared to the peer average of 35 percent. ACCD's tuition revenues of 13 percent are one percent lower than the peer average of 14 percent. Property taxes compose 24 percent of ACCD's revenues and 31 percent of its peers' revenues, reflecting ACCD's smaller tax base. At 26 percent, ACCD receives a higher percentage of total revenues from grants and contracts compared to its peers at 14 percent. Exhibit 5-7 compares ACCD's financial statistics to those of its peers.

Exhibit 5-7
Revenue and Expenditure Components
ACCD and Peer Colleges
2001-02
Description North Harris
Montgomery		 Dallas
County		 San
Jacinto		 Peer
Average		 ACCD
Revenue          
State Appropriations 29% 37% 38% 35% 34%
Net Tuition and Fees 12% 15% 16% 14% 13%
Grants and Contracts 14% 14% 13% 14% 26%
Auxiliary Enterprises 2% 3% 7% 4% 1%
Property Taxes 40% 27% 28% 31% 24%
Other-Net 3% 4% -2% 3% 2%
Total Revenues 100% 100% 100% 100% 100%
Expenditures          
Instruction 39% 43% 36% 40% 41%
Public Service 2% 4% 4% 3% 2%
Academic Support 11% 5% 6% 7% 8%
Student Services 8% 9% 7% 8% 10%
Institutional Support 15% 16% 19% 17% 11%
Operation & Plant Maintenance 6% 7% 10% 8% 8%
Depreciation 3% 3% 3% 3% 3%
Scholarships & Fellowships 6% 8% 6% 7% 14%
Auxiliary Enterprises 3% 4% 8% 4% 1%
Interest on Capital-Related Debt 7% 1% 1% 3% 2%
Total Expenditures 100% 100% 100% 100% 100%
Source: ACCD and Peers, Audited Financial Statements, 2001-02.

During 2001-02, 53 percent of ACCD's operating expenditures were for salaries. Faculty salaries comprised 59 percent of total salaries. In comparison, ACCD's peer colleges spent 56 percent of total expenditures for salaries of which 47 percent were comprised of faculty salaries.

Benefits were 14 percent of total operating expenditures for ACCD compared to a peer average of 10 percent. State supplemented benefits were 52 percent of total benefits for ACCD compared to an average of 73 percent for the peers.

Other operating expenses included 34 percent of total operating expenditures for ACCD and its peers. Exhibit 5-8 presents a comparison of selected operating expenditures for 2001-02 for ACCD and its peers.

Exhibit 5-8
Selected Operating Expenditures
ACCD and Peer Colleges
2001-02 (Amounts in Millions)
Description North Harris
Montgomery		 Dallas
County		 San
Jacinto		 Peer
Average		 ACCD
Faculty Salaries $34.8 $69.4 $30.4 $44.9 $65.7
Staff Salaries $38.4 $85.4 $28.0 $50.6 $45.6
Total Salaries $73.2 $154.8 $58.4 $95.5 $111.3
State Benefits $13.0 $17.9 $8.1 $13.0 $15.0
Local Benefits $1.9 $8.1 $4.7 $4.9 $13.7
Total Benefits $14.9 $26.0 $12.8 $17.9 $28.7
Other Operating Expenses $41.4 $92.0 $39.3 $57.6 $72.0
Total Operating Expenses $129.5 $272.8 $110.5 $171.0 $212.0
Faculty Salaries to Total Salaries 48% 45% 52% 47% 59%
Total Salaries to Operating Expenses 57% 57% 53% 56% 53%
State Benefits to Total Benefits 87% 69% 63% 73% 52%
Total Benefits to Operating Expenses 12% 10% 12% 10% 14%
Other Operating Expenses to Total 32% 34% 36% 34% 34%
Source: ACCD and Peers, Audited Financial Statements, 2001-02.