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Chapter 6
ASSET AND RISK MANAGEMENT

This chapter reviews Houston Community College System (HCCS) asset and risk management functions in the following sections:

A. Cash Management and Investment Strategies
B. Bond Issuance and Indebtedness
C. Fixed Asset Management
D. Risk Management
E. Accounts Receivable, Tuition and Fee Collection Process

Managing the cash and physical assets of a community college is an ongoing challenge. Cash must be accounted for and prudently invested while maximizing interest earnings and complying with the Public Funds Investment Act (Act). Physical assets must be tracked and inventoried, and fixed asset capitalization policies and procedures must follow National Association of Colleges and University Business Officers (NACUBO) recommendations and comply with Governmental Accounting Standards Board (GASB) statements 34 and 35.

An effective risk management program controls costs by ensuring that an organization is adequately protected against all significant losses, with the lowest possible insurance premiums. This program should include risk identification and measurement and techniques to minimize the impact of risk. Risk is defined as a measurement of uncertainty where the outcome can only be estimated. An institution's insurance programs for employee health, workers compensation and college system assets should be sound and cost effective to protect the system from financial loss and should provide employees with health insurance coverage at a reasonable cost.

Fixed asset management should efficiently and accurately account for system property while guarding against theft and obsolescence. Fixed assets are assets that have been acquired for use in operations. Such assets are generally not for resale and have an estimated useful life of at least one year. Examples include land, buildings, machinery, computer and office equipment and furniture.

BACKGROUND

The vice chancellor for Finance and Administration supervises all system business functions. Until the executive director of Business Affairs and executive director of Financial and Budgetary Control positions were hired in August 2002, the vice chancellor for Finance and Administration also provided oversight of daily management of these functions. Now, the executive director of Business Affairs oversees cash management activities, bursar function, accounting function and grants. The executive director of Financial and Budgetary Control coordinates risk management, fixed asset management and budgeting functions. Exhibit 6-1 depicts the HCCS organizational structure for asset and risk management.

Exhibit 6-1
HCCS Asset and Risk Management Organization
2002-03
Asset and Risk Management Organization
Source: Houston Community College System (HCCS), Finance and Administration Department, November 2002.

HCCS receives funds from several sources to pay for goods and services. State appropriations provide a majority of the system's funding. The state distributes money to community colleges using a funding formula to pay administrative costs and instructional expenses. The Texas Higher Education Coordinating Board (THECB) performs a detailed cost study each year to determine the administrative and instructional formula base. THECB uses the median cost of academic programs at local community colleges statewide as the basis for the formula rate recommendations. THECB makes funding recommendations to the Texas Legislature based on amounts calculated by the formulas. State appropriations from educational and general revenues, state group insurance and state retirement matching comprise 46.2 percent of 2001-02 system revenue. Student tuition and fees accounted for 26.2 percent. Other operating revenue, including federal, state, local and nongovernmental grants and contracts, and sales and services totaled 26.7 percent of system revenue, while auxiliary enterprises comprised less than 1 percent. Exhibit 6-2 provides an overview of 2001-02 system revenues.

Exhibit 6-2
Summary of Operating Revenues
2001-02
Source
of Revenue		 Educational
Activities		 Auxiliary
Enterprises		 Total Percent
of Total
State appropriations $79,156,860 $0 $79,156,860 46.2%
Tuition and fees* $44,736,187 $102,627 $44,838,814 26.2%
Other operating revenue** $44,555,537 $1,114,062 $45,669,599 26.7%
Auxiliary enterprises $0 $1,589,421 $1,589,421 0.9%
Total Revenue $168,448,584 $2,806,110 $171,254,694 100%
Source: HCCS Annual Financial Report, August 31, 2002.
*Note: Includes scholarship allowances and discounts.
**Note: Includes federal, state, local and non-government grants and contracts; sales and services and other operating revenues.