2004 audit of the University of Wisconsin System by the Legislative Audit Bureau

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UW System Response to LAB Audit

Office of the President

1720 Van Hise Hall
1220 Linden Drive
Madison, WI
53706-1559(608)
262-2321(608)
262-3985 Fax
email:  kreilly@uwsa.edu
UW System website: http://www.wisconsin.edu

September 10, 2004

Ms. Janice Mueller, State Auditor
Legislative Audit Bureau
22 East Mifflin Street, Suite 500
Madison, WI  53703

Dear Ms. Mueller:

Thank you for the opportunity to respond to the Legislative Audit Bureau's (LAB) evaluation of University of Wisconsin (UW) System staffing.  The UW System appreciates the significant amount of time and effort LAB staff invested in conducting and completing this evaluation.  The UW System will use the report, coupled with the Board of Regents' recently completed study, "Charting a New Course for the UW System," in our ongoing efforts to improve our administrative processes.

There are several aspects of the report that we would like to address:  the recommendations, the administrative costs discussion, staffing, and operating costs.

Recommendations

We fully embrace all four of the report's recommendations and believe implementation will improve the quality and usefulness of the financial and staffing information that we provide to the Legislature and the Governor.  Both UW System staff and the teams that crafted our Charting report have identified the need to reform the way we provide the information currently requested by the Legislature and the Governor.  LAB's confirmation of these problems and suggestions for addressing them will assist us in becoming more responsive and transparent.

The LAB report recommended that the UW System:

  1. Provide the legislature with complete periodic reports on executive salaries, fringe benefits, and cash and noncash compensation from outside sources.

    In the past, UW System has provided this information in a variety of formats to the Department of Administration and the Legislative Fiscal Bureau at various times during the year.  We agree with the concept of consolidating this information into one report going to the state.  In order to provide some perspective on executive compensation packages, we also will provide compensation package data from our peer institutions.  As the LAB report notes, even with the salary increases in the last five years, all of the salaries of our UW System executives are below those of their peer groups.  Offering competitive salaries is a growing problem for our Board, as has been illustrated in the recent executive searches we have conducted.

  2. Provide all University of Wisconsin institutions with guidance on coding contractual expenditures in their accounting records to ensure accuracy and consistency.

    We agree with this recommendation.  The UW System will provide guidance on the coding of contractual expenditures in order to provide more consistency across UW institutions.

  3. Seek statutory changes to streamline and improve its (UW) position reporting to ensure accuracy, transparency, and timeliness in reporting the number and type of UW positions.

    The UW System agrees that position reporting should be simplified and constructed in a manner that provides more meaningful data to the users.  Our past efforts, including a request in the 1997-99 biennial budget to make needed changes in the position reporting requirements, have been unsuccessful.  We look forward to working with the Legislature on improving the usefulness of these reports.

  4. Report to the Joint Legislative Audit Committee by February 1, 2005, on its administrative staffing and service delivery costs by institution, and provide specific proposals to reduce administrative expenditures and increase operating efficiencies in the 2005-07 biennium.

    The University of Wisconsin has been working hard to improve its operating efficiency since the merger that created the UW System in 1971.  Some of the most recent efforts were highlighted in the following studies:  "A Study of the UW System in the 21st Century," which identified strategies to restructure and improve the efficiency of the UW System; "The University of Wisconsin System Report on Efficiencies and Effectiveness," "Building Our Resource Base, June 2002," which identified alternative approaches for enhanced funding; and finally, the "Charting A New Course for the UW System" report, issued in the summer of 2004, which examined internal operating processes, collaborative programs, enhanced technologies and legislative/statutory changes that would improve operating efficiencies.

The Board's Charting study made 27 recommendations, many of which focus on efficiency in order to maintain continuing access to our institutions at an affordable cost, maintain our quality, educate the state's citizenry, and stimulate economic development.  Using the Charting study and the LAB report, we will provide more detail in the February 1, 2005 report to the Joint Legislative Audit Committee regarding specific actions and savings that either have been made or will be made.  Some of these will require the assistance of the Legislature and the Governor. As an example, the Charting study identified a process to streamline the capital building program by modernizing statutes and procedures that could save the UW System an average of $20 million annually.

Administrative Costs

While we agree with the LAB report's recommendations, we are concerned that the LAB method for calculating administrative costs differs significantly from the accepted practice of calculating these costs by universities around the country.  As the report correctly notes, colleges and universities do not report all of their administrative positions and costs in the Institutional Support Activity category.  The standard accounting model, nationally accepted and used by all institutions of higher education, classifies these costs in their proper activity category such as Academic Support, Research, Instruction or Public Service.  All of the professional organizations associated with accounting standards recognize this accounting method.  These include the Governmental Accounting Standards Board (GASB), the American Institute of Certified Public Accountants (AICPA) Industry Audit Guide for Colleges and Universities, and the Integrated Postsecondary Education Data System (IPEDS), required by the U.S. Department of Education.  Using the accepted nationally recognized accounting model, the UW System has the lowest Institutional Support expenditures among our 18 peer institutions in the United States. UW's costs are at 6 percent compared to the national average of 10.2 percent, as the LAB report confirms in Appendix 5.   

In its review, LAB created its own unique method of assessing our administrative staffing, adding, for example, positions that have supervisory responsibilities and all clerical and secretarial positions as administrative costs. Applying this methodology to higher education results in some anomalies.  LAB included many staff in admissions, student affairs, athletics, career planning, counseling, financial aid, intramural sports, and university housing – all core student services activities in an institution of higher education that most students and citizens would not generally consider "administrative" functions.

However, our major concern with the LAB model is not the classification of direct student services in an administrative cost category, but our inability to use the data LAB provides to benchmark ourselves against our peers.  Using the LAB model results in an "apples to oranges" comparison.  One of the major benefits of having accounting standards set by GASB, the AICPA, and the federal government is the ability to produce data that can be benchmarked against our peers.  Higher education institutions use this data in identifying best practices and the federal government uses it in its funding formulas for higher education.

Our peers do not use the methodology LAB developed for this report in identifying administrative costs. Therefore, it is not possible to determine if the percentages LAB calculated are either high or low compared to our peers, or whether their percentages are too high or too low based on national standards.  Because we are interested in benchmarking the UW System for continuous improvement, we want to work with LAB staff to obtain data from our peers and apply the LAB methodology to the peers' administrative operations.  

For now, relying on the current cost data available to higher education institutions for benchmarking, and as LAB identified in Appendix 5, the UW System has the lowest institutional support costs among our peers.  This is a major achievement in cost efficiency and effectiveness of which Wisconsin citizens can be proud.

Staffing

The LAB report notes the number of positions that UW System has maintained while the state made major cuts in funding, including the $250 million reduction to the university in this (2003-05) biennium.  This continues a trend of receiving substantially less state funding than requested in the past decade.  In fiscal year 1992-93, state funding represented just 34 percent of the UW System's total operating budget and 70 percent of the general purpose revenue and tuition (GPR/Fee) funds.  In fiscal year, 2004-05 these percentages have dramatically shifted. Today, state funding represents 25.6 percent of the total budget and just 55 percent of the GPR/Fee funds. 

Despite the major reduction in the percentage of state funding, the UW System has sustained and, in fact, enhanced access to our institutions for qualified students.  In the past ten years, the number of full-time equivalent students (FTEs) we serve has grown by more than 10,700.  In order to maintain access with fewer state dollars and provide educational opportunities for this increasing number of students, the UW System made significant changes to our staffing and hiring practices to maintain teaching and service to our students. 

We began using non-state tax dollars to fund more staff positions and began hiring more short-term staff, rather than tenured faculty, for classroom instruction.  In the last five years, using the flexibility recently granted by the Legislature, we have increased the number of staff positions funded by non-state tax dollars by more than 2,100.  Between 1993 and 2003, UW System decreased the number of tenured and tenure-track faculty by more than 600 FTE and hired over 1,000 short-term staff.  Over the past fifteen years, the university has actually reduced the positions funded with state tax dollars while increasing non-state funded positions.

This is a consequence of the growth in extramural research, auxiliary enterprises and gift revenues to the university which have increased substantially and which require additional personnel investments, including added administrative costs.  State dollars are important in leveraging this outside funding.  In 1998-99, each state dollar invested in the UW System leveraged an additional $1.99.  In 2004-05, each state dollar leverages $2.91, a 46 percent increase on the state's investment in just six years.  We believe using non-state dollars and changing our hiring patterns to maintain our service to students and the state during difficult budget times were the right decisions. They illustrate our commitment to do more with fewer state tax dollars and to continue to bring outside funding to the state that enriches our economy.

However, the decision to sustain access during times of reduced state funding is affecting the quality of the educational services we provide.  As noted in the Charting study, some of the quality indicators that are being affected are:

  • Reducing tenure-track faculty and increasing short-term staff creates an environment where the quality of the educational services provided is compromised.  Students have access to fewer majors, course sections and outside-the-classroom learning activities such as participation in research projects and personal advising from faculty members.
  • Our student/faculty ratios are becoming higher than those of our peer institutions.  Smaller classes provide the environment for integrating writing and group learning activities into the curriculum but our trends are in the opposite direction.
  • In the last decade, the proportion of low income students at UW System has declined from 14.5 percent to 11 percent.  Tuition increases in the 33.3 percent to 37.5 percent range at our institutions over the last two years will further impact Wisconsin citizens who can least afford to attend our institutions. 
  • Basic student services such as advising are being reduced when the need is greatest.  Students at UW-Milwaukee, UW-Oshkosh, and UW-Platteville have actually contributed additional fees to continue these basic student services and that has meant additional staffing, some of which is accounted for as "administrative" costs under LAB's approach.

The LAB report concludes that the Legislature should consider three important documents in its deliberations in the coming year:  "Charting a New Course for the UW System," the LAB report, and the 2005-07 biennial budget proposal of UW System.  We strongly support this conclusion.

The Charting report was a year-long study of the UW System by the Board of Regents that identified potential internal efficiencies, new revenue streams, new technologies, flexibility issues, and legislative changes that would assist us in fulfilling our mission as a public educational institution.  The LAB report provides additional information and assistance that UW System can use as we implement the 27 recommendations in the Charting study.  Implementing these recommendations will require cooperation among the UW System, the Legislature, and the Governor.  The UW System's 2005-07 biennial budget proposal will address the recommendations of both the Charting study and the LAB report.  We look forward to working with the Legislature in addressing these recommendations.

Operating Costs

Finally, the LAB report highlights the operating costs per FTE student at each UW institution, showing a range from $8,981 to $28,659 in Table 36.  We expanded the LAB table to illustrate the state's share of these costs, which ranges from $3,799 to $10,087.  In every case, the state share represents less than half of the operating costs.

Operating Costs/State Funds per Full-Time Equivalent Student

FY 2002-03

Campus

Total Costs

State Funds

Madison

$28,659

$10,087

Milwaukee

17,719

7,725

Superior

16,953

8,157

Green Bay

16,069

6,116

Stevens Point

14,991

5,870

Parkside

14,918

7,561

Platteville

14,734

6,158

River Falls

14,590

6,284

Stout

14,281

6,210

Oshkosh

13,565

5,509

La Crosse

13,024

5,200

Whitewater

12,521

4,325

Eau Claire

12,339

5,351

Colleges

8,891

3,799

The average state support for students in the UW System is now $1200 below the national average and so further state erosion will be extremely problematic. Therefore, it is important to highlight one key finding of the Charting study:

"There are no alternative revenue streams that can take the place of adequate stable state support for the university's instructional mission."

In the 2003-05 biennial budget, UW System received a $250 million state funding cut and students and families were asked to make up for 60% of that cut through double-digit increases in tuition.  We strongly encourage the Legislature and the Governor to evaluate the options presented in the LAB report, the Charting study and the UW System's 2005-07 biennial budget proposal to avoid further shifting higher education costs from the state to our students which, among other things, is squeezing low-income students out of our public university system.

The UW System is committed to working in partnership with legislators and the Governor to provide access to our institutions to all qualified Wisconsin students at an affordable price, maintain the quality of our educational services, and assist the State in stimulating economic development and ensuring Wisconsin's future prosperity.

Sincerely,

Kevin P. Reilly

Kevin P. Reilly

President

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