AAUP's Analysis of the Administration's Three Year Cash Projection Reveals Serious Discrepancies in CFO Karns' Budget Projections
July 15, 2017
In September of 2016, Rider’s Chief Financial Officer (CFO) Julie Karns began circulating a “Three Year Unrestricted Fund Projection” which projected annual cash deficits in excess of $10 million through 2019. On the basis of these projections, Rider’s CFO concluded that Rider would run out of cash in its unrestricted fund in three years unless rash actions were taken to control costs. Note that the rationale for the closing of Westminster Choir College and the sharp reductions in faculty pay and benefits which administration is now insisting upon in negotiations are based entirely upon these budget projections. We have had numerous concerns about the validity of the “Three Year Unrestricted Fund Projection” and have evaluated various aspects of the budget over the past year.
As part of our evaluation of this budget, we assessed the actual cash spent by Rider for the 2017 fiscal year. In late 2016, the Rider accounting department began providing a “Cash Activities Report” to the AAUP which provides an account of all cash spent by the University. The evaluation of these periodic reports has ultimately led to a startling revelation. The “Three Year Unrestricted Fund Projection” developed by CFO Karns has been presented as a cash basis accounting budget. This means that expenses and revenues on the report represent actual cash spent or received by the institution in a period of time. This is logical, given that the ostensible purpose of the three-year unrestricted fund budget projection is to determine the solvency of one of Rider's cash funds. An alternative to cash basis accounting is the accrual method which does not examine cash flows and would not be appropriate for this type of analysis. It is improper to mix both of these methods in accounting.
However, based on information provided by Rider’s financial office, it appears that what has been presented as a cash basis budget in the “Three Year Unrestricted Fund Projection” is neither cash basis nor accrual method accounting but is instead a hybrid of the two. The AAUP met with Jennifer Potter (Associate Vice President/Controller) from Rider’s finance office on July 8th and questioned her specifically about this accounting inconsistency. In this meeting she confirmed that the “Three Year Unrestricted Fund Projection” used both accrual and cash basis accounting methods. This failure of consistent accounting renders the University’s projections useless in trying to determine actual cash flow in the unrestricted fund.
The current “Cash Activities Report” provided by the administration identifies actual cash spent by the university. This report indicates that Rider will have spent approximately $92 million for salary and fringe benefits in the 2017 fiscal year. CFO Karns, however, had indicated in her “Three Year Unrestricted Fund Projection” that the University would spend $99 million in cash for salary and fringe benefits in fiscal year 2017. This is a significant $7 million difference between the actual cash spent by the university and what CFO Karns had predicted would be spent. We asked the administration for an explanation of this variance and were provided with the response contained in the attached document.
After careful parsing of this explanation, we believe the most likely outcome for fiscal year 2017 is that the actual cash spent for salary and fringe benefits will be in the range of $93 to $95 million. This is $4 to $6 million less than what CFO Karns projected in her widely circulated budgets. This discrepancy is significant because when this variance is applied to the “Three Year Unrestricted Fund Projection” the cash deficit is dramatically reduced. While the administration may either ignore this significant discrepancy in their budget, or try to explain it with vague claims of “difficult non-faculty cost-cutting” on their part, the reality is that the budget projections used by CFO Karns in 2016 were, in our view, simply incorrect. Furthermore, it is our carefully considered conclusion that the use of these budget projections amounts to a serious misrepresentation of Rider’s finances by CFO Karns.
Our interactions with the administration concerning the variance between their budgets and actual spending are consistent with past patterns of administration responses to our inquiries: We point out serious variances; the administration provides an “explanation”; we indicate that their explanation is flawed; and they provide an equally flawed explanation of their explanation and so on. We have come to the conclusion, therefore, that the administration's projections are unreliable.
We have attached the original email from administration concerning this alarmingly significant discrepancy. Administration responses are in normal font, the AAUP comments, based on our careful review of all details are indented and in italics. Documents providing more details on the specifics are provided below.
July 15, 2017
In September of 2016, Rider’s Chief Financial Officer (CFO) Julie Karns began circulating a “Three Year Unrestricted Fund Projection” which projected annual cash deficits in excess of $10 million through 2019. On the basis of these projections, Rider’s CFO concluded that Rider would run out of cash in its unrestricted fund in three years unless rash actions were taken to control costs. Note that the rationale for the closing of Westminster Choir College and the sharp reductions in faculty pay and benefits which administration is now insisting upon in negotiations are based entirely upon these budget projections. We have had numerous concerns about the validity of the “Three Year Unrestricted Fund Projection” and have evaluated various aspects of the budget over the past year.
As part of our evaluation of this budget, we assessed the actual cash spent by Rider for the 2017 fiscal year. In late 2016, the Rider accounting department began providing a “Cash Activities Report” to the AAUP which provides an account of all cash spent by the University. The evaluation of these periodic reports has ultimately led to a startling revelation. The “Three Year Unrestricted Fund Projection” developed by CFO Karns has been presented as a cash basis accounting budget. This means that expenses and revenues on the report represent actual cash spent or received by the institution in a period of time. This is logical, given that the ostensible purpose of the three-year unrestricted fund budget projection is to determine the solvency of one of Rider's cash funds. An alternative to cash basis accounting is the accrual method which does not examine cash flows and would not be appropriate for this type of analysis. It is improper to mix both of these methods in accounting.
However, based on information provided by Rider’s financial office, it appears that what has been presented as a cash basis budget in the “Three Year Unrestricted Fund Projection” is neither cash basis nor accrual method accounting but is instead a hybrid of the two. The AAUP met with Jennifer Potter (Associate Vice President/Controller) from Rider’s finance office on July 8th and questioned her specifically about this accounting inconsistency. In this meeting she confirmed that the “Three Year Unrestricted Fund Projection” used both accrual and cash basis accounting methods. This failure of consistent accounting renders the University’s projections useless in trying to determine actual cash flow in the unrestricted fund.
The current “Cash Activities Report” provided by the administration identifies actual cash spent by the university. This report indicates that Rider will have spent approximately $92 million for salary and fringe benefits in the 2017 fiscal year. CFO Karns, however, had indicated in her “Three Year Unrestricted Fund Projection” that the University would spend $99 million in cash for salary and fringe benefits in fiscal year 2017. This is a significant $7 million difference between the actual cash spent by the university and what CFO Karns had predicted would be spent. We asked the administration for an explanation of this variance and were provided with the response contained in the attached document.
After careful parsing of this explanation, we believe the most likely outcome for fiscal year 2017 is that the actual cash spent for salary and fringe benefits will be in the range of $93 to $95 million. This is $4 to $6 million less than what CFO Karns projected in her widely circulated budgets. This discrepancy is significant because when this variance is applied to the “Three Year Unrestricted Fund Projection” the cash deficit is dramatically reduced. While the administration may either ignore this significant discrepancy in their budget, or try to explain it with vague claims of “difficult non-faculty cost-cutting” on their part, the reality is that the budget projections used by CFO Karns in 2016 were, in our view, simply incorrect. Furthermore, it is our carefully considered conclusion that the use of these budget projections amounts to a serious misrepresentation of Rider’s finances by CFO Karns.
Our interactions with the administration concerning the variance between their budgets and actual spending are consistent with past patterns of administration responses to our inquiries: We point out serious variances; the administration provides an “explanation”; we indicate that their explanation is flawed; and they provide an equally flawed explanation of their explanation and so on. We have come to the conclusion, therefore, that the administration's projections are unreliable.
We have attached the original email from administration concerning this alarmingly significant discrepancy. Administration responses are in normal font, the AAUP comments, based on our careful review of all details are indented and in italics. Documents providing more details on the specifics are provided below.
Original email from administration with AAUP comments, which are indented and in italics.
Rider Cash Activity Through May 2017
Your Negotiating Team,
Mike Brogan
Dave Dewberry
Herb Gishlick
Jeff Halpern
Joel Phillips
Elizabeth Scheiber
Arthur Taylor
