SACSCOC Off-Site Committee’s Response

Non-Compliance

The institution advised that an institutional audit report for fiscal year 2012-2013 was requested of the legislative auditor by the LSU Chancellor. The FY 2013 audit was not yet available at the time of review.  

The institution provided the following information for review: (1) a table reflecting FY 2009 – 2014 Operating Budget Revenues, broken into State General Fund, State Other, and University Self-Generated; (2) a table reflecting 2007 – 2009 Tuition and fees for Resident and Nonresident students; (3) a table reflecting tuition comparisons with peer institutions for FY 2011 and 2012; (4) a table reflecting university enrollment for fall terms 2007 – 2012; (5) a table reflecting application totals, admissions totals, and matriculation totals for fall semesters 2007 – 2012; (6) charts reflecting enrollment and demand trends, and student population breakdowns; (7) a table and charts showing historical revenues by source (state appropriations, tuitions & fees, grants & contracts, auxiliary enterprises, and other) for fiscal years 2009 – 2012; (8) a table showing historical expenditures by function for fiscal years 2009 – 2012; (9) a schedule of bonds payable at June 30, 2012, with a total outstanding bonds payable of $375,220,000; (10) tables and charts showing historical auxiliary revenues as well as amount of private support and return on investment.

The institution in their response to Statement 3.10.1 provided audit reports for fiscal years 2009 – 2012 for the business-type activities and the aggregate discretely presented component units of the Louisiana State University (LSU) System including Board and System Administration, Pennington Biomedical Research Center, LSU, LSU at Alexandria, LSU at Eunice, Paul M. Hebert Law Center, Agricultural Center, LSU in Shreveport, LSU Health Sciences Center in New Orleans, Health Care Services Division and LSU Health Sciences Center in Shreveport.  The Supplemental Information Schedules in these audits provided a Schedule of Net Assets, a Schedule of Revenues, Expenses, and Changes in Net Assets, and a Schedule of Cash Flows for each of the audited institutions in the format of Combining Schedules.  While this was not a required part of the financial statement, this information was subjected to the auditing procedures applied in the audit of the basic financial statements.

The institution provided a Restatement of Net Assets without Plant and Plant-Related Debt for fiscal year 2009 – 2012 for this compliance review.  This statement represents the change in unrestricted net assets attributable to operations and demonstrates whether there are adequate unrestricted resources and net assets to support operations.  Unrestricted net assets decreased by $32.2 million from fiscal year 2009 to fiscal year 2012.  While this data may indicate that net assets attributable to operations have declined over the past four fiscal years and brings into question whether the institution has adequate unrestricted resources to support operations, total net assets for the institution have increased by $108.9 million from fiscal year 2009 through fiscal year 2012.

Summary Level documentation for the fiscal year 2009 through 2014 budgets was provided.  The institution maintains that detailed budget information is provided onsite and that the LSU Board of Supervisors was scheduled to review and approve the fiscal year 2014 budget on September 6, 2013.   

It should be noted here that the June 30, 2012 Cash balance for Current Assets was ($97.5 million).  A lack of operating cash is a sign of significant financial issues.  It is suspected that this merely represents a timing difference because the Current Asset Investments balance was $362.1 million.  However, that assumption could not be verified using the information provided by the institution. 

LSU A&M’s Response

The Off-Site Committee stated that LSU supplied documentation on the financial stability of the institution:

The institution provided the following information for review: (1) a table reflecting FY 2009 – 2014 Operating Budget Revenues, broken into State General Fund, State Other, and University Self-Generated; (2) a table reflecting 2007 – 2009 Tuition and fees for Resident and Nonresident students; (3) a table reflecting tuition comparisons with peer institutions for FY 2011 and 2012; (4) a table reflecting university enrollment for fall terms 2007 – 2012; (5) a table reflecting application totals, admissions totals, and matriculation totals for fall semesters 2007 – 2012; (6) charts reflecting enrollment and demand trends, and student population breakdowns; (7) a table and charts showing historical revenues by source (state appropriations, tuitions & fees, grants & contracts, auxiliary enterprises, and other) for fiscal years 2009 – 2012; (8) a table showing historical expenditures by function for fiscal years 2009 – 2012; (9) a schedule of bonds payable at June 30, 2012, with a total outstanding bonds payable of $375,220,000; (10) tables and charts showing historical auxiliary revenues as well as amount of private support and return on investment.

Fiscal Year 2013 Audit

The Off-Site Committee noted that “The institution advised that an institutional audit report for fiscal year 2012-2013 was requested of the legislative auditor by the LSU Chancellor. The FY 2013 audit was not yet available at the time of review.” The institutional audit report for fiscal year FY 2013 was issued January 22, 2014 [1]. The Management letter states that:

Our review of the financial statements did not disclose any transactions entered into by LSU during the year that were both significant and unusual or transactions for which there is a lack of authoritative guidance.

The Management Letter did find “one significant internal control matter requiring communication to management”:

Louisiana State University and Related Campuses (LSU) did not ensure that all costs had been accurately reflected in the valuation of movable property in its Equipment Records Inventory (ERI) System.

The following statement appears in the Management’s Corrective Action Plan and Response to the Finding and Recommendation:

LSU will formulate and adopt a Finance and Administrative Services Operating Procedure that will define a process for ensuring movable property is properly valued in ERI and the financial statements. (Anticipated completion date: 03/01/2014)

Fiscal Year 2014 Budget Approval

The Off-Site Committee stated that “Summary Level documentation for the fiscal year 2009 through 2014 budgets was provided.  The institution maintains that detailed budget information is provided onsite and that the LSU Board of Supervisors was scheduled to review and approve the fiscal year 2014 budget on September 6, 2013.”

The FY 2014 Operating Budget for LSU was approved by the LSU Board of Supervisors at its September 6, 2013, meeting [2].

Explanation of Net Asset Changes

The Off-Site Committee stated that “It should be noted here that the June 30, 2012 Cash balance for Current Assets was ($97.5 million).  A lack of operating cash is a sign of significant financial issues.  It is suspected that this merely represents a timing difference because the Current Asset Investments balance was $362.1 million.  However, that assumption could not be verified using the information provided by the institution.”

As noted by the Off-Site Committee, unrestricted net assets decreased $32.2 million from fiscal year 2009 – 2012.  The decrease in unrestricted net assets is primarily due to the Governmental Accounting Standards Board (GASB) statement 45 requirement to record a liability for Other Post-Employment Benefits (OPEB).  Historically, the university has been able to fully meet its OPEB obligation. 

The total net assets for LSU have increased by $108.9 million during that same time period. This increase is primarily attributable to an increase in restricted construction project funds, endowment funds, and investments in capital assets, net of related debt.  LSU continues to maintain a conservative debt portfolio with no variable rate bonds and no interest rate hedges associated with its debt.  Moody’s Investor Services [3] and Fitch Ratings [4] have assigned ratings of “A1” (Positive Outlook) and “AA-“, respectively, to the university despite negative outlooks on higher education throughout the country. 

The university’s capital assets have increased $155.6 million from 2009 to 2012.  This increase is due to the construction of several major projects across campus as a result of LSU’s implementation of a campus master plan and of a comprehensive housing plan.  These projects include, but are not limited to, the following:

Business Education Complex

Choppin Hall Annex

Parking Garage

Residential College

Union Theatre Renovations

Reliance on non-state revenue sources is a national trend among the public flagship universities.  In all, the total operating budget for LSU decreased $451.3 million in FY 2008-2009 to a low point of $430.5 million in FY 2009-2010 before returning to a $453 million budget for FY 2013-2014 (Table 1).  Despite the budget challenges, student enrollment has grown over the past three years and is expected to continue to grow.

Tuition and fees account for approximately 68% of the total FY 2014 unrestricted operating budget of the university.  Tuition and fee increases are approved by the Louisiana Legislature, the Louisiana Board of Regents and the LSU Board of Supervisors.  Under provisions of the Louisiana Granting Resources and Autonomy for Diplomas (LA GRAD) Act [5], LSU has been able to increase resident tuition and fees by 10% per year and non-resident tuition and fees by 15% per year since FY 2011.  In 2011-2012, LSU’s undergraduate resident tuition is 29% below its Southern Regional Education Board (SREB) peers.  Therefore, LSU maintains additional capacity to increase tuition without compromising its competitive advantage with enrollment.

For FY 2011-2012, LSU ranked 13^th out of 14 for in-state tuition and 11^th for out-of-state tuition amongst its selected national Land-Grant peer institutions.  LSU’s tuition was $2,254 or 26% below the average, a statistic that also demonstrates LSU’s capacity to increase tuition and fees while still remaining competitive amongst its peers (see Table 2).

LSU’s student enrollment and demand has remained steady or increased over the past several years despite increasing tuition and fees each year.   Enrollment has increased by more than 5% from FY 2009 to 2012.  Table 3 reflects the fall semester head count enrollment trends at the university.

The university uses a diverse stream of revenues to support its annual activities as demonstrated by the following revenue tables:

While there have been significant reductions in state appropriations from 2009 to 2012, increases in Tuition & Fees, Auxiliary, and other revenues have been used to mitigate these reductions (Figure 1).  Total revenues for the university increased $31 million from 2009 to 2012.  This demonstrates the university’s ability to continue to generate revenue despite reductions in support from the state.  Tuition and fee increases have been modeled to provide revenue stabilization to meet annual expenditures.

Auxiliary revenues (including Athletics, Residential Life, etc.) of the university have remained strong and continue to be a growing source of security for the university’s debt.  The auxiliary revenues have experienced an average annual growth of 5.81% since 2000.  In FY 2012, auxiliary revenues represented 35% of the university’s total operating revenues.  Historical pledged auxiliary revenues are shown below (Figure 2, Table 5):

In June 2006, the Forever LSU campaign was publicly announced to establish a fundraising goal of $750 million.  The campaign’s four pillars were student support, faculty support, university-wide support, and campus infrastructure.  In November 2010 it was announced that the campaign was successful, with private donor contributions totaling approximately $753 million.  Contributions to Forever LSU have enabled the establishment of 426 professorships, 38 chairs, and 794 scholarships.  In addition, the campaign has allowed LSU to invest in major capital projects.   

LSU’s cash is pooled from the various funds (unrestricted, restricted, plant, etc.).  When investments are purchased for the plant fund, an accounting entry is created to increase non-current investments and to decrease current cash and cash equivalents.  In order to evaluate LSU’s cash position, current and non-current cash and cash equivalents should be summed as shown in Table 6. 

In addition, the decrease in LSU’s total cash and cash equivalents is primarily due to a certificate of deposit (CD) program in which LSU participated that was eliminated by the issuing financial institution.  As of June 30, 2010, LSU held $124 million in CDs that were reported as cash and cash equivalents.  As of June 30, 2012, LSU held $38 million in CDs that were reported as cash and cash equivalents.  As the CDs have been called or have matured, LSU evaluated its investment options to ensure a high level of liquidity while also maximizing investment yield.  As a result, there was an increase in investments as shown in Table 6. 

LSU’s investments are governed by a Finance and Administrative Services Operating Procedure [6], which clearly defines thresholds and parameters to ensure liquidity in the event the university experiences cash flow needs.  The primary goal of the investment management program is that “a high level of liquidity must be maintained in the portfolio of investments to enable access to funds at minimal risk level or to provide the ability to adjust the portfolio in changing market conditions.  Maturity terms are selected which ensure sufficient cash resources are available to meet obligations.” LSU continues to maintain financial stability and strong fiscal oversight as it pertains to cash and investment management.