Performance audit, Board of Regents

              PERFORMANCE AUDIT
BOARD OF REGENTS
Report to the Arizona Legislature
By the Auditor General
September 1991
91- 9
DOUGLAS R. NORTON, CPA
AUDITOR GtNERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
September 24, 1991
Members of the Arizona Legislature
The Honorable Fife Symington, Governor
Mr. Donald P i t t , Board Chairman
Arizona Board of Regents
Ms. Molly Corbett- Broad, Executive Director
Arizona Board of Regents
Transmitted herewith i s a report of the Auditor General, A Performance
Audit of the Arizona Board of Regents. This report is in response to the
June 14, 1989, resolution of the Joint Legislative Oversight Committee.
The report addresses the Board's emerging oversight role and i t s new
systemwide approach on governing the State's three universities. We
found the Board needs to reduce the number of i tems on i ts monthly agenda
and focus i t s attention on strategic and policy setting issues. In order
to help assist in the necessary oversight e f f o r t s , the Board also needs
to define and support a meaningful role for i t s central o f f i c e s t a f f .
The report also cites the need for the Board to strengthen oversight in
the areas of budget review and analysis, auditing, academic program
review, and compliance with the State's Open Meeting Law.
My s t a f f and I w i l l be pleased to discuss or c l a r i f y items in the report.
This report w i l l be released to the public on September 25, 1991.
Sincerely,
DRN : lmn
~ 4 u ga s R. Nor ton
Au d tor General
2700 NORTH CENTRAL AVENUE SUITE 700 PHOENIX, ARIZONA 85004 ' ( 602) 255- 4385 a FAX ( 602) 255- 1251
The Office of the Auditor General has conducted a performance audit of
the Arizona Board of Regents pursuant to a June 14, 1989, resolution of
the Joint Legislative Oversight Committee. This performance audit was
conducted as part of the Sunset Review set forth in Arizona Revised
Statutes ( A. R. S.) § § 41- 2351 through 41- 2379.
The Arizona Board of Regents was created by the State Constitution and is
responsible for governing the State's university system. The Board
consists of nine members appointed by the Governor, and two ex- officio
members - the Governor and the Superintendent of Public Instruction.
The Ernerqinca Oversi~ ht Role
Although Article X I , Sections 2 and 5 of the State Constitution and T i t l e
15 give the Board significant authority to supervise. and control the
State universities, the Board has only begun to develop a stronger
systemwide approach to i t s oversight responsibilities during the past
decade. In 1985, a desire by the Regents to strengthen oversight of the
university system resulted in the hiring of a new Executive Director.
The new Executive Director was given the general responsibility of
developing a stronger and more effective central office.
The early efforts of the new Executive Director and the Board focused on
capital development and strategic planning. A capital development
process was established to provide for meaningful review and oversight of
university construction projects. Most believe the process has been
beneficial and has saved millions of dollars in capital development
expenditures. In addition, a systemwide strategic plan was developed,
the f i r s t document of i t s kind ever developed by the Board. Most believe
this e f f o r t too was a significant and noteworthy achievement. The Board
is also focusing on other policy issues such as minority recruitment and
retention and the status of women on campus. In other areas such as
budget and finance, and academic af fai rs, changes have been made in
pol icies and procedures to provide for more uniform reporting and greater
accountability to the Board. In these areas, changes generally appear to
be consistent with the Board and central office role envisioned by the
Regents in 1985. However, not everyone, especially some university
o f f i c i a l s , agreed that such a role by the central office was desirable or
needed. Complicating matters, the Regents failed to clearly define the
central office role. We found this failure has impacted the entire
system. Important responsibilities of governance have not been assumed
or have remained unchecked. Key areas of responsibility such as budget
oversight, auditing, and procedures for complying with the Open Meeting
Law are currently weak or inadequate. In addition, the lack of a
clearly defined and articulated role for the central office has caused
the Board to spend a considerable amount of time on operational detai Is
of l i t t l e significance systemwide.
The Board Needs To Focus
More Attention On Its Role As A
Policv- Settina Body ( see pages 5 through 15)
The Board needs to reduce the number of items on i t s agenda and focus i t s
attention on strategic and policy- setting issues. For example, we
analyzed Board agendas for a six- month period ( July through December
1990) and found the agendas contained 375 separate items. Sixty percent
of the 375 agenda items involved operational decisions and addressed
issues such as university legal settlements, contract approvals,
personne l appo i n tmen ts , and sa l ary i ncreases . Twen ty- fou r percent were
informational items, resulting in only 16 percent of the items on the
agenda focusing on either policy or strategic planning. As a result,
l i t t l e time i s l e f t for meaningful discussion of policy issues.
Regents, university o f f i c i a l s , and central o f f i c e s t a f f expressed
frustration over the Board's focus on operational details, and many
recognize the need to focus more Board attention on important policy
matters. Strategic and policy issues such as enrollment management,
changes in the State university funding process, and the implementation
of branch campuses have a l l been identified as areas requiring more Board
focus and attention. However, to help free i t s agenda of operational
details, the Board needs the statutory authority to delegate decision
making as i t deems appropriate to the universities and i t s central office.
Board Can lrn~ rove Oversi~ ht
In Several Areas
The Board can strengthen oversight of the universities by performing more
meaningful budget review and analysis, developing a viable audit function
and improving the academic program review process.
The Board of Regents needs to take a stronger, more active role in
overseeing the $ 1.4 bi l l ion university system budget. Current ly, the
budget process is fragmented with the Board approving both the
General Fund budget and Local Fund budget separately. The Board does
not see a total budget. As a result, the Regents and university
managers are precluded from making informed decisions, and the
process limits the Regents' a b i l i t y to analyze the universities'
total financial picture. ( See pages 17 - 28.)
A review of the Board's internal audit function indicates that Board
auditors often focus on limited areas of university operations, while
operations involving large sums of money go unaudited. In addition,
even when auditors review significant areas, the audits often lack
thoroughness. The audit function in other higher education systems
is more effective in providing oversight of university operations.
( See pages 29 - 34. )
Although the Board has considered and, in some cases, implemented
several measures to promote educational qua1 i ty, more can be done to
provide educational oversight. For example, the academic program
review process needs improving. Board staff do not ensure that the
universities review their academic programs every seven years, and
neither Board nor university staff provide thorough follow up on
review recommendations. In addition, the Board should consider
offering incentive grants for academic and faculty programs and
continue to track student- related indicators as a measurement of the
university system's performance in order to strengthen educational
oversight. ( See pages 35 - 41 .)
he Board Needs To Define And Supoort
A Meaningful Oversiaht Role For The
Central Office ( see pages 43 through 48)
The central office has had d i f f i c u l t y at times asserting an effective
role in several important areas such as budget review, auditing, and
program review. Although the central o f f i c e s t a f f was strengthened and
upgraded, the Board never formally articulated and communicated the
s t a f f ' s new role and authority. As a result, significant conflict exists
within the system and the central office has not been able to assert a
meaningful and effective role supporting the Board's oversight
responsibilities.
Other states comparable to Arizona have established an independent role
for their central office staff by empowering their central offices or
executive directors in a number of different areas. For example, Iowa,
Utah, and Idaho have established the authority and responsibility of the
central office to provide some degree of oversight and an independent
perspective needed by the boards in each state to make informed decisions.
The Board Needs To Ensure Full Com~ liance
With The Open Meetina Law ( see pages 49 through 55)
The Board of Regents has not complied with several aspects of the State's
Open Meeting Law. The Council of Presidents, which plays a major role in
debating and deliberating on policy issues and formulating
recommendations for Board action, has been meeting in closed sessions in
violation of the State's Open Meeting Law. Council meetings are s t i l l
not open to the public, even though Board counsel twice advised that
meetings were subject to the Open Meeting Law. However, newly adopted
governance procedures may no longer subject the Council to the State's
Open Meeting Law.
During the course of the audit, we identified two other violations of the
Open Meeting Law. The Board was not maintaining minutes for the meetings
of i t s three standing committees, and the minutes of meetings of the
enti re Board were not properly recorded and retained. The Board hired a
secretary to transcribe a l l Board minutes that failed to meet statutory
compliance. Also, the Board has begun to maintain minutes for a l l of i t s
committees.
TABLE OF CONTENTS
INTRODWrrlON AND BACKGROUND. . . . . . . . . . . . . . . .
FINDING I: ME BOAFUI NEEDS TO FOCUS
MORE ATTENTION ON ITS ROLE AS A
PoLlCY- sETTlNG BODY. . . . . . . . . . . . . . . . . .
The Board Spends Too Much Time
Onoperational Details . . . . . . . . . . . . . . . .
With Board Addressing Operational
Detail, Council Of Presidents Plays Significant Policy Role . . . . . . . . . . . . .
To Free I t s Agenda For Systemwide
Policy And Planning, The Board Must Delegate Responsibility. . . . . . . . . . . . . . . .
Recommendations. . . . . . . . . . . . . . . . . . . .
FINDING 1 1 : THE BOAMI SHOUU) STRENGTHEN ITS
OVERSIGHT OF THE UNIVERSITIES' BUDGETS . . . . . . . .
Budget Development Should Be Improved. . . . . . . . . . . . . . . . . . . . . .
Budget Review Efforts
Should Bestrengthened . . . . . . . . . . . . . . . .
Budget Monitoring Efforts Should Be Improved . . . . . . . . . . . . . . . . . .
Recommendations. . . . . . . . . . . . . . . . . . . .
FINDING Ill: THE BOARD SHOULD IUPROVE ITS
AUDITFUNCTION. . . . . . . . . . . . . . . . . . . .
Recommendations. . . . . . . . . . . . . . . . . . . .
Pane
1
TABLE OF CONTENTS ( Con'Q
FINDSINTGEP SIV T: O TPHREO UBOOTEA WE) D CUOCUALTDIO TNAAKLE WAADDLITINIO N. AL. . . . . . . .
The Board Has Considered Several Measures To Promote Educational Quality. . . . . . . .
The Board Cou Id Stengthen The
Academic Program Review Process. . . . . . . . . . . .
The Board. Should Consider Establishing
An Incentive Grant Program . . . . . . . . . . . . . .
Recommendations. . . . . . . . . . . . . . . . . . . .
FINDING V: THE BOAW) NEEDS TO DEFINE AND
SUPPORT A UEANINGFUL OVERSIGHT WLE FOR THE CEMRAL OFFICE . . . . . . . . . . . . . . . . . .
The Board Has Failed To Articulate And
Comnunicate The Role Of The Central Office . . . . . .
Other States Have Established An Independent Central OfficeRole. . . . . . . . . . . .
Recommendations. . . . . . . . . . . . . . . . . . . .
FINDING VI: ME BOAR0 NEEDS TO ENSURE FULL
COMPLIANCE WITH THE
OPENMEETINGLAW. . . . . . . . . . . . . . . . . . .
Arizona's Open Meeting Law . . . . . . . . . . . . . .
Council Of Presidents' Meetings
Have Not Been Open To The Public . . . . . . . . . . .
Board Has Not Maintained Adequate
Minutes. . . . . . . . . . . . . . . . . . . . . . . .
Considerable Time Spent
In Executive Session . . . . . . . . . . . . . . . . .
Recommendations. . . . . . . . . . . . . . . . . . . .
TABLE OF CONTENTS ( Con'Q
OTHER PERTINENT INFOfWTION. . . . . . . . . . . . . . . .
Results Of Survey Of
University O f f i c i a l s . . . . . . . . . . . . . . . . .
Central Office Use
Of Local Fund Revenues . . . . . . . . . . . . . . . .
Board Central Office Staff
Responsible For Oversight Of
Financial Aid Grant Program. . . . . . . . . . . . . .
SUNSET FACTORS . . . . . . . . . . . . . . . . . . . . . .
AGENCY RESPONSE
APPEND l X
Survey Letter. . . . . . . . . . . . . . . . . . . . .
Survey Of University O f f i c i a l s ,
Faculty And Staff. . . . . . . . . . . . . . . . . . .
Pane
57
57
64
LIST OF TABLES
TABLE 1 Analysis Of Agenda Items Of The
Arizona Board Of Regents By The Type
Of Decision Required Within
JEuaclyh B1u - sDineecsesm bTeorp ic3 1, 1990. . . . . . . . . .
TABLE 2 Percentage Of Respondents Eva I uat i ng Meet i ngs
" As Less EfficienVEffective Than Should Be Expectedf1 . . . . . . . . . . . . . . . . . .
TABLE 3 Operating Budget Contributions To The
Local Fund Budget By University For Fiscal Years 1986- 87 Through 1990- 91. . .
TABLE 4 Expenditures That Flow Through Central
Office Local Fund Accounts
On Behalf Of The System
For Fiscal Years 1986- 87 Through 1990- 91. . .
Pane
CHART 1 Overview Of Universitiesf FY 1991 Revenue Sources . . . . . . . . . .
The O f f i c e o f the Auditor General has conducted a performance audit of
the Arizona Board of Regents pursuant to a June 14, 1989, resolution of
the Joint Legislative Oversight Committee. This performance audit was
conducted as part of the Sunset Review set forth in Arizona Revised
Statutes ( A. R. S. ) § § 41- 2351 through 41- 2379.
The Arizona Board of Regents i s charged with the responsibility of
governing the State's university system. The Board consists of nine
members appointed by the Governor, ( including a student representative),
and two ex- officio members -- the Governor and the Superintendent of
Public Instruction. With the exception of the student representative,
each appointed member of the Board serves an eight- year term. The
student representative serves a term of one year, and student
representation i s rotated annually among the three universities.
The Oversiqht Role
The Board has broad power and authority over Arizona's university
system. I t s responsibilities of governance include systemwide oversight
of and accountability f o r the State university system. However, we found
that the Board's oversight and accountability roles are s t i l l being
defined and need further changes.
Created by the Arizona Constitution, A r t i c l e X I , Sections 2 and 5 vest
general authority in the Board of Regents to supervise and control the
State's universities. The constitutional basis for the Board's authority
allows the Board considerable autonomy in f u l f i l l i n g i t s
respons i bi I i t i es. The Board's const i tut iona l status ranks i t among the
stronger e n t i t i e s of i t s type in the United States. In addition, Arizona
courts have interpreted the constitutional provisions as giving the Board
a broad range of powers. The specific powers and duties of the Board are
established by Arizona Revised Statutes ( A. R. S.) 515- 1621 et seq.
Although the State Constitution and Statutes give the Board significant
authority to supervise and control the State universities, the Board has
only begun to develop a stronger systemwide approach to i t s oversight
responsibilities during the past decade. In 1985, a desire to strengthen
oversight of the university system resulted in the hiring of a new
Executive Director. The new Executive Director was given the general
responsibility of developing a stronger and more effective central office.
The early efforts of the new Executive Director and the Board focused on
capital development and strategic planning. A capital development
process was established to provide for meaningful review and oversight of
university construction projects. Most believe the process has been
beneficial and has saved millions of dollars in capital development
expenditures. In addition, a systemwide strategic plan was developed,
the f i r s t document of i t s kind ever developed by the Board. Most believe
this e f f o r t too was a significant and noteworthy achievement. The Board
is also focusing on other policy issues such as minority recruitment and
retention and the status of women on campus. In other areas such as
budget and finance, and academic af fai rs, changes have been made in
policies and procedures to provide for more uniform reporting and greater
accountability to the Board. In these areas, changes generally appear to
be consistent with the Board and central office role envisioned by the
Regents in 1985. However, not everyone, especially some university
o f f i c i a l s , agreed that such a role by the central office was desirable or
needed. Complicating matters, the Regents failed to clearly define the
central office role. We found this failure has impacted the entire
system. Important responsibilities of governance have not been assumed
or have remained unchecked. Key areas of responsibility such as budget
oversight, auditing, and procedures for complying with the Open Meeting
Law are currently weak or inadequate. In addition, the lack of a
clearly defined and articulated role for the central office has caused
the Board to spend a considerable amount of time on operational detai Is
of l i t t l e significance systemwide.
Audit Scow
Our audit focused on the role of the Board and the responsibilities and
operations of the central office, and our report includes findings
addressing the fol lowing areas:
the Board's role and the need to increase the time the Board spends
on significant policy and systemwide issues;
the effectiveness and efficiency of the Board's current efforts to
provide systemwide fiscal and academic oversight and accountability;
the need to c l a r i f y and formally articulate the governance role of
the central office, the Council of Presidents, and the universities;
and
the need for the Board to ensure f u l l compliance with Arizona's Open
Meeting Law.
In addition, our audit report presents other pertinent information
related to University survey responses, central office Local Fund
expenditures, and the administration of the State Student Incentive Grant
Program ( see page 57). We also present an area for further audit work
regarding staff salaries and tuition. Finally, we present a response to
the 12 statutory Sunset Factors ( see pages 75 through 80).
Our audit was conducted in accordance with government auditing standards.
The Auditor General and staff express appreciation to the members of the
Board of Regents, the Board's Executive Director and s t a f f , and the
Presidents of the State universities for their cooperation and assistance
throughout the audit.
FINDING I
THE BOARD NEEDS TO FOCUS
MORE AlTENTION ON ITS ROLE AS A POLICYSFITING BODY
The Board of Regents needs to devote more time to planning and
policy- setting issues at the State level. The Board's present agenda i s
dominated by operational d e t a i l s o f insignificant value systemwide, and
l i t t l e time i s l e f t for important policy discussion. Focusing on
operational details wastes o f f i c i a l s ' time at Board meetings and places
too much responsibility for policy debate on the Council of Presidents.
In order to eliminate insignificant items from i t s agenda, the Board
needs clear statutory authority to delegate and a carefully considered
delegation strategy.
The Board S~ ends Too Much Time
On Operational Details
Although the Board should be focusing on matters of a strategic and
policy- setting nature, i t s agenda consists of issues related to the
operations of individual universities. Although the number of items of
systemwide significance i s disproportionately low, s i g n i f i c a n t p o l i c y
issues, such as enrollment management and funding, need the Board's time
and attention.
Aaenda not focused on policy - Although the Board's role i s to make
pol- icy decisions, analysis of Board agendas indicates i t s attention i s
being focused on low p r i o r i t y operational issues rather than systemwide
policy and strategic issues. We analyzed agendas for regular meetings of
the entire Board during the six- month period of July through December
1990. Each of the 375 i tems on the Board's agenda was categorized by
topic and by the type of decision ( i f any) required by the Board. As
shown in Table 1, page 7, the majority of the items on the Board's agenda
are grouped into four categories: contracts, capital development, human
resources, and general information. Items involving business and
finance, academic a f f a i r s , student a f f a i r s , and strategic planning
represent a minor portion of the Board's agenda.
As shown in Table 1, page 7, 60 percent of the items on the Board's
agenda involved operational decisions.(') Only 8 percent involved policy
decisions and 8 percent involved strategic decisions. The remaining 24
percent of the items on the Board's agenda involved providing information
to the Board and did not require a Board decision. Approval of
university contracts, personnel appointments and salary increases,
approval of capital items, and university legal settlements are among the
types of operational decisions that dominate the Board's agenda.
Examp l es of low- level ope rat i ona l i tems appear i ng on the Board ' s agenda
during the period of our analysis include the following:
Aqreement between International Centre of Insect Phvsioloav and Ecolocnr in
Nairobi, Kenva, and the Universitv of Arizona that simply commits
signatories to cooperate on research in insect sciences, including
insect- host interactions and insect cladistics
Aareement between Northern Arizona Universitv and the Federation of
German- American Clubs that provides a student exchange program for
the academic year
Approval of Amended Lease between Arizona State Universitv and MTS Inc.
to increase space by 3,600 square feet for Tower Records at Tempe
Cent e P
( 1) For purposes of t h i s analysis, an operational decision i s defined as a decision
requiring the Board's action only on a specific case and i s a decision that could not
be applied to s i m i l a r cases throughout the system or to s i m i l a r cases i n the future.
A policy decision i s defined as a decision involving a general policy o r r u l e that
could be applied to s i m i l a r cases throughout the system or i n the future. A strategic
decision i s defined as the Board's decision on an issue that could p o t e n t i a l l y shape
the condition of the system f o r years i n t o the future.
TABLE I
ANALYSIS OF AGENDA lTEMS OF THE
ARIZONA BOARD OF REGENTS' BY THE TYPE OF
DECISION REQUIRED WITHIN EACH BUSINESS TOPIC
JULY 1 - DECEMBER 31,1990
Number
Bus i ness Top i c of Items
Contracts 83
Capital Development 77
Human Resources 42
General Informat ion( a) 40
Business & Finance 3 1
Legal Affairs 29
Academic Affairs 23
Student Affairs 14
Board Administration 9
Public Affairs 8
Strategic Planning 7
Other( b) - 12
Total -- 375
Percent of Total
Operational Informational Policy Strategic
Dec i s i ons l tems Decisions Decisions
( a) This category includes i tems that were identified on the agenda as a report from a
person, e . g . , university president and no further categorization was possible.
( b) This category combines five audit report items, three items we were unable to
categori ze, and four mi scell aneous i tems .
Source: Auditor General s t a f f analysis of Board of Regents agendas
The sheer number of i tems on the Board's agenda leaves l i tt le time for
meaningful discussion of policy issues. On average, during the period of
our review, the Board attempted to consider 75 items during a
three- to- four hour meeting. Assuming a four- hour meeting, this would
allow only about three minutes for each item. While the Board uses a
consent agenda format to expedite numerous items of l i t t l e controversy,
some consent items are removed from the consent agenda and discussed.
Consent items can consume as much discussion time as nonconsent items.
For example, we observed the Board discussing at great length a consent
item involving the purchase of a small piece of property in Tucson.
The Board's disproportionate attention to operational details is not
new. In 1988 as part of the Board's Task Force on Excellence, Efficiency
and Competitiveness, a study conducted by Coopers 81 Lybrand found that
the Board was involved excessively in management- level decisions and
" administrivia." A few Board members commented that the Board meeting
binders have actually decreased in volume in recent years, indicating
that over attention to details may have been an even more serious problem
in the past.
Greater ~ o l i cfo~ cu s needed - Board members, university o f f i c i a l s , and
central office staff recognize the need for the Board to focus more
attention on important policy issues. One Board member stated that the
Board seldom gets around to talking about education and doesn't spend
enough time on important matters. Another member commented that the
Board is constantly involved in minutiae that take away from the Board
actually getting work done. A third member described the following as
examples of insignificant operational decisions the Board had to make.
We had to decide whether to raise the rent at a campus
residential faci l i ty by $ 50. We had mothers bringing chi ldren
in saying they wouldn't have a place to sleep. Another time not
too long ago the Board spent three hours on a campus skateboard
pol icy.
Numerous university o f f i c i a l s also expressed frustration over the Board's
focus on operational details. One o f f i c i a l stated that the Board spends
too much time on t r i v i a and too l i t t l e time on large- scale policy and
planning issues. Another said i t was " ludicrousv that the Board should
be spending time dealing with $ 2,000 leases and $ 5,000 research contracts.
Board members, university o f f i c i a l s , and central office staff identified
several important policy and strategic issues that they believe require
more of the Board's time and attention. Some of these issues include the
following:
Enrollment Manaaement - Arizona's universities face resource
constraints at a time when demand for higher education is
increasing. The Board needs to decide how projected increases in
enrollment can be accommodated when the universities report they are
at or near their enrollment capacity.
Funding - The Board needs to work to replace the current
growth- driven State funding formula with a formula that incorporates
the universities' missions and the Board's enrollment management
strategy. In addition, alternative sources of funding should be
identified and pursued due to the limited a v a i l a b i l i t y of State
monies.
Branch Carnouses - Again, due to limited financial resources, the
Board needs to decide how new branch campuses can be integrated into
a systemwide enrollment management plan, how new branch campuses can
be funded, and the locations and dates of construction of these new
campuses.
One Board member asserted that the Board could spend as much as 80
percent of i t s time on just two of these major policy issues: enrollment
management and funding.
Other policy and strategic issues may also need more Board attention.
According to Board members, university o f f i c i a l s , and outside experts,
these include building the Board's working relationship with the State
Legislature and attention to differentiation rather than homogenization
of university missions and roles.
With Board Addressinq Operational Detail,
Council Of Presidents Plavs Sianificant Policv Role
The Board's current focus on university operational details creates two
concerns. F i r s t , it may place significant responsibility for policy
debate and decision making within the Council of Presidents. Second,
Board members and university o f f i c i a l s spend time that could be better
u t i l i z e d i f the Board concentrated more on policy and strategic issues.
Council of Presidents reswnsible for w l i c v - I n l i e u of the Board
spending sufficient time on major policy and strategic issues, much
policy deliberation and resolution is assumed by the Council of
Presidents. However, not a l l policy debate and resolution may be
appropriate for the Council to manage.
The Council of Presidents, consisting of the three university presidents
and the Board's Executive Director, has taken on a major role in
formulating policy. A March 1990 memo summarizing the role of the
Council states: "... the COP [ Council of Presidents] w i l l identify and
concentrate on c r i t i c a l system policy issues such as enrollment
management, t u i t i o n , and capitalization."
The Council assumes the role of gatekeeper on policy matters. The
Board's handbook about governance indicates that systemwide policy issues
go to the Council of Presidents prior to Board consideration and that the
Council should attempt to reach consensus on a l l issues. Although the
Board ultimately approves policy recommendations brought forth by the
Council, discussion and deliberation of these issues and the rationale
for Council recommendations take place in the meetings of the Council of
Presidents. These meetings have been closed to the public ( see Finding
VI , page 49).
In some cases, the Council of Presidents i n i t i a t e s and proceeds with
policy- setting and strategic planning a c t i v i t i e s without Board
direction. For example, a major pub1 ic relations e f f o r t to address
midyear budget cuts for fiscal year 1990- 91 and anticipated cuts for
fiscal year 1991- 92 was planned by the Council of Presidents in December
1990. A consultant was hired and governmental relations staff for a l l
three universities were involved in the development sf a coordinated
strategy. From our attendance at a l l Board meetings from the time the
budget cuts were f i r s t discussed, we found no evidence that the Board
directed the Council of Presidents to devise a public relations strategy
or that the Board was aware of the e f f o r t .
While the Board of Regents' system of governance should provide for
university input in the policy- setting process, the university presidents
should not replace the Board as the entity responsible for systemwide
policymaking. A system executive in another state cautioned that a board
of governance must be cognizant of the fact that the best interests of
the research universities are not always the best interests of the
state. Another higher education executive commented that generally
university presidents w i l l always come to the table representing the
interests o f t h e i r university. He said they don't really want to run the
system, but engage in system business to ensure equity for their
campus.(') Consequently in times of diminishing financial resources, i t
i s unlikely that university presidents meeting as colleagues and s t r i v i n g
for consensus, w i l l be able to make d i f f i c u l t or unpopular decisions. In
the meetings we attended, we observed the presidents struggling to come
to consensus on important but d i f f i c u l t issues on which there was no
clear agreement.
University time not well u t i l i z e d - In addition, overemphasis on
operational d e t a i l wastes University o f f i c i a l s ' time. University
o f f i c i a l s report spending considerable time on system governance. We
surveyed the 78 university executives, faculty, and s t a f f in attendance
at either the January or February 1991 Board meetings.(*) Fi fty- three
( 68 percent) responded to our survey .( 3) According to respondents, in
( 1) To investigate the characteristics of governance i n higher education i n other states,
we spoke extensive1 y with higher education executives i n ten comparison states:
California, Florida, Georgia, Iowa, Idaho, Kansas, North Carolina, Oregon, Tennessee,
and Utah. States were chosen either because they had a large multicampus system or
they were speci f i c a l l y recomnended by Ari zona higher education o f f i c i a1 s . The
state- level structures represented consist of three coordinating boards, three
governing boards with a chancel 1 or, and four governing boards without a chancel 1 or.
I n addition, we contacted two experts i n the f i e l d of governance i n higher education:
Aims McGuinness of the Education Comnission of the States and Marion Gade, coauthor of
a recent book about governing boards i n higher education.
( 2) I n addition to those that attend Board meetings, many more u n i v e r s i t y s t a f f are
involved i n system governance. The u n i v e r s i t i e s report that 450 employees on t h e i r
campuses spend 4 hours per month or more on Board- related work that includes attending
task force meetings, generating reports required by the Board, and c l e r i c a l a c t i v i t i e s .
( 3) Two additional surveys were submitted too l a t e t o be included i n the s t a t i s t i c a l
analysis.
1990 the time spent on a c t i v i t i e s involving system governance averaged 37
hours per person monthly. One of five respondents reported spending at
least six entire business days ( 48 hours) or more per month on system
governance. Moreover, o f f i c i a l s involved in governance for several years
report that the time spent on matters involving governance has increased
dramatically in recent years. One university president reports spending
25 to 50 percent of his time on Board business. An executive from
another university estimates the percentage of his time spent on matters
involving system governance has increased from five to 10 percent of his
time in the early 1980s to 33 percent of his time today.
Much of this time is spent in meetings involving governance.(') Of the
university staff responding to our survey, 50 percent report spending at
least 12 hours monthly attending meetings, and 20 percent report spending
three days per month ( 24 hours) attending meetings.
Board meetings dominated by operational matters may waste Regent, central
office s t a f f , and university executive time. Although Board staff and
university o f f i c i a l s are some of the most highly paid in the system, they
spend hours listening to the operational business of other campuses.
Many survey respondents expressed considerable frustration and concern
arising from the nature of items on the Board's agenda and the lack of
focus on important policy issues. ( For a summary of survey sponses,
see page 57 and A- 3.)
To Free Its Aaenda For Svstemwide Policv And
Planninq, The Board Must Deleqate Responsibilitv
In order to focus on the issues facing higher education in Arizona at the
State level, the Board needs to eliminate operational details from i t s
agenda. The Board needs clear statutory authority to delegate such
responsibility and a carefully considered delegation strategy. To allow
the Board to examine i t s operations and to devise a plan to delegate, the
formation of a Governance Committee should be considered.
( 1) I n addition to the monthly meetings of the entire Board, staff may attend meetings of
the three c m i t t e e s of the Board, the Council of Presidents and senior associates,
and ad hoc task forces.
Board needs a b i l i t y t o deleqate - Prior studies and experience in other
states suggest that in order to free i t s agenda for policy and planning
issues, the Board needs to delegate responsibility. However, at the
present time there is no statutory provision that allows the Board to
delegate to the university presidents or to Board s t a f f . Some Regents
and Board s t a f f a t t r i b u t e the number of small legal cases, contracts, and
personnel appointments on i t s agendas to this lack of clear authority to
delegate.
According to Aims McGuinness of the Education Commission of the States:
Most governing boards need to delegate and decentralize,
enacting major delegation to the universities who in turn need
to delegate down into the colleges and departments, making them
responsible and accountable for the success of their areas.
When the responsibi l i ty is forced downward, the board must now
focus on setting objectives, performance standards, and
incentives. A consolidated governing board that deals with
campus- specific issues is undermining the authority and
accountability of the presidents to manage and to make decisions
and tends not to focus on system policy leadership.
The Coopers & Lybrand study stated:
Delegation of authority from the board to the university
president is a c r i t i c a l issue with respect to university
efficiency and effectiveness. To the extent the board f a i l s to
delegate authority the board i t s e l f must exercise such authority
collectively. I f insufficient latitude for action is delegated,
the Board w i l l find i t s e l f involved in management level
decisions which are inappropriate for a governing body.
Other states have statutory a b i l i t y to delegate. Of five governing
boards from which we received copies of statutes and board
byIaws/ poIicies, four have delegated considerable responsibility to the
universities and the central office. One of these four states delegates
without the clear abi l i t y in statute to do so. The other three states
have this a b i l i t y specified in statute.
These states have approached the statutory authority to delegate in two
ways: either by giving broad and general authority to delegate or by
specifying the functions that are delegable. In Utah, statute specifies
the functions that may be delegated. However, the broader powers of the
Arizona Board are more similar to those of the boards in lowa and North
Carolina. A general statute, such as the one in lowa, could give the
Arizona Board the f l e x i b i l i t y to delegate incrementally in the areas that
i t deems appropriate. The lowa statute gives the board the authority t o
delegate any of i t s functions to such committees, offices, and agencies
of i t s members or others as may be desired. Iowa's statute also
specifies that such policies and procedures must be recorded in the
minutes of the board's meetings. North Carolina's delegatory authority
i s also broad; however, i t does not appear that the board can delegate to
committees.
To free i t s agenda f o r p o l i c y issues and discussions of strategic
importance, the Board w i l l have to carefully consider and document which
tasks w i l l be delegated and to whom. Examples from other states include
the delegation of appointments below the presidents or senior
administrative s t a f f to the universities, the delegation of legal a f f a i r s
to the chancellor or executive director, and the delegation of certain
responsibilities in capital construction to the universities.
Board should consider a comnittee on aovernance - The Board should
consider forming a committee on governance as a vehicle through which to
discuss i t s own operations and to develop a strategy for delegation. The
Board would require s i g n i f i c a n t time and discussion to develop a
delegation strategy. Since the Board's agenda i s already overburdened
and does not lend i t s e l f to items requiring a working session approach, a
committee would be a more viable alternative. In a recent book sponsored
by The Association of Governing Boards of colleges and universities('),
the authors recommend that boards have rules that draw the I ine between
what the campus does and a governance committee that settles
controversies over what i s handled where. The Board could assign the
committee the task of developing policies that clearly delineate the
authorities of the various parties and deciding a l l new cases that do not
f i t committee policies, as well as s e t t l i n g controversies.
( 1) Kerr, Clark and Gade, Marian L. The Guardians: Boards o f Trustees o f American Colleqes
and Universities. What Thev Do and How Well Thev Do It. Washington, D. C. : Association
of Governing Boards of Colleges and Universities, 1989.
RECOMMENDATIONS
1. The Legislature should consider amending A. R. S. $ 15- 1626 to give the
Board clear and broad statutory a b i l i t y to delegate.
2. The Board shou Id el iminate many universi ty management detai Is from
i t s agenda and devote more of i t s attention to systemwide policy and
planning issues.
3. The Board should consider creating a committee on governance to
examine i t s operations and to decide on the appropriate delegation of
tasks.
FINDING II
THE BOARD SHOULD STRENGTHEN ITS OVERSIGHT
OF THE UNIVERSITIES' BUDGETS
The Board of Regents needs to take a stronger, more active r o l e in
overseeing the universities' budgets. The present budget development,
review, and monitoring processes need to be improved. For example, the
Board currently approves two separate budgets for each university and
does not see a total budget for any university.
The mission statement of the Board includes the r e s p o n s i b i l i t y t o
" account to the leg i s lat ive and execut ive branches of government for the
resources appropriated to the universities." This responsibility i s
crucial given the resources appropriated to and expended by the
universities. In fiscal year 1990- 91, the universities received $ 531.6
m i l l i o n from the General Fund. However, taking into account a l l fund
sources, the universities' funding for fiscal year 1990- 91 totaled almost
$ 1.4 bi l l ion.(')
Budaet Development
Should Be Improved
Current budget development procedures hinder the Board's a b i l i t y to
oversee the universities' budgets. The budget process i s fragmented,
precluding the Board and university managers from making informed
decisions. Other states' boards have implemented stronger budget
development processes.
Budqet Drocesses are fraamented - Current budgeting procedures are
disjointed and unnecessarily complex. The Board approves two separate
budgets for each university, and g i f t and grant funds are not included
in either budget.
( 1) I n addition to General Fund revenue, the u n i v e r s i t i e s receive monies from the Federal
government, private g i f t s and grants, t u i t i o n collections, and fees for other
a c t i v i t i e s .
There are two budgets for each university that the Board must approve.
F i r s t , the Board approves the universities' State Operating budget
requests before they are submitted to the Governor in October. These
requests are similar to those prepared by a l l State agencies to request
General Fund support for the year. The culmination of the State
Operating budget process i s a l e g i s l a t i v e appropriation that specifies an
expenditure authority for each i n s t i t u t i o n . The expenditure authority
for the universities i s funded by a General Fund appropriation and a
port ion of t u i t i o n col lect ions.(') The universities requested a t o t a l
expenditure authority of almost $ 816 m i l l i o n for fiscal year 1991- 92.
The State Operating budgets comprise 62 percent of the monies for which
the Board provides direct oversight.
Second, the Board approves the universities' Local Fund budget requests
in the spring. Revenue sources for the Local Fund budgets include the
remaining portion of t u i t i o n collections, investment income, income from
a u x i l i a r y enterprises ( such as bookstores), and indirect cost recovery
from Federal grants. Expenditure purposes include debt service, student
financial aid, student services and, a c t i v i t i e s such as a t h l e t i c s , and
building renewal. The Board's approval s i g n i f i e s f i n a l Local Fund
expenditure authorization; no other parties in the State oversee these
budgets. The universities had Local Fund budgets totaling approximately
$ 410.3 m i l l ion for fiscal year 1990- 91. This constitutes 38 percent of
the public monies the Board d i r e c t l y oversees. Chart 1, page 19,
summarizes the two budgets for fiscal year 1990- 91.
( 1) For f i s c a l year 1990- 91 the Legislature appropriated only a General Fund amount
Almost 75 percent of t u i t i o n collections were allocated to the State Operating budgets.
CHART
OVERVIEW OF UNIVERSITIES '
FY 1991 B U D G E T S ( a )
( a) The two budgets approved by the Board; g i f t and grant revenue not included
Source: University FY 1991 budget figures approved in the October 1990 Board Meeting, and interviews
with Board s t a f f .
The two budgets ( i . e . , Operating and Local Fund) are independent of each
other. Although the Local Fund budget requests contain l i s t i n g s of
accounts that are supported by both budgets, these l i s t i n g s do not f u l l y
account for the amount of State funding received. Some university
managers do not believe there i s a need for the Board to receive
integrated budget documents, because the university managers feel that
they are in the best position to judge how the total university financial
picture f i t s together.
The separation of the two budgets i s not well j u s t i f i e d . According to
Board s t a f f , the theoretical advantage of completing the Local Fund
budget process in the spring i s that better revenue and expenditure
projections are avai lable because i t i s closer to the time when the
revenues and expenditures w i l l be incurred. However, since enrollment
and expenditure estimates are made for the State Operating budgets in the
fa1 I, and since t u i t i o n i s set in the fa1 I, the universities should also
be able to submit Local Fund budgets in the f a l l .
Finally, control o f the budget process i s further weakened because g i f t
and grant funds from private donations and the Federal government
( t o t a l i n g more than $ 273 m i l l i o n in fiscal year 1990) are excluded.
Consequently, the Board does not receive a consolidated budget document
summarizing a l l sources and uses of funds.(') Although g i f t and grant
funds are not approved by the Board, the uses for these funds may impact
how the universities use their State Operating and Local Fund budget
mon i es .
The lack of consolidated budqets hinders the Board's and university
manaaers' a b i l i t y to make informed decisions - Fragmented budgets impair
the a b i l i t i e s of the Board and university managers to make f i n a n c i a l l y
sound decisions. Some univers i ty programs receive funding from a
( 1) The Board receives quarterly g i f t and grant reports. However, these reports do not
help the Regents to gain an understanding of the t o t a l u n i v e r s i t y budgets f o r a given
year as the duration of the awards i s not included. ( Awards can cover a mu1 ti year
period.) Further, although the reports show the application of funds across the
budget program areas, they do not include more specific expenditure information, such
as the number of Full- Time Equivalent ( FTE) s t a f f .
variety of sources, including the State Operating and Local Fund budgets
as well as g i f t s and grants. Fragmented budgets preclude the Board from
overseeing the total budgets for these programs, as the following
examples i l l u s t r a t e .
In fiscal year 1989- 90 NAU had 33 a c t i v i t i e s , such as admissions and
campus security, that received funding and staff from both budgets.
Approximately 93 Ful I- Time Equivalent ( FTE) staff and $ 19 mi I l ion
came f rom the Local Fund budget, and 315 FTEs and $ 32 mi l i i on came
from the State Operating budget. The separation of the two budgets
undermines the Board's understanding and oversight of the total
university budgets for these 33 a c t i v i t i e s .
In fiscal year 1989- 90 ASU spent $ 2.1 million of i t s g i f t and grant
revenue in the institutional support program.(') At the same time,
institutional support in the State Operating budget increased by 41.8
FTEs and $ 3.3 million. The lack of consolidated budgets limits the
Board's awareness of the g i f t and grant- funded institutional support
when approving the State Operating budget institutional support
request .
State, local, and g i f t and grant monies fund student financial aid
programs. However, the lack of consolidated budgets prohibits the
Board from assessing the total financial aid picture when making
financial aid funding decisions. One Regent noted that the Board has
never been aware of the impact of not having information about
financial aid monies avai lable when making financial aid decisions.
The lack of consolidated financial information may have contributed to
the $ 23 million budget shortfall at the University of Arizona during
fiscal year 1990- 91. A consultant hired at the direction of the Board to
analyze the U of A budget process, C. William Fischer, found that senior
officers of the University of Arizona Ifuniformly maintained that they
f e l t no individual responsibility as stewards of the whole fiscal
situation of the University and therefore no responsibility to ask for
such analysist' as comprehensive listings of the sources and uses of
funds. Had the Board required the universities to submit , consol idated
budgets for a l l sources and uses of funds, the University of Arizona
would have had access to consolidated budgets for i t s internal use.
( 1) Budgets are divided into six program areas: instruction, academic support, public
service, organized research, student services and admini stration, and i n s t i t u t i o n a l
support.
One Regent, noting that university managers may try to minimize Board
influence over their budgets, admitted that i t is d i f f i c u l t to decipher
how the universities spend their monies. He told us that i f the Board
wants the universities to i n i t i a t e certain programs, university managers
can provide " 100 reasons" why they cannot fund the programs. However, he
said university managers seem to have no problem reallocating their funds
as they see f i t . Another Regent concurred, stating that the university
budgets are " kept complicated."
Other states' boards have a sinale budaet - Other states' boards oversee
unified university budgets. We contacted budget directors of university
system boards in four states ( California, Colorado, Florida, and
Virginia) that were identified as ' models' by Board staff and the JLBC
analyst. A l l four states have a single budget document that incorporates
a l l fund sources; budgets are not fragmented. The University of Arizona
budget consultant also recommended the development of all- funds budgets
to support both university and Board decision making.
Budqet Review Efforts
Should Be St renathened
In addition to developing a single budget for a l l funds, the Board should
strengthen i t s budget review a c t i v i t i e s i n order to provide effective
oversight. Current budget review efforts are ineffective because they do
not allow the Regents to ensure that the universities address Board
p r i o r i t i e s . Other states' boards have implemented more substantial
budget review procedures.
Current budaet review efforts are not effective - Limited review of the
universities' budgets hinders the Board's a b i l i t y to understand the
budgets and provide oversight. Board staff do not complete meaningful
budget analyses, and the Board's review appears superficial. The Board
also lacks a coherent means of reviewing g i f t and grant- funded
resources. Inadequate time frames and an insufficient number of staff
contribute to these deficiencies.
Budget analyses performed by Board staff are very limited. A review of
written interchanges between Board and university staff revealed the
fol lowing major areas of Board staff review of both the State Operating
and Local Fund budgets:
whether items should be included in the continuation base or as
program changes,
requests for j u s t i f i c a t i o n or c l a r i f i c a t i o n of budget transfers, and
requests for basic clarifications about programs.
The s t a f f ' s budget review generally did not question the number of
positions proposed nor the need to fund individual budget items. One
university budget o f f i c i a l noted that Board staff basically serve as
agents for passing budgets from the universities to the State; analysis
is almost nonexistent. Another university o f f i c i a l suggested that the
ana lys i s i s not mean i ngfu l because process has replaced substance.
Moreover, Board staff do not f u l l y analyze some possible issues when they
are identified. For example, the ASU Local Fund budget request for
fiscal year 1990- 91 showed an ending balance of $ 892,000 in the ASU
President's Special Projects Fund. Board staff inquired whether there
were specific plans for the fund. The university responded only that
" President Coor currently is considering a number of i n i t i a t i v e s which
w i l l require funding. Some of these i n i t i a t i v e s could u t i l i z e this
available fund source." Board staff obtained no meaningful information
about the specific programs to be funded.
Board members also seem to perform a superficial review of the
universitiesf budgets. Inadequate time frames contribute to the limited
review. For example, the Board and i t s Resources Committee had only a
few days to review the universities' fiscal year 1991- 92 State Operating
budget requests. Two Regents agreed that this schedule did not allow
them sufficient time to review the budgets or request changes or
additional informat ion. The negl igible Board influence on the State
Operating budgets provides evidence of the Board's limited review. The
Board decreased the universities' fiscal year 1991- 92 State Operating
budget requests on average 3.4 percent; however, the approved requests
were st i I I almost 19 percent higher than the previous year . ( ' I
In addition to i t s limited review of the State Operating and Local Fund
budgets, the Board lacks a coherent means of reviewing g i f t and
grant- funded resources. Gifts and grants can have a significant impact
on university budgets. For example, between September 1990 and February
1991, the Board approved $ 1.3 mi 1 l ion in new appointments and salary
increases for 42 g i f t and grant- funded s t a f f . The number of staff funded
by g i f t and grant revenue should be more readily available, as i t is
anticipated that the national economic condition could result in
decreased Federally sponsored research. The Board should be aware of the
potential implications i f grant a c t i v i t y declines so that i t can prepare
to identify other revenue sources or reduce s t a f f .
Finally, the Board lacks sufficient budget staff to complete meaningful
analyses. In addition to the Deputy Executive Director for Finance and
Planning, there is currently only one mid- level budget analyst to provide
oversight of the universities' $ 1.4 bi l l ion budgets.
Ineffective budqet review ~ recludes the Board f r r - ensurins that
p r i o r i t i e s are addressed - The Board's I imited > view of the
universities' budgets does not allow i t to ensure t.. ~ r i o r i t i e s are
addressed. For example, two directives in the Board Strategic Plan
c a l l for improving undergraduate and graduate education. During
Appropriations Subcommittee hearings and in the press, ASU o f f i c i a l s
noted that the JLBC fiscal year 1991- 92 General Fund recommendation would
harm the instruction program, partly by jeopardizing the f a l l 1991
addition of 300 course sections. The Regents' limited knowledge of the
( 1) The 19 percent figure excludes the ASU West campus; i t s 52 percent increase request
brings the average increase request to almost 26 percent.
programs funded by ASU monies, such as the $ 892,000 President's Special
Projects Fund, precludes them from knowing whether ASU is making a good
f a i t h e f f o r t to comply with the Strategic Plan.
Other states' boards have implemented mre substantial budaet review
procedures - University budgets are reviewed more extensively in the four
model states we contacted. The boards impose " economic reality" on the
universities in addition to conducting more meaningful review
a c t i v i t i e s . A l l four states allow more time for board review of budgets
and have dedicated more staff to budget analysis.
A l l four boards impose " economic realityn on the universities up front by
identifying the amount of state funding increases the universities can
request. The California system abandoned the practice of allowing the
universities to submit unlimited requests because i t was f e l t the
practice led to bloated requests and extensive analysis. In Florida, as
the i n i t i a l step in the budget process, board staff identify the amount
of funding the universities can reasonably expect from the state.
The four states' boards perform more meaningful budget analysis. For
example, the staff of Florida's board conducts a technical analysis of
the detailed operating budgets for a l l fund sources as well as
substantive reviews of new programs. Validating the link between the
budget requests and strategic plans is central to the review process. In
Virginia, board staff make independent recommendations for f u l l , p a r t i a l ,
or no funding of campus requests. The board also actively oversees how
the institutions manage budget cuts. The Virginia board's budget
strategy directs the institutions as follows:
... institutions should make the necessary reductions in ways
that w i l l leave them as strong as possible later in this
decade ... They should place the highest p r i o r i t y on protecting
their academic programs and their physical plants. To the
greatest extent possible, institutions should avoid reducing
1990- 91 expenditures for library materials, instructional
equipment, and maintenance of buildings and grounds below
present levels ... This would require immediate steps to begin to
reduce staffing ....
The Virginia board advises staffing reduct ions as they w i l l cause less
long- term damage to the institutions than other measures. Finally, while
acknowledging that some programs w i l l be hurt, the Virginia board
recognizes that the budget cuts have positive effects, such as forcing
the institutions to concentrate their resources on the highest p r i o r i t y
programs and streamlining curriculums and administrative operations. The
Virginia example is particularly relevant since Virginia, like Arizona,
places strong emphasis on institutional autonomy.
Further, al l four states have more generous time frames for board review
and feedback on budgets. In Florida, preliminary budgets are presented
to the board in July, with final approval occurring in the f a l l . The
Colorado review process extends f rom January through June. In June,
o f f i c i a l budgets based on actual state appropriations for the fiscal year
starting in July are approved. In California three to four budget
presentations are made for the board in a " normalw budget year; in a
" bad" budget year, monthly budget presentations may be made.
Finally, these states' boards have dedicated more resources to budget
analysis than Arizona. The Virginia board, which oversees a budget
comparable to the Arizona Board's, has seven professional budget s t a f f .
The Colorado board, which oversees only $ 850 million, has four
professional budget s t a f f .
Budaet Monitorina Efforts
Should Be Improved
The Board should strengthen i t s budget monitoring capabilities in
conjunction with improving budget development and review processes.
Current budget monitoring a c t i v i t i e s are not effective. This contributed
to the " surprise" nature of the University of Arizona budget s h o r t f a l l .
The U of A budget consultant offered several suggestions for improving
monitoring.
Bud~ et mnitorina a c t i v i t i e s are not effective - Current budget
monitoring a c t i v i t i e s are limited. Board policy allows the universities
to transfer State Operating budget funds and report such transfers to the
Board quarterly. Approval of Local Fund budget changes is required for
net increases or decreases in budgeted levels of revenue or expense; this
is also accomplished through quarterly reports.
The quarterly State Operating and Local Fund budget transfer reports do
not allow the Board to adequately oversee the universities' budgets.
These reports are vague and do not include the effects of specific
changes on the overall university budgets. For example, one State
Operating budget transfer report containing a transfer of almost $ 1.3
million from personal services and employee- related expenses to other
operating expenses was j u s t i f i e d " for high p r i o r i t y capital and other
operational needs."(') The implications of this transfer cannot be
readily determined because the Board cannot ascertain which university
a c t i v i t i e s w i l l be adversely affected by the loss of $ 1.3 mi l lion in
personnel costs and which university a c t i v i t i e s w i l l be positively
affected by the injection of $ 1.3 m i l lion.
The ineffectiveness of the Board's budget monitoring was shown during the
University of Arizona's recent budget s h o r t f a l l . After the University of
Arizona budget shortfall was announced, Regents and Board staff noted
that they had not been aware that the University of Arizona was
experiencing financial problems of such magnitude.
Suaqested budaet monitorina improvements - The University of Arizona
budget consu l tan t suggested the Regents adopt new budget mon i to r i ng
mechanisms. He recommended the development of all- funds budgets and that
the universities adjust these budgets in approximately November and April
to show updated t u i t i o n revenue and enrollments. According to the Deputy
Executive Director for Finance and Planning, the November revision could
also capture the prior year's carryforward of funds. The semiannual
budget revisions could replace the current quarterly reports.
( 1 ) Most other State agencies must receive JLBC and Department of Administration approval
before transferring funds into or out of personal services and employee- related
expense; the universities are exempt from this requirement as the Board approves such
transfers.
The Colorado board has implemented this budget monitoring structure and
approves budget revisions in the f a l l and spring. The consultant also
recommended establishing cumulative thresholds for other budget
monitoring reports.
The measures recornended by the consultant should allow the Board to
strengthen i t s oversight of the universities' budgets, without " tying the
hands" of the universities. Given the substantial resources expended by
the universities, oversight is needed. However, oversight can undermine
efficiency i f campus i n i t i a t i v e s are unduly constrained by, for example,
excessive reporting or approval requirements.
RECOMMENDATIONS
The Board should require each university to develop a single budget
that includes a l l funds.
The Board should increase i t s participation and effectiveness in the
budget development process by identifying the amount of State funding
the universities can request up front, actively overseeing how the
universities manage funding decreases, a1 lowing longer time frames
for Board analysis and feedback, and promoting more substantial Board
staff review of university budgets, partly by augmenting the number
of budget s t a f f .
FINDING Ill
THE BOARD SHOULD IMPROVE ITS AUDIT FUNCTION
The Board of Regents should strengthen i t s audit function to support i t s
oversight of university operations. Audits conducted by the Board's
internal audit staff generally focus on small, limited areas. When
important areas are audited, the audits lack thoroughness. The Board's
internal audit function is weakened by university influence over audit
operations, the amount of time dedicated to special projects, and staff
turnover. Other states1 higher education systems have implemented more
effective audit operations.
The Board employs seven professional audit staff who work out of the
Board's central office in Phoenix. Audits are completed on an annual
basis and include such areas as student enrollment ( where ABOR auditors
verify the number of FTE students attending each university) and capital
review. The board auditors complete reviews of the same units on each
campus simultaneously. While Auditor General staff and other outside
auditors perform external audits to determine the financial status of
each of the three universities, internal audits focusing on specific
a c t i v i t i e s and functions are the responsibility of the Board's audit
staff .
Audits often lack siqnificance - A review of audits conducted and
scheduled indicates that Board auditors often focus on minor areas of the
university operations, whi le major ( multi- mi l l ion do1 lar) areas of
operations go unaudited, as evidenced by audits of the following ASU
units.
Chemistry Stores with a fiscal year 1987- 88 inventory value of
$ 1 15,516
Sumlus Propertywith fiscal year 1988- 89 sales of $ 170,332
lntercolleniate Athletics Eauiprnent Room w i th f i sca I year 1987- 88
equ i pmen t expend i t u r es of $ 203,002
Audits for fiscal years 1989- 90 and 1990- 91 included accounts receivable
for library fines and revenue from office machine rental and repair.
One Regent who serves on the Resources Comm i t tee stated that he never
reads the audit reports because the audit topics are not of great
concern.
While audits focus on minor areas such as surplus property, major
operations involving large sums of money and high risk are not being
audited. For example, our experience conducting financial audits of the
universities shows procurement and cash receipts for auxiliary
enterprises ( such as bookstores and conference centers) are areas
warranting additional audit work. These units have a high degree of
risk, i . e., are prone to fraud, because they have an abundance of l iquid
assets. Procurement practices warrant audits as the universities set
their own guidelines for contracts under $ 10,000. Cash receipts for
auxiliary enterprises warrant internal audits because of the sizeable
revenues. ( NAU had anticipated bookstore revenues of $ 4.6 million for
fiscal year 1990- 91; Arizona State University has annual bookstore
revenues of approximately $ 10 m i l lion.) One high- level ASU o f f i c i a l told
us auxiliary enterprises need audits because, in addition to the sizable
revenue, these enterprise units may have limited accounting staff whose
efforts are not coordinated with the university's central accounting
function. Thus, the internal controls present at central accounting may
not be present at the enterprise level.
Moreover, the recent disclosure that ASU's Public Events department,
which has a $ 7 million budget, incurred a significant debt illustrates
the need for audits of significant university areas. The executive
director of the department authorized cash advances to a theater company
so that the company could stage several shows at ASU auditoriums. The
advances exceeded ticket sales, and the private theater company was
unable to reimburse ASU $ 630,000. In late June, ASU hi red the accounting
firm of KPMG Peat Marwick to conduct an audit of the Public Events
department. The audit w i l l include a study of the internal controls in
the department.
The focus on small, limited areas appears to result from the manner in
which the audit work schedules are developed. Professional standards for
internal auditors(') state that audit p r i o r i t i e s should be based on
several factors including financial exposure and potential loss and
risk. However, the Board s t a f f ' s approach to scheduling audits has been
heavily based on polling the university financial vice presidents,
Regents, and Board auditors to identify potential audit topics. The
audit manager assimilates this information and compiles a one- year audit
plan, which also incorporates the annual audits.(*) Formal assessments
of the risks associated with different university units are not made.
When important units are reviewed. the audits lack thorou~ hness - Even
when auditors review significant areas, the audits often lack
thoroughness. For example, in auditing a $ 2 million capital improvement
project, the auditors reviewed only whether the university was in
compliance with Board and university policies and whether one
university's capital development process was consistent with the
processes at the other two universities. The auditors did not test
construction expenditures or financial records and did not analyze the
construction costs for the project. They did not compare expenditures
with actual services t o v e r i f y that services were provided or ensure that
the services conformed to contractual agreements. The six- page report
does not contain any findings or recommendations to be reported to the
Board. However, a finding presented to university administrators noted
that the auditors had found several mathematical and clerical errors in
capital project summary budgets relating to construction cost
calculations. Although Regent policy states that Board auditors should
review the universities' completed capital projects for compliance with
Board policy, it also states that the audits ''... shall focus on those
areas most important to assess system integrity . . . . ' I The lack of review
of financial records indicates that the audit did not have such a focus.
As the universities' 1992- 96 capital improvement plans amount to $ 506
million, the completion of thorough capital audits is essential to
effective oversight.
( 1) Standards for the Professional Practice of Internal Auditing, I n s t i t u t e o f Internal
Auditors.
( 2) Several audits are completed on an annual basis, including enrollment audits ( i n which
Board auditors v e r i f y the number of f u l l - t i m e equivalent students attending each
university) and capital review audits.
Several factors weaken the audit function - Several factors contribute to
the weakness of the Board's aud i t funct ion. F i rst , un i vers i ty managers
exercise extensive influence over the Board's audit function as staff
have viewed the audit function as a service they can provide to the
universities rather than as an oversight function. As a result,
University o f f i c i a l s have been given a significant voice in deciding
which areas w i l l be audited.
Second, the Board's auditors spend significant amounts of time completing
special projects for other B s t a f f . I n fiscal year 1989- 90, over 500
hours wea jevoted to assemb a procedures manual for Board staff and
almost 4( ours to a Univers~., of Arizona land acquisition project. In
August ano November 1990, over 30 percent of the auditors' productive
time was dedicated to special projects. Board staff j u s t i f y the use of
auditors to complete special projects by stating that the purpose of the
special projects is related to that of auditing: to provide
accountability and oversight. However, these projects are not the same
as an independent audit and have resulted in fewer audits being
performed . ( I )
Final ly, personnel problems have hindered the Board's abi l i t y to conduct
meaningful audits. Between August 1990 and April 1991 four different
staff directed the audit function. Turnover has also been high; as of
August 1990 only three of the seven audit positions were f i l l e d . Thus,
the audit function has lacked clear direction and manpower.
Other states' audit operations are more effective - Audit operations of
other states' higher education systems are more effective in providing
oversight of university operations. We contacted the audit managers at
( 1) Although 28 audit reports were published i n fiscal years 1988- 89 and 1989- 90 ( 13 of
Arizona State University, 9 o f Northern Arizona University, and 6 of the University of
Arizona), only 4 reports were published during the f i r s t half of 1990- 91 ( 1 each of
Arizona State University and University of Arizona and 2 of Northern Arizona
University).
the City University of New York ( CUNY) and the California State
Universi ty System ( Cal State) . ( ' I Both audi t functions have implemented
features that could be used by the Board to improve i t s audit operations.
Both audit groups review significant university operations and complete
detailed reviews. CUNY completes annual operational audits of t u i t i o n
and fee revenue and financial aid programs. An audit of major auxiliary
enterprises was conducted " to determine that prudent fiscal management
procedures were being followed." The methodology of the review included
examining accounting records, contracts, receipts, invoices, procedures,
and bank reconciliations.
Cal State does not conduct any annual audits, but does review some areas,
such as procurement, every five years. Cal State ensures that important
functions are audited by formulating i t s audit plan based on a detailed
risk assessment methodology. This methodology starts with the
identification of over 160 audit areas. This l i s t is reduced to a more
manageable number of areas for which concerns and risk factors are
identified. Questionnaires allow for analyzing the concerns and factors
and ultimately evaluating the audit areas. Audits of the 10 most
c r i t i c a l areas are completed every five years, and audits of the next 30
high- risk topics are completed every twelve years.
Both audit groups have attained independence from university managers.
For example, Cal State auditors report to an audit committee of the
board. This committee meets whenever there is an audit report to be
discussed, generally every six to twelve weeks. This independence allows
the audit manager to avoid special projects.
Finally, both CUNY and Cal State have implemented effective audit
functions without the use of substantial resources. CUNY has ten
auditors responsible for auditing 18 campuses. Cal State has nine
auditors responsible for auditing 20 campuses. Given that the Board has
( 1) The Board's Executive Director i d e n t i f i e d these systems as having model audit
functions.
seven authorized auditor positions to oversee three institutions, the
resources needed to support a strong Board audit function are currently
available.
RECOMMENDATIONS
1. The Board should improve i t s methodology for scheduling audits,
possibly by incorporating formal risk assessment, in order to ensure
that audits of significant university units are conducted.
2. The Board should conduct more thorough audits in order to provide
effective oversight of university operations.
3. The Board should consider creating an audit committee to ensure the
objectivity of the audit function.
FINDING IV
THE BOARD COULD TAKE ADDITIONAL STEPS
TO PROMOTE EDUCATIONAL QUALITY
Although the Board has considered and, in some cases, implemented several
measures to promote the quality of higher education in the State, more
could be done to provide educational oversight. Specifically, the Board
could strengthen the academic program review process and should consider
establishing an incentive grant program.
The Board Has Considered
Several Measures To
Promote Educational Quality
The Board has considered and, in some cases, implemented several measures
to promote educational quality at the three universities. Completing
academic program reviews, establishing incentive grant programs, and
tracking student assessment indicators are consistent with the efforts of
other states' higher education governing boards.
Academic Prosram Reviews - Since 1975 the Board has requi red
programs in a l l academic disciplines ( such as a department of history
or a college of architecture) to periodically undergo a substantial
review.(') These reviews help to ensure that State resources are
expended effectively and provide information that can be used by the
universities to strengthen academic programs. Board policy dictates
that the reviews include studies by program faculty and studies by
external consultants familiar with the discipline. The reviews might
recomnend changes in curriculum, class size, faculty and student
recruitment efforts, and resources such as office space, library
materials, and computers. The universities report the results of the
reviews to the Board annual ly. Thi rty- six programs were reviewed
during 1989- 90.
( 1) O r i g i n a l l y a l l departments were to be reviewed a t l e a s t once every ten years. This
has recently been reduced to seven years i n order to address declining and emerging
programs more effective1 y.
a Incentive Grants - A l though cons i dered , but not yet imp I emen t ed i n
Arizona, incentive grants for academic programs and faculty have
become increasingly popular nationally as a result of restricted
state fiscal resources and increased expectations for accountability
in higher education. The theory behind incentive grants is to
leverage improvements in target areas, such as the improvement of
undergraduate education, from a small amount of supplemental
funding. Grants can be awarded on a competitive basis to university
i n i t i a t i v e s having the greatest potential for success in the target
area. Competitive State grants for educational improvement and/ or
research are among the most successful incentive grant programs. As
of 1989, 32 states had incentive grant programs.
StudentAssessment - The Board also tracks student- related indicators
in order to remain apprised of, for example, what students learn, how
students view their educational experience, and how alumni perform in
the workplace. The Board's approach to student assessment is similar
to most other statesf programs. As of 1987, two- thirds of the states
were performing some type of assessment a c t i v i t y . Most statewide
efforts allow the institutions f l e x i b i l i t y to design their own
assessment programs with the expectation that their ownership of the
programs w i l l cause them to address the results. The Strategic Plan
approved by the Board in September 1990 calls for the universities to
report one common measure of each of the following five indicators:
undergraduate persistence, graduation rates, undergraduate
achievement, student satisfaction, and postgraduate placement. This
common measure w i l l allow the Board to identify the university
system's performance in each of these areas while ensuring
universities the f l e x i b i l i t y of and ownership over other measures.
The Board Could Strenqthen
The Academic Proqram Review Process
The Board could improve the academic program review process to promote
educational quality at the three State universities. Board staff do not
ensure that the universities review their academic programs every seven
years, and neither Board nor university staff provide thorough follow up
on review recommendations. The Board could take additional steps, such
as providing for concurrent reviews of similar programs, ensuring that
program reviews are related to planning and budgeting processes, and
periodically auditing a sample of reviews, to ensure the effective use of
State resources and the strength of academic programs.
Board s t a f f do not ensure that proarams are reviewed on a timely basis
Board staff have not ensured that the universities review a l l programs
least once every seven years. Although copies of the universitiest
review schedules are maintained at the Board office, Regents staff
acknowledge that these schedules are not current. Further, a review of
these schedules i l l u s t r a t e s that the universities are not complying with
the seven- year requirement. For example, seven University of Arizona
programs, including the College of Education, and four Northern Arizona
University programs, including the Department of English, were not
reviewed and are not scheduled for review in 1989- 90 through 1995- 96.
Thus, the resource usage and academic performance of these programs
affecting numerous students w i l l not be checked in a timely manner.
Board and universitv s t a f f do not ~ r o v i d e thorouah follow UD on review
recomnendations - Neither Board nor university staff regularly and
thoroughly follow up on recommendations contained in the academic program
review reports. Board staff have not h i s t o r i c a l l y evaluated
recommendations or the universities' responses to them in the context of
the university system, and university staff have not ensured that
accepted recommendations are implemented by integrating program reviews
into the planning and budgeting processes.
Board staff have not h i s t o r i c a l l y evaluated program review
recommendations or the universities' responses to them in the context of
the larger, State system. The universities decide whether to accept or
reject recommendations. Board staff ensure only that the universities
notify the Board of the steps to be taken to implement the accepted
recommendations. For example, an ASU Sociology Department review called
for increasing the number of graduate students. I n t h i s case, Board
staff might expect the university to respond by expanding recruitment
a c t i v i t i e s . However, h i s t o r i c a l l y , Board staff have not reviewed such
responses to determine how expanding the graduate program at one
i n s t i t u t i o n would impact the other two universities' programs and whether
program expansion might create unnecessary duplication.
Also, university staff have not ensured that accepted recommendations are
implemented by integrating program reviews with planning and budgeting
processes. Chairmen of some of the programs reviewed during 1989- 90 were
not certain whether some of the review recommendations would be
implemented.(') For example:
The review of a program with substantial workload increases resulted
in a recommendation to increase the size of the faculty and the
number of graduate student teaching assistantships. The chairman
indicated that a formal method by which university administrators
would " pay attention to the reviews" does not exist, and the
department has not received resources to address the workload
increase.
Another department's review resulted in a recommendation to improve
advising. The chairman used residual funding to hire an advisor, but
was uncertain whether the position would be funded in future years.
The chairman noted that the failure to implement relatively
inexpensive resource requirements ( only $ 26,000 is needed to hire an
adviser) signals a weak link between program reviews and planning and
budgeting.
The Board could take additional steps to improve academic proaram reviews -
The deputy director of the lowa State Board of Regents, cited by the
Arizona Board of Regents' staff as a national authority on academic program
review, recommended several steps the Board could pursue in order to
address these shortcomings and further strengthen the program review
process. The Board could allow for concurrent reviews, require the
universities to integrate program reviews with planning and budgeting
processes, and periodically audit a sample of reviews.
The lowa deputy director recommends that the Board receive reviews of the
same programs at a l l universities during the same years in order to provide
maximum accountability to the State. He believes that providing for
( 1) We contacted three chairmen at each university. The methodology f o r choosing the nine
programs included selecting the program wi th the highest number of graduates,
selecting the program with the highest number of student c r e d i t hours, and selecting
another program whose review indicated s i g n i f i c a n t deficiencies and/ or recomnendati ons .
concurrent reviews is consistent with the Board's responsibility of
governance:
The board has an overall responsibility for state planning and
coordination among the institutions. It is exceedingly helpful in
carrying out these responsibilities i f the board has comparable
information from each of the institutions. Most states that are
involved with reviewing existing academic programs have some
procedures for lateral reviews across disciplines. I n t h i s way the
board is able to look at the strengths and weaknesses of the programs
across i t s institutions in the same academic area and take into
consideration the needs of the state as a whole.
The lowa deputy director also noted that integrating program reviews with
planning and budgeting processes is the " primary way" the Board can
ensure that university staff implement recommendations. Such integration
ensures that program reviews are useful by causing the universities " to
take careful analysis of programs and recommendations stemming from the
reviews ."
Finally, the lowa deputy director recommends that Board staff
periodically audit a sample of reviews. These audits would ensure that
the universities actually implement the recommendations they pledge to
implement and that administrators use the reviews in making planning and
budgeting decisions.
The Board Should Consider
Establishina An Incentive Grant Proaram
The Board should consider establishing an incentive grant program in
order to promote educational quality. Board staff attempted to i n i t i a t e
an incentive grant program for fiscal year 1991- 92, but the universities
thwarted this e f f o r t . However, the Board should pursue this approach to
promoting educational quality as i t has proven effective in other states.
Board s t a f f attem~ ted to i n i t i a t e an incentive arant program for fiscal
year 1991- 92 - In the f a l l of 1990, Board s t a f f t r i e d to implement an
incentive grant program aimed at improving undergraduate education ( the
Board's top p r i o r i t y ) . Components of the program included awarding funds
based on competitive proposals, universities providing matching funds,
and grant cei lings of $ 50,000. The Board's Programs Comni ttee was to
appoint a panel to evaluate the proposals. Each proposal would include
specific goals, a plan to measure the project's effectiveness in
achieving the goals, and a schedule for submission of progress reports to
the Programs comnittee. In addition, the Executive Director noted that
ideally faculty members would compete for the grants, as faculty
involvement is essential to the sustainment of any gains in the
imp rovemen t of undergraduate educat ion. These components meet the
guide1 ines for incentive grant programs pub1 ished by the Forum for
Col lege and University ~ overnance.(')
The universities thwarted t h i s e f f o r t - One high- level university
o f f i c i a l , noting that incentive grants are not needed in Arizona, said
that i f his university wants to fund a particular program, i t w i l l go to
the Legislature and request funding. This response is consistent with a
national trend whereby university leaders have been resistant to
incentive grants because they reduce their control over the budget
process. One study on incentive grants states that incentive grants
oppose the three primary objectives of institutional leaders: "... to get
as large a base budget as possible, make i t as predictable as possible,
and have as few external cont ro Is on spending as possible ."( 2)
lncentive arants have Droven effective in other states - Incentive grants
for academic programs and faculty have effectively promoted educational
quality in other states. For example, Ohio has dedicated $ 3 million to
" Program Excellence'' each biennium since 1983. Program Excellence
encourages state institutions to enter thei r best undergraduate programs
in a statewide competition for receipt of one- t ime enrichment grants of
up to $ 200,000. Grants have been used to improve teaching techniques and
provide opportunities for faculty and student development. Faculty
reviews indicate that the grants have positively affected programs. In
addition, Program Excellence has provided information on shared
characteristics of excellent programs.
( 1) These guidelines a r e ( a ) the goals of the program should be specific; ( b) there should
be agreement on indicators measuring progress towards achieving goals; ( c) incentives
should be aimed a t the organizational l e v e l o f the persons responsible f o r achieving
change; and ( d l the program should be part of a complete plan or strategy.
( 2) Folger, John, " Designing State Incentive Programs That Work i n Higher Educat: on,"
October 1989.
RECOMMENDATIONS
1. The Board could strengthen the academic program review process by
ensuring that a l l programs are reviewed every seven years, by
emphasizing concurrent reviews, and by requiring the universities to
integrate the reviews with their planning and budgeting processes.
2. The Board should consider establishing an incentive grant program.
FINDING V
THE BOARD NEEDS TO DEFINE AND SUPPORT
A MEANINGFUL OVERSIGHT ROLE FOR THE CENTRAL OFFICE
As suggested in the previous three findings, the Board's central office
staff has had d i f f i c u l t y at times asserting an effective and meaningful
role supporting the Board in several key areas including budget analysis,
auditing, and academic program review. Although the Board intended to
create a more effective central office, and established a staffing and
salary structure consistent with i t s vision of a more meaningful staff
role, the Board failed to clearly articulate the new role and
responsibilities of the central office and to provide i t sufficient
support and authority to be effective. As a result, the central office
has often encountered university resistance and conflict when i t has
stepped beyond the weaker staff role of the past. By contrast, some
other states more clearly define the role and authority of their central
office staff in either statutes, policies, or bylaws.
In the mid- 1980s, the Board began to exert a stronger role of governance
and took steps to create a more effective central o f f ice. According to
members of the Board at the time, changes were needed both within the
universities and within the Board's operations. The Board at that time
f e l t that the information being presented was not adequate and
accountability was lacking. In addition, there were no long- term
strategic plans for either the university system or the individual
universities. To improve i t s system of governance, the Board took steps
to strengthen the capabilities of the central office. To strengthen the
Board's analytic and oversight capabilities, a new executive director was
hired in 1985 along with other top executive talent.
The Board Has Failed To Articulate And
Communicate The Role Of The Central Office
Although the central o f f ice staff has been strengthened and upgraded, the
Board has never formally articulated and communicated the central
office's new role. The lack of a clearly defined role for the central
office has resulted in significant dysfunctional conflict within the
system and impaired the a b i l i t y of central o f f i c e s t a f f to assert a
meaningful oversight role.
Lack of role definition - The role of the central office has never been
formally defined and articulated. The Board's policy, bylaws, mission
statements, and Governance Handbook do not contain a description of the
role and responsibilities of the central office. The responsibilities
and authority of central office executives and the line of communication
between the central office and the Board and the central office and the
universities are also not clearly delineated.
In a study commissioned by the Board and published in 1988, Coopers &
Lybrand cited the lack of role definitions in general as a significant
deficiency of the current system. The firm noted that " roles,
responsibilities, and relationships of the entities in the system are
vague and i l l defined." They concluded that the organization and
planning weaknesses of the Board's system of governance are the most
c r i t i c a l problems facing the system, and a lack of sole definition is a
key component of the problem.
The role of the central office has not been well defined even on an
informal basis within the system. During our interviews of university
employees, some were unable to comment on the role of the central office
because i t had never been communicated to them. One senior university
administrator said he was Ifunsure what the central office was being asked
to do by the Regents." Many university staff and o f f i c i a l s surveyed
during our review cited problems with the definition and implementation
of the central office functions.
The lack of a clearly defined role has even contributed to uncertainty
and disagreement among Board members over the role of the central
office. Among the current Board members, there appears to be at least
two perspectives regarding the role of the central office. One
perspective favors a strong, independent role as conceived in the
mid- 1980s, and the other perspective is unsure whether the central office
shou l d assume respons i b i l i t i es beyond comp l i ance test i ng , aud i t i ng , and
coordinating functions.
Central o f f i c e structure suaclests stronq role - The s t a f f i n g and salary
structure of the central o f f i c e suggests i t i s meant to assume a stronger
role in overseeing universities. The Board cannot j u s t i f y maintaining a
35- person o f f i c e with a highly paid executive s t a f f i f the central o f f i c e
does not have a meaningful role. Appropriations for central o f f i c e s t a f f
salaries and employee- related expenditures totaled $ 1.7 m i l l ion in fiscal
year 1990- 91. The salaries of the top f i v e executive s t a f f ( ' ) range from
$ 80,667 to $ 108,964, excluding the Executive Director's allowance for
housing or other expenses. The salaries o f the central o f f i c e executive
s t a f f are some of the highest in the State and compare favorably to other
states with major multicampus responsibilities of governance. Because of
the r e l a t i v e l y small size of the central o f f i c e s t a f f in comparison to
other State agencies and because spans of control within the o f f i c e are
limited, the present salaries of the executive s t a f f can be j u s t i f i e d
only i f the o f f i c e i s performing a necessary and effective role in
overseeing the State's university system.
As in similar governance structures, central o f f i c e executives have
limited spans of control and no direct supervisory responsibility for
university employees but rather their value derives from their role and
responsibility. For example, the Board's Deputy Executive Director f o r
Finance and Planning has an annual salary of $ 93,110 and supervises a
s t a f f o f only eight. The Board's former Legal Counsel had an annual
salary of $ 92,832 and supervised only one other attorney. Neither of
these executives assumes any direct supervisory responsibility for
university employees. However, the importance and significance of the
central o f f i c e , and the value of i t s s t a f f i n g resources, depends on i t s
a b i l i t y to provide ( under the Board's direction) meaningful, independent
oversight. As a higher education executive from another state told us
regarding the executive director's position, " the position has to have
some teeth, or you might as well have a secretary taking the minutes.''
( 1) The Executive s t a f f includes the Executive Di rector; Deputy Executive Di rector f o r
Finance and Planning, Deputy Executive Di rector f o r Capi t a l Development, Human
Resources, and Internal Audit; Associate Di rector f o r Academic Programs; and Counsel
to the Board.
However, e f f o r t s t o assert a stronger oversight role have met university
resistance and created significant conflict and tension between the
central office and the universities. Central office executives believe
part of their role is to provide independent perspectives to the Board.
The descriptions of the responsibilities of both the Executive Director
and Deputy Executive Director for Finance and Planning suggest functions
that appear to involve more than merely coordinating university business.
The Executive Director is responsible for providing " independent
recommendations on policy formation" while the Deputy Director is
responsible for developing " financial policies and procedures for the
Arizona University System."
However, the efforts of central office staff are often questioned by the
universities when the central office steps outside the weaker role i t
exerted in prior years. For example, two of the universities resisted
e f f o r t s t o give approval authority for capital project change orders to
the capital development officer at the central office. In addition,
university resistance to central office efforts has also been experienced
in the areas of legislative relations, budget and finance, capital
development system implementation, and in the establishment of common
formats and data definitions for Board reports. In the absence of a
clear, independent role supported by the Board and an authoritative basis
upon which to act, the central office has often been unable to overcome
university resistance and operate effectively when i t s actions have been
quest i oned .
Other States Have Established
An Independent Central Office Role
Some states comparable to Arizona have established the authority of their
central o f f i c e s t a f f i n a more clear- cut manner and define an independent
role for their central o f f i c e s t a f f in a variety of functional areas.
Independent oversiaht role in other states - Of the ten states we
contacted, three states most comparable to Arizona establish an
independent role for their central office staff by empowering their
central offices or executive directors in a number of different
areas.(') Since i t is the responsibility and prerogative of the Regents
to define the role of the central office, the following information on
the roles and functions of the board's central office or system director
in three states is provided as examples rather than specific suggestions
for the Arizona system.
lowa As documented in Iowa's statutes or in the Board's procedural
guide, the board's central office provides administrative
support to the Regents by reviewing, analyzing, and making
policy recommendations on a l l matters brought before the
board. The central office maintains oversight responsibility
for academic affairs, business and finance, affirmative
action, and personnel and employment relations. Because only
the board can make legislative pol icy for the institutions,
legislative liaisons on the campuses in lowa must work through
the executive director in the interpretation and communication
of board policy. In addition to other duties, the executive
director, in consultation with the universities, develops and
recommends an annual capital improvement plan to the board. A
Regent Information Committee consisting of i n s t i t u t i o n and
board staff provide information requested by the board or the
executive director.
Utah In Utah, state statute and the bylaws of the Utah Board of
Regents identifies the commissioner's responsibilities and
duties. A l l communications between the Board and member
institutions must be made through the Commissioner ( executive
director). The commissioner is responsible for ensuring that
policies and programs are properly implemented, and advises
the board on recommendations from the institutions governed by
the board. The commissioner is also charged with providing
leadership at the state level in a l l a c t i v i t i e s affecting the
institutions in the system. The commissioner interprets board
policy to the presidents of the institutions, although the
presidents may appeal the commissioner's interpretation to the
board. The institutions can also be required to provide
reports and information i f needed by the commissioner to
ensure the implementation of board actions.
( 1) O f the ten state level governance structures we investigated, four were most s i m i l a r
to Arizona i n that they had a state- level governing board with an executive d i r e c t o r
i n charge of board s t a f f . One of the four did not document a strong role f o r the
central office.
ldaho In Idaho, the executive director's job description specifies
the duties and authorities of the position. The executive
director of the ldaho State Board of Education must furnish
the board with the information needed to make policy
decisions. The executive director has the authority to make
independent recomnendat ions to the board on al l agenda i tems
and to manage in accordance w i th Board pol icy
inter- institutional matters including budgets, curriculum,
research, public service, and extension a c t i v i t i e s . The
executive director is also empowered to coordinate a l l
legislative efforts of the board and the institutions and al l
major planning efforts. In addition, the executive director
supervises the gathering, compilation, and reporting of a l l
data and findings related to research and planning for board
institutions and may also require routine or special reports
from a l l institutions. A new program request cannot be
presented to the board without the executive director's
preliminary approval Finally, the executive director may
recommend shifting prc : cams from one i n s t i t u t i o n t o another or
eliminating programs.
Although the specifics of the central office's role d i f f e r in these three
states, each state has established the authority and responsibility of
the central office to provide some degree of oversight and an independent
perspective needed by the boards to make informed decisions. I f the
Regents are informed only of the university perspective, as can happen
under the Council of Presidents' structure in Arizona, the Board may lack
an impartial perspective and is in a weaker position to effectively
evaluate and oversee the performance of the individual institutions.
RECOMMENDATIONS
1. The Board should c l a r i f y the specific role, authority, and
responsibilities of the central office.
2. After clarifying the central o f f i c e ' s role, the Board needs to
articulate the central office role in a formal pronouncement and
support the central o f f i c e s t a f f , so that i t can be effective.
3. The Board should communicate the central office's role clearly to the
universities and other partici; snts in the governance system.
FINDING V1
THE BOARD NEEDS TO ENSURE FULL COMPLIANCE
WITH THE OPEN MEETING LAW
The Board of Regents and i t s committees have not f u l l y complied with the
Open Meeting Law. Although subject to the law, Council of President
meet i ngs ( i n wh i ch impor tan t po I i cy i ssues are debated) ' have not been
opened to the public. The Board has further limited public access and
violated the Open Meeting Law by not maintaining adequate minutes for
either i t s Board or committee meetings. Final ly, the amount of time the
Board spends in executive session may be excessive and unnecessary.
Arizona's Open Meetinq Law
The Arizona Legislature enacted the Open Meeting Law to provide public
access to the governmental process. A. R. S. $ 38- 431.09 states:
It is the public policy of this State .... that meetings of public
bod i es be conducted open I y and that not i ces and agendas be prov i ded
for such meetings which contain such information which as is
reasonably necessary to inform the public of the matters to be
discussed or decided.
The Open Meeting Law requires that a l l public bodies post notices and
agendas of a l l meetings and maintain minutes of such meetings that are
avai lable to the pub1 ic.
Council Of Presidents' Meetinss
Have Not Been Open To The Public
The Counc i l of Presidents ( Counc i I) has been meet i ng i n closed sessions
in violation of the State's Open Meeting Law. After reviewing the
Council's operations, deliberations, and authority, we concluded the
meetings are subject to the Open Meeting Law. Further, we found the
Board's former Legal Counsel had reached a similar conclusion three years
earlier.
Council neetina- s are subiect to O~ enU eetina Law - Because of the nature
and role of the Council, i t s meetings are subject to the Open Meeting
Law. As noted in Finding I, page 10, the Council plays a major role in
the debating and deliberating of policy issues and formulating
recommendations that ultimately are acted upon by the Board. The Council
meets regularly, usually twice a month, and conducts i t s meetings
pursuant to a formal agenda. The group keeps a form of minutes, but
meetings are not open to the public and are not noticed. Because of the
Council's make- up and the fact that the group deliberates items on which
the Board later acts in open session, our legal review concluded that
Council meetings are subject to the State's Open Meeting Law.
Our conclusion is supported by the Attorney General's Open Meeting Law
Enforcement Team and Chief Counsel. Because the Board's Legal Counsel
strenuously argued that the Council was not subject to the Open Meeting
Law, we asked the Attorney General's Office to review the issue. The
Enforcement Team and an Attorney General Chief Counsel concluded that
because of the group's make- up, authority, historical operations, and
a c t i v i t i e s , that the Counci l and i t s meetings are subject to the State's
Open Meeting Law.
Leqal counsel raised concern in 1988 - The Council of Presidents'
meetings were not open to the public even after the Board's Legal Counsel
twice raised the issue in 1988.
In a memo dated February 10, 1988, the Board's Counsel concluded that any
multimember group established by the Board for the purpose of making
recommendations to the Board is subject to the Open Meeting Law.
In July of the same year in another memo, counsel reiterated " any
recommendations from the Council of Presidents may subject the committee
to the open meeting laws." Although the two memos raised serious
questions about the p o s s i b i l i t y of Open Meeting Law violations, Council
meetings were not opened to the public. According to a former President
of the Board and the Executive Director, opening Council meetings to the
public makes the process " dysfunctional." Both the President and the
Executive Director of the Board believe the Council w i l l become less
effective i f the meetings are subject to public scrutiny and review.
A t the conclusion of our audit, the Regents changed the operating
procedures of i t s Council as described in their Governance Handbook.
Based on these changes to the handbook, the Board's Legal Counsel asked
the Attorney General's Office to determine whether the Council i s s t i l l
subject to the State's Open Meeting Law. The Attorney General's Office
conc 1 uded :
.... the new operating procedure, as amended by the minor pen and
ink changes indicated, sets forth a vastly different
organization. There i s no emphasis on group decision making and
no mission to make group recommendat ions to the Board or group
decisions for the Board.
The Attorney General's Office concluded that, i f the new procedures are
followed, Council matters w i l l no longer be subject to the Open Meeting
Law.
Board Has Not Maintained
Adeauate Minutes
The Board of Regents has also been in v i o l a t i o n of the State's Open
Meeting Law minute requirements. The Board i s bringing the Board minutes
into compliance, and i s now taking minutes for committee meetings.
Ta~ e recordinas of Board meetinas fail to meet statutory cmoliance
Arizona's Open Meeting Law requires a l l public bodies to keep and
maintain the minutes of their meetings. A. R. S. 538- 431.01 mandates " a l l
meetings of any public body shall provide for the taking of written
minutes or a recording of a l l their meetings .... I1 In addition, the
statutes state that minutes whether typed or tape recorded must contain
the following information:
1. The date, time, and place of the meeting
2. The names of the members of the public body as recorded either
present or absent
3. A general description of the matters considered
4. An accurate description of a l l legal actions proposed, the action
proposed, discussed, or taken, and the names of the members that
propose each motion. The minutes shall also include the names of the
persons, as given, making statements and presenting material to the
pub1 ic body and a reference to the legal act ion about which they made
statements or presented material
A review of Board meetings for the fifteen- month period between December
1989 and March 1991 found that written minutes for only a six- month
period ( December 1989 - May 1990) were available. The text of the
written minutes was very concise and specific, and our review suggested
that the minutes for the aforementioned time frame met al l statutory
requirements. However, the remaining nine months of meetings, which are
available on cassette tapes, do not meet a l l statutory requirements.
A review of approximately six hours of Board tapes disclosed that the
tapes do not include al l the statutori ly required informat ion.(') For
example, the date, time, and place of the meetings are never stated. A
listener cannot determine which Board members are present, and i t is
generally not possible to determine which Board members make motions or
discuss issues, or to identify the interested parties that address the
Board .
Continued noncompliance with the minute recording requirements of the
Open Meeting Law leaves the Board vulnerable to legal challenge.
In order to comply with the law, the Board hired a secretary to
transcribe a l l meetings that failed to meet statutory compliance. A l l
outstanding minutes were transcribed and approved by the Board. In
addition, the Board is also reviewing i t s operations to determine whether
meeting protocol needs changing so tha. t the unedi ted tapes of meetings
can comply with the Open Meeting Law.
Minutes not taken for Board comnittee meetings - Minutes were not taken
or maintained for the Board's standing committees. According to the
Board secretary, the Board's Legal Counsel informed her that such
meetings were not subject to the Open Meeting Law requirements. Also, no
staff resources were available to record the minutes.
The Open Meeting Law ( A. R. S. $ 38- 431[ 51) defines a pub1 ic body to include
" . . . a l l standing, special or advisory committees, or subcommittees of, or
appointed by, such body." In addition, A. R. S. $ 38- 431.01.8 requires a l l
committees of the Board to adhere to the Open Meeting Law. The only
exceptions are subcommittees and advisory committees.
Because the Board committees are standing committees of the Board, these
committees are responsible for recording and maintaining the minutes of
their meetings. The law does not provide except ions when resources are
not avai lable. To comply with the law, the Board began maintaining
minutes for a l l committee meetings, as of June 28, 1991.
Considerable Time Spent
In Executive Session
The amount of time spent in executive session may be excessive and
unnecessary, and the items being discussed may be more appropriate for
pub l ic session.
( 1) Because the Board secretary confinns that a l l nine months of tapes are rough unedited
copies, the review was concluded a f t e r l i s t e n i n g t o s i x hours of tapes. Meeting tapes
are presented to the public exactly as recorded u n t i l a transcription i s completed.
Discussion with the Board's Legal Counsel and the Auditor General's Legal Counsel
concludes that the tapes presented i n this format are not adequate to comply with the
law.
Board can conduct only closed meet inas to discuss sDecif i c topics
A. R. S. $ 38- 431.03 allows a public body and i t s committees to enter into
execu t i ve session on ly to d i scuss seven spec i f i c topics . ( I) These
sessions may be closed to the pub1 ic, and the discussions are
confidential. As required by law, the Board notifies the pub1 ic of i t s
intention to enter into executive sessions.
Discussion items mav strav from statutory c r i t e r i a - During the period of
September 1990 through February 1991, six Board meetings were held, along
with eight scheduled separate executive sessions. In fact, multiple
executive sessions were often held during the regular Board meetings.
The meetings lasted more than 90 minutes and were often reconvened at a
later date.
We observed eight executive sessions and found that many discossions were
general in nature, and conversations often strayed from the seven
specific topics that may be considered in executive session. Items being
discussed often appeared related more to pol icy, the Board's role, or the
Board's pub1 ic image. Such discussions are more appropriate for pub1 ic
sess i ons .
The Board's Legal Counsel concedes that a considerable amount of time is
being spent in executive session and suggests such a c t i v i t i e s are
cyclical. In addition, she points out that i t is often d i f f i c u l t to keep
discussions s t r i c t l y on statutory c r i t e r i a .
( 1) The Board of Regents may enter i n t o executive session f o r the discussion or
consideration of the f o l l owing topics: employment issues; t o review records exempt by
law from pub1 i c inspection; legal advice; to consider a position or i n s t r u c t attorneys
on the body's position i n pending or contemplated l i t i g a t i o n ; s t a f f salary
compensati on and benefit issues; consul t a t i o n f o r and considerati on f o r international
and i n t e r s t a t e negotiations; and the purchase or 1 ease of real property.
RECOMMENDATIONS
1. The Board should comply f u l l y with the Open Meeting Law in the
following areas:
a. Ensure that meetings of the Council of Presidents comply with
the Open Meeting Law
b. Complete minutes for a l l Board meetings in a timely fashion as
required by law
c. Maintain minutes for a l l standing committee meetings
2. The Board should increase efforts to ensure a l l topics discussed in
executive sessions comply with the limitations prescribed by
A. R. S. 538- 431.01.
OTHER PERTINENT INFORMATU
During our audit, we surveyed university o f f i c i a l s on time spent on
governance a c t i v i t i e s . We also compiled information on the Board of
Regents' use of Local Funds monies. In addition, work was completed on
the Board's oversight of the State Student Incentive Grant program.
Results Of Survey
Of Universitv Officials
During preliminary audit work, university o f f i c i a l s expressed concern
regarding the time and e f f o r t spent on a c t i v i t i e s related to system
governance. A self- administered survey was developed and was reviewed by
central o f f i c e s t a f f and university o f f i c i a l s . The survey was designed
to quantify the number of hours spent by university employees in
Board- related business, to evaluate the perceived efficiency of the
various a c t i v i t i e s of governance, and to e l i c i t suggestions for
improvements. The opinions presented represent comments from university
o f f i c i a l s only and may not reflect the perspectives of the Board or
central o f f i c e . Presentation of the comments i s not intended to be a
blanket endorsement or c r i t i c i s m of certain Board a c t i v i t i e s by our
Office. Rather, the comments are a r e f l e c t i o n o f attitudes and concerns
expressed by those university o f f i c i a l s most d i r e c t l y involved in
governance related a c t i v i t i e s and are presented to be used by the Board
to assist i t in addressing i t s overall effectiveness.
~ ethodoloay - The survey sample consisted of a l l university employees who
attended either the January or February 1991 meeting of the enti re
Board. One meeting was held at the University of Arizona and the other
at Arizona State University. An o f f i c i a l from each of the three
universities compiled attendance l i s t s during each meeting, which
resulted in a total of 78 unduplicated attendees. Most of those in
attendance were university executives; however, attendance of faculty and
student leaders as well as a small number of support s t a f f i s represented
in our sample.
Seventy- eight surveys were sent out in March 1991. Fifty- three ( 68
percent) of the surveys were completed and returned by mai l to the
Auditor General's office. On average, those responding have participated
in the a c t i v i t i e s of system governance for over six years and represented
a l l the major university business areas, including academic affairs,
budget and finance, capital development, legal affairs, and public
affai rs.
Results - The survey was divided into four sections that addressed the
following areas: 1) the amount of time devoted to Board- related
business, 2) answering requests for Board information, 3) the efficiency
and effectiveness of " governance meetings," and 4) the a c t i v i t i e s of
governance perceived to be the most and least valuable. Means,
frequencies, and response percentages for the quantitative questions are
provided on a copy of the survey beginning on page A- 3.
Time Devoted To
Svstem Governance
Respondents were asked how much time they devoted to Board- related
a c t i v i t i e s during a typical month in 1990. Each of the 52 people
responding to this question spent an average of 37 hours each month,
almost an entire business week on Board- related a c t i v i t i e s . Over
one- third of this time was spent in meetings of the Board, i t s
committees, the Council of Presidents, or task forces formed to address
sys temw i de i ssues . One of every f i ve respondents spend over s i x days a
month on Board- related business. Three f u l l days of the six days per
month were spent traveling to or attending the various meetings.
Board Information Reauests
F u l f i l l i n g requests for Board information consumes a significant amount
of university resources and includes responding to requests for
informat ion and requests for special project work, as we1 l as generating
the standing reports required by the Board. Beyond the standing
requirements, each respondent, on average, reports fielding three
additional information requests weekly. Almost one- half ( 46.5 percent)
of such requests are attributed to the central office, over 20 percent to
the Council of Presidents, and a small portion ( 4.9 percent) are reported
to be direct requests from individual Regents. The remainder of the
requests are from other university staff that attribute the need for
information to the Board or Board s t a f f .
Standina Reportina Reauirements - Respondents' suggestions primarily
involved ensuring that the reports required by the Board are being read
and serve an important purpose and the need to eliminate those reports
that are not useful. Respondents were asked the following question:
Now considering the standing reports required by the Board, what
suggestions, i f any, do you have for improving efficiency in this
area?
Twenty- three ( 43.4 percent) of the respondents provided suggestions and
comments, some of the comments provided included the following:
" Start with an arbitrary [ report] reduction of 50 percent. This
would force the Board, working with the Council of Presidents, to
select reports which are important to the governance role."
" Drop 50 percent of them [ standing reports]. Regents don't read them
anyway. I'
!! The reporting system needs a thorough review to reduce the reports
to a minimum."
Waestions for ad hoc information requests - Respondents were then asked
to consider the impromptu and special information requests ( which were ,
reported to average three weekly per person):
" Do you have suggestions for improving the procedures or protocols
used by the Board, central o f f i c e s t a f f , or the Council of Presidents
for obtaining information?"
Generally, respondents called for a reduction in the volume of
informat ion required, ensuring that the benefit of the informat ion is
worth the cost to generate i t , and channeling a l l requests through a
single contact at each university. Thirty- five ( 66 percent) of the
respondents prov i ded suggest ions . Cornmen ts i nd i cate that the Board and
Board staff use no protocol to ensure the information is considered
important by a majority of the Board. Individual Regent or central staff
I1petft issues can consume a tremendous amount of university staff time,
perhaps without the Board's knowledge. Responses pertaining to these
issues include the following:
" Before asking for information, more thought should be given to what
w i l l be done with this information once we have it."
" Board staff expects top p r i o r i t y be given to thei r informat ion
requests, whether the request is important or not."
" A l l single [ individual] Regent issues shotv 4 be presented to the
Board or a Board committee before the unive ties are requested to
prepare a lengthy report."
Board demands for information imoact campus resot. b i l i t i e s - University
o f f i c i a l s report that the information requirements of governance have
increased substantially and are negatively affecting performance of
campus responsibilities. Those who have served in their current position
longer than two years were asked whether the frequency of information
requests has changed. Over 75 percent report that information demands
have increased, and 32 respondents commented regarding how this has
affected their campus responsibilities. Comments include the
following:
" I feel I am losing t z : h with faculty and staff and c r i t i c a l campus
i ssues s i nce I no longer have t i me or am on campus enough to conduct
regular meetings as I did in the past."
" 1 have had to set up a bureaucratic team to handle these
[ informat ion1 requests."
" Support staff has been reduced due to budget cuts, so i t becomes
more and more d i f f i c u l t to carry out internal requirements and s t i l l
complete central office projects."
Eff iciencv Of Meetinus
Respondents were asked to evaluate the efficiency and effectiveness of a
variety of meeting characteristics of system governance. OveraI I, the
meetings of the Board and the other meetings of system governance are not
considered to be very efG: cient; over one- half of the respondents
expressed dissatisfaction with the efficiency and effectiveness of a l l
but two of the seven characteristics evaluated. Table 2, page 61,
presents the percentage of respondents that indicated meeting
characteristics were '' less e f f i c i e n t / effective than should be
expected." For a complete 1 i s t ing of the responses, see pages A- 3
through A- 7.
TABLE 2
PERCENTAGE OF RESPONDENTS
EVALUATING MEETINGS " AS LESS EFFICIENT/
EFFECTIVE THAN SHOULD BE EXPECTED"
Meetina Characteristics
Number of meetings
Length of meetings
Number of agenda items
Type of agenda items
Time devoted to the most
important items
Process for making decisions
and reso l v i ng i ssues
Cha i rpe r son ' s management of the
agenda and meeting time
Percentage of Respondents
Eva l ua t i ng " As Less
Efficient/ Effective Than
Should Be Ex~ ected"
Overview of comnents on meetina efficiency - After evaluating meeting
characteristics on a scale, respondents were asked to comment on the
characteristics of the meeting and the particular type of meeting ( e. g.,