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Questions remain about “inaccurate financial reporting” at Averett University
Temporary pay cuts for some Averett University employees will end in about a week. But school officials have not provided many details about how the university’s financial health declined so quickly that it required sudden furloughs.
The private university in Danville revealed in early July that it was facing a budget shortfall due to what it called mismanagement by a former university finance official, including unauthorized withdrawals from its endowment.
The university said it is trying to recapture about $6 million, but officials have not publicly disclosed how much was mishandled.
“There’s no specific amount. There really isn’t,” President Tiffany Franks said in a July 11 interview, pointing instead to a “wide range of misreporting” that occurred over the course of about a year.
Tiffany Franks has been president of Averett University since 2008. Courtesy of the university.
“Spending decisions made during this time were based on faulty data, resulting in us living beyond our means without realizing it at the time,” Averett spokeswoman Cassie Williams Jones said in an email on July 23. Jones said it appears the misspent funds were used to “benefit the university in some way,” including spending on technology and facilities, as well as “debt reduction measures.”
The university has said publicly that there was no embezzlement or other similar criminal activity.
A single tough year for a university’s finances doesn’t necessarily signal a downward trend for the institution, said Kevin McClure, associate professor of higher education at the University of North Carolina-Wilmington’s Watson College of Education.
“Sometimes things happen, and even unforeseen things can happen,” he said.
But it may not take much for unforeseen circumstances like the ones Averett is dealing with to affect faculty and staff. “At all colleges and universities, the primary expense is people, in salaries and benefits,” McClure said. “So any time you have to reduce the budget to account for a mistake or mismanagement, it’s very difficult to find efficiencies … that don’t eventually come down to positions” in terms of salary cuts or layoffs.
The final authority on financial matters is typically the board, McClure said. “There absolutely should be checks and balances,” and final decision-making should not be in the hands of a single person, he said, speaking broadly about the governance of private universities.
When asked about the checks and balances the university has in place to manage the endowment and other funds, Franks said the board of trustees has a committee focused on finance with three subordinate subcommittees.
“These committees meet regularly,” she said. “So they are very, very involved.”
The university does not provide much information about the board’s role or practices on its website. Jones said in an email that the board monitors the university’s finances, protects its fiscal health and “fosters an environment where decisions are made in the best interests of the institution, consistent with its mission.”
Averett’s board has met weekly since the financial problems were discovered in the spring, Jones said, with the trustees most involved in governance, financial matters and fundraising working with Franks and interim CFO Gary McCombs on a daily basis.
Of the more than 20 current and former members of the university’s board of trustees whom Cardinal News contacted to ask about their work on the board and their reactions to the school’s financial troubles, only two returned a call or message, and both declined to comment. A current board member said July 12 that the board was preparing a statement on the financial findings but did not know when it would be ready for release.
Despite what Franks described as strict oversight by the board, she said she discovered the financial discrepancies while reviewing quarterly reports during the spring semester. She ultimately blamed the mismanagement on a former finance employee who worked there for several years and left this spring. Jones previously confirmed to Cardinal News that the person had made unauthorized withdrawals from the endowment.
Cardinal News attempted to contact this person by phone, social media and mail to give him or her an opportunity to comment, but did not receive a response. Two organizations where the former Averett employee appears to have served as a consultant did not respond to inquiries.
About 125 of Averett’s more than 200 full-time employees I have been working four days a week since June 2nd.
Along with the faculty and staff pay cuts, which included nine furlough days over the summer or an equivalent reduction in pay, Averett cut the employer contribution to its retirement plan from 6 percent to 4 percent for next year. The university also implemented a hiring freeze.
University faculty and staff were told at a pre-summer workshop that the university was dealing with some “things related to our financial situation,” Franks said, but they were not notified about the summer pay cuts that would affect them until the last week of May, about a week before furlough days began.
Franks herself took a 25% cut in her annual salary to help make up for the shortfall. The university paid Franks about $322,000 for the fiscal year ending in June 2023, according to the most recent tax records available.
Since we learned of the temporary pay cuts, which were first reported by the Danville Register & BeeCardinal News reached out to more than 25 current and former Averett employees via social media and email to learn about their experiences working for the university. No one was willing to speak for this story.
Franks said she was not aware of any university departures this summer as a direct result of the temporary pay cuts. “Our employees have been wonderful. They have been very, very resilient,” Franks said. She said a variety of approaches were considered before deciding to cut employee pay, but she did not describe what those alternatives might have entailed.
The school said it is making about $6 million in operational adjustments “to align with our revised revenue projections,” Jones said in early July. She and Franks later clarified that that amount is not directly tied to the amount of money that was misspent.
The university is also working with consultants to conduct a broad review of its finances, Franks said. A July 10 staff newsletter noted that “an unnamed funding source” is paying for at least some of that consulting work.
Private colleges and universities are not required to be as transparent about their governance or finances as public institutions.
Averett files a tax return each year, as well as regular financial audits required by federal law. It also discloses a variety of data on enrollment, program completion, and costs of attendance.
But whether a private institution publishes governance policies, board meeting minutes, or even contact information for its board members is largely up to the institution. And that can make it difficult to understand the inner workings of a private college.
Franks said donors have contributed about three-quarters of a million dollars over the course of about 40 days since the problems were discovered. “The donations have really shifted to unrestricted, which is a wonderful way to be supportive,” she said. In the past, donors may have been more likely to restrict their donations to something specific at the university.
“I couldn’t be more grateful,” she said of the school’s donors. “There wasn’t one person who didn’t support me.”
These unrestricted gifts can make a big difference for a school like Averett. “Schools that have smaller endowments don’t really have the leeway to “multi-year financial mismanagement issue,” said Felecia Commodore, associate professor of higher education at the University of Illinois Urbana-Champaign.
The financial resources of a small private university can vary greatly. For the fiscal year ending in June 2023, Averett had an endowment of nearly $25 million. Emory and Henry The college, which will become a university this fall, has a similar enrollment of about 1,300 students in undergraduate and graduate programs. It has an endowment of about $100 million.
Commodore cautioned against the assumption that a financially strapped private university can simply draw on its resources to cover budget gaps.
“Sometimes that doesn’t translate into cash,” she said. A donor’s contribution might be earmarked for a specific purpose, or it might be a multiyear pledge that hasn’t been completed yet, for example.
Schools typically limit how much can be withdrawn from the endowment each year so that these investments can continue to grow. At Averett, the limit is just under 5 percent, which is a typical spending limit for university endowments, according to the American Council on Education, a nonprofit higher education association.
If a school continues to dip into its endowment to cover operating costs or other expenses and fails to increase its endowment at the same rate, “over time you put yourself in a vulnerable space,” Commodore said. A small school can eventually find itself at a disadvantage, especially at a time of fierce competition for students and the tuition revenue that comes with it.
“If you’re going to be an institution that offers greater access” to students through institutional financial aid “or you’re trying to compete nationally, you need a nest egg that you can fall back on,” Commodore said.
Jones said Averett’s financial troubles will not affect university-sponsored financial aid for students in the upcoming fall and spring semesters.
One point of optimism for the university, despite its recent financial challenges, has been its enrollment growth — which in turn boosts its revenue. Franks said Averett is expecting about 340 new first-year students this fall, and that retention of students from the fall semester to the spring semester has improved.
In the changing landscape of higher education, where small colleges are trying to attract a shrinking group of beginning studentsStrong enrollment and financial strategies must go hand in hand, Commodore said.