BY WATCHING ADAMS STAFF – 5/9/16

A recent 2014-2015 financial compliance audit of Adams State University (ASU) has triggered a broader performance audit by the Colorado Office of the State Auditor. After the accounting firm Wall, Smith, & Bateman (WSB) concluded that the university has suffered four years of consecutive operating losses, the State Auditor has now issued a request for proposals (RFP) to more fully review the performance of ASU.

The WSB financial compliance audit is available online here. Though it was completed in November 2015, it has not been widely known to most ASU students and employees until recently. Among the significant findings of this audit [emphasis added]:

p. 5: “The University has experienced a growing trend of operating losses before other revenues, expenses, gains, losses or transfers as of June 30, 2015 and the previous three years.”

p. 6: “We determined that the University’s results of operations have declined from Fiscal Year 2011 to Fiscal Year 2015…. Adams State University has not been able to significantly increase enrollment and has experienced expenses that have increased at a faster pace than the revenue increases.”

P. 6: “The decline in Federal Pell grant funding at the University is a result of a change in the criteria for eligibility which caused many students to not be eligible for the Pell grants. As a result, enrollment has been negatively affected which adversely affects the total revenue of the University.”

p. 6-7: “The University has experienced over $47 million of capital construction projects since 2011. Related to the capital construction, there have been significant increases in depreciation, interest and operation of plant expenses. The combination of declining revenue and increasing expenses has caused a negative trend in the University’s financial condition.“

p. 7: “Why does this problem matter? If the trend is not reversed, the University’s financial condition will deteriorate and jeopardize the operations of the University.”

p. 7: “Adams State University should continue to consider strategies for attracting and retaining students to improve enrollment and also reevaluate the tuition and pricing policies. In addition, the University should also search for efficiencies in its operations to minimize future losses.”

To this point, Adams State University responded: “Agree. Adams State University is aggressively implementing new strategies to attract and retain students. Beginning fall 2016, undergraduate students will be given a guaranteed tuition rate for four years. This will allow our students and their families to better plan for their education. It will also encourage persistence and completion.”

Unfortunately, guaranteed tuition policies have not demonstrated any significant success in attracting or retaining students. As a result of these policies, many universities have had their credit downgraded, including ASU in January 2016, and many others have abandoned guaranteed tuition policies when they create further financial insolvency. For more on this, see Other Universities Abandoned Guaranteed Tuition – Here’s Why.

The WSB audit continues:

p. 12: [from 2015] “An operating deficit of $13.2 million is the result of the University’s dependence on Federal Pell Grants, gifts and donations and other non-operating revenue.” [from 2014] “An operating deficit of $10.5 million is the result of the University’s dependence on Federal Pell Grants, gifts and donations and other non-operating revenue.”

p. 14: “Bonds payable of $70.1 million represent over 57% of the University’s total non-current liabilities.”

p. 17: “At June 30, 2015, the University had approximately $73.0 million in debt outstanding compared to $71.9 million at June 30, 2014 and $73.1 million at June 30, 2013.”

On p. 22, from 2014 to 2015, there was a drop of over a half a million dollars in Scholarships and fellowships. The 2014 amount was $831,691 and the 2015 amount was $254,183, a difference of $577,508 or 70%. One source familiar with ASU financial aid explained that these funds have been shifted away from scholarships and transferred to work study. This has also resulted in increased difficulty for ASU Athletics recruiters to attract students to ASU. For more on this, see ASU Athletics Struggles to Recruit with Fewer Scholarships.

Based on these findings, the State Auditor made several initial remarks in their decision to commission a performance audit of ASU as well as Western State Colorado University. They explain the nature of their decision by stating:

“The impetus for conducting this performance audit is the growing trend of operating losses that Adams and Western have experienced over the last five fiscal years. The OSA contracts for the universities’ annual financial statement audits, and based on the information in these annual audits, the State Auditor would like to use this performance audit to explore the factors driving these financial trends and, more importantly, what each university is doing in response.”

The State Auditor continues on p. 4:

“In particular, when the state appropriation for capital construction projects is removed, Adams went from an increase in net position of approximately $700,000 in Fiscal Year 2011 to a decrease in net position of approximately $7.0 million in Fiscal Year 2015, a 1,115 percent change increasing the loss.“

Watching Adams will continue to follow this story as the firm selected by the State Auditor conducts a performance audit of Adams State University.