[Goose]

Bookkeeping is pretty hard.  Big businesses have big well paid organizations to make sure it is done well.

10% misses happen all of the time.  This doesn't indicate fraud at all.

The miss here seems to be in the cash forecast.  It is much easier to miss a cash forecast than a budget.  Lots of things make cash move up and down that will work themselves out in future months.  Even experienced business people often don't focus enough on cash until the miss becomes really big.

True, but the "timing" of the transfer of assets (cash) from the UAGC where it would count in the "end of year" cash and later transferring the accompanying liabilities  is troubling. At the very least this should have been noted within the financial planning department and taken into consideration in the forecast. Apparently it was not.

Blaming the auditors for a miss in the cash forecast is bizarre.  Auditors look at the historical financial statements.  They don't look at cash flow forecasts at all.  They confirm that the cash on the balance sheet was actually true on the date of the balance sheet.  But there is no indication here that the financial statements were wrong.  This doesn't seem to be an auditor issue at all.

Of course the CFO is responsible for cash forecasting and rightly was fired.  Not sure who else in the department should be fired but this wasn't a one person issue.

The fact the "model" wasn't using the latest "actuals" is also very bizarre. It might make sense if the to date financials were hard to get at, but they weren't. Why this was being done would make an interesting study. It wouldn't surprise me at all if the CFO and essentially everybody else in the department had no idea how the model actually worked. It was a "black box" to them until it wandered off into fantasy land. 

Finally, part of the problem here is the leaders of these universities.  The President of UofA is a doctor.  He has lots of training in being a doctor.  He has no MBA or any training in managing an organization of any size.  I am not sure he has ever taken even a basic introduction to accounting course much less has the type of experience to manage a multi-billion dollar budget. A person with this type of background is going to be completely reliant on the CFO and will have almost no ability to detect an issue before it becomes a real problem.

Well, he may have not had formal training in accounting but he was CEO of the Texas Medical Center (TMC) in Houston for 5 years. That is a 100m+ revenue operation. I would expect he learned a bit doing that. Like him or hate him, RR is extremely competent. One of his main problems is that the creation of UAGC has been much more expensive and returned less revenue than planned. The operating expenses have also been higher, partly due to legal issues. This action was done despite the bitter opposition of much of the faculty. It was largely RR's "baby". It may turn out that in 10 years it looks like a genius move, but right now it isn't looking that way. RR had all kinds of reasons not to push the CFO too hard in reporting financial problems, especially if he believed they were "transient" in nature. To what extent that had an effect it unknown. It is clear there were revenue expectations from "somewhere" that never showed up. I do expect the CFO wasn't good in the "truth to power" framework, especially in so far as departments were actually operating at a deficit while still filing "balanced" budget paperwork every year. How was that done?

One thing that is mostly being missed in the statements by upper management is that all the financial activities going forward will be removed from the departments and transferred to the central administration, obviously to prevent a repeat of this mess. In the midst of said mess, RR is getting more direct control over spending. I smell a burning Riechstag building :-).

Bringing it back to sports, I am told that in response to concerns about Fisch leaving a committee was established by "boosters" to compensate him with money that was outside of the AD and University budget (public visibility) and control. Sort of an NIL for the coach.  I don't know where this ended up. Now that the Duke vacancy is filled, it may not be necessary :-).

As we look for our next President we should think carefully about what background we are looking for....

Agree. However, FWIW I seriously doubt the new president will be all that strong in accounting :-). RR is an example of an "entrepreneurial" presidency that is trying to do too much with too little (IMO). He may pull it off. I hope the next Stanford president is more concerned with educating students and less concerned about expanding "the business". BC's recent post about the report on Auburn is IMO very relevant here.

[Goose]

Bookkeeping is pretty hard.  Big businesses have big well paid organizations to make sure it is done well.

10% misses happen all of the time.  This doesn't indicate fraud at all.

The miss here seems to be in the cash forecast.  It is much easier to miss a cash forecast than a budget.  Lots of things make cash move up and down that will work themselves out in future months.  Even experienced business people often don't focus enough on cash until the miss becomes really big.

True, but the "timing" of the transfer of assets (cash) from the UAGC where it would count in the "end of year" cash and later transferring the accompanying liabilities  is troubling. At the very least this should have been noted within the financial planning department and taken into consideration in the forecast. Apparently it was not.

Blaming the auditors for a miss in the cash forecast is bizarre.  Auditors look at the historical financial statements.  They don't look at cash flow forecasts at all.  They confirm that the cash on the balance sheet was actually true on the date of the balance sheet.  But there is no indication here that the financial statements were wrong.  This doesn't seem to be an auditor issue at all.

Of course the CFO is responsible for cash forecasting and rightly was fired.  Not sure who else in the department should be fired but this wasn't a one person issue.

The fact the "model" wasn't using the latest "actuals" is also very bizarre. It might make sense if the to date financials were hard to get at, but they weren't. Why this was being done would make an interesting study. It wouldn't surprise me at all if the CFO and essentially everybody else in the department had no idea how the model actually worked. It was a "black box" to them until it wandered off into fantasy land. 

Finally, part of the problem here is the leaders of these universities.  The President of UofA is a doctor.  He has lots of training in being a doctor.  He has no MBA or any training in managing an organization of any size.  I am not sure he has ever taken even a basic introduction to accounting course much less has the type of experience to manage a multi-billion dollar budget. A person with this type of background is going to be completely reliant on the CFO and will have almost no ability to detect an issue before it becomes a real problem.

Well, he may have not had formal training in accounting but he was CEO of the Texas Medical Center (TMC) in Houston for 5 years. That is a 100m+ revenue operation. I would expect he learned a bit doing that. Like him or hate him, RR is extremely competent. One of his main problems is that the creation of UAGC has been much more expensive and returned less revenue than planned. The operating expenses have also been higher, partly due to legal issues. This action was done despite the bitter opposition of much of the faculty. It was largely RR's "baby". It may turn out that in 10 years it looks like a genius move, but right now it isn't looking that way. RR had all kinds of reasons not to push the CFO too hard in reporting financial problems, especially if he believed they were "transient" in nature. To what extent that had an effect it unknown. It is clear there were revenue expectations from "somewhere" that never showed up. I do expect the CFO wasn't good in the "truth to power" framework, especially in so far as departments were actually operating at a deficit while still filing "balanced" budget paperwork every year. How was that done?

One thing that is mostly being missed in the statements by upper management is that all the financial activities going forward will be removed from the departments and transferred to the central administration, obviously to prevent a repeat of this mess. In the midst of said mess, RR is getting more direct control over spending. I smell a burning Riechstag building :-).

Bringing it back to sports, I am told that in response to concerns about Fisch leaving a committee was established by "boosters" to compensate him with money that was outside of the AD and University budget (public visibility) and control. Sort of an NIL for the coach.  I don't know where this ended up. Now that the Duke vacancy is filled, it may not be necessary :-).

As we look for our next President we should think carefully about what background we are looking for....

Agree. However, FWIW I seriously doubt the new president will be all that strong in accounting :-). RR is an example of an "entrepreneurial" presidency that is trying to do too much with too little (IMO). He may pull it off. I hope the next Stanford president is more concerned with educating students and less concerned about expanding "the business". BC's recent post about the report on Auburn is IMO very relevant here.