While a recent state audit found multiple errors in financial reports of the MTSU Foundation, the report identified mistakes limited to specific transactions but did not outline widespread problems with the university’s accounting practices.
“The university did not ensure that amounts were properly reported in the foundation’s financial statements and accompanying notes,” according to the Division of State Audit for the Comptroller of the Treasury’s report.
The auditors reported, “Our audit of the financial statements of MTSU – including its foundation, which is a discretely presented component unit of the university – discovered numerous reporting errors…of the foundation.”
The audit was performed on the university’s financial reports for the June 30, 2008 – July 1, 2009 fiscal year, and the foundation’s total net assets for that year were $58.5 million.
The state’s findings were based on 12 transactions that were improperly recorded on the foundation’s statement of net assets, cash flows and balance ledgers. The report cited the method by which the university decided to categorize the transactions as the primary cause of the errors.
“It was a strictly technical error,” said Joe Bales, vice president of Development and University Relations, who oversees the MTSU Foundation. “Obviously, we don’t like mistakes, and we’ve never had [an audit] finding in the eight years since I’ve been here.”
Each transaction represents an individual donation account, and those funds gifted to the university are referred to as endowments. More than 8,000 donors contribute to the foundation annually, which often amounts to more than 15,000 transactions a year.
Most donors stipulate how the university must distribute an endowment, often times through a specific scholarship fund. If a donation agreement is not attached to the account, the foundation is authorized to distribute those funds through a quasi-endowment that benefits the university as it sees fit, Bales said.
Depending on the source of the funds, quasi-endowments are classified as either temporarily restricted or unrestricted net assets, according to the state’s audit report. The state auditor found that the foundation’s accountant misclassified the transactions, which resulted in the misstated financial reports.
“It was a categorization error on funds that we invest, [which] were put in as permanently restricted funds,” Bales said. “But [the auditors] said those were a temporarily restricted fund.”
According to the audit report, the foundation overstated $754,596 of nonexpendable net assets, restricted expendable net assets were understated by $654,814 and unrestricted net assets were understated by $99,782.
“The finding in the report was that the $750,000 was classified as one type of asset, and the auditors felt like it should be classified into two separate categories,” Bales said. “So the auditors said we overstated a particular class of assets by $750,000, but that we understated the other accounts for the exact same amount.”
Bales said that although the various types of assets were misstated on the ledgers, the errors did not affect the total balance sheet, and the mistakes equaled to a “zero sum total.”
He said the foundation corrected the mistakes three months ago when the auditors finalized their report, long before the final report was released to the public.
“We concurred with the state’s findings and immediately took action to rectify the situation,” Bales said.