Q. 1. Compare and contrast two budget philosophies in higher education. How are these philosophies able to reach the same financial planning goals of a campus? How should the institution's budget philosophy align to the institutional mission?
A. There are two common approach in higher education budgeting, the Incremental Budgeting and the Responsibility Center Budgeting. To compare the two, the university revenues in IB approach is being deposited in the university's general fund and the central authorities will be the one to do the allocations and determine how much budget each individual group will get. On the other hand, RCM approach directs the fund straight to each unit department instead of pooling them in a central pool. Part of the unit department's earnings will be taxed to cover the overhead cost of the entire university. When it comes to strategic planning, RCM requires the deans and other decision makers to integrate fiscal issues into their strategic planning directly. While IB generally focuses on the broad stated goals and new projects have to seek extra resources in order obtain funding (Budget Review Committee of Kent State University, 2007). Meaning, IB is focusing on the general terms of the goal rather than specifically determining its target, which makes it less effective as compared to RCM that considers the fiscal issues of their goals. RCM is better than IB in such a way that RCM is more comprehensive in setting the university's needed strategies instead of looking at it on a broader spectrum. IB approach university budget issues in a generalized manner, making it less effective in foreseeing possible issues that may arise once the planned strategies are in place. The university budget philosophy should be aligned with the institution's mission in such a way that financial resources, university priorities and allocated decisions are promoting fiscal accountability and responsibility. The budget philosophies should also put a premium on long-term accomplishments and program quality instead of focusing on short-term financial gains.
Q. 2. What should be the relationship between institutional planning and budget management? Which campus departments should be involved in both institutional planning and budget management? Justify your response with information from the readings and research.
A. Institutional planning and budget management is important to work hand in hand because it would reflect the way the institution work on the crucial areas of responsibility in relation to the institution's mission. Budget programme structure is an example of a relationship between institutional planning and budget management. It provides the key elements between the objectives of the institution and the details of the operational budgets (National Treasury, 2010, p. 3. In this relationship example, a stable framework is being provided to link strategic priorities and successive plans made by the institution. It correlates to the performance indicators and budget allocations, which tracks the delivery from medium to long-term. Once the budget programme structures are determined, the majority of the institution's operational strategy remains the same from the current year to the next or even from a long-term plan cycle to another. Meaning, even if one program is being funded, but not on the list of the institution's priorities they are still necessary. Budget structures should not also be changed just to reflect the goals and objectives of the institution particularly if the change is temporary. When it comes to institutional planning and budget management, the usual campus department that is responsible for the task is the Office of Planning and Budget. It is the principal arm of most universities in terms of financial and institutional planning, fiscal administration and policy analysis. Their capacity is mainly assisting the institution decision makers when it comes to determining priorities and strategy development. Their responsibility also includes management of long-range planning for the institutions overall budget on a daily basis. OPB's role in general is to oversee planning in relation to budget (planning.ucsc.edu, n.d., Web).
Q. 3. In many nations, private interest groups support higher education through financial underwriting of projects, endowed chairs in academic departments, and special programs. A quid pro quo is expected for the contribution. In some cultures, quid pro quo is the normal way of doing business. In the United States, this process may be regarded as bribery. How might you reconcile the dilemma when you are establishing a new program in a nation where quid pro quo is pro forma?
A. The term quid pro quo is defined as a reciprocal mutual consideration where something was given in exchange for something of an equal value. For example, when a party has given a concession to another party in return for something of an equally valuable concession (Businessdictionary.com, n.d., Web). It is common in many organizations whether private or public around the world. However, in the United States it is considered a form of bribery and generally not accepted. In an academic environment such as universities, having an interest group to fund a particular program for the institution is a good source of contribution that would allow the institution to save their financial resources for other purposes. Since quid pro quo poses a dilemma of tolerating bribery, it is quite difficult to establish a program that constitutes an element of quid pro quo relationship. However, this dilemma can be reconciled by requiring donors to fill in a disclosure statement stating that the donor's amount of contribution to the program is only limited to the excess amount of money contributed over the fair market value of articles provided by the program (Nonprofitexpert.com, n.d., Web). Meaning, if a concert for a cause were initiated by the university for student scholarship program the donor can contribute $100 and gets a ticket for the concert with a value of $40. Therefore, the donor's contribution is $60, Even if the deductible is not more than $75, the donor would still need to sign a disclosure agreement because the overall value of the contribution is more than $75. Disclosure agreement is the only way to ensure that the donor understands the value of his contribution over the market value of the goods received from the program. It provides the donor a good faith of estimate from what he received in exchange for his contribution. If the university failed to follow the disclosure statement rule, chances are the university will be penalized for the violation of Revenue Procedures 90-12 and 92-49 under IRS Publication 561 (Nonprofitexpert.com, n.d., Web and Irs.gov., 2006, Web). Furthermore, any donations and gifts that have quid pro quo characteristics should be directed to the policy committee of the institution. The grants should be awarded in the name of the university and if possible diverted into the university's foundation program for processing (Peccei, 2005).
Q.4. The regional accreditation association has cited a campus's library deficit in the most recent accreditation report. A new building is needed with expansion of storage, technological facilities, software, collections, terminals, ADA compliance, and sufficient research capacity to meet academic program offerings. A local donor has offered to contribute 75% of the cost of a new facility; however, there are contingencies. The library must be named for the donor, the architectural firm of the donor's son-in-law must be used to design the facility, and the donor wants to visit the construction site each week to evaluate progress. What are the academic, financial, legal, and ethical issues in this scenario? What would you do to rectify the dilemma?
A. The scenario demonstrate characteristics of a quid pro quo contract wherein the donor is proposing a contingency in exchange for his generous donation. As discussed in the previous question, quid pro quo donations should follow specific requirements in order to constitute legal merits. The nature of the donation being proposed falls under the naming endowment category. There is a disclosure statement needed to facilitate the donation in pursuant to IRS Publication 561 in which a donation such as a building in this case is classified under the rules of real estate valuation. It is subject for appraisal to determine the tax deductions that the donor is entitled in relation to the fair market value of the contribution versus the fair market value of the library building to be constructed. This non-cash gift proposal must be submitted to the university foundation for approval and forwarded to the University president for review and final approval. The naming process on the other hand will depend on the institution's policies on naming endowment, but the selection of the contractor can be decided based on the agreement between the university and the donor. Since the local donor is shouldering 75% of the construction cost, he will qualify for the naming endowment provided he follows the IRS regulations and filled out the right forms. A library building is classified as an in-kind donation since the donor himself will oversee the construction instead of awarding the funds to the university foundation. An in-kind gift is subject to complete the Asset Transmittal Form and Gift-In-Kind information form. A receipt will be sent to the donor and his family to acknowledge the donation. Donations exceeding $5,000 needs to have an IRS form 8283 in order for the donor to qualify for charitable contribution income tax deductions. The donor will then submit the completed form back to the foundation controller to obtain acknowledgement signature. The IRS regulations clearly state that only the individual authorized to sign the Foundation tax would be the same person that will accomplish Form 8283 (University of Florida Foundation, 2003, p. 3.3). In terms of naming the building after the donor, certain regulations also applies. The donor must have contributed major financial aid to the university and in this case shouldering 75% of the building cost. However, the amount of required contribution will be set by the president of university on a case to case basis (Maciel of Texas A&M University - Central Texas, 2010, p. 1). The key term is that the donation should have a significant value from which the university will benefit from in order for the donor to obtain named endowment for his contribution. However, it is important that the donor does is not currently employed or associated to any of the university's departmental functions (Wittenmyer, 2012, p. 1). Ethical issues may arise if in case the donor has a direct affiliation to the university, thus forfeiting the rights for naming endowment. In terms of monitoring the progress of the construction of the building, the donor reserves the right to oversee the progress of his contribution and does not have any legal implications other than the rules set by the university itself. Academically, the contribution has a significant impact to the university because as stated in the scenario, there was a library deficit as stated in the regional accreditation association report. The fact that there is a need for expansion of storage, technological facilities, software, collections, terminals, ADA compliance, and sufficient research capacity. Therefore, the donor's contribution initiative to meet academic program offerings of the university is timely and financially favorable to the institution.
Q.5. State two best practices in budgeting that you have found in Higher Education Budgeting.
A. Higher education budget management is mandated and the budget itself is needed to sustain the continuous implementation of significant program offerings that secure's quality of learning. There are two best practices in higher education budgeting namely salary and headcount planning and endowment modelling. Endowment modelling can be applied to both principal and for income. The basic rule in this approach is that income supporting operations should flow from the principal values, allowing the "what-if" scenarios, assume market return, changes in growth, payout, etc. Furthermore, the endowment modelling practices enables the university to separate the restricted and unrestricted areas of the budgeting process. The headcount and position salary budgeting on the other hand is another useful best practices in higher education budgeting. This is because it allows detail-level budgeting of the workforce, allow complex cross charging of position across multiple cost centers (Harker, 2011).
Q.6. What purpose should higher education serve in the 21st century given the current worldwide economic situation? What financial policies might be enacted in developed and developing nations to meet social and economic needs in the 21st century?
A. Higher education has always been the epitome of higher learning that enables the society to prosper and explore knowledge that drives progress. However, the changing world, evolving technologies and overwhelming economic ups and downs have influence higher education and significantly changed its purpose over time. Knowledge is considered the driving for of the 21st century economy, industries are leveraging on people's skills. Therefore, higher education will serve its purpose as the workforce factory that hones its learners toward skills development that are essential to economic sustainability. College degrees has always been a necessity for most careers. As population grows so will the need for adequate workforce that will respond to the growing demand for skilled individuals in high performance workplace (Duderstadt, 2002, p. 4). Degree holders are the prime commodities for growing economy, in order for a country to compete in the global economic arena, they need highly qualified individuals that will deliver world class services and globally competitive products. In order for developed and developing countries to meet social and economic needs of the 21st century, financial policies should be enacted to address the need. Policies such as corporate social responsibility should be enacted strongly as grounds for legislators to produce effective financial policies. Corporate social responsibility is defined as legal, economic and ethical expectations that society has of organizations in general (Cengage, 2006, Web). Having companies to follow corporate social responsibility means addressing the social problems created by the rise of the modern corporations. Furthermore, the concept constitutes philanthropic, ethical and moral responsibilities that will encourage investors to earn fairly and comply with the law (Cengage, 2006, Web).
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