A new audit of UMass Boston’s finances paints the first detailed picture of the chaotic budgeting process at the school over the past two years, including multimillion-dollar swings in tuition revenue estimates and rapidly shifting reports on the size of the deficit.
The audit, sent to university trustees Thursday afternoon, points to faulty record-keeping, a lack of discipline, and a poor understanding among University of Massachusetts Boston officials of how the campus’s major construction projects would affect the day-to-day budget.
In a letter to trustees accompanying the audit, Martin T. Meehan, president of the UMass system, described its findings as “very troubling” — including the UMass Boston’s tendency to use its budget as a “guideline” rather than an “operational reality.”
For years. UMass officials have been concerned about the fiscal health of the Boston campus, but the audit was commissioned this year by Meehan after a specific incident raised more urgent questions among trustees.
In September 2016, Boston campus officials told the trustees they would end the year with a $2.3 million surplus. Just two months later, they revised that to a $30 million deficit. Two months after that, they changed the projection again, to a $20 million deficit. Then, a month later, they said there would be no deficit at all.
Auditors pointed to these “large unusual movements” as evidence of poor management.
“The movement of the projected deficit again indicates the failure of senior UMass Boston campus leadership to develop and report a credible budget against which actual results could be compared,” auditors wrote.
When the auditors asked campus officials for documentation to explain the fluctuations, the school could not provide any, the audit said.
UMass Boston’s interim chancellor, Barry Mills, sent an e-mail to the campus on Thursday to address the audit. He said he believes the school’s rapid growth, the cost of construction projects related to the campus’s crumbling underground garage, and an “inadequate understanding of the budget process” are the main factors that caused the deficit.
His new team is working to balance the budget and manage it more effectively, he said.
“An important difference between this year and last year is that our current efforts will more substantially result in structural change, which means that our budget should be back in balance in the years ahead,” wrote Mills, who was named interim chancellor in July, after longtime chancellor J. Keith Motley stepped down. Mills is expected to stay until next summer, when the school hopes to appoint a permanent replacement. The search committee to find that person plans to meet Friday.
Rob Manning, chairman of the UMass Board of Trustees, expressed faith in Mills’s ability to turn things around. “There is no question the audit results are disturbing, but we have addressed the deficiencies and Barry Mills has done an outstanding job stabilizing the campus,” he said in a text message on Thursday.
The audit, conducted by the firm KPMG, cost about $40,000, according to the UMass central office. The firm was instructed to review the campus’s budgeting processes for fiscal years 2016 and 2017 and to identify the key drivers of the operating deficits.
The audit said many of the problems it identified resulted from systemic failures and a culture that had been built up over several years. That will take time to fix, it said.
“The budget development process has not been well documented, key budget amounts have not been supported, and there appears to have been little accountability for the budget figures and projections,” auditors wrote.
In one important instance, the audit found a lack of documentation to support major fluctuation in the campus’s estimate for how much tuition it would collect. Tuition is the school’s largest revenue stream, but when asked by auditors, the school could not provide records to back up its original tuition revenue estimate nor the subsequent changes.
In fiscal 2016, the school predicted $205 million in September, then reduced the estimate to $189 million in November, then increased it to $200 million in February. The school’s total operating budget is about $430 million.
“Undocumented and unsupported changes to UMass Boston Campus’ largest revenue source are indicative of a failure of management to perform a robust and meaningful budgetary estimation and update process,” auditors wrote.
The report also found that UMass employees did not understand the impact of major construction projects on the day-to-day budget of the campus. Specifically, the auditors raised concerns about the way the school handled interest payments and the way it budgeted depreciation.
In another situation, the school created a special reserve but did not deposit any money into that account, then charged construction costs against it anyway. The school charged $13 million to the “master plan” reserve for construction of University Hall, according to the audit.
UMass Boston officials had a chance to respond to auditors’ findings, and their responses were included in the report. UMass officials do not deny the findings, but tell the auditors they are developing ways to address the concerns, including with a new budgeting system. This year, Mills installed new employees and procedures in the finance office, and the audit said that the campus plans to hire more.
The audit also pointed out numerous additional factors that could have contributed to the deficit. For instance, the university has 37 institutes and centers, the majority of which are supported by outside funding — but some of which rely on the school for as much as 90 percent of their budget.
It also cited spending to recruit new faculty. The school spent $1.7 million in fiscal 2016 on recruitment, the audit said. It also pointed to extra-large bonuses as an expense to be monitored. In fiscal 2016, the audit found, 923 employees received “additional compensation” worth $7.8 million. One employee received more than $30,000 in fiscal 2016 and $23,000 the next year.
The audit also said that UMass should monitor the amount it spends on tuition waivers for graduate students. The school spent $11 million per year on such waivers, which were provided to more than 1,000 students and ranged from a few hundred dollars to $17,000, the report said.
The auditors also studied the way the campus monitored its budget as it became aware of looming trouble. Though the recent deficits are structural in nature, meaning they will reoccur if not addressed, many of the fixes were one-time solutions that did nothing to solve the underlying issues, the audit found.
Auditors also reported that officials used money from one year to pay expenses in a different year, causing confusion and an understatement of the deficit.
“Allowing costs from one year to be charged to the following year’s budgets is not transparent, is not consistent with good financial control or good fiscal policy, and potentially results in the understatement of the budget deficit,” the auditors wrote.