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10. Investments of trust funds in real estate, due in some cases to the fact that they were received in that form from donors, are found in 7 institutions, the proportions being generally small. The percentage in 2 colleges was between 30 and 40, in 1 between 20 and 30, and in 4 less than 10. Trust funds in nine cases have been invested in other revenue-producing sources, such as certificates of deposit, cash bank deposits, tax certificates, and call loans. One institution has placed 85.1 per cent in this class of investment and 2 others between 20 and 21 per cent, while the proportions of the 6 others vary from 16.4 down to 1 per cent.
Notwithstanding the increase in the number of donations and private gifts made to the land-grant colleges from private sources for current expenses, capital outlays, trust funds, and permanent endowments, few of the land-grant colleges have formulated wellorganized plans for their encouragement. Six colleges report that regular campaigns are conducted among their alumni to secure gifts while three others concentrate their efforts on prominent and leading citizens. Two institutions devote their energies to securing gifts from organizations.
Rotary or Revolving Funds The financial and business operation of certain self-supporting enterprises is greatly facilitated by means of rotary or revolving funds. The cash income of such enterprises should be sufficient to defray the expense of maintenance and operation. In the event of a net profit accruing, the surplus should either be used to extend the plant and improve the service or be turned into the institutional funds as a resource in the annual budget. The different types of enterprises conducted through rotary or revolving funds are residence and dining halls, intercollegiate athletics, hospitals and infirmaries, book stores, laundries, printing shops, and similar services, which are discussed in detail in another part of the report.
Of the 44 colleges submitting reports, rotary or revolving funds are operated in 30. Fourteen institutions report that none is conducted. The establishment of rotary or revolving funds has been authorized by the State legislature in the case of 8 institutions and by action of the governing bodies in 22. General supervision and control over them should be vested in the chief business officer. This practice is followed in 18 cases. The governing board, however, exercises direct administrative supervision in one college and the president in five. Six colleges did not report on the officer controlling rotary or revolving funds.
If this type of enterprises is to be operated, it is important that the handling of business and financial details should not be segregated from the regular institutional organization. Collections, purchasing, payment of bills, and accounting should be handled through the regular channels. Receipts should be deposited in the institutional treasury. It is found that the funds are managed on this basis in most of the colleges, although in eight cases the receipts are deposited with the State treasurer and in two others with a local bank.
Chapter IV.-Business Management, Financial Methods,
and Accounting Systems
During the past 15 years business management in higher education has made rapid progress. Educational programs are generally expressed in a financial way in an annual internal budget; the economies and financial control of centralized purchasing are becoming generally realized; and accounting records of assets, liabilities, income, and expenditures are being devised and installed. These instruments of management are not only present in form in many of the land-grant institutions but they are used to further the educational program.
The budget plan, the plan of centralized purchasing, and the system of accounting have been developed, however, not so much "according to the needs of the particular institution” as according to the views of the particular individual or individuals responsible for them. There may not exist one best way, but the present diversity of practice in these fields can not be defended on the basis of particular institutional needs or on the basis of the best methods. Whether they can or not, the fact remains that the many different accounting methods, systems, accounts, and reports make an intelligent comparison of the activities of the several institutions a practical impossibility. Comparative statistical data of teaching costs, for example, compiled from the present accounts of these institutions would be without significance and even harmful in the hands of individuals ignorant of the dissimilarity of practice.
It is for the reason cited that this report will be confined largely to a discussion of the better practices in business organization and methods revealed by the survey. This discussion will cover the preparation and administration of the annual internal budget, the accounting system in all its phases, the necessity of audits both external and internal, the requirements of a good financial report, and the advantages of centralized purchasing, of a central employment bureau, and of controlling property by annual inventories.
Annual Budget The annual institutional budget has as its objective a distribution of available funds designed to further in an equitable and orderly manner the educational program of the year. Its preparation requires an examination of past expenditures, revision in the light of the program for the new year, and usually some redistribution between departments to conform with the relative tasks to be performed by them. A proper administration of the budget which has as its basic principle that no obligations may be incurred against institutional funds without prior administrative authority renders unlikely the closing of the year with a deficit. Too many budgets are painstakingly prepared, only to be forgotten soon after the beginning of the year. A budget prepared but not carefully followed might almost as well have not been prepared.
If satisfactory results are to be expected the budget must include all activities the funds of which are handled through institutional channels. In other words, it is not sufficient to budget merely the academic activities or that part which is paid from State or Federal funds. All funds, including service enterprises and trust funds,. should appear in the financial program. The governing board and the institutional administration should have a comprehensive program for every phase of activity to be undertaken. Much valuable time must be devoted to the preparation of the budget, but time thus spent is well utilized if the work is thoroughly done.
The budget should be divided according to the major divisions of the institution. These are commonly administration, library, instruction and research, physical plant, service enterprises, and trust funds. The budget should further follow the organization lines of the institution. Administration should be divided by the budget into its several offices and departments; instruction and research should be divided into the several colleges and the colleges into departments; and the physical plant should be divided into administration, maintenance of buildings, maintenance of grounds, heating-plant operation, telephone service, watchman service and other major activities. Some institutions even budget maintenance of buildings by the separate buildings. The several trust funds should be separately shown and the service enterprises should be individually listed.
It thus appears that, although the budget may summarize by colleges and major divisions, the budget unit is the department, office, trust fund, enterprise, and the like. The next question is what detail should appear for each department or office. More than half, usually about 60 per cent, of the expenditures for higher education goes for salaries, regular and temporary. Salaries, therefore, should be given prominent position. It is customary to list under each department the individual positions and such information relative to each as name of incumbent, length and class of appointment, perquisites, and vacation, if any, and the total salary distributed to the several funds if more than one. Temporary assistance is usually allotted in lump sum, there being separate allotments for research, instructional, clerical, or service staff temporary help. Funds allotted the departments for supplies and expense may be in lump sum or subdivided and may be combined with those for equipment depending on the size of the funds allotted. Items of expense or equipment which are unusual and will not be needed for the following year should be so set out that they will not be overlooked when the next budget is prepared. This applies particularly to extraordinary repairs and capital additions in the physical-plant budget.
So far as it is possible to determine all income of instructional and research departments should be estimated and included in the budget. A budget without these departmental sources of income not only is incomplete but fails to specify how such income shall be spent. The budget of a department based on both general funds and its own income should indicate the amount from each source and how it is to be spent. Service enterprises operating on their own income alone should be budgeted and all income expected need not be allotted for expenditure. It may be desirable to build a reserve or start another enterprise of the same general character.
Reports disclose that 40 out of the 42 institutions reporting operate on an internal budget. The institutions which have not adopted a budget system are the Louisiana State University and the Rhode Island State College. Three institutions operate on a biennial instead of an annual budget.
Since the general set-up of a budget indicates somewhat the plan of operation and gives some idea whether the budget system is well divided and well administered, an effort was made to secure from each institution an outline of its budget classifications. While many of the segregations are similar, the reports indicate a wide disparity in the items into which the budget is divided. This is perhaps one reason for the dissimilarity of practices and confusion of methods in land-grant college financial administration.
It was found that of the 40 institutions operating on an internal budget, there are only 27 which use the division or heading of personal service in segregating their expenditures. The remaining universities and colleges have substituted such terms as administration, salaries and wages, general instruction, academic, instructional, and research, which either do not include all expenditures for personal service or comprise, in some instances, items of expense not generally classified as personal service. In the case of the division of operation and maintenance of the physical plant, more uniformity is found, 34 institutions segregating expenditures under this heading in their budgets. The colleges adopting a different classification