ABSTRACT

A PROGRAM FOR IMPROVEMENT OF INFORMATION SYSTEMS AT
SMALL. PRIVATE. PREDOMINANTLY NEGRO COLLEGES

by Paul Allan Pacter

An information system is the network of flows of
information from preparer to user. When contrasted with
their development for business enterprises, research into
the design of effective information systems for academic
institutions has been neglected. Smaller private institu-
tions, facing unique problems, lack of coordinating effort
by supporting bodies, and limited resources, have generally
lagged behind their larger sister institutions in adoption
of integrated management information systems.

The small, private, predominantly Negro colleges
have provided higher education to the majority of Negro
young pe0p1e in the past and will continue to do so for the
foreseeable future. The quality of the service they render
depends, in part, on the quality of the information provided
to their decision-makers. It therefore follows that these
(and all similar) institutions should be assisted in the

development of effective management information systems.

Paul Allan Pacter

To that end this study examined the decision-making
process at institutions of higher education, identifying
decision centers according to hierarchial authority. The
kinds of decisions made at each of these college decision
centers were inventoried, examined, and found to be primar-
ily of a managerial nature. Yet the present information
systems at the 44 surveyed small Negro colleges, patterned
after accrediting association requirements, are oriented to
external stewardship reporting and only incidentally to man-
agerial reporting.

The requirements of the regional accrediting associ-

ation and of College and University Business Administration1

 

were found to be directed toward financial reporting, and
permissive of much freedom in selection of alternative
accounting techniques. As a result compliance by the pri-
vate predominantly Negro colleges with these requirements
has not achieved the stated goals of uniformity and compara-
bility. More important, compliance with accrediting agency
standards has often been viewed as an end in itself, with
the resulting college information systems inadequately
informing decision-makers for their managerial decisions.

Criteria of usefulness, objectivity, and feasibility

 

 

 

(following Sprouse) were established for the inclusion of

 

1The guide to accounting principles for academic
institutions.

Paul Allan Pacter

measurable or knowable properties in a college information
system. Determination of feasibility involves a measurement
of the value of an item of information which, with present
capabilities for measuring college outputs, has not been
successfully accomplished. Rather than to abandon consider-
ation of feasibility, compliance with regional accrediting

agency standards, with College and University Business Admin-

 

istration, and with the recommendations of the 1966 publica-
tion, Financial Analysis of Current Operations of Colleges
and Universities, was assumed to be feasible. Given this
assumption, the characteristics of data to be processed by

a college information system were examined and were found
to be similar with the capabilities of automation at the
punched card, unit record equipment level.

This study presents detailed statistics concerning
present information gathering and processing practices at
the 44 small, private, predominantly Negro colleges partic-
ipating in the survey. The degree of generalizability of
the findings and recommendations of this study to a Specific
college, of course, depends on the degree of similarity of

that particular institution to those which were surveyed.

A PROGRAM FOR IMPROVEMENT OF INFORMATION SYSTEMS AT

SMALL, PRIVATE, PREDOMINANTLY NEGRO COLLEGES

BY

Paul Allan Pacter

A THESIS

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Accounting and Financial Administration

1967

6+94¢o

’3~W«é$

PREFACE

During the summer of 1965, I spent over three months
working with the registrar and business manager of a small
(500 students) private (Methodist—supported and —operated)
predOminantly Negro college in Mississippi. My objective
for the summer was to assist the college administration in
the utilization of a punched card, unit record information
system for itsinternal record keeping needs.

During that summer I had the opportunity to visit
several other Negro colleges. I observed that the record
keeping practices at these particular schools did not appear
to provide the kinds of information with which college admin-
istrators could make the best possible informed decisions.

Such a cursory examination, of course, could do no
more than indicate a possible area for further research. As
was to become evident to me later, in fact, the entire area
of college management information systems has been the sub—
ject of only a negligible amount of study, and the majority
of what has been done concerns itself with external finan—
cial reporting.

With the encouragement of the Vice-President of a
similar college in Florida, and the assistance of several

administrative departments at Michigan State University, I

ii

initiated a proposal for research to the Division of Higher
Education Research of the United States Office of Education,
Department of Health, Education, and.Welfare.

The pr0posed research had two general objectives:
first, to determine if shortcomings in the business and
academic records systems of the small private Negro colleges
did, in fact, exist; and, second, if such shortcomings did
exist, to deve10p profiles of the specific shortcomings, to
identify their causes, and to project the consequences of
alternative tactics to achieve improvements, in such a way
as to develop a theory about academic records management
which could be generalized to all academic institutions.

Tentative notification of approval of the project
came in July, 1966. The exact terms of the contract between
the United States Office of Education and Michigan State
University were negotiated in September, 1966, with the
official commencement of the project on September 15, 1966.

The research reported herein was performed pursuant
to this contract. Contractors undertaking such projects
under Government sponsorship are encouraged to express freely
their professional judgment in the conduct of the project.
Points of view or Opinions stated do not, therefore, neces-
sarily represent official Office of Education position or

policy.

iii

ACKNOWLEDGMENTS

Michigan State University, and eSpecially its Depart-
ment of Accounting and Financial Administration, have pro-
vided me with three rewarding and enlightening years of
graduate education, an eXperience which I would not hesitate
for an instant to recommend to qualified individuals with
aSpirations toward teaching or research careers in accoun-
tancy. Dr. James Don Edwards, Chairman of the Department,
has given of himself far more than I had any right to eXpect.

The members of my dissertation committee, Dr. Wilbur
Brookover, Dr. Stuart Mead, and Dr. Gardner Jones (Chairman),
have guided my thesis research in a spirit of professional
co-partnership that belies our professor-student relation-
ship.

The financial support provided me by the Department
of Accounting and Financial Administration, the Earhart
Foundation, and the Bureau of Research of the U.S. Office of
Education has enabled me to concentrate on learning rather
than earning.

To these individuals and groups, to my family, to my
mentors, and to my fellow graduate students in accounting, I

acknowledge a debt which will never be fully repaid.

iv

TABLE OF CONTENTS

Page
PREFACE . . . . . . . . . . . . . . . . . . . . . . . ii
Chapter
I. INTRODUCTION . . . . . . . . . . . . . . . . l
1.1 Background of College Management . . . . 1
1.2 Background of College Information
Systems . . . . . . . . . . . . . . . 5
1.3 Background of the Predominantly Negro
Colleges . . . . . . . . . . . . . . . 6
1.4 Objectives of This Study . . . . . . . . 10
1.5 Need for This Study . . . ... . . . . . 10
1.6 Organization of the Study . . . . . . . 11
1.7 Limitations of This Study . . . . . . 12
1.8 Procedural and Notational Conventions . 13
II. PRESENT INFORMATION STANDARDS FOR COLLEGES—-
A CRITICAL DISCUSSION . . . . . . . . . . . . 14
2.1 History to 1952 . . . . . . . . . . . . 14
2.2 "College and University Business
Administration“. . . . . . . . . . . . 18
2.3 The Regional Accrediting Agency . . . . 22
2.4 The Roles of Federal Government
Agencies . . . . . . . . . . . . 26
2.5 The Role of the Accounting Profession . 27
2.6 Recapitulation . . . . . . . . . . . . . 29
III. DECISION-MAKING WITHIN A COLLEGE
ENVIRONMENT . . . . . . . . . . . . . . . . . 46
3.1 General Decision Concepts . . . . . . . 46
3.2 General Information Concepts . . . . . . 48
3.3 The College Environment . . . . . . . . 51
3.4 Classifications of College Information . 54
3.5 The Place of Accounting Information
Within the System . . . . . . . . . . 55
3.6 College Organization . . . . . . . . . . 59

Chapter

IV.

Page
3.7 Decision Centers Within a College . . . 63
3.7.1 Policy-Making Decision Centers . 63
3.7.2 Tactical Decision Centers . . . . 65
3.7.3 Operational Decision Centers . . 65
3.8 Inventory of Decision Functions Within
a College Hierarchy . . . . . . . . . 66
3.8.1 Policy Level Decisions . . . . . 67
3.8.2 Tactical Level Decisions . . . . 67
3.8.3 Operational Level Decisions . . . 70
3.9 Recapitulation . . . . . . . . . . . . . 72
COLLEGE INFORMATION SYSTEM DESIGN . . . . . . 73
4.1 Decision Center Organization . . . . . . 73
4.2 Information Systems . . . . . . . . . . 74
4.3 College Information Systems: A
Managerial Orientation . . . . . . . . 77
4.4 "Financial Analysis of Current
Operations of Colleges and
Universities". . . . . . . . . . . . . 80
4.5 Efficiency of College Informatio
Systems . . . . . . . . . . . . . . . 91
4.6 Coordination of a College Information
System . . . . . . . . . . . . . . . . 91
4.7 Recapitulation . . . . . . . . . . . . . 94
PRESENT INFORMATION SYSTEMS AT PRE-
DOMINANTLY NEGRO COLLEGES . . . . . . . . . . 97
5.1 The Survey . . . . . . . . . . . . . . . 97
5.2 Accounting Periods and Accruals . . . . 99
5.3 Fund Accounting . . . . . . . . . . . . 104
5.4 Annual Audit . . . . . . . . . . . . . . 107
5.5 Budget Preparation . . . . . . . . . . . 109
5.6 Budgetary Control . . . . . . . . . . . 113
5.7 Financial Reports . . . . . . . . . . . 115
5.8 Cost Assignment and.Allocation . . . . . 118
5.9 Internal Control . . . . . . . . . . . . 122
5.10 Academic Records . . . . . . . . . . . . 126
5.11 Present Practices Compared with
Present Standards . . . . . . . . . . 129
5.12 Present Practices Compared with
Decision-Makers' Needs . . . . . . . . 130
5.13 Miscellaneous Findings . . . . . . . . . 133
5.14 Recapitulation . . . . . . . . . . . . . 135

vi

Chapter

VI.

6.1

6. 2 Efficiency .

6.
System . . .

6. 4
Negro Colleges .

6.5 Recapitulation .

VII. CONCLUSIONS AND RECOMMENDATIONS

7.1 Conclusions

7.2 Recommendations

7.3 A Final Challenge

REFERENCE BIBLIOGRAPHY

vii

The Feasibility Question

3 Automation of a College Information

Present Automation at Small Private

EFFICIENCY OF COLLEGE INFORMATION SYSTEMS

Page

137

141
141

147

153
155

157
157
162
164

165

LIST OF FIGURES

Figure Page
3.1 The sc0pe of accounting information . . . . . . 58
3.2 Organization structure for a liberal

arts/education-oriented college of
around 1,000 students and 50 faculty
members . . . . . . . . . . . . . . . . . . . . 64

4.1 Decision centers of a small, private
college . . . . . . . . . . . . . . . . . . . . 73

5.1 Selected findings--accounting periods
and accruals .. . . . . . . . . . . . . . . . . 104

5.2 Selected findings--fund accounting and
inventories .1. . . . . . . . . . . . . . . . . 107

5.3 Selected findings--annua1 audit . . . . . . . . 109

5.4 Selected findings--budget preparation . . . . . 113
5.5 Selected findings—-budgetary control . . . . . 115
5.6 Selected findings--financia1 reports . . . . . 118

5.7 Selected findings--cost assignment and
allocation . . . . . . . . . . . . . . . . . . 122

5.8 Selected findings-~academic records . . . . . . 129

viii

LIST OF APPENDICES

Appendix Page
22A Basic Principles . . . . . . . . . . . . . 30

2-B Standard Foun,Financial Resources;
Illustrations and Interpretations . . . . . 38

2-C. Applicability of Auditing Standards to
College Audits . . . . . . . . . . . . . . 44

4-A. Symptoms of Inadequate Management
Reporting . . . . . . . . . . . . . . . . . 96

ix

CHAPTER I
INTRODUCTION

1.1 Background of College Management

Higher education in the United States has experi-
enced phenomenal increases in demands for its services since
WOrld.War II. Approximately 1,500 junior and senior col-
leges and universities served nearly 2,000,000 students in
the years immediately after the War; today nearly 2,200 such
institutions enroll about 6,000,000 students [21, p. 37; 13,
p. 757]. Predictions by the U.S. Office of Education indi-
cate over 8,000,000 degree candidates by 1974 [21, p. 29].

.Annual operating and capital expenditures by higher
education have increased from under $2 billion after the War
to $10 billion today and are projected to reach nearly $15
billion by 1974 [21, pp. 35-36].

A college1 is essentially an environment for learn—
ing, All colleges have been created by a segment of society

with an overriding central mission--encouragement of

 

1The word "college" will be used hereinafter in the
generic sense to include junior and senior colleges and
universities which grant academic degrees in recognition of
learning achievement.

learning. In fulfillment of this mission within the bound-
aries of specific institutional objectives, every college
performs, to varying degrees, each of four direct service
functions and one indirect support function [25, pp. 9—10]:

Direct Service Functions

 

1. Instruction

2. Research

3. Services to the public

4. Services to the academic community

Indirect Support Function

 

5. General support of the four direct service

functions.

In fulfillment of its mission--education--and in
performance of these five functions, a college combines cer-
tain resources in such a way as to maximize the value to
society of outputs which, unfortunately, are not susceptible
to quantitative measurement. The resource inputs of a col—
lege are of three general types:

1. Human resources

2. Physical resources

3. Academic climate.

Human resources include faculty, college administra-
tion, students, and supporting staff.
Physical resources include the college buildings and

grounds and equipment and supplies.

Academic climate is a general favorable environment
for learning, made up only in part of human and physical
resources. It is also comprised of attitudes and synergis-
tic interactions among human and physical resources and,
therefore, can only in part be purchased in the market place.

In accomplishing any mission it is essential that
there be management--"the task of creating the internal
environment for organized effort to accomplish group goals,"
which in the case of a college are the encouragement and
advancement of learning [11, p. 4].

Management functions have traditionally been classi—
fied into five activities:

1. Planning: selecting objectives and programs to
meet those objectives.

2. Organizing: determining the activities needed
to accomplish the objectives and developing
authority relationships.

3. Staffing: manning the organized activities.

4. Directing: guiding and supervising subordinates.

5. Controlling: assuring that actual events
conform to plans.

DesPite statements (and practices) one sometimes
finds to the contrary, "management is essentially the same
_ptocess in all forms of enterprise and at all levels of
organization" [11, p. 4]. Former Chancellor Litchfield of

the University of Pittsburgh wrote that "administration and

the administrative process occur in substantially the same

generalized form in industrial, commercial, civil, educa-
tional, military, and hospital organizations" [12, p. 28].
"Good" management brings about "good" results which

are defined by Koontz and O'Donnell as "the efficient attain—

 

‘mggt of enterprise objectives, whether economic, political,
educational, social, or religious" [11, p. 7].

Yet only recently have colleges begun to apply those
techniques of "scientific management" developed originally
by and for businesses, and later ad0pted by government, to
manage more efficiently their resources in their central
mission--1earning. A 1966 report by the University of
Michigan's Institute of Public Administration1 begins by
stating, "Higher education in the United States is in the
midst of a managerial revolution" [25, p. 3]. Rourke and
Brooks indicate that "a growing number of universities are
beginning to eXperiment with theories and practices usually
identified with scientific management, or, as some would
prefer, 'managerial science'" [18, p. 155]. Brown and
Mayhew state that "higher education has come to adopt prac-
tices of management and control found effective by business,
industry, and the military. Once it was assumed that educa-
tion was different from business and could be conducted by

unbusiness-like methods" [3, p. 86].

 

lEntitled, Financial Analysis of Current Operations
of Colleges and Universities.

 

A parallel might be drawn between educational insti-
tutions and business firms: the development of more effec-
tive management techniques has come initially from large
industrial firms, with smaller, more closely held firms
imitating after some lapse of time. Similarly the adoption
of modern administrative practices in colleges has come
first at large public institutions and major private univer-
sities. Yet to accomplish their goals 311 colleges THEE
adopt such techniques and innovate new ones to fit their
needs. The alternative is either that they perish or render

a service inferior to that of more well-managed institutions.

1.2 Backgtound of College Information Systems

Decision making pervades all five of the management
functions (planning, organizing, staffing, directing, con-
trolling), but is most critical in the planning and control-
ling functions. Decision making is essentially a judgment
problem, a choice among alternatives. It involves (l) defi-
nition of the issue, (2) analysis of the existing situation,
(3) delineation of alternatives, (4) deliberation, and,
finally, (5) choice [12, p. 14]. Because decision making is
essentially judgmental, various tools have been develOped to

facilitate informed judgments and to reduce the amount of

 

chance involved in making the decision.
The basic input of these tools to facilitate judg-

ment is information.

 

Every organization must develop a system whereby
information needed for decision making is gathered, pro-
cessed, stored, and retrieved in such a manner as to inform
a decision—maker for his decision. A college, being an
organization the purpose of which is to provide an environ-
ment for learning, must develop such an information system.

There are certain qualities which distinguish effec-
tive information systems from ineffective ones, and effi-
cient systems from inefficient ones. Too often, colleges,
and particularly smaller, private institutions, have cen—
tered the development of their information systems around
accrediting agency or governmental standards rather than
around the needs of their decision-makers. These standards
have generally been outer-directed; that is, they have been
established for external reporting purposes. Moreover,
these standards are broadly permissive, and ad0ption is at
times non-obligatory.

A lack of research into the information needs of
internal decision-makers in a college environment has pre-
vented institutions of higher education, and particularly
smaller colleges which are imitative rather than innovative

in management, from developing sound information systems.

1.3 Background of the Predominantty Negro Colleges
Although the predominantly Negro colleges and univer—
sities in the United States enroll less than 3 percent of

all college students, their student bodies include over half

of all Negroes attending institutions of higher education in
this country. And despite attempts toward increased racial
integration in higher education, these Negro colleges will
continue to educate a substantial portion of Negro college
students for the foreseeable future [14, pp. 3-4].

Factors which range from psychological to geograph-
ical, from sociological to financial, indicate that these
colleges will continue to attract many American Negro Youths
and but a tiny handful of non-Negro students. As Dr. Earl
McGrath, Executive Officer of Columbia University's Insti-
tute of Higher Education, reports in his exciting study,

The Predominantly_Negro Colleges and Universities in Transi-
tign, "if, therefore, many Negro young peOple, particularly
those in the southern region, are to receive any higher
education, the institutions now primarily serving Negroes
must for a considerable Span of years furnish it" [14, p. 5].

There were 123 predominantly Negrol colleges and
universities in the United States at the time of the McGrath
study (1963-1964), and they "run the entire gamut of quality
within American higher education? [14, p. 5]. They serve
approximately 110,000 students at the senior college level
and about 7,000 at the junior college level. The great

majority of Negro colleges is in the eleven southeastern

 

lPredominantly Negro means that over 50 percent of
the student enrollment is Negro.

states of our nation, but several range as far north as
Pennsylvania and Ohio and as far west as central Oklahoma.

Nearly all of these institutions began Operations
immediately subsequent to the Civil War, for the most part
as elementary and secondary schools. Only in later years
did they move toward college level studies.

The following table, compiled from Appendix A of
the McGrath study, aggregately classifies the predominantly
Negro colleges by sponsorship, curriculum level, accredita-

tion,1 and enrollment for 1963-1964:

 

 

 

 

.Public Private
Senior Junior Senior Junior
Number of schools 35 16 52 20
Number of accredited
schools 33 3 39 4
Aggregate enrollments 65,216 3,932 41,630 2,977

 

 

 

Since 1963-1964 at least eleven of the publicly-

supported junior colleges2 have merged with their predominantly

 

lAccredited means that the school is accredited by
the apprOpriate regional accrediting agency, except for the
two professional schools (medical and theology) accredited
by the apprOpriate professional accrediting agency.

2Nearly all of these in Florida.

white counterparts, and at least one private junior college
has discontinued operations; additionally, one two-year
school has moved to the baccalaureate level. Enrollments
have shown a continued sharp increase in a majority of the
Negro colleges.

Note that over 90 percent of the publicly-supported
Negro senior colleges and 75 percent of the privately
supported Negro senior colleges were accredited by their
regional accrediting association in 1963-1964. Nearly all
of the remaining unaccredited senior institutions are pres-
ently making serious efforts toward gaining accreditation
and, of course, the accredited schools are striving to main-
tain their status.

Since the predominantly Negro colleges fill a valu-
able need of providing a learning environment for an impor-
tant part of our society, it therefore follows that they be
encouraged to develop as fully as possible in their endeav-
ors.

And since the development of an effective and effi-
cient information system provides a basis for making in-
formed decisions for "good" management, it follows that such

development should be encouraged.

10

1.4 Objectives of This Study

 

This study, therefore, has three objectives:

First, to examine present standards which have been
established for colleges and which have an effect on college
information systems and to point out any weaknesses or short-
comings.

Second, to examine the business and academic informa-
tion systems at predominantly Negro colleges and to point out
any weaknesses or shortcomings.

Third, to make recommendations for the improvement
of both the present standards and the information systems at

the predominantly Negro colleges.

1.5 Need for This Study

 

Because colleges and universities have only recently
come to adopt those principles of sound management hereto-
fore innovated and employed by business and, later, govern-
ment and the military, there is a paucity of published lit-
erature in the area of college management, Specifically in
the area of college information systems development. And
since standards established by the appr0priate accrediting
agencies and by government have been general and have been
directed toward external reporting, there is need for
research into the deve10pment, at institutions of higher
education, of information systems which provide a sound

basis for informed decision making.

11

Further, Since the predominantly Negro colleges and
universities in the United States fulfill an important mis-
sion--providing an environment for learning to half of the
Negro-American college studentS--their deve10pment Should be
encouraged. And since the management of such colleges
involves the making of decisions or informed judgments, it
follows that present information systems at Negro colleges
should be examined, and weaknesses and shortcomings indi-

cated, so that needed improvements can be made.

1.6 Organization of the Study

Chapter Two will critically discuss the evolution of
present standards for colleges which affect their information
systems, pointing out strengths and weaknesses.

Chapter Three will consider decision-making within

 

a college environment, defining college decision systems,
contrasting such systems with those of businesses.

Chapter Four will discuss the design of a college
information system based on the decision system defined in
Chapter Three.

Chapter Five will present the results of a survey of

 

present information systems at small, private, predominantly
Negro colleges in the United States, including a critical

commentary.

12

Chapter Six will consider efficiency of information

 

systems in general and the efficiency of the present systems
at Negro colleges in particular, including a discussion of
automation.

Chapter Seven will present those conclusions and

 

recommendations which have resulted from this study.

1.7 Limitations of This Study

 

In a Sense, this research is a pilot study. Perhaps
all original research is in the nature of a pilot study, but
when one delves into an area which is yet to develop widely
accepted theories, one is more prone to transgress than when
researching in a more well-developed field.

Second, this study will be limited in sc0pe by
surveying only small, private, predominantly Negro colleges
and by theorizing on the management of only these small
institutions. One would eXpect that the generalizability of
the results of this study might be less for large schools
and publicly supported institutions than for colleges with
characteristics Similar to those surveyed.

Finally, the data presented in Chapter Five as the
results of the survey are limited by the quality of present
college information systems and by the willingness of
officers of such institutions to divulge such data and by

the accuracy of what was reported by these officers.

13

It might be added that the chief fiscal officer and
the chief academic records officer of nearly every institu-
tion in the survey expressed his interest in the study and

its findings.

1.8 Procedural and Notational Conventions

 

The ensuing report will reSpect the confidential
nature of the data gathered from specific colleges and will
present such data as numbers or percentages of institutions
rather than names of the schools. Anonymity will be relaxed
only for data which have been published publicly.

Nor will recommendations be made for improvements at
Specific institutions. The administrators of each school,
however, can evaluate their own situations in the light of
the general conclusions and recommendations of this study.

References of a bibliographical nature will be pre—
sented in square brackets following a reference, in the
form [source number, page number]. Source numbers are indi-
cated in the Bibliography following Chapter Seven. Comments
of a descriptive nature will be included as footnotes on the
page of text to which they apply.

Appendices will be included immediately following
the chapter to which they relate. Appr0priate reference

will be made in the body of the chapter.

CHAPTER II

PRESENT INFORMATION STANDARDS FOR COLLEGES--

A CRITICAL DISCUSSION

2.1 History to 1952
The preface to Charles F. Thwing's book, College

Administration, published in 1900, states that it is "the

 

first book published on the administration of the American
college." The fact that Harvard.College was founded in 1636,
Yale in 1701, Princeton in 1746, and so forth, imbues
Thwing's statement with significance. Surely Harvard, Yale,
Princeton and the other American colleges were "administered"
throughout their existence. Why, then, did it take nearly
300 years for someone to theorize in print on college manage-
ment? Why did professional college managers not emerge
until the twentieth century?

History reveals some clues. First, the field of
scientific industrial management did not begin until the

1880's.2 However, professional business managers emerged

 

1New YOrk: The Century Co.

2Frederick W. Taylor's Principles of Scientific
Management was published in 1911.

 

14

15

with the development of "ShOps" in the late 1700's. Why did
not professional college administrators develOp similarly?
Perhaps of significance were attitudes toward educa-
tion throughout history. Universities began in western
EurOpe in the twelfth and succeeding centuries as guildlike
associations of students, following the rediscovery of the

teachings of Aristotle.1

They were "owned and operated by
those who composed them, namely, the teachers and the stu-
dents" [4, p. 4). Even after many western EurOpean govern-
ments nationalized their universities in the 1800's, manage-
ment of all internal Operations remained in the hands of the
fellows (that is, the faculty), who elected one of their
own as titular master. Such, in fact, is the case in many
European universities today.

It is therefore most likely that the founders of
the First American colleges established them in the EurOpean
tradition: colleges began in the New WOrld as associations
of scholars to be managed by these scholars. The one dis-
tinguishing innovation of the American institutions was the
non-academic governing board. These boards of prominent

officials of church and state were established for the pur-

pose of launching the new institutions toward success, but

 

1For example: Oxford (12th century): Cambridge (12th
century); Leipzig (1409): Uppssala (1477).

16

somehow just never dissolved themselves.l After early
faculty-trustee struggles at such places as Harvard and
William and.Mary, the result was supreme controlling author-
ity over American colleges being vested in non—academic
boards of trustees. College administrators did not exist
for over 200 years. Then the controversy was rekindled near
the start of the twentieth century.

Around 1900 the professors asserted themselves,
demanded freedom from intellectual boundaries set up by
trustees. In 1915 the American Association of University
Professors was organized. Curricula broadened from the
traditional, limited program to unrestricted search for
truth in diverse fields. Thus the university, as we know
it today, was born, and with it full-time college adminis—
trators.

With the growth of professional college management
came the need for more adequate financial records. In 1921
the American Council on Education established the Educational
Finance Inquiry Commission, which published thirteen volumes
on the finance and management of higher education. In 1922
Trevor Arnett published a brief but forward-looking work,

College and University Finance.2 Lloyd Morey, chief fiscal

 

1Capen likens them to Marx's dictatorship of the
proletariat which ideally would wither as its task was com-
pleted, but, in fact, has not [4, p. 5].

2New YOrk: General Education Board.

17

officer and later president of the University of Illinois,

published his University and College Accounting in 1930.1

 

In 1935, the American Council on Education published the
report of the National Committee on Standard Reports for

Institutions of Higher Education entitled Financial Repprts

 

for Colleges and Universities,2 which became the precursor
of the presently accepted handbook of college business
administration.3 In 1944 John Dale Russell published his
classic The Finance of Higher Education which set forth to
outline "the problems Of the management of business and
financial affairs in institutions of higher education and to
present the best available solutions to those problems" [19,
p. v].

Each of these and other works of the early decades
of this century contributed toward improved college manage-
ment and the requisite improvements in college recordkeeping.
In 1938 the National Committee on the Preparation of a Man-
ual on College and University Business Administration4 was
organized by the American Council on Education. Supported

by two grants from the Carnegie Foundation and one from the

 

1New YOrk: John Wiley & Sons.

2Chicago: University of Chicago Press.

3College and University_Business Administration, to
be discussed in detail in section 2.2 of this study.

4Hereinafter, the "National Committee."

18

Commission on Financing Higher Education, the National Com-

mittee prepared a complete revision of Financial Reports for

 

Colleges and Universities. The first volume of their work,
College and University_Business Administration, was pub-

lished in 1952 by the American Council on Education.

2.2 "Col ege and University Business Administration"

 

It is significant that the National Committee, under
the chairmanships first of J. C. Christensen and later of
A. W. Peterson, required fourteen years from inception to
publication Of their manual. National Committee membership
included representatives of each of the regional associa-
tions of college business officers, the American Council on
Education, and the U.S. Office of Education. A special com—
mittee of the American Institute of Accountants1 advised on
pertinent accounting and auditing matters. Business officers
of most American colleges awaited the report of the National
Committee with much anxiety.

College and University Business Administration has

 

been received, in the last fifteen years, with even more
enthusiasm than when it was awaited. It has become, in
effect, the "bible" of college business officers. The fore-
word to Volume II of the Same work, published in 1955, notes

the impact in just three years of Volume I [17, p. v]:

 

1Now the American Institute of Certified Public

Accountants.

19

Volume I . . . has had wide acceptance. The
principles of college and university accounting
and reporting, as set forth in Volume I, have
been adopted by a number of states as the Offi-
cial accounting procedure for their state
institutions of higher education. The U.S.
Office of Education will also use Volume I as
the basis of the form on which colleges and
universities report financial data to that
Office.

The titles of its nine chapters give an indication
of the content of Volume I:

I. Principles of College and University Business
Administration
II. Basic Principles of College and University
Accounting
III. Budgets and Budgetary Accounting
IV. Reports--Annual and Internal
V. The Balance Sheet and Supporting Statements
VI. Current Funds Operating Statements and Accounting
for Auxiliary Enterprises
VII. Subsidiary Statements and Accounting Procedures for
Loan, Endowment, Annuity, Plant, and Agency Funds
VIII. Audits
IX. Allocation of Indirect EXpenditureS and Determina-
tion of Costs.

The accounting principles recommended in Volume I
are based on the fund theory of accounting, or, simply, tpgg
accounting, with the intent that "reasonable uniformity in
the accounting procedures and in the published reports is
both possible and highly desirable" [17, p. 15]. Vatter,
long an advocate of the fund theory of accounting for busi-

nesses,l describes a fund as follows [26, p. 12]:

 

1As Opposed to the entity or prOprietary theories.

20

A fund, in the context of accounting for govern-
ment and eleemosynary institutions, is a unit of
Operations or a center of interest: and, in a
completely nonpersonal sense, the fund is the
accounting entity. . . . The accounts of each .
fund recognize not only all the asset items but
also all the equities that pertain to that fund;
in addition, there are also present complete
classifications of revenue, expense, and income
accounts. . . . The fund is the unit of account-
ing in the sense that it represents the field

of attention covered by a given set of financial
records and reports.

The complete text of the sixteen basic principles of

college accounting set forth in Volume I of College and

 

University Business Administration, is presented as Appendix

 

2-A following this chapter.

Volume I is presently under revision by the National
Committee and the new edition is eXpected to be released in
October, 1967. In a letter from the Treasurer of the Amer-
ican Council on Education, it was stated to this writer that
the present basic principles will remain in the revised
volume, but several additional ones will be added.

Volume II of College and Universitnyusiness Admin-

istration deals with Specific areas of managerial operation

 

of colleges, such as purchasing, physical plant and prOperty,
staff, and investment management.

There is no doubt that the two volumes, in partic-
ular the first, have had enormous favorable impact on col-
lege record keeping. Yet this is not to say that college
record keeping has approached either uniformity or perfec-

tion. First of all, Volume I deals almost entirely with

21

accounting and reporting rules. Yet accounting information
is but a part of an entire information system. Secondly,
adherence to the accounting principles of Volume I is not
mandatory for unaccredited institutions, and certain alterna-
tives in application are permitted. Thirdly, many smaller
institutions, such as those to be considered in Chapter Five,
have come to regard Volume I as an "end" in itself. That is,
the goal of their information system standards should be
limited to compliance with the letter of Volume I. In this
regard, it might be argued that Volume I has had a dampening
effect on the growth of college information systems.
Fourthly, Volume I does not use a "total systems" approach
to college information processing because it was not, in
fact, intended to provide a basis for the establishment of

a total college information system. Finally, Volume I is
oriented to external reporting plus budgetary control of
costs. Yet a myriad of other useful managerial reports can
be prepared for educational administrators. In short, then,
College and University Business Administration is an excel-
lent but incomplete guidebook to the establishment of a
college information system, and any tendency to regard it

as complete will result in an inadequate set of available

managerial information.

22

2.3 The Regional Accrediting Agengy
Every college and university in the United States is

within the geographical domain of one of six voluntary asso-
ciations of non-profit colleges and schools. Accreditation
by the appropriate regional accrediting agency has come to
be regarded, especially by the general public, as proof that
an institution is meeting at least minimum standards in its
programs. As an example, the philOSOphy of accreditation by
the Southern Association of Colleges and Schools is expressed
in the Opening paragraph of its Standards for Colleges [23,
p. 3]:

The College Delegate Assembly of the Southern

Association of Colleges and Schools is charged

with the responsibility of accrediting institu—

tions of higher learning in the southern region

of the United States. This responsibility is

exercised through the Commission on Colleges

which considers its principal concern in accred-

itation to be the improvement of educational

quality in the institutions of the area it

serves.

Each of the regional accrediting associations in the

United States has established a set of standards for colleges.
These standards are relatively few in number and fairly gen-

eral. For example, the Southern Association of Colleges and

Schools has only eleven standards, entitled as follows [23,

p. 5—30]:
Standard One: Purpose
Standard Two: Organization and Administration
Standard Three: Educational Program
Standard Four: Financial Resources
Standard Five: Faculty
Standard Six: Library

Standard Seven: Student Personnel

23

Standard Eight: Physical Plant

Standard Nine: Special Activities

Standard Ten: Graduate Programs

Standard Eleven: Research.

Each of these standards (except Standard One) is
presented in two parts: (1) a statement of principles
(which can be changed only by the Association's overall rep-
resentative chamber, the College Delegate Assembly) and (2)
a numbered list of current illustrations and interpretations
(which are subject to change "as evidence justifies" by the
Commission on Colleges of the College Delegate Assembly).

Of course, every standard will have some influence
on the development of an information system at a college or
university. Certain portions of these standards, however,
are worthy of mention in their direct connection to the
building of an effective information system.

Standard One requires a clearly defined statement of
institutional purpose, that is, subobjectives in its overall
mission of preserving and creating knowledge. "All institu-
tional programs . . . should be designed to achieve the
stated purpose" [23, p. 5]. Thus a college administration
needs information to measure achievement of purpose.

Standard Two requires administrative organization to
marshall and coordinate resources to accomplish college

Objectives. This is a requisite to the implementation of a

decision system and therefore an information system.

24

Standard Four, "Financial Resources," includes prin-
ciples and interpretations concerning income, organization,
eXpenditures, budgets, accounting and reporting, and purchas—
ing. It recommends central control of business and financial
functions under a chief fiscal officer responsible to the
president and appointed by the governing board. His respon-
sibilities include preparation of the annual budget and
budgetary control, accounting and financial reporting, Opera-
tion of the physical plant and auxiliary enterprises, procure—
ment, and safeguarding funds.

In its interpretations which have a direct bearing on
the design of an information system, Standard Four is very
general in nature. An example of this generality may be
found in the following quote: ”Regardless of the size of an

institution, an annual budget in apptopriate detail is essen-

 

tial to prOper operations" [23, p. 12, emphasis supplied].
The accounting information system of an accredited
school must follow the generally accepted principles of col-

lege accounting as outlined in College and University Busi-

 

ness Administration, Volume I.

Neither this nor any other standard provides for the
types of reports, financial or otherwise, which measure the
accomplishments of the educational program as outlined in

Standard Two.l

 

1Examples Of this type of report are discussed in
Chapter Four of this study. '

25

Standard Four also provides for an annual, certified
audit and an "organized program of internal audit and con—
trol" [23, p. 13].

In short, the implications of Standard Four on the
development of an information system are many, but they also
are insufficient. Standard Four provides a starting point
from which to build a financial information system. The
complete text of Standard Four is reproduced as Appendix 2-B
following this chapter.

Standard Five, "Faculty," requires reports of teach-
ing loads and evaluation of faculty performance which must
be built into a college information system.

Standard Seven considers academic and personal stu-
dent records [23, p. 19]:

Institutions Shall have adequate student records
but should be careful not to maintain unnecessary
duplications. The registrar or other apprOpriate
institutional official Shall keep files of admis-
sions and matriculation information, scholarship
records, transcripts, and other essential data.
Some of these records should be duplicated and
other pertinent records should be develOped and
maintained by apprOpriate academic deans, direc-
tors, department heads, and any others charged
with the responsibility of counseling.

The eleven standards for colleges provide selected
guidelines for the development of an information system
within a college. During an interview with several offi-
cials of the Southern Association of Colleges and Schools,

a question was raised as to why the regional accrediting

agency does not provide more Specific guidelines and perhaps

26

uniform techniques for business and academic record keeping.
The response was a fear that doing so would result in the
accrediting association accrediting itself. Yet the regional
accrediting agencies can do much to foster the deve10pment of
effective college management information systems. For exam—
ple, selected case studies, under the sponsorship of the
regional accrediting agency, would provide an administrator
of a small college with useful examples with which to compare

his own particular situation.

2.4 The Role of Federal Government Agencies

 

The Federal government has played an advisory role
in the deve10pment of college management practices and col—
lege information systems. It does not have the authority to
dictate managerial standards.

Its advisory role can still be a very useful and, at
times, persuasive one. For example, in designing the form
on which colleges report annual Operating data to the Office
of Education along the lines of the accounting procedures
recommended in College and University_Business Administra-
tign,it has provided impetus for universal adoption of
those procedures.

Its financial support of research studies encourages
continued improvement of all facets of college management.

Government publications, such as the 1965 book, Guide to

27

College and University Business Management,1 provides man-

 

agers of smaller colleges with ideas for improving their

administrations.

2.5 The Role of the Accounting Profession

 

The accounting profession generally has given little
consideration to accounting for non-profit enterprises; and
the majority of professional literature in this area con-
cerns accounting for governmental units rather than colleges.
Certain publications, primarily from the American Institute
of Certified Public Accountants, have mentioned college
accounting, usually from the point Of view of an independent
auditor. Appendix 2-C discusses one such publication on the
applicability of generally accepted auditing standards to
examination of college records.

Practically none of the literature of the major
accounting professional journals has dealt with accounting
information systems at colleges. The journal, Collegeand

University Business, is the primary source of literature on

 

college accounting systems.

From time to time, professional committees have
worked with other groups interested in college accounting.
The Special Committee on College and University Accounting

of the American Institute of [Certified Public] Accountants

 

1U.S. Department of Health, Education, and Welfare,
Office of Education, publication number OE-53011.

28

was formed in November 1950 to COOperate in the preparation

of College and University_Business Administration. The

 

Special Committee participated in drafting the text of
Volume I, especially chapter vii, "Audits," and reviewed all
other draft material.

Certain accounting firms have provided technical and
financial support for research studies. A good example is
Annotated Tabulations of College and University Accounting

Practices which was compiled by Haskins and Sells in 1964

 

[16, p. iii].

Manufacturers of equipment used in processing account-
ing (and other) data have done some work on college informa-
tion systems deve10pment. The International Business
Machines Corporation has publications which describe good
examples of automated data processing systems at colleges
ranging from 500 students to major universities. The Royal
McBee Company has adapted its "Keysort" system to college
academic record keeping.

In the end, though, the college accountants them-
selves, through the National Association of College and
University Business Officers and five regional associations,
have done the lion's share of study in the area of college
information systems deve10pment, and interchange of ideas
has often been informal, either by personal observation or

conferences.

29

2.6 Recapitulation

In contrast with research into the deve10pment of
information systems for business corporations, college
system deve10pment has been all but neglected. Regional
accrediting agencies have developed standards for colleges
which give only minimal general requirements and are con-
cerned primarily with stewardship reporting and budgetary
financial control. Managerial information systems which
provide for both intra-college comparisons over time and
inter-college comparisons are yet to be considered at length.

Chapter Three will examine how decisions are made
within a college environment and the kinds of decisions
which must be made, for one cannot effectively alter the
decision-making process to suit the available information
system, but rather, the information system must be altered

where necessary to the needs of the decision-making process.

APPENDIX 2-A

The following basic principles of institutional
accounting are reproduced from pages 16 through 22 of
College and University Business Administration, Volume 1.
published in 1952 by the American Council on Education, by
permission of the publisher (COpyright 1952, American Coun-
cil on Education, 1785 Massachusetts Avenue, Washington,
D.C. 20036).

BASIC PRINCIPLES

To meet the requirements of financial accounting and
reporting for institutions of higher education, the follow-
ing basic principles are recognized.

l. The_accounts should be classified in balanced
fund gropps and this arrangement should be followed in the
books of account and in the financial reports.

In order to ensure the observance of the limitations
and restrictions placed on the use of the various funds, it
is necessary that each fund group be treated as a separate
and distinct entity in the books of account. These same
fund groups should appear in the financial reports in order
to Show whether the applicable limitations and restrictions
have been observed. If the annual Operating budget includes
funds of more than one group, that fact should be indicated
clearly by apprOpriate segregation.

2. The financial transactions of the institution
should be reported by fund groupe.

This principle provides that the detailed transac-
tions of the various fund groups should not be intermingled.

3. The following fund groups are recommended:
Current Funds, Loan Funds, Endowment and Other Non-Expendable
Funds, Annuity Funds, Plant Funds, and.Agencprunds.

These six fund groups are sufficient for the major-
ity of institutions. Under certain conditions other fund
groups may be necessary or subdivisions of the foregoing
groups may be desirable. For example, some institutions

30

31

have found it expedient to establish a separate fund group
for unallocated gifts which are not functioning as endowment
and for which the use has not yet been determined. Pension
funds administered by the institution may also constitute a
separate fund group.

4. The current funds group includes funds available
for general Operating and for current restricted_purposes.

The accounts of these two types of funds-—Operating
funds which are available for any purpose, and funds which
are restricted by outside agencies or persons as to their
use--Should be segregated into separately balanced groups,
if practicable.

The advantage of this method is that the assets of
the restricted funds, if separated from those of the general
funds, cannot be used to finance inventories, receivables,
and current eXpenses of the general funds without the facts
being disclosed. However, if this segregation is not prac-
ticable, the assets of the two groups may be combined, pro-
vided the balance in restricted funds appearing on the
liability side of the balance sheet is Shown separately.

The current general funds may be subdivided further
into two separately balanced groups, one for general opera-
tions and one for auxiliary enterprises. This subdivision
is eSpecially desirable if there are bonds outstanding or
other forms of indebtedness on the plant used for the
auxiliary enterprises.

5. The loan funds gtoup includes only funds which
are loanable to students, faculty, and staff.

 

 

If only the income of a fund may be loaned, the
principle should be grouped with the endownment funds and
the income added to the loan funds group.

Since loan funds normally are available only to
students, funds which may be loaned to faculty and staff,
if material in amount, should be identified clearly in the
published reports.

6. The endowment and other non-expendable funds
group includes only funds which are non-expendable at the
date of reportipg.

 

 

a) This principle implies that the primary purpose
of these funds is investment, and that only the income from
the investment may be used.

32

b) The liability side of the balance Sheet section
for this fund group Should show separately endowment funds,
funds functioning as endowment, and funds held in trust by
others for the benefit of the institution. Funds held sub-
ject to the payment of annuities, if small in amount, may be
included in this fund group: if of major magnitude, they
should constitute a separate fund group.

c) If practicable, each of the divisions in this
group may be classified further, either on the balance sheet
or in a supporting schedule, to show separately funds the
income of which is unrestricted as to use and funds the
income of which is designated for restricted purposes, such
as professorships, scholarships, and research.

d) The assets of the funds in this group may be
pooled for inVestment purposes unless prohibited by statute
or by the terms of the instrument of gift. If they are so
pooled, only one account is maintained for each class of
investments of the pool. However, individual accounts must
be kept for the principal of each fund in the pool. Invest-
ments of different fund groups-—that is, current, loan,
endowment, and plant funds--should be commingled in the same
investment pool.

e) The assets of endowment funds and of funds func-
tioning as endowment may be Shown together whether or not
investments are pooled, but the assets of funds held in
trust by others must be shown separately from those held by
the institution.

f) Funds held in trust by others include funds
which are not under the control of the institution, but are
held for its benefit by a trustee or other agency designated
by the donor. It is desirable to include such funds on the
balance Sheet in order to Show the total endowment resources
of the institution.

9) Realized gains or losses on the sale of invest-
ments should be carried to the principal of the funds
involved, or to an appropriate reserve account for pooled
investments. Gains from the sale of assets of this fund
group do not constitute income.

h) Investments purchased for the funds in this
group should be recorded in the accounts at cost.‘

i) Securities and other prOperty donated to an
institution should be recorded in the accounts at market
value or at an eXpertly appraised value as of the date of
the gift.

33

j) The book values of investments in this fund
group should not be changed to reflect fluctuations in mar-
ket prices.

k) In order to maintain unimpaired the principal of
the funds in this group, suitable provisions should be made
for the depreciation of real prOperty held as investments,
and for the amortization of premiums paid on securities
purchased.

1) If endowment funds are invested in institutional
prOperty, these investments should be limited to income-
producing prOperty. Such investments should be accompanied
by a formal commitment of the governing board for the
amortization of the amounts so invested, in addition to the
payment of interest from earnings of the prOperty. If such
earnings are insufficient, payment should be made from cur-
rent general funds, or from other unrestricted funds; other—
wise the principal may be dissipated. See Appendix C for a
discussion concerning the investment of endowment funds in
institutional prOperty.*

7. The annuity funds group includes funds acquired
py an institution subject to annuity or 1iving_trust agree-
ments.

If these funds are small in amount, they may be
grouped with endowment and other non-eXpendable funds, but
Should be identified clearly.

8. The ptant funds group includes funds designated
or expended for the acquisition oftphysical property used
for institutional purposes.

a) Plant funds should be subdivided in separately
balanced sections so as to report (1) funds not yet eXpended,
and (2) funds already invested in plant.

 

*Appendix C discusses investment of endowment funds
in income-producing dormitories, and concludes that endow-
ment funds "cannot be prOperly invested in plant or build-
ings of the college," even if they be income—producing. The
argument is that investment in dormitories is not investment
in the donor's use of the word, that the investment is
"frozen," and that endowment fund trustees have a dual
motive (namely, housing of students) in mind in the decision
to invest in dormitories which might override their respon-
sibility for prudent investment management.

34

b) Funds accumulated for the retirement of debt
incurred for plant acquisition should also be reported in a
separately balanced section of this fund group.

c) Plant items should be carried in the accounts at
cost until disposed of. See Principle 12.

d) Gifts of prOperty, such as land, buildings,
equipment, and Similar items, to be used for institutional
purposes should be recorded in the accounts at an eXpertly
appraised value as of the date of the gift.

e) Reserves created for renewals and replacements
of institutional prOperty should be identified clearly in
the uneXpended plant funds section of this group.

f) The total investment in physical plant assets
used for institutional purposes Should appear in the plant
funds group. If endowment funds have been invested in insti-
tutional property, the value of that prOperty should be
reported in the plant funds group, and the amount of invest-
ment of those funds Shown either as a deduction from the
plant funds assets or as an account on the liability side of
the balance sheet.

9. The agency funds group includes funds in the
custqdy of the institution but not belonging to it.

Receipts and disbursements of agency funds are not
institutional income and expenditures, and should be
reported separately.

10. If money is advanced or loaned temporarily by
one fund to anothery that fact should be set forth on the
balance sheet py showing_the amount as an asset in the fund
group making the advance, and as a liability in the fund
,gtouptreceiving_the advance.

The purpose of this principle is to indicate clearly
interfund borrowing. In general, interfund borrowing should
be avoided.

ll. Receipts of cash or other prOperty Specifically
designated to be added to the principal or balance of funds,
or to be expended only for physicaltplant additions, should
be accounted for separately from income expendable for cur-
rent purposes.

 

I,
This principle provides for the exclusion from cur-
rent income of all receipts which are intended to increase
the assets and fund balances of loan, endowment, annuity,

35

plant, and agency funds. Such receipts should.be reported
in the statements of fund transactions supporting the appro-
priate fund group on the balance sheet rather than in the
current income statement.

12. The necessity_for providing for renewals and
replacements of prOperty_and of charging depreciation
depends on the class of prgperty under consideration.

a) Since, in general, the property used Specifi-
cally for the educational functions of the institution was
initially provided by gifts, grants, or legislative appro-
priations, and since such prOperty is ordinarily replaced in
like manner, it is not necessary to accumulate funds out of
current income for renewals or replacements. See Appendix B
for a discussion of the principles relating to depreciation
of real prOperty held by educational institutions.*

b) It is desirable to make provision for renewals
and replacements of institutional service property and of
property used for auxiliary or other income-producing activ-
ities. The necessity for making such provision will depend
upon the financial program of the institution.

c) It is essential to provide for depreciation of
real prOperty held as investments of the endowment funds.
A depreciation reserve, to be effective, requires a period-
ical transfer of cash from income to principal. This
depreciation reserve should be included in the endowment
funds group aS'a deduction from the related asset.

d) If replacement fund reserves for institutional
prOperty are created, they Should be represented by cash or
other liquid assets included in the plant funds group. A
reserve account for replacements resulting merely from a
journal entry without transfer of cash serves no useful
purpose.

 

*Appendix B discusses depreciation in educational
institutions, and concludes that depreciation should only
be taken on prOperty used by auxiliary enterprises (to
determine total Operating costs) and on endowment fund
assets held in tangible property (to prevent fund principle
dissipation): and that depreciation, when taken, should
always be funded by a cash reserve.

36

13. Accounts should be kept on a modified accrual
basis.

In general, the accounts of colleges and univer-
sities Should be kept on the accrual basis. This means that
bills for materials received or for services rendered,
whether or not paid, should be reported to the fullest extent
practicable. Income should be reported when it becomes due
or when a bill has been rendered for it, and apprOpriate
allowances Should be made for probable losses. Since the
primary purpose of accounting in educational institutions
is to report on the stewardship of the funds and prOperty
entrusted to the institution rather than to determine net
profits and net worth, some items of income need not be
accrued and certain eXpenditures need not be prorated. For
example, few institutions find it either necessary or desir-
able to report accrued interest receivable, or to allocate
insurance premiums to subsequent periods. Consequently, it
may be said that the accounts of educational institutions
generally are maintained on a modified accrual basis.

14. Current restricted receipts should be reported
as income only to the extent eXpended during the year.

This principle recognizes that current funds fre-
quently are received for restricted purposes, the related
eXpenditures of which may extend beyond the current fiscal
year. Such receipts are not income of the institution until
the terms of the gift or grant have been met and the moneys
expended in accordance therewith. UneXpended balances of
grants are sometimes returnable to the grantors. The amount
to be reported as income in any fiscal period, therefore,
should be limited to the amount which has been eXpended in
that period in accordance with the terms of the gift or
grant.

The total receipts, disbursements, and the uneXpended
balances of such funds should be Shown in a subsidiary state-
ment called Summary of Changes in Current Restricted Funds
Balances.

15. Earnings from endowment investments should be
reported as current general income oniy to the extent dis-
tributed to the individual endowment income accounts.

 

This principle recognizes that when endowment assets
are pooled for investment purposes, it may be neither prac-
ticable nor desirable to distribute all income from the pool
in the year in which it is earned. Inasmuch as this undis-
tributed balance may include both general and restricted

37

income, it is desirable to exclude undistributed earnings
from the income statement. The undistributed portion of
earnings serves frequently as a reserve for stabilization of
endowment income.

16. Income and expenditures of auxiliary enter-
ptises should be shown Separately from other institutional
operations.

Since auxiliary enterprises usually are eXpected to
be self-supporting, it is desirable to report their total
Operations separately in the current funds Operating state—
ments in order to Show the extent to which this objective is
achieved. EXpenditures should include apprOpriate charges
for the Operation and maintenance of the physical plant, for
general administration, and for other indirect costs.

APPENDIX 2-B

STANDARD FOURl FINANCIAL RESOURCES

The financial resources of a college or university
determine, in part, the quality of its educational program.
Conversely, the quality of the educational program affects
the ability of an institution to increase its financial
resources. The adequacy of the financial resources of an
institution is to be judged in relation to the basic pur-
poses of the institution, the SCOpe of its program, and the
number of its students.

The organization of the business structure and the
control of financial resources Should always reflect the
fact that financial resources are tools of the educational
enterprise, never the reverse. The business management of
an institution should exhibit sound budgeting and control,
prOper records, reporting, and auditing.

Financial planning for the future within each educa-
tional institution is a condition of wisely guided develOp—
ment. Planning should include specific projections of
income from each source, Specific plans for major categories
of expenditure, and plans for the increase of capital
resources.

ILLUSTRATIONS AND INTERPRETATIONS

1. Sources of Income

 

The sources of income for educational institutions
are subject to variation with the fluctuations of the econ-
omy. State apprOpriationS, apprOpriationS from other sup-
porting bodies such as churches, annual giving, tuition and
fees charged to students, and income from endowment are each

 

1Southern Association of Colleges and Schools,
Standards for College, pp. 10-13 (Atlanta: S.A.C.S., 1965).

38

39

subject to fluctuation. Private and church-related insti-
tutions should have a history of diversity of sources of
income in order to indicate stability. Each institution
should give evidence of the cultivation and utilization of
each source of income so that the combination is adequate
to its needs.

Endowments are highly important to non-tax supported
institutions. Although income from endowment is subject to
change with fluctuations in the economy, an institution hav-
ing available income from this source strengthens the base
of stability.

2. Stability of Income

 

Both public and private colleges shall exhibit
stability of income as measured by at least three years' his-
tory. The amount shall be measured as income per student
rather than in terms of gross amount of income.

3. Organization for the Proper Administration of Financial
Resources

 

All business and financial functions of the institu-
tion should be centralized preferably under a single busi-
ness officer responsible to the president. The more impor-
tant functions which should be performed by the chief busi-
ness officer and his staff include assistance to the pres-
ident in the preparation of the institutional budget, con-
trol of the budget, the establishment and Operation of an
appropriate system of accounting and financial reporting,
the supervision of the operation and maintenance of physical
plant, the procurement of supplies and equipment, the con-
trol of inventories, the financial management of auxiliary
enterprises, and the receipt, custody, and disbursement of
funds belonging to the institution. In accordance with
policies carefully developed by the board of control, the
endowment funds and other investments should be administered
by an appropriate Officer or committee designated by that
board. On all of these matters the president Should report
regularly to the governing board.

The chief business officer should be appointed by
the governing board, upon the nomination of the president of
the institution. Because of the numerous and varied reSpon—
sibilities centered in the business office, selection of
this officer is an important factor in the effective busi-
ness management of the institution. He should be a well
educated person, eXperienced in handling educational busi-
ness affairs. He should realize that the purpose of his
office is to serve the institution and to assist in the
furtherance of its educational program.

40

There Should be a well conceived organizational plan
assigning responsibilities of the various activities which
together comprise the business office of the institution.
The complexity of the required organization will depend upon
the size of the institution and the volume of transactions
of a business or a financial nature.

The chief business officer Should be one of the prin-
cipal administrative officers, along with those in charge of
academic administration.

4. Educational Etpenditures

 

In judging the adequacy of financial Operations,
Basic Educational and General EXpenditures shall be used.
These expenditures will include, for the fiscal year, Gen—
eral Administration and General EXpense, Instruction and
Departmental Research, Libraries, and Operation and.Mainte-
nance of the Physical Plant. In computing the expenditure
per student, the total Basic Educational and General Expen-
diture is divided by the number of equivalent full-time
students at the close of registration of the fall term.

The minimum eXpenditure, based upon the highest
degree offered and the enrollment of the institution, shall
be as follows:

Level of Offeringe and
Enrollment Minimum Expenditures

 

 

 

Junior Colleges and
Other Two—Year Institu-

tions
0—200 $125,000
201-500 $125,000 plus $575 for every
student in excess of 200
501 & Over $297,500 plus $275 for every

student in excess of 500

Bachelor's Level

Institutions
0-200 $200,000
201-500 $200,000 plus $850 for every
student in excess of 200
501-1,000 $455,000 plus $700 for every
student in excess of 500
1,001 & Over $805,000 plus $550 for every

student in excess of 1,000

Level of Offerings and
Enrollment

 

Master's Level
Institutions

0—200
201-500

501-1.000
1,001 & Over

Doctor's Level
Institutions

0-200
201-500

501-1.000

1,001 &-Over

5. Bugget Preparation

41

Minimum Expenditures

 

$250,000

$250,000 plus $1,000 for every
student in excess of 200

$550,000 plus $850 for every
student in excess of 500

$975,000 plus $700 for every
student in excess of 1,000

$300,000

$300,000 plus $1,150 for every
student in excess of 200

$645,000 plus $1,000 for every
student in excess of 500

$1,145,000 plus $850 for every
student in excess of 1,000

The budget is a statement of estimated income and
eXpenditures for a fixed period of time, usually the fiscal

year of the institution.

The budget eXpresses in terms of

dollars the educational program of the institution. Regard-
less of the size of the institution, an annual budget in
appropriate detail is essential to prOper Operations. Since
the annual budget is an expression of an educational program,
its preparation and execution must be preceded by educational
planning. It follows then that the instructional budget for
the most part should be recommended by academic officers or
deans, working closely with department heads and apprOpriate

members of the faculty.

Similarly, for other budget areas,

recommendations should be made by the apprOpriate officers
of the institution. The business officer assists in assem-
bling and compiling the budget requests, prepares income
estimates, and serves as a chief adviser to the president in
the financial determination of budgetary allocations. The
budget is presented by the president to the trustees for
final approval. The review by the trustees should generally
be limited to matters of broad policy and not matters

involved with details.

Preferably, forms should be devised

by the institution which are used for the preparation of the

42

budget and are made available to the various divisions of
the institution which participate in the budget making
process.

6. Budget Control

 

After the budget has been approved by the president
and adOpted by the governing board, there should be a system
of control. It is only in this way that plans of the govern-
ing board and the president with reSpect to the budget may
be carried out and it is only in this way that the institu-
tion can Operate according to a preconceived plan. Period-
ically, the accounting officer Should render interim budget
statements to department heads for their guidance and
assistance in staying within budgetary allocations. Budget-
ary control is an administrative function, not a board func-
tion.

7. The Relation of an Institution to External Budgetary
Control

 

No educational institution is prOperly administered
nor can it conduct a sound educational program when any
agency or officer other than the controlling board, the
president, and business officer exercises financial control.
Once funds have been apprOpriated for the Operation of an
institution, budget making and control of eXpenditure should
be entirely within the institution under the jurisdiction of
the governing board. If a state budget officer or state
comptroller or any other financial officer or body outside
the institution exercises control over the eXpenditures of
the institution, to that same degree such outside officers
exercise control over the educational function. Such prac-
tices are a clear violation of the principles stated in
these Standards.

8. Accounting, Reporting, and Auditing

The accounting system should follow the generally
accepted principles of institutional accounting as they
appear in Volume I, College and University Business Admin-
istration, published by The American Council on Education.
An essential principle of the system of accounting is that
the information derived therefrom can be reliably compared
with information obtained from the records of other insti-
tutions. Desirable uniformity in reports can be approached
through the establishment of uniform classifications as
recommended in this volume.

 

43

The financial statement is a logical extension of
the accounting system. If the accounting records are ade-
quate, the preparation of the financial statement iS a mat-
ter of reclassifying the information supplied by the books
of record. Periodic written financial reports to the pres-
ident are necessary for both the large and the small
institution.

An annual audit with a certified report Shall be
made by competent accountants who are not directly connected
with the institution. The accountants Should be selected at
least partially on the basis of their experience and knowl-
edge of institutional accounting.

Complementing the accounting system and the external
audit, there Should be a well organized program of internal
audit and control.

9. The Management of Income

 

There should be a suitable organization and adequate
procedures for the management of all funds belonging to or
owed to the institution. Normally, the cashiering function
Should be centralized in the business office and there
should be a carefully worked out system for the receipt,
deposit, and safeguarding of institutional funds. All per—
sons handling institutional funds should be bonded.

10. Purchasipg and Control of Store Rooms

For the institution which is large enough to justify
a separate office for puchasing, as well as for the institu-
tion which is so small that its buying can be done by the
chief business officer, it is essential to efficient Opera-
tions that purchasing be done centrally. A logical adjunct
of the purchasing function is a system of well organized
store rooms, such as those for physical plant supplies,
library supplies, and office supplies. It is advisable that
there be established an inventory'system on all of the equip-
ment owned by the institution.

APPENDIX Z-C
APPLICABILITY OF AUDITING STANDARDS TO COLLEGE AUDITS

In its Statement on Auditing Procedures (S.A.P.)
No. 33, Auditing Standards and Procedures, the Committee on
Auditing Procedure of the American Institute of Certified
Public Accountants sets forth ten auditing standards, listed
here by key phrases:

General Standards:

1. Technical training of auditor
2. Independent attitude
3. Due professional care

Standards of Field Work:

1. Planning and supervision
2. Evaluation of internal control
3. Sufficient evidence

Reporting Standards:

1. Conformity with generally accepted principles
of accounting

2. Consistency

3. Adequate disclosure

4. EXpression of an Opinion and of character of
audit examination.

Statement on Auditing Procedure No. 28, Special
Reports iApplicability of Reportipg Standards in Special
Circumstances), was issued in 1957 and later incorporated
into S.A.P. No. 33. In S.A.P. No. 28, the Committee on
Auditing Procedure considered the applicability of the ten
‘auditing standards to Special circumstances. The Committee
agreed that the three general standards and the three stan-
dards for field work apply in eii Special report engagements.

The first reporting standard does not apply to

statements which do not purport to set forth financial posi-
tion and results of Operations. Preference, but not mandate,

44

45

was shown by the Committee to avoidance of the use of the
terms "balance Sheet" and "income statement." Because, how-
ever, many annual financial reports of colleges do show
financial position and results of operations, auditors have
been hesitant to change the wording of their audit report,
and therefore state that financial statements were prepared
in accordance with generally accepted principles of account—
ing which, considering the principles of college accounting
as reproduced in Appendix 2-A, is untrue. The second report-
ing standard is normally apprOpriate in Special report
engagements; the third and fourth reporting standards are
always apprOpriate.

In 1960 the A.I.C.P.A. published a book, S ecial
Reports, which gives specific examples of applicat1ons of
S.A.P. No. 28, including college audit reports.

CHAPTER III
DECISION-MAKING WITHIN A COLLEGE ENVIRONMENT

3.1 General Decision Concepts

Decision-making is essentially choice among alterna-
tives. The basic input of the decision-maker is information.
The basic output iS selection of a course of action.

Litchfield, following Dewey,l delineates five steps
in the idealized decision—making process [12, pp. 13-14]:

1. Definition of the issue

2. Analysis of the existing Situation

3. Delineation of the alternatives and their
consequences

4. Deliberation

5. Choice.
If one envisions the managerial hierarchy as a pyramid, the
base of this pyramid would be eperational decision-makers,

the center tactical or departmental decision-makers, and the

 

apex would be policy or planning decision-makers. The steps

of the decision process are the same regardless of the

hierarchal level.

 

1John Dewey, in How We Think (New York: D. C. Heath
& Co., 1910) first described these stages in a similar man-
ner: (1) What is the problem? (2) What are the alterna-
tives? (3) Which alternative is best?

 

46

47

The definition of the issue on which the decision is
to be made is the most difficult step in the process. At
the policy or planning level it is often intuitive in nature
and depends, in part, on the perspicacity of high level man-
agers. Defining Operational issues, however, would likely
follow from a well-designed control procedure (the fifth
function of management). Information is required even for
the definition of the issue. As the authority for decision-
making moves up the managerial hierarchy, the required infor-
mation is more likely to be of a nonrecurring nature and more
likely to be generated from sources outside the entity.

Analyzing the facts about the existing situation
involves the gathering and processing of data to apprise a
decision-maker of the present state of affairs of a partic-
ular program or activity.

The determination of the consequences of known or
estimated alternatives again requires predictive information
as an aid to the decision—maker in fulfilling his function
effectively.

In the deliberation stage, the consequences of each
of the alternative courses of action are compared with the
consequences of continuing the existing Situation as it is.
Part of this stage involves the assignment of relative
values to alternatives in order to select from the myriad

of possible courses of action.

48

Finally, the decision—maker selects one of the
alternatives as his choice.

"Seeing that decisions are executed is again a
decision-making activity," Simon notes, although perhaps at
a lower hierarchic level. "Executing policy, then, is indis-
tinguishable from making more detailed policy" [20, pp. 3-4].

Certain definitions, suggested by Bonini [2, pp. 16-
18], are useful to put the decision-making process into

perSpective. A decision center is "a place in an organiza-

 

tion where a decision or part of a decision is made. The
effector of such a decision may be an individual, a group,
or a machine." In order to design some efficient system
whereby useful information is available for the decision-
maker when he needs it, an inventory of the entity's deci-
sion centers is needed.

A decision rule is a planned program for action at

 

a decision center. For example, if inventory of part X is
less than or equal to y units, then reorder. Bonini defines

decision parameters as numerical constants in a decision

 

rule,,such as "y" in the above example.
(A decision system, then, is "the sum total of all of

the decision rules in the organization" [2, p. 18].

3.2 General Information Concepts
Information is the basic input of the decision
process. Without information, the decision rules, and hence

the decision system, are static and inOperable. It follows,

49

then, that in order to implement a decision system, a coor-
dinated program for gathering, processing, and disseminating
information must be designed.

Information is "knowledge, concerning some partic-

 

ular fact, subject, or event, in any communicable form" [22,
p. 5]. Information Should be distinguished from gete in
that the latter is simply an aggregation of facts to which
no meaning has yet been assigned.

"An information center is a place in an organization

 

where information is collected, transmitted, stored, ana-
lyzed, or compiled" [2, p. 16]. This information need not
be quantitative; it must, however, be meaningful.

Information links, following Bonini, are lines of

 

flow of information. The entire network of linkings of
information within an entity is called an information system.
"Thus, a given information system means a complete and
explicit Specification SO that we will know who receives
what information in the [organization], where the informa-
tion is collected, how and when the information is trans-
mitted, and so on" [2, p. 18].

The intent of any management information system,
whether manual or automated, is to inform for decision.
Thus the criteria for effectiveness of any information syee
tem is its ability to inform some decision-maker for his

decision. A management information system must be user-

 

oriented (i.e., decision-maker-oriented).

50

Because so many prOperties of an organization (e.g.,
a college) may be measurable in some way, and thus trans-
mitted through the information system, criteria must be

established to select certain measurable prpperties to be

 

included in the system.1 In A Statement of Basic Accounting,

 

Theory, an American Accounting Association committee recom-
mended four basic standards for accounting information [1,
pp. 8-13]:

1. Relevance: exerts present or potential influ—
ence on designated actions (i.e., decisions).

 

2. Verifiability: independent observers develOp
"Similar measures or conclusions" from examina-
tion of the same evidence.

 

3. Freedom from Bias: fair presentation to all
interested parties.

 

4. Quantifiability: dollar valuation or other
numerical measure.

 

Of these four standards, the one that overly re-
stricts an entire information system for a college would be
that of quantifiability. Certainly the home addresses of
its students must be available in its information system;
yet such data are not quantifiable. Sprouse suggests an
alternate set of three criteria for information which would
be more applicable to a total college information system

[24, p. 112]:

 

1For example, the number of blades of grass on the
college campus may be accurately counted and included in the
information system, but this information would likely be
useless and not worth the cost of obtaining it.

51

l. Usefulness: useful to the seeker of the infor-
mation to inform him better for his decision.

2. Objectivity: free from personal bias; veri-
fiable.

 

3. Feasibility: the value of the information must
exceed the cost of furnishing it.

Note that timeliness is within the SCOpe of useful-
ness and accuracy is within the sc0pe of objectivity.

Because there is a trade-Off between objectivity and
usefulness, an informed judgment on the part of the pee£_of
the information must be made so as to achieve an Optimum
balance between objectivity/feasibility on the one hand and
usefulness on the other. For example, although it would be
easier to prepare a budget based on a Single level of activ-
ity in the ensuing period, flexible budgets for several
levels of activity are prepared because estimates of future
activity, while most useful, have less objectivity than

historical data.

3.3 The College Environment

The discussion above has been a generalized frame-
work of decision and information concepts, with no distinc-
tion between types Of organizations within which the deci-
sions are to be made. A decision system, with its requisite
information system, is inherent in any organization, from a
family to a fraternal group to a business to a college. How-
ever, it is obvious that identical decision systems and in—

formation systems, varying only in size, cannot suffice all

52

organizations within society. Decision systems and informa-
tion systems vary as organization objectives vary.

For example, all business corporations have as their
overall objective the maximization of the wealth of their
shareholders.1 Decisions at all levels of corporate manage-
ment must be made with this objective in mind. ‘A college,
on the other hand, has as its overall objective the maximiza-
tion of learning. Because this collegiate Objective does
not lend itself to quantitative measurement,2 the decision
systems and information systems at such institutions neces—
sarily must be designed differently than those of business
corporations.

Similarly, within each of these major organization
types (business and college) there exist numerous individual
entities, each of which has certain specific objectives sub-
ordinate to its overall objective. For instance, some

business managements are willing to assume much risk with

 

1For a well-developed argument for wealth-maximiza-
tion, as Opposed to profit-maximization, as the mission of
business corporations, see Ezra Solomon, "The Objective of
Financial Management," The Theoty of Financial Management
(New YOrk: Columbia University Press, 1963), chapter ii.

2In an interesting eXperiment, Byron F. Doenges
attempted to quantify college outputs in terms of Scholar
Units of Learning Environment (SULE). One SULE is that
combination of resources necessary for one student to become
capable of serious and sustained independent study or for
one faculty member to be engaged in scholarly activity. See
Byron F. Doenges, "A Theory of College Administration"
(unpublished Ph.D. dissertation, Indiana University, 1962).

53

the chance of high gain; others are more conservative,
settling for more moderate but more certain returns. A
college may place graduate education as its major subobjec-
tive consistent with its central mission--education; other
schools may offer only liberal undergraduate programs; still
others may offer only professional education. Each of these
entities has Specialized types of decisions to make, and
hence needs a Special information system.

Despite differences between individual college
entities, certain environmental factors common to all insti-
tutions can be identified. Such factors will serve as the
basis for establishing decision and information centers
within the school's organization. These common environmen-
tal factors include the following:

1. The overall mission of any college is learning.

2. .A college is a service organization, performing four
direct service functions (instruction, research,
public services, and services to the academic com-
munity) and one indirect service function (general
institutional support).

3. The aggregate human and physical inputs in perfor-
mance of all five functions can be measured in
terms of a common denominator, dollars of cost.

4. Responsibility for control of these costs (i.e.,
the lowest hierarchal decision center reSponSible
for their incurrence) can be identified.

5. Outputs of the four direct service functions are
difficult to measure quantitatively. Where they
can be measured, the unit of measure is more likely
to be physical (e.g., number of degrees awarded,

number of articles published by faculty) rather
than dollars.

54

6. Applications of certain business accounting tech-
niques, such as profits, profit centers, contribu-
tion to fixed overhead, and rates of return, to the
measurement of performance of the four direct ser-
vice functions are difficult with presently accepted
measuring capabilities.

7. Outputs of the indirect service function, general
institutional support, can more easily be measured
quantitatively, often in terms of dollars. As such,
there is more likelihood of application of account-
ing techniques employed by business to such support
functions than to direct academic functions.

8. Colleges have needs for much qualitative data as
part of their permanent information systems, and
design of any such system must include storage and
access to this type of data.

3.4 Classifications of College Information
Dearden and McFarlan suggest five major classifica-
tions, or 32 possible combinations, of types of information
[7. pp. 4ff]:
According to Object:
Action: recipient takes immediate or future
action.
Nonaction: no action required.
-According to Frequency:

Recurring: generated at periodic intervals.
Nonrecurring: generated as needed.

 

According to Permanency:

 

Documentaty: written or other permanent form.
Nondocumentary: oral or unpreserved personal

 

observation.

According to Preparer:
Internal: generated within the firm.
External: generated from without the firm.

According to Time Span:
Historical: measuring an activity which has already
taken place.
Predictive: future projection.

 

 

55

Following the Dearden and McFarlan classifications,
information in a college information system would normally
be both action and nonaction; recurring; documentary; inter-

nal; and both historical and predictive.

3.5 The Place of Accounting Information Within the System

Decision-making pervades all management functions.
The basic input of decision-making is information. Account-
ing information is a fraction of the whole area of informa-
tion. The American Accounting Association defines the
objective of accounting as providing information for the
following purposes [1, p. 4]:

1. Making decisions concerning the use of limited
resources.

2. Effectively directing and controlling an orga-
nization's resources.

3. Maintaining and reporting on the custodianship
of resources. '

4. Facilitating social functions and controls.
The first three Objectives are micro-oriented, that is,
oriented to an individual entity and its managers. The
fourth objective is macro-oriented, that is, directed toward
the welfare of society as a whole. The accounting informa-
tion system of a college, and in fact its entire information
system, must be designed to meet all four Objectives.

Davidson and Trueblood divide accounting information
into two broad functions: (1) service and (2) stewardship

[6, p. 577]. The service function involves information as a

56

tool for internal decision-making within the entity. The
service function combines objectives 1 and 2 of the previous
paragraph. Users of college information for service pur-
poses might include the college president, his administra-
tive staff, the faculty, and the governing board.

Stewardship_involves the maintenance of records for

 

asset control and fulfillment of objectives, with particular
reference to the responsibilities of managers toward an
absent third party. Thus the stewardship function combines
objectives 3 and 4 above, when it is understood that absent
third parties include society as a whole. For an academic
institution, users of stewardship information include the
board of trustees, the Sponsoring organization, creditors,
past or potential donors, and government agencies.

The kinds of accounting information which serve the
stewardship function and which serve the service or manage-
rial function are not mutually exclusive; that is, certain
information which in one instance might serve as a measure
of stewardship might also be used for internal college
management.

Following Sprouse,l those measurable properties of a
college which would be included in its information system
must meet three criteria: usefulness, objectivity, and
feasibility. Although all such measurements would result

in information transmitted through the system, not all of

 

le. p. 51, supra.

57

this information is accounting information. Traditionally,
financial accounting information imposes three additional
restrictions on the information: it must be (1) guantifi-
epie, (2) in terms of money, (3) eXpressed on the basis of
historical cost. More recently, managerial accounting
information removes the historical cost restriction. The
1966 American Accounting Association publication, A State-

ment of Basic Accounting_Theory, broadens the SCOpe of

 

accounting still further by removing the restriction of the
use of money as the only accounting measuring unit [1,

pp. 11-13]. The scope of accounting information can be
visualized in Figures 3.1a and 3.1b. Figure 3.1a narrows
the universe of all measurable prOperties into those which
meet the criteria for information, namely the intersection
of usefulness, objectivity, and feasibility. This shield-
shaped area encompasses all information to be included in an
information system. Figure 3.1b indicates that accounting
information, by several definitions, is but a part of all
information.

In designing an information system for a college,
information belonging in the entire shield-shaped area would
ideally be included in the system.

Following the classifications of information set

forth by Dearden and McFarlan,1 accounting information in

 

le. p. 54, supra.

58

The Scope of Accounting Information

UNIVERSE or ALL MEASURABLE PROPERTIES.

 

 

 

 

 

Figure 3.1a \

 

Figure 3.1b

59

its day-to-day gathering would be nonaction, recurring,
documentary, internal, and historical. Accounting reports

would likely substitute action for nonaction.

3.6 College Organization

In accomplishing its overall plan, a college must
first determine those activities needed to accomplish its
objectives and develop authority/responsibility relation-
ships to direct such activities. In short, it must organize.
"University organization structures have tended not to be
distinct nor well defined" [9, p. vi]. Because the informa-
tion system is determined by the decision system, which in
turn is defined by the organizational structure of a college,
precise Specification of authority/responsibility relation-
ships is mandatory for every institution.

Much has been written on college organization. Pro-
fessor Hungate of Columbia University has an excellent dis-
cussion in his Management in Higher Education [10, pp. 76-
113]. Glaze considers, position by position, the organiza-
tion of a fairly large institution [9, pp. 54-90]. College
and University Business Administration, the guidebook to
college accounting principles, also discusses the organiza-
tional structure of institutions of higher education [17,
pp. 4-9]. The organization structure presented in the next
few paragraphs is a synthesis of these and other ideas. It

is not intended to be the ideal for every, or perhaps any,

60

college. It is intended to provide the groundwork for con-
sideration of the information and decision systems of a
private college with around 1,000 students.

The board of trustees, or governing board, somewhat
comparable to a board of outside directors of a business
firm, is found at nearly every private college. Despite
some severe criticisms of the trustee system (as being polit-
ical, self-perpetuating, unwieldly, unacademic, remote),l it
is generally well-regarded as a valuable managerial asset
and as necessary for stewardship control. The functions of
the governing board are to determine and continually reassess
college objectives; to approve programs to meet those objec-
tives; and to provide stewardship control.

The chief executive (president) of the college has
overall responsibility for carrying out programs to achieve
college objectives as approved by the governing board. He
alone should report to the trustees. The chief executive

delegates his responsibilities to three "line" executives:

l. The chief academic officer (dean, provost,
academic vice president, etc.).

2. The chief fiscal officer (business manager,
controller, etc.).

3. The chief student personnel officer (dean of
students, etc.).

 

lSee, for example, Harry L. Wells, Higher Education

IS Serious Business (New York: Harper & Brothers, 1953);
and Francis E. Rourke and Glenn E. Brooks, "The 'Managerial
Revolution' in Higher Education,“ Administrative Science
Quarterly, IX, No. 2 (September, 1964), 154-181.

 

61

The chief executive is assisted by two "staff" executives:
1. The director of public and alumni relations.

2. The director of institutional research and
planning.

The chief academic officer is responsible for direct-

 

ing the institution's educational functions (instruction,
research, and educational services to the general public).
He delegates his authority for tactical management (e.g.,
course content, scheduling, budgetary controls) to division
chairmen.l For example, in an institution of around 1,000
students and 50 faculty, an educational structure consisting
of divisions of (l) humanities, (2) social sciences, (3)
physical and biological sciences, (4) mathematics, and (5)
education seems appropriate, each of which is directed by a
division chairman. The chief academic officer would dele-
gate his record keeping authority to a registrar of academic
records. The director of the library and, when warranted, a
director of research, would also report to the chief aca—
demic officer. The chief academic officer would chair the
faculty advisory committee on policies, plans, programs, and

standards.

 

1It is assumed that a small institution of around
1,000 students will have about 50 faculty members and that
organization at departmental levels (e.g., English, music,
religion, French, etc.) rather than at divisional levels
(i.e., humanities, etc.) would prove unwieldly and unneces-
sary. Division organization does not preclude informal
designation of certain faculty members as area supervisors
for subdivisional coordination purposes.

62

The chief fiscal officer is responsible for the

 

financial and logistical administration of the institution.
He should be assisted by a chief accounting officer and his
staff, a cashier, and directors of physical plant, purchas—
ing, and auxiliary enterprises (such as food and residence

services, bookstore, student union, etc.).

The chief student personnel officer directs such
functions as recruitment, admissions, financial aids, co-
curricular and extra—curricular activities, student organi-
zations, medical and religious programs, and placement.

The director of public and alumni relations works
closely with the president in fund raising and informing the
public and alumni about college affairs.

The director of institutional research and planning
is an officer found in larger college organizations and only
more recently being accepted at smaller institutions. He is
reSponsible for careful, continuing self-study by a college
and for gathering data about students, faculty, costs, and
Operations, "for the purpose of making informed judgments
instead of guessing or relying on the intuitions of the
administrator in making decisions" [18, p. 159]. Rourke and
Brooks discuss the need for and growth of offices of institu—
tional research in colleges [18, pp. 158ff.]. They argue
that the office of institutional research should be reSpon-

sible both for "housekeeping" studies to solve emergency

63

problems and for recurring analyses of the effectiveness of
educational programs.

Figure 3.2 portrays an organizational structure of
an imaginary liberal arts/education-oriented private college

of perhaps 1,000 students.

3.7 Decision Centers Within a College

With this background, we can now proceed to identify
those decision centers within a small college organization
that have (1) policy making, (2) tactical, or (3) Operational
decision-making responsibilities; to inventory the types of
decisions to be made; and to ascertain just what information
would be useful, objective, and feasible tools for making

informed judgments.

3.7.1 Policy-Making Decision CenterS.—-In the con-
text of college management, a policy is a plan of action
affecting the institution as a whole. Thus policy-making
decisions are those which determine institutional objectives
and establish programs to meet those objectives. The govern-

ing board of the college and the president are the two

 

policy-making decision centers in a small college. One
often encounters the word "policy" in its generic sense,
such as "it.is our policy to take a physical inventory twice

a year." This is a procedure, but not a policy.

64

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65

3.7.2 Tactical Decisions CenterS.-—A tactical deci-
sion-maker has the responsibility for administering each of
the major functional areas into which an institution is
organized in order to accomplish objectives and implement
its policies. The chief academic officer, chief fiscal

officer, chief student personnel officer, and the directors

 

of public relations and institutional research all have

 

tactical decision-making reSponsibilities. That is, they
organize and administer detailed pians for the accomplish-
ment of college objectives and implementation of broad

policies.1

3.7.3 Operational Decision CenterS.--An Operational
decision-maker is responsible for day-tO-day supervision of
an activity or program within one of the functional subdivi-
sions of an institution. Operational decision centers
within a small college organization would include each of
the division chairmen; the registrar of academic records;
the director of the library; the chief accountant; the
superintendent of physical plant; the director Of purchasing;
the directors of auxiliary enterprises and services; the
deans of men and women; the admissions officer; and the

director of financial aids.

 

1In a university organization, each of the deans or
directors of colleges and schools within the university
would have tactical decision-making responsibility.

66

3.8 inventory of Decision Functions Within a College
Hierarchy

 

Having delineated the decision centers of an
academic institution, we can now proceed to inventory the
Specific types of functions performed by each of these deci—
sion centers for which decisions must be made.

Regardless of the hierarchic level of the decision
center (i.e., policy-making, tactical, or operational) five
general decision functions are performed:

1. Determination and reassessment of the specific

objectives of the major activity over which the
particular decision center has jurisdiction.

 

2. Determination and reassessment of the programs
and activities necessary for fulfillment of
established objectives.

 

3. Selection and evaluation of staff members.

4. Evaluation of the effectiveness of the programs
and activities in relation to objectives (return
measured against non-monetary standards or norms).

 

5. Evaluation of the efficiency of the programs and
activities in relation to objectives (return per
dollar spent).

In the next three subsections below, an inventory is
presented of more specific types of decision functions which
are performed by the various decision centers of a small
college. This inventory does not purport to be exhaustive.
Rather, it is meant to be indicative and to be used as an

example against which an administrator of a particular

institution can evaluate his own situation.

67

3.8.1 Poliey Level Decisions.--At the policy-making
level of a college administration (i.e., the governing board
and the president) these general types of decision functions
are performed:

1. Determination of the objectives and policies of the
institution in relation to social needs and avail-
able and potential resources.

2. Determination of long range plans for educational
programs and auxiliary support programs.

3. Determination of long range plans for resources,
including raising of funds, public relations,
investment of funds, capital and Operating expendi-
ture needs, and salary scales.

4. Appointment of key administrative personnel with
tactical decision-making authority and approval of
appointments of officers of instruction and staff
of equivalent rank.

5. Assessment of current Operations in relation to
fulfillment of educational plans and of other
auxiliary plans which support the educational
function of the institution.

6. Aggregate budgetary and financial controls, includ-
ing approval of the budget and evaluation of peri-
odic financial reports. The governing board would
perform this function from the point of view of
stewardship control and the president from the point
of view of managerial control.

3.8.2 Tactical Level DecisionS.--Each of the five

 

tactical decision centers has the responsibility for formu-
lating and administering detailed plans for fulfillment of
its function consistent with institutional objectives and
established policies.

The chief academic Officer performs the following

general types of decision functions:

general

1.

68

Formulation and approval of detailed plans for
instructional programs, research programs, and
instructional-related activities.

Evaluation of the success of educational programs,
including (a) evaluation of the effectiveness of
instruction, (b) evaluation of the research activ-
ities of faculty members, (c) evaluation of the
existing curricula and course offerings, and (d)
consideration of changes in existing educational
programs.

Evaluation of the success of instructional-related
programs (such as the library, remedial clinics,
co-curricular activities, and so on).

Evaluation of the effectiveness of individual
officers of instruction and instructional-related
personnel, including (a) quantitative measures of
teaching and research activity, (b) teaching effec-
tiveness, (c) professional advancement, and (d)
recommendations for promotions and salary increases.

Evaluation of the efficiency of educational programs
against estimated monetary standards (budgetary con-
trol) and against historical, interdivisional, and
intercollegiate results.

Recommendations for appointment of officers of
instruction and educational staff of equivalent
rank.

The chief fiscal officer must perform the following
types of decision functions:

Formulation of detailed financial plans (i.e.,
budgets) for revenues and eXpenditures, both for
the immediate fiscal period and the longer range
future.

Day-tO-day management of cash moneys used in current
Operations, including receipt, custodial safeguards,
management of short—term cash excesses or deficien—
cies, and cash disbursements.

Acquisition of the nonmonetary assets of the college
and the discharge of liabilities arising therefrom.

69

Safeguarding, maintenance, and disposition of the
nonmonetary assets of the college.

Resource allocation including such things as (a)
Space utilization, (b) equipment utilization, (c)
inventory management, and (d) recommendations for
long-range needs.

Selection and evaluation of personnel other than
officers of instruction or staff of equivalent rank.

The chief student personnel officer performs these

types of decision functions:

1.

Formulation of detailed plans for matters relating
to student affairs.

Operation and evaluation of the admissions program.

Operation and evaluation of the financial aids
program.

Operation and evaluation of such extra-curricular
and auxiliary student activities as residence hall
programs, cultural programs, religious programs,
student activities and organizations, and student
health services.

Operation and evaluation of guidance, counseling,
and disciplinary activities.

The director of public and alumni relations must

make the following kinds of decisions:

1.

Formulation and execution of detailed plans for
fund-raising activities as approved by the governing
board.

Direction and evaluation of programs for maintenance
of continuing contact with alumni and selection of
criteria for alumni records and analyses thereof.

Direction and evaluation of programs for relations
between the college and the general public and
Specific groups of friends of the institution.

70

The fifth and final tactical decision center is the
director of institutional research and planning. This
office is unique in Operation in that it fulfills a staff
advisory function and only to the extent of research selec-
tion and design a decision-making function. It performs two
general decision-supporting functions.

1. Recurring analyses of institutional operations.
2. Special analyses of Specific situations as the

need arises.

3.8.3 Operational Level DecisionS.--The Operational
level decision center performs decision functions which are
supervisory in nature. All such decision centers operate
within the confines of both institutional objectives and the
detailed plans of the tactical decision center under which
they are organized. At the Operational level, the decision-
maker is more likely to follow precise predetermined deci-
sion rules of the sort envisioned by Bonini.l

Each Operational decision center supervises a Spe-
cific activity or program. Thus the general types of deci—
sion functions each performs are similar:

1. Allocation of staff personnel.
2. Allocation of Space.
3. Allocation of equipment and other resources.

4. 'Scheduling (allocation of time).

 

le. p. 48, supra.

71

Evaluations of each of the above four allocations
(i.e., staff loads, space utilization, equipment
utilization, time utilization).

Evaluation of the success of the program or activity
against predetermined objectives.

Budgetary control.

Recommendations for changes.

The division chairman serves well as an example of

the decision functions performed by a supervisory decision

center.

1.

2.

His decisions include the following:

Scheduling of courses Offered, including frequency,
days, hours, etc.

Assignment of faculty to Specific sections of
courses.

Recommendation for room assignments (final approval
by an overall classroom coordinator).

Allocation of Specific teaching aids and equipment.

Evaluations of the success of each of these deci-
sions, including evaluations of enrollments, faculty
loads, grading, teaching effectiveness, Space and
equipment utilization, etc.

Evaluation of the effectiveness of instruction and
other divisional programs from the points of view of
individual students, individual faculty members,
specific major areas, the division as a whole,
method of instruction, etc.

Evaluation of the costs of instruction and other
direct divisional eXpenditureS, again from several
points of view.

Recommendations for changes in curriculum, faculty
additions, faculty promotions, new programs, etc.

72

3.9 Recapitulation

Decision-making is choice among alternatives. Using
information to reduce the amount of uncertainty, the deci-
sion-maker selects a course of action. An effective infor-
mation system is one which adequately informs the decision-
maker for his decision. This information system should

process all information which is useful, opjective, and

 

feasible. Accounting information is but a part of all
information which meets these three criteria.

In order to determine which information meets the
criteria, the decision-making functions of each of a col-
lege's decision centers must be examined and an inventory
must be taken of the types of decisions each decision center
makes. An information system must be designed around the
needs of the decision-maker, never the reverse.

In Chapter Four, the information needs of college

decision centers will be examined.

CHAPTER IV

COLLEGE INFORMATION SYSTEM DESIGN

4.1 _Decision Center Otganization

 

In Chapter Three the decision centers of a small,
private college were outlined. Figure 4.1 below reiterates

these decision centers by level of managerial hierarchy:

 

PolicyeMaking:

 

Governing Board
President

Tactical:

Chief Academic Officer
Chief Fiscal Officer
Chief Student Personnel Officer
Director of Public Relations
Director of Institutional Research and Planning

gperational:

 

Division Chairmen
Registrar of Academic Records
Director of the Library
Chief Accountant
Superintendent of Physical Plant
Director of Purchasing
Directors of Auxiliary Enterprises
Dean of Men
Dean of Women
Admissions Officer
Director of Financial Aids

 

 

 

Figure 4.1. Decision centers of a small, private college.

73

74

Chapter Three also listed the types of managerial
decision functions which are performed by each of these
decision centers. The delineation of the decision centers
Of an organization and the types of decisions they must make
is the first step in the design of an information system.

An information system must be developed around the needs of
the decision-maker--never the reverse.

The design of such an information system can now be

considered.

4.2 Information Systems

 

An information System is a network of flows of
information from information centers (where it is gathered
or analyeed) to decision centers (where it is used to facil-
itate the decision-making process). The design of an infor-
mation system may evolve in several ways. Three of these
approaches worthy of discussion may be labeled as follows:
(1) eXpediency, (2) carefully planned subsystems, and (3)
total systems.

The flows of information in an entity such as a

college may be the result of expedieney, an evolutionary

 

process by which many information subsystems for parts of
the entity result from "patchwork" rather than carefully

planned design. In all likelihood, the needs for informa-
tion by various decision centers have not been eXplicitly
considered and there is little coordination of the various

subsystems. The advantages of this approach are low costs

75

of design and Operation of the information systems. The
obvious drawbacks are costly duplication of efforts (because
of lack of coordination) and inadequate information available
to the decision-maker.

A second approach to the design of an information

system is that of many information subeystems within an

 

entity, each of which has been carefully designed with the
needs of the decision-maker in mind, but without coordina-
tion or integration among the various subsystems. For exam—
ple, a college may have a business information system, a
student records system, an alumni records system, etc., each
of which serves the decision—making process well. The dis—
advantages to the design of an institution's record keeping
procedures with this point of view are that costly duplica-
tion may result, that information available to certain deci-
sion centers may not be available to or known by other
potential users, and that cost restrictions (resulting from
duplication) may prevent the gathering of additional valuable
information.

A third point of view by which an information system
may be designed, which is the approach implied heretofore in
this study, is that of an integtated total information System

for an entity: In effect, this is a "system of systems"

 

whereby the design of any subsystems has been coordinated
for the decision-making needs of the entire entity. This

point of view does not preclude the establishment of an

76

information subsystem for a particular decision—maker which
is not linked to other subsystems. It only requires that
the design of such subsystems be coordinated with the
information needs of all decision-makers. For example, the
system of systems concept does not prevent alumni records
from being gathered by the alumni director solely for his
own use. It would prevent the president's Office from
gathering a duplicate set of alumni records for its own use
without prior consideration of a merged set of alumni rec—
ords for the benefit of both the president and the alumni
office.

This third approach, the total systems concept, has
several advantages which make it the most acceptable of the

three. First, consideration of the needs of the decision-

 

maker is the prime prerequisite to the design of an inte-
grated information system. This is accomplished by determin—
ing the types of decisions made at various decision centers
and by then determining which information meets the criteria
of usefulness, Objectivity, and reasibility. Second, the
total systems approach requires coordination among the
various decision centers in the design and Operation of an
information system. The orientation of the system is toward
the entity as a whole, as it should be. Third, the coordi-
nated design will eliminate duplication of efforts and the

unfortunate circumstance of information subsystems gperating

77

at cross:purpeees.l A final advantage of the total systems
approach to the design of an information system is that of
cost savings resulting from elimination of duplication and
from coordinated planning for efficiency.

For these advantages, a coordinated total systems

approach is highly preferred over the others.

4.3 College Information Systems: A Managerial Orientation
In Chapter Three it was indicated that decision-

makers perform both stewardship and managerial decision

 

 

functions. It follows, then, that they need both steward—
ship and managerial types of information and that an informa-
tion system must gather, process, and output both types. A
major question to be answered is now to achieve the prOper
balance between the two.

Who are the users of stewardship information? Pri-
marily they are the board of trustees, the sponsoring orga-
nization, creditors, donors, and governmental agencies.
Notice that none of the users of stewardship information is
an internal manager of the institution. Notice, also, that

of all the decision functions inventoried in Section 3.8

 

1An example of this, observed at a small college, is
a situation where the registrar assigned each student a
"student number" for academic record keeping purposes, the
business office assigned him another number for his finan-
cial account, and the director of student affairs assigned
him still a third number for dormitory and meal ticket iden-
tification. Each student was required to know all three
numbers.

78

only one, number Six under policy level decisions, pertained
to stewardship. The great majority of decisions made in a
college are managerial in nature. The design of a college
information system, therefore, should be primarily oriented
to the needs of internal managers.

It is interesting to recall, at this point, the dis—
cussion of present information standards for colleges in
Chapter Two: ‘"Regional accrediting agencies have developed
standards for colleges which give only minimal, general
requirements and are concerned primarily with stewardship
reporting and budgetary financial control. Managerial infor-
mation systems . . . are yet to be considered at length."1
The one generally accepted guidebook for college information

system deve10pment has been College and University Business

Administration, Volume I, which "is oriented to external

 

reporting [of financial data] plus budgetary control of
costs."2 Despite the fact that the majority of decisions
made by college decision-makers are managerial in nature,
uniform standards for gathering managerial type information
do not exist.

This is not to say that colleges do not gather and
use managerial type information. Certainly, the larger

universities and colleges have pioneered only recently in

 

1P. 22, supra.
2

P. 21, supra.

79

the design of managerial information systems for their own
needs, following their own standards of measurement and
reporting. And, to a lesser extent, many smaller institu-
tions have followed suit. The fact remains, however, that
each school is "on its own" with the results that comparbil-
ity does not exist and that some smaller, less wealthy insti-
tutions barely begin to gather needed managerial information.
A change in orientation of business corporation
information systems (most Specifically, their accounting
information system) is similar to the reorientation urged
above for colleges. Since the early 1950's, accounting for
businesses has come to place major emphasis on managerial
analyses and uses of financial data and lesser emphasis on
external statement preparation. The words "management" and
"managerial" had never been juxtaposed with the word
"accounting" in the titles of textbooks prior to the first
edition of Accounting: A Managerial Approach in 1951.1
Since then, many of the outstanding texts in the field of
accountancy have done so, a reflection of the change in

orientation of accountants to the internal managerial uses

of financial information.

 

lRonald H. Robnett, Thomas M. Hill, and John A.
Becket, Accounting: A Managerial Approach (lst ed.;
Homewood, Illinois: Richard D. Irwin, Inc., 1951).

80

A major question to be answered, then, is exactly
what information should be useful to college managers in the
performance of the decision functions outlined in Chapter
Three. A recent publication by the University of Michigan
considers this very question.

4.4 "Financial Analysis of Current Operations of Colleges
and Universities" '

 

 

The Institute of Public Administration of the Univer-
sity of Michigan published in 1966 a report entitled Finan-

cial Analysis of Current Qperations of Colleges and Univer-

 

sities (hereinafter, Financial Analysis). This project was
Sponsored by several major educational organizations and

supported by the U.S. Office of Education. In its introduc-
tion, Financial Analysis sets its focus on financial reports

and analyses of colleges from a managerial point of View [25,

 

pp. 5-6]:

. . . These analyses must do more than accurately
state the total eXpenditureS or "costs" Of the
institution for a particular fiscal period.

They must Show for what purposes the money was
spent at different institutions. They must point
out what factors caused this cost to be what it
was and the relationships that exist between
these factors and the dollar eXpenditures. Such
analyses Should be capable of providing inter-
institutional comparisons between similar insti-
tutions with Similar missions and historical
comparisons within the same institution. . . .
Such analyses Should provide a means whereby the
financial implications of present and prOposed
policies can be quickly measured. Further they
Should provide an evaluation of the actual Opera-
tion of the institution in relation to institu-
tional policies, clearly showing deviations from
those policies and the financial results of such
deviations.

81

To date, analyses providing such a breadth
of information do not exist. . . . For higher
education at large, such analyses cannot exist
in the absence of agreed-upon principles, clas-
sifications, and definitions of financial and
related nonfinancial data and other "ground
rules" that will insure a common base for finan—
cial data and a uniform approach to analysis of
such data.

Financial Analysis defines a college and the func-

 

tions it performs as has been done in Chapter One of this
study. The basic units of a college for which analyses must
be made for decision-making purposes are called l'analytic
units." An analytic unit may be an individual (e.g., a stu—
dent, a faculty member); a group of individuals (e.g., all
freshmen, the entire faculty); or a program or activity of
the college (e.g., a course, an academic division, the book-

store). Analytic units are classified as environmental when

 

they render direct service to a user. They are called sup—

 

ppgt units when they render service to an environmental unit
or assist an individual being served by an environmental
unit. The environmental unit is called the building block
for analysis.

Financial Analysis suggests that institutions of

 

higher education are "subject to three distinct types of
analyses" [25, pp. 19-22]:
1. The analysis of the kinds and quantities of factors
which go into the creation of any given environ—

mental or support unit.

2. The analysis of the utilization of each environmen-
tal or support unit.

82

3. An analysis of the utilization of the entire environ-
ment by any individual user or group of users.
Uniform ground rules for the measurement of finan-

cial data must be established to insure some degree of

interinstitutional comparability. The authors of Financial

 

Analysis indicate, as has been done earlier in this study,
that such uniformity does not exist in the basic bodies of
financial data gathered at colleges and universities. They
begin with a double entty fund accounting structure with
approptiate internal control. Within this framework, they
make the following suggestions for the standardization of
accounting concepts [25, pp. 37-47]:

1. A full accrual accounting system is mandatory for
comparability.

2. All activities controlled and financially supported
by the college are part of the institutional entity
and Should be included in the institution's finan-
cial data.

3. Ideally, all income and eXpenseS of the institution,
whether physically or constructively received or
paid, Should be included in the institution's
financial statements.

4. Any income available to the institution in the
current period for general purposes Should be
reported as current income, regardless of sub-
sequent use.

 

1This has been called the entity concept by accoun-
ants. The question of the entity concept was studied by the
1964 Concepts and Standards Research Study Committee—~The
Business Entity Concept, of the American Accounting Associa—
tion. Their report, "The Entity Concept," appears in the
April, 1965, issue of the Accountinngeview, pp. 358-367.

 

83

Only correction of prior years' errors Should result
in direct debits or credits to surplus accounts.

Certain expenses (a full list is given in [25,

p. 46]) should be charged to the lowest organiza-
tional level responsible for their incurrence;

other eXpenses (primarily buildings and grounds
Operating expenses, see [25, p. 46]) would not be
allocated except for auxiliary enterprise operations.

With these ground rules formulated, Financial

 

Analysis provides certain rules for assigning dollar costs

to the analytic units and for the analysis of income and

expenses. Fifteen pro forma report formats are presented

 

which would assist college managers in the measurement of

the performance of the analytic units. The titles of these

report formats are presented here [25, pp. 187-207]:

1.

2.

10.

11.

Functional Analysis of EXpenses

Functional Allocation of Human Resources
Analyses of Instruction

Analysis of Research

Analysis of Services to the Public

Analysis of Services to the Academic Community
Analysis of General Support

Special Report on Payments to Students

Analysis of Income by Function, Category, and Source,
and by Restriction Status

Comparative Analysis of Income and EXpenses by
Function

Functional Allocation of Direct Academic Staff
(Historical)

84

12. Functional Allocation of Direct Academic Staff
(Interinstitutional)

13. Functional Allocation Of Direct Academic Staff
(Intrainstitutional)

14. Projection of Number and Cost of Direct Academic
Staff Under Six Hypothetical Policy Alternatives
Relating to Academic Counseling and Research
15. Comparison of Actual Number and Ratio of Non-
Teaching Academic Staff with Institutional Policy.
Report Format 3, Analyses of Instruction, is repro-
duced on the next five pages, from pages 189-193 of Finan-
cial Anaiysis of Current Operations of Colleges and Univer-
sities, as an example of the kind of managerial information
which should be available for intrainstitutional decision-
makers and interinstitutional comparisons.l

In Part II of Financial Analysis is presented a sug-
gested "Operating Manual for the Financial Analysis of Cur—
rent Operations of Colleges and Universities" [25, pp. 385-
433]. The suggestions in this manual are compatible with

all requirements of Volumes I and II of College and Univer-

sity Business Administration.

 

Financial Analysis takes the "coordinated total
system" approach to the design of an information system, as

discussed above [25, p. 28]:

 

1Note that "FTE" stands for Full Time Equivalent, a
standard measure for equating individuals with part time
loads to a full time basis for the purpose of analysis.

85

 

 

 

 

 

 

 

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unusuauo uo coaow>h0Qsm
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unanucoaanom
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.xxxxx .xxxxx .xxxxx x.xx xxxx .xxxx xxx x.x xx xx xx.xx nucosowcduu< HqCOHOOShuncH honuo
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wand Ouagadom sud: unsaved
x.x xx acoapoom Shoumuonmq
x.x xx accupoom OASuooA
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x.x xx ncoauoom ouSOOOA
xxxxx xxxxx xxxxx x.xx xxxxx xxxx xxx xx xx.xx arcauoom
Nada ouanmqom and: venuooq
xxxxxx xxxxx xxxxxx x.xxx xxxxx xxxx xxx x x xx xx xx.xx hquaponmA
xxxxxx xxxxx xxxxxx x.xxx xxxxx xxxx xxx x x xx xx xx.xx «add no .coauusonfio .ud:«Som
xxxxxx » xxxxx » xxxxxx w x.xxx xxxxx xxxxx» xxx x x xx xxx xx.xx » seduced
coauozhuncH nacho
new»
nodumm OHEopmo< oHSopmo< oesopmo<
mOmSdem uuoaasm ucmdsoo oxEOOmo< mmmusoo oumr pooeaa poouxa «mam onxdoo
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pompfio wee co eonadz scape» momssoo ecoauoom owsum>< eo gonadz pom paoo
nomcmmxm eo eonssz ucmqeoo pcmpSum ho umnSSz
oeSwpmo< coupunacdmno onndoo
womueo «o oauuxnououhmno an uanhnuc< .<

 

ZOHBODmBmZH mo mmm>4<z<

Afimm OHm<mv m B<Zm0k Emommm

 

memuzoo uupmpouomnmvn Coxwrunoeoe pouficwweo

 

 

 

 

 

86

 

 

x x x xx x x coupoom oaeauas:
x xx xxx xxx xx xx xx xxx xxx coduomm oncum
nonusoo masseuse
xx xxx xx xx xxx xx coapoom madauflnz
xx xxx xx xx x x xx xxx xxx coxuoom oncxm
oompsoo Opmspauc
new oundumumumpcp Oooca>o<
x xxx x xx xxx xx coauowm Oaaauflsz
x xxx xx x x xx xxx xxx coauoom camcum
monhsoo Opesompwuoccs
.uoom .noom .moom .noem .moom .nowm ONHm ncoxpoom ncoamx>ao
go .02 go .02 MO .02 no .02 do .02 mo .02 coupoom ho hoped: onusoo
Mbfifi empo RenfiaHm. RomuHS RONnHm‘ momumw mmmnw owmpo>< mo nonasz Auaanaco«umamm Haa maquHoxmv
amnam coxpoom SSqumm do meucoouom ma nmuum coxpoom Hm5p0< heavedmo onhdoo ho namhaac< .Q
xxxxxxx xxxxxx xxxxxxx x.xxx xxxxxx .xxxx xxx xx.xx Hooch
xxxxxx xxxxx xxxxx x.xx xxxx xxxxx xx xx.xxx unacaSOHOmHom HIH
xxxxxx xxxxx xxxxxx x.xxx xxxxxx .xxxx xxx xx.xx acauoom maefipmsx
xxxxxxx xxxxxx xxxxxxx x.xxx xxxxxx .xxxx xxx xx.xx coHuomm wamcfim
mSOHnH>HQ onusoo HH<
xxxxxx xxxxx .xxxxxx x.xx xxxx xxxxx xx xx.xx Hmpoa
xxxxx xxxxx .xxxxx x.xx xxxx xxxxx xx xx.xxx maxsmcoxpmamm HnH
xxxxx xxxx .xxxxx x.x xxx .xxxxx xxx xx.xx ceauoom «Heauasz
xxxxxx xxxxx .xxxxxx x.xx xxxx .xxxxx xx xx.xxx scauoom oawcxm -
escanx>an omxdoo mumspwuc
xxxxxxx xxxxxx .xxxxxxx x.xxx xxxxx .xxxx xxx xx.xx Hmuoe
xxxxx xxxx xxxxx x.xx xxxx .xxxxx xx xx.xxx maxcncoxuaaom and
xxxxxx xxxxx .xxxxxx x.xx xxxx .xxxx xxx xx.xx couuowm oflaapasz
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mcouma>xa onusoo ouwsowuo
6cm mumsomewuwpcb Omosm>p<
xxxxxx xxxxx .xxxxxx x.xxx xxxxx .xxxx xxx xx.xx Hence
xxxx xxx .xxxx x.x xxx .xxxx xx xx.xx meanneoxuwaom and
xxxxxx xxxxx .xxxxxx x.xxx xxxxx .xxxx xxx xx.x coxuoem maexuasz
xxxxxx » xxxxx w .xxxxxx 0 x.xx xxxx .xxxx » xxx xx.xx » cofipomm oawcfim
ncoxmfi>ua onusoo mumspmprOOCD
ummw
coHpmm OHSoemo< OHSOpao<
noncoaxm psoauzm ucmasoo OHEOOmo< Oceaumpp mumx OOOSHQ c0xpwnu
Hmpoe unwavOEEH odsopmo< powuao nmxwmm meem>n mam pom :mxmmm
voopun mam pcOOSOm cofiumm acoxpmup ucmpzpm
mmmcmmxm no honed: do pmnsdz needeoo nmewmm gem umoo acoxuoom uo
oxsmumo< ucopsum hpxoxaexuasz ecu coamx>ua
pomeaa Onesoo do Ho>oq he nauhawc< .o

 

UODCapCOOnlm B<Zmom Bmommm

 

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fifiNK
3333

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87

 

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acoSSpm

do hopes: pom unoo

uo>o use m

m
H
moauowouoo nuOHmOHm
acumen o.uounux
"Acoaumueomnfioaoumv
owdum Onusoo madame
Ho>oa oucspauo

ouwspauwuopcp : Hauoe
0a

Hmmmxohaom

”venomouwo
nwOuwoum ooumoa oumspmnwumpcb

teOpnoaOm
"Shoe auscups»apncH

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nHO>Qq acmospm he manhamc< .m

 

 

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33333 333 333 3

33333 333 333 3
33333 333 333 3

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scoUSSm

eo sonEdz pom umoo

nexoxm ecu auonwue Hx< Hauoe

HH<

eoxumozpm

waxuoocawcm
noouwvn n.90pooo

HH<

coxpaosum

wcauwocchm
«common m.nupnaz

HH<

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anocamsm

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mpu< Hmponnq
movemea n.poflmcoam

spasm do

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Coscducoollm 8<Sm0h Bmommx

88

 

 

 

 

 

 

 

 

 

 

 

 

 

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”zuaflaoam wcxcumae genomes
xxx» xxxx 0 .xxx » xxxxw x. xx xx xx.xxx» oucdao coooam
"xuxxxowm wcxcxane Haoxcfixo
xuxfieomm hpafixomm mwaaxowm
noncoaxm encedxm coapmn ca Ca Ca
oEoocH Hmpoe pcm ISOOEOO uewpm ncofiumpu acoHpmxp coapmup
mnoso nmwfiaddm. Hmcomuem wee «mammm unamox Imammm
noncoaxm Hmuoe pcopsum SCOOSOW OCOOSOm
do .02 co embesz Lem pmoo mo«u«HHme
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mweuafifiommxwmxcawpe HmcoxmmOMOhm
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xxxxx» xxxx» xxxxx» x.xx xxxx xxxx a xxx x » wcfiammczoo pocmamm<
has»
codumm escapee» OHEOOmo< erOOmo< codumeu
mochaxm phoeasw ucmdfioo oesopmo< :mammx mama pompam umdwwx
Hmuoe momameEH oxfiopmo< pompxa meadow Ommno>< wee pom madden
(wewnwn, mfim ucsoo cofiumm mcoxumuu ncsoo
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do bones: oasopmo< OCOOSpm pom umoo
powexo wcaflomczoo oasopmo< do namxflmcx
wcdavncsoo anopmo<
.0 Op H one m.uoOooQ HO>OA Oumspmuo new .6 O» a Bose n.umummz HO>OA mumspmuo
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xxxxxxx xxxxxx xxxxxxx x.xxx xxxxx xxx xxxxxx xx.xx nHm>wq fla< 1 Hence
xxxxxx xxxxxx xxxxxx x.xxx xxxxx xx xxxx xx.xxx HO>OA Opwzpmuo o Hmuoe
xxxxxx xxxxx xxxxxx x.xx xxxxx xx xxx xx.xxx mwmum coeumpummmaa - Hmpoe
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mmmewOpm mouwmo m.hmumm:
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xxxxx xxxx xxxxx x.xx xxxxx xx xxxx xx.xxx :
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has»
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pompfin wbm cofinmm memeaoo do honesz hem umoo
nomcmmxm uo pmnESz ucanoo OCOOSpm AconcapcoOw
OAEOOQO< AmuxuowOpwo unowapm
powuxa nHO>OA ucOcSum ha mxmhamc< .m

 

Umscaucoonlm P<Zmom PmOmmm

89

 

 

 

 

 

 

 

 

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mwmcmdxm oncomxm coHumm eemum mmmedoo mmxnoo
Hmpoe 6cm -cmaeoo mel achSpm saunasm
mmwflddsm Hmcomemm Hmuoe eo gonadz pom umoo mmaua>apo< OOAHH<
mmmcmmxm pew SOAumupnawom uo mamxfimc<
mmfipx>xpoa voxxxe new coepauunemmm
xxxxx» xxxxxw xxxxx» xxxx xx.xx» xxxx xx.xa xxxxx xx.» mmaufi>auo< acona«EO< aa<
Anew» demo»
nomcmexm encedxm Scaumm muaucmv OOOOHEO< muxucmv pommmoopm momusoo mmxsoo -
Hmuoe pcm :coasoo OOSSHEO< uCOOSpm pmmmmooem cofiumo ucmpsum pCOUSpm
nowadazm meOmuwm nucopzpm pom umoo mcoHOmo uxflaa< e0 eonsdz new umoo
noncomxm mo gonadz naflaac mom pmoo

eo monssz

mconmHEO< do mamhamc<

 

emscdpcoouum

B<£mom emommm

 

macamm«Ep<

90

The data collection process itself is viewed
not as a Sporadic activity but as an integrated,
coordinated process bringing together dollar
and Operational data, both projected and actual,
which will give a meaningful and comprehensive
description of the Operation of the institution.

The major limitation of Financial Analysis is that

 

its measurements for analyses are concerned only with quanti—
tative measurements of the "environments" (inputs) which pro-
duce the products of a college. Qualitative measurements of
the products (outputs) of an institution of higher education
(such as the quality of its graduates, the quality of fac-
ulty research) are not considered because of inadequate
standards for the measurement of such outputs of the insti-
tution.

The suggestions of Financial Analysis of Current

 

Qperations of Colleges and Universities provide a very viable
and useful foundation for the design of a user-oriented col-
lege information system. It is consistent with the decision
functions of college managers as outlined in Chapter Three.
College administrators are urged to give consideration to
the recommendations contained therein, especially at smaller
institutions whose resources have not permitted them to
develop, on their own, adequate managerial information sys-

tems. Adeption by all colleges of the reporting techniques

91

suggested in Financial Analysis would provide a uniform

 

o o c I I o l
bas1s for 1nter1nst1tutional comparisons.

4.5 Efficiency_of a College Information System

Earlier, three criteria for information were estab-
lished: usefulness, objectivity, and feasibility. Feasibil-
ity required that the value of the information must exceed

the cost of furnishing it. The efficiency of an information

 

system relates directly to the criterion of feasibility. An

information syetem is said to be efficient when the system

 

provides information of the highest value (balance between
objectivity and usefulness) for a given cost of furnishing
it; or, conyerselyy if, for a given level of value of infor-

mationy_we have furnished it at the least possible cost.

 

Efficiency will be discussed in detail in Chapter

Six.

4.6 Cpordination of a College Information System

Terms such as "coordinated," "integrated," "total
systems," etc., have been used heretofore to describe col-
lege information systems. Such terms imply an orientation

toward the college entity as a whole in the design of its

 

1It is unnecessary to reproduce in this study the
other report formats or all of the specific suggestions
contained in Financial Anaiysis. COpies may be obtained for
$3.50 plus postage by writing to the Institute of Public
Administration, The University of Michigan, Ann Arbor,
Michigan.

 

i

92

information system. The advantages of this orientation have
been discussed at length above.1
No mention has been made, however, concerning the

assignment of the responsibility for coordination and con-
trol of a college information system to a particular admin-
istrative officer. Because the coordinated information sys-
tem serves the entire institution, control should be placed
sufficiently high on the organizational hierarchy to assure
an unbiased point of view. It is suggested here that there
is one logical administrative office already included in the
proposed organization of a small college which could ideally

perform in this capacity: the office of institutional

 

research and development.

 

The director of institutional research performs no
decision-making functions except as to the selection of what

shall be researched and the methodology of the research.

 

His office does perform decision-supporting functions of
preparing recurring and special analyses of institutional
Operations. AS such, its primary stock in trade is informa-
tion. Because this office is not directly connected with,
or controlled by, one of the major direct service functions
of an academic institution,fit would not be oriented toward
serving certain users within the organization to the exclu-

sion of others. Because the director of institutional

 

le. Section 4.2, supra.

93

research reports directly to the president of the institu-
tion, he would not be subservient to any particular user.

The responsibility for coordination of a college's informa-
tion system, then, would complement the present functions of
the office of institutional research and deve10pment and con-
sideration Should be given by individual institutions to the
delegation of this responsibility to that office.

Too often the alternatives of assigning control to
either the chief fiscal officer or to the chief academic
officer (through the registrar of academic records) have
resulted in subOptimal coordination. Many cases could be
cited, for example, of either registrars or chief fiscal
officers being assigned control of the deve10pment of an
institution's automated data processing equipment, only to
result in inaccessibility of this machinery to other insti-
tutional decision-makers.

A further alternative exists, and that is the crea-
tion of an additional tactical managerial position, report-
ing directly to the president of the institution, for the
director of information processing. The primary advantage
of this alternative would be the hOpe of complete elimina-
tion of any vestiges of bias toward one or another decision-
maker. However, there is no reason to suSpect that the
director of institutional research would be biased toward
any particular decision-maker, and the creation of an office

of information processing, in addition to the director of

94

institutional research, is viewed as an unnecessary prolif-
eration of tactical departments. Furthermore, having dual
positions of director of institutional research and of
information processor, at the same hierarchic level, could
easily result in unclear definitions of the boundaries of
each office, internal conflict, and unnecessary duplication
of efforts.

For these reasons, it is recommended that the direc-
tor of institutional research and deve10pment be assigned
the responsibility for coordination of the institution's

information systems.

4.7 Recapitulation

The approach toward the design of college informa-
tion systems should be a coordinated total information sys—
tem for the collegiate entity as a whole. Anything less
results in inadequate information, costly duplication, and
inefficiency. Because the primary decision functions per-
formed by college decision-makers (as outlined in Chapter
Three) are concerned with internal college management, the
information system should place major emphasis on managerial
type information. Yet present standards for information
deal primarily with the external reporting of stewardship
information. The publication, Financial Analyeis of Current
Operations of Colleges and Universities, provides an excel-

lent foundation for uniform measurement of the inputs to

95

each of the service and support functions of an academic
institution. Consideration of the recommendations contained
therein is urged, especially for smaller institutions whose
resources have not permitted them to develop. on their own,
adequate managerial information systems. Finally, respon-
sibility for coordination of the information systems at
small colleges Should be delegated to the director of insti-
tutional research and development, whose function at present
is primarily decision-supporting in nature.

Chapter Five, the results of the examination of
present information systems at fifty small, private, pre-
dominantly Negro colleges will be presented, contrasting
them with both present standards and the prOposals contained

heretofore in this study.

tancy, Donald F. Markstein discusses symptoms of inadequate
Certain of these symptoms have been
selected for presentation below because of their universal-

management reporting.

APPENDIX 4-A

SYMPTOMS OF INADEQUATE MANAGEMENT REPORTING

In the July, 1967, issue of the Journal of Accoun-

ity of application to all management information systems
including those of institutions of higher education:

11.
12.

13.
14.
15.
16.
17.
18.
19.

20.

Inability of executives to eXplain changes from
year to year in operations.

Uncertain direction of growth of the institution.

UneXplained deviations from budgets.

No internal discussion of reported data.

Record of some "sour" eXperiences in new programs
or facilities.

Management surprise at financial results.

Poor attitude of executives about usefulness of
information.

Lack of understanding of financial information on
the part of nonfinancial executives.

Lack of concern for environmental changes.

Executive "homework" reviewing reports considered
excessive.

Excessive use of tabulations of figures.

Multiple preparation and distribution of identical
data to many executives. '

Disagreeing information from different sources.

Lack of periodic comparative information and trends.

Lateness of information.

Too little or excess detail.

Inaccurate information.

Lack of standards for comparison.

Failure to identify variances from anticipated
results by cause and responsibility.

Inadequate externally generated information.

 

Pp. 77—82.

96

CHAPTER V

PRESENT INFORMATION SYSTEMS AT

PREDOMINANTLY NEGRO COLLEGES

5.1 The Survey

Of the 111 predominantly Negro colleges and univer-
sities known to exist in the United States in early 1966,
71 were private institutions and 40 public institutions. Of
the 71 private schools, 53 were senior colleges and 18 junior
colleges. For reasons discussed earlier in sections 1.3,
1.4, and 1.5 of this study, the information systems of the
Negro colleges in general were selected for study. Of these
111 institutions, the 40 public institutions were not in-
cluded in the survey for the following reasons:

1. Reticence of the administrators of publicly sup-
ported Negro colleges to divulge the needed
information.

2. Greater resources at the command of public
institutions to conduct their own research

based on their own particular needs.

3. Limitations of time available for the research.

Of the remaining 71 private institutions, 20 schools
were eliminated from the survey either because they were not
small colleges (fewer than 1500 students) or because they

were geographically inaccessible within temporal or monetary

97

98

limitations. The remaining 51 institutions were invited to

participate. Forty-four schools accepted the invitation and
were visited; the remaining seven expressed interest in the

project but were unable to select a visitation day mutually

agreeable with the interviewer. Several of these forwarded

by maildata which have been considered in this report.

Each of the 44 institutions was visited with the
interviewer Spending a full day at nearly all of these
schools. Discussions were held with the chief fiscal Offi-
cer and the chief academic records officer (registrar) and,
where possible, the president and the chief academic officer.
These individuals were asked to respond to an eight page
list of questions pertaining to record keeping and informa-
tion processing. The responses were immediately noted and
were‘reviewed and summarized subsequent to the personal
interviews. In addition, discussions were held with the
staffs of the chief fiscal officers and the registrars where
possible. Finally, each institution was asked to submit
copies of its daily, monthly, and annual recurring reports
and samples of its permanent academic records.

The results of the interviews were tabulated upon
completion of the entire visitation period, which lasted
nearly eighty days from October 4, 1966 through December 18,
1966. They will be presented belOw in Sections.5;2 to 5.10.
Section 5.11 will then contrast present practices at these

44 institutions with the standards established by the

99

Southern Association of Colleges and Schools and the account-
ing practices recommended in College_and University Business
Administration. Finally, Section 5.12 will compare present
practices with the information needs discussed earlier in
Chapter Four and in Financial Analysis of Current Qperations
of Colleges and Universities.

IntersPersed with these discussions will be selected
case examples presented anonymously. Selected findings will
be summarized in tabular form. The limitations associated
with this survey have been noted in Section 1.7 above.

Although 44 schools were visited, not all respon-
dents were able to provide a usable reSponse to every ques-
tion. For this reason, discussion generally will include

percentages of responding institutions.l

5.2 Accounting_Periods and Accruals

 

[Approximately 62 percent of all private Negro col-
leges were accredited in 1964 (the latest year of complete
published data), including 75 percent of the senior and 20
percent of the junior colleges. Of the colleges included in

the survey, 72 percent were accredited.

 

1Note that percentages presented in both the anno-
tated and tabular formats may not total exactly to 100%
due to rounding.

100

Neither College and University Business Administra-

tion nor Financial Anaiysis recommends the adOption of a

 

particular fiscal year. Financial Analysis, in fact, pro-

 

vides a method for adjusting individual college data to a
common fiscal year for comparison. Of 42 responding small,
private, predominantly Negro institutions, 24 (57%) use a
July 1 to June 30 year and 16 (38%) use a June 1 to May 31
year. “One institution uses a September 1 to August 31 year
and another uses a January 1 to December 31 year.

Annotated Tabulations of College and University
Accounting Practices found that 19 of 21 small, private
colleges (91%) use a July 1 to June 30 year [16, p. 25].

CASE 1: For 1966 (only) the fiscal year of this
college was changed from a June 30 closing
date to a June 10 closing date to coincide
with the date of retirement of the college
president. Application of the entity
concept has been disregarded.

Of 41 usable reSponseS, 38 institutions (93%) main-
tain their records to some degree on the accrual basis and
3 institutions (7%) use a cash basis. Of these 38, several
use cash basis in their books of record but adjust their
financial statements to an accrual basis. Annotated Tabula—
tippe found that 18 of 21 small private institutions (86%)

used some degree of accrual basis accounting [16, p. 26].

Basic accounting principle 13 of Volume I states that

 

1See note 1, p. 82.

101

"Accounts Should be kept on a modified accrual basis"
[17, p. 21].

The degrees of modification of the accrual basis by
the 38 colleges not on the cash basis are by no means con-
sistent. For example, of these 38 institutions, 29 (76%)
accrue income earned but not yet received and nine (24%)
make no such accrual. Twenty—two of the 38 schools (58%)
do accrue salaries payable in their end-Of-year financial
statements; 13 make no salary accrual; three institutions
indicated that this problem does not arise because all
salaries are paid by the end of the fiscal year.

An allowance for doubtful accounts receivable is
used by 23 of the 38 institutions (6r%) whereas the remain—
ing 15 institutions use a direct write-Off method.

Prepaid insurance is recognized by 23 of the 38
institutions (61%) whereas 14 institutions eXpense insurance
premiums when paid and make no adjustment. One institution
has no prepaid insurance problem because premium payments
coincide with the fiscal year.

Thirty-two of the 38 institutions on an accrual
basis definitely accrue unpaid eXpenses at the end of the
fiscal year (84%). Generally this is done by the auditor.
Four institutions indicated they do not accrue unpaid
eXpenses (lb%) and two institutions were unsure if their

auditor did make such an adjustment.

102

Depreciation of the physical facilities of non-
profit institutions has been the subject of much debate.1
Volume I suggests that depreciation should be taken on
prOperty used by the auxiliary enterprises of an academic
institution and on real property held as income-producing
investments of endowment funds, but in any case should be
funded by a cash reserve if it is taken [17, pp. 20-21].

Of 41 usable responses (including the three institutions on
the cash basis) 40 indicated that they make no provision for
depreciation at present. One institution indicated that it
makes provision for depreciation of auxiliary enterprise
equipment (but not buildings). One of the 40 schools not
presently providing for depreciation indicated that it will
shortly begin providing for and funding depreciation of its
physical plant and equipment.

In discussion with college business Officers, four
individuals indicated that their auditors g9 provide for
depreciation. Upon subsequent examination of the institu-
tions' financial statements, however, no indication of any
provision for depreciation or fund for replacements could be
found. Several institutions indicated that their indepen-

dent auditors have been urging them to take depreciation on

all plant assets, perhaps the result of the auditor's

 

1See, for example, Appendix B to Volume I of Colle e
and University Business Administration [17, pp. 143 to 151[.

103

unfamiliarity with accounting principles for educational

institutions.

In summarizing this discussion of the use of accrual

accounting methods, it can be seen that while 93 percent of

the institutions surveyed use accrual methods, the degree of

modification varies among schools and little uniformity

exists.

CASE 2:

CASE 3:

In the annual report of the business manager
of this institution, it is stated that "the
accounts of the College are kept on an accrual
basis." Yet this institution does not recog-
nize accrued salaries or prepaid insurance,
although it does accrue income, bad debts, and
certain eXpenses.

This institution, prior to the current year,
recognized prepaid summer school income as
income of the old fiscal year and recognized
the related summer school eXpenses when paid
in the next fiscal year. Recognizing a fail-
ure of the matching process, this institution
now estimates summer school eXpenSeS and
accrues them in the old fiscal year, even
though the summer session occurs in the new
year. A better matching, of course, would be
to record the unearned income in the old year
and not recognize it until the new fiscal year,
at which time the eXpenseS associated with the
summer session would also be recognized.

Of 42 institutions, 36 (86%) have made no provision

for encumbering accounts throughout the year. Four institu-

tions presently use encumbrances (10%) and two institutions

(5%) have provision for encumbrances in their existing

accounting systems, although they are not presently in use.

104

 

 

Fiscal Years of 42 Institutions (in %)

July 1 to June 30 5T%
June 1 to May 31 36%
September 1 to August 31 3%
January 1 to December 31 3%

Basis of Financial Statements of 41 Institutions (in %)
Completely Cash Basis 7%
Accrual Basis (to some degree) 93%

Accrual Adjustments for Financial Statements of Selected
Items by 38 Institutions (in %)

 

 

Do Make Do Not Make
Adjustment Adjustment

Income Earned but Not Received 76% 24%
Salaries Payable 58% 42%
Doubtful Accounts Receivable 61% 39%
Prepaid Insurance 61% 39%
Unpaid EXpenseS 84% 16%

Use of Encumbrances in the Accounts by 42 Institutions (in‘%)
Do Presently Use Encumbrances 16%
Encumbrances Provided For But Not Used 5%
Do Not Encumber Accounts 86%

 

Figure 5.1. Selected findings--accounting periods and
accruals.

5.3 Fund.Accounting

The basic accounting principles Of Volume I provide
for six self-balancing fund groups: current funds; loan
funds; endowment funds; annuity funds; plant funds; and
agency funds.[l7, p. 16]. Of 42 responding institutions,
38 (90%) do use fund accounting to some extent. Four
institutions (10%)do not use fund accounting, but rather
have one general fund which encompasses all assets, equities,

revenues, and eXpenses.

 

105

CASE 4: This institution, accredited, maintains no
funds, only "one general cash account."

Of the 38 schools using fund accounting, one institu-
tion has no plant fund on its books (capital assets being
expensed at the time of purchase) although it has a building
fund for new buildings. Another institution has no plant
fund (capital assets being maintained in its current fund).
Two other institutions have plant funds containing only real
assets (equipment being eXpensed at the time of purchase).

At least two of the 38 institutions maintain unex-
pended plant funds in the current fund group, with plant
funds containing only eXpended portions. Several institu-
tions have Separate plant funds and building funds, although
the vast majority combines expended and uneXpended portions
into one plant fund.

At least three institutions do not break down cur-
rent funds into restricted and unrestricted portions.

Accounting for fixed assets (land, buildings, and
equipment) appears to result in great disparity among insti-
tutions. Fewer than 10 institutions had a stated policy for
capitalization or exPensing of new items. Several schools,
because of immateriality and eXpediency, had minimum dollar
amounts (usually $50) below which all equipment purchases
were eXpensed through the current fund. Generally, plant
assets are recorded.at historical cost,although at least two
institutions indicated that appraised values have been

reflected, to some extent, in their books.

106

Three institutions admitted that new equipment addi—

tions are transferred to the plant fund at cost in the year

of acquisition. Equipment which replaces (rather than adds

to) existing assets is charged to the current fund and

eXpensed in the year of purchase. No adjustment is made to

the plant fund. The result is that the plant fund contains

dollar amounts of cost of assets which are no longer owned

by the institution.

CASE 5:

CASE 6:

CASE 7:

CASE 8:

CASE 9:

This institution purchases all new equipment
from the current fund with no transfer to the
plant fund. Old equipment traded in or sold
is not removed from the plant fund. The
business manager admitted that a complete
inventory and appraisal of plant assets is
needed.

This institution's financial records were
destroyed by fire in 1961 and it maintains
no plant fund in its accounts.

This institution eXpenses all equipment when
purchased. Only land and buildings are in
the plant fund.

This institution is situated on 23 acres of
prime land in a state capital. Land on its
books is stated at $6,000.

When this institution trades in old equipment
for new assets, the new assets are transferred
to the plant fund; sometimes, however, the cost
of the old assets is not removed from the plant
fund.

Twenty-five institutions presently maintain an

annual physical inventory or a perpetual inventory (with

periodic physical count) of all assets (60%). The remaining

17 schools (40%) have no such inventory. Of the 25 schools

with inventories, only Six have numbered each asset item.

107

An additional four schools have started a numbering system

which at present is incomplete.

 

 

Use of Fund Accounting by 42 Institutions (in %)
DO Use Fund Accounting 90%
Do Not Use Fund Accounting 10%

Use of a Plant Fund by 38 Institutions Using Fund Account-
ing (in %)

Do Maintain a Plant Fund 89%
Plant Assets Recorded in Current Fund 3%
Plant Assets Not Recorded in Books 3%
Plant Fund Contains Land and Buildings Only 5%

Inventory of Assets by 42 Institutions (in %)
Maintain Annual Physical or Perpetual Inventory 60%
Do Not Presently Maintain an Inventory of Assets 40%

Use of Identification Numbers for Assets by 25 Institutions
Which Maintain an Inventory (in %)
Use Identification Numbers 24%
Do Not Use Identification Numbers 76%

 

Figure 5.2. Selected findings--fund accounting and inven—
tories.

5.4 Annual Audit

 

Standards for Colleges of the Southern Association

 

of Colleges and Schools requires that "an annual audit with
a certified report shall be made by competent accountants
who are not directly connected with the institution" [23,
p. 13]. Of the 42 reporting institutions, 37 (88%) were
audited by a certified public accountant; one (2%) was
audited by a public accountant; and four (10%) were not

audited. In all cases in which the audit report was examined

 

108

(about 25 instances) the report was addressed to the govern-
ing board (in two cases, to the board and the president).
At least five of the opinions rendered in the audit report
were qualified. In one instance the opinion was disclaimed
(not given) because of insufficient testing allowed by the
terms of the engagement. In another instance, an Opinion
was eXpressed on the statement of receipts and eXpenditures
but not on the balance sheet (because of insufficient tests).
Several business managers eXpressed dissatisfaction
with their auditors because of the auditor's lack of knowl-
edge about institutional accounting practices.

CASE 10: The auditor of this institution is a member
of the board of trustees. Is this auditor
"not directly connected with the institution?"

CASE 11: "Our auditors," indicated one business man-
ager, "are commercial auditors. They have
been urging us to adopt accounting practices
normally used by business enterprises."

CASE 12: This institution, unaudited, asked a local
firm of C.P.A.'s for an audit every three
years, because of financial considerations.
The firm would not acquiesce.

CASE 13: This institution now prepares a "full set of
audit papers" for use by the school's inde—
pendent auditors. This practice, they indi-
cate, has reduced the time of the engagement
from two months to two days plus quarterly
interim audits. Their audit fee has also

decreased by $600.

Annotated Tabulations found that all 21 small private insti-

 

tutions it surveyed had independent public accountants exam-

ine their financial statements [16, p. 31].

109

 

 

Annual Audit of 42 Institutions by Independent Public
Accountant (in %)

Audited Annually by C.P.A. 88%
Audited.Annually by Public Accountant 2%
Not Audited Annually 16%

 

Figure 5.3. Selected findings—-annual audit.

5.5 Budget Preparation

 

Standards for Colleges states that "regardless of

 

the size of the institution, an annual budget in appropriate
detail is essential to prOper operations" [23, p. 12]. Of
the 42 small, private, predominantly Negro colleges surveyed,
40 (95%) do prepare an annual budget. Two institutions (5%)
do not do so. Both of these two institutions indicated that
they are run strictly on a cash basis: if cash is available
they can incur an eXpense. One of the institutions which
does prepare a budget indicated that the president prepares
the school's budget alone, without staff assistance. The
remaining 39 schools prepare their budgets with some degree
of staff and/or faculty participation, although the ultimate
responsibility in all cases is the president's.

Of the 40 institutions which do prepare a budget,
the faculty, area chairmen, and staff of equivalent rank
participate fully at 29 institutions (73%). These individ—
uals participate to a certain extent, but not "fully," in an

additional five schools (13%). At the remaining six colleges

 

110

(15%), the budget is prepared by the president and the chief
fiscal and administrative officers alone. At the 34 schools
at which the Operational managers participate in the prepara-
tion of the annual budget, formal budget request forms are
used at 22 schools (65%). Two schools send a letter con—
cerning budget requests to all budget units. The remaining
10 schools provide only for oral or informal participation
of the operational level administrators in the preparation
of the annual college budget.

At 27 of the 40 small private Negro colleges (68%),
the proposed budgetary eXpenditures are broken down to
departmental levels; at 10 institutions (25%), the budget
unit is the division; at three institutions (8%), the entire
instructional program is the budget unit.

Of 31 usable responses, 16 schools (52%) formally
Send notification to each budget unit before the start of
the fiscal year of the budget apprOpriation approved for
that unit by the board of trustees; at 11 institutions (35%),
formal notification is sent subsequent to the start of the
fiscal year; at four institutions (13%), formal notification
is never sent to the head of the budget unit.

Budget preparation generally takes place starting in
January or February. The budget is approved, either tenta-
tively or finally, by the governing board at its spring
meeting. Of the 40 schools preparing a budget, 27 (68%) do

not revise the budget in the fall after exact enrollment

111

figures are known; 13 (32%) do make such a revision when
necessary.

Budgets at the 40 institutions were so diverse in
design as to make quantifiable analysis impossible. At
greater than half of the institutions surveyed, the items
budgeted to each budget unit (i.e., department or division)
were salaries, student labor, and supplies and equipment.
Several institutions simply had one account for each budget
unit into which all direct eXpenses were lumped. Perhaps
10 institutions had more precise budget breakdowns by object
of eXpenditure for their budget units, such as telephone,
postage, fringe benefits, travel, etc. One institution has
a possible 99 objects of eXpenditure which can be charged to
each budget unit.

CASE 14: This institution prepares a budget in May,
revises it in September after fall enrollment,
but never sends a copy of the budget to each
budget unit head.

CASE 15: At this institution, the department budget
consists of one figure for "equipment and
Operating eXpenses."

CASE 16: At this institution, the department budget
figure includes only funds for equipment and
supplies. Such expenditures as telephone,
postage, travel, even salaries, which are
controllable to some degree by the head of
the department, are not budgeted by department.

CASE 17: At this institution, the business manager
alone prepares the budget, with no participa—

tion by the faculty or staff of equivalent
rank.

112

CASE 18: At this institution, the budget unit is the
division. There are two budget accounts main-
tained for each division: "salaries" and
"other."

CASE 19: At this accredited institution, the entire
instructional program is the budget unit,
with three object-of-eXpenditure classifica-
tions: "salaries," "supplies," "miscella—
neous."

CASE 20: This accredited institution has not prepared
a budget in "two to three years."

CASE 21: At this accredited institution, each instruc-
tional department has one budget figure which
includes all direct eXpenses (salaries, sup-
plies, equipment, student 1abor, etc.).

At 31 of the 40 small, private, Negro colleges with
budgets, budget units are allowed to transfer apprOpriations
between objects of eXpenditure, provided they do not exceed
the total budgeted figure for the budget unit as a whole.

Generally, this latitude does not include changes in eXpen-

ditures for salaries without approval of the president.

113

 

 

Budget Preparation by 42 Institutions (in %)
DO Prepare Annual Budget 95%
Do Not Prepare Annual Budget 5%

Participation in Budget Preparation by Faculty and Staff at
40 Institutions Preparing Budgets (in %)

Faculty and Staff Participate Fully 73%
Faculty and Staff Participate to Some Extent 13%
No Participation by Faculty and Staff 15%

Hierarchic Level of Lowest Budget Unit for Instructional
EXpenses at 40 Institutions (in %)

Department 68%
Division 25%
Chief Academic Officer 8%

Formal Notification of Approved Budget Figures to Budget
Unit Directors at 31 Institutions (in‘%)

Notification Prior to Start of Fiscal Year 52%
Notification After Start of Fiscal Year 35%
No Formal Notification 13%

Revision of Budget After Fall Enrollment by 40 Institutions

(in %)
Budget Revised in Fall When Necessary 32%
Budget Not Revised in Fall 68%

Transfer Between Line Items Within Total Budget for Budget
Unit at 40 Institutions (in %)
Transfers Permitted (except salaries) 78%
No Transfers Permitted 22%

 

 

Figure 5.4. Selected findings—-budget preparation.

5.6 Budgetary Control

DeSpite the fact that 40 institutions prepare bud-
gets, only eight (20%) Provide budget unit heads with monthly
budget reports. Two schools (5%) provide quarterly reports.
Two others provide budget reports twice during each year.

One institution sends one budget report during the year, and

114

one school sends such reports every other month. At one
school, following the principle of management by exception,
a warning letter is sent to the budget unit manager if he
is near the apprOpriated budget limit. At 25 institutions
(63%), no budget reports at all are sent during the year.
At some of these, of course, informal notification is suf-
ficient. At several others, the budget unit itself is
eXpected to maintain its own set of records of exPenditures.

CASE 22: This institution sends a monthly budget
report to each budget unit. It has prepared
a monthly budget figure for both income and
exPense items as Simply a fraction of the
total annual budget amount. For example, the
monthly budget report for current fund income
compares income of the present month with one-
ninth of the annual budgeted figure. This, of
course, presumes current fund income flows in-
to the institution evenly from September to
June, an assumption most likely invalid. Sim-
ilarly, one-twelfth of the annual budget for
other income is the monthly budget figure
against which actual results are reported.
For all funds, the monthly eXpense budget
equals one-twelfth of the annual budget.
These budget figures have little value because
income is not received nor are eXpenseS
incurred evenly throughout the year.

CASE 23: This institution, as with Case 22, prepares
quarterly budget reports by comparing actual
amounts with one-fourth of the annual budget.

A forthcoming report by Mr. Joseph C. Paige of

Howard University, entitled, An Investigation of the

 

Procedures and Practices Employed in the Preparation of the

 

Annual Budget in Selected Private PredominantlytNegro

 

115

Colleges in the United States (U.S. Office of Education
project number 5-8318) will discuss budgetary practices at
predominantly Negro colleges in greater detail than this

study.

 

 

Frequency of Budget Reports to Budget Unit at 40 Institu—
t ions (in %)

Monthly Budget Reports 20%
Quarterly Budget Reports 5%
Budget Reports Twice During Year 5%
Budget Reports Every Other Month 3%
Budget Report Once During Year 3%
Formal Letter Sent When Necessary 3%
No Formal Budget Reports 63%

 

Figure 5.5. Selected findingS--budgetary control.

5.7 Financial Reports

College and University_Business Administration sug—

 

gests in Chapters V and VI that certain financial statements
be issued annually by all colleges. These statements fall
into three categories:

1. Balance Sheet

2. Statement of Current Income and EXpenditures

3. Summaries of Changes in Fund Balances for Each Fund.

Of 42 reporting small private predominantly Negro
colleges, 39 (93%) prepare a balance sheet at least annually.
Two schools (5%), unaccredited, do not prepare a balance

Sheet at all. One institution did not prepare one for the

 

116

current year but has done so in the past and plans to do so
in the future. Of the 39, 17 schools also prepare monthly
balance sheets and one prepares a balance sheet quarterly.
One institution prepares a monthly statement of current
assets and current liabilities, but prepares a full balance
sheet annually.

All 42 institutions prepare statements of income and
eXpenditureS at least annually. Twenty-one of these (50%)
prepare such a statement monthly.

In Section 5.6 it was indicated that only eight
institutions prepare monthly budget reports which are sent
to budget unit heads for control purposes. Seventeen insti-
tutions do prepare monthly budget reports, generally on a
summary rather than a detailed basis, for the president and
the governing board.

Twenty-six of 40 institutions (65%) prepare daily
cash reports for the president, indicating receipts and
disbursements, usually for the current fund only. Two
schools (5%) prepare such reports weekly and one school pre-
pares a cash report monthly. Generally, these reports show
the beginning and ending cash balances as current receipts
and disbursements. Three institutions indicated that while
they do not prepare a recurring cash report for the pres-
ident, they do appraise him in writing if an abnormal situa-

tion develops.

117

Of the 42 responding institutions, 20 (48%) prepare

an annual financial report distinct from the financial state-

ments included with the annual audit report. The remaining

22 institutions (52%) issue no separate annual report.

CASE 24:

CASE 25:

CASE 26:

CASE 27:

CASE 28:

This institution prepares a balance sheet but
does not include accounts receivable in cur-
rent fund assets.

This institution maintains accounts receivable
of $45,000 on its balance sheet with a contra
allowance for doubtful accounts of an equiva-
lent sum (less any accounts collected after
balance Sheet date but prior to audit date).

This institution issues no monthly reports
at all because of lack of staff time to pre-
pare them. The business officer indicates
that he hOpes to prepare certain statements
on a monthly basis in the near future.

Because of problems with collection of
accounts receivable, this institution issues

a daily statement of accounts receivable to
the president for his consideration and
action. This institution, incidentally, finds
that over 90% of its National Defense Student
Loans outstanding are presently delinquent.

Two institutions' balance Sheets are headed
"For the period ended . . ." and "For the
year ended. . . ." The balance sheet, of
course, is a statement of financial position
at a particular instant in time.

118

 

 

Preparation of Annual Institution Balance Sheet at 42 Insti-
tutions (in %)
Annual Balance Sheet Prepared 93%
Annual Balance Sheet Not Prepared 7%

Preparation of Annual Statement of Income and EXpenditures
by 42 Institutions (in %)
Annual Statement of Income and EXpendi—
tures Prepared 100%

Preparation of Monthly Budget Reports for Use by Governing
Board and President at 40 Institutions (in %)
Monthly Report Prepared 43%
Monthly Report Not Prepared 57%

Preparation of Report of Receipts and Disbursements of Cash
at 40 Institutions (in %)

Cash Report Prepared Daily 65%
Cash Report Prepared Weekly 5%
Cash Report Prepared Monthly 3%
Cash Reports Not Prepared 27%

Preparation of Annual Financial Report of the Chief Fiscal
Officer Distinct from Annual Audit Report at 42 Institu—
tions (in %)
Distinct Annual Report Prepared 48%
No Distinct Annual Report Prepared 52%

 

Figure 5.6. Selected findings--financial reports

5.8 Cost Assignment and Allocation

For the purposes of this discussion, cost assignment
is the charging to a budget unit of certain costs which are
directly traceable to that budget unit. Cost allocation
involves the charging to a certain budget unit of costs
which are incurrent by reason of that unit's existence but

which cannot be directly traced to that budget unit.

 

119

Of the 42 institutions surveyed, 34 schools (81%) do
some amount of cost assignment to various budget units. The
cost of entertaining guests in the college dining hall is
assigned at 27 schools. The use of institutional vehicles
is charged to the apprOpriate budget unit at 24 schools.
Twenty schools operate a central storeroom and supplies used
are charged accordingly. Seven schools assign postage
charges to various budget units. Six schools assign tele-
phone charges. Several institutions assign fringe benefit
costs to each budget unit.

In general, cost allocation is used only for revenue-
producing enterprises such as intercollegiate athletics,
dining hall, residence halls, student union, and the book-
store. Eighteen of the 42 schools (43%) charge their auxil-
iary enterprises with, at least, institutional utility and
janitorial costs. Where these costs are not assigned
directly by use of separate meters, time cards, etc., they
are usually allocated on a square foot basis. Only two
institutions charge auxiliary enterprises with "rent" of
their facilities. Under basic accounting principle number
16 of College and Universitthusiness Administration, it is
stated that "EXpenditures [of auxiliary enterprises] should
include appropriate charges for the Operation and mainte-
nance of the physical plant, for general administration, and
for other indirect costs" [17, p. 22]. Yet at over half of

the institutions surveyed, no such allocation is made.

120

Of 42 reporting schools, 35 have at least one indi-
vidual who is a coach in an intercollegiate athletics pro—
gram. Although in nearly every instance these individuals
are both instructors and coaches, at only 14 schools (40%)
are their salaries prorated between instruction and inter-
collegiate athletics. At all remaining institutions where
the coach is also an instructor, his salary is charged
entirely to instruction. At only 16 of the 31 institutions
offering athletic scholarships are these scholarships
reported separate from general institution scholarships in
the annual financial statements. At 18 of the 35 institu-
tions charging a student fee which includes athletic fees,
this fee is prorated as revenue to intercollegiate athletics.

Two basic justifications are generally give for cost
assignment and allocation: (1) to determine the "total
cost" of Operating a particular budget unit, and (2) to
encourage cost control by managers of the budget unit to
which the costs have been assigned or allocated. While both
reasons are valid in the case of cost assignment, it is con-
tended here that only the former (ascertainment of "total
cost") is valid in the case of cost allocation. To what
degree will cost control increase if a department manager
is told that every month his department will be charged with
X percent of general administrative costs, or, even worse,
with X dollars of indirect costs? Cost accountants for

businesses have become increasingly aware (as evidenced by

121

the professional literature) that not all indirect costs are
allocable to every budget unit (i.e., cost center) for the
purposes of cost control. In a similar manner, auxiliary
enterprises of an academic institution should not be judged
by their ability to "make a profit" after an arbitrary allo—
cation of all indirect institutional costs, but rather they
should be judged by their ability to contribute to such
unallocable costs.

In designing a cost assignment and cost allocation
system for an academic institution, then, the usefulness of
arbitrary allocations must be considered.

CASE 29: This institution charges each auxiliary enter-
prise with 5 percent of its gross revenues as
institutional overhead. What purpose is
served by such an arbitrary allocation?

CASE 30: This institution allocates certain indirect
costs, principally utilities, to each aca-
demic department on a percentage basis.

CASE 31: All administrative costs are prorated to all
departments by a predetermined percentage.
Why?

CASE 32: Administrative costs and utilities are charged
to all departments at this university by a
formula in use for 17 years.

CASE 33: In presenting the results of Operations of
auxiliary enterprises on its financial state-
ments, these three institutions do not charge
the Salaries of the staffs of these enter-
prises as direct eXpenses of auxiliary enter-
prise Operations. Rather, they are "buried"
as salaries of the chief fiscal officer's
staff.

122

 

 

Assignment of Certain Traceable Costs to Individual Budget
Units atj42 Institutions (in %)
Certain Traceable Costs Assigned 81%
No Cost Assignments Made 19%

Allocation of Non-Traceable Indirect Costs to Revenue-
Producing Budget Units at 42 Institutions (in %)
Certain Allocations Are Made 43%
No Allocations Are Made 57%

 

Figure 5.7. Selected findings—-cost assignment and
allocation.

5.9 Internal Control

 

The Committee on Auditing Procedure of the American
Institute of Certified Public Accountants defines internal
control as follows:

Internal control comprises the plan of organiza-

tion and all of the coordinate methods and mea-

sures adOpted within a business to safeguard its

assets, check the accuracy and reliability of its

accounting data, promote operating efficiency,

and encourage adherence to prescribed managerial

policies.
The design of a management information system for a business
or an academic institution will determine to a great extent
the degree of reliance one can place on that institution's
internal control.

The Committee on Auditing Procedure listed four

characteristics of a satisfactory system of internal control:

1. A plan of organization which provides apprOpriate
segregation of functional responsibilities.

 

123

2. A system of authorization and record procedures
adequate to provide reasonable accounting control
over assets, liabilities, revenues, and eXpenses.

3. Sound practices to be followed in performance of
duties and functions of each of the organizational
department staffs.

4. A degree of quality of personnel commensurate with
reSponsibilities.

The first two points have been discussed earlier in
this study. Certain management practices have been selected
for statistical summarization and are presented in the fol-
lowing paragraphs.

Of 42 surveyed institutions, 41 (97%) have prenum-
bered cash receipt forms, processed either manually or by
machine. One institution (3%) does not use a prenumbered
receipt.

At nearly all surveyed institutions, the idea of
separation of duties is emphasized primarily in the area of
cash control. Most institutions have different individuals
performing the bookkeeping and the cashiering functions.
Bank reconciliations are prepared monthly in all cases
(except for inactive accounts), generally by the chief
fiscal Officer.

CASE 34: The treasurer (chief fiscal officer) of this
institution is also the cashier, prepares the
daily cash report, makes bank deposits, signs
checks, and prepares the bank reconciliations.

CASE 35: The individual who reconciles the bank

accounts of this institution is rotated every
three months.

124

CASE 36: At this institution, cash disbursement checks
are written by one individual directly from
the vendor's invoice. A second individual
ascertains the vendor's balance from the
accounts payable register before the check
is mailed.

Over 80 percent of the institutions surveyed pay
accounts payable monthly. Nearly 70 percent indicated they
take all purchase discounts Offered. An additional 20 per-
cent of the schools indicated that they take "some" of the
discounts while 10 percent are unable to take any cash dis-
counts.

The following table indicates the number of signa-

tures required on checks written at 42 surveyed institutions:

Number of %.of the

 

 

 

Signatures on Checks Schools 42 Schools

One individual alone 4 10
One individual out of two possible 2 5
Two individuals out of two possible 22 52
Two individuals out of three

possible 8 19
Three individuals out of three

possible 1 3
Four individuals out of four

possible - 1 3
Two individuals out of Six possible 1 3
By machine, one person has the key 2 5
By machine, two individuals have

the key _i_ __3_

42 100

CASE 37: At this institution, two individuals must Sign
all checks, the president and the treasurer of
the governing board. The treasurer normally
signs 500 blank checks in advance. To what
avail is the use of two signatures on the
checks of this institution?

125

CASE 38: This institution writes all checks for payment
of accounts payable when they are due. How-
ever, because of a Shortage of cash, the
signed checks are kept in a desk drawer until
such time as additional cash receipts provide
funds to cover the checks.

Of 42 reporting institutions, 30 (71%) have had a
deficit in the current fund surplus account at some time
during the past 10 years. The following were the methods
given for recovery from the deficit position:1

1. Appeal to the sponsoring institution for a grant.

2. General appeal for funds to alumni and the public.

3. Carry forward and reduce through future surpluses.

CASE 39: This institution covers certain deficits by
having its governing board "release" some
endowment fund principal.

Cash shortages in the current fund are generally
reduced by appeals for funds, short term borrowing, and
(less frequently) by borrowing from other funds within the
institution.

Only four of 42 surveyed institutions have a sepa-
rate purchasing agent (one who is not also the chief fiscal
officer). In all but one case, however, purchasing is done
centrally. Formal bids are always requested by 13 of 42

institutions (31%); bids are requested for purchases of

large dollar amounts only at seven schools (17%); some

 

1Note that several institutions recovered by use of

several of these methods.

126

requests for quotations are sent at five other schools
(12%); bids are seldom or never used at 17 institutions
(40%) .

At seven of the 42 institutions (17%) the president
must approve and Sign all purchase orders before they may be
sent.

Nineteen of 42 institutions (45%) have central
receiving of all incoming orders (with the usual exception
of dining hall orders). Of 42 institutions, 37 (88%) notify
the bookkeeper by some type of receiving report when orders
are received.

Several institutions indicated that a paucity of
competent personnel trained in the area of college manage-
ment and accounting exists. At one institution, the posi—
tion of chief fiscal officer is presently vacant because of

a lack of qualified applicants.

5.10 Academic Records

Because of difficulties of categorizing the academic
record keeping practices of the 44 surveyed institutions, it
is impossible to present statistical summaries of current
procedures. Listed below are certain observations frequently
noted in discussions with the academic records officers of
43 institutions. These observations are not presented in

any particular order of frequency or priority.

127

Few institutions have established formal guidelines
for discarding academic records documents which need
not be permanently maintained. Every institution
maintained at least two permanent documents: (1)

the grade list submitted by the instructor, and (2)

a permanent record card for each student. One insti-
tution maintained four traceable source documents in
addition to the permanent record card.

Related to the first observation are the problems
associated with sequential posting of grades. ESpe-
cially in a Situation where records are maintained
by hand, each posting prior to recording the grade
on the permanent record card increases.the probabil-
ity of error. At one institution, for example, the
faculty member posts his grades from his grade book
to a grade list. The registrar's office posts the
grade from the grade list to each student's course
registration card. From this card grades are posted
to the grade report and finally from the grade report
to the permanent record card. At each of these
steps, all done manually, the chance for error is
increased.

At the great majority of institutions, a duplicate
set of permanent record cards is not maintained away
from the premises of the office of the registrar.
While most institutions do keep their records in
fireproof storage vaults, loss of such records by
file would be disastrous.

The work load of the academic records Office is not
Spread evenly over the continuum of time (occurring
principally at the end of each term, at registration,
and at graduation). Operating under the pressure of
time naturally increases the chance for error. Over
25 percent of the institutions surveyed do not
"double check" their work during a non-peak workload
period. They rely on the students and/or faculty to
report errors. At least 10 percent of the institu-
tions indicated that the students do not receive
their grade reports for the first term's work prior
to registration for second term courses. Several
institutions indicated that they were at least one
year behind in posting grades to permanent record
cards.

Three reasons were generally cited for the fact that
over one-half of the institutions surveyed retain
permanently the attendance and grade books used by
faculty members: (1) fear of not being able to

128

prOperly trace possible errors in recording and
reporting grades; (2) adequate storage Space; and
(3) high turnover of faculty personnel and inability
to contact individuals in case of future problems.

6. Nearly every institution indicated that recent
"housekeeping" of curricula and course offerings had
taken place, generally the result of attempts to
gain or maintain accreditation. Courses that had
not been offered for several years were eliminated
from the catalogue.

CASE 40: This institution offers the following courses,
according to their 1966-1967 catalogue: Prin-
ciples of Electronic Data Processing; Introduc-
tion to Programming Concepts and the Computer;
Key Punch Operation; Data Processing and Sys—
tem DevelOpment; Accounting Machines Wiring
and operation; Functional Wiring Principles.
This institution, an unaccredited junior col—
lege, neither owns nor has access to either
punched card equipment or a computer.

Of 43 reporting institutions, 20 (47%) maintained
academic records completely manually (with the exception of
photostatic reproductions of the permanent record card for
use as a transcript). Twenty institutions (47%) use the
"Keysort“ system of the Royal McBee Corporation. Three
schools (7%) maintain academic records on punched card, unit‘
record equipment manufactured by the International Business
Machines Corporation. Two institutions, not using punched
card equipment presently, possess these machines and are
designing a system for their implementation in academic
records processing.

Three institutions do not presently own or lease

photocopying equipment. As a consequence, each transcript

must be individually typed.

129

 

 

Processing of Academic Records at 43 Institutions (in %)

Processed Completely Manually 47%
Processed Using Royal McBee Keysort System 47%
Processed by Punched Card, Unit Record Equipment 7%

 

Figure 5.8. Selected findings--academic records.

5.11 Present Practices Compared With Present Standards

 

It is evident from the results of this research that
the vast majority of the institutions surveyed has attempted
to comply with the standards for college record keeping as

indicated in Standards for Colleges of the Southern Associa-

 

tion of Colleges and Schools. The majority of institutions

has adopted most of the recommendations of College and Uni-

 

versity Business Administration, Volume I. Yet compliance

 

is by no means universal among the surveyed institutions;
nor have all institutions complied in the same way.

For example, not all institutions prepare a budget
as required by Standard 4 [23, p. 12]. Of those that pre-
pare a budget, not all invite participation of faculty mem-
bers and staff administrators, as suggested in Standard 4.
Not all institutions "render interim budget statements to
department heads for their guidance and assistance in stay-
ing within budgetary allocations" [23, p. 12].

Not all institutions have adopted completely all of
the sixteen basic accounting principles of Volume I. In

fact, some institutions do not use fund accounting.

 

130

Management practices, as recommended in Volume I,
are not universally adopted. For example, nearly half of
the institutions surveyed do not maintain a physical inven-
tory of assets.

Moreover, and perhaps more important, the goals of
uniformity and comparability stated by the authors of Volume
I have by no means been achieved. As has been indicated
earlier in Section 2.2, Volume I is indecisive in many
instances, allowing much leeway in the adOption of account-
ing procedures. Each college surveyed has selected from
among the permitted alternatives those which it has adopted.
The result is incomparability. This is evident, for example,
in the discussion of the use of accrual basis accounting in
Section 5.2.

One must conclude, then, that while present record
keeping practices at the 44 surveyed colleges approach the

established standards, they do not meet them.

5.12 Present Practices Compared With Decision—Makers' Needs

 

In Chapter Three the decision—making process was dis-
cussed in detail. It was indicated that the information sys-
tem for an organization must be designed with the needs of
the decision-makers of that organization in mind. Chapter
Three delineated the decision centers of a typical small
private college. Chapter Four considered the kinds of
information which would be useful, objective, and feasible

for those decision-makers.

131

Clearly, the standards established by the regional
accrediting association are oriented primarily to the report-
ing of stewardship information. Yet the decision-maker V
needs are for managerial type information. In concentrating
attention in designing its information system (or its sev—
eral separate sub-systems) on meeting the established stan-
dards, a small college may unintentionally substitute a

criteria of acceptability for usefulness. That is, many of

 

the colleges surveyed have let Volume I and Stnadards for

 

Colleges become the sole measure of an effective information
system.

Thus the first observable difference between present
practices at the 44 schools surveyed and the ideas outlined
in Chapters Three and Four is that the needs of the decision—
makers have not been explicitly considered in the design of
information systems at these colleges.

A second difference is the lack of integration of
all the information systems at each individual institution.
ESpecially evident was the lack of coordination of the busi-
ness information system with the academic information system.
For example, although the business manager may know the
total cost of Operating the institution's chemistry program,
and although the registrar may know the precise enrollment
figures for chemistry courses, these two sets of data are
not Often integrated in a report to the chief academic offi—

cer. In Short, the kinds of managerial reports which are

132

useful to educational administrators are not generally
included on a recurring basis in the information flows of
most of the colleges surveyed. These are the kinds of
reports championed in Financial Analysis of Current Opera-

tions of Colleges and Universities. These are the kinds of

 

reports which are useful, objective, and feasible at even
the smallest institution. These are the kinds of reports
which must be available if the quality of the instructional
programs at academic institutions is to be continually eval-
uated and improved.

Not one institution surveyed has appointed one
individual to coordinate information flows throughout his
institution, although a small minority of schools has direc-
tors of institutional research and planning. In fact, many
of the college officers interviewed in the course of this
study indicated that their information systems had not
really been planned at all, but rather they were the result
of an evolutionary process. Too often the reply to the
question of "Why do you do this?" was that "We have always
done it this way."

It must be concluded, then, that the idea of a
coordinated management information system for a small pri-
vate, predominantly Negro college is at present not a

reality.

133

5.13 Miscellaneous Findinge

 

Certain data were gathered in connection with the
research for this study which do not have direct implication
on information systems design. Yet such data might be use-
ful knowledge and are therefore presented here.

Of 42 surveyed institutions, 36 (86%) have an endow-
ment fund. Six institutions (14%) have no endowment funds
at present. Of the 36 schools with endowments, the adminis-
tration of the endowment funds is handled by the sponsoring
church in 19 cases (53%); by a local committee including a
banker or a stock broker in 15 cases (42%); and some funds
by the church and some by a local committee in 2 cases (5%).

Of 42 institutions, 34 (81%) have a retirement pro-
gram for at least some of their faculty and staff. Sixteen
of the 34 institutions (47%) Participate in the Teachers'
Insurance and.Annuity Association (T.I.A.A.). Eighteen
institutions (53%) either participate in the retirement plan
of their sponsoring institution or have established a plan
of their own.

At 10 of the 16 institutions participating in T.I.A.
A., the individual and the institution each contributes 5
percent of the base salary. The highest total contribution

under T.I.A.A. is 13 percent (school 8%, individual 5%).1

 

1At one institution, the individual and the institu-

tion each contributes 7-1/2% up to the first $4,800 of
salary.

134

The lowest total contribution under T.I.A.A. is 6 percent
(school 3%, individual 3%). The highest individual contribu-
tion is 5%, except as indicated in note 1, page 133.

At Six of the 18 institutions under other retirement
programs, the individual and the institution each contrib-
utes 5 percent of the base salary. The highest total con-
tribution under private plans is 15 percent (school 10%,
individual 5%). The lowest total is found at three institu-
tions whose plans call for the institution to contribute
three-quarters of one percent up to $4,800 of salary and
one and one-quarter percent thereafter, with the individual
contributing nothing.

Under T.I.A.A. only salaried employees are included.
Of the 18 retirement plans that are not associated with
T.I.A.A., 11 include all employees, salaried or hourly. Of
the 34 institutions with retirement plans, participation is
Optional at only seven (22%).

Forty of 42 institutions participate in the Social
Security program of the United States Government. The two
institutions which do not participate (as eleemosynary
institutions may elect) also do not maintain retirement
programs at all.

Thirty of 42 institutions (7F%) have an institutional
hOSpitalization insurance program, with employer contribu-

tions ranging from 100 percent to zero.

135

Twenty-six of 42 institutions (62%) have an institu-
tional major medical insurance program, with employer con-
tributions ranging from 100 percent to zero.

Twenty-two of 42 institutions have group life
insurance programs. Insurance coverage ranges from $1,000
to $20,000. Employer contributions often cover the first
$1,000 of insurance and only a fraction of the premium
thereafter.

Few institutions have prepared complete manuals Of
business procedures and job descriptions for business office
employees. Several institutions, however, have outstanding
procedures manuals, with detailed rules both for individual
jobs and for the business office as a whole.

Most institutions indicated that the basis of valua-
tion of their physical plant and equipment for insurance
purposes is historical cost, although several schools indi-
cated that insurance appraisals had been made.

CASE 41: This institution has three different insurance
agents and maintains policies with 20 differ-
ent insurance companies. Community relations
was given as the reason for the three agents.
Financial considerations, however, have forced

this institution to investigate consolidation
of all insurance policies.

5.14 Recapitulation

 

Forty-four small, private, predominantly Negro col-
leges and universities in the southeastern United States
were surveyed in an attempt to measure present practices in

business and academic record keeping. The statistical

136

summaries presented in this chapter indicate that many and
diverse practices are followed by these institutions. In
general, the majority tries to meet the standards of the
Southern Association of Colleges and Schools and of College
and University Business Administration, Volume I. Compli-
ance with these standards is by no means consistent, and the
goals of uniformity and comparability are not achieved.

The orientation of the majority of the institutions'
record keeping systems is toward stewardship information.
Far less emphasis is placed on providing the kinds of man-
agerial information which internal decision-makers need to
effectively manage the institution in its major endeavor:
the preservation and dissemination of learning.

Chapter Six will consider the question of efficiency
in the preparation of the records of a small academic insti-

tution.

CHAPTER VI

EFFICIENCY OF COLLEGE INFORMATION SYSTEMS

6.1 The Feasibility Question

 

In Chapter Three, three criteria for inclusion of
a measurable property in a college information system were
established: usefulness, objectivity, and feasibility. It
is feasible to include a certain measurement in the informa-

tion system if the value of the information to the college

 

(and its decision-makersi is greater than the cost of fur-

 

nishing it.

 

While an acceptable standard for measuring the epet
of furnishing a given item of information is available,
namely the dollars of cost involved, no such acceptable
measurement standard for the value of information exists.

In some cases the value of a given item of information avail—
able at a given decision center at a given point of time can
be measured in dollar terms. For example, the fact that the
clerk reSponsible for payment of college accounts knows of
the final date on which an account may be paid and a caS
discount taken results in a measurable value for that item
of information. This value, namely the cash discount taken,

can be compared with the added cost, if any, of providing

137

138

the clerk with the prOper information at the proper time.
If the value exceeds the cost1 then procedures whereby the
clerk is properly informed Should be adopted.

In other cases, however, it is difficult with pres-
ent measurement capabilities to quantify the value of infor-
mation in dollar terms. How does one measure the value, for
example, of providing the academic counselling office with
adequate background information on each student so that he
may be properly guided in his collegiate program? How does
one measure the value to the chief academic officer of
information about the relative costs of Operating individual
academic programs at his institution? The basis for these
problems is the fact that the outputs of an academic insti—
tution, unlike a business entity, are not susceptible to
quantifiable measurement in terms of dollars. If one could
assign a dollar value to each graduate based on his quality,
then perhaps the value of much information could be deter-
mined. For if the dollar value of a graduate (and other
college outputs as well) could be ascertained, then each
item of information in a college information system could
be valued in terms of increases to the quaity (and hence
the value) of the graduate.

Such measurements of collegiate outputs are not

presently a reality. Several individuals and groups are now

 

1The time value of money has been disregarded in
this simple example.

139

studying this problem. Notable among these is a study by
M. G. Keeney, H. E. Koenig, and R. Zemach, Sponsored in part
by a National Science Foundation grant.1 This study pre-
sents a model of a typical institution in terms of flows of
manpower and facilities inputs to two production sectors:
academic and nonacademic. These flows are measured in terms
of physical units. Outputs are measured in terms Of combina-
tions of these physical units to produce either develOped
manpower (i.e., graduates) or outside services (e.g.,
research, community services). Assignment of actual unit
cost parameters to the physical flows results in measurement
of outputs in dollar terms. Outputs are not, however,
eXplicitly measured (and thus differentiated) in terms of
quality. Although quality standards are implicit in the
model, through limits in the "blend" of physical inputs,
measurement of outputs, by quality and in dollar terms, has
not yet been achieved. Nor have such measurements been suc-
cessfully accomplished in any other studies, although this
research continues at present.

Thus the problem of determining the value of informa-
tion has not been solved. One solution to the feasibility
question is the subjective determination of feasibility or

infeasibility of a given item of information by professional

 

1State-Space Models of Educational Institutions
(East Lansing, Michigan: Division of Engineering Research,
Michigan State University, 1967).

i :EEEE'

140

college information systems designers and college adminis-
trators. No doubt their decisions as to feasibility of
certain items of information, especially the extrema, would
be correct. For example, it is intuitively obvious that it
is feasible for each academic institution to maintain a
record of the names of each of its students. It is equally
obvious that inclusion in a college information system of
the actual number of blades of grass on its campus is not
feasible. But is the inclusion in a college information
system of the admission test scores of its students feasible?
The answer to this and many similar questions is not intui-
tively obvious. Hence, the solution to the feasibility
question which requires subjective determination by profes-
sional college managers may result in a less-than-Optimal
infOrmation system. It is hypothesized here, without proof,
that most, if not all, colleges do presently use this method.

Until such time as the quality of college outputs
can be measured in dollar terms, the feasibility question
must remain unanswered.

The notion of feasibility is concerned with individ-
ual items of information--individual measurable prOpertieS
of an academic institution. It is also concerned with
groups of these individual items of information, for while
each individual item may itself be feasible, certain items
when considered in relation to other items in the information

system are not feasible. That is, the feasibility of one

141

item of information is not independent of the other items in
the system.

For example, the value of maintaining the date of
birth of each of its students in its information system may
exceed the cost to a college of furnishing it. Hence, it is
a feasible item of information. Similarly, the value to a
college of maintaining the current age of its students in
its information system may exceed the cost of doing so. But
would the value of maintaining both items of information in
the system exceed the cost of furnishing them both?

This notion can be extended beyond simple pairs of
measurable prOperties to triplets, quadruplets, etc. In
fact, it can be extended to all of the possible subsets of

all measurable prOpertieS.

6.2 Efficiency

When one considers all of those measurable prOper-
ties Selected for inclusion in an information system (i.e.,
those which are deemed to be useful, objective, and feasi—

ble), one can speak of the efficieney of that system. ‘Ap

 

information system is said to be efficient when the system
provides information of the highest value for a given cost
of furnishing_it; ory_converse1y, if, for a given level of
value of information, it has been furnished at the least

possible cost. It is most important to realize that consid-

 

eration of efficiency presumes a resolution of the question

142

of feasibility. One must speak of the efficiency of a given
system; a given system requires selection from among the
possible measurable prOperties those which will be included
in that system; this selection, in turn, requires determina-
tion of feasibility.

In order that the discussion of efficiency may pro—
ceed, then, it is necessary to make certain assumptions
about feasibility.

1. It is feasible for a college information system
to provide for the processing of all information required to
meet the standards set by the apprOpriate regional accredit-
ing association.

2. It is feasible for a college information system
to provide for the processing of accounting data in such a

manner as prescribed by Volume I of College and University

 

Business Administration.

 

3. It is feasible for a college information system
to provide for processing the kinds of information and
reports recommended in Financial Analysis of Current Opera-
tions of Colleges and Universities.

With each of these three assumptions there goes the
proviso that an efficient manner of processing these data is
to be used. That is, although the information which will be
processed as a result of adOption of these three assumptions
has great value, it is not implied here that this information

must be obtained "at any cost." A further proviso is that

143

any inconsistencies within the requirements of these three
bodies of information must be resolved in favor of useful-
ness to college decision-makers.

Given, then, that the minimum information system for
a small college Should include (1) compliance with all stan-
dards of the regional accrediting agency, (2) acceptance of
the accounting requirements of Volume I. and (3) adOption of
the kinds of managerial reporting formats suggested in

Financial Analysis, what is the most efficient manner of

 

gathering, processing, and reporting these data?

An examination of the characteristics of the data to
be processed is necessary to answer this question. The data
which would ordinarily be processed by a small college would
possess the following characteristics:

1. Much of this data is quantifiable, in terms of
dollars, physical units, percentages, and the like. Most
accounting informatiOn is quantifiable in terms of dollars.
Some, such as asset inventories, is quantifiable in terms of
both dollars and physical units. Academic information often
is quantifiable in terms of physical units. For example,
enrollments are measured in numbers of students; manpower is
measured in hours of time; test scores and grades can be
measured in actual numbers Or percentages.

2. Much of the college data which is not quantifi-
able is at least categorizable. For example, students can

be classified as Baptist, Methodist, Catholic, etc.

144

Students can be grouped according to major area, residence,
sex, career plans, etc. Faculty can be classified by field
of instruction, academic preparation, marital status, etc.
Equipment can be classified according to physical condition,
size, etc.

3. Most pieces of college data are used several
times in preparing different reports and analyses. For
example, the account receivable from an individual student
would be used when periodic statements are rendered, when
payments are received, when the balance sheet is prepared,
when analyzing delinquent accounts, etc. The student's
course grade is used for term grade reports, for permanent
records and transcripts, for counselling, and for analyses
of grading habits of faculty members. Course enrollment
data would be used to analyze course demand, to study room
utilization, to determine unit costs of instruction, to
prepare reports to the government, etc.

4. Data gathered from various sources is often
integrated in final reports. For example, in attempting to
determine the cost of, say, the chemistry program at a col-
lege, financial data would be gathered by the chief fiscal
Officer; enrollment data would be gathered by the academic
by the academic records Officer; certain qualitative data
might be gathered by the chief academic officer. In order

to analyze the progress of students receiving financial aid,

145

data from the chief fiscal officer, the student personnel
officer, and the academic records officer would be merged.
5. The majority of reports and analyses to be pre-
pared is of a recurring nature; that is, they are routinely
processed at predetermined periodic intervals. The finan-
cial reports recommended in Volume I and the managerial

reports recommended in Financial Anaiysis are examples of

 

these recurring reports.

6. Timeliness is an important factor. For example,
budget reports, to be useful for control purposes, must be
prepared regularly. Bills must be paid when due. Grade
reports must be prepared prior to registration for the
ensuing term. Payrolls must be completed by payday.

7. Reasonable accuracy is required.

8. Large quantities of data exist even at a small
college.

These eight characteristics of data to be processed
at academic institutions indicate that some degree of mech—
anization in data processing would be suitable. Consider,
for example, the characteristics suggested by Dearden and
McFarlan as making advantageous the processing of data by
automated methods [7, pp. 10ff.]:

1. A Number of Interacting Variables.

2. Reasonably Accurate Values.

3. Speed an Important Factor.

146

4. Repetitive Operations.

5. Accuracy Required.

6. Large Amounts of Information
Note the similarities between these characteristics and
those of college data cited earlier.

Financial Anaiysis points out that adoption of the
recommendations contained therein would likely require
mechanization [25, p. 28]:

The data collection process itself is viewed
not as sporadic activity but as an integrated,
coordinated process, bringing together dollar
and Operational data, both projected and actual,
which will give a meaningful description of the
Operation of the institution. Needless to say,
such a process should include the use of the
data processing system and any and all devices
and techniques that would economically eXpedite
data collection, processing, and reporting.

In their survey, "The 'Managerial Revolution' in
Higher Education," Rourke and Brooks cite the "growing use
of computers and electronic data—processing equipment in the
management of public colleges and universities" [18, p. 167].
They are quick to point out, however, that the use of such
equipment does not assure "scientific management." One must
first examine the quality of design of a management informa-
tion system before any consideration of automation. The
most important criteria for a good management information

system is effectiveness, as defined earlier. Efficiency

must be subordinated to the needs of decision-makers.

147

Given, though, that the general design of a college
information prOposed heretofore is effective, it appears
that some amount of automation is necessary for maximum

efficiency.

6.3 Automation of a College Information System

Data processing involves the flow of information
from its source of its use. Automation involves the use of
mechanical or electronic equipment to some extent in the
processing of data. Automation can range from the simplic-
ity of the use of an adding machine to the complexity of a
fully integrated highSpeed computer system serving the needs
of all college decision-makers.

One might distinguish among four levels of SOphisti-
cation of automation in college record keeping:

1. Calculating Machines.--Such machines as an add-
ing machine and a calculator can reduce the time and drudg-
ery and increase the accuracy of arithmetical computations,
but the use of these machines alone still leaves the record
keeping system virtually a manual one.

2. Bookkeeping Machines.--Bookkeeping machines, and
their less capable cousins, posting machines, increase com-
putational efficiency and reduce or eliminate such layout
problems as columnarization and Spacing in recurring reports.
Their only "memory" capability is the accumulation of totals.

In general, summary totals must be reinserted manually in

148

the machine during an updating process, although several
newer bookkeeping machines are designed to automatically
pick up prior tools magnetically from a card.

3. Punched Card, Unit Record Equipment.--A punched

 

card, unit record data processing system is often referred
to as electric accounting machinery (E.A.M.). Data enters
the system as holes punched in paper cards. Each card con-
tains one item Of data, that is, one record, hence the term
"unit record" equipment. The basic output of the system is
either a printed document or additional punched cards.
E.A.M. has all of the advantages of a bookkeeping machine,
namely the ability to perform calculations1 and the ability
to follow a predetermined format for recurring printed out-
puts. In addition, it has several other capabilities which
distinguish it from the lower order bookkeeping machines.
First, it can alter its Operation based on certain character-
istics of the input data. Second, because items of data are
stored individually and permanently on punched cards, this
data can be rearranged or sorted mechanically. Third,
because the output of the system can be a punched card,
updated totals or summaries need not be manually reinserted

when performing recurring operations. While these machines

 

1Basic E.A.M. equipment has the ability to add and
subtract; more SOphisticated adaptations can multiply and
divide as well.

149

have the ability to compare consecutive punched cards and to
accumulate totals, they have no memory capacity. In addi-
tion, the unit record equipment is slow when compared with a
computer system.

The three basic pieces of unit record equipment are
the card punch, the sorter, and the tabulator. Each per-
forms one of the three basic steps of record keeping:
recording, classification, and reporting. In accounting,
of course, these steps are known as journalizing, posting to
the ledger, and preparing financial statements. Additional
pieces of machinery are available to simplify or eXpedite
one of these three record keeping steps. For example, the
reproducing punch, the interpreter, and the verifier eXpe-
dite the recording process. The collator simplifies the
classification process. A calculating attachment to the
tabulator eXpedites the reporting process.

In its application to a college information system,
electric accounting machinery has a much broader scope of
use than bookkeeping machines. Most of the unit record
machines are controlled by permanently wired panels which
are inserted to perform Specific Operations.

The primary manufacturer of unit record equipment is
the International Business Machines Corporation. This equip-
ment may be purchased (new and used) or leased directly from
the manufacturer; it also may be purchased used from present

owners or office equipment firms. A recent informal survey

150

indicates that the three basic pieces of equipment (the card
punch, sorter, and tabulator) can be rented for approximately
$300 monthly, including all maintenance and repairs. These
same items, purchased new, would cost about $30,000.000.
Purchased used, they can be obtained for $7,500 and up.
Purchase, of course, involves maintenance and repairs by the
owner, although service contracts are available from the man—
ufacturer. Two publications by the International Business
Machines Corporation describe application of these machines

at academic institutions. Punched Card.ApplicationS at

 

Barrington College (I.B.M. publication number K20-0010) con—

 

siders their use at a college with 500 students. Data Pro-
cessing Applications at Wittenburg University (I.B.M. publi—
cation number E20-0150) describes an institution with 1,200
students.

4. Computers.--The electronic computer has several

 

characteristics which distinguish it from other data process-
ing machinery. First, it Operates at electronic Speeds.
Second, it has a memory capacity for the storage of data.
Finally, it has the ability to alter the direction of its
Operation based on the results of its computations. Almost
concurrent with their rapid growth in business data process-
ing, computers have been adOpted by large academic institu-
tions both for the processing of their records and as an
instructional and research tool. Rourke and Brooks point

out that "without computers a substantial increase in

151

administrative personnel would have been necessary in higher
education." Moreover, the computer has given college admin-
istrators an heretofore unavailable intimate knowledge about
their institution to guide them in planning its programs and
its destiny.

Each of these four levels of sophistication in the
automation of a data processing system (viz., calculating
machines, bookkeeping machines, punched card equipment, and
computers) has application to a college record keeping situa-
tion. An academic institution must decide which among these
(plus the alternative of a completely manual information
system) will provide for maximum efficiency of operation.
Certain advantages, however, make the consideration of a
punched card, unit record system worthwhile for a small,
private college which has decided to adopt the recommenda-
tions of the regional accrediting association, Volume I,

and Financial Analysis.

 

1. In Section 6.2 eight characteristics of college
data and reports were listed. These characteristics may be
summarized as follows: (a) quantifiable, (b) categorizable,
(c) recurring use of individual items of data, (d) integra-
tion of data from several sources and of various types, (e)
recurring reports, (f) timeliness, (9) reasonable accuracy,
and (h) large quantities of data. While a bookkeeping
machine is suitable for c0ping with data processing some of

these characteristics (viz., quantifiability, recurring

152

reports, timeliness, reasonable accuracy, and perhaps large
quantities of data), it is particularly unsuitable for the
recurring use of individual items of data, for integration
of data from several sources and of various types, and for
data which is categorizable but not quantifiable. Punched
card, unit record equipment is capable of processing data
with all of the eight characteristics.

2. The unit record equipment is capable of many and
diverse applications, whereas bookkeeping machines are gen-
erally suitable for the processing of financial information
only.

3. The cost of Operating a unit record system is
often not beyond the means of even an institution with 500
students.

4. A well-designed punched card, unit record system
provides a good foundation for conversion to a computer-
based system as the institution grows in size and needs.

5. .A unit record system has capabilities for use as
an instructional tool.

These reasons merit the consideration by administra-
tors at small academic institutions Of the use of electric
accounting machinery in the automation of their data process-

ing systems.

153

6.4 Present Automation at Small Private Negro Colleges

Of 44 surveyed small private predominantly Negro
colleges, every one is presently using a calculating device
of some sort. Eleven of the 44 schools (25%) process all
records manually except for the use of these calculating
machines. All of the remaining 33 institutions presently
own or use bookkeeping or posting machines. Of these 33,

23 use at least one bookkeeping machine and 10 use a posting

machine or a posting cash register.

The 23 institutions now using bookkeeping machines
Operate at least 29 machines including the following:

1 National Cash Register Company Model 31

2 National Cash Register Company Model 32

10 National Cash Register Company Model 33

1 National Cash Register Company Model 42

12 Burroughs Corporation Model F-1500

1 Burroughs Corporation Model F-5300

3 Unknown or miscellaneous manufacturers.

In addition, four bookkeeping machines are known to be on

order by these 44 institutions.

Six institutions of the 44 presently own or lease
punched card, unit record equipment manufactured by the
International Business Machines Corporation. The applica-
tions at each of these six institutions will be briefly
presented below as indicative of the potential successes and
problems in the use of punched card equipment:

INSTITUTION A: This institution had leased a small punched
card system for over two years prior to con-
sideration of any application for internal
data processing. The equipment was used

entirely for instructional purposes. At
present, all academic records Operations

154

(including registration, class lists, grade
reports, transcripts, Special analyses) are
prepared on the unit record equipment. Work
is underway for gradual applications of
financial accounting records and alumni
records.

INSTITUTION B: This institution has recently taken posses-
sion of its punched card equipment and has
no Operating data processing applications
at present. Plans include academic records
processing for the immediate future, busi-
ness Office records in the more distant
future.

INSTITUTION C: This institution has a large unit record
system on which are processed all financial
records, including budget requests, final
budgets, budget reports, all journals and
ledgers, monthly statements, student loan
reports, payrolls, and physical inventories.
No applications in the area of academic
records exist or are planned because of
reluctance on the part of the registrar to
automate a system he believes is Operating
smoothly on a manual basis.

INSTITUTION D: This institution has a large unit record
system on which only academic records are
processed. Lack of COOperation by the busi-
ness Office has prevented accounting applica-
tions to date.

INSTITUTION E: This institution has a very large unit
record system in use, processing both finan—
cial and academic records. Additional appli—
cations are planned gradually leading to the
purchase or rental of a small computer system.

INSTITUTION F: This institution has recently been given a
vacuum—tube computer. It has leased a unit
record system as auxiliary peripheral equip-
ment. Academic records applications are
planned for the immediate future; business
office applications will follow.

Two other surveyed institutions utilize the data
processing equipment at nearby academic institutions for the

processing of at least some of their records. One of these

155

also uses the computer facilities of a nearby industrial
firm, an officer of which is on their governing board.

Two institutions make use of outside commercial data
processing services for the automation of some of their
records.

One institution has been given a small digital com-
puter, oriented ideally to scientific research but with
definite capabilities for data processing. To date this
institution still maintains its books entirely manually
except for the limited use of an old bookkeeping machine.

Two institutions presently have large electronic
computers on order. One of these is moving upward from
smaller, less SOphisticated equipment. The other is moving
from what is essentially a manual Operation to a large com—
puter system. At least two other institutions indicated
that a computer for use by internal record keeping would

likely be ordered in the near future.

6.5 Recepitulation

 

The definitions of feasibility and efficieney both

 

 

involve the notion of the value of a piece of information.
The value of information in a college information system
often cannot be measured in dollar terms because the outputs
of an academic institution are not presently measurable in
those terms. Rather than to avoid these questions of feasi-

bility and efficiency, a minimum information system for a

156

college which (1) meets accrediting agency requirements,

(2) follows Volume I of College and University_Business

 

Administration, and (3) adOpts the suggestions contained in

 

Financial Anaiysis of Current Operations of Colleges and

Universities has been assumed to be feasible. Given the

 

characteristics of the kinds of data processed by this min-
imum system, it appears that some amount of automation is
necessary. Four levels of automation have been identified:
calculating machines; bookkeeping machines; punched card
equipment; and computers. Punched card, unit record equip—
ment appears to possess the capabilities for processing data
with the characteristics of college information at a cost
which is not beyond the means of most small academic insti-
tutions.

One-fourth of the 44 small private Negro colleges
surveyed process their records manually. The rest of the
schools use, at least, a bookkeeping machine, with several
Operating punched card data processing centers.

Chapter Seven will summarize the results of this

study and present several conclusions and recommendations.

CHAPTER VII

CONCLUSIONS AND RECOMMENDATIONS

7.1 Conclusions

 

When contrasted with information systems development
for business enterprises, research into the design of effec-
tive information systems for academic institutions has been
neglected. In particular, the larger public and private
universities have pioneered in the deve10pment of informa-
tion systems to meet their own needs. Smaller institutions,
however, have been imitators rather than innovators in most
of the strides they have made.

Small private colleges, facing unique information
problems, lack of coordinating effort by sponsoring bodies,
and limited resources, have generally lagged behind the
larger institutions in consideration of a coordinated manage-
ment information system.

The small private predominantly Negro colleges have
provided higher education to the majority of Negro young
peOple in the past, and all indications are that they will
continue to do so for the foreseeable future. The quality
of the service they render depends, in part, on the quality

of the information provided to their decision-makers. It

157

158

therefore follows that these institutions, as well as all
similar small colleges, should be assisted in the develop-
ment of effective management information systems.

An information system is the network of flows of
information from the preparer to the user. The users of
information in an enterprise (such as a college) are deci-
sion centers. The decision centers at an academic institu-
tion can be categorized according to the hierarchic level of
authority. The president and governing board cOnstitute the
policy—making decision centers. The chief academic officer,
the chief fiscal officer, the chief student personnel offi—
cer, the director of alumni affairs, and the director of
institutional research and planning are the tactical deci-
sion—makers, responsible for the implementation of policy.
Academic department chairmen and staff of equivalent rank
are Operational decision-makers, responsible for administer-
ing Specific programs or activities of the institution.

Each of these decision centers requires information
as the means of reducing uncertainty in the making of deci-
sions. An effective information system is one which ade-
quately informs decision-makers for their decisions. An
obvious problem, then, is the determination of exactly what
information Should be provided to decision-makers.

In general, most small colleges have been guided by
the standards established by the regional accrediting agency

in designing their information systems. The requirements of

159

these standards are vague when one considers the Specific
features necessary for an effective information system. The
regional accrediting associations, in turn, require adher-
ence to the principles Of college accounting outlined in
College and University Business Administration, Volume I.
Volume I has done much to promote uniformity in accounting,
yet complete uniformity does not exist. The accounting
principles espoused therein allow many alternatives from
which each institution may select. Nor does Volume I pro-
vide for a system which generates all of the kinds of infor-
mation college decision-makers need. It has been Shown that
the primary users of college information are the college
administrators themselves. These individuals need informa-
tion of a managerial nature to assist them in making internal
decisions. Yet Volume I provides primarily for stewardship
information and only incidentally for managerial type infor-
mation.

Three criteria have been accepted as applicable to
the determination of which information should be included in
a college information system:

1. Usefulness: of value to the decision-maker.

2. Objectivity: freedom from bias.

3. Feasibility: the value of the information is
greater than the cost of furnishing it.

Primary among these criteria must be usefulness, and

designers of college information systems must provide for an

160

Optimum balance between usefulness on the one hand and
objectivity and feasibility on the other hand.

A recent study, Financial Analysis of Current Opera-

 

tions of Colleges and Universities, concluded that colleges

 

must generate much more information of a managerial nature
if they are to provide an effective service to the academic

community and to society. To that end, Financial Anaiysis

 

prOposed a minimum management information system which pro-
duces the kinds of information useful to college decision-
makers.

Forty—four small private predominantly Negro col—
leges were surveyed in an attempt to measure their present
practices both in relation to present standards and to
decision-maker needs. Although several surveyed institu-
tions have npt_made any attempt to comply with the standards
of the regional accrediting agency and the principles of
accounting recommended in College and University Business

Administration, the majority of such colleges has attempted

 

compliance. Yet even those which have tried to comply with
the standards have not done so completely, with deviations
so diverse as to make uniformity, and hence comparability,
an unrealized ideal. The design of information systems at
these colleges has been oriented to stewardship reporting;
only to a much lesser extent has managerial information been

included in the system on a recurring basis.

161

Despite the advantages of a coordinated "total
systems" approach to information system design, the majority
of surveyed institutions has several unintegrated subsystems
rather than one "system of systems."

The notion of feasibility, as applied to information,
is particularly elusive in the context of an academic insti-
tution, because although the gget of furnishing an item of
information can be Obtained, its value is not measurable by
present capabilities. Until such time as the value of infor-
mation to college decision-maker can be measured, the deter—
mination of feasibility must necessarily be subjective.

Rather than abandon consideration of the question of
efficiency in the operation of a college information system,
one must make several assumptions. If it is assumed that
(l) compliance with all regional accrediting agency stan-
dards, (2) adoption of the requirements of Volume I of
College and University Business Administration, and (3)
acceptance of the proposals of Financial Anaiysis of Current
Qperation of Colleges and Universities are all feasible,
then the notion of efficiency can be considered. An infor—
mation system is said to be efficient if it provides infor-
mation of the highest value for a given cost; or, conversely,
if, for a given value of information, that information is
provided at the lowest cost.

The characteristics of the data to be generated by

acceptance of the three assumptions above suggest that some

162

amount of automation of data processing is necessary for
efficient Operation of a small college information system.
When these characteristics are compared with the capabil—
ities of several levels of SOphistication in automation, one
reaches the conclusion that consideration of the use of
punched card, unit record equipment by a small college is
very worthwhile. Yet the majority of small, private, Negro
colleges has at best reached the level of the use of book-
keeping machines or posting machines. Many such institu-
tions process nearly all of their records manually. A few
use unit record equipment and several now have or plan to

acquire electronic computers.

7.2 Recommendations

 

In the light of the findings of the study, the fol-
lowing recommendations are made. Some of these are directed
at the managers of individual academic institutions. Others
may merit consideration by those organizations reSponsible
for or interested in the deve10pment of standards for col-
lege information systems.

1. Because the primary users of college information
are the internal college decision-makers themselves, the
orientation of any college information system must be toward

managerial type information rather than stewardship report-

 

 

ing.

163

2. Because uniformity, and hence comparability, of
published college information is a desirable goal, compliance
with the standards established by the regional accrediting
Should be included in a college information system.

3. Serious consideration should.be given to the

recommendations contained in Financial Analysis of Current

 

Operations of Colleges and Universities as a basis for man-

 

agement-oriented portion of an information system, eSpecially
for a small institution whose resources do not permit the
design of an individually—tailored system. In addition, the
advantages for inter-college comparability of the adOption

of these recommendations are obvious.

4. The design of a college information system should
follow a coordinated total information system approach,
rather than be a well-planned but unintegrated set of small
subsystems, or, even worse, an unplanned "patchwork" approach.

5. The director of institutional planning and
research is the ideal individual to assume responsibility
for the coordination of a college information system. His
hierarchic level and his freedom from bias render him the
most qualified manager. His reSponsibilitieS Should be for
both recurring managerial reports and Special analyses.

6. In order to provide the kinds of information
recommended above, some degree of automation appears neces-

sary. Consideration should be given to the use of punched

164

card, unit record equipment which has capabilities comple-
mentary to the characteristics of the kinds of data to be
processed by colleges.

7. Research into finding acceptable measurement
standards for the outputs of an academic institution is
necessary if a workable measure of value of college informa-
tion is to be obtained. This, of course, is a long range
project which involves individuals from diverse fields of

professional competence.

7.3 A Final Challenge

While all academic institutions have one overall
objective—-the encouragement and advancement of learning--
differences among them create unique record keeping problems.
The larger institutions have taken the lead in the develop-
ment of information systems to meet their own needs. Yet
their solutions to these problems may not necessarily coin—
cide with those for small colleges. If the small institu—
tions, and particularly small private colleges, are to meet
modern challenges and not render a service inferior to their
sister institutions, they must play an active role in the
development of record keeping practices suitable for their
particular needs. Those institutions which meet this
challenge will be able to compete favorably with larger

entities; the fate of those which do not is evident.

10.

REF ERENC E B IBLIOGRAPHY

American Accounting Association. A Statement of Basic
Accountinngheoty. Evanston: American Accounting
Association, 1966.

 

Bonini, Charles P. Simulation of Information and
Decision Systems in the Firm. Englewood Cliffs,
New Jersey: Prentice-Hall, Inc., 1963.

 

 

Brown, Hugh 5., and Lewis B. Mayhew. American Higher
Education. New York: The Center for Applied
Research in Education, Inc., 1965.

 

 

Capen, Samuel P. The Management of Universities.
Buffalo: Foster & Steward Publishing Corp., 1953.

 

Churchill, Neil C., and.Andrew C. Stedry. "Some DevelOp-
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Davidson, H. Justin, and Robert M. Trueblood. "Account-
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Dearden, John, and F. Warren McFarlan. Management
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D. Irwin, Inc., 1966.

 

 

Gentle, Edgar C. Data Communications in Business.
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1965.

 

Glaze, Thomas E. Business Administration for Colleges
and Universities. Baton Rouge: Louisiana State
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Hungate, Thad L. Management in Higher Education.
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Koontz, Harold and Cyril O'Donnell. Principles of
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Litchfield, Edward. "Notes on a General Theory of
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Long, Luman H. (ed.). The World Almanac 1967.
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McGrath, Earl J. The Predominantly Negro Colleges and
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Nance, Paul K., Leslie F. Robbins, and J. Harvey Cain.
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National Association of College and University Business
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National Committee on the Preparation of a Manual on
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Rourke, Francis E., and Glenn E. Brooks. "The 'Manage-
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Russell, John Dale. The Finance of Higher Education.
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Smith, W. A., Jr. Syllabus for a Course in Management
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Southern Association of Colleges and Schools.
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Sprouse, Robert T. "The Measurement of Financial
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Vatter, William J. The Fund Theory of Accounting and
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