The Independent Voice of Southern Methodist University Since 1915

The Daily Campus

The Daily Campus

The Independent Voice of Southern Methodist University Since 1915

The Daily Campus

Why does SMU hide its financial information?

Laura Lee Blanton Building Photo credit: SMU

In the world of finance, there’s a rule known as the “Chinese Wall.” It refers to the information barrier that exists between the investment banking division and the brokerage division of any large bank. The reason for the barrier is simple: investment bankers, who have access to inside information, can’t spread that information to brokers, who advise high net worth clients on investments. Breaking this barrier would result in corporate leaks and insider trading. Having such a barrier makes sense and is necessary to keep financial markets fair for all investors.

SMU seems to have created the same sort of barrier between its students and its administration by keeping students in the dark about the university’s finances. Unlike the Chinese Wall in banking, the “SMU Wall” serves no purpose whatsoever.

After initially having trouble finding SMU’s audited financial statements from recent years, I just assumed that private universities don’t release them.

I was wrong.

Most of SMU’s aspirational schools—like Vanderbilt University, Emory University, Wake Forest University, and the University of Notre Dame—publicized audited financial information on their websites dating back at least five years. Vanderbilt publishes financial reports dating back 16 years. All of these schools publish the information in easy-to-find places on their websites.

Nowhere on SMU’s website does such a page exist. I sent an email to Kent Best, executive director for news and communication, to find out why the information is not published. In Best’s response, he said “the 2015 financial information is posted” and sent me a link to it (see here).

I was wrong again. The information is technically published on the internet. But the only way to view the information is via the direct link—I challenge anyone to find the same financial report by simply navigating SMU’s website. Without the direct links, I could at least find the 2014 and 2013 reports by googling “SMU audited financial statements.”

Chris Regis, SMU’s chief financial officer, says the university makes its financial statements available through the annual report each year. “Different schools have different ways of publishing [financial information], and we think the annual report is the best way to do it,” she says.

While the annual report does have a page called “Consolidated Financial Statements,” it only shows a statement of activity (revenues minus expenses) and a shortened balance sheet. The audited financial statements, which are certified by accounting firm KPMG, show 28 pages of detailed information and data.

Regis insists that the annual report shows an adequate amount of information given the type of person who typically reads it. “Most people reading our financial statements don’t have a financial background,” she says. For those who do want to read the audited financial statements, Regis says “we will give it when it’s requested.”

Still, most of our aspirational schools make their financial statements easily available. Why can’t SMU just do the same thing? What is our administration trying to hide?

On the statement on activity, I can see that the “institutional support” expense jumped from $94.9 million in 2014 to $112.5 million in 2015, an increase of 18.5 percent. In the prior two years, institutional support expenses had increase just 3.4 percent annually. Regis said the 18.5 percent jump could be attributed to several factors, including “severance payments to outplaced staff” and “fees paid to third party providers.”

The “outplaced” staff” refers to the employees laid off as part of the Operational Excellence for the 2nd Century (OE2C) initiative. The initiative is designed to curb the university’s administrative costs over the long-term, but required lump sum payments to be made to many of those who lost their jobs.

Fees paid to third party providers include the performance fees paid to consulting firm Bain & Company for their part in the OE2C initiative. Regis says SMU “is not permitted to disclose the amount paid to Bain [& Company]” due to the terms of the contract with the consulting firm. The University of California, Berkeley paid Bain $7.5 million to do a similar review of its operations, according to The Daily Californian, Berkeley’s newspaper

Looking at the cash flow statements from the past three years, I can see how SMU has been getting and spending its cash. Since 2012, the school has had a large inflow of funds from the $1.15 billion Second Century Campaign and a bond issuance in 2013 of roughly $200 million. During the same time period, it has spent $414 million on property, plant, and equipment—which largely consists of land purchases and facilities upgrades.

This spending makes our campus bigger and better looking but comes at a significant cost. While donors pay for new facilities to be built, the school absorbs the maintenance costs, according to Regis. With several recent and on-going projects (such as a new health center, new tennis complex, new aquatic center, Centennial Promenade, and Simmons Hall), the university must allocate more and more revenue toward maintaining our facilities. These new projects could have significant effects on our budget in years to come.

“One of our goals over the next fiscal year is to build in a funding source for deferred maintenance,” says Regis.

Other concerns about SMU finances revolve around the rumor that SMU has been running a budget deficit for the past few years. According to a recent report from the All University Finance Committee, SMU plans to allocate $3.7 million per year from OE2C savings to cover the university’s “structural deficit” going forward. Despite the report, Regis says SMU balanced its budget during the last fiscal year (2014-2015), and new budget projections don’t include any use of OE2C savings to cover any structural deficit.

The audited financial reports support Regis’ claims. Based on cash flow from operations, SMU ran a budget deficit from 2012 through 2014, averaging $8.2 million each year. But the most recent financial statements show a 2015 surplus of $3.0 million.

Despite recent budget concerns, Regis says the financial condition of the university is very strong—and based on my findings from the audited financial statements, I’m inclined to agree with her.

Because SMU’s finances are healthy, the university should make its financial reports more publicly available. While Kent Best is technically correct by saying the reports are “posted,” it’s very clear that the university doesn’t want people to see them. Making our financial reports difficult to find—especially when our aspirational schools do the opposite—only invites rumors that the university is having financial problems. SMU, like almost every other school in the country, must rethink its budget to adapt to the rapidly changing landscape of higher education.

There’s no point in hiding our information when there’s nothing worth hiding.

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