Given the various, belittling stereotypes about accountants, it may come as quite a surprise that this stolid cadre of professionals has quietly delivered a life-threatening blow to the university community. While underfunding, academic freedom, the commoditization of teaching, and the corporatization of research have, with justification, captured many headlines, the recently issued Canadian Institute of Chartered Accountants (CICA) "accounting recommendations for not-for-profit organizations" have generated hardly a murmur.
After several years of discussion and debate, the CICA released, in March 1996, a new set of accounting standards for all not-for-profit organizations to take effect for the fiscal year beginning on or after April 1, 1997. Additionally, all not-for-profits were directed to alter retroactively the 1996-1997 statements to comply with the new standards. No alarms were sounded within the university community.
Unbeknownst to most of us, our university administrators have laboured long and hard (at considerable expense and, perhaps, to the neglect of their ongoing duties) to comply with these new standards. Senior university officers accepted the new standards as if they were simply technical adjustments with no public policy impact.
It is particularly telling that the 1997 Canadian Association of University Business Officers' "Financial Reporting Guide" described these changes as "significant" but did not challenge their larger implications. In fact, the CAUBO Guide offers, without nuance, a devastating abdicationist rationale for agreeing to what is a wholesale reformulation of the university financial reporting system: "Understanding university financial statements may be difficult for some users. Business people on the Board, who would normally be considered relatively sophisticated users, sometimes have trouble understanding financial statements which have been prepared on a multi column, fund accounting basis."
Dumbing Down Financial Statements
Are we to understand that CAUBO has seen an urgent need to "dumb-down" the financial statements so that Board members can understand them? Is CAUBO's acquiescence a tacit endorsement of the for-profit financial reporting system and an incipient decline into "bottom-line" corporatism? Are we facing a mindless and insidious move towards bureaucratic homogenization? Sadly, CAUBO chose to support the CICA recommendations and has left us to wonder and worry about the ulterior motivations driving the indiscriminate disfigurement of financial reporting for universities.
Consistent with the pseudo-scientific management tradition, the new CICA standards extol the virtues of standardization, conformity and, consequently, administrative control. The multiple impacts of these standards are both pervasive and pernicious.
The multifunctioned activities of the modern university, previously reported in separate fund statements, are reduced to a single column, a simplistic corporate overview.
Plant and equipment, purchased with public funds to establish a permanent infrastructure, will now be depreciated, with the instantaneous effect of removing millions of dollars of assets from university balance sheets. How can universities possibly be well-served by a procedure that makes every institution look poorer? The most egregious application of the depreciation process requires universities to write off library holdings over a maximum of five years. The presumed equivalence of library books to obsolete inventory or worn-out machinery is deeply symbolic of the insensitivity of the CICA accounting standards to the intangible yet invaluable assets held in trust by all universities.
The transformation of the income statement from a cash-basis to an accrual basis downplays the ever-critical pressure to manage cash effectively and substitutes an artificial and opaque performance criterion. While CAUBO recognizes that "the bottom line (revenue minus expenses) is not normally a measure of the degree of financial success of a university," nonetheless they endorsed the conversion of all university income statements to the for-profit format, establishing the framework for subsequent profitability comparisons.
Narrow & Crude
For some time, universities have been threatened with assessment against performance indicators as a measure of public accountability and as a prerequisite for continued government funding. The selection of performance indicators appropriately sensitive to the mission of the modern university has sustained rigorous scrutiny and has received grudging endorsement. Yet suddenly, those complex proxy measures may be swept aside in favour of profitability measures which are, in contrast to performance indicators, vulgar and one-dimensional.
The new accrual "statement of operations" invites the introduction of narrow return-on-investment calculations and crude cost-benefit comparisons, both standard techniques used by business investors to evaluate investment preferences.
Return-on-investment criteria have a notoriously short attention span antithetical to the universities long-term investment in knowledge as a public good. As well, since knowledge has no balance sheet value, university cost-benefit ratios will always be seriously imbalanced and will not attract profit-maximizing investors.
Not for Profit?
Thus, the CICA has pushed universities further down the slippery slope. Once upon a time we were called nonprofit organizations to emphasize that the provision of service took precedence over the permanent amassing of funds. The breakeven philosophy was the dominant management ethic and adherence to that ethic demanded honest and diligent management, along with the timely disbursement of public funds. When that ethic is violated, namely, "... if current expenses are less than current revenues, current clients are not receiving the services to which they are entitled..."1 and clients/funders have a clear basis for concern.
Now, universities are labelled not-for-profit to signify the acceptability of retaining surplus funds (ie. profits) to make future expenditures and to offset/anticipate future funding uncertainties. Implicit in the new nomenclature is the abandonment of the nonprofit breakeven philosophy which was both a financial and an ethical responsibility to maximize the benefits returned to the public within the current year.
If management is entirely relieved of the public obligation inherent in the breakeven philosophy, what alternative ethic will emerge to prevent undue hoarding of resources? With tacit approval for an "OK-to-profit" ethic, is the final and irrevocable "must-profit" phase far behind?
Canaries in the Mine
Are the new CICA standards truly life-threatening or just one more irritant in an increasingly bureaucratized world? It is imperative that all universities understand that the small, undergraduate and newer universities are the "canaries in the coal mines" who are being disproportionately harmed by these new regulations.
As Ministries of Education across the country adopt ever more laissez-faire business processes, the vulnerable institutions will be the first and the most severely affected. Trent University, for example, is vulnerable thrice over. With a small senior management team, the application of the new CICA standards has been an excessive burden. The age and particular funding provisions for Trent's capital assets have resulted in a relatively large write-down on our balance sheet. Without senior and wealthy alumni, Trent does not have the endowments, and their attendant security, by which long-established institutions bolster both their income statement and balance sheet. Trent's situation typifies several other universities and, as the canary metaphor foretells, eventually all participants in a poisoned/unsafe system may succumb.
Our Role
While these comments might be classified within the growing genre of "gloomy predictions about the future of the academy," I remain optimistic. Clearly, we cannot cede to accountants the important task of depicting the essence and merits of a university. They have failed in their duty to advocate for us. Nor can we depend upon the accounting process, old or new, to adequately represent the university enterprise.
As a monetized representation system, conventional accounting reports only those items for which there is an agreed dollar value. What is the agreed value of an accessible public university system? What price can we assign to pure research? Does the wisdom in an old library book depreciate?
Ironically, in the absence of shareholders, the professoriate has significant countervailing power as the most established stakeholder group within the university community. We are the stewards of our intellectual heritage and, as such, we must use our collective knowledge and energies to defend the nonprofit values essential to a vibrant public education system.
Universities are not like General Motors and our collective story, as told in our financial statements, needs and merits a style appropriate to our worth and our aspirations. Like Mark Anthony, we know the words to our story.
Kathryn Campbell is an Associate Professor of Accounting and Business Policy in the Administrative Studies Program at Trent University. She has held many positions with the Trent University Faculty Association and has extensive volunteer experience on nonprofit governance boards.
1. Anthony R. and R. Herzlinger, Management Control in Non-profit Organizations, Irwin, 1980.
The views expressed are those of the author and not necessarily those of CAUT. Les articles reflètent l'opinion de leurs auteurs et pas nécessairement celle de l'ACPPU.