North Dakota Legislative Higher Education Committee Minutes -- June 9-10, 2010

NORTH DAKOTA LEGISLATIVE MANAGEMENT
Minutes of the
HIGHER EDUCATION COMMITTEE
Thursday and Friday, June 10-11, 2010
Roughrider Room, State Capitol
Bismarck, North Dakota
Representative Bob Skarphol, Chairman, called
the meeting to order at 8:30 a.m.
Members present: Representatives Bob
Skarphol, Lois Delmore, Kathy Hawken, Brenda
Heller, Dennis Johnson, Nancy Johnson, RaeAnn G.
Kelsch, Joe Kroeber, Bob Martinson, Darrell D.
Nottestad, Ken Svedjan, Clark Williams; Senators Tim
Flakoll, Ray Holmberg, Dave Nething, Larry J.
Robinson, Tom Seymour
Members absent: Representatives Mark A.
Dosch, Kenton Onstad; Senators John M. Andrist,
Tony S. Grindberg, Karen K. Krebsbach, Elroy N.
Lindaas, David O'Connell
Others present: Jim W. Smith, Legislative
Council, Bismarck
See Appendix A for additional persons present.
It was moved by Senator Robinson, seconded
by Senator Seymour, and carried on a voice vote
that the minutes of the March 31, 2010, and April 1,
2010, meetings be approved as distributed.
Chairman Skarphol announced the following dates
for future committee meetings:
• July 8, 2010.
• August 16, 2010.
• September 13-14, 2010.
• October 7, 2010.
HIGHER EDUCATION STUDY
Mr. John Grettum, Audit Manager, College and
University Audit Section, State Auditor's office,
presented the State Auditor's office internal control
and compliance report on the audit of the general
purpose financial statements included in the June 30,
2009, annual financial report for the North Dakota
University System. He said the prior audit
recommendations in the following areas have not
been implemented:
• Proper use of account codes, funds, fund
groups, and functions available on PeopleSoft
to comply with generally accepted accounting
principles.
• Preparation of financial statements in
accordance with generally accepted accounting
principles.
• Comprehensive fraud and control risk
assessments and establishment of appropriate
internal controls.
• Segregation of duties relating to inventory.
Mr. Grettum said the audit report identifies five
current audit recommendations relating to:
• Noncompliance with generally accepted
accounting principles by the North Dakota State
University Development Foundation on its
financial statements.
• Lack of internal auditors at nine campuses and
lack of reporting to the State Board of Higher
Education by University of North Dakota (UND)
and North Dakota State University (NDSU)
internal auditors.
• The need for improvement in imaging
application procedures at Bismarck State
College and UND.
• Lack of timely legislative approval of additional
construction costs for presidents' houses at
UND and NDSU.
• Noncompliance with criminal history
background checks for new employees at
Dickinson State University and UND.
A copy of the audit report presented by
Mr. Grettum is on file in the Legislative Council office.
In response to a question from Representative
Skarphol, Mr. Grettum said penalties are not
assessed for failure to implement prior audit
recommendations. He said most audit
recommendations should be implemented within one
year. He said he would provide information regarding
policies in other states for state agencies that fail to
implement audit recommendations.
In response to a question from Representative
Kelsch, Mr. Grettum said the State Auditor's office
prepares a report of material audit findings, and the
report is presented to the Appropriations Committees
of each Legislative Assembly.
In response to a question from Representative
Skarphol, Mr. Grettum said higher education
institutions have a wide array of financial activities to
account for. He said the financial activities of higher
education institutions are generally more complex
than most other state agencies.
In response to a question from Representative
Delmore, Mr. Grettum said most state agencies are
able to respond to audit findings in a timely manner.
He said changes in financial policies and procedures
of the University System require the coordination of
11 institutions and the University System office.
In response to a question from Representative
Skarphol, Mr. Grettum said certain higher education
Higher Education 2 June 10-11, 2010
policies are not consistent across all institutions. He
said policies should be uniform across all institutions
to ensure a systematic and consistent approach for
higher education.
In response to a question from Senator Holmberg,
Mr. Grettum said it is important for legislators to be
aware of the consistency of policies between
campuses, the activities of institution foundations, and
transactions between institutions and related entities.
In response to a question from Representative
Hawken, Mr. Grettum said the University System has
improved the process of receiving and monitoring
grants.
Representative Hawken said certain
recommendations made by the Higher Education
Roundtable have worked well. She said changes
should not be made to the current process of allowing
institutions to receive and expend grant funding in a
timely manner.
In response to a question from Senator Nething,
Mr. Grettum said additional oversight may be
necessary for institution foundations that conduct
activities besides raising funds for an institution. He
said some institution foundations are constructing
buildings for institutions, entering leases with
institutions, and issuing bonds for capital projects.
In response to a question from Senator Flakoll,
Mr. Grettum said leases between institutions and
institution foundations are unique because the entities
are related parties. He said auditors have concerns
when institution representatives also serve as
representatives of an institution foundation and
transactions occur between the entities.
In response to a question from Representative
Skarphol, Mr. Grettum said some states have limited
the involvement of institution foundations in institution
activities.
Ms. Laura Glatt, Vice Chancellor for Administrative
Affairs, North Dakota University System, presented
information regarding the University System response
to the audit recommendations (Appendix B). She said
several actions have been taken recently to improve
accountability and transparency. She said the State
Board of Higher Education is reviewing an employee
code of conduct policy for all University System
employees.
In response to a question from Senator Holmberg,
Ms. Glatt said a provision contained in the employee
code of conduct policy requires employees to report
any suspected fraud. She said she would provide a
copy of the policy to committee members.
Representative Hawken expressed concern that
adding additional employees may not be the solution
to solving internal control problems at institutions.
She said training should be provided to existing
employees to ensure compliance with policies.
Representative Martinson said it is important for
members of the State Board of Higher Education and
employees of the University System office to provide
oversight for major activities and decisions of
institutions.
In response to a question from Representative
Kelsch, Mr. William G. Goetz, Chancellor, North
Dakota University System, said the University System
office is reviewing the feasibility of adding an internal
audit position. He said the cost of the internal audit
position would be shared among the institutions, and
the position would report to the State Board of Higher
Education. He said a facilities project management
position may also be added to the University System
office to oversee capital projects at campuses.
In response to a question from Senator Flakoll,
Ms. Glatt said most campuses do not utilize a
construction manager for building projects. She said
the addition of a facilities project manager may assist
campuses to manage project cost and scope on
building projects.
Mr. Gordy Smith, Audit Manager, Performance
Audit Section, State Auditor's office, presented the
University System capital projects performance audit
dated April 5, 2010. He said the objective of the
performance audit was to determine if University
System capital projects are adequately monitored.
Mr. G. Smith said the performance audit contains
18 recommendations. Based on the performance
audit, he said, the State Auditor's office determined:
• Capital projects within the University System
are not adequately monitored.
• The University System does not have a unified
system for capital projects.
• Monitoring of compliance with State Board of
Higher Education policies relating to capital
projects is minimal.
• North Dakota State University and UND have
not complied with capital project requirements
in state law and State Board of Higher
Education policies.
• Dickinson State University did not comply with
capital project requirements in State Board of
Higher Education policies.
A copy of the audit report presented by
Mr. G. Smith is on file in the Legislative Council office.
In response to a question from Representative
Martinson, Mr. G. Smith said some institutions have
entered capital leases with institution foundations to
finance building projects. He said the use of capital
leases may allow institutions to proceed with building
projects without obtaining approval from the State
Board of Higher Education or Legislative Assembly.
In response to a question from Representative
Skarphol, Mr. G. Smith said state information
technology projects are monitored to a greater extent
than building projects. He said agencies are required
to provide status reports on information technology
project costs and timelines.
In response to a question from Senator Flakoll,
Mr. G. Smith said some higher education capital
projects cost more than projected due to changes
made during project construction.
Chairman Skarphol asked Mr. G. Smith to prepare
a document for the committee that details the different
methods of financing higher education capital
Higher Education 3 June 10-11, 2010
projects, including approval requirements for each
method.
In response to a question from Senator Nething,
Mr. G. Smith said a performance audit is an indepth
review of an issue and is not limited to determining
compliance with the law. He said the scope of this
performance audit was to determine if University
System capital projects were adequately monitored.
He said one audit finding was that the State Board of
Higher Education did not adequately review and
discuss capital projects prior to project approval.
Senator Nething expressed concern that portions
of the performance audit are subjective in nature.
Dr. Robert Kelley, President, University of North
Dakota, Grand Forks, provided comments regarding
the performance audit of University System capital
projects. He said UND intends to be in full
compliance with State Board of Higher Education
policy for future projects.
In response to a question from Senator Flakoll,
Ms. Alice Brekke, Vice President of Finance and
Operations, University of North Dakota, Grand Forks,
said UND has created a fraud hotline. Ms. Brekke
said the fraud hotline is administered by an outside
entity that receives calls regarding suspected fraud at
the university. She said information regarding the call
is provided to the institution for further investigation.
In response to a question from Senator Nething,
Mr. Goetz said the State Board of Higher Education
has obtained the services of an individual to conduct
an investigation to determine the individuals
responsible for making the decisions on the capital
projects that violated the law.
Mr. Bruce Bollinger, Vice President for Finance
and Administration, North Dakota State University,
Fargo, provided comments regarding the performance
audit on University System capital projects. He said
the university agrees with all audit recommendations
made. He said a business process review is currently
being conducted for the university's facilities division.
He said NDSU intends to be in full compliance with
State Board of Higher Education policies for future
projects.
In response to a question from Representative
Skarphol, Mr. Bollinger said the NDSU Development
Foundation will no longer be involved in managing
capital projects.
In response to a question from Representative
Skarphol, Mr. Bollinger said he would provide
information to the committee regarding the amount of
funding provided by the NDSU Development
Foundation to NDSU by major program area.
In response to a question from Representative
Kelsch, Mr. Bollinger said the newly hired president of
NDSU understands the issues facing the institution.
He said plans are in place to address the perception
of the institution and to restore accountability.
In response to a question from Representative
Skarphol, Ms. Glatt said the University System will be
included in a new transparency program being
developed by the Office of Management and
Budget (OMB) to make available information
regarding expenditures by state agencies.
In response to a question from Representative
Martinson, Mr. Duaine Espegard, State Board of
Higher Education, Grand Forks, said most capital
projects at institutions are completed without major
issues. Mr. Espegard said University System office
staff along with members of the State Board of Higher
Education review capital projects prior to approval.
In response to a question from Representative
Kelsch, Mr. Espegard said the State Board of Higher
Education has final authority over actions of the
institutions. He said consequences have been
established for institution presidents that fail to follow
State Board of Higher Education policies. He said he
favors a job performance evaluation program for
campus presidents that links pay and employment
status to the performance evaluation.
In response to a question from Representative
Svedjan, Mr. Espegard said institutions need to have
similar policies and procedures in order to be a unified
system of higher education. He said the State Board
of Higher Education is working to ensure that future
actions of institutions to circumvent board policy will
result in the appropriate disciplinary action.
In response to a question from Representative
Skarphol, Mr. Espegard said institutions should not
have multiple years of uncorrected audit recommendations.
He said uncorrected audit recommendations
will be considered in future performance evaluations
of University System personnel.
The committee recessed for lunch at 12:10 p.m.
and reconvened at 1:00 p.m.
Mr. Claus Lembke, State Board of Higher
Education, provided comments regarding the audits of
the University System. He said new policies and
procedures have been developed in response to audit
findings. He said the board is concerned with the lack
of compliance with audit recommendations.
Ms. Glatt presented information regarding State
Board of Higher Education policies for capital projects
(Appendix C). She said the policies address the types
of projects that require board approval and which
costs must be included in a project budget.
In response to a question from Representative
N. Johnson, Ms. Glatt said the cost of institutional
personnel directly working on a project must be
included in the total project cost. She said the cost of
administrative oversight is not included in the total
project cost.
In response to a question from Representative
Skarphol, Mr. Pat Seaworth, General Counsel, North
Dakota University System, said State Board of Higher
Education policy provides that an employee who
violates board policy is subject to dismissal.
Representative Kelsch said actions by campus
officials such as dividing a capital project into smaller
multiple projects to avoid approval processes give
citizens a negative image of higher education.
Mr. Goetz presented information regarding
institution foundations (Appendix D). He said
Higher Education 4 June 10-11, 2010
institution foundations are legally separate and
independent organizations. He said the foundations
have independent governing boards, but
representatives of the institution may serve on the
foundation boards.
Mr. Seaworth said some institutions have several
foundations that support specific departments or
areas of the institution. He said State Board of Higher
Education policy requires that institutions have written
agreements with foundations that include a
description of the services and benefits the institution
and foundation provide each other.
Ms. Glatt presented information regarding financial
relationships between institutions and foundations
(Appendix E). She said several institutions have
building leases or other agreements with institution
foundations.
Ms. Glatt presented a schedule detailing the status
of University System capital projects (Appendix F).
She said the schedule includes projects over
$250,000 that were approved by the State Board of
Higher Education.
In response to a question from Representative
Delmore, Ms. Glatt said institution budget requests
consider utility costs of new buildings once the
buildings are owned by the institution.
Ms. Glatt presented information regarding the
history of the University System office, including
staffing levels and staff duties (Appendix G). She said
the number of University System office employees
has increased from 22 full-time equivalent (FTE)
positions during the 2005-06 fiscal year to 28 FTE
positions during the 2009-10 fiscal year.
Mr. Goetz said the vice chancellors and the
institution presidents are members of the chancellor's
cabinet. He said the chief information officer of the
University System was recently added as a member
of the cabinet.
Ms. Glatt presented information regarding tuition
collections, enrollment projections, expenditures,
University System employees, debt at each campus
and related financial measures, and capital building
leases at each campus (Appendix H). She said
unique campus missions may cause differences
between campuses in the amount of funding used in
each major functional area.
In response to a question from Representative
Skarphol, Ms. Glatt said the majority of funding for
student instruction is provided from state general fund
appropriations. She said program fees may also be
used for specific program costs.
Dr. Kelley said research conducted by professors
is important to the education process. He said
knowledge gained by professors while conducting
research is used in classroom instruction, which
provides a better quality education.
In response to a question from Representative
Skarphol, Ms. Brekke said some funding received
from grants may be used for certain indirect costs.
In response to a question from Representative
Skarphol, Ms. Glatt said most State Board of Higher
Education policies apply to all institutions. She said
some policies are not the same at each campus due
to different campus missions.
In response to a question from Representative
Skarphol, Ms. Glatt said the amount of debt at
institutions is increasing. She said many institutions
have recently issued revenue bonds for housingrelated
projects.
Ms. Glatt presented information regarding the longterm
finance plan of the University System, including
the use of peer institutions (Appendix I). She said
institutions' funding levels are currently at 48 percent
to 95 percent of their peer institutions.
In response to a question from Representative
Kelsch, Ms. Glatt said peer funding percentages can
change quickly due to enrollment patterns. She said
equity funding provided to campuses is weighted to
provide more funding for campuses furthest from their
peers.
Dr. Michel G. Hillman, Vice Chancellor for
Academic and Student Affairs, North Dakota
University System, presented information regarding
the feasibility of limiting enrollment at institutions
(Appendix J). He said limiting enrollment at certain
institutions may not increase enrollment at other
institutions. He said some states find it easier to
manage enrollment by using admissions standards.
Ms. Glatt presented a report regarding the salaries
of high school teachers and college professors, the
number of college students enrolled in distance
education classes, and the number of high school
students taking college courses for credit
(Appendix K).
Representative Delmore said it is important to
consider years of experience when reviewing salary
comparisons between high school teachers and
college professors.
In response to a question from Representative
Delmore, Dr. Hillman said some higher education
institutions do not focus efforts on providing dualcredit
courses for high school students.
Chairman Skarphol asked the Legislative Council
staff to provide information regarding legislation that
authorizes campuses to offer dual-credit courses.
Chairman Skarphol distributed a memorandum
entitled Higher Education Funding. The memorandum
provides information regarding higher education
funding as a percentage of state general fund
appropriations in various states.
Ms. Glatt said it is important to consider per
student funding for higher education when comparing
higher education funding between states. She said
consideration should also be given to the amount of
funding provided by the state versus students.
Chairman Skarphol asked the Legislative Council
staff to update the memorandum on higher education
funding to include resident and nonresident student
enrollment in each state listed.
In response to a question from Representative
Svedjan, Ms. Glatt said efficiency in higher education
is affected by demands to offer specific programs,
Higher Education 5 June 10-11, 2010
meet workforce needs, and have better-prepared
students.
The Legislative Council staff distributed a summary
report filed with the Legislative Council office
regarding the distribution of grants to tribally controlled
community colleges to offset the impact of the
enrollment of nonbeneficiary students (Appendix L).
The Legislative Council staff said the full report
includes copies of institution audit reports,
documentation of the enrollment status of each
student for which a grant is requested, and detail
regarding the expenditures of the grant funds. A copy
of the full report is on file in the Legislative Council
office.
Representative Nottestad suggested the
committee receive information regarding completion
rates of students for which tribal college assistance
grant funding is requested.
Senator Nething expressed concern regarding the
audits of the tribal colleges. He suggested the
committee receive information regarding the actions
taken to correct the audit deficiencies.
The committee recessed at 4:00 p.m. and
reconvened at 8:30 a.m. on Friday, June 11, 2010.
Mr. Goetz provided comments regarding the
University System budget request for the 2011-13
biennium. He said an important part of the budget
request is to maintain student affordability.
In response to a question from Representative
Nottestad, Mr. Goetz said the University System is
working with various entities to address the mental
health issues of military veterans.
Ms. Glatt presented a schedule detailing the
University System's 2011-13 operating budget request
(Appendix M). She said the State Board of Higher
Education has approved the operating budget request
and has ranked each item in order of importance.
She said the 2011-13 general fund operating budget
request is $662,644,692, which is $128,084,591 more
than the 2009-11 budget of $534,560,101.
In response to a question from Senator Holmberg,
Ms. Glatt said OMB will revise the budget request to
reflect the executive budget recommendation for
health insurance and salary increases.
In response to a question from Representative
Skarphol, Ms. Glatt said the equity funding distribution
method for campuses is based on the funding
difference between campuses and peer institutions.
She said the minimum equity distribution for a campus
is $250,000.
In response to a question from Representative
Skarphol, Ms. Glatt said the UND School of Medicine
and Health Sciences does not have its own peer
institutions. She said UND is compared to other
institutions that have a medical school.
In response to a question from Representative
Skarphol, Ms. Glatt said the budget request for
student affordability is based on the amount of funding
needed to limit tuition increases to 4 percent at fouryear
institutions and to have no tuition increase at
two-year institutions.
In response to a question from Representative
Skarphol, Ms. Glatt said account coding is needed for
financial transactions. She said a certain amount of
subjectivity exists when coding transactions.
In response to a question from Representative
Kroeber, Ms. Glatt said the student ConnectND fee is
$81 per semester.
In response to a question from Senator Holmberg,
Ms. Glatt said Lake Region State College received a
contingent general fund appropriation for a wind tower
project. She said the general fund appropriation may
be used if it is determined that funding from the
American Recovery and Reinvestment Act of 2009 is
not available for the project. She said the college has
not been able to secure a federal funding source yet.
Mr. Goetz said a determination needs to be made
when the contingent general fund appropriation may
be used for the Lake Region State College wind tower
project. He said it does not appear that federal
funding will be available for the project.
In response to a question from Representative
Skarphol, Ms. Glatt said she will provide additional
information regarding the amount of funding provided
for ConnectND staff positions and for student
placement in the Kansas State University veterinary
medical education program.
In response to a question from Senator Nething,
Ms. Glatt said the priority of budget request items is
based on the strategic plan of the State Board of
Higher Education. She said the funding included in
the budget request will be used to meet the goals and
objectives of the strategic plan.
Chairman Skarphol asked the Legislative Council
staff to provide information to the committee regarding
the UND School of Medicine and Health Sciences
RuralMed program.
In response to a question from Senator Nething,
Ms. Glatt said she would provide additional
information to the committee regarding the number of
new FTE positions included in the 2011-13 University
System budget request.
In response to a question from Representative
Svedjan, Ms. Glatt said a new internal audit staff
position may be added to the University System office.
She said funding for additional internal audit staff
positions at institutions is not included in the 2011-13
budget request.
Ms. Glatt provided an overview of the 2011-13
capital projects request for the University System
(Appendix N). She said the State Board of Higher
Education will review each institution's capital project
requests and prioritize the projects. She said the
chancellor is recommending that 15 projects be
prioritized that require $127,520,000 of funding from
state sources.
In response to a question from Representative
Williams, Ms. Glatt said each campus generally
submits two capital project requests to the State
Board of Higher Education to be prioritized in the
University System capital project budget request. She
said UND and NDSU are allowed to submit three
Higher Education 6 June 10-11, 2010
capital project requests for consideration by the State
Board of Higher Education.
In response to a question from Representative
Skarphol, Ms. Glatt said the 2011-13 University
System capital projects budget request will include
requests for specific small- and medium-size projects.
She said a deferred maintenance funding pool has
been provided for these types of projects in prior
budget requests.
In response to a question from Representative
Kroeber, Ms. Glatt said funding from the American
Recovery and Reinvestment Act of 2009 was used for
the Swain Hall project at Minot State University and
for the Education Building project at UND.
In response to a question from Senator Holmberg,
Ms. Glatt said additional planning has been completed
for a joint University System and UND information
technology building. She said the additional
information received on the project has increased the
estimated cost of the building by $6 million, from
$11 million to $17 million.
The meeting was adjourned at 11:30 a.m. subject
to the call of the chair.
___________________________________________
Brady A. Larson
Fiscal Analyst
___________________________________________
Allen H. Knudson
Legislative Budget Analyst and Auditor
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