DALLAS - The University of North Texas is planning a "major upgrade" of its financial management after auditors discovered an improper $23 million entry under its accounts receivable and misapplication of state funds for employee benefits.
At a UNT System Board of Regents meeting April 17, Chancellor Lee Jackson outlined problems turned up by a Deloitte & Touche audit commissioned in February. The university is also under scrutiny by the State Auditor's Office and the State Comptroller's Office.
"I am confident that the entire UNT System is fully behind a transformation of our financial reporting procedures," Jackson wrote in a report he submitted to the regents.
Moody's Investors Service and Fitch Ratings shifted outlooks on UNT to negative from stable on April 9, citing the accounting problems. Moody's rates UNT Aa2, while Fitch has the university system at AA.
"Fitch's concern regarding the system's financial profile is compounded by management's recent discovery of certain internal administrative errors which may have resulted in UNT-Denton being historically overfunded by the state of Texas for employee benefits and could lead the state to seek reimbursement for previously expended funds," said Fitch analyst Alexander Vaisman.
The university system's $511 million of outstanding debt includes $411 million in revenue financing system bonds. About 35% of those bonds are tuition revenue bonds that receive debt service reimbursement from the state.
Factors that could lead to a Moody's downgrade include "a negative resolution of the state auditor inquiry that requires material payment to the state, continued liquidity declines, or additional material borrowing without offsetting revenue increases," analyst Mary Kay Cooney wrote.
In his report, Jackson admitted that UNT has overestimated its revenue since at least 2011.
"Since 2011 but in some cases possibly before that date, UNT staff presented revenue estimates to the president at the System which we now find were not realistic," Jackson wrote. "As a result, UNT leaders were not able to accurately address and balance spending and revenue."
UNT used state money for employee benefits that should have been covered by student fees, Jackson said. The amount of money involved has not been reported.
"Some years ago, UNT began reporting payroll figures and managing its state accounts in ways that appear to have resulted in overfunded state contributions," Jackson wrote.
Jackson's report indicated that the financial troubles resulted from mistakes and not intentional wrongdoing.
UNT reported in 2012 that it was owed $23 million and that accountants expected the money to be paid. However, finance officials considered collection of the entire amount unlikely, according to a complaint filed with the state auditor and reported in the Denton Record Chronicle.
The complaint alleges that UNT combined years' of unreconciled transactions into a single $23 million account "that continues to age without resolution and misstates UNT's financial position."
UNT's operating margin was 1.2% in fiscal 2012 and negative 0.2% in fiscal 2013, both well below the preceding three-year average of 6.2%, according to Fitch.
The UNT System includes the flagship University of North Texas at Denton, UNT Dallas, UNT Health Science Center at Fort Worth, and UNT at Dallas College of Law, which will have its inaugural class begin in fall 2014.
The UNT System's long-term debt has increased by 74% over the past five years and continues to be on an upward trajectory, according to Fitch. As of Nov. 30, 2013, the university had about $82 million in outstanding commercial paper, a portion of which may be refinanced with long-term debt. Additional capital projects are on the boards, including a new residence hall at UNT-Denton.
