OSU audit uncovers smaller shortfall.

Byline: GREG BOLT The Register-Guard

Errors in accounting procedures caused officials at Oregon State University to overestimate the size of a potential shortfall in this year's budget by almost $6 million, an independent audit revealed.

Instead of a $19.1 million shortfall for the 2001-02 fiscal year, OSU actually faced a potential overrun of $13.2 million, members of the Oregon State Board of Higher Education were told Friday. The university apparently included some costs twice in the complicated calculations necessary to figure expenditures under a new budget system adopted by the Oregon University System two years ago.

The mistakes were uncovered as part of an outside audit of OSU's budget commissioned by the state board after university officials announced the projected overrun last fall. Oregon State administrators instituted cost-cutting measures as soon as the situation was uncovered and now have balanced the school's budget.

As a result, the shortfall was on paper only and the university never reached the point where it spent more money than it had. OSU President Paul Risser said the discovery of the errors was kind of a mixed blessing, given that the university had put considerable effort into filling a budget hole officials thought was $19 million deep.

"When I got the report on this last night, I didn't know if I should laugh or cry," Risser told the board, which was meeting at the University of Oregon.

As it was, the audit also showed that OSU had miscalculated the amount it had cut to balance its budget. Instead of $19.1 million, OSU actually cut expenses by $15 million, or $1.8 million more than necessary.

Oregon State Provost Tim White said that doesn't mean the university now has a pot of money to use. Some of that will be spent to restore cuts, but most of it will be used to help with a 2002-03 budget that is expected to be significantly reduced due to anticipated cuts in state spending.

Board members expressed differing feelings about the audit, which was performed by the firm Talbot, Korvola & Warwick. Jim Williams of Medford asked whether the problem could be repeated at OSU or other state universities and whether steps are being taken to learn from the experience.

Board member Tom Imeson of Portland said it was fortunate the errors worked in OSU's favor.

"I'd hate to find out later that somebody had the opposite problem due to the math going in the other direction," he said.

OUS officials told the board that Oregon State's experience would help all the universities avoid similar problems. And OUS Chancellor Joe Cox commended Risser and his staff for acknowledging the problem quickly and taking steps to fix it.

Geri Richmond, a board member and UO chemistry professor, said she was glad the board brought in an outside auditor to review the OSU budget and said she thinks a new restructuring effort at the university has put it on the right track.

But board member Tim Young said he still has concerns about OSU's budget, particularly its spending on athletics. At the same time the university was dealing with a projected shortfall in its general fund, it transferred $8 million to the athletic department to keep it out of the red.

Some of that money will be paid back when OSU gets its share of Pac-10 football revenues this summer, but that still will leave a projected deficit of $5.3 million. That's the largest athletic department deficit of any of the seven state universities.

Board members had some pointed questions for OSU Athletic Director Mitch Barnhart in a subcommittee meeting earlier Friday. They pressed him on whether he's on track to eliminate the deficit and how long that will take. Young said he wasn't entirely pleased with the answers.

"I feel that when students are paying tuition, they're paying for an education, not a winning football team," Young said.

"It's disturbing. What needs to happen is they need to cut expenses."

The board is expected to revisit the issue at its April meeting and ask for a more definite timeline for balancing the athletic department budget without support from the university's general fund.

White said the shortfall was due to OSU's effort to improve faculty salaries, make some investments in instructional equipment, fund more scholarships and boost other programs at a time when revenue was falling short of expectations.

He said the university wasted no time addressing the projected shortfall. It has left 120 positions unfilled, canceled plans to upgrade computer wiring, deferred some equipment purchases, laid off some university support staff and cut 6.5 percent from nonacademic budgets.

White said he is proud of the way OSU faculty and administrators responded to the situation and dismayed at implications that the university had actually spent more money than it had. That was never the case, but he said all the publicity did have some benefits.

"I think anytime something gets this level of attention, it makes you focus deeper," he said. "And that's a good thing."