Reporting Requirements Impact Private Colleges and Universities

New requirements will affect private college and university entities in 2020. All entities will be required this year to include in their financial statements additional supplemental information that will allow the United States Department of Education (DOE) to link the support for the various elements that go into the so-called “Composite Score,” which is used to establish the financial health of private colleges and universities. We expect most organizations to include this information in the Uniform Grant Guidance version of their reports as an additional supplemental schedule. It is expected there will be some impact on the level of detail in the footnotes of the basic financial statements to ensure that every element can be tied directly to the financial statements.

Your auditor may have already been provided (or will be providing shortly) a mockup of the information you will need to gather in order to draft this supplemental schedule. Auditors will then test this data to confirm that the mathematical calculations function and the rules are followed. This added information is required for all reports filed with the DOE after July 1, 2020.  

The new requirement may provide some additional benefits, as it will force institutions to compute their own composite score. Doing so will provide early visibility and transparency to both management and the board. This financial health information is somewhat like a debt covenant, in that it is one of the financial guideposts that needs to be met and should be monitored closely. For further information, the National Association of College and University Business Officers (NACUBO) has provided recent guidance  regarding these requirements.

Massachusetts Higher Education Further Impacted

In addition, Massachusetts private colleges and universities have to adhere to further requirements this year under state law. All institutions are required to post financial statements on their website, along with a summary report on their financial statements written in a way that can be understood by the general public. The summary should include key narrative descriptions and explanations of the financial statements, but the exact form of what to summarize has not been prescribed.

Institutions will also need to consider whether they will use the long form or short form version of their financial statements on their website. The long form has attributes relative to the federal funds audit that may be more than many institutions want to share in their website. The short form will likely suffice unless federal composite scores are weak, in which case the institution may need to carefully consider if omitting this information is harmful to consumers. For example, if an institution has weaker composite scores or scores heading in a downward direction, this may be prudent to disclose so consumers cannot argue after the fact that such information was not made available particularly if the institution needs to close or merge. Institutions should strive to be transparent so consumers can make an informed choice to attend an institution with less stable finances. Institutions would be wise to have such disclosures reviewed by legal and external accountants to ensure that their posted information is understandable even though this standard is somewhat subjective.

There are added elements of monitoring that are outlined in state law. Institutions should become familiar with these standards and understand the possible implications associated with them given the expanded changes under state law to monitor viability. Additional reporting may be particularly affecting organizations deemed to pose a significant risk of closure. These institutions, identified through Massachusetts Department of Higher Education screening, will be asked to provide a risk mitigation plan, a contingency closure, or notify the public.

More Information to Come

If you would like a mockup of the new requirements or if you have other comments, questions, or concerns, please contact us.

Published on July 09, 2020