March 1, 2006

Tony Ahrens called the meeting to order at 1:45 p.m.

Present: Professors Ahrens, Becher, Burke, Cochran, Durant, Fantie, Flug, Girard, Belson, Isaac, Jacoby, Loesberg, Mardirosian, Petit, Richardson, Riley, Rosenbloom, Samarasinghe, Sampson, Schaeff, Weaver, Dean Mardirosian, and Provost Broder.

Welcome and Introduction, Tony Ahrens

Professor Ahrens mentioned that the January and February have not yet been proofed.

Report of the VP of Finance and Treasurer, Don Myers

Vice President Myers discussed three areas: financial management, internal controls, and facilities development.

Financial Management

A few years ago, the university adopted the process of approving two-year detailed budgets. The Board of Trustees last year approved a detailed budget for FY2006 and FY2007. The university’s student fee dependency relating to revenue was 95% in 1984 and is still at 95% for FY2007. AU is one of the most student fee dependent schools.

Relating to financial aid, the Board adopted a tuition discount policy about five years ago, setting the tuition discount rate to 29%. AU has increased its financial aid budget from about 11% of the budget in 1984 up to about 19% currently, approaching one-fifth of the operating budget. Faculty and staff salaries make up about 45% of costs.

Over the years as the university has tried to ensure its financial health, it is useful to note that there was a $1 million deficit in 1981 and in 1982 a $2 million deficit. Internal reserves were depleted down to less than $1 million. At that point there was an operating budget of $60 million. This was not a very solid financial foundation. There was a need to begin building the financial health of the university. AU has not had a deficit year since 1982, and has continued to build its internal reserves.

Certain safeguards were built into the operating budgets to avoid deficits. Part of the objective of having the safeguards was to ensure that there would not be any disruptions to the day to day academic operations of the university in those years where there might be enrollment shortfalls. Thus these various safeguards allow the university to endure as much as a 6% decline in revenue in one year and still have a balanced budget. When it is not necessary to use these funds, the money goes into a planned savings account, which builds the overall financial reserves. Over time since those two deficit years, the university has found a way to increase its revenue to expenditure ratio, thus helping to avoid another deficit.

There are many ways to measure the internal health of an institution: the ability to manage within its budget, its internal reserves which provide working capital, and the size of the endowment capital. There are three ways to build an endowment: from external sources (i.e., fundraising), from internal sources (i.e., disciplined savings), and to have effective management of those funds. Over the past twenty years, there has been enormous growth in this area. AU has been generating investment yield that exceeds what other peer universities have been performing. The reason that this is significant is that there have been a number of studies indicating that universities with smaller endowments do not perform as well because they do not have the same buying power, they are not able to get into the same investment pools, and their fee structure tends to be higher. But in spite those limitations, AU has been able to create an investment yield that is comparable to the universities that have endowments in excess of $1 billion.

Although our competitor universities have considerably larger endowments, AU has made a lot of progress in terms in of endowment, financial management, and the size of reserves. This has warranted the fact that the ratings agencies, such as Moody’s and Standard & Poor’s have given AU an A rating.

Internal Controls

The financial statements of the university are audited every year by an external auditor. For the past fifteen years, that has been KPMG. About ten years ago, in order to improve the internal audit function, AU started outsourcing its internal audit function to KPMG and most recently to Protivity. In the fall of 2004 Protiviti began a Sarbanes-Oxley-like review of AU. Thus far, they have done a detailed analysis of eight areas and have three to go, and expect to complete the analysis by May. To date they have not found any major problems with the operations of the university.

Facilities Development

Since 1984 to the present, the campus has doubled in size. In addition to increasing the size of the campus, AU has been concerned with the amount of deferred maintenance. For instance, in 1996 42% of the campus needed substantial renovations and in 2006 this number has dropped to 18%.

Renovations are taking place to the following buildings: Watkins, McKinley, Mary Graydon, and Nebraska Hall. Additionally, KSB, SIS, and SOC will be having building projects. These are about $100 million in capital projects for the next three or four years.

Open Discussion

Professor Richardson asked whether the issue of governance has affected the financial operations of the university. Mr. Myers responded by saying that the university has an operating budget of more than $350 million and the auditing firm, Protiviti, is about 80% finished with its review. Protiviti has been complimentary on the level of internal controls that AU has in place. Despite this, there are still areas which require improvement. Professor Burke asked to what degree the events of 2005 changed what Protiviti was already doing. Mr. Myers said that those events did not change the scope of the audit, but Protiviti has made certain recommendations about how the Board should conduct itself regarding the oversight of the president. Ms. Flug asked why no one ever questioned the spending of the former president and how it escaped the internal control mechanism. Mr. Myers explained that the majority of this centered around three employees, the chef, the driver, and the social secretary. There was not a procedure in place to determine whether these three people were providing work for AU or for the former president’s personal purposes. The same applies to the goods that were purchased. It was very difficult to determine whether goods that were purchased for the residence were actually consumed for a personal or a business event. There is no way for accounts payable to know for whom goods were purchased.

Professor Losey, KSB, wondered how the university paid $20,000 for the engagement party of the son of the former president. Mr. Myers explained that the internal controls could not possibly know the difference between personal and business purchases, and whether the employees were providing services for personal or business reasons. Professor Loesberg asked why such a high expense did not cause a red flag. Mr. Myers again stressed that it is very difficult for accounts payable to catch every purchase. Professor Burke asked if the external auditors ever caught anything relating to expenses of the Office of the President. Mr. Myers said that to the best of his knowledge, no.

Mr. Myers suggested that to avoid this in the future, the social events in the president’s office should be planned by some office outside of the facility, and the catering will also be done by an outside organization that the procurement process will be able to be validated.

Professor Rosenbloom mentioned that from the faculty point of view, the most important thing for facilities development is more classrooms and office space.

Report of the Provost, Ivy Broder

Provost Broder announced that a new program will be put in place called the Presidential Fellowship Program, which is the largest internal fellowship the university has ever had. Beginning in fiscal year ’08, these prestigious fellowships will be in place to support outstanding and high-quality research for professional activities of senior (full-time, tenured) faculty.

Regarding enrollment, freshman applications are up 11% from this time last year, transfer applications are down 2%, and masters applications are down 1%.

A memorandum initiating a search for a permanent Dean of Academic Affairs has been circulated. Provost Broder urged faculty to join the search committee if interested. Additionally, she mentioned that it may be in the university’s best interest to select an internal candidate to be the new Dean of Academic Affairs. The search will be done in April and May.

Governance Committee Update, Tony Ahrens

Progress on Faculty Senate Ad Hoc Committee

Governance reform is a complex issue and the committee needs more time to go through and discuss everything before providing a final report

Board Meetings

The Board of Trustees has extended invitations to the faculty and other constituents to attend its meetings. It is evident that the faculty has an opportunity to participate in governance more actively.

One particularly interesting meeting was the Trusteeship Committee Meeting, in which Professor Ahrens and Claudio Grossman, Deans’ Representative, attended as campus representatives. They received information about individuals who were considered to be added to the Board, were involved in discussion about those individuals being considered, and about the types of things that one would look for in Board members. Professor Ahrens felt that it was a constructive meeting and that he felt he was being heard. Faculty have clearly been more actively involved in committee meetings.

The Board has said that it has not identified a date to start the search for the new president.

U.S. Senate Meetings

The U.S. Senate did not send an invitation to Professor Ahrens, as chair of the Faculty Senate. But Professor Ahrens called Dean Zerbe, a staff member who is leading this meeting, and subsequently, invitations were sent to Professor Ahrens, Stephen Silvia, David Rosenbloom, and Jonathan Loesberg. The format of the meeting is unclear. There is no formal proposal at this point regarding reform of governance, but the Senate’s governance committee feels that it would be helpful to note changes that have happened, and the importance of voice, oversight, and accountability.

Open Discussion

Professor Richardson mentioned that during his SIS meeting this morning, one point that the faculty was concerned with was the former president’s severance package and also, the faculty wants to be sure that the system does not fail again. Professor Ahrens responded by saying that the university is in a crisis and the university must come away from this even stronger. Professor Jacoby said that he strongly wants a significant change in the Board membership. Ms. Becher asked whether the U.S. Senate meeting will be confidential; Professor Ahrens said that the press is invited.

Student Evaluation of Teaching Form, Lyn Stallings

After meeting with and getting the approval of the Provost’s Council and the Faculty Senate, the committee met with the senate’s curriculum committee in December. The curriculum committee accepted the new form, except one proposed change on the evaluation of course side of the form. The change was to remove the activities required for the class/contributed to the meeting of learning objectives of this course to activities/assignments. This was voted as a change to the form. There have been several subsequent meetings with various faculty. To this point, all parties involved seem satisfied.

In summary, the committee would like to move forward with accepting the form. Many people want the committee to continue testing the form. In particular, some people want the committee to test for gender bias and class size. Also, it would be useful to try to accommodate more questions on the form and perhaps to try to accommodate visually-impaired students by enlarging the letters.

Open Discussion

Professor Richardson moved to accept this new form and Professor Ahrens called for a vote on the proposal. The proposal was accepted with all members in favor.

Study Abroad Grade Translation,
Sarah Belson and Cathy Schaeff (Joint Senate Committee on Academic Affairs)

The main issue is how the grades that students earn on their study abroad programs are incorporated into the American University transcripts. Different institutions have different grading systems, and most other educational institutions around the world do not use the A through F grading system.

The committee came up with four main recommendations. First, if the host institution actually does use the A through F grading system then those grades would be used. Second, if the host institution does not use the A through F grading system, then the grades are translated by that host country into the A through F grading system. Third, if the host institution does not use the A through F grading system, then American University develops a translation scheme that translates the grades received abroad into the A through F grading system. Fourth, if none of the above possibilities are available, the American University can use a professional translation system, which has translated grading systems for a particular geographic region.

The committee recommends that AU limits itself to the first three options because they represent grades that are as close as possible to what the host institution has given. If there is no translation scheme for AU to use, then those host institutions would report a pass/fail grade.

In all cases, the students would get the actual posted grades from the host institution and then that grade would either get translated into an A through F grade or it would get a pass/fail grade.

The next challenge was to figure out how those grades would get incorporated into the AU transcript and GPA. The committee decided that the grades be posted to the transcript but not get incorporated into the GPA.

Open Discussion

Professor Samarasinghe wondered whether the students will take the study abroad seriously if their grades are not incorporated into their GPA. Professor Belson answered that there are positive and negative aspects of this, but that the positive may outweigh the negative. And Professor Schaeff emphasized that the actual grade will still show on the transcript.

Professor Loesberg asked why the committee does not want to translate the study abroad grade. Professor Belson said that the AU should represent grades earned at AU only.

Professor Cochran mentioned that in the School of Communication at the graduate level AU does have a method for translation and at the undergraduate level AU does not accept the pass/fail grade in the major.

Professor Weaver added that this is effectively like transferring into a new school and having only the credit hours count, not the grades.

Professor Jacoby suggested that AU could have a list of the departments that do not accept pass/fail grades so as to advise the students.

Vice President Pastor said that this is a very hard issue to understand. In the last three years AU has dramatically tried to increase its study abroad. AU must keep in mind that students should not feel discouraged from participating in study abroad, and thus, steps should be taken very carefully.

Report of the Chair, Tony Ahrens

On the search committee for the Dean of Academic Affairs, the regulations read: For the Provost and the Dean of Academic Affairs, the Executive Committee of the University Senate shall nominate at least three members from the university faculty. Additional nominations from the university faculty may be made from the senate floor. An election by the university faculty shall follow. This is awkward because since the regulations were written the senate became the executive committee. The question then arises how to do the translation of that process. Professor Ahrens recommends that other faculty could still add their name to the list of those running. At this point, five faculty members have volunteered for the search committee.

Regarding emeriti faculty, there were restrictions placed on their membership on some committeees. In particular, these committees require that the faculty member be tenured, but emeriti faculties are required to give up tenure.

Professor Ahrens emphasized that there is a big need for people to volunteer for the committees of the Senate.

Wellness Survey, Stacey Snelling

The benefits committee has contacted Dr. Snelling to look at some options for health promotion and wellness. Some of the largest health care costs involve high blood cholesterol and high blood pressure. As part of the preliminary work of the group, there was a wellness survey sent to various faculty and staff groups.

The meeting was adjourned at 4:15 p.m.