Free Press

Issue date: 4/28/08 Section: News

The president's office has overspent its budget by an average of $388,000 every year for the last four years, according to financial reports. Office supplies, paper - all those line items added up.

But the way the system worked, it never really mattered. Realistically, prior to 2007, there was no "real" budget in place to be overspent.

When a department at an institution like USM doesn't have practical, transparent accounting practices, it's prone to develop a "structural deficit," said James O'Brien, the administrative assistant for the president's office.

A structural deficit, he says, occurs when financial responsibilities of the department grow, but its budget stays the same. He gives the example of increasing pay-rates based on a 3 percent inflation rate. "You'd assume that the account that you use to pay that person would be increased to accommodate the change. That wasn't the case here."

According to O'Brien, the amount of money budgeted for the president's office remained the same from 1991 until last year. Although the president's office is but a grain of sand on the USM beach, the lack of accounting, which allowed for overspending, was symptomatic of the university as a whole.

"Under the [former] Chief Financial Officer, Sam Andrews, the strategy was spend first, we will find money later," O'Brien said. "Some departments consistently have an excess of funds at the end of the year, while others consistently overspend their budget."

Andrews was the CFO for more than 30 years, and, according to O'Brien, "he knew where pools of money were." Money sloshed back and forth between pools to cover departments who overspent. His office, the president's office, was one of the over-spenders.

To get some perspective on this method of budgeting - which to some extent might seem reasonable to those of us who slosh money back and forth between a checking and savings account to make sure nothing bounces - we called up a few people in the financial advising business.

In regards to the old "spend first, find later" strategy, Mark Dorsett of Northeast Financial said that, "by definition, that is not a budget."

"It sounds to me like a case of poor planning, nobody seemed to be doing any accounting," said Larry Dwight, a financial advisor at Morgan Stanley & Co.

"It is best to pay as you go, put some money aside in a rainy day fund, create a budget and stick with it," he said.

Continued...

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