Campus Financial Systems for the Future

To Thine Own Self Be True: Financial Systems and Practices

If indeed there can be a universal prescription that applies equally to all elements of higher education, it is that one must not divorce the financial system from the intended institutional financial management model. This notion is analogous, but not identical, to the process of defining requirements that is an accepted component of the structured analysis used to specify the financial systems of the 1970s. In the 1990s and beyond, the pervasiveness of an institution's financial system -- and its interconnection with other key systems and the campuswide network -- highlight more than ever the need to integrate thinking about the institution's financial management model with its academic vision, strategy, and delivery system. For example, a multi-site, instruction-oriented institution that focuses on part-time degree seekers -- such as the University of Phoenix -- will organize its financial environment and systems differently from, for example, a university with a medical center and large auxiliary enterprises or a small private college with a predominantly residential student body.

The process of reconciling the high-level design and architecture of the financial system with the academic and business model of the institution is made more challenging by the dynamic nature of higher education in the 1990s. The external forces shaping today's decision-making context are creating a set of options that could not have been considered -- on technical grounds alone -- 25 years ago. Today's decision-maker has a range of options that is at once gratifying and potentially overwhelming, and, more important, a cast of stakeholders that is diverse, interested, computer literate, and influential. This is a good news-bad news story.

In the 1970s, financial transactions and financial analysis depended on the same system. Large campus financial systems demanded mainframes and/or minicomputers, and design decisions were often based on factors related to computing resource availability and software maintainability. For these reasons, these systems, in spite of frequent protestations to the contrary, typically drove our financial practices and operations, rather than the other way around. The introduction of the personal computer, dramatic improvements in computing price/performance, growth of campuswide networks, and progress in distributed computing architectures have changed all of this.

The good news is that colleges and universities now have much greater freedom -- financially and technically -- to reinvent their financial practices. Many institutions are doing so. The University of Pennsylvania, Indiana University, University of Southern California, UCLA, Cornell University, and other large research universities have moved or are moving toward development responsibility center management, a distributed financial accountability model that depends on distributed financial information.

College and university trustees, bond underwriters, bankers, and public officials are seeking, for different reasons, to provide meaningful financial comparisons among institutions of higher learning, creating tensions between the traditional fund-oriented reporting model of the Governmental Accounting Standards Board (GASB) and the entity-oriented model required under the Financial Accounting Standards Board (FASB). (The challenges are especially daunting for an institution using a GASB model that wants to consolidate component units based on FASB standards and completely eliminate inter-entity transactions.) To these pressures are added those related to new cost accounting requirements under the federal Cost Accounting Standards Board (CASB).

Colleges and universities across the continent have reengineered various financial processes, such as purchasing and disbursements, and have begun to implement new information systems to support these redesigned processes. Many institutions (such as the University of California, University of Delaware, and Pennsylvania State University) have focused attention on reducing the paperwork associated with financial activity and have set goals for eliminating paper-based paychecks, invoices, receivables, and other intermediaries of financial transactions.

Different intentions regarding an institution's financial operating environment suggest different approaches and different technologies. For example, a priority placed on the long-term elimination of paper will focus institutional attention in the planning process on strategies such as business alliances and on technologies such as electronic funds transfer, electronic document interchange, and internal electronic transaction forms. The pressure to eliminate paper as a financial intermediary will rise as authentication and security services on networks make it possible for people to identify suppliers and products, and order and pay electronically for goods and services (admissions, library materials and fines, office supplies, etc.).

The bad news, of course, is that the imposition of new regulations and reporting requirements and the redesign of financial processes can be difficult, risky, and costly. The implementation of these new capabilities can be even riskier, more difficult, and more costly, and the systems needed to support them can also be complex and expensive.

In the 1970s, centralized computing architectures and the economics of computing influenced the evolution of a typically centralized financial management environment. The financial officer specified requirements to the administrative information systems office and was either satisfied with the project outcomes, or not. The negotiation over system features and costs was mediated through a structured process, such as the systems development life-cycle model. Decisions typically balanced the needs of the financial office for service, on one hand, with the technical and financial constraints posed by the administrative information systems office, on the other. The needs of the financial office revolved around controlling financial processes, maintaining the general ledger, issuing vendor checks, and the like. Rarely were such systems designed to meet the planning, monitoring, and controlling requirements posed, for example, by complex auxiliary operations or the contract-intensive academic programs found at research universities. Since the intended users of these systems were typically professionals in the accounting office who used them intensively and extensively, the demands and expectations placed on these systems with respect to "user friendliness" were often modest. The failure of many such systems to meet the planning and operational needs of institutional subunits in a user-friendly fashion has contributed to the proliferation of "shadow systems" in these subunits.

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