Want to get college costs in line? Start by cutting the overgrown management ranks.
Matters came to a head in March 2005, when an anonymous whistleblower wrote to the board of trustees accusing the Ladners of “severe expense account violations.” An extensive audit subsequently revealed hundreds of thousands of dollars in questionable spending, some personal but most associated with President Ladner’s frenetic image-polishing efforts. Over the previous several years, the Ladners had charged the university for $6,000 in club dues, $54,000 in drivers’ costs, $220,000 in chefs’ services, $44,000 for alcohol, and $100,000 in services from their social secretary.
After months of bruising battles within the AU board, Ladner’s contract was terminated—though he and the first lady received a generous severance package. While Ladner mingled with the rich and famous at the school’s expense, faculty members had to settle for miserly annual salary increases and students saw their tuitions rise markedly every year.
The expansion of college and university administration has not been coupled with the development of adequate mechanisms of oversight and supervision, particularly for senior managers. University boards, which technically oversee the administrations, are generally not well prepared for the task. One recent study found that 40 percent of university trustees said they were not prepared for the job and 42 percent indicated that they spent less than five hours a month on board business. Many trustees serve because of loyalty to their school and say they have “faith” in its administration. They do not go out of their way to look for problems, and administrators are generally able to satisfy trustees with the rosy pictures of college life presented at weekend board meetings.
Moreover, university boards do not have the same legal responsibilities borne by corporate boards. Most federal regulations establishing management standards for private-sector firms, such as the 2002 Sarbanes-Oxley Act, do not apply to nonprofit entities, and state regulation of university administration is spotty. At the same time, while schools have developed many internal rules and standards applying to the conduct of faculty members and students, few if any have established standards governing administrative conduct or established oversight mechanisms. For the most part, senior administrators police themselves.
The result of this lack of supervision is that a number of college and university administrators have, in recent years, succumbed to the temptation to engage in corrupt practices. In 2008, for example, the director of Tufts University’s Office of Student Activities, Josephine Nealley, was indicted on three counts of larceny for embezzling more than $300,000 in student activities funds. She allegedly transferred the money to her personal bank accounts and used it for purchases and trips. While acting on an anonymous tip regarding Nealley’s activities, university auditors uncovered a second, apparently unrelated case of embezzlement. Raymond Rodriguez, a budget officer, allegedly stole more than $600,000 from the university, which he spent on trips and luxury goods. Rodriguez was indicted on two counts of larceny for his alleged thefts. Both Nealley and Rodriguez entered guilty pleas and were sentenced to prison terms.
In a similar vein, the president of the University of Tennessee was forced to resign when an audit revealed that he had spent hundreds of thousands of dollars in university funds on personal trips, entertainment, and purchases. The president’s travel at university expense allegedly included trips to Birmingham, Alabama, where he was said to have a “personal involvement” with the president of another school.
Often, frauds go unnoticed for years because the perpetrators are the accountants and financial officers responsible for fiscal oversight. When fraudulent conduct is discovered, university officials often prefer to allow the perpetrators to resign or retire quietly rather than risk a public brouhaha that might upset donors and lead to questions about the quality of the school’s leadership. Many professors can point to cases at their own school when crooked administrators were allowed to leave quietly, sometimes even without being compelled to make restitution for their offenses.
When fraud is exposed and restitution demanded, the sums can be considerable. In January 2008, Roy Johnson, chancellor of Alabama’s community college system, pled guilty to bribery and was required to forfeit the $18 million he admitted receiving in direct and indirect benefits from companies doing business with the colleges he oversaw. As the U.S. attorney who prosecuted the case observed, “Taxpayers must wonder how many more Alabama students could have been educated had money not been wasted on fraud.”
The priorities of the hyper-administrative university emerge most clearly during times of economic crisis, when managers are forced to make choices among spending options. Thanks to the sharp economic downturn that followed America’s 2008 financial crisis, almost every institution, even Harvard, America’s wealthiest school, has been compelled to make substantial cuts in its expenditures. What cuts did university administrations choose to make during these hard times?
A tiny number of schools took the opportunity to confront years of administrative and staff bloat and moved to cut costs by shedding unneeded administrators and their brigades of staffers. The most notable example is the University of Chicago’s Pritzker School of Medicine, which in February 2009 addressed a $100 million budget deficit by eliminating fifteen “leadership positions,” along with 450 staff jobs, among other cuts. The dean also emphasized that faculty would not be affected by the planned budget cuts. Chicago’s message was clear: administrators and staffers were less important than teaching, research, and—since this involved a medical school—patient care; if the budget had to be cut, it would be done by thinning the school’s administrative ranks, not by reducing its core efforts.
Unfortunately, few if any other colleges and universities copied the Chicago model. Facing budgetary problems, many schools eliminated academic programs and announced across-the-board salary and hiring freezes, which meant that vacant staff and faculty positions, including the positions of many adjunct professors, would remain unfilled until the severity of the crisis eased.
Perverse administrative priorities were even more in evidence at a number of schools that actually raised administrative salaries or opted to spend more money on administrative services while cutting expenditures on teaching and research in the face of budget deficits. For example, in January 2009, facing $19 million in budget cuts and a hiring freeze, Florida Atlantic University awarded raises of 10 percent or more to top administrators, including the school’s president. In a similar vein, in February 2009, the president of the University of Vermont defended the bonuses paid to the school’s twenty-one top administrators against the backdrop of layoffs, job freezes, and program cuts at the university. The university president, Daniel Fogel, asserted that administrative bonuses were based on the principles of “extra pay for extra duties” and “pay for performance.” The president rejected a faculty member’s assertion that paying bonuses to administrators when the school faced an enormous budget deficit seemed similar to the sort of greed recently manifested by the corporate executives who paid themselves bonuses with government bailout money. Fogel said he shared the outrage of those upset at corporate greed, but maintained there was a “world of difference” between the UVM administrative bonuses and bonuses paid to corporate executives. He did not specify what that world might be.
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