I’ve written here several times about how job candidates should check into the financial situation of institutions they’re considering. The recent financial disaster at Birmingham-Southern College, the demise of Dana College, in Nebraska, highlight, once again, how important it is for potential employees to find as much information as they possibly can about an institution before committing their careers to it.
The problem with this advice, of course, is that not many private colleges and universities are models of fiscal transparency. It’s obviously not very comfortable for a candidate to grill the provost, president, or other official during an interview about the institution’s financial state. (“Tell me, President Jones, is the college running huge deficits each year? Are you going out of business anytime soon?” A candidate who could ask that has a lot of guts, and not everyone appreciates that quality.)
There is one partial solution to this dilemma, however. Virtually all private colleges and universities in the United States are 501(c)(3) nonprofit organizations, and as such are required to make their tax information public. The key document is the institution’s IRS Form 990, the tax return for nonprofit organizations. These are available (though at a year or so lag) from Guidestar, which posts these forms for nonprofits of various kinds. While you have to register for a basic membership, it’s free, and it’s very worthwhile.
For instance, according to media reports, Birmingham-Southern has been running substantial deficits for some time. These deficits do show up on a college’s Form 990 and are a warning flag for a potential or even current (skeptical) employee. While the Form 990 is like other IRS forms in that it’s somewhat difficult to decipher, a few minutes’ careful study will show how it works and give the reader at least a basic idea of an institution’s financial state.
Another thing the Form 990 shows is the compensation of the five highest-paid employees, which, in conjunction with salary information gleaned elsewhere (for example, from the American Association of University Professors), can give an inkling of how fair the institution’s compensation practices are, or whether executive compensation is out of line. The forms also usually report the members of the board and disclose any financial relationships the institution has with board members.
Guidestar makes these forms available primarily to allow potential donors to evaluate the financial status and practices of charities they are considering. For potential employees, the information available there is perhaps even more important, since you’re trusting not only your financial future but your whole career to the institution where you work. Due diligence is cheap insurance.
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5 Responses to Doing Your Due Diligence
11151195 - July 30, 2010 at 4:05 pm
One might also ask whether the Board of Trustees maintain oversight over senior leaders including President. Any corporate CEO who allowed this level of error would be following the 80 layoffs out the door. How are top officials held accountable if not by the board of trustees? and do they do due diligence in the initial hiring? A sad event at a decent institution.
washingtonwarrior - August 2, 2010 at 10:34 am
Guidestar is a great tool. I highly recommend the site.
wassall - August 2, 2010 at 4:29 pm
The most recent Form 990 on file at Guidestar for Buena Vista University, where David Evans works, shows a year-to-year change in surplus from $14.6 million to -$17.5 million, on total revenue of only $35.2 million. It also shows a drop in value of net assets from $164 million to $124 million. Not a place to be looking for a job.
david_r_evans - August 2, 2010 at 7:19 pm
Wassall, I’ll happily share nonconfidential specifics of our financial circumstances with anyone who asks. We’re a member of a consortium of Iowa private colleges that share (confidentially) their financial ratios (I don’t think Grinnell is in the consortium but most of the others are), and BVU is in substantially the strongest financial situation of any of the schools in the consortium. We have the largest endowment, the smallest debt (our bond endebtedness is well under $20 million, about half our annual budget and around a fifth of our endowment size). Compare that to other college in the state that have indebtedness that is a substantial multiple of their endowments. I’d have to look at our 990 to decipher what’s going on, but in 08-09 we ran an audited budget surplus of about $500,000, and this year it looks like it will be more than that. The $40 million drop in assets is the endowment–it topped at very nearly $150 million, and fell as low as about $80 million in March, 2009. It’s $115 million, more or less, right now. Also, take a look at our bond rating (yes, I know, raters are in disrepute right now). Our bonds are investment-grade.
david_r_evans - August 2, 2010 at 8:43 pm
To follow up, I went and looked at our 2009 Form 990. The ENTIRE swing in revenue was due to changes in investment income, from +$23.6 million to -$9.3 million. This is income from bonds, etc., and cashed out gains. (It’s line 10.) Our program service revenue (line 9) was about $43 million, minus grants of around $11 million (this is tuition discount scholarships. You budget the full gross revenue at sticker price and then SUBTRACT institutional aid.)Since our budget was actually about $41 million, we accelerated retirement of debt with the additional program revenue. You’ll thus note that we reduced our liabilities by about $6 million, from $36 million to $30 million. Obviously, we’re not happy about the swing from $23 million in investment income to a $9 million loss, nor about the reduction in the value of the endowment also apparent in the 2009 990, though much of that has been recovered. The point is, though, that absolutely none of the figures cited by Wassall have anything whatever to do with our operations–they are wholly the effect of a catastrophically bad year in the investment markets.