An Error With Consequences

July 16, 2010

For months, top administrators at Birmingham-Southern College believed they had weathered the economic downturn reasonably well.

Then, this spring, an audit revealed the truth: years of financial mismanagement and accounting errors had allowed the small college to operate for years while spending millions of dollars more than it actually had in its budget.

Plans announced this week, though, are aimed at digging the Alabama liberal arts college -- with about 1,400 students, 325 staff and 120 faculty – out of that hole. For the coming academic year, Birmingham-Southern will slash its operating budget by $10 million; in 2009-10, the budget was $49 million.

“Where we are now is making the most responsible cuts we can to preserve the academic interests of the institution,” said David Pollick, who’s been the college’s president since 2004. “Our commitment to our students remains at the very top of our list, and we’re trying not to damage their experience, but that means that your friends, your colleagues are losing their livelihoods.”

On Wednesday, the college laid off 51 staff members and said it would not fill 14 vacant staff positions. Faculty and staff will face an overall pay cut of 10 percent, with those earning the most experiencing the largest reductions. The college won’t contribute to employee retirement plans during 2010-11 and has canceled all faculty sabbaticals for the year.

In all, those and other personnel-related cuts will amount to $6 million in savings for the coming year. The college will also decrease some operational and academic spending, though those cuts have not been finalized and Pollick would not elaborate on where they may happen.

The internal audit found that the college had been overawarding financial aid to students and making accounting errors “that were misstating revenues and expenses, as well as the effects that the current economic downturn has had on Birmingham-Southern,” Pollick said.

The errors, he added, had occurred because of “a breakdown in procedures and communication between financial aid and finance” offices at the college that may have been going on for as long as 20 years. One major result of that “breakdown,” he said, was the awarding of Pell Grants on top of institutional aid packages, rather than within them.

If, for instance, the college’s formulas found that a Pell-eligible student should receive a total of $20,000 in aid, that amount would be awarded to them, plus thousands more in Pell money. In 2009-10, the maximum Pell Grant was $5,350. Over the last few years, said Bill Wagnon, vice president of communications, about 18 percent of students at the college have received Pell Grants.

The mistake, Pollick said, made the college more generous with financial aid than it intended to be – and more generous than it could afford to be. The grant overpayment and other financial aid errors cost the college about $5 million annually. “There were a lot of accounting errors that went on,” he said. “The personnel involved were not working at the level of expertise that they were supposed to have.”

Pollick wouldn’t disclose more about the errors made by those staff members. The position of vice president of finance is listed as vacant on the college’s website and a job listing for director of financial aid was posted in June, soon after college officials revealed the audit findings. Asked if those two staffers left because of those findings, Pollick said it was “a personnel matter and the people involved are no longer with us.”

Had the errors been identified in the midst of a booming economy, he added, they might have been easier for the college to handle without making such dramatic cuts. “Within the larger context here of a tough economic climate, these financial aid issues alone put us well beyond the tipping point,” he said, pointing to an endowment that had declined in value and greater student demand for aid. The college’s endowment reached a high of about $110 million in 2007. Today, it totals $70 million.

At such a small institution, those drops – when added to accounting errors that may reach as far back as two decades -- are dramatic.

Karen Carroll, a 1987 graduate of the college who lives in Birmingham and is president of the college’s alumni association, said she was confident that administrators and trustees would get the college back on its feet. Despite the apparent problems in the financial aid and finance offices, she said, “most alumni realize it’s a reflection of what’s going on in the economy in general, but you always hate to hear about job cuts.”

In the coming months, the college will be appealing to alumni for donations to help cushion the pain of the situation. “We have a really dedicated group of alumni who care deeply about the college and the experience for the students,” she said. “They’re going to want to see how they can help and certainly that will involve financial contributions.”

While alumni may be enthusiastic about helping out, some students, like Ryan Melvin, who will be a senior in the fall, are unhappy. He said he was upset to hear about staff layoffs because "I have a number of staff who are my friends," and also worried about cuts to academic programs, which have not yet been announced.

Melvin, editor-in-chief of the student newspaper, The Hilltop News, said he was also dissatisfied with how the college has handled the situation. “I’m learning more from Facebook and than I am from the president or anyone else at the college,” he said, referring to the website that hosts the Birmingham News, the local newspaper. "There's usually a lot of talk about us being a supportive community of students, faculty and staff, but we as students haven't been getting much information about these things that directly affect the whole community."

Will Breland, immediate past president of the college’s Student Government Association, acknowledged that he also worried about the spread of misinformation among students. “I can say that I know that the forums and Facebook have kind of been exploding lately,” he said. “It’s a culture of misinformation that has a lot of people really worried about the college’s future, but as someone who’s been on campus and included in some meetings, I think we will be able to regroup.”

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