(A) State university or college reporting
requirements
(1) For the purposes of this
rule:
(a) "State university or college" shall
have the same meaning as in section
3345.71 of the Revised
Code.
(b) "Expendable fund
balances" shall include the sum of all reported fund balances (positive and
negative, restricted and unrestricted, allocated and unallocated) in the
current funds, quasi endowments, and balances in the unexpended plant funds,
funds for renewal and replacement, and funds for the retirement of plant
indebtedness.
(c) "Plant debt"
means any liability for which the corresponding asset is investment in
plant.
(d) "Total revenues" mean
total current fund revenues, both restricted and unrestricted.
(e) "Net total revenues" are total current
fund revenues, restricted and unrestricted, minus total current fund
expenditures and mandatory transfers, both restricted and
unrestricted.
(2) Fiscal
year financial statements
(a) Requirements and
submission deadline; extension of submission deadline
No later than October thirty-first of each year, each state
university and college shall prepare and submit to the auditor of state fiscal
year financial statements for the fiscal year ending the preceding June
thirtieth. The fiscal year financial statements shall be prepared in accordance
with generally accepted accounting principles and shall be accompanied by
required notes and other supplemental information as may be required by the
chancellor of higher education.
The chairperson of the board of trustees of a state university
or college may make a request to the auditor of state for an extension of the
October thirty-first submission deadline. A request for an extension must be in
writing delivered by the state university or college to the auditor of state no
later than the preceding September thirtieth. The chairperson must deliver in
writing a copy of the request for an extension to the chancellor and each
member of the board of trustees of the state university or college.
The request for an extension must include the reason the state
university or college is unable to submit the financial statements by the
submission deadline and the date that the state university or college proposes
to submit the financial statements to the auditor of state. If the auditor
determines that the request for an extension establishes extraordinary
circumstances that prevent the state university or college from filing its
fiscal year financial statements, the auditor of state may grant an extension
of the submission deadline of no more than two months.
(b) Notification by auditor of state
If a state university or college does not submit the fiscal
year financial statements by the submission deadline, the auditor of state
shall send written notice within thirty days after the submission deadline to
the governor, the chancellor, the director of budget and management, the
legislative service commission, and the chairpersons and ranking minority
members of the finance committees of the house of representatives and the
senate.
(c) Written
statement upon failure to file fiscal year financial statement
Upon receipt of the notice from the auditor of state that a
state university or college did not submit the fiscal year financial statements
by the submission deadline, the chancellor shall require the state university
or college to provide a written statement identifying the reasons for failing
to file the fiscal year financial statements by the submission deadline and a
date on which the state university or college expects to submit the financial
statements to the auditor of state. The written statement required under this
paragraph shall not constitute an extension of the submission deadline for the
fiscal year financial statement.
(3) Audited year-end report
(a) Each state university or college shall
cooperate with the auditor of state to cause to be performed no later than
December thirty-first succeeding the end of the fiscal year an annual audit of
the financial records of the state university or college in accordance with
generally accepted governmental auditing standards and OMB circular A-133. The
auditor of state may grant an extension for the completion of the audit of no
more than two months if the auditor of state determines that extraordinary
circumstances justify the extension. Upon completion, the state university or
college shall deliver a copy of the annual audit to the auditor of state and
the auditor shall send a copy to the chancellor.
(b) If the annual audit of a state university
or college by the auditor of state discloses substantive audit findings, the
auditor of state shall send written notice of the substantive audit findings to
the governor, the chancellor, the director of budget and management, the
legislative service commission, and the chairpersons and ranking minority
members of the finance committees of the house of representatives and the
senate.
Substantive audit findings include but are not limited
to:
(i) The inability to make timely
payments to vendors, delays in making pension retirement contributions or
requests for advanced state funding;
(ii) A significant negative variance between
budgeted and actual spending for a fiscal year;
(iii) A significant operating deficit in the
restricted and unrestricted funds that could have a negative impact on the
financial condition of the state university or college for the fiscal
year;
(iv) Reportable conditions,
material weaknesses, direct and material legal noncompliance or management
letter comments which, in the opinion of the auditor of state, the aggregate
effect of all such reported issues has a significant effect on the financial
condition of the state university or college for the current and future years;
or,
(v) A qualified opinion on
financial statements or grant compliance which, in the opinion of the auditor
of state, has significant impact on the financial condition of the state
university or college.
(4) Ratio analysis
Upon receipt of the annual audit, the chancellor shall perform
a ratio analysis of the financial condition of the state university or college
as follows:
(a) Calculate ratios:
(i) Viability ratio: expendable fund balance
divided by plant debt;
(ii) Primary
reserve ratio: expendable fund balance divided by total current funds
expenditures and mandatory transfers;
(iii) Net income ratio: net total revenues
divided by total revenues.
(b) Assign threshold factors:
|
THRESHOLD FACTORS
|
|
0
|
1
|
2
|
3
|
4
|
5
|
|
Viability ratio
|
<0
|
0 to .29
|
.30 to .59
|
.6 to .99
|
1.0 to 2.50
|
>2.50
|
|
Primary reserve ratio
|
<-.1
|
-.1 to .049
|
.05 to .099
|
.10 to .249
|
.25 to .49
|
0.50 or greater
|
|
Net income ratio
|
<-.049
|
-.05 to 0
|
0 to .009
|
.01 to .029
|
.03 to .049
|
0.50 or greater
|
(c) If
plant debt is fifty thousand dollars or greater, multiply the assigned
threshold factor for the viability ratio by thirty per cent. Multiply the
assigned threshold factor for the primary reserve ratio by fifty per cent.
Multiply the assigned threshold factor for the net income ratio by twenty per
cent.
If plant debt is less than fifty thousand dollars, do not
calculate the viability ratio. Multiply the assigned threshold factor for the
primary reserve ratio by eighty per cent. Multiply the assigned ratio factor
for the net income ratio by twenty per cent. Add the products of the
multiplication to obtain the composite result of the ratio analysis.
If the chancellor is unable to perform a ratio analysis because
the state university or college has received a qualified audit opinion, the
state university or college shall be deemed to have a composite result of the
ratio analysis below 1.75.
(d) The chancellor shall perform an
additional ratio analysis under this paragraph using the methodology outlined
above exempting pension liabilities, other postemployment benefits, and related
changes in revenues or expenditures due to adjustments in the audited financial
statement of a state university or college as a result of the implementation of
government accounting standards board statements 68 and 75. For purposes of
this rule, the chancellor will determine which composite result of the ratio
analysis performed under this paragraph most accurately reflects the financial
condition of the state university or college.
(5) Quarterly financial report
(a) Not later than thirty days after the end
of each calendar quarter, each state university and college shall submit a
quarterly report to the chancellor whom shall compile the reports and
distribute them to the director of the office of budget and management, the
legislative service commission, and the chairpersons and ranking minority
members of the finance committees of the house of representatives and the
senate. The quarterly report shall be in the form prescribed by the director of
budget and management. The quarterly report shall be a "statement of revenues,
expenditures, and other changes" for the year to date prepared on the same
basis as that used in the budget for the state university or college.
(b) Reportable events
In addition to the requirements of paragraph (A)(5)(a) of this
rule, the quarterly report shall contain a narrative statement indicating
whether any of the following events have occurred during the period covered by
the report:
(i) The state university
or college requested an advance of state subsidy money during the quarter
covered by the report;
(ii) The
state university or college delayed or failed to make any payments to
applicable retirement systems (e.g., P.E.R.S. or S.T.R.S.) required to be made
during the quarter covered by the report;
(iii) The state university or college failed
to make any scheduled payroll payments payable during the quarter covered by
the report;
(iv) The state
university or college failed to make any payments to vendors when due during
the quarter covered by the report as a result of a cash deficiency or a
substantial deficiency in the payment processing system of the state university
or college;
(v) The state
university or college failed to make any scheduled payment of principal or
interest for short- or long-term debt during the period covered by the
report;
(vi) The state university
or college has revised its original budget for the fiscal year and the revision
will result in a substantially reduced ending fund balance or larger
deficit;
(vii) The state university
or college projects a significant negative variance between its most recently
adopted annual budget and actual revenues or expenses at the end of the fiscal
year.
(viii)
The state university or college is identified by the
federal government or a regional accrediting organization as subject to
heightened reporting standards or special monitoring status, including but not
limited to the United States department of education's heightened cash
monitoring process.
(c) If any reportable event listed in
paragraph (A)(5)(b) of this rule has occurred, in addition to the requirements
of paragraphs (A)(2)(a) and (A)(5)(a) of this rule, the state university or
college shall describe to the chancellor in a separate document:
(i) The reason for the reportable
event;
(ii) The action(s) taken by
the state university or college to resolve the reportable event; and
(iii) The action(s) taken by the state
university or college to prevent a reoccurrence of the reportable
event.
(B) Criteria for determining fiscal watch
(1) The state university or college fails to
submit its fiscal year financial statements in accordance with paragraph
(A)(2)(a) of this rule;
(2) The
state university or college fails to obtain an audited year-end report as
required by paragraph (A)(3)(a) of this rule;
(3) The state university or college has a
composite result of the ratio analysis calculated in accordance with paragraph
(A)(4) of this rule of 1.75 or less for two consecutive fiscal years;
(4) The state university or college has a
composite result of the ratio analysis calculated in accordance with paragraph
(A)(4) of this rule of 1.75 or less and the chancellor has determined that the
state university or college has failed to take decisive action to improve its
financial condition;
(5) The state
university or college has a composite result of the ratio analysis calculated
in accordance with paragraph (A)(4) of this rule of 1.75 or less and one or
more of the reportable events listed in paragraph (A)(5)(b) of this rule has
occurred during the reporting period;
(6) The state university or college has a
composite result of the ratio analysis calculated in accordance with paragraph
(A)(4) of this rule of 1.75 or less and the auditor of state has reported one
or more substantive audit findings; or
(7) The state university or college receives
a disclaimer of opinion on its last audited financial statement.
(8)
The state
university or college experiences a reportable event listed in paragraph
(A)(5)(b) of this rule and the chancellor determines that immediate and
decisive action is necessary to improve the state university or college's
financial condition.
(C) Declaration of fiscal watch
If the chancellor determines that any of the criteria set forth
in paragraph (B) of this rule has been satisfied for reasons other than natural
disaster, he or she shall issue a directive declaring the state university or
college to be under fiscal watch. The chancellor shall certify the declaration
of fiscal watch to the governor, the director of budget and management, the
auditor of state, the legislative service commission, the chairpersons and
ranking minority members of the finance committees of the house of
representatives and the senate, and the board of trustees of the state
university or college under fiscal watch.
(D) Actions to be taken by the board of
trustees and employees
(1) The board of
trustees of a state university or college under fiscal watch shall:
(a) Within ninety days of the declaration of
fiscal watch adopt a financial recovery plan with the purpose to end fiscal
watch within three years, which is approved by the chancellor. The financial
recovery plan shall contain:
(i) An analysis
of the financial difficulty of the state university or college and the causes
of all significant revenue or expenditure problems;
(ii) A description of efforts or initiatives
proposed or undertaken by the state university or college to address the
financial difficulties, including an estimation of the time required to resolve
the financial difficulties;
(iii)
An analysis of how these efforts or initiatives have resolved or will resolve
the financial difficulties;
(iv) A
description of contingency plans designed to address the financial
difficulties, and other potential circumstances that could worsen the financial
difficulties;
(v) A financial
forecast for three years, including a description of key assumptions and
methodology which will correct all fiscal conditions at the end of the three
year period;
(vi) Such other
information, reports, and documentation as the chancellor may
request.
(b) Consult with
the auditor of state regarding any necessary or appropriate steps to bring the
books of account, accounting systems, and financial procedures and reports of
the state university or college into compliance with requirements prescribed by
the auditor of state, regarding desirable modifications and supplementary
systems and procedures pertinent to the university or college. The auditor of
state shall provide a written report to the board of trustees outlining the
nature of the financial accounting and reporting problems of the state
university or college and recommendations for actions to be undertaken to
correct the financial accounting and reporting problems.
(c) Direct the state university or college to
develop an effective financial accounting and reporting system by promptly
bringing its existing system of financial accounting and reporting into
compliance with the standards required by the auditor of state.
(d) Establish a process by which the board of
trustees or a committee thereof will undertake monthly reviews of revenues,
expenditures, and encumbrances consistent with the financial recovery plan
required by paragraph (D)(1)(a) of this rule.
(e) Approve and monitor the monthly levels of
expenditures and encumbrances and require supporting documentation to
substantiate any departure from any approved level.
(2) The employees of the state university or
college shall diligently and promptly assist the board of trustees in the
performance of its duties under this rule, including the furnishing of any
supporting documentation or other information requested.
(E) Reporting obligations of state university
or college under fiscal watch and board of trustees
(1) Each quarter during the fiscal watch, a
state university or college under fiscal watch shall provide to the board of
trustees and the chancellor the quarterly financial report required in
paragraph (A)(5)(a) of this rule, the narrative required in paragraphs
(A)(5)(b) and (A)(5)(c) of this rule, and any significant changes to the
financial recovery plan adopted pursuant to paragraph (D)(1)(a) of this rule or
significant areas of noncompliance with the financial recovery plan.
(2) On or before the anniversary of the
declaration of fiscal watch by the chancellor and annually thereafter during
the fiscal watch, the board of trustees shall make reports to the governor,
speaker of the house of representatives, the president of the senate, the
chancellor, the auditor of state, the legislative service commission, and the
director of the office of budget and management detailing the progress of the
state university or college to eliminate fiscal watch conditions, failures of
the state university or college to comply with this rule, and plans for further
actions to attain the objectives of this rule. The board of trustees may make
such interim reports as it may determine to be appropriate for such purposes or
as may be requested by the governor, either house of the general assembly, the
director of the office of budget and management, or the chancellor.
(F) Criteria for termination of
fiscal watch
(1) The chancellor shall
terminate the fiscal watch of a state university or college when in its
opinion:
(a) The state university or college
under fiscal watch achieves a composite result of the ratio analysis calculated
in accordance with paragraph (A)(4) of this rule of at least 2.40 for a fiscal
year;
(b) The state university or
college has remediated all of the conditions that led to the fiscal watch,
including any cash flow problems, the inability to prepare fiscal year
financial statements in a timely manner, substantive audit findings, or
reportable events; and
(c) No other
condition exists or is likely to materialize that could result in a declaration
of fiscal watch.
(2) If
in the opinion of the chancellor the fiscal watch should be terminated, the
chancellor shall issue a directive declaring the termination of the fiscal
watch and shall certify the termination to the governor, the speaker of the
house of representatives, the president of the senate, chairs and ranking
members of the house and senate finance committees, the legislative service
commission, the director of the office of budget and management, and the board
of trustees of the state university or college.
(3) The chancellor may consult with the
auditor of state, the office of budget and management, and the legislative
service commission in reaching his or her opinion as to whether the fiscal
watch shall be terminated.
(G) Conservatorship
(1) Criteria for certifying appointment of
conservator
(a) The state university or
college has a composite result of the ratio analysis calculated in accordance
with paragraph (A)(4) of this rule of 0.75 or less and, in the judgment of the
chancellor, after consultation with the office of budget and management, the
state university or college is experiencing a serious failure of financial
administration and has failed to take decisive action to restore financial
health; or
(b) The state university
or college has been under fiscal watch for three full consecutive years, and in
the judgment of the chancellor, after consultation with the office of budget
and management, the state university or college is experiencing serious failure
of financial administration.
If the criteria in paragraph (G)(1)(a) or (G)(1)(b) of this
rule are met, the chancellor shall determine that the state university or
college under fiscal watch is experiencing sufficient fiscal difficulties to
warrant the appointment of a conservator. The chancellor shall request
certification from the office of budget and management that the state
university or college is experiencing sufficient fiscal difficulties to warrant
the appointment of a conservator. Upon receipt of the certification from the
office of budget and management, the chancellor shall then certify this
determination to the governor.
(c)
The state
university or college has one or more reportable events listed in paragraph
(A)(5)(b) of this rule, and in the judgment of the chancellor, after
consultation with the office of budget and management, the state university or
college is experiencing serious failure of financial administration and has
failed to take decisive action to restore financial health.
(2) Development of a financial
stability plan by governance authority Within ninety days after the appointment
of the governance authority for a state university or college pursuant to
section 3345.75 of the Revised Code, the
governance authority shall develop a financial stability plan, the provisions
of which are subject to the approval of the chancellor, after consultation with
the director of budget and management. The financial stability plan shall be
designed to achieve the objectives established by paragraphs (G)(3)(b) to
(G)(3)(e) of this rule as expeditiously as possible, thereby permitting the
termination of the conservatorship for the state university or college.
(3) Termination of governance
authority
The governance authority shall certify to the governor that the
state university or college is experiencing sufficient fiscal stability to
warrant termination of the governance authority when:
(a) In the opinion of the governance
authority, the state university or college has prepared a financial recovery
plan required by paragraph (D)(1)(a) of this rule and has satisfied all of the
conditions stated in the financial recovery plan;
(b) In the opinion of the governance
authority, the state university or college has demonstrated the ability to
produce materially accurate and complete financial statements and other reports
of account balances and transactions for internal and external use on a timely
basis, as certified by the governing authority;
(c) In the opinion of the governance
authority, key financial administration positions at the state university or
college are filled by appropriately qualified and trained personnel;
(d) In the opinion of the governance
authority, there is a material improvement in the fiscal stability of the state
university or college as indicated by the viability, primary, and net income
ratios as calculated in paragraph (A)(4) of this rule. For the purposes of this
paragraph, "material improvement" means that, in the judgment of the governance
authority, a reasonable financial stability plan is in place to achieve a
composite result of the ratio analysis of 2.40 for the state university or
college within three fiscal years; and
(e) In the opinion of the auditor of state,
there are no material weaknesses in the internal controls of the state
university or college.
Notes
Ohio Admin. Code 126:3-1-01
Effective:
2/15/2024
Five Year Review (FYR) Dates:
10/1/2025
Promulgated Under:
111.15
Statutory Authority: 3345.72, 3345.73
Rule
Amplifies: 3345.72, 3345.73, 3345.74, 3345.75, 3345.76, 3345.77
Prior Effective Dates: 10/06/2015,
04/09/2021
