^ V " o ^o '^ .^i-'^ ° .^' '^i^ ^^^^ .^ ,> _ '^ *-^'' ^^' COLLEGE AND UNIVERSITY FINANCE By TREVOR ARNETT NEW YORK GENERAL EDUCATION BOARD 61 BROADWAY 1922 Copyright 1922 By The General Education Board MAY - 1 1922 ©CU659879 PREFACE The general purpose in writing this book has been to Kghten the tasks of college administrators and to help make their work more satisfactory, both to themselves and to all those who have at heart the welfare of American colleges. The particular purpose in writing it, in response to numer- ous requests, has been to put into book form a statement of the principles underlying college accounting and the use and care of trust funds, and to describe a complete, yet simple, system of college accounts which has been tried and found satisfactory. It is hoped that business officers will find the book a help to them in performing their duties more intelligently and efficiently, and that presidents, as well as trustees, will be assisted in discharging their responsibilities. No attempt has been made to discuss educational problems, the text being limited to a discussion of business and financial problems only. Chapters i to vi are devoted to a discussion of the prin- ciples underlying college organization and management and the problems of financial policy peculiar to the endowed college, particular emphasis being placed upon the principles which must be observed in accounting for trust funds and in maintaining them inviolate. The remaining chapters deal with the principles, methods, and plans to be followed in recording, accounting, and report- ing the financial transactions of colleges from the point of view of good practice, and are designed to help officials and employees who carry these responsibilities. In order to VI PREFACE render this portion of the book more effective an annual financial report of a supposititious college is included and explained at some length. In addition to requests which have been received for information concerning a proper financial system, the officers of the General Education Board have been frequently asked to furnish college trustees with a suitable set of by-laws. To supply this demand a set of by-laws containing pro- visions for the conduct of an endowed college has been drafted and included. Mention is made of the books of account and records needed, but detailed forms and headings have been stu- diously avoided. The principles and theory of college accounting, however, have been emphasized with the hope that officials in charge of this work will be stimulated to arrive at solutions best adapted to their own peculiar problems. I wish to record my sincere appreciation of the many helpful suggestions which have been made by my associates, and especially to acknowledge the aid given by Mr. N. C. Phmpton, Assistant Auditor of the University of Chicago, and Dr. J. Spencer Dickerson, Secretary of the Board of Trustees of the University of Chicago, my colleagues for many years, and by Dr. Wallace Buttrick, Dr. Abraham Flexner, and Mr. H. J. Thorkelson, my associates in the General Education Board. Trevor Arnett New York January 31, 1922 TABLE OF CONTENTS CHAPTER PAGE I. Origin and Support of Colleges and Univer- sities 1-9 II. Receipts 10-17 Sources 10 Student Fees 10-13 Advance Payment of Fees . . . . . 13-14 Income on Endowment 14-15 Gifts 15-17 III. Disbursements 18-23 Expenses of Operation 19-21 Disbursements of Auxiliary Departments . . 21-22 Disbursements for Dormitories, Dining-Halls, Bookstores, etc 22 Expenditures Incurred in Raising Funds . . 22-23 Y) Endowment . . 24-53 Definition 24 Improper Use of the Term "Endowment" . . 24-26 Source of Endowment 26-27 Unrestricted and Restricted Endowment . . 27-28 Gifts of Property and Securities to Be Entered at Actual Value 29-30 Book Value of Endowment Assets Should Not Be Changed to Record Estimated Values . . 30-31 Principles of Investment 32 Suitable Kinds of Investments .... 32-34 Diversification of Investments .... 34-35 Investments Purchased Should Be Entered on the Books at Cost 35-37 Funds Invested Separately or as a Whole . . 37-39 vii viii CONTENTS CHAPTER PAGE Constant Care Required 39-41 Reports to Trustees on Condition of Secur- ities 41-42 Endowment Funds Should Not Be Loaned to Trustees and Officers 42-43 Undesirability of Investing Endowment in College Buildings and Land 43-46 Hypothecation of Endowment Investments . 46-47 Floating Debt 47-49 Use of Endowment Cash for Current Expenses . 49-50 Funds Subject to Annuity 50-51 Treatment of Pledges 51 Procedure to Be Observed in Making Invest- ments 51-52 Custody of Securities 52-53 V. Physical Plant 54-57 Definition 54 Plant to Be Carried at Cost . . . . . 55-56 Insurable Value 56 Depreciation 56-57 VI. Accounting 58-95 Accounting for Funds 58-60 Record of Funds 60-61 Funds for Special Purposes 61-63 Accounting for Plant ...... 63-64 Accounting for Buildings in Course of Construc- tion 64-66 Accounting for Current Operations . . . 66-67 The Budget 67-89 Budget Income 68-70 How Estimates of Income Should Be Made . 70 Student Fees 70 Income from Endowments 70-73 Estimated Income from Gifts .... 73-74 Estimates of Income from Miscellaneous Sources 74-75 CONTENTS IX CHAPTER Comparison of Estimated Income with Income Received Previously .... Budget Appropriations .... Budget Estimates for the Year — Summary Method of Budget Accounting and Control Budget Revision Closing the Budget Accounting for Auxiliary Departments Accoimting for Dining-Halls, Dormitories, etc. Accounting for Sundry Receipts and Disburse ments of a General Nature Balancing and Closing the Ledgers Purchasing .... VII. Account Books and Records . Cash Books .... Ledgers Voucher Register Pay-Roil Register Student Accounts Loose-Leaf and Boimd Books Statistical Records . VIII. Financial Reports . Annual Contents of Annual Reports . I. Survey of Results 11. The Balance Sheet III. Current Operations IV. Gifts .... V. Explanatory Statements and Statistics For Trustees and Officers Statistical Reports Trust Fund Reports IX. Annual Report of the Treasurer Surplus and Increase in Assets Current Operations — College of Liberal Arts PAGE 75 75-80 80-83 83-85 85-88 88-89 89-90 90-91 91-92 92-93 93-95 96-104 97 97-98 98-99 99 99-101 101 102-104 105-118 105-115 106-115 107 107-110 110-112 112-113 113-114 115-116 116-117 117-118 119-170 119-123 123-124 CONTENTS CHAPTER Self-supporting Departments . Building Additions and New Plans Gifts Auditor's Report of Examination . Certificate of Auditor Table I. Balance Sheet . Table II. Surplus and Deficit Account, 1920-21 Table III. College of Liberal Arts — Income and Expense Table IV. Analysis of Income and Expense of College of Liberal Arts Table V. Dormitories Table VI. Dining-HaUs . . Table VII. College Bookstore . . . . Table VIII. School of Music . . . . Table IX. Heat, Light, Power, and Water Account Table X. Gifts Paid In during the Fiscal Year Ending June 30, 1921 Schedule I. Investment of Endowment Funds . Schedule II. Investment of Annuity Funds Schedule HI. Buildings, Grounds, and Equip- ment Schedule IV. Temporary Investments of Build- ing and Equipment Funds Schedule V. Endowment Funds .... Schedule VI. Annuities Schedule VII. Building and Equipment Funds Schedule VIII. Special Funds for Designated Purposes Schedule IX. General Funds for Designated Purposes Schedule X. Schedule XL Reserves Operation and Maintenance of Physical Plant, College of Liberal Arts . Notes on Tables and Schedules in Annual Report PAGE 124r-125 125-126 126 126 127 128-129 130 131-134 135 136 137 138 139 140 141-143 144r-147 148 149-150 151 152-154 155-156 157 158 159-161 162 163 164-170 CONTENTS xi CHAPTER PAGE X. College Organization 171-193 The Charter 171-172 The Board of Trustees 172-173 The By-Laws 173-175 Staff Required for Busmess Department of an Endowed College of Moderate Size . . . 175 The By-Laws of Endowed College, College City, Illinois 176-193 Appendix 194-203 Index 207-212 CHAPTER I ORIGIN AND SUPPORT OF COLLEGES AND UNIVERSITIES Colleges and universities of the United States derive part of their support from fees paid by students; the remainder comes from gifts, from income on endowment, or from taxation.^ While even tax-supported institutions may- derive part of their income from endowment,^ generally speaking, college and university income, aside from student fees, comes so largely either from endowment on the one hand, or from taxes on the other, that the colleges and universities of the United States are usually divided into two classes: first, the endowed institutions; second, the 1 In Bulletin No. 34 of the 1920 Series, published by the Commissioner of Educa- tion, the following interesting table is given showing the relative difference in the proportional distribution of the receipts for colleges, universities, and technical schools as compared with private institutions: Percentages Public Private Productive funds 3.9 72.9 0.7 22.5 27.7 Government, state, or city 3.8 Private benefactions 14.3 Student fees and other sources 54.2 100.0 100.0 ■^ 2 For example, the budget of the University of California for 1921—22 is $7,692,162, of which $299,233 represents income from endowment, and $70,640 dona- tions. In the budget of the University of Virginia for 1921—22 the estimated income is $821,046, of which $93,194 comes from endowment and $83,331 from gifts and bequests. v. 2 COLLEGE AND UNIVERSITY FINANCE tax-supported institutions. The preservation and increase of endowment is so important to the well-being of an endowed college or university that the present volume is primarily written to meet the needs of those who are engaged in manag- ing the financial affairs and developing such institutions. But, as a matter of fact, aside from the manner of obtaining the income, all colleges and universities encounter practically the same accounting and managerial problems. Despite the prominence, therefore, given in this volume to questions connected with endowment, it is hoped that the book may also prove serviceable to persons interested in tax- supported institutions. Harvard College was the first institution of higher learn- ing in this country, and the rehgious motive which led to its establishment continued for two centuries to be a powerful factor in the development of higher education in the United States. Even now it exerts a strong influence. The Puritan Fathers, having "builded houses, provided necessa- ries for their HveUhood, reared convenient places for God^s worship, and settled the civil government,'^ longed to "advance learning and perpetuate it to posterity, dreading to leave an illiterate ministry to the churches when their present ministers should He in the dust."^ Not infrequently the earliest classes of what are now strong and well-equipped colleges were held at the minister's house or at the meeting house, and instruction was given in a few subjects by the minister. As the number of students increased, special quarters were obtained. The minister associated with him- self other persons able to share in the instruction, and appealed to the members of his particular denomination for gifts which would enable him to pay the expenses of the 1 New England's "First Fruits." ORIGIN AND SUPPORT 3 growing enterprise. In course of time generous benefactors gave funds to be held in perpetuity, the income only to be used for the maintenance and development of the institution. Only in recent times have institutions been founded with considerable gifts from a single donor or group of donors. Though Harvard was foimded in 1636, and a few other institutions in the seventeenth and eighteenth centuries, the foundation of colleges and universities did not become general until the second quarter of the nineteenth century. One other educational institution was estabhshed in the seven- teenth century, twenty-one in the eighteenth, twenty-four in the first quarter, eighty-five in the second quarter, one hundred ninety-five in the third quarter, and one hundred forty-five in the last quarter of the nineteenth century up to and including 1897. Since 1900 the cost of maintaining the endowed college has rapidly increased. In consequence men have in general sought to make financially secure colleges already in existence rather than create new ones. Though the colleges of Oxford and Cambridge, the oldest universities in England, are well endowed, their resources for the most part date back to the Middle Ages. At the present time in the United States more than anywhere else in the world institutions of learning are the recipients of large sums ranging from single gifts running into the millions, down to relatively small amounts contributed by those interested for one reason or another in the success and development of a given college or university. These gifts are sometimes made by individuals, sometimes by rehgious groups, sometimes gathered through efforts of alumni; not infrequently they come absolutely unexpected. From information gathered from publications of the Com- missioner of Education, during the last three decades of the 4 COLLEGE AND UNIVERSITY FINANCE nineteenth century, gifts and bequests to education in the United States approximated in value $250,000,000; during the first decade of the present century they amounted to $216,000,000, and for the seven years of the second decade to $21 1,000,000. All but a small part of these great amounts was given for higher education. Nor do these figures tell the whole story, for since 1918 practically all the endowed colleges and universities of the United States have been vigorously engaged in raising addi- tional sums for endowment, largely for the special purpose of providing income with which to pay increased salaries. The rapid rise in the cost of living during the recent world- war threw into bold rehef the inadequacy of the salaries paid to college and university teachers. There was for a time no inconsiderable danger that the teaching profession would be seriously damaged. It became necessary not only to bring the salaries back quickly to their purchasing power before the war, but, in justice to the teacher, to place them upon a higher level. Harvard undertook a campaign for $15,000,000, Princeton for $14,000,000, Cornell for $10,000,000. Every possible effort was made to interest and inform the public as to the situation. Mr. John D. Rockefeller gave to the General Education Board the sum of $50,000,000 in the hope that the board would decide "to use the principal as well as the income as promptly and as largely as may seem wise for the purpose of co-operating with higher institutions of learning in raising sums specifically devoted to the increase of teachers* salaries." It is probable that this movement will add another quarter of a billion of dollars to the endowment of American colleges and universities within the next five years. ORIGIN AND SUPPORT 5 A few concrete examples will illustrate the rapid develop- ment which has Just been sketched. Yale University, over two hundred years old, had in 1900 an endowment of $4,942,166. Its endowment is now $25,677,010, and when existing pledges are collected will be $31,759,910. The endowment of Harvard University has increased since 1900 from $12,614,448 to $48,546,156. It will possess over $50,000,000 when its $15,000,000 fund has been fully paid in. Brown University, with $1,252,734 in 1900, now has $5,954,239. The endowment of Amherst College has increased in the same period from $1,679,252 to $4,825,015, and that of Smith College has risen from $707,786 to $4,243,000. Moreover, the funds of the last three colleges will be further increased when the present campaigns are completed. In the Middle West, the West, and the South, the same phenomenon may be observed, though the amounts involved are, with one exception, smaller. Grinnell College in Iowa had in 1900, $597,511 of endowment; in 1921 it had $2,477,483, and when it has succeeded in collecting all outstanding pledges it will have $3,021,580. Carleton College in Minnesota has seen its endowment increase from $422,494 to $1,617,068, and will see it increase to $3,136,632, when all outstanding pledges are collected. The new University of Chicago, founded in 1890, had in 1900 an endowment of $5,938,450, and now possesses an endowment of $31,537,826. These large sums added to endowment by no means represent the total increase in the resources of endowed colleges and universities. There have been corre- spondingly large sums spent for new buildings and equipment. In order to provide for the larger numbers of students now seeking higher education, it is still necessary to procure 6 COLLEGE AND UNIVERSITY FINANCE additional resources, partly for buildings and equipment, partly for maintenance. To complete the picture and to show that the problems of accounting and management are not limited to endowed institutions, a brief statement should be made regarding the resources of tax-supported institutions. These institutions, some of which were founded toward the middle of the nine- teenth century, have had their main development since the close of the Civil War. They are found chiefly in the western, the middle-western, and the southern states side by side with large or rapidly growing endowed institutions. Deriving their support either from the appropriations of state legislatures or from a fixed state tax, and in part from federal aid, their current annual budgets run in some in- stances to upward of $5,000,000. The annual budget for 1921-22 for current expenses of the State University of Illi- nois (exclusive of new buildings) is $4,658,726; of Wisconsin, $4,841,965; of Minnesota, $5,886,739; and of Michigan, $4,406,429. It is obvious that all these institutions, tax- supported and endowed, are large enterprises, the business management of which requires training and capacity of a high order. It will be conceded that endowed colleges and univer- sities in the United States have not generally developed sound and adequate accounting systems. The reasons for this unfortunate condition are not difficult to discover. For many years these institutions lived a hand-to-mouth existence- Gifts and contributions were at once swallowed up in the payment of salaries or bills not infrequently overdue. A record of cash receipts and disbursements was usually kept, and as a rule httle more. In many cases the president did not fully appreciate the need of careful account- ORIGIN AND SUPPORT 7 ing and rarely had at his disposal funds with which to pay a competent bookkeeper. The trustees and friends of the college, though often successful men of affairs, accustomed in their own businesses to rigid financial accounting, trusted completely the college administrators and rarely insisted upon the adoption of strict business methods in the manage- ment of college finance. When they did undertake to conduct the financial affairs of the college in a businessKke way, often the best they could do was to impose upon the college an accounting system which, though admirably adapted to the needs of a commercial concern, was not appli- cable to an educational institution. A college is not a corpo- ration operated for financial profit. Seldom, if ever, does its income even in this day permit the accumulation of a depreciation reserve for replacing buildings. In conse- quence, a commercial system of accounting which shows with meticulous care accruing income, building depreciation, etc., does not fit the peculiar financial problems encountered in the administration of an endowed institution dependent for its support and expansion upon gifts. The accounting situation in colleges and universities is therefore a decidedly mixed one. Many institutions still use the primitive methods inherited from their days of poverty and small things. A smaller number, endeavoring to improve matters, have employed systems unsuited to their needs. Relatively few colleges are operated upon the budget system. Illogical classification and unsuitable terminology too often characterize the financial statements and the ledger accounts. Complete balance sheets are rare. Vague conceptions of the nature of endowment are quite common, and capital receipts and expenditures are not carefully distinguished from receipts and expenditures for current 8 COLLEGE AND UNIVERSITY FINANCE purposes. In consequence, the resources are often impaired, and misleading statements are made regarding them. Terms such as '^resources, " "assets and HabiHties," ''sur- plus, " which have a definite meaning, are often incorrectly used, with the result that even those connected with these institutions do not fully understand their actual financial situation. The whole problem is not an altogether simple one to solve. The modern college with its rapidly growing endow- ment, its largely increased investment in buildings and equipment, and its more and more complicated business problems cannot be efficiently conducted, unless its staff includes someone versed in sound business principles. The officer in question must understand how to superintend the investment of funds, how to account for them, how to make and operate a budget which will tend to keep expenditures within the limits of income, how to prepare a balance sheet which will show, fully and clearly, the financial status of the institution, and finally, he must realize that college operation differs from the operation of a commercial or manufacturing concern. The larger colleges have not hesitated to incur the expense involved in maintaining an efficient financial department, realizing that it is the wisest thing to do, but as a matter of fact it is perhaps even more important that the smaller college, with its limited resources, should be conducted upon the most efficient business basis possible. During the last few years the author has carefully examined the financial management and accounting of several hundred American colleges and universities. He can testify unreservedly and emphatically to the fact that practically without exception the financial affairs of these institutions are honestly conducted. Differences of opinion ORIGIN AND SUPPORT 9 and errors of judgraent have been, of course, encountered, as they are encountered in the most carefully and compe- tently managed business concerns. But not only are the administrators of the American college honest men, but they go too far as a rule in endeavoring to make a dollar do more than a dollar's worth of service, especially in the matter of salaries. Honesty of conduct, however, is not enough; there must needs be efficiency. Accounting methods employed are often poorly adapted to academic uses, and in their zeal to render public service college administrators have at times involved their institutions in financial diffi- culties through attempting more than they have the means to perform. Having no proper methods of accounting they are not infrequently surprised to find their institutions in serious financial difficulty. Common defects of academic financing and accounting may therefore be briefly summar- ized as follows: (1) the use of accounting systems unsuited to college needs, which fail to portray the actual financial status of the institution and, (2) the absence of a budget system which tends to keep expenditures within the limits of income. CHAPTER II RECEIPTS SOURCES The receipts of endowed colleges are of three principal kinds: (1) student fees, (2) income on endowment, (3) gifts. Some colleges also derive income from the operation of dormitories, dining-halls, bookstores, and other activities, but in these cases the net income only is available for their educational work. They occasionally receive income from the rental of college buildings, from the sale of obsolete and not needed equipment, and from miscellaneous sources. STUDENT FEES student fees fall into four classes: (1) fees for tuition; (2) fees for laboratory materials and supplies; (3) fees for incidental expenses and library facilities; (4) fees for break- age, damage, and loss. The fee for tuition is primarily designed to cover what is thought to be the student's share of the cost of furnishing the education which he receives. It is a generally accepted principle that a student should not be required to pay what it costs the college to provide his education, else students with slender resources may be deprived of the advantages of college training. Higher education should be conducted on a democratic basis. No definite practice has been followed by colleges in determining the part of the cost of education 10 RECEIPTS 11 which should be borne by the student. Some college admin- istrators have expressed the opinion that tuition fees should cover the amount of salaries paid for instruction, leaving the administrative expenses of the college and the cost of operat- ing and maintaining its physical plant to be provided from other sources. The amount paid by the better-endowed colleges for instruction approximates about one-half the total expense incurred for strictly educational operation. ^ The amount received from tuition fees rarely equals or even approximates the sum paid for instruction. If the opinion stated above were to be adopted as a basis, the tuition fee should equal the salaries paid to teachers divided by the average number of students in attendance. But in fixiag its tuition fee the endowed college does not usually proceed upon this principle. It takes other things into consideration. The class of student it attracts, their economic status, the competition of neighboring colleges and of tax-supported institutions, and the desire to offer students of its own denomination the advantages of higher education under conditions which are beheved to be most favorable, are more often the deciding factors. In Bulletin No. 30, 1918,2 of the Department of the Interior, Bureau of Education, a committee reporting on the resources and standards of colleges of arts and sciences stated that '^Institutions should strive to bring their endowment to the point where it will yield at least half the money needed for annual expenses." If this goal were attained, the other half of the annual expense would have to be provided from other sources, of which tuition fees are the chief.^ ' "Strictly educational operation" includes administration, instruction, and the operation and maintenance of the physical plant of the college. The cost of the opera- tion and maintenance of dormitories, dining-halls, and special schools is excluded. 2 P. 44. 3 Note 1, p. 1. 12 COLLEGE AND UNIVERSITY FINANCE Almost without exception college administrators prefer to keep tuition fees as low as possible. The increasing costs of college operation since the European war, however, especially for the operation of the physical plant and for the higher salaries which are being paid as a result of the efforts to put the salaries of the faculty on a basis commensurate with the increased cost of living, have impelled them to increase fees. If a fixed relation should exist between salaries and receipts from tuition the tuition fee should be increased as salaries are increased. There can be no sound objection to at least a proportionate increase in tuition fees, especially if provision is made for scholarships and for loan funds to care for worthy students unable to pay the higher rate. The fee charged for laboratory materials and supplies is ordinarily supposed to be equivalent to their actual cost, including service, and is levied to reimburse the college and to put the courses in science requiring laboratory work financially on a par with those in the humanities. Colleges also often impose specific fees: a matriculation fee, paid at the time of admission, which is supposed to cover the expense incurred in passing upon entrance credits and enrolling students; a graduation fee, paid when the student receives his degree; a library fee for the use of the library, which is usually devoted to the purchase of books; and an incidental fee to help defray the overhead cost of administra- tion. There may be also athletic fees, locker rental fees, and fees for college concerts. Breakage and deposit fees are exacted in advance to protect the college from loss arising through loaning students scientific material and keys, aiid from wilful damage to property. Any portion of the fee unused is refunded to the student at the end of the term. RECEIPTS 13 Fines are imposed for failure to observe rules regarding registration, payment of fees, and the return of books and materials. ADVANCE PAYMENT OF FEES Students should be required to pay all fees within the first few days of the quarter or term, or to make satisfactory arrangements for their payment. This rule, announced by most colleges, is more honored in the breach than in the observance. It should, however, be followed strictly, for its observance operates as much to the advantage of the student by training him in good business principles as it benefits the college by the prompt receipt of cash, by eliminating the expense of collection, and by avoiding bad debts. The reason most frequently given for not insisting upon prompt payment is that it might work a hardship on the poor student and might exclude him from college. Experience shows that the enforcement of the rule has not had this effect, for almost without exception a student earnestly desiring an education will in some way obtain the needed money. The enforcement of the rule is good policy, for the student whose obhgations are settled has a more wholesome attitude toward his college than one who is in its debt. If fees are not collected promptly the student is more likely to be captious and critical and offer complaints of various kinds as excuse for non-payment. Experience has shown that it is difficult to collect fees after the term has expired . A comparison between two institutions is instructive : One, a middle-western college, pursues a lenient policy; it does not insist upon prompt pay- ment of fees, but allows its students time in which to pay their tuition, board, rent, and athletic fees, even furnishing several of these items at an immediate outlay of its own cash. It 14 COLLEGE AND UNIVERSITY FINANCE always has a large amount uncollected, a considerable propor- tion of which is never paid. The University of , in the same section, with a very much larger number of needy students, makes its collections in advance, exceptions being extremely rare, and in those cases it takes promissory notes bearing interest. No difficulty in enforcing the rule is experienced by the latter institution. Incidentally, the former teaches its students to be lax, the latter trains them to be prompt and businesslike. INCOME ON ENDOWMENT Income on endowment forms a large part of the receipts of an endowed college. It consists of interest on bonds, mortgages, and loans, dividends on stocks, and rentals from real estate in which the endowment funds are invested. It is perhaps impossible to say what particular proportion of the total income should come from endowment, but attempts have been made to prescribe the minimum amount of endowment which a college should possess. For example, the Indiana State Teachers' Training Board places as its standard in this respect for accrediting institutions a pro- ductive endowment beyond all indebtedness, of $500,000, or in lieu of this endowment a fixed annual income, inde- pendent of all student fees, of not less than $25,000. The Committee of the Federal Bureau of Education, to which reference has been made,^ held that the ^'minimum endow- ment of a college of arts and sciences should be $250,000." The North Central Association of Schools and Colleges requires a minimum endowment of $200,000 before classifica- tion is given an institution as an accredited college. This standard was established twenty-five years ago and is recog- 1 p. 11 of thisSchapter. RECEIPTS 15 nized now as wholly inadequate. The Association of Colleges and Secondary Schools of the Southern States recently changed its minimum to $500,000. Colleges, however, try to get as large an endowment as possible so as to make their foundation secure and enable them to operate without a deficit. GIFTS With the exception of the fees received from students, an endowed college gets its income either from gifts and grants or from funds previously donated. Funds for endow- ment, for buildings, for purchase of land, for additional equipment and books, and provision for deficits, are procured through gifts and bequests. Gifts fall naturally into two classes: those which add to the permanent assets of the college, and those which are designed for current uses. They may be made by individuals, by groups of individuals and classes, or by synods, conventions, and conferences, but, whatever the source, they should be suitably acknowledged and properly recorded. Those which add to the permanent assets should be recorded among the capital assets, and those available for current expenses should be recorded among the current receipts. SiQce endowed colleges depend so largely upon gifts for their maintenance and expansion, special efforts are made to stimulate them. In addition to the work which the president of the college does in this direction, an oflacer is often regu- larly employed, called a field agent or financial secretary. He visits the alumni and friends of the coUege, keeps them informed of its needs, and urges them to contribute to its funds. He conducts a campaign of education through correspondence, pubhcations, and news items. Special emphasis is now being placed upon annual contributions for 16 COLLEGE AND UNIVERSITY FINANCE current expenses. Many alumni and friends who cannot give a large sum for endowment are often willing to make annual contributions. However, uncertainty as to whether these gifts will be continued year after year makes it difficult for the college to determine its financial policy in advance, whereas if its needs are met by endowment, it knows precisely on what it can count. On the other hand, dependence on its constituency for annual contributions may keep it in closer touch with its friends and may discover others, while requests for funds may add new students as well as income. Since the college needs income it resorts to that method which to the fullest extent and in the most dependable manner provides additions to its current funds. Gifts for current purposes are most useful if no particular conditions are attached to them. Donors often make gifts for prizes, lectures, or other restricted purposes, which, however useful, do not help the college to meet its pressing regular expenses. Moreover, it frequently happens that the acceptance of a gift for a special object involves the college in additional expense not covered by the amount of the gift. If so, provision should be made for meeting the additional expense before accepting the gift. Gifts for recitation buildings, libraries, and laboratories are examples. The upkeep and maintenance of such buildings cause an annual expense which often requires the income of a fund nearly equal to the original gift. In this sense every such building is a liability as well as an asset. Before accepting a gift for such a purpose — at any rate before taking any action toward the end contemplated by the gift — the college should obtain an endowment to provide for the annual expenses which its acceptance involves, or assure itself that in some other way it will have ample income for the purpose. RECEIPTS 17 Besides the efforts made by the college authorities to obtain contributions, alumni maintain organizations for the same object. Classes and individuals are urged to be con- stant in helping their Alma Mater, especially by making annual contributions. Alumni often reserve the right to designate the objects to which their gifts shall be applied, but these, like other gifts, are most useful if absolutely unrestricted. An excellent example of the way in which alumni may assist by annual contributions is furnished by Yale University, whose graduates contribute yearly, through organized class effort, approximately half a million dollars to the University treasury. This is equivalent to the income at 5 per cent on an endowment of $10,000,000. Nor does the graduate feel that his annual subscription, large or small, finally discharges his obligation to his Alma Mater. On the contrary, giving to his college, once estab- lished as a habit, is likely to become a passion, as well as a duty. Large gifts and bequests may ultimately result from annual contributions, which, small at first, become larger as the graduates prosper. CHAPTER III DISBURSEMENTS A college expends its money for two general purposes: (1) for land, buildings, and equipment; and (2) for expenses of operation. Disbursements for the first purpose are sometimes desig- nated as "Capital Expenditures" because they are made for those material and enduring objects which in a factory or manufacturing estabHshment would be called "Plant or Fixed Assets/ ' Expenditures for a manufacturing plant are made to enable it to function efficiently and yield the greatest financial return on the capital invested; in like manner the expendi- tures for a college plant should be made to enable it to function adequately from the point of view of need, convenience, economy of operation, and, within reason, artistic impres- sion.^ Outlays on a college plant not warranted by the tests mentioned above are out of place for they involve the college in unnecessary expense. They are foreign to the purposes for which the college exists. Disbursements for capital purposes should be kept distinct from those for expenses of 1 "Within reason" is used advisedly. It would be most desirable educationally if, in providing grounds and buildings, colleges could pay as much attention to beauty as they pay to education. But buildings, grounds, and their upkeep are so expensive that, unless administrators are cautious, educational work may be crippled by the cost of constructing and maintaining beautiful buildings. College, in the Middle South, now spends the entire income of its endowment in keeping up the new plant which it has lately built, and even this will not suflBce when, with the progress of time, repairs become necessary. There is nothing to be said in defense of the tasteless, not to say ugly, structures put up by the colleges of previous generations, but the pendulum may swing too far in the opposite direction. A college is a school; it needs money for salaries, apparatus, and books, and artists, architects, and designers should not be permitted to forget this fundamental fact. 18 DISBURSEMENTS 19 operation, and should be provided for before they are incurred. Disbursements for capital purposes are made for new buildings, furniture, improvements and additions to buildings, new roads and walks, new connections for heat and power plant, tunnels and mains. For all such disbm-sements, when not provided from current income, capital receipts must be procured. The question is often asked : What distinction should be made between building equipment and equipment for the scientific departments using the building? Difficulty natu- rally arises at the point where the individual characteristics of each are least prominent. As a rule "building equipment" refers to furniture and permanent equipment which must be included in the building, whatever department may use it, and "scientific equipment" means that apparatus and equipment which must be specially provided for the needs of the scientific departments. An endowed college makes capital disbursements for the purchase of investments for its endowment funds, but as these purchases are usually made to replace other invest- ments which have been paid they do not add to the material resources of the college. Their treatment and nature will be fully discussed in the chapter on endowment and need no further elucidation here. EXPENSES OF OPERATION The second pm-pose for which expenditures of a college are made is for the current operation of the institution. These expenditiu-es may be divided into four classes: (1) those incurred in the operation of the college as such; (2) those incurred in the operation of auxihary departments; 20 COLLEGE AND UNIVERSITY FINANCE (3) those incurred in the operation of dormitories, dining- halls, bookstores, etc. ; (4) those incurred in raising funds. In financial reports college ofiicers do not always separate the expenses of operation in the manner described above, but include all in one statement. In such cases it is difficult, not to say impossible, to ascertain what is the cost of college operation for strictly educational purposes, and to compare such cost with the cost of another college of the same size or character which may not operate a dining-hall or book- store, or may not have dormitories. If the classification which is here suggested is followed, the cost of the educa- tional work of the college will be at once apparent, and this cost may be readily compared with similar costs else- where. Expenses of Class 1 are those which are common to all colleges and should be included in the college budget. They may be termed ''Budget Expenditures," and fall into three main groups: (1) administration and general, (2) operation and maintenance of the physical plant, (3) instruction. The first group includes all expenses incurred in the administration of the college as a whole, viz.: the cost of the administrative offices, and the other general overhead expenses. The second group, operation and maintenance of the physical plant, embraces those expenditures made to maintain and preserve the college buildings and grounds and make them available for the use of the administrative and educational departments. The expenditures in this group are for: (a) superintendence; (5) janitors; (c) heating, hghting, and water; (d) repairs; (e) care of grounds; (/) insurance; (g) materials and supplies. The expense of maintaining buildings used for dormitories, dining-halls, and DISBURSEMENTS 21 the like should not be included in this group as a part of Class 1 because their operation is not a part of the educational work of the college. The third group of edu- cational expenses, instructional, embraces the cost of fur- nishing instruction to the students, the main object of the college. These expenditures are for (a) salaries of instruc- tional staff, (h) equipment and books for educational depart- ments, (c) suppUes and expenses of educational departments. The classification and arrangement of the educational ex- penses in the budget, and the principles to be followed in estimating and operating the budget are described in the chapter on accounting.^ DISBURSEMENTS OF AUXILIARY DEPARTMENTS In addition to the work which is carried on by colleges functioning as colleges of arts, literature, and science, they at times maintain auxihary departments, e.g., of music and of the fine arts. In very rare instances are these departments conducted as part of the educational work of the college. In nearly all cases a part only of the work in them is counted toward the regular college degree, and the departments are supposed or expected (particularly at the outset) to be self- supporting — sometimes even to yield a profit. To know exactly what happens, whether the department operates at a loss, sustains itself, or yields a profit, an accurate and separate accounting should be kept of its receipts and expenditures. The cost of materials and services furnished by the college from its storerooms and central power plant must be included. The departments in question should be charged rental for the use of college buildings, and depreciation to provide for the replacement of the buildings and equipmejit used. iP. 67. 22 COLLEGE AND UNIVERSITY FINANCE Expenses of these departments are of the same general character as those of the college of arts, and should be controlled by the same budget method. A separate budget, however, should be made for each. DISBURSEMENTS FOR DORMITORIES, DINING-HALLS, BOOKSTORES, ETC. The third main division of expenses of operation includes the cost of operating those departments which, though not forming a part of the strictly educational work of the college, may yet be necessary from the point of view of com- fort and convenience of students and faculty. Dining-halls, dormitories, and bookstores are examples. The cost of opera- tion of each of these should be kept in separate accounts apart from all other operating costs of the college, first, because these departments are conducted usually on the theory that they should pay their own way, and unless a strict and complete accounting is kept, that theory cannot be proved; second, because the cost of education is unknown if these quasi- business operations are not kept strictly separate from it. Expenditures for these departments are made for services, materials, supplies, rentals, repairs, renewals, replacements, and depreciation. EXPENDITURES INCURRED IN RAISING FUNDS Expenses involved in raising money to meet the cost of current operation are part of the general expense of the college and should be included in the college budget. An endowed college, however, is usually seeking funds for new buildings, equipment, additional campus, and larger endow- ment, and may incur considerable expense in so doing. Expenditures are made for the salaries and traveling expenses DISBURSEMENTS 23 of solicitors, for printing and publishing bulletins and pamphlets, and for entertainment. These expenditures are often erroneously charged to the current expenses of the college. Sometimes they are deducted from the amount raised. When this custom is followed a statement should be made to that effect when the fund is being solicited to prevent misunderstanding. The best way to provide for these expenses is to raise a fund especially for that pur- pose. CHAPTER IV ENDOWMENT Since endowment provides a large part of the income of an endowed college and gives its name to the class, an exposi- tion of the manner in which such funds should be adminis- tered and preserved is presented in this chapter. DEFINITION College endowment is a fund, the principal of which is invested and kept inviolate and only the income used for the general support of the college, or for some specific object in connection with it. The fund thus estabHshed is sacred and should not be touched or encroached upon for any object whatsoever; its income alone is available. Unless this fundamental fact is understood and respected, the endowed college is built upon an insecure foundation. A college has no right, moral or legal, to "borrow" from its endowment, to hypothecate endowment securities, to "invest" endowment in college buildings and equipment, or, in fact, to do anything with endowment except to invest it so that it will produce a certain and steady income. IMPROPEE USE OF THE TERM "ENDOWMENT" It is amazing to find how rarely the term "endowment" is used in its correct sense. This would be a trivial matter if it were simply a matter of definition. But, as the reader will soon perceive, unless the term "endowment" is properly understood by the trustees and officers, the financial policy 24 ENDOWMENT 25 of an endowed college may go seriously astray. Endowed colleges, conducted by thoroughly honest and well-meaning men, have at times been seriously embarrassed or wrecked because those in charge did not know what endowment is and what principles must be adhered to in managing trust funds. College authorities frequently use the term '' endow- ment '^ in a wrong sense, including under that name sums of money given for college buildings and land. A donation for the erection of a recitation building is not endowment, for, in the nature of things, the structure cannot last forever, and is in itself not income-producing. According to the definition of endowment here given — namely : a fund which shall he maintained inviolate, the income of which shall alone he used — gifts for the purposes mentioned above are not "endowment.'^ Some college administrators include in endowment certain funds, the principal of which, as well as the income, may be used. If the principal is ever used, the fund of course is but temporary, and hence is not endowment. It is better to call these funds ''Funds for Special Purposes, " and thus differentiate them from endowment. Colleges often receive gifts and bequests without condition. In such instances the trustees are warranted in using the principal, as weU as the income, as they choose. They often decide to add these gifts and bequests to endowment, and then later justify the use of endowment as collateral for current loans, for the erection of buildings, or for some other object, on the ground that it includes sums which were given without restriction as to use of principal. When this occurs the finances of the college are inextricably mixed, the inviolabihty of actual endowment is lost and the amount used in the manner described frequently exceeds the amount of unconditional funds which were included. To obviate 26 COLLEGE AND UNIVERSITY FINANCE any such disaster, and to preserve rigidly the sacredness of real endowment, under no circumstances should any such donation be included in endowment unless it has been set aside as endowment by deliberate action of the trustees. Such action should be irrevocable, and the sum so included should henceforth be treated in the same manner as sums originally given as endowment. ^'Once endowment, always endow- ment, " is the only safe and clear rule. Until such time as the trustees shall have decided to place an unrestricted fund irrevocably in endowment it should be carried as an uncondi- tional general fund, and its assets should be included among the general assets of the college. By keeping unrestricted general funds in a separate account, the trustees can always know what sum is available for collateral for loans, or for any other college need. There is another reason for carrying the fund separate: If the amount of endowment is shown at one figure in one annual report and placed at a smaller sum in succeeding reports because certain items which were first included in endowment have been withdrawn and devoted to other objects (and especially if the reports are not clear as to what the objects are), the friends and supporters of the college may get an erroneous impression of the care with which endowment is safeguarded, and their attitude toward the college may thereby be unfavorably affected. SOURCE OF ENDOWMENT Colleges obtain endowment from two general sources: from persons who give spontaneously and from those who are solicited. Alumni make gifts and bequests to show their love and appreciation of their Alma Mater. Many others contribute generously to college endowment because they ENDOWMENT 27 beKeve that college training is of great value as a preparation for a useful life. Some of these persons, not having attended college themselves, may desire to make it possible for poor students, situated as they once were, to go to college. The large number of persons who aid colleges spontaneously is one of the most interesting phenomena of the present century, and speaks eloquently for the high regard in which college training is held. The burden placed upon colleges by the increasing cost of operation, by the advancing standard of education, by the desire to make them of the widest possible service, and the unwillingness to shut the door of opportunity to any worthy student by the imposition of high fees, have led to the solicitation of endowment not only from those who may be naturally interested, but from all persons of means. Alumni organizations and associations urge trustees, alumni, and former students to make gifts for endowment, and people living in the college town and territory are asked to assist on the grounds of local pride. Since many of the endowed colleges were established by and are affiliated with religious denominations for the express purpose of surrounding the students with a rehgious atmosphere, members of these denominations are appealed to for aid on the ground of rehgious sympathy and obHgation. UNEESTRICTED AND RESTRICTED ENDOWMENT Endowments fall into two principal classes : unrestricted, or general, and restricted, or special. The income from unrestricted endowment may be used for any of the legitimate needs of the college. The income from restricted endow- ment may be used only for the express purpose for which the fund was given. In the case of restricted endow- 28 COLLEGE AND UNIVERSITY FINANCE ment care must be taken to see that any income not used during the year is carried forward to the next year's account so as to be appHed to the specific purpose. College officers are not always careful in this particular, especially where the specific purpose forms a part of some large item of expense, such as instruction. Unrestricted endowment is most acceptable because its income can be used in accordance with changing conditions, which must arise in the course of long periods of time, and which at present are coming with startling rapidity. Trustees should exercise caution in accepting gifts containing conditions which may become difficult to fulfil, and should try to persuade prospective donors to make gifts free from restriction. As a rule, suggestions are welcomed by donors, and they willingly make gifts in harmony with the established poHcy of the college, especially if it has been well defined and declared. Endowment which provides for chairs or departments which are a part of the regular work of the college, such as chairs in Enghsh, mathematics, and history, is next in value. Provisions for these chairs sets free a corresponding amount of unrestricted income which can be used for other purposes. Endowment for unusual subjects may be interesting and useful, but does not help the college to carry on its indispen- sable work. Terms of restricted endowment may become obsolete, and colleges may not modify or change conditions imposed by the donor unless permitted to do so by a court of chancery.^ 1 The following explanation of the doctrine of cy pres has been furnished by the Counsel of the University of Chicago: "Under the doctrine of cy pres courts have granted permission to apply gifts in a manner differing from the expressed conditions. This doctrine has been described in Bispham's Principles of Equity as follows: " ' The cy pres doctrine is one under which courts of chancery act, when a gift for charitable uses cannot be apphed according to the exact intention of the donor. In ENDOWMENT 29 GIFTS OF PROPERTY AND SECURITIES TO BE ENTERED AT ACTUAL VALUE Gifts for endowment may be made in cash, securities, or any property possessing value. Preservation of the principal being a most essential feature of endowment, gifts of securities and property should be accepted at their market value at the date of gift. If that value cannot be ascertained readily, a competent person, or persons, should be asked to estimate their value as of that date. Gifts for endowment are sometimes accepted at a value placed upon them by the donor, or at par, when such valuation exceeds their real worth. Should the college later dispose of the property for a smaller sum, the loss would cause a reduc- tion in book value of endowment, and might lead to the erroneous impression that endowment had been dissipated. Even while the college retains the property, the inflated value such cases the courts will apply the gift, as nearly as possible (cy pres), in conformity with the presumed general intention of the donor; for it is an estabhshed maxim in the interpretation of wills, that a court is bound to carry the will into effect if it can see a general intention consistent with the rules of law, even if the particular mode or manner pointed out by the testator cannot be followed. Good illustrations of this doctrine will be found in the Balhol College case (Att. Gen. v. Guise, 2 Vern. 266; Att. Gen. v. Balhol Coll., 9 Mod. 407; Att. Gen. v. Glasgow Coll., 2 Collyer, 665; 1 H.L. Cas. 800), and in the Ironmongers' Case.' (Att. -Gen. v. Ironmongers Co., Cr. and Ph. 208). "The cy pres doctrine as commonly imderstood has two features. The first is the right to exercise the prerogative authority, whereby a court is enabled to deal with a bequest to a charitable use having no particular purpose, as a bequest to charity generally, treating the purpose as the legatee or as a bequest for an illegal purpose, or some purpose impossible of execution for some reason. The other is the right by liberal rules of construction, to deal with a trust having a designated purpose, though in general terms, and enforce it within the hmits of such purpose, supplying the trustee if necessary. "Again I quote from Bispham, this a statement of the rules of the different states. " 'It is, nevertheless, true that the cy pres doctrine has in many cases in the United States been regarded with considerable disfavor. " 'In Fontain v. Ravenel (17 How. 369) the Supreme Court of the United States seemed to be opposed to the cy pres doctrine; but in Lorings v. Marsh (6 WaU. 337) and the Mormon Church Case (136 U.S. 1) the doctrine was approved. " 'In North CaroKna, Connecticut, Indiana, Iowa, Alabama, and Wisconsin the cy pres doctrine has been repudiated. In Pennsylvania, although the principles of 30 COLLEGE AND UNIVERSITY FINANCE at which it is carried on the books causes the income return to appear to be relatively low and gives the impression of poor business management. BOOK VALUE OF ENDOWMENT ASSETS SHOULD NOT BE CHANGED TO RECORD ESTIMATED VALUES Real estate is often given for endowment, which, in the course of time, increases in value because of changing condi- tions. Even in these, as in other cases, it should be carried on the books at its real value at the time when it was given, and no change should be made except to record expenditures for additions and improvements, which increase the value of the property. Buildings will of course depreciate in the course of time and become valueless. Provision for the the statute of Elizabeth were said to have been adopted, the cy pres doctrine was rejected; but the doctrine to a hmited extent was subsequently introduced by statute [Note. — But it seems the doctrine now exists in all its fullness]. In Maryland and Virginia neither the statute of Ehzabeth nor its principles are in force, and charities are treated as ordinary trusts; and the same conclusion has at last been reached in New York, South Carohna, West Virginia, and Wisconsin; and in Minnesota, with certain exceptions. "'But in many of the states, on the other hand, the cy pres doctrine has been received with more favor. In all of the New England states it has been directly countenanced or left an open question. In Missouri and IlUnois the doctrine has been approved. In New Jersey the question has not been decided, although it has been said that a bequest that would be enforced in England might not be carried into effect in that state, on the ground of the indefiniteness of its objects, or the impracticability of its exact execution. " 'There seems, indeed, to be no vaUd reason why the judicial cy pres doctrine, as explained in Jackson v. PhilUps, should not be approved in all those states wherein the statute of Elizabeth has been decided to be in force, or where its principles have been adopted by the law of the state; in other words, in those states where the doctrine that indefiniteness of the object is no objection to a trust, provided it is for a charity, is recognized. This is the case in many of the states of the Union.' "The case of Jackson v. Phillips (14 Allen 571) referred to above was one in which one of the trusts in the will was for the circulation of literature to create a public sentiment to put an end to negro slavery in the states. After the death of the testator, but while the will was being htigated, slavery was aboUshed by Constitutional amend- ment. The designated purpose having failed, the fund was applied to the New England Branch of the American Freedmen's Union Commission." ENDOWMENT 31 diminishing value must be made each year by charging its amount against income so as to keep endowment intact. Cognizance should not be taken of any increase in value in real estate not actually realized by sale. When the property is sold and the profit actually in hand, the endow- ment should be augmented by the amount of the profit. The figures on the books should at all times represent actual transactions and should not be modified to record estimates of changing value. This rule applies not only to gifts of real estate, but also to gifts of securities, and to investments made by the college itself. There is no valid reason for increasing the book value of endowment investments, but, where a college decides to mark up the value of property or securities the amount of estimated increase should be added to the funds to which the securities or property belong. Under no circumstances should an increase be made in the book value of investments of endowment funds to replace endowment used for other purposes. For example, if John Doe gives a security valued at $10,000, whose market value later increases to $30,000, the college should not write up the book value of the security so as to account for the use of $20,000 endowment for current expenses. If the book value is written up the amount to the credit of endowment should be correspondingly increased. A well-known uni- versity had recently among its investments a city building carried at a value of a million dollars. The building had cost the university about six hundred thousand dollars, but its book value had been changed from time to time without any increase in the university's endowment, while the rate of income on the property for the past three years had averaged less than 3 per cent, and no charge had been made for depreciation. 32 COLLEGE AND UNIVERSITY FINANCE PRINCIPLES OF INVESTMENT As endowments are established to provide permanent regular income, it is important that they be invested in such a way that the income shall be assured and the principal kept intact. Safety of principal is the first consideration; otherwise, the permanency of the income may be endangered. The size of the income, though important, is secondary. The scale of expenditures expands quickly to equal an increasing income, but does not respond easily when income diminishes. It is, therefore, in the long run better to have a stable income, even if somewhat smaller than might be obtained temporarily, than to enjoy a larger income for a short period and later to be obliged to reduce expenses be- cause of its curtailment. To safeguard the principal of endow- ment, and at the same time to get a good income, is one of the chief problems of the trustees of an endowed college. Many states have passed laws describing and Hmiting the kinds of investments in which trust funds held by banks, trust companies, and others may be placed. These laws aim to maintain the body of the trust, and yet realize the largest income consistent with security. So far as I know, trustees of endowed colleges are not required to conform to the provisions of these laws in investing endowment, and under some charters they are especially exempted. But they should, nevertheless, familiarize themselves with them and be able fully to justify investments which do not har- monize with the trust laws.^ SUITABLE KINDS OF INVESTMENTS It is not easy to specify in detail the kinds of investments which colleges should make. At best only general principles can be laid down. 1 See Appendix for Wisconsin Trust Laws as to Investments for Trust Funds. ENDOWMENT 33 Investments of a purely speculative character, such as stocks of mining corporations and of new companies whose stability has not been demonstrated, are not suitable. As a rule, common stocks should be avoided. If any exception is made, it should be in favor of well-estabhshed companies with a large margin of surplus and a regular dividend record covering a long period. Carefully selected first mortgage bonds and real estate first mortgages on improved farms in good locahties, preferably in the same state as the college, or in contiguous states, and first mortgages on city property where the college is located, or in nearby cities, make proper investments. The proximity of the property mortgaged makes it easier to learn its value and to note any circum- stances which might lead to its depreciation. Since real estate mortgages usually run from three to five years, no serious depreciation in value should occur in that time which was not foreseen by the trustees. Loans secured by mortgages should not exceed 50 to 60 per cent of the appraised value of the property. The value should be estabHshed by personal investigation by the college authorities, assisted, if necessary, by a person skilled in real estate values. The title should be examined by an attorney, and no loan should be made unless the title is clear, preferably guaranteed. It is better not to loan on property whose value depends upon its use for a special purpose or business, unless the loan is proportionate to the value which the property would have for any other purpose whatsoever. An example of making loans on property used for a special purpose is furnished by College, which has loaned the greater part of its endow- ment to churches and hospitals belonging to the denomina- tion which supports the college. These loans, being of a special character, are not readily negotiable. If they are 34 COLLEGE AND UNIVERSITY FINANCE not paid when due, or if the interest becomes delinquent, the college has not the usual recourse, but from considerations of policy must continue to carry them. Inducement to make loans of this kind was doubtless very great, but if the college had incorporated in its by-laws a rule prohibiting it from loaning money on property used for special purposes it would have been protected against the difficulties inherent in the situation in which it now finds itself. DIVERSIFICATION OF INVESTMENTS College funds should be invested to provide suitable diversification as to kinds and to territory in which the invest- ments are located. Securities purchased should be repre- sentative of different businesses and industries so that if any are affected by depression, strikes, or untoward circum- stances, the entire endowment income will not suffer. A historic instance which should serve as a warning is furnished by the early history of Johns Hopkins University. Its original endowment was given by Mr. Hopkins in the form of Baltimore & Ohio Railroad stock — so valuable at the time and seemingly so secure that in a letter Mr. Hopkins recom- mended that his trustees should hold and protect it. Within a few years financial disaster overtook the railroad and, as a result, the university was for years seriously crippled. Ultimately, it parted with the securities in question at a considerable loss. The Johns Hopkins Hospital, founded at the same time, was endowed with funds variously invested. Its resources proved stable, partly because they were wisely varied. For a similar reason there should be diversity with respect to locaHty. Misfortune sometimes visits one section of the country, affecting unfavorably all trades and property therein, while leaving other sections untouched. Because the field of operation of railroads covers most parts of the ENDOWMENT 35 country, first mortgage railroad bonds have long been con- sidered as embodying the chief characteristics of a proper investment of college endowment. The bonds usually run for a long period, are widely dealt in, and can easily be converted into cash. Since the European war the financial condition of almost all railroads has been somewhat uncertain, so that the railroad first mortgage bond perhaps at present is not per se in the highest class. Bonds of public utiHty companies were also once much favored as suitable invest- ments for college funds. At present many of these companies are being subjected to exacting laws as to rates and service, which have depressed the value of their securities. Govern- ment, state, municipal, county, and district tax-exempt bonds now yield a much higher rate of interest than they did formerly, and possess all the requirements of a good investment. The tax-exemption feature, however, which appeals to a private investor is of no advantage to a college because of its own tax-exemption privileges. Other things being equal, the college should therefore purchase high-grade bonds not tax exempt, and benefit by the more favorable yield on cost. Preferred stock of well-seasoned industrial and other corporations is now coming into favor as a sound investment. Where the company has no bonds outstanding the stock is secured by all the company's assets. In most cases the dividends are cumulative and at a fixed rate. Endowments may, to a reasonable extent, be invested in choice preferred stocks. INVESTMENTS PURCHASED SHOULD BE ENTERED ON THE BOOKS AT COST Investments of endowment should be entered on the books at cost. In this manner the funds can be fuUy and accurately accounted for. The following equation should 36 COLLEGE AND UNIVERSITY FINANCE always be maintained: Endowment investments at cost plus endowment cash awaiting investment should always equal total of endowment. One principle must be kept constantly in mind, namely: College accoimts should be the record of actual transactions. If securities are entered at par value, as is often the case, it may be difficult to account fully for endowment funds, and the equation given above is not preserved. Some colleges which have the habit of carrying securities at par, debit or credit college income with the difference between par and the price paid for the security. This method is not proper because income should not be increased or dimin- ished by changes in the principal of investments belonging to endowment. All transactions relating to the principal of endowment should be kept entirely separate from those relating to the current operations of the college, and the cash in no wise mingled or combined. Any endowment uninvested should always be in cash available for investment. Profit realized from the sale of an investment should increase the endowment, and loss sustained should diminish it. Where endowments are grouped and invested as a whole the profits and losses reahzed may be carried in an account called 'Trofit and Loss on Investments" and the net profit, if any, held for the benefit of all endowments. In University investments in bonds and stocks are carried on the books at par, and the amount of endow- ment changed from time to time so as to conform. Under this plan endowments may vary considerably from year to year, according as purchases are made at a premium or at a discount. This is most confusing, for it is difficult for any- one to understand why a fund created this year by a cash gift of one hundred thousand dollars should next year be ENDOWMENT 37 shown at one hundred twenty-five thousand dollars, while in the succeeding year it may be reported at eighty-five thousand dollars, because in the first instance it was invested in bonds purchased at a discount, and later it had been thought best to change the investment to bonds purchased at a pre- mium. The amount of endowment should remain unchanged from year to year except as it may be augmented by addi- tional gifts or by profits realized from the sale of investments or diminished by losses incurred in disposing of them. When bonds are bought at a premium provision should be made to care for the premium by the maturity of the bonds by taking a portion of the interest received each year and setting it aside for that purpose.^ FUNDS INVESTED SEPARATELY OR AS A WHOLE Two principal methods are employed in investing college endowment: Every fund may be invested separately; or funds may be invested as a whole, each fund sharing in the income in the ratio that it bears to the total of the funds. Reasons may be given in favor of each plan. Under the first, any profit reaHzed on the investments benefits the fimd to which they belong, but on the contrary any loss diminishes it. If it happen that the investments yield a high rate of income the object for which the fund was given receives the advantage, while, conversely, if the rate is low it suffers the disadvantage. Colleges do not always have freedom to choose which of the two methods they shall employ because donors sometimes stipulate that the fund given by them shall forever be kept separate and separately invested. Securities are sometimes given in which the trustees them- selves would not invest, though the donor, through his 1 See p. 73, chapter on accounting. 38 COLLEGE AND UNIVERSITY FINANCE knowledge of the circumstances affecting their value, thinks highly of them. It is better to carry such securities in a separate account until they are paid or disposed of, and the trustees have invested the proceeds in securities of their own selection. If any endowment is of considerable size it may be invested separately to advantage, but if it is small there is greater difficulty in keeping it fuUy invested. The second plan, viz., the combination of funds and their investment as a whole, has several arguments in its favor. In the first place, it obviates the necessity of keeping separate accounts and records to show the investments belonging to each fund; second, the cash uninvested consists of one sum and can be invested more readily; third, each fund receives the same rate of income; fourth, the rate of income is less likely to vary from year to year because of the amount and variety of investments; lastly, each fund is preserved from extinction because the losses and gains are divided among the funds pro rata, thus assuring the perpetuation of every fund unless it should prove that all investments become of no value, a contingency in the highest degree improbable. From the foregoing it will be apparent that a college whose funds are at all numerous may probably use the two plans of investment simultaneously — the individual method where the conditions of gift or circumstances require it, and the group method in the case of all other funds. Under the group method care must be taken in including funds estab- lished by gifts of property or securities to see that they are not estimated at an inflated value; otherwise, the amount of a particular fund is unduly increased and the proportion of the combined income allotted to it unduly large. Where the method of investing endowment as a whole prevails a fixed rate of income is often assigned to restricted funds, ENDOWMENT 39 and the residue given to unrestricted funds. This is not an equitable arrangement, and as the rate allowed is usually at the minimum rather than at the maximum the income of restricted funds is diminished for the benefit of the general income. Each fund should receive its just proportion of the income actually reahzed. CONSTANT CARE REQUIRED It has already been said that it is difficult to lay down rules specifying the particular sort of investment in which college trustees should place the funds they hold in trust, because the conditions of trade and industry vary so rapidly in response to discoveries, new inventions, and changing political situations. At best, one may only enunciate the general principles to which all investments should conform. The responsibility for the prudent investment of funds rests upon all the trustees, severally and collectively, and in the light of that responsibility they should satisfy themselves that every investment meets the requirements.^ In making investments they should keep the purpose and safety of the trust in mind; they must not be misled by the prospect or possibility of some incidental or secondary benefit that might ultimately impair the value of the fund itself. For example, College had among its assets a certain piece of real estate yielding a low rate of income, which, having been given without restriction, could be used in any way the trustees saw fit. Sometime later the college received a bequest of $40,000 for a specific endowment. When the executor paid the bequest in cash the college was in need of funds to pay its current debts. To meet this need the 1 Mention is made later of the functions of the Committee on Finance and Invest- ment (p. 186). 40 COLLEGE AND UNIVERSITY FINANCE trustees assigned a portion of the land, which they valued at $40,000, to the new endowment, and used the $40,000 to pay college bills. The procedure was doubtless legal, but the testator would probably not have approved it, and for good reason, for its only favorable aspect was that it simply relieved the trustees of the necessity of raising $40,000. Extravagances and recklessness will inevitably occur, if such practices are permitted, for administrators will uncon- sciously depend on windfalls to rescue them from embarrass- ment. To make matters worse, the real estate which the college "sold" to the new fund later became non-income- producing. Several serious errors of judgment were com- mitted: (1) The college should probably not have incurred the $40,000 debt; (2) if the debt was unavoidable, independ- ent measures should have been taken to raise the money needed to discharge it; (3) the land should have been held as a general asset and should have been disposed of at the proper time, the sum received then being invested on the principles enunciated above; (4) the cash bequest should have been treated as inviolable, should have been conserva- tively invested, and so preserved as income-producing endowment. Nor do the responsibilities of the trustees end when investments are made. It is their duty to be on the watch constantly to detect any circumstances or causes which might affect their value. As soon as they detect anything which in their judgment may unfavorably affect the final value of an investment they should take such action as the situation demands. So long as there is no question about the ultimate payment of the security, and so long as the interest is paid regularly, the trustees are not particularly concerned with changing market value. But they should be much ENDOWMENT 41 concerned if the fall in market value forecasts a permanent decrease in the value of the security and its abihty to con- tinue to pay interest. Trustees too often feel that their duty is finished when they have made an investment, and there- after give httle or no thought to it unless through the suspension of interest or dividends, or some other untoward happening, their attention is forcibly turned in that direction. This laissez-faire policy is also encouraged by the opinion prevalent that if trustees change investments frequently they may be accused of using the college funds for speculative gain. There is a fundamental distinction between disposing of securities for prudential reasons and selling them in the hope of profiting by variations in market value. The former is sensible, the latter reprehensible. Trustees are often restrained from selling securities whose value is decreasing because of the resulting shrinkage in endowment. It frequently happens that securities pay interest for some time at least after serious depreciation in value has occurred, a fact which may give rise to the hope that their former value may be restored and the necessity of taking the loss prevented. Trustees, however, should observe the first signs of depreciation and consider whether it is better to dispose of the security promptly and take the loss, or continue to hold it. REPORTS TO TRUSTEES ON CONDITION OF SECURITIES To enable trustees to keep in touch with the situation with regard to the investment of endowment funds it is a good plan for the administrative officers to send them j frequent reports, at least as often as once in three months, showing in parallel columns the securities owned, their cost, the present market value, the market value a year ago, the 42 COLLEGE AND UNIVERSITY FINANCE amount of increase or decrease in present market value as compared with cost, and the income yield on present market value. If the reasons for change in value are known they should be given in a column headed "Remarks." Reports of a similar kind should be made regarding real estate mortgages and other investments which are not listed in market reports. In the case of real estate and farm mort- gages the report might give a list of all those which are overdue^ or on which interest is unpaid, and the location of the property mortgaged, together with a report of the amount of mortgages on other property in the same locality which the college holds. The information thus furnished would be helpful to the trustees in determining whether they should make more loans on property in those localities. The status of real estate owned might be disclosed by reports showing the gross rental, the cost of operation, and the net return as compared with those of previous years. A series of reports made on these principles ought to be of assistance to the trustees in enabling them to safeguard endowment and to assure to the college a steady income as large as is consistent with safety. ENDOWMENT FUNDS SHOULD NOT BE LOANED TO TRUSTEES AND OFFICERS From the point of view of policy and good business procedure endowment funds should not be loaned to any trustee, officer, or employee of the college, nor to any business which they own, nor to any corporation for whose manage- ment they are responsible. Neither should any loan be made to any person upon the guarantee of a trustee, officer, or employee. If the college charter does not prohibit this practice it should be forbidden by the by-laws or by resolu- ENDOWMENT 43 tion of the board. The estabHshment of this principle strengthens the hands of the trustees and avoids embarrass- ment which might arise through the request for such loans. The reason for this is quite apparent for if, through mis- fortime or otherwise, the interest on such loans becomes delinquent, or the loans themselves are not paid at maturity, the trustees of the college are placed in the position of having to enforce collection against their own officers, which they might be very reluctant to imdertake. The trustees of College, through its finance and investment committee, had made several loans secured by municipal bonds, taken at par, to one of its own trustees. When the matter came imder observation of the author the market value of the bonds was less than the par value. The hands of the college were tied; it could neither sell the bonds nor very well ask for additional security. UNDESIRABILITY OF INVESTING ENDOWMENT IN COLLEGE BUILDINGS AND LAND Endowed colleges sometimes use endowment funds to con- struct buildings, especially dormitories, and to purchase addi- tional land for campus. In so far as the expenditures have been made for campus, for recitation buildings, laboratories, and Hbraries, which are in themselves non-productive, endow- ment is destroyed in order that provision may be made for what seems to be an exigent need of the college. Campus, lab- oratories, libraries, recitation buildings are not endowment, and funds so invested simply cease to be endowment, for they produce no money income. In some cases where the funds are expended for non-productive college buildings and land, the trustees try to keep up appearances by charging current expenses of the college with the customary rate of interest 44 COLLEGE AND UNIVERSITY FINANCE on the sum used, and crediting endowment income. This course is nothing but jugghng. The investment in question does not earn interest; hence the amount of the interest credited to the endowment must come from some other source. The fact is that the college income is reduced to the extent of the interest on the sum used to construct the build- ing or buy the land, and administrative morale has been impaired by the use of subterfuge. The use of endowment for building dormitories may seem on first thought to be justified on the theory that they may confer a double benefit on the college, first, by producing income, and second, by providing accommodations for students who pay tuition. As has been said before, inci- dental or secondary benefit resulting to a college from investments of endowment funds should not be the con- trolling motive, and the same exacting tests should be appHed to an investment in dormitories as to any other endowment investment, namely: Will the permanency of the principal be conserved, and will the rate of income be as high and regular as from a high-grade investment ? The rate of income on dormitories given in college reports is not the actual rate in many instances. Many of the expenses incurred in their maintenance and management are included in the general expenses of the college instead of being charged to the operation of the dormitories. Provision is rarely made for depreciation to provide a fund for the replacement of the principal invested, which must be returned intact to endowment when the building is worn out if the permanency of endowment is to be secured. Thus, University had by permission of the donor used hbrary endowment to build dormitories on the understanding that 6 per cent per annum on the sum expended should be credited to library ENDOWMENT 45 income. In arriving at the income available for this purpose no charge was made for heat and Hght (because it came from the central power plant) and no charge was made to provide a fimd for replacement of principal. Carefully prepared statements have been made by a few institutions showing the results of operation of their dormi- tories for a period of years, including among the expenses all current charges, as well as a reserve for replacement of principal. These reports show that the average return is a little over 3 per cent. For a few years after the dormitories were built their net income was large because few repairs were needed, but as the buildings became older the amount needed for repairs became much greater. It would thus seem that judging the matter on its merits as an investment, dormitories do not possess the requisite qualifications. As to the incidental benefit which may arise from an increase in attendance, it is well to keep in mind the following principle regarding college endowment: College endowment should he invested in such a manner that income on the investments shall in no wise he affected hy the operation of the college, nor hy any circumstances relating thereto. If the college revenue is di- minished through a smaller attendance there is then greater need of income from endowment. If attendance diminishes, dormitories may have to be kept open at a loss, and pre- cisely at the time when the college is in need of more rather than less income from endowment. The college cannot sell its dormitories if they become unprofitable, nor dispose of its buildings while it is a going concern. But if it had invested in securities it could readily change the form of invest- ments.^ *See pp. 33-34. Objections to investments in property devoted to a special purpose, not readily merchantable. 46 COLLEGE AND UNIVERSITY FINANCE For various reasons, therefore, the investment of endow- ment in college campus and buildings, even dormitories, is unwise. HYPOTHECATION OF ENDOWMENT INVESTMENTS Still another misuse of endowment is encountered from time to time, viz., the pledging of endowment investments as security for loans for the current expenditures of the college. Trustees who would repudiate scornfully the sugges- tion of using college endowment, even temporarily, to pay current debts, have at times authorized its use as collateral for loans for current purposes, apparently overlooking the fact that by so doing they have parted temporarily with the securities, and can regain them only by raising money to repay the loan. If they fail to redeem the collateral from the bank they have just as truly used endowment funds for current expenses as if they had sold the securities and used the cash. If the question of legality were raised it would probably be found that a trust fund, such as endowment, created with the understanding that the principal shall be maintained inviolate and the income only used, could not be put in jeopardy for any purpose not connected with the preservation of the principal of the trust. Examples of using endowment investments as collateral for loans for the needs of colleges are unfortunately too numerous and are made even in defi- ance of the provisions of the charter and by-laws. College, some years ago, had prohibited by resolution the use of any endowment assets as collateral. Notwithstanding that prohibition, it later authorized the treasurer by formal resolution to pledge as collateral any security which the college possessed. The treasurer accordingly used Liberty ENDOWMENT 47 bonds belonging to endowment. The charter of University states that endowment investments must not be hypothecated. Nevertheless, nearly three-fourths of its endowment was quite recently so used. This institution is therefore practically bankrupt. The enormity of the offense does not, however, depend upon the size of the amount. Endowment being inviolable, not a single bond or share of stock must ever be hypothecated for the purpose of paying any bill whatsoever, be the college little or big. And there is sound practical sense, as well as sound law and ethics, in this inflexible position, for when once a small block of stock has been hypothecated and redeemed it is easy to increase the scale of the transaction. Ultimately, hypothe- cation is resorted to in order to enable the institution to undertake ambitious work that it cannot afford, in the hope that some benefactor may be found to endow it. Financing of this kind inevitably ends in disaster. "Once endowment, always endowment'^ is again the only safe, as it is the only legitimate, and the only ethical principle. FLOATING DEBT The income from unrestricted endowment may be used for any of the legitimate expenses of the college, but where colleges have accumulated floating debts through deficits from operation, and are carrying them by bank loans, usually at a high rate of interest, a corresponding amount of endowment income is absorbed in paying the interest, and its use for ordinary expenses prevented. College deficits, like rolling snowballs, tend to increase. The larger they are, the larger is the amount of current income required to pay interest on them, and the smaller is the sum available for current operations, with the result that a larger deficit 48 COLLEGE AND UNIVERSITY FINANCE occurs, which in turn increases the floating debt, and so the vicious circle is enlarged. Some college administrators have held that a debt is a beneficial thing because it acts as a stimulus in encouraging friends to make donations. It may possibly stimulate officers to greater activity in seeking gifts, but the person who likes to pay old debts is rarely found. People of means and of sound business judgment much prefer to give money in advance of its expenditure, while they have some choice in the matter. The budget system, which will be described in chapter vi is designed to enable a college to bring its income and expenditures into harmony. In the absence of a budget system colleges often spend more than their income, gradually accumulating a heavy burden of debt, which, in effect, renders a corresponding amount of endowment of no avail for constructive work. An example of how endowment is nullified is furnished by College, which, in 1918, obtained subscriptions to pay off its debts, but while the pledges were being collected it accumulated another debt of nearly $200,000. It must now start a cam- paign to clear away the new debt. While this is being done still another debt will probably be created, if the experiences of the college are repeated. The institution should under- take to raise a sum to capitalize the debt, and a further amount, payable in two or three years, to pay off its indebt- edness and to care for any deficit that might arise while the endowment was being collected. When completely out of debt it should refuse to spend more than its income. Another illustration is furnished by University, whose floating debt equals the amount of its endowment, and whose interest absorbs all of the endowment income. Moreover, it is running behind regularly, and constantly adding to its already large debt. If money is raised to pay ENDOWMENT 49 the debt, the income from endowment once more becomes operative, but the pohcy is reprehensible. Colleges will do well to restrict their operations to such activities as they can afford. Even then they may occasionally have a defi- cit at the end of the year, but this will be small and should be promptly cared for and not allowed to remain and increase until it becomes a menace to the security of the institution. USE OF ENDOWMENT CASH FOR CURRENT EXPENSES An even more insidious use of endowment for current expense arises from the custom which prevails in some colleges of keeping endowment cash and current account cash in one bank account and drawing on it for the needs of the college as they arise. If any cash belonging to endowment is on hand awaiting investment, and there is none belonging to current account available for meeting the monthly pay-roll, or some other urgent current expense, the endowment cash is used automatically through the issuance of regular checks, and the investment of the endowment cash necessarily postponed until such time as the current account is in funds. Inasmuch as many colleges regularly run in debt from current opera- tions, the date of replacement of endowment cash is almost indefinitely postponed or deferred until by gifts or special efforts the deficit is raised. Where endowment cash is used the trustees sometimes go through the motion of being "fair'^ to endowment income by crediting interest on the sum used. This action on their part leaves the situation just as it was before if the endowment used is general, because the same sum is charged to expense and credited to income. But if it is restricted, allowing interest on it adds to the deficit and absorbs so much more endowment cash to care for it. 50 COLLEGE AND UNIVERSITY FINANCE By pledging endowment assets as collateral for current loans and using endowment cash to pay current bills, the entire endowment of College was exhausted and its doors closed, and many other colleges have been brought perilously near the same fate. Cash belonging to endowment should be kept separate and distinct from current cash, and should not be deposited in the same bank account. This plan keeps any endowment cash uninvested available for investment as soon as a suitable one is found, and prevents its use for current debts, unless the authorities of the college use it deliberately, which they have no moral or legal right to do. FUNDS SUBJECT TO ANNUITY Colleges often receive for endowment sums subject to the payment of an annuity during the lives of one or more persons. Such funds and their investments should be kept separate and not included in the endowment of the institution until after the death of the annuitants, when it may be deter- mined how much of the sum received really constitutes a gift to endowment. The college should make as careful provision for the rights of the annuitants as the law requires of companies dealing in annuities. Funds subject to annuity should not be invested in the buildings of the college; in fact the rule with regard to investment of endowments, described on page 45, applies with greater force, if possible, to annuity funds. Before accepting gifts subject to annuity the college should make sure that they can be carried without decreas- ing the current income of the college. This rule may require a working fund, which may be created by assigning a ma- tured, unrestricted legacy or annuity, or by building up a reserve from surplus annuity income. The education of the ENDOWMENT 51 present generation is the immediate duty of the college, and it is not justified in falling short of its utmost effort in that respect in order that it may provide more liberally for future generations. TREATMENT OF PLEDGES Pledges and subscriptions to endowment are not endowment until they are actually paid; therefore, they should not be included in it. Endowment is a reality, not a potentiality; pledges and subscriptions are potentialities. The amount re- ported as endowment should normally increase, but if uncol- lected pledges were included in endowment, and later those found to be of no value taken out, the opposite condition might arise. A careful account of pledges and subscriptions to endowment should of course be kept. But it is better to keep a special record for this purpose. As subscriptions are received they should be entered in a book in numerical order, giving the names and addresses of the donors, and the amount and conditions of payment of each pledge. The pledge card may be so designed that it can be used as a ledger card and filed alphabetically. As payments are received the details may be kept in a special cash book and the totals transferred to the main cash book. From these records the total amount pledged, the sum paid, and the remainder unpaid may be learned at any time. PROCEDURE TO BE OBSERVED IN MAKING INVESTMENTS Whatever the special duties of the finance committee of the college, the proper investment of endowment is a responsibiHty resting on every trustee. As a matter of actual practice, it is often difficult and inexpedient to call the trustees together to pass upon each investment proposed. 52 COLLEGE AND UNIVERSITY FINANCE Therefore, the plan of appointing a standing committee of the board, composed of three or more members, who can attend meetings readily, and whose duty it is to pass upon the sale and purchase of investments, is a sensible one. The committee should keep full minutes of all its meetings, and after each meeting should send promptly a copy of the minutes to each member of the board for his information. At the next regular meeting of the board it should also report its actions for ratification. Every trustee should realize that while for the sake of convenience and expedition the committee on investment is charged with the special duty of selecting suitable investments and of recommending the disposal of unsuitable ones, the responsibility of each member of the board with respect to the trust funds of the college is in no wise diminished thereby. Moreover, the judgment and knowledge of the whole board are in the long run better than that of a few members. CUSTODY OF SECUEITIES Securites should be carefully safeguarded. They should be kept in a safety deposit vault, and access to them should never be had by fewer than two persons together. A copy of the by-law providing for access to the securities should be filed with the officers of the safety deposit company, who should be required to see that its provisions are rigidly observed, and should be held accountable for their observ- ance. The persons permitted access should be persons specifically designated by the board of trustees. The treasurer or his representative should always be present. A record of the securities and documents to be deposited or withdrawn should be made, and a copy of it, signed by the persons present, placed on file. Under no circumstances ENDOWMENT 53 should one person alone have access to the securities, a custom which is now followed in many of the smaller endowed colleges. It is desirable to establish and maintain good practice even when the amount involved is but small. Some colleges employ as custodian of their securities a bank or trust company, which also collects the principal and interest and remits them to the college. In such cases the financial responsibility of the custodian should be care- fully investigated and the relation its own assets bear to the amount of securities deposited by the college. The supervision which it receives from the state or federal authorities should also be a factor in its selection. The trustees should at any time make such count and audit of the securities of the college as seems best to them, but in addition to such examinations, they should employ a pubhc accountant to make an annual audit and inspection, and should pubhsh the result of his examination in the treasurer's annual report. CHAPTER V PHYSICAL PLANT Land, buildings, and equipment acquired and used for academic purposes by an endowed college come next in importance. Since the European war the high cost of labor and material has rendered the maintenance and extension of these facilities a serious question. How a college can keep its buildings and campus clean and attractive and in a good state of repair without devoting too large a portion of its income to that purpose is a problem vexing the minds of many a college administrator. There is some danger that of the total income of an institution too large a proportion nowadays goes to maintenance, too small a proportion to teachers' salaries. Colleges might well construct a curve showing over a period of years the relative proportions of total income that are devoted to (1) instruction, (2) main- tenance and upkeep, and (3) administration. A graphic repre- sentation, kept up to date, would probably not be without influence on their policy. The graph on page 55 shows con- ditions over a period of ten years at a well-known institution. It is obvious at a glance that while the percentage of income absorbed by upkeep is increasing, that devoted to payment for instruction is decreasing. DEFINITION The physical plant consists of the land used for campus, with its improvements, and the buildings, together with their furniture and equipment, books, scientific apparatus, machinery, and tools. 54 PHYSICAL PLANT 55 PLANT TO BE CARRIED AT COST College plant should be carried on the books at cost, and the amount thus carried should equal and account in detail for all funds used in acquiring it. Since college accounts should be the actual record of gifts, endowments, and all other receipts and their use, the wisdom of carrying ''phriiV^ Graph Showing Relative Proportions of Income for Current Pur- poses Devoted to: 1. Instructional Salaries 2. Maintenance and Upkeep 3. Administration Per Cent of Income 60 50 40 30 20 10 Fiscal U909 10 11 12 13 14 15 16 17 18 Year /1910 11 12 13 14 15 16 17 18 19 at actual cost is apparent, and the custom which sometimes prevails of carrying it at an estimated value is to be depre- cated. In case any of the plant were offered for sale, the price placed upon it would depend largely upon what could be obtained for it, and not upon the value given on the books. Therefore, to carry it at cost is the logical method. College plant, in the course of time, often increases in value, and there may be something gained in the way of information 56 COLLEGE AND UNIVERSITY FINANCE by occasionally having it revalued and the estimated value shown in a footnote in the college financial report. A complete record or inventory containing a description of the physical plant should be kept and revised annually so as to include all additions and ehminate deductions. This record should indicate when the various items were acquired and their cost. The cost should of course accord with the ledger accounts. INSURABLE VALUE The cost of buildings and equipment may be, and usually is, quite distinct from theirinsurable value. During the recent period of high prices of building material and labor, insurance needed on college buildings and equipment was naturally far in excess of their original cost, and the fluctuating character of the inventory value of buildings and equipment reflected this condition. Fire and tornado insurance should be based on inventory value if the college is to be protected properly against losses, a value which might differ materially from the book values. The inventory value should represent the cost of reproduction in identical condition, or, in other words, the cost on that date less depreciation. DEPRECIATION All buildings and equipment depreciate and wear out in course of time. In a going concern, plant and equipment necessary for its operation must be replaced when worn out or useless. In profit-making corporations funds for replacements are provided by setting aside a sum annually from income. As colleges are not being operated for profit, the same considerations for providing for replacement of buildings and equipment from income do not apply to them. r^ PHYSICAL PLANT 57 Endowed colleges in the first instance have obtained funds for plant and equipment by gifts, and as a general rule their trustees consider it the better poHcy to rely upon the same source for any buildings and equipment which may be needed in the future. They are, moreover, so beset with difficulty in procuring income sufficient for the present needs that they are not interested in raising funds for needs of the distant future. As the present and past generations have provided the existing buildings, it is neither unwise nor unfair to expect future generations to do as well. In some colleges journal entries are made to show the estimated amount of depreciation in buildings and equip- ment, but a sum to provide for it is not set aside from income. They are, therefore, book entries only. Unless the trustees adopt as their policy the plan of providing from annual income a sum equal to the amount of estimated depreciation, and set it aside regularly and invest it so as to provide an adequate amount when needed, the entries are of no real value and may complicate the accounts. So long as the plant serves the purposes of the college effectively its present value is of little consequence, but there is real information and accounting value in keeping the plant on the books at cost. Any item sold or destroyed should be taken off the books so that only property actually in the possession of the college should be included in the plant assets. CHAPTER VI ACCOUNTING The accounting system of a college should be designed to meet the needs, conditions, and ideals which have been set forth in the preceding chapters. It is necessary that the accountant understand the nature and purpose of a college, what its peculiar characteristics are, and how they differ from those of a commercial or manufacturing corporation. Failure to recognize the fundamental differences between a college and a corporation organized for profit has often led to the imposition on the college of an accounting system suited to a business organization. A business corporation is established for the sole purpose of making a profit on the money invested. For that reason its accounts must be kept so that profit or loss may be determined, e.g., proper allow- ance must be made for depreciation of plant, for bad debts, for income accrued, and for accounts unpaid — otherwise, the financial situation cannot be correctly exhibited. Accurate distinction must be made between capital expenditures and those for current operation. In the accounting system of a college, since it is not organized for profit, accounting prin- ciples and practices specially designed to determine profit or loss are out of place. ACCOUNTING FOR FUNDS What are the characteristics of the endowed college which must be kept in mind in framing its accounting system ? First, and most prominent, is the fact that it is not a profit- 58 ACCOUNTING 59 making corporation and that a part of its income is derived from endowment. Its accounting system must therefore be designed for trust accounts. There must be an accurate record of each trust, showing its origin, its financial history, its present condition, and the manner in which the trust is being executed. Tinist funds should therefore be kept apart from all other funds and operations of the college, their accounts segregated in a special ledger, and their cash deposited in a separate bank account. Three ledger accounts are needed: one with the fund, one with the investment of the fund, and a third with the income of the fund. Invest- ments should be entered at cost so that at all times the debit to investment account, plus cash uninvested, equal the credit to the fund. If the amounts invested in bonds, stocks, real estate mortgages, or real estate, are needed for informational purposes the ledger account with the invest- ment of the fund may be subdivided accordingly. A Hst of investments should be maintained, preferably on cards, giving particulars of each investment, its cost, rate of income, date of maturity, face or par value, interest payment dates, and, if a mortgage, the property mortgaged. The Hst should be kept up to date at all times by eliminating cards for investments paid, and by inserting cards for investments made. The totals of the cost must be in agreement with the ledger. Before the end of each month a Hst of interest and principal due during the coming month should be taken from the cards so that collections may be made promptly and accurately. If the funds are invested as a group instead of individually the only difference in treatment from the foregoing is that while a similar ledger account must be kept for each of the funds separately, only one main account with their 60 COLLEGE AND UNIVERSITY FINANCE combined investment is needed. In such a case the debit to investments, plus the cash on hand, should equal the sum of the credit balances to all the funds. At stated times, or as soon as it is received, the income on endowment investments should be paid to the current account of the college, to be used in accordance with the conditions attached to the respective funds. For con- venience' sake, however, the ledger accounts with income may be kept in the current ledger, and the income as received deposited at once in the current bank account. RECORD OF FUNDS Endowments are trust funds and should be handled and cared for in accordance with the conditions of the trust. So the accounting records must be full and explicit that the administrators may always know exactly what is required. The ordinary routine with respect to a gift for endowment is somewhat as follows : ■ The president of the college reports to the board of trustees that a friend offers a gift for endowment for a certain purpose, with certain conditions. If the purpose and condi- tions are acceptable to the college the board passes a resolu- tion formally accepting the gift with its conditions, and the president is authorized to acquaint the prospective donor with the action. If some modification is desired in the terms of the proposed gift that fact is communicated to the donor, and if he consents to the suggestion and modifies the terms, the trustees then, by formal resolution, accept the gift. The minutes of the board of trustees should contain the correspondence respecting the gift in full and should recite its terms and conditions and the resolution of accept- ance. When the gift is paid, a full descriptive entry should ACCOUNTING 61 be made on the financial books, enumerating its conditions and purpose, and referring by book and pages to the minutes of the board for complete particulars. If the gift were paid in cash the entry would appear on the cash book, and if it were paid in securities or property the entry would be made in the journal. The correspondence and all the original documents should be filed away in safety and made easy of access. It is exceedingly important that the history and conditions of each endowment fund be given so that succeeding generations of college administrators may, with full knowledge and understanding, execute the trust properly. At present the records of endowed colleges are probably more deficient in this respect than in any other. A short time ago the treasurer of a college in the Middle West remarked that he was going through the archives of the college for the purpose of finding out if possible how the funds of the college originated and what conditions were attached to them. He was also consulting with the '' oldest inhabit- ants" of the college community to learn what they could contribute to the subject. He was embodying the results of his labors in the college records so that future administrators would have in convenient form all the information which he had obtained. The researches made by this officer are typical of what is being done at many of the older institutions. FUNDS FOR SPECIAL PURPOSES The next point to be noted with regard to the accounting needs of an endowed college is that certain funds are given to it for special purposes, the principal of which, under certain conditions, as well as the income, may be used. These funds should also be kept apart from the general accounts in order that they may be strictly accounted for 62 COLLEGE AND UNIVERSITY FINANCE and applied in accordance with the terms of the gifts. The ledger accounts needed are the following : one showing the amount of each fund ; one giving the expenditures on behalf of each fund; one with the investment of each fund, unless invested as a group (if any of it is temporarily invested); and the fourth, an account with income. The debit to investment, plus the debit to expenditures, plus cash on hand, should always equal the credit to the fund plus the credit to income. Any uninvested principal and income should always be represented by cash actually on hand. Where the number of endowment funds and funds for special purposes is not too numerous they may all be kept in one ledger and the cash deposited in one bank account. If this plan is followed a daily report should be made showing the amount of cash on hand belonging to each fund. The same scrupulous care is required in recording the history and conditions of funds for special purposes as is needed for those of endowment funds. Where it is the custom of the college to invest its funds as a whole, endowment funds should be invested in one group and those for special purposes in another, because a different set of considerations should determine the invest- ments for each group. Investments in the latter group are temporary, the object being so to invest the funds as to get as favorable a rate of interest as is prudent until the funds are needed, and at the same time to provide for realizing the principal promptly without loss as soon as required. To meet these conditions choice is limited to investments such as certificates of deposit, treasury notes, short-term bonds, and the like, whose rate of interest may be comparatively low. But as speedy realization on principal is not a necessity in case of endowment investments, investments running for ACCOUNTING 63 a longer period are suitable. If the investments of both groups were merged and the income divided on a pro rata basis, the plan might not operate with equal justice. Cash transactions of endowment funds and their invest- ments, and of funds for special purposes, may be kept to best advantage in a special cash book. However, they may be kept in the cash book used for current accounts by using columns to separate these transactions from those for other purposes, but the cash belonging to them should always be deposited in a separate bank account. For ready reference a special file or folder of the several endowment funds and funds for special purposes is very convenient if arranged in alphabetical order, reciting the letters of gift and the conditions in full, and referring by page and number to the minute books in which they were originally recorded. Thus, the first requirement of an accounting system of an endowed college is provision for a strict and accurate record of its endowment funds, and of its funds for special purposes. ACCOUNTING FOR PLANT The second characteristic of college accounting is the peculiar relation which the educational plant and equipment bears to the enterprise. To replace its educational buildings by setting aside annually a fund from income for that purpose is at present not the policy of an endowed college. Therefore, there is no occasion to make journal entries charging income with the estimated amount of depreciation which is not met by annual repairs. The accounts should show the money which has been expended for the purchase of land and for erecting, furnishing, and equipping the build^ ings. These ledger accounts should not be changed except 64 COLLEGE AND UNIVERSITY FINANCE to record purchases of more land and the cost of erecting, furnishing, and equipping more buildings, or for the extension, improvement, or obliteration of the present ones. For a college, with its campus and buildings completed, the ledger accounts needed are: "Land," the debit balance of which should be the amount paid for campus, or its value when donated; one with "Buildings," showing the amount expended for their erection; one with "Furniture," and another with "Equipment," each showing the actual cost. These ledger accounts should be supported and explained by journal entries or statements giving in detail the amount spent for each of the above objects. The debit balances of these ledger accounts should be equaled by the credit balance of a ledger account entitled "Plant Capital," which should represent the total of the gifts, grants, and appropriations received and made for the acquisition of the land, buildings, furniture, and equipment. In many instances the early records of colleges are defective and it is difficult, if not impossible, to ascertain the original cost of plant and equip- ment. Where such a condition prevails it is necessary to enter the cost at an estimated or appraised value, but there- after all new buildings and their equipment and any land acquired should be entered at actual cost. ACCOUNTING FOR BUILDINGS IN COURSE OF CONSTRUCTION The buildings of an endowed college are usually provided for by gifts. The accounts should show the exact amount of the gifts and their application. Since the sum of money available for the purpose is ordinarily limited in amount, exact plans and careful estimates of cost, together with actual contract propositions, should be obtained before the ACCOUNTING 65 work is undertaken. If the total cost equals or falls within the amount of gift the work may be authorized, but if it does not it should be postponed until the cost is reduced by modifications in the plans or until additional funds can be secured. When the gift is received it should be credited to a specific building account under the name of the proposed building and called " (Name) Building Fund/' and included as a building fund among the funds for "Special Purposes."^ As expenditures for the building are made they should be charged to " (Name) Building Con- struction." The amount by which the credit balance to the fund exceeds the debit balance to the construction account would be the amount unexpended, and should be found in cash or in temporary investments. But if the fund were overexpended the simi by which the construction account exceeds the fund would represent the overdraft. Separate ledger accounts should be kept with the furniture and the equipment of the building, and with the funds or appropriations provided for them. When the building is completed, furnished, and equipped the special ledger accounts with construction, furniture, and equipment should be closed into the property accounts, "Buildings," "Furni- ture," and "Equipment" respectively, and the ledger accounts with the funds, if the funds are exhausted, closed into the account "Plant Capital" — there to remain with- out change until the building is demoUshed, destroyed, or enlarged. If the funds are greater than the actual require- ments the excess should be refunded to the donor, or, with his approval, devoted to some other purpose. If it should happen that the fund for building cannot be used promptly it may be advisable to invest it temporarily » See p. 61. 66 COLLEGE AND UNIVERSITY FINANCE in readily negotiable securities, adding any interest received to the fund. The accounting treatment then should conform to that prescribed for ''Funds for Special Purposes."^ The question is often raised: If the ledger accounts show the original cost of buildings, furniture, and equipment, and are not modified to conform to changing values, would it not be difficult to establish an insurable value? The answer to this question may be found in the chapter on "Plant."2 When once the buildings are erected, fully furnished and equipped, the burden of keeping them in condition is an expense of current operation, which must be met from current income. Its accounting treatment will therefore be described in the paragraphs relating to that division of col- lege accounting. ACCOUNTING FOR CURRENT OPERATIONS The third group of financial transactions for which the accounting system of an endowed college must provide embraces all the current operations of the college. In this group are included all transactions not accounted for under ''funds" and "plant." The combined result of the opera- tions in this section is expressed by the total amount of surplus or deficit for the year. For the purposes of adminis- tration, however, the accounts should be so designed and kept that the trustees may know what each division of the college forming an operating unit contributed to the result. Therefore, operating accounts should be provided for each of the classes after the manner enumerated in the chapter on "Disbursements, "^ namely: (1) for the operating receipts 1 See p. 61. 2 See p. 56, "Insurable Value." ' 3 See p. 19. ACCOUNTING 67 and disbursements for strictly educational purposes; (2) for the operating receipts and disbursements of auxiliary departments; (3) for the operating income and expenditures of the diniDg-halls, dormitories, bookstore, and similar departments and activities; (4) for sundry receipts and disbursements of a general natiu-e not iacluded in the first three classes. THE BUDGET The budget method is best adapted to account for and control the operating receipts and disbursements for strictly educational purposes. The educational work of a college ought to be limited by the income at its disposal. Its opportunities are usually unKmited. If it conducts its financial administration on the basis of its opportunities, without reference to its limitations of income, financial disaster is inevitable. But no college is under any obHgation to undertake to render a service for which it cannot pay. ReaUzing the importance or the necessity of a demand, the college may fairly appeal for funds to meet it, but if the funds are not forthcoming, the college has no right to incur debt either by borrowing money or by hypothecating inviolable securities. It would not be fair to create the impression that all colleges have erred in this matter; stiU unwisdom of this type is not rare. The budget system of control was designed to assist governments and iastitutions in restricting their expenditures to their income. In the case of a college it consists of two parts: one part containing the estimated income; the other containing the appropriations for the estimated expenditures. A classification of income as to soiu"ces must first be made, and then a careful estimate of the amount of income which U 68 COLLEGE AND UNIVERSITY FINANCE may be expected from each source. For a college of liberal arts the following classification of income is suitable: BUDGET INCOME A. For strictly educational purposes I. From student fees 1. Matriculation 2. Tuition 3. Graduation 4. Laboratory 5. Incidental 6. Library fees and fines 7. Locker 8. Miscellaneous 11. From endowment investments 1. Income for general purposes, unrestricted 2. Income for general purposes, restricted a) President (Laing Fund) b) Maintenance of buildings (1) Science Hall (2) Observatory c) Professorial chairs (1) Latin— EUery Fund (2) Mathematics — Hannan Fund III. From gifts and grants 1. For general purposes, unrestricted a) From North West Synod b) From Alumni Association 2. For general purposes, restricted a) From George Walker, for books for English Depart- ment b) Etc. IV. From miscellaneous sources 1. Rentals of college buildings 2. Sale of old materials and equipment 3. Etc. Total income for strictly educational purposes (estimated) $ . . . . ACCOUNTING 69 B. For specially designated objects not a part of the strictly educa- tional work I. From students 1. Athletic fees and tickets II. From endowment investments 1. Lectures — extra-curriculum 2. Scholarships 3. Student aid 4. Prizes 5. Athletic field maintenance 6. Dormitory library III. From gifts and grants 1. Lectures — extra-curriculum 2. Scholarships 3. Student aid Total income estimated for specially designated objects $ Grand total of income $ There are certain receipts and disbursements of a general nature pertaining to the current operations of a college which do not constitute a part of the income available for the ex- penses incurred in the cost of educating the students. Never- theless, they are in the majority of cases included by colleges among the educational receipts and disbursements, a proce- dure which renders it difficult to learn the exact cost of operation for strictly educational work. In some instances they are segregated and classified so that they may be eliminated from the statement without much difficulty. This method is an improvement upon the promiscuous inclusion, but it seems better still, as given above, to account for these operations in a separate section of the budget (see Div. B). Income on endowment and gifts for scholar- ships and student aid are examples. Appropriations should not exceed the funds available for these purposes. Any 70 COLLEGE AND UNIVERSITY FINANCE amount unexpended should be carried forward to the next year's account and reserved for the object of the gift. Fees paid by students who are beneficiaries of scholarship funds and gifts under this plan should be counted as cash receipts since they differ only in the respect that the students obtain the funds wherewith to pay them from the college treasury rather than from their parents. This statement holds good whether the money with which to pay his fee is actually paid to the student, or whether it is credited to his account by book entry or voucher. HOW ESTIMATES OF INCOME SHOULD BE MADE In estimating budget income certain rules may be followed to advantage. First, and most important, is the rule that the estimate shall be conservative and sure of reahzation, unless something most unusual occurs. If there is doubt as to certain income being secured, it should not be included in the estimates. Appropriations for expenditures are made and obligations incurred on the basis of the esti- mates of income, which cannot be fully met if the estimates of income prove unreHable. STUDENT FEES The estimates of student fees should be the amount received from students for the last completed year, unless the officers have reasons for supposing that the amount will be smaller. Only in most exceptional cases should the estimate be placed at a greater sum, and the reasons for doing so must be most convincing. INCOME FKOM ENDOWMENTS In estimating income from endowment investments the investments which the college holds should be classified into : (1) those maturing later than the year for which the estimates ACCOUNTING 71 are being made, on which the income is practically assured; (2) those maturing within the year for which the estimates are being made, on which the income is assured; (3) those maturing before the opening of the year for which the estimates are being made; (4) real estate owned; (5) cash awaiting investment; (6) unproductive investments. The estimated income from investments in Class 1 would be the sum of the income payable on them during the year, less any provision made for amortizing premiums. It will be noted that the sum to be given as the estimate is the amount payable during the year rather than the sum accruing. As college expenditures are on a cash basis it is better to put the receipts on the same basis and include only those items which are actually received during the year and which can be used to pay the debts. Thus, a surplus at the close of the year is in cash, and a deficit is a real deficiency of receipts. Taking one year with another, the amount of receipts on the cash basis will not differ materially from that on an accrued basis, while the amount of labor included in keeping the accounts on the former basis is much smaller. The estimated income on securities in Class 2 would be the amount of income payable during the year on the invest- ments then held, plus the estimated income payable on the investments made to take their places, less provision for amortization of premiums. It is better to allow a little time for reinvestment, say a month, and to figure a sure rather than a high rate of interest on the new investments. Inasmuch as investments in Class 3 mature before the beginning of the year for which estimates are being made, an estimated rate of interest on their reinvestment should be allowed, as described imder Class 2. The estimate of income to be obtained from real estate owned (Class 4) should be based upon the experience of 72 COLLEGE AND UNIVERSITY FINANCE previous years, modified by any known changes in rentals, taxes, wages, repairs, and other costs of operation. Depreci- ation must of course be provided for — otherwise, the principal of endowment would be dissipated. The same rate of return upon reinvestment should be allowed on cash awaiting investment as on reinvestments in Classes 2 and 3. Unproductive investments (Class 6) should include all non-income-producing investments and those from which income is doubtful. For them no estimate of income should be made. If any of them become income-producing during the year, so much the better for the college. In case any property is operated at a loss the estimated loss must be shown as a deduction from the total income. When the income on the several classes of investments has been estimated it should be apportioned to the unrestricted and restricted endowment in the ratio which they bear to the total, or on the basis of the investments belonging to each fund, if each fund is invested separately. The details of the estimated income on investments should be filed for reference and check when the income has been actually received. If errors in estimating have been made they may be located by this method, and should be avoided in the future. A lump estimate of income from endowment should not be made under any circumstances. It is only by considering each investment separately that an accurate and reliable estimate can be obtained. Reference has been made to amortization of premiums. Bonds and mortgages are frequently purchased at a premium; hence, if they are held to maturity there will be a loss in principal to the amount of the premium unless provision is made for it from income by the date of maturity. The ACCOUNTING 73 theoretical way to make this provision is to set up what is called an amortization account.^ In actual practice, how- ever, this plan requires a great deal of bookkeeping, altogether incommensurate with the amount involved in the case of a college. A simple method which works well in practice is to find the number of years from the date of purchase to the date of maturity of the security, divide the amount of premium paid by that number, and each year transfer the amount so arrived at from income to principal. The cash so transferred should be deposited in endowment cash and the amount credited to premium account in the endowment funds ledger, if a premium account is kept separate; other- wise, the credit should go to the investment account. The cash transferred then becomes available for investment and the income it produces goes to the credit of endowment income. When the security matures the par value received and the amount of premium repaid by the annual transfers from income should equal the sum paid when the security was purchased. Thus, the final result is the same as in the case of strict amortization, and the yearly division of interest between principal and income differs but slightly, while the amount of labor saved is considerable. ESTIMATED INCOME FROM GIFTS Gifts for current purposes are more and more becoming a common source of income for endowed colleges, especially for those affiliated with religious denominations. Only gifts which can be absolutely counted on should be included in the estimates. Gifts may be made for regular expenses 1 Webster defines amortization as follows: "To extingiiish a premium or discount involved in the purchase of a security by periodically charging off a portion of the premium or crediting a portion of the discount so as to bring the value to par at maturity, the transfer being made respectively from income to investment, or vice versa; loosely, to bring the value of a security to par in this way." 74 COLLEGE AND UNIVERSITY FINANCE or for some special item of regular expense. The former class of gifts is most frequently made by a conference, synod, or central body of the denomination supporting the college, or by the alumni association, and reflects a reliable interest and sustained responsibility. Gifts for special items of regular expense are usually made by individuals who are especially interested in the work which they wish to aid. Sums of money are often given to colleges for a purpose which the college does not consider a part of its regular work. In such instances it is better to include them in a special section among the budget receipts and include appropriations of a similar amount in a separate section among the budget expenditures. By following this method the actual cost of the regular work of the college is not obscured, and the special work can be discontinued promptly when the fund is exhausted. Some colleges follow the custom of designating as gifts the difference between the estimated expenditure and the estimate of assured income. Such an expectation of obtain- ing the difference is more often based on hope than on assur- ance. It is much better to call the difference ''Deficiency of Income," which must be provided for by additional income or gifts, or avoided by reducing expenditures. ESTIMATES OF INCOME FROM MISCELLANEOUS SOURCES Colleges occasionally rent portions of their plant. Certain buildings or portions may also be used for dining- halls, bookstores, and the like. In all such cases rental should be charged for their use, including interest on cost and depreciation so as to place these activities on a strictly business basis. The amount of rental charged should be included among the estimated income from miscellaneous sources; income which cannot be classified under sections ACCOUNTING 75 I, II, and III should also be included in this section. Income of items in Division B of Budget Income should be estimated in the same manner as income from similar items included in Division A. COMPAKISON OF ESTIMATED INCOME WITH INCOME RECEIVED PREVIOUSLY In making prehminary estimates of budget income it will be found exceedingly helpful to place in parallel columns the amount of income actually received during the past two or three years from each source. If the estimate for the coming year varies appreciably from the actual income of former years the difference should be capable of explanation and justification. There should be no guess work in the estimate. Unrehable estimates of income have often led colleges into trouble which might have been avoided. BUDGET APPROPRIATIONS After the amount of income for the coming year has been estimated, the next step in the process of budget making is to make a careful classification of the expenses of the coUege (strictly educational), if one is not already in use. The following classification may be used (see chapter on '' Dis- bursements, " pp. 20-21) : I. Administration and general expense 1. Executive a) President's ofl&ce (1) Salary of president (Laing Fund) (2) Salary of secretary and assistants (3) Office expenses and supplies h) Treasurer's office (1) Salary of treasurer (2) Salaries of assistants and clerks (3) Office expenses and supplies 76 COLLEGE AND UNIVERSITY FINANCE 2. General a) Publicity (1) Salaries and wages (2) Printing, postage and stationery, and expenses (3) Advertising (4) Travel b) Catalogues, reports, and bulletins c) Commencement and public occasions d) Appropriations to student activities e) Annual audit /) Miscellaneous II. Operation and maintenance of physical plant^ 1. Superintendence a) Superintendent's office (1) Salary of superintendent (2) Salaries of assistants and clerks (3) Office expenses and supplies 2. Heating, lighting, water, and power^ a) Engineer's office (1) Salary of engineer (2) Salaries of assistants and clerks (3) Office expenses and supplies b) Wages of power-plant employees c) Fuel (including freight and cartage) d) Materials, suppHes, and expense e) Repairs to building and equipment /) Insurance (including liability) 3. Care and maintenance of buildings a) Wages of janitors and artisans b) Materials, supplies, and expense c) Repairs (not included in a and b) d) Insurance (including liability) 1 Special funds for care and upkeep of certain buildings must be expended for the purpose provided. 2 If a central power plant is utilized for furnishing heat, light, water, and power for the educational and other departments of the college, the proportional amount for educational departments of the College of Arts only should be here included. ACCOUNTING 77 4. Care and maintenance of furniture a) Wages h) Materials, etc. c) Repairs and renewals d) Insurance 5. Care and maintenance of grounds a) Wages of employees b) Materials, supplies, and expense c) Liability insurance III. Instructional 1. Dean's office a) Salaries of deans b) Salaries of assistants and clerks c) Office expenses and supplies 2. Salaries for instruction a) Department of Astronomy (1) Professor A. J. Smith (2) Assistant Professor H. E. Jones (3) Instructor L. A. Black b) Department of Botany (1) Professor A. B. Coulter (2) Instructor M. A. Browne c) Department of Latin (1) Professor M. N. Rowe (EUery Fund) (2) Etc. d) Library e) Other departments in detail, as above 3. Departmental supplies and expense a) Astronomy b) Botany c) Etc. 4. Departmental equipment and books a) Astronomy b) Botany c) Etc. 78 COLLEGE AND UNIVERSITY FINANCE IV. Contingent fund V. For specially designated objects not a part of the strictly educational work 1. Lectures — extra-curriculum 2. Scholarships 3. Student aid 4. Prizes 5. Athletic field maintenance 6. Athletics 7. Dormitory Hbrary 8. Miscellaneous Grand total of budget expenditures $ The appropriations in Section V should agree in amount with the income for the same purposes, which was included in Division B of Budget Income, unless the college desires to add from its own funds for any of these objects. When the budget classification has been determined a careful estimate should be made of the needs of the college for the coming year, item by item, as given in the budget classification. The data for the instructional division are usually collected by the president. The details for each department should be supplied by the person in charge of the department, preferably on a specially prepared form. The form should be arranged to show the needs of the department under the headings of the budget, viz.: (1) for instruction, (2) for supplies and expense, (3) for equipment and books. If the budget plan is already in operation appropriations of the current year for each of the items should be given in one column, and requests for additional amounts for the coming year inserted in columns parallel thereto — those considered important in one column and those deemed desirable in another. ACCOUNTING 79 Any suggested reductions in appropriations should be entered in a separate colunm. Marginal notes or explana- tions of the requests may preferably be made on separate sheets. From the material thus supphed the president should make a report to the committee on budget of the changes in appropriations which he approves, classifying the additions as "Important" or ''Desirable." He may include everything asked for by a department in one or both of these classes, or he may consider it better to include a portion only. He may also add to the sums requested for certain items and insert amounts for new ones. It sometimes happens that the salary of a member of the faculty is fixed in advance at an amount which increases each year. Thus, it may be $2,000 for the first year, $2,500 for the second, and $3,000 for the third. In making the report to the budget committee any increases of this kind which have already been enacted should be included in a column entitled "Additions Enacted," because they must be cared for before any of the suggested additions classified as "Important" or "Desirable." The material for budget estimates for administration and general expenses usually may be prepared to best advantage by the treasurer or chief accounting ofiicer. He should of course obtain from the several executive officers a statement of their needs, listed on blanks similar to those used by the instructional division. He should pass upon the several requests and classify them for the budget committee, using the classifications of "Important," "Desirable," and "Deductions," as described above. Estimates of expenditures for the operation and main- tenance of the physical plant should be prepared by the person in charge of the buildings and grounds. The record 80 COLLEGE AND UNIVERSITY FINANCE of expenditures for the past few years, modified to suit changing conditions, will serve as the basis of the estimate. Estimates for repairs and decorations should be based on careful inspection of the buildings. The estimates of this division should be sent to the treasurer or chief business officer to be vised, classified, and presented in the same manner as the estimates from the other divisions. Whenever estimates of income from restricted funds are included in the budget income a corresponding amount must be placed among the estimates of expenditures for the particular objects. If during the year the entire sum is not used the balance remaining must not be absorbed by other general expenses, but must be carried forward to the next year's budget. After the estimates and recommendations of the three divisions have been received and reviewed by the treasurer and financial officer, and the details classified as indicated, a summary should be made of the estimated income and expenditures as revised. The summary may be made as follows : BUDGET ESTIMATES FOR THE YEAR SUMMARY Income: From students .$ 90,000 From endowment 80 , 000 a) Unrestricted $72,000 6) Restricted 8,000 From gifts and grants 15,000 From miscellaneous sources 2,000 Total $187,000 ACCOUNTING 81 Expenditures: Budget Appropri- ations FOR Present Year Additions Divisions Enacted Recom'd by Depts. Impor- tant Desir- able Deduc- tions I. Administration and general $25,000 $1,000 $1,500 $1,000 $500 $300 1. Executive 2. General 16,000 9,000 1,000 500 1,000 500 500 500 300 II. Operation and main- tenance of physical plant 28,000 4,500 3,300 700 1. Superintendence.. 3,000 16,000 6,000 1,000 2,000 500 3,000 800 200 500 2,500 300 2. Heating, lighting, etc 3. Care of buildings. . 4. Care of furniture. . 5. Care of grounds. . . 500 200 III. Instructional 112,000 4,000 7,000 2,800 3,200 1,000 1. Salaries for in- struction 2. Departmental sup- plies and expense. . 3. Departmental equipment and books 92,000 14,000 6,000 4,000 5,000 1,000 1,000 2,000 300 500 2,000 700 500 1,000 IV. Contingent fund 10,000 Grand total .... $175,000 $5,000 $13,000 $7,100 $4,400 $1,300 Note — From the above it will be noted that the sum of the "Important" and "Desirable" columns does not equal the total recommendations by departments, the President and Treasurer having decided not to include some of the items recom- mended. After the summaries of estimated income and expendi- tures have been made, as above, supported in detail by the reports for each division, a comparison should be made of the total estimated expenditures with the total 82 COLLEGE AND UNIVERSITY FINANCE estimated income. This comparison may be shown as follows : Total income estimated $187 , 000 Expenditures estimated Budget appropriations for present year . . . .$175,000 Add Items enacted 5 , 000 $180,000 Less Deductions 1,300 178,700 Amount of income available for additions $ 8 , 300 "Important" items recommended 7, 100 Amount of income available for "Desirable" items $ 1,200 Of which there are 4,400 Leaving of "Desirable" items unprovided for $ 3,200 From such a summary as the foregoing it may readily be seen whether the income estimated is sufficient to care for the estimated needs, and if not to what extent it falls short. A summary should be made in like manner for the items in Division B of Budget Income and Section V of Budget Expenditures, covering income and expenditures for items not a part of the strictly educational work, and the totals included in the complete budget. If the budget for the coming year is presented to the committee on budget in detail and in summary by the method here suggested the committee may, with little difficulty, learn of the several recommendations in detail and have a basis for deciding what should be eliminated from the "Important" and "Desirable" items, if the income is insufficient for all. Naturally, items in the "Desirable" column would be among the first to be excluded. ACCOUNTING 83 A portion of the estimated income should be reserved for contingencies, under the title of ''Contingent Fund" to provide against an unexpected shrinkage in income, and for unforeseen expenditures. After the committee on budget has carefully studied the estimates of income and the needs of the institution for the coming year, it should incorporate its suggestions in a completed budget and recommend it to the board of trustees for adoption. The board of trustees should give careful attention to the recommendations of the committee on budget, and before approving the budget should assure itself that the estimates of income had been conservatively made and that the appropriations for expenditures were hkely to prove adequate to the needs of the institution and that no expenses which would have to be incurred had been omitted. METHOD OF BUDGET ACCOUNTING AND CONTROL When the budget has been adopted by the board of trustees its appropriations become available for the expenses of the year stated. Every department should be required to keep its expenditures within the limits of its appropria- tions. As a means to this end a ledger account should be opened with each item in the budget. If the number of budget items is large enough it may be better to have a ledger for the purpose, but if not, the accounts may be opened in the general accounts ledger, a portion being devoted to this use. If a portion of the general ledger is used for budget accounts it wiU be necessary to keep a supplementary record of requisitions issued. The use of requisitions is described below. The ledger accounts which record income receipts need no explanation. The ledger accounts for expenditures, 84 COLLEGE AND UNIVERSITY FINANCE however, differ in some respects from the ordinary in that they should record the requisitions approving the incurring of expenditures. For a complete control of expenditures limited to the amount of appropriation the record of bills paid is not adequate. It is necessary to exercise control at the point where the expense is authorized. This control is exercised most effectively by requiring every department to make requisition for proposed expenditures, giving details and estimates of cost based on catalogue prices or certified to by the purchasing agent, which requisitions should be approved by the treasurer or administrative officer before the expense is incurred. Requisitions should not be approved if the appropriations for them are insufficient. In such c^ses the board of trustees may be asked to increase the appropria- tion if the need is urgent. The ledger account should show at all times the balance of the appropriation available for future expenses. This balance is found by adding the expenditures made to date to the amount of requisitions unfilled and sub- tracting their sum from the total appropriation. In order to give these data most conveniently the ledger accounts with the budget expense items should be entered on specially ruled sheets divided in parallel columns somewhat as follows : Requisitions Expenditures Paid Appropbiations Date Num- ber Estimated Cost Actual Cost Date For Dr. Cr. Date Dr. Cr. Balance The amount of appropriation should be entered to the credit of ''Appropriations," and the amount of any changes ACCOUNTING 85 in it subsequently entered in the "Dr," and "Cr/' colunms. The amount in the column headed "Balance" will be the total of the appropriation at that time. As requisitions are approved they should be recorded imder "Requisitions." Payments made should be entered under "Expenditures Paid" — "Dr." and the amount distributed to the respective requisitions in the column headed "Actual Cost." If the actual cost differs from the estimated cost, the total of the latter colunm should be adjusted to the actual expense by adding or deducting the difference. If this adjustment is made regularly and promptly the amount of appropriation available may be found by deducting the total of the col umn "Estimated Cost " from the amount in the column "Balance" of appropriations. Expenditures for salaries are usually authorized for the entire year in advance and may be covered by one requisition. It is not necessary to make requisitions for every small item of expense. A blanket requisition may be made by every department covering its sundry small needs for an entire month. The budget method of control here detailed makes it possible to keep a constant check on expenditures, and to ascertain before expenditures are authorized whether there will be money to meet them. Each department may learn the status of its appropriations at any time and at stated times the trustees and officers may be informed of the progress and condition of the budget income and expendi- tures as a whole. BUDGET REVISION Criticism is sometimes made of the budget plan of operation on the ground that it is inflexible, does not provide 86 COLLEGE AND UNIVERSITY FINANCE for unforeseen contingencies, and ties the hands of the college officers by making rigid, specific appropriations before the opening of the year so that they cannot cope with changing conditions as they appear. Whether this criticism is justified depends upon the wisdom exercised in making and in operat- ing the budget. As has been stated already, the budget is devised to enable college authorities to limit their expendi- tures to their income. If this income is correctly estimated, appropriations made within it, and care then taken that no appropriation is overexpended, there can of course be no deficit. An equation is thus established between the esti- mated income and the expenses before the opening of the year. It is almost inevitable that changes unforeseen will occur in income, and that expenses will not be exactly as they were forecast. To adjust the budget to these changing conditions and to let it serve adequately it should be revised periodically during the year. The experience of the year to date should be taken as the basis of each revision, and in the light of that experience an estimate made in detail for the remainder of the year. Every item in the budget should be considered and note made of the amount of any probable variation from the original estimate. A list of variations, in detail and in summary, should be made, using a form designed as follows, or somewhat similar: Division Item No. Name op Account Okigxnal Estimate Present Estimate Variations prom Original Estimate Plus Minus The items should be totaled, first by departments, next by divisions, and then the sum totals reached. The result ACCOUNTING 87 of each revision, supported by the detailed statements, may be shown clearly in the following manner: REVISION OF BUDGET FOR 1920-21 ON OCTOBER 15 Income: Original estimate $187,000 Add total estimated variations in excess of original estimate 12 , 000 $199,000 Deduct total estimated variation less than original estimates 3,940 Total income — present estimate $195,060 Expenditures: Original estimates, including contingent fund $187,000 Add total excess of variations from original estimates 5, 500 $192,500 Deduct total amount of variations less than original estimates 4 , 280 Total expenditures — present estimate 188,220 Net surplus — present estimate $ 6,840 From such a summary it may be observed that certain appropriations are inadequate, that others are larger than needed, and that the total expenses for the year will exceed the appropriations by $1,220 according to present estimate. It may also be noted that from present indications the income will be $8,060 more than originally estimated, sufficiently large to care for the excess in expenditures and leave a remainder of $6,840. The board of trustees should there- fore be asked to substitute the budget as revised on Octo- ber 15 for the original one. If instead of the favorable result 88 COLLEGE AND UNIVERSITY FINANCE shown above the revised estimates indicate that the expenses are Hkely to exceed the income, steps should be taken at once to reduce them — a task which may be undertaken with some promise of success because begun in time. If it be found impossible to make savings in expenditures the board should endeavor to increase the income. Through the instrumen- tality of periodic revisions trustees and officers may learn the probable financial situation early enough to avoid a deficit. They are also able to adjust the budget to changing circum- stances. The budget should be revised at least twice a year. CLOSING THE BUDGET At the end of the year the several budget income and expenditure accounts (with the exception of unused portions of income provided for special objects, which should be carried forward) should be closed into ''Surplus or Deficit" account. The surplus, if any, may be used as the trustees desire, or be reserved for future contingencies; the deficit, if any, should be raised immediately if at all possible. A budget made on the plan described, administered with care and intelligence, expenditures being authorized before indebtedness is incurred, and periodic revision being made, will be found an effective means of controlling expenses. In conclusion: 1. A budget consists of two parts: (a) the estimates of income; and (h) the appropriations for expenditures. 2. It should be divided into sections on the basis of the chief functions of the college. 3. It should be made in advance of the period in which it becomes operative. 4. The estimates of income should be on a conservative basis. ACCOUNTING 89 5. Appropriations, as a general rule, should not exceed the amount of estimated income. 6. A contingent fund should be set aside from the esti- mated income to allow for any unexpected shrinkage in receipts, and to provide for unforeseen expenses. 7. Requisitions for expenses should be made and approved before obligations are incurred. 8. Periodic revision of estimates of income and expenses should be made during the year, and adjustments made in accordance therewith. ACCOUNTING FOR AUXILIARY DEPARTMENTS In many institutions certain activities or departments, such as the schools of music and of art, stand on a different basis from other regular departments. They may be con- ducted with the expectation of yielding a profit to the college, or at least without causing it any expense. In order to show the actual results of their operations and to avoid obscuring the cost of the college of Hberal arts, the accounts of such activities or departments should be kept separate. But the budget plan should, of course, be adhered to. The classifi- cation of receipts and expenditures may follow the general divisions and items used in the college budget, omitting the items which are not applicable to the special department and inserting others which are pecuHar to it. The same budget principles should be observed; estimates of receipts and expenditures should be made in advance; requisitions should be approved before expenses are incurred; periodic revisions should be made; ledger accounts should be kept with the items of the budget; and reports should be made regularly to the officers and trustees, showing the financial conditions of the department. All legitimate charges of operation, which in this case should include provision for 90 COLLEGE AND UNIVERSITY FINANCE depreciation of plant and equipment, should be included and credit given for services rendered to other departments or officers of the college. Any profit made may be applied as follows: (1) to pay obligations secured by the college credit and to repay advances made from the general fund of the college; (2) to create a reserve for expansion of the department, or for contingencies, and to provide against future deficits; (3) to assist the college in its educational work, or for any other purpose thought advisable by the board of trustees. Should the department be conducted any year at a loss it should be cared for from accumulated surplus or reserve, if there be any, or carried in suspense as a charge against subsequent profits, or paid from the general funds of the college. The account should be accurate and complete so that the financial situation may be shown clearly and definitely. ACCOUNTING FOR DINING-HALLS, DORMITORIES, ETC. The third group into which current operations are divided includes dining-halls, dormitories, bookstores, and similar enterprises. Inasmuch as they are usually operated on the theory that they shall be at least self-supporting the accounts should be so arranged and kept that the authorities may know whether they have completely paid their own way. Ledger accounts should be kept with the receipts and dis- bursements so as to show the principal kinds of each. All costs of operations must be included, such as heat and light, rent, repairs, depreciation, and administration, whether furnished directly or indirectly, and proper credit given for meals and supplies furnished to ofl&cers, teachers, and guests. The profits should be applied to repay the college's advances ACCOUNTING 91 for stock and equipment, until fully repaid. After that has been done they may be reserved for the use and extension of the department itself, or for any of the expenses of the college. Accounting for these activities presents no unusual features requiring comment other than that there be emphasis on the need of including all receipts and expenditures, both direct and indirect. ACCOUNTING FOR SUNDRY RECEIPTS AND DISBURSEMENTS OF A GENERAL NATURE There are certain transactions pertaining to college operation which do not fall into any of the three groups heretofore described. They form a group by themselves. Accounts with stores, consumable material, accounts re- ceivable, and accounts payable, in fact all accounts which show the amount of the college's current assets and current liabiUties fall into this group. To conclude, accounting needs of an endowed college will be met by arranging and classifying the accounts to accord with the three general divisions into which the financial transactions fall, viz.: (1) funds and their investment; (2) plant and equipment funds and their use; (3) current operations. Accounts of each division should be kept separate, those in division (1) in a special set of books and the cash deposited in a separate bank account; accounts for divisions (2) and (3) may be kept in one set of books and their cash deposited in the general account, except that gifts for new buildings and equipment should be kept under division (1), classified as ''Funds for Special Purposes" until expended, the cash meanwhile being kept in the bank account for "Endowment and Funds for Special Purposes." 92 COLLEGE AND UNIVERSITY FINANCE Accounts of division (3), (current operations) should be divided into four groups: (a) containing the income and the expenditures of the college for educational purposes and operated and controlled by the budget system; (6) containing the income and expenditures of special music and art schools and operated and controlled by the budget system; (c) containing the financial transactions of the undertakings of a business character; (d) containing the financial transactions for sundry general purposes which do not fall in groups (a), (6), and (c). BALANCING AND CLOSING THE LEDGERS The ledgers should be balanced regularly, at least once a month, and the accuracy of every account proved, especially accounts with funds and with their investments. The latter may be determined by using the equation previously men- tioned, viz. : Investments plus cash on hand must equal the fund. It is imperative that this equation be maintained, and if at any time such is not the case the difference must be discovered and adjusted at once. There will be very little chance of error or difference if the cash belonging to '^ En- dowment and Funds for Special Purposes" is kept separate from general account cash. Reports of the financial con- dition of the college should be furnished preferably monthly, but at least quarterly, to the officers and trustees. The form and arrangement of reports will be discussed in a subsequent chapter. At the end of the fiscal year the books should be closed in order that the financial result of the yearns operation may be learned. The ledger accounts with ^'Funds'' and with "Plant and Equipment," representing as they do assets and liabilities of a fixed nature, remain open since they are of ACCOUNTING 93 a continuing character and do not concern the current opera- tions of the year. The ledger accounts in division (3), (current operations), should be closed into '^ Surplus and Deficit Account" (with the exception of the real accounts representing current assets and current liabilities) so as to determine the financial results of operations for the year, and to start the next year's account with a clear slate. The profit or loss on each operating unit or division should be shown separately. After the books are closed for the year reports showing the financial history for the year and the financial condition of the college at the end of the year should be made. For form and arrangement of the annual financial reports see chapter viii, page 105. PUECHASING The increasing annual expenditure for books, apparatus, furniture, and other college supplies necessitates increased care and skill in placing purchase orders. Greater effective- ness will be secured if purchases are considered from the college point of view, and not from that of the departments. For example, the apparent need for additional microscopes and other equipment may be reduced or eHminated by chang- ing class hours to permit a more continuous use of existing apparatus and equipment. In purchasing laboratory and other college equipment it is well to bear in mind that the most essential college equip- ment is now quite well standardized and its price is gradually becoming subject to competition. The purchase of specially made equipment is seldom justified, and oftentimes the best illustrative equipment for lecture use can be made with a small expenditure for material through the ingenuity of the 94 COLLEGE AND UNIVERSITY FINANCE faculty member concerned or in a college shop. So-called home-made laboratory equipment is more apt to develop initiative on the part of the student than manufactured apparatus. In placing orders with firms and individuals the relation of the college to its community and constituency must be recognized. At the same time, economy of expenditure requires the maximum return for every dollar spent. This dual obligation can be recognized by placing orders with merchants and dealers of the college community only after it has been ascertained that they can be placed there as economically as elsewhere. Placing purchase orders should not be regarded as an incidental clerical task, but rather as one calling for a thorough knowledge of the institution's needs, and of the possible sources of supply and market conditions. If mate- rials are purchased in large quantities, quite possible when information is gathered as to the annual needs of the college before placing orders, better terms can be secured than can be obtained by purchasing for the departments sepa- rately. Files of catalogues and price lists, and properly designed records and forms will facilitate purchasing. It goes without saying that the purchase of supplies and equipment cannot be delegated promiscuously to any member of a college staff. Negotiations for purchases should not be undertaken without authority from the trustees, either through budget authori- zation, or by specific or general action. After authorization has been obtained, it may be advisable to have the department concerned furnish a detailed description and specifications of the material or apparatus needed, and make suggestions as to the best source of supply. ACCOUNTING 95 To make purchases efficiently requires experience. Therefore, all purchases should be made by one college officer and employee only. An exception to this general rule might be made in the purchase of food supplies, which can better be intrusted to the person responsible for the satisfactory and economical operation of the dining-halls. CHAPTER VII ACCOUNT BOOKS AND RECORDS The books and records needed by an endowed college for recording its financial transactions are simple in character and conform in general to those used by other corporations. The bookkeeping system should be double entry. The principal books of account are the journal, the cash book, and the ledger. If the college be small, one set of books may suffice for all its needs, but ordinarily it is better to have a set for one or more groups of its financial transactions, with subsidiary books and records for the principal de- tails. The journal is used as a book of original entry to record gifts other than cash, to make closing entries, corrections, and transfers from one ledger account to another. A jour- nal regularly kept in stock by bookstores will serve the purpose. The cash book is used as a book of original entry to record chronologically all cash transactions. For the sake of con- venience and of economy one book might be used for cash receipts only, and another one for cash disbursements. The classification of receipts differs from that of disbursements and requires special ruling, and the space needed to record cash receipts rarely equals that required for cash disburse- ments so that many pages are wasted if both receipts and disbursements are entered in one book and the usual custom is followed of beginning entries on the first of each month on opposite pages. 96 ACCOUNT BOOKS AND RECORDS 97 CASH BOOKS There should be a set of cash books for the general funds of the college, and another for endowment and funds for special purposes. Receipts from students may be entered to advantage in detail on a subsidiary cash book, and the total of each day^s collections transferred to the main cash book. The same principle may be followed whenever the entries for receipts from one source become very numerous. Thus, when collections of subscriptions for endowment and for buildings are being made the details would better be entered in a special cash book and the totals regularly trans- ferred to the endowment cash book. The principal cash book should contain all receipts, but whenever any class or kind of receipt requires many entries a subsidiary book should be used for the details, and the totals only entered in the main cash book. The cash books for disbursements should be used to record the amount paid and not to distribute the charges to the respective accounts. For that purpose a voucher system is better. When the voucher system is used, only the number of the voucher check and the amount paid need be entered on the cash book, since the details of each payment, the name of the payee, and the account charged will be found on the voucher register. LEDGERS The same principles should be observed in the use of the ledgers as in the case of the cash books. Thus, wherever possible, all general accounts should be kept in one ledger only, unless the number of any class or group becomes too large. Then a subsidiary ledger should be used for details. A single ledger will usually be sufl&cient for the accounts 98 COLLEGE AND UNIVERSITY FINANCE of the Endowment Fund and Funds for Special Pur- poses. VOUCHER REGISTER Payments may be made to best advantage by using the voucher system. The voucher describing the payment and the check discharging it in the best organized institutions are now combined and known as the voucher check. It is well to make the voucher check in duplicate on the type- writer and retain a carbon copy in the files. For the purpose of recording and distributing the payments to the appropriate accounts the voucher checks should be entered on the voucher register and numbered consecutively. All papers and in- voices supporting the payments should be attached to the duplicate copy of the voucher check and filed numerically. At the end of each month the voucher register should be totaled and the totals journalized and posted to the respective ledger accounts. A simple card index of payments arranged alphabetically may be maintained, giving the name of the payee, number and amount of voucher check, and date of payment. The use of the voucher register to distribute charges has two main advantages over the use of the cash disbursement book. First, it is possible to prepare for payment and to enter on the voucher register all obligations for the month and to charge the appropriate accounts by journal entry so that the financial reports will show the college's true condition. When the cash disbursement book is used as the distributing medium only the obligations which are actually paid are taken into the accounts. If the college is short of funds, and so has many unpaid bills, the ledger accounts do not show the facts. Second, the voucher register is usually loose-leaf, is more flexible than a bound cash book, and may therefore be changed more readily to ACCOUNT BOOKS AND RECORDS 99 accommodate revisions in distribution and new classifications of accounts. The total amount of the voucher checks entered on the voucher register each month should be posted to the credit of an account entitled "Vouchers Audited" or '^ Accounts Payable," and to the debit of the same account should be posted monthly the total of voucher checks paid, as shown by the disbursement cash book. Any balance to the credit of the account ''Vouchers Audited" represents unpaid voucher checks and should be reconciled and balanced with the unpaid voucher checks held in the office. PAY-ROLL REGISTER If the persons employed by the college are few in number they may be paid by voucher check as described above. But if they are many it will be better to use a specially prepared salary check for the purpose. Salary checks should be numbered and entered on a pay-roll register to distribute the charges to the accounts. The pay-roll register should be totaled, journalized, and posted monthly in the same manner as the voucher register. The total amount of the pay-roll for the month should be posted to the credit of a ledger account called ''Pay-roll," and the payments for the month as shown on the disbursement cash book, usually in totals only, should be posted to the debit of the account. A pay-roll card index, similar to the one used for voucher checks, may also be maintained. STUDENT ACCOUNTS student accoimts may best be kept by the card system. By a Httle ingenuity cards for registration and ledger accounts may be combined and made to serve the two 100 COLLEGE AND UNIVERSITY FINANCE purposes. The combined card may be so constructed that by means of a perforation in the middle, the portion of the card used as a registration record may be detached and filed in the academic office as soon as the fees are settled, and the part used for the financial record retained in the financial office. Wherever possible the sum to be paid by the student should be determined by a person other than the treasurer, whose duty it should be to make the collections and check the accuracy of the charges. In many colleges a book is used in which are entered the names of the students arranged by classes, the charges against each for tuition, laboratory fees, and other items, and the payments as made. When the number of students is small, this plan may be used without difficulty, but it is neither so convenient nor so flexible as the card system and may become burdensome to operate when the number of students becomes larger. If a charge card, arranged to serve as a ledger account as well, is used, and if students are required to pay their bills in advance, a large amount of work customarily carried on in bilhng, posting, and collecting is dispensed with. The card system also makes it possible to segregate readily the unpaid ac- counts, if such there may be. Numbered receipts should be given for payments made by students, and carbon dupHcates kept on file. For the sake of convenience receipts may be obtained in book form, fifty originals and fifty duplicates in a book. The duplicates should be retained in the books and the books filed in numer- ical order. The receipt books may be utilized as books of original entry and the student's receipt cash book used for recording the collections and distributing them to the respec- tive earnings accounts by totals, thus avoiding the need of copying each payment in the cash book. Where this plan is followed, the reference made on the student's ledger card ACCOUNT BOOKS AND RECORDS 101 to details of payment should be by receipt number rather than by cash-book page. LOOSE-LEAF AND BOUND BOOKS Loose-leaf records and the card system are well adapted to many phases of college accounting. As stated before, the card system is especially suitable for accounts with students, which may be numerous and usually cover short periods only. It is elastic, flexible, easily arranged in alphabetical or in other order, and may be readily kept up to date by eliminating cards for students not in attendance. Lists of scholarship appointments, of students rendering service, of pay-roll data, of accounts payable, and of accounts receivable, may be kept very satisfactorily on cards. The loose-leaf system is particularly well adapted for recording and distributing collections from students, for recording and distributing cash received in branch ofl&ces and business departments, and for registering and distributing voucher checks and pay-roll pajrments. The ledger containing the accounts with endowment and fimds for special purposes, and the ledger containing the general accounts in full, or in totals only, should be in bound- book form because they show the complete financial status of the college and need to be preserved intact. The principal journals and cash books in which appear a record and history of the receipts of the college, either in cash or in property, their conditions, circumstances, and use, for the same reason should be bound books. Thus a combination of card, loose-leaf, and bound- book systems is well fitted to college accounting — the card and loose-leaf for that part which is temporary and the bound-book for that which is of a permanent nature. 102 COLLEGE AND UNIVERSITY FINANCE STATISTICAL RECORDS In addition to the records which must be kept to show the financial history and condition of the college, others of a statistical and informational character may be used to explain and supplement the data contained in the books of account. Such data may be made exceedingly helpful to the trustees, officers, and friends of the institution, and may stimulate greatly their interest. They are also very useful in assisting the administrative officers to operate the several departments as economically as possible by acquainting them with the details of cost and showing where leaks are oc- curring. There is scarcely any limit to the number and kind of statistical reports which a resourceful and ingenious financial officer may furnish to the trustees. To be of the greatest value such reports must be based upon and be in harmony with the ledger accounts. Statistical reports may be used for analyzing the college educational expenses. To illustrate, the expenses may be classified into: I. Salaries and wages II. Materials, supplies, etc. The salaries and wages may be subdivided to show the amount paid to each rank and class, as: 1. Instructional a) Professors b) Associate professors c) Assistant professors d) Instructors e) Assistants /) Lecturers 2. Administration a) Officers b) Clerks 3. Labor and unclassified service ACCOUNT BOOKS AND RECORDS 103 Expenditures for materials and supplies may be sub- divided as follows : 1. Communication a) Postage b) Telephones and telegrams 2. Stationery and office supplies 3. Publications and printing 4. Travel 5. Equipment repairs, building repairs 6. Supplies for instruction 7. General supplies and expense 8. Rent 9. Interest 10. Insurance The capital or plant accounts may be divided into: I. Land and buildings 11. Equipment Land and buildings may then be subdivided into: 1. Land 2. Buildiugs and additions 3. Land improvements other than buildings Equipment may be further divided into : 1. Apparatus 2. Furniture and office supphes 3. Books 4. Machinery and tools 5. Museum specimens, and collections 6. Live stock In hke manner the receipts and expenses of dining-haUs, dormitories, and bookstores may be subdivided as to source and kind, and comparison made with the same items for the month or year, or years, previous. By this means the 104 COLLEGE AND UNIVERSITY FINANCE details of operation may be learned and any unfavorable tendency corrected if possible. Graphic representation of statistical data is now coming into very general use because it enables the reader to obtain at a glance the significance of the subject presented. He can see readily which of several columns is the longest, but it requires a mental effort to determine which of several sets of figures is the largest, and a much greater effort to appre- ciate and retain the amount of the variation. In presenting reports of the receipts and expenses of the college, and of its business departments so as to show how they are related to those of previous years and the direction in which cost of operation is tending, the business officer should make use of curves and graphs so that the facts may be quickly and vividly perceived. The advantage of the statistical and informational report is that it may be elaborated or curtailed as circum- stances require. Its use may be discontinued if it has served its purpose as respects some one department and devoted to some other department or account needing attention. The financial officer of the college should be always alert to detect any evidences of excessive cost and of unwise expenditures. He will find that a judicious use of statistical records, showing the details of any account and how they compare with those in previous periods, will assist him in detecting unfavorable tendencies, and will enable him to present them in an intelligible manner to the board of trustees for action. CHAPTER VIII FINANCIAL REPORTS ANNUAL The fundamental purpose of issuing an annual report of college finances is to have accurate information regarding the financial condition and history of the college available for distribution among the trustees, alumni, ofiicers, friends, and patrons of the institution. Consequently the officer who prepares and presents a clear, concise, and easily understood report does his institution and the pubHc a real service. The press keeps the pubHc informed on those matters of educational poHcy and interests which have news value, but at best these give a limited view of the college's real work and activities. It is important therefore that the college keep its constituency and the pubUc rehably informed of its poHcies and achievements. The educational features are usually set forth in the annual catalogue and in the report of the president, while the financial condition and operations are disclosed in the report of the treasurer or financial officer. It is with the latter report that the author is chiefly concerned. It is often said that financial reports are made to conceal the situation rather than to disclose it. The author does not for a moment imagine that college reports are con- sciously made on this principle, yet the effect they produce is frequently of that nature. This impression is produced by poor arrangement of subject-matter, lack of coherence and sequence, failure to make cross-references, and by the 105 106 COLLEGE AND UNIVERSITY FINANCE abundance of inconsequential details. The results is that the reader is confused and wearied. A carefully prepared and well-arranged treasurer's report, giving in clear and orderly- fashion the financial situation of the college, its fiscal history during the period under review, with appropriate comment and explanation regarding features of special interest, undoubtedly will be welcomed. Full information inspires confidence and stimulates interest. CONTENTS OF ANNUAL REPORTS A study of the annual reports of many college treasurers shows that they contain subject-matter which may be separated into five divisions: (1) survey of results for the year, which usually appears as an introduction; (2) balance sheet; (3) current operations, income, and expenses; (4) gifts; (5) explanatory statements and statistics. The order in which the foregoing divisions appear in the several reports, where any order is attempted, varies greatly, but the arrangement here suggested appears most logical, for after the introduction reciting the results of the year's operations comes the balance sheet, which contains in totals all the assets and liabilities of the college. It seeks to give a complete picture of the financial condition on the date mentioned, and by cross-reference may be made the key to the subsequent explanatory statements and schedules. After obtaining a picture of the financial condition, one looks for a report of the current operations for the year and the resulting surplus or deficit. The report of current operations thus naturally follows the balance sheet. These are the main divisions of the report because they give the financial condition of the college and the results and details of its operations. The remaining divisions devoted to ''Gifts" FINANCIAL REPORTS 107 and to ''Explanatory Statements and Statistics" consist for the most part of details of what has already appeared in totals only in the balance sheet and in the statements of "Current Operations." I. SURVEY OF RESULTS In the introduction the treasurer should try to give in an interesting manner an accoimt of the financial features of special interest occurring during the year. The result of the year's operations, the increase in assets, if any, and of what it consists, whether of additional endowment or of gifts for buildings and equipment, and the prospect of erecting buildings and other plans for expansion should be mentioned. The principal changes in income and in cost of operation should be referred to and elucidated. The principles followed in keeping the accounts and in making the report should be explained and reference made to the schedule and page on which the details of the subjects alluded to may be found. Mention should also be made of gifts received, and comment made on those of especial significance. The introduction should serve as an interpretation of the report, but should not undertake to re-tell all that is contained in it. II. THE BALANCE SHEET The balance sheet is designed to indicate the financial situation of the college at the time indicated. It ought therefore to show aU its assets and liabilities properly classified and arranged in a manner easily understood. For this reason it is better to exhibit the amount of assets and liabiHties in totals only, and to rely upon subsequent sched- ules for details. This arrangement makes the picture clearer because the entire situation is given by means of a few items. 108 COLLEGE AND UNIVERSITY FINANCE The order in which the assets and habilities appear in the balance sheet is of importance. They should be arranged to convey the information in the sequence in which it is usually sought. The first questions ordinarily asked regard- ing an endowed institution are : What is the amount of endow- ment, in what kinds of property and securities is it invested, and what cash, if any, remains uninvested? The next question will probably be: What is the cost of buildings, campus, and equipment ? Information as to the amount of current assets and Habilities will then be sought, and what relation they sustain to each other, whether the assets exceed the liabiHties, and whether the assets are of a liquid nature. Finally, inquiry will be made regarding accumulated surplus or deficit, and whether there are reserves for future contin- gencies. An illustration of the order in which the items may appear, and the arrangement of the subject-matter in the balance sheet is given on pages 128-29. In each of the divisions of the balance sheet: (1) endow- ment, (2) plant, and (3) current accounts, the total debits and total credits should equal each other. Thus, the simi of permanent funds should be exactly accounted for by invest- ments of cash on hand awaiting investment. Capital provided by gifts or otherwise for plant — that is, for land, buildings, and equipment — should be balanced by the amount invested in the college campus, buildings, and equipment, including furniture and books, plus cash on hand and temporary investments, if any unexpended plant funds are being held. The amount of current funds and liabilities, including reserve and surplus (if any) should be equaled by current assets, advance payments, cash on hand, and deficit (if any). Cross-reference should be made to the numbers of the schedules and pages in which are given the details of the items appearing in totals in the balance sheet. FINANCIAL REPORTS 109 The figures in the balance sheet must of course be taken from the books of account and represent facts. If strict separation of permanent funds, plant funds, and current funds has not been actually maintained, if endowment has been used in erecting college buildings, and if a portion of endowment cash has been spent for current expenses of the college, or if building funds which should be on hand have been diverted, for a time at least, to some other purpose, the balance sheet must reflect the actual situation. The best way to show in the balance sheet these improper usages and still preserve the three divisions is to indicate among the endowment investments in Division 1 the amoimt of endow- ment used for college plant, and show in Division 2, first, the total cost of plant, and then deduct the amount of endow- ment used for plant as shown in Division 1. If endowment cash has been used temporarily for current purposes that fact should be made clear by showing among permanent assets in Division 1 the amount due to endowment, and placing the sum in Division 3 as a current liabihty. The use of endowment funds for college buildings and for current expense, even temporarily, is greatly to be deprecated, but imfortunately the custom is somewhat prevalent, especially the use of endowment cash for current purposes, and, as has been pointed out, is due to the fact that endowment and current cash are carried in one bank account. An excellent order and arrangement of the balance sheet cannot overcome a poor condition of affairs and an unwise plan of operation, but by bringing the result of such procedure into clear reHef they may make the situation manifest, and so lead to improvement. It is probably safe to say that college trustees in numerous instances are not furnished with statements and reports which show clearly the financial condition and methods of the institutions committed to their trust, for if 110 COLLEGE AND UNIVERSITY FINANCE they were they would not rest until the undesirable features had been eliminated. By adhering to the order and arrangement of the balance sheet herein suggested, and by following its classification logically, many of the peculiarities and anomalies which are found in published reports would be obviated. For example, College had received an interest-bearing note from a friend for the construction of a swimming-pool. The gift was included among plant funds, but the note was shown among current assets as a note receivable. To anyone familiar with the situation it was perfectly evident that the proceeds of the note could not be used properly for the pay- ment of current bills, the inference which would be drawn from the balance sheet. At University the treasurer had included students' tuition notes among endowment investments because they bore interest and were income- producing. If he had accounted accurately for the endow- ment he would have discovered that the students' notes were in no way related to it. Moreover, the confusion as to what constitutes endowment would be avoided and the custom of including building funds among endowment, which is some- times followed, would be prevented by following this order and arrangement. In College report a fund which was being accumulated for the erection of an art building was called building endowment, and included in endowment. Under the plan herein suggested it would have been classified without question in Division 2 as a building fund. III. CURRENT OPERATIONS The third division of the report should contain the statements of current operations for the year. First of all should be given the surplus or deficit account, in which should FINANCIAL REPORTS 111 be shown the surplus or deficit of each of the several divi- sions of the college operated as a separate unit. The amount of the difference between the total of the surpluses and the total of the deficits will be the net surplus or deficit of the college for the year. In subsequent tables and schedules the details of income and expense for each operating unit should be listed. Thus, the income and expenses of the col- lege for educational work should be detailed in one state- ment. Separate statements for each of the business and self-supporting departments of the college, such as the 'dormitories, dining-halls, bookstore, and school of music, containing particulars as to their income and expenses, should then follow, care being taken to see that all legitimate charges have been made, including those for heat and light from the central power plant, and rent for space used. A very great diversity exists in reporting current operations. They are frequently combined in one statement in such a way that it is impossible to determine whether the dormi- tories, dining-halls, bookstore, and separate schools have been conducted at a profit, or whether they have been an expense to the college. In other instances, separate reports are made of these departments, but more or less incompletely. Sometimes no charge is made for heat and fight from the central power plant, nor for the use of space, nor for depreci- ation. In other cases, only one or another of these items is included. In the report of CoUege all current operations were included in one statement and the items arranged in alphabetical order, probably the most illogical and uninforming method possible. It is of the utmost importance for the trustees and friends of the college to know what is the expense for strictly educational work, and whether other activities are a help 112 COLLEGE AND UNIVERSITY FINANCE or a hindrance. It is only through such knowledge that intelligent action may be taken. It is not necessary nor advisable to report each ledger account separately in the printed annual report. Those of a similar kind may be grouped. For example, there would probably be ledger accounts with every department of the college of arts for instruction, for supplies, and for equipment, but in the printed report the sum paid for instruction in all departments should be given in one item, that paid for supplies in another, and that for equipment in still another. The accounts in the ledgers should be arranged and kept in such manner that the material for the printed annual report may be taken from the books with ease. The budget method is especially suitable for this purpose because the accounts must be decided in advance and so may be grouped and arranged in an orderly and logical manner. College authorities are often asked by federal and state officers, denominational agencies, educators, and others, for infor- mation under the headings of permanent funds, plant, and current accounts, as here suggested. If the accounts are so kept and the annual reports so constructed that the information sought may be answered without difficulty much time and expense will be saved. Many colleges keep their accounts on such an individual system that days and weeks are often consumed in trying to answer questions asked by the persons mentioned, and even when the information is given there are grave doubts of its reliabihty. IV. GIFTS The fourth division of the annual report of the treasurer should contain a Kst of gifts paid to the college during the year. With endowed colleges gifts form a very important FINANCIAL KEPORTS 113 part of the year's financial history and a report of them ought to occupy a prominent position. Gifts are made for one of two purposes: for additional resources, such as buildings, land, equipment, and endowment; or for current uses, such as instructors' salaries and suppHes for departments. They should therefore be divided, those for capital purposes being put in one class, and those for current uses in another. The two classes should be further subdivided to show the objects for which the gifts are made. In each of the subdivisions the names of the donors and the amounts of the gifts should be hsted in detail. If the statement of gifts is arranged in the manner herein described it will not be necessary to list them again when they appear in other tables and schedules of the report, because the totals of the several subdivisions may be inserted in the appropriate parts of the report and cross-reference made to the statement of gifts for details. If this custom were more generally followed the number of pages in treasurers' reports could be much reduced. V. EXPLANATORY STATEMENTS AND STATISTICS In the fifth and final division of the treasurer's annual report, explanatory statements and statistics should appear; they should be called ''Schedules" because they are used to furnish details and explanations of items which have appeared in Division 2 (the balance sheet) and in Division 3 (statement of current operations). Since the statements in those two divisions show the college's financial condition and history for the year, and are therefore of prime importance, it is better to designate them ''Tables." Practically every item given in the balance sheet in total should be explained in detail by a subsequent schedule. Thus, while in the balance sheet investments of 114 COLLEGE AND UNIVERSITY FINANCE permanent funds may be given in one sum, the schedule of investments should indicate the several kinds, and, if thought desirable, the particular investments of each kind. In this way full publicity may be given to the manner in which the funds are invested. The schedule of the plant should give a list of the buildings and their cost, the dates of erection, the kind and cubic content, the cost of land used for campus and its extent, and also the cost of equipment and furniture. In like manner, details of endowment and special funds should be reported in separate schedules, which should indicate the name of each fund, its amount, and the object for which it was given. Endowments should also be divided into restricted and unrestricted. Each of these classes should be further subdivided and grouped according to object. Other items in the balance sheet and current operation tables requiring elucidation should be explained at length in schedules and connected with the tables by cross-reference. Statistics furnished may be of various kinds, depending upon the subjects which are thought to be of interest to the readers. In some reports statistics of salaries paid, classified by departments and by ranks, are inserted; in others, details of student loan funds are given. Statistics of depart- mental costs, arranged as to capital and current expenditures, are frequently published. Care should be exercised not to make the report too voluminous through the inclusion of statistics, the interest in which is confined to a few readers. In general, the treasurer's report should be clear, concise, and complete. Its contents should be arranged in logical order and its terminology not too technical. Finally, the correctness of the statements in the report should be vouched for by a firm of certified public account- ants, whose certificate should be appended. FINANCIAL REPORTS 115 A treasurer's complete annual report of a hypothetical college, arranged in form and method so as to embody the results and to give effect to the suggestions and principles heretofore stated, has been made and printed on pages 119-63. With the notes and explanations given it is hoped this will be quite clear and readily understood. FOR TRUSTEES AND OFFICERS The annual report of the treasurer is primarily designed to inform the friends of the college and any others who may be interested, of its condition and financial history for the year. It should therefore be framed most effectively to accomplish that purpose. Since it is pubUshed but once a year, and contains much information in summary form only, it does not meet fully the needs of the trustees and officers who must administer the financial affairs of the college day by day. For them financial reports should be made more frequently in order that they may be kept fully and reliably informed of the financial condition and progress of the college. Only thus can the interest of the trustees be effectively maintained and data be furnished on the basis of which they may take intelligent action. The reports should of course be based on figures in the ledgers and be in harmony with them, and should contain the following information: (1) the status of the current operations and the extent to which the estimates of income and expenditures are being reaHzed, with the amount of variation, if any, from the original estimates; (2) the status of the endowment funds and the amoimt uninvested; (3) the condition of funds for special purposes and the extent to which the purposes are being carried out; (4) the condition of the current assets and liabilities; (5) the financial situation as a whole. 116 COLLEGE AND UNIVERSITY FINANCE Information regarding current operations controlled by- budget method may be given in a report containing the following: (a) the original estimates; (6) the pro rata of estimates to date; (c) the actual receipts and expenditures to date; (d) the outstanding requisitions; (e) the relation which the actual receipts and the actual expenditures, including unfilled requisitions, bear to the pro rata of receipts and expenditures, with the amount of excess or shortage; (/) the balance available for use after providing for all outstanding requisitions. The items should be grouped by departments and in sununaries and not given in too much detail. In addition to the information here described, a comparison of the total receipts and expenditures for the present year with those of the previous year will be very helpful. The condition of the endowment funds, the funds for special purposes, the current assets and liabilities, and the financial condition as a whole may be disclosed by a properly constructed balance sheet in which the items are grouped to show the present status. If the college conducts a book- store, dining-hall, or any other so-called business department, a statement of its financial condition and progress, together with a comparison with that of the previous year should be made. The reports should be made monthly, or not less often than quarterly, and copies should be sent to every trustee and officer. The officer who prepares the reports should send a letter with them calling attention to significant features, and to any matter which in his judgment requires attention. STATISTICAL REPORTS In addition to the reports which the treasurer should make regularly, whenever occasion demands he should also FINANCIAL REPORTS 117 make reports regarding the financial condition of any depart- ment which he may think needs attention. For example, if the dining-halls are losing money, a detailed report of their financial history for the past several years, giving particulars of the income and expenses and their tendencies, wiU enable the trustees to act intelHgently. If the report discloses the fact that expenses are higher than they ought to be, steps may be taken to improve the management ; if the patronage is falhng off inquiry may be made regarding the attractive- ness and variety of the food furnished, or if the patronage is still as great as in the past, but the receipts relatively smaller, it may be decided to increase the prices. Statistical reports of a similar kind might well be fur- nished frequently to the trustees, showing the relation between the market price and book value of investments held, its trend, and any other features of interest, the nature of the investments and the varying ratios which the different kinds bear to the totals in the several years. The operation of the dormitories, bookstore, and music school may also be reported upon and comparisons made of their operations for a number of years. TRUST FUND REPORTS Although the trust fimds held by an endowed college may be many in number, trustees are rarely acquainted in detail with what they are, their objects, conditions, and how the latter are observed. New trustees who are not familiar with the trusts and their history are being elected constantly in the place of trustees who have served for many years and drop out on account of Hmited term, age, or death . The funds, however, should be carefully preserved and the conditions scrupulously observed. Unless the trustees know what the 118 COLLEGE AND UNIVERSITY FINANCE conditions are, how can they be sure that they are being fulfilled ? But as trustees, such is their duty. An endowed college is usually seeking gifts, and it should for every reason manage those it has in the wisest manner, carefully observing the conditions attached to them. To ac- quaint the trustees with the conditions of trust funds and to keep them informed regularly that the conditions are being fulfilled, a report of one or more trusts should be made to the trustees monthly. The report should give the letter and date of gift, the history of the trust, whether the gift was made in cash or in securities, what the present investments belonging to the fund are (if they are kept separate), the conditions of the trust, and the way in which the conditions are being fulfilled. For example, if the trust be for a fellow- ship, the names of the fellows appointed since the date of the last report should be given. By means of such reports the trustees may in course of time become fully acquainted with all the trusts which the college holds and assure themselves that the conditions are being observed. Another advantage may be derived from making the reports. In the course of time the reports constitute a file embodying in convenient form the history and execution of each trust. The administrative officers of the college may also profit from these reports because by the recital of the manner in which the conditions of the trusts have been executed any omissions may be observed imme- diately and provision made against their recurrence. CHAPTER IX ANNUAL REPORT OF THE TREASURER To the Trustees of College: Gentlemen: I have the honor to present herewith the sixty-fifth annual report of the treasurer for the fiscal year which ended June 30, 1921, in which is given the financial history of the college for the year and its financial condition at its close. It gives me pleasure to state that the financial results were satisfactory, particularly so when one considers the economic unrest of the year, as a result of the Great War. SUEPLUS AND INCREASE IN ASSETS The current operations for the year resulted in a surplus of $3,293.88. The sources of the surplus are shown in the table on the next page. By action of the executive committee $1,059.43 of the surplus has been added to "Reserves" for dormitories and dining-halls, equipment and expense; $289.97 to annuity income reserve; and the remainder, $1,944.48, to accumulated surplus, which now stands at $3,216.14. In accordance with the pohcy of the board, rental has been charged to the dormitories, dining-halls, and School of Music for buildings and equipment used equivalent to interest at 4 per cent per annum on cost plus a sum for the estimated amount of depreciation, and credited to college income. 119 120 COLLEGE AND UNIVERSITY FINANCE It will be noted from the following table that the receipts and expenditures of the college as a whole for the year were as follows: RECEIPTS AND EXPENDITURES FOR THE YEAR FOR ALL PURPOSES Current Receipts Expendi- tures Surplus Excess Expendi- tures Provided from Balance Brought Forward from Last Year College of Liberal Arts (Table III, p. 131) Dormitories (Table V, p. 136). . . Dining-halls (Table VI, p. 137). . Bookstore (Table VII, p. 138).. School of Music (Table VIII, p. 139) Annuities income (Schedule VI, p. 156) $191,628.79 16,725.00 31,681.11 21,092.93 14,905.11 9,386.97 $190,642.45 16,683.57 30,663.11 20,404.88 14,635.02 9,097.00 ; 986.34 41.43 1,018.00 688.05 270.09 289.97 Surplus (Table II, p. 130) .... Reserves (Schedule X, p. 162) . Special funds for designated pur- poses (Schedule VIII, p. 158). Special lectures (Schedule VIII, p. 158) General funds for designated pur- poses (Schedule IX, p. 161) .. . Deduct duplications and transfers $285,419.91 $282,126.03 4,149.40 315.72 47,227.78 222.50 1,500.00 47,280.64 $3,293.88 4,149.40 93.22 $1,500.00 52.86 $337,112.81 49,088.30 $331,129.17 47,738.90 $7,536.50 1,349.40 $1,552.86 Net totals. 288,024.51 $283,390.27 Increase in ciurrent assets from operation 56,187.10 1,552.86 $1,552.86 1,634.24 TREASURER'S REPORT Capital 121 Receipts Expendi- tures Losses Net Increase in Capital Assets Endowment (Schedule V, p. 152). Endowment annuities (Schedule VI, p. 155) Buildings and equipment (Sched- ule VII, p 157) . $29,999.69 4,000.00 31,839.49 3,050.00 $ 281.57 3,000.00 49,108.60 $7,749.13 $21,968.99 1,000.00 31,839.49 Books added to property paid for from income 3,050.00 Deduct transfers $68,889.18 3,000.00 $52,390.17 3,000.00 $7,749.13 $57,858.48 $65,889.18 $49,390.17 $7,749.13 Increase in capital assets $57,858.48 Receipts for current purposes $288,024.51 Expenditures for current purposes 283,390.27 Resulting in an increase in assets from current operations of $ 4,634.24 The college also received for capital pur- poses $ 65,889. 18 Which was diminished by expenses and losses of 8,030.70 Making a net increase in capital assets of 57 , 858 . 48 A total increase of assets during the year of $62,492.72 Expenditures amounting to $47,347.80 were made for enlarging, remodeling, and furnishing dormitories and residences, an improvement made possible by the generosity of Mr. Samuel Chapin. To procure preliminary plans for the Students^ Christian Association and Recreation Building, $1,760.80 was expended. The total of these two sums, $49,108.60, was provided from gifts and interest thereon. 122 COLLEGE AND UNIVERSITY FINANCE The increase of the college assets, $62,492.72, consisted for the most part of gifts. The gifts for capital purposes amounted to $53,881.61, of which $27,420.21 was for additional endowment, and $26,461.40 for buildings and equipment. In Table X, page 141 of this report, will be found a detailed list of the donors, the amount of their gifts, and the purposes for which they were contributed. The college extends its grateful thanks to its friends for these evidences of their interest in the work of the college. Mrs. Mary W. Ladd made a most acceptable gift of $4,000 for scholarships, subject to an annuity of $200 during her lifetime. Owing to the death of Mr. N. Clark his contribution of $3,000 made in 1904 for scholarships on an annuity basis now becomes available endowment. The net profits on the sale of endow- ment securities amounted to $2,830.35, which has been added to the consolidated endowment fimds. Stock to the amount of $7,000, which had been given to the college as a part of the Hanam Fund for student aid was charged off as found to be of no value. The net additions to assets may be classified as follows: Net additions to endowment $22 , 968 . 99 Net additions to plant funds 34, 889 . 49 Net additions to current assets 4,634.24 Total $62,492.72 The total investments held by the college on June 30, 1921, were $2,065,293.43, belonging to Endowment funds $1,749,243.43 Endowment annuity funds 158 , 300 . 00 Building and equipment funds . . . 143 , 750 . 00 Current funds (Certificate of deposit) 14 , 000 . 00 $2,065,293.43 TREASURER'S REPORT 123 Owing to the depression in value of bonds and stocks the book value on June 30 was $15,040.60 in excess of the market value. CUREENT OPERATIONS — COLLEGE OF LIBERAL ARTS The income and expenses of the college for the year were the largest in its history. Notwithstanding the increase in salaries of administrative officers and faculty and the greater cost of all kinds of services and materials, the receipts were sufficient to pay all expenses and provide a surplus. The increase in receipts was due to an additional enrolment of twenty students and to an advance in the tuition fee from $120 to $150 per year, made necessary by increased cost of operation. Investments also yielded a larger income because of more endowment and higher interest rates. By reference to Table IV, page 135, an analysis of the income and the expenses of the College of Liberal Arts as to source, purpose, and percentage of total, it will be seen that the income from students comprised 38.8 per cent of the total, an increase of 5.1 per cent, due mainly to the 25 per cent increase in tuition fee, and that income from endow- ments furnished 46 per cent of the total — a decrease of 3.1 per cent. It may also be noted that the salaries for instruc- tional departments constituted 58.5 per cent of the total expenses, an increase of 1.3 per cent owing to increases in salary, while the cost of operation and maintenance of the physical plant was 16.8 per cent, a reduction from the previous year of 1.2 per cent. The instructional expense of all kinds was 62.8 per cent of the total, an increase of 1.6 per cent. It is gratifying to learn that a greater amount of the college income is being devoted to educational work, the real purpose of the college, and a smaller proportional sum to administra- tion and operation of plant. 124 COLLEGE AND UNIVERSITY FINANCE The average attendance for the year was 464, and the total cost of running the college $190,642.45, a cost per student of $410.87. The average receipts from each student were $160.18, leaving $250.69 to be provided from other sources. For 1919-20 the cost per student was $391.36, and the aver- age receipts from each student $130.36, making it necessary to obtain from other sources $261 on account of each student. For each student, therefore, the college contributed on the average $10.31 less of the cost of his education than it did in 1919-20. In computing the cost of furnishing education to each student, in accordance with prevaiHng custom, no charge has been made for interest on cost of plant, nor for an amount to provide for its depreciation. If it is desired to include such charges, the amount invested in educational plant may be found by reference to Schedule III, page 149. SELF-SUPPORTING DEPARTMENTS As has been shown already, the activities which the college endeavors to operate on a self-supporting basis have met that expectation. The operations of the dormitories (Table V, page 136), however, barely met expenses and returned 4 per cent on cost and 2 per cent for depreciation. In fact. Carver Cottage failed to do so by $180.07. The net return has been carried to ''Reserves'^ for future expenses and equipment of the dormitories. It is evident that unless room rents are increased, or expenses reduced, either of which will be difficult to do, it will not be long before the dormitories will not yield 4 per cent on cost and provide for depreciation. The dining-halls (Table VI, page 137) yielded a surplus of $1,018, which, in accord with your policy, has been reserved TREASURER'S REPORT 125 for their future needs. The college does not plan to make any profit for its own use from the boarding department. The bookstore (Table VII, page 138) paid all expenses and yielded a profit of $688.05, which has been carried to college '^ Surplus " for such use as the trustees may see fit. The sales of the store were $21,092.93, an increase of $3,084.72. The School of Music (Table VIII, page 139) paid all expenses, provided $800 for equipment replacement, and a net profit of $270.09, which has been put into college "Surplus." Annuity investments (Schedule II, page 148) produced income sufficient to pay all annuities and provide a remainder of $289.97, which has been put into annuity income reserve. This disposition of the surplus income is in harmony with the custom of the board that a reserve may be estabHshed so that annuities should not in any degree, even in a year when the payments exceed the income, diminish the income available for current purposes. BUILDING ADDITIONS AND NEW PLANS As stated on a preceding page, changes and additions to dormitories and residences were made (Schedule VII, page 157) to bring them up to modern standards. The cost, $47,347.80, was defrayed from a fund generously provided by Mr. Samuel Chapin. The fund donated by Mr. Thomas French for a new building for the fine arts is being allowed to accumulate until building costs shall not exceed the sum available. It now stands at $52,250. He has added $5,000 to his contribution for art equipment and collections, which, with accumulated interest, now amounts to $31,250. Most satisfactory progress has been made in obtaining funds for the Students' Christian Association and Recreation Building, 126 COLLEGE AND UNIVERSITY FINANCE $20,000 having been contributed during the year by Mrs. Swift and Messrs. Bond, Smith, and Wilder. The fund and interest aggregate $63,360.45. Of this sum $1,760.80 was expended during the year for preHminary plans and expenses. Until operations are commenced the funds have been tempo- rarily invested in good short-term securities (Schedule IV, page 151). GIFTS Gifts actually paid to the college during the year totaled $71,745.61 (Table X, page 141). Of this amount $53,881.61 was for capital, and $17,864 for current uses. Acknowledg- ment has been made to the donors, and the appreciation of the college is hereby pubHcly expressed for these welcome gifts for its needs. The total gifts received from the foimding of the college to date for all purposes amount to $2,961,382.50. A complete list of gifts to June 30, 1920, may be found in an appendix to the Treasurer's Report for 1919-20. auditor's report of examination The accounts, cash, and securities of the college have been examined and found correct by Messrs. Jones and Mudge. Their certificate will be found on page 127. Respectfully submitted, John Bounty, Treasurer TREASURER'S REPORT 127 CERTIFICATE OF AUDITOR We have audited the accounts of College for the year ended June 30, 1921, and now certify that Tables I to X and Schedules I to XI, compiled by the treas- urer, are in accordance therewith, and also that the Balance Sheet, Table I, in our opinion, exhibits a true statement of the financial condition of the college as at that date. We have examined or traced by correspondence all the securities covering the investments and found them in order. The books are well kept and the files are in good order. Jones & Mudge, Certified Public Accountants Chicago, Illinois September 1, 1921 The financial situation of FINANCIAL TABLE i' Balanc College at tl Dr. Permanent Fund Assets Investments of endowment funds (Schedule I. p. 144) $1,749,243.43 18,181.34 $1,767,424.77 159,500.00 Cash awaiting investment (Sched- ule V, p. 152) Investments of annuity funds (Schedule II, p. 148) $ 158,300.00 1.200.00 Cash awaiting investment (Sched- ule VI, p. 155) $ 512,580.80 89,000.00 149,262.70 $1,926,924.77 Plant Assets Buildings $ 750,843.50 143,750.00 1,349.65 Grounds Books, equipment, and furniture (Schedule III, p. 150> Investments of building funds (Schedule IV, p. 151) $ 4,054.78 14,000.00 9,549.79 Cash on hand (Schedule VII, p. 157) 895,943.15 Current Assets Cash Special purposes (Schedule VIII, p. 158) $ 27,604.57 4,582.91 6,810.27 839.20 General purposes, certificate of deposit General purposes Receivables Notes receivable (Schedule VIII, p. 158) $ 2,852.76 840.15 890.00 Other notes receivable Accounts receivable Materials and supplies Bookstore, p. 138 $ 1,602.01 1,755.00 635.18 1,315.00 1,503.08 Dining-halls, p. 137 Dormitories, p. 136 Power plant, coal, etc., p. 140. Store-room ■ Insurance Premiums Unexpired 39,836.95 Total $2,862,704,87 :^D SCHEDULES I EET i of the fiscal year June 30, 1921, is as follows: Cb. 'ebmanent Funds Endowments (Schedule V, p. 152) Endowment funds subject to an- nuities (Schedule VI, p. 155) . . . $ 674,159.40 74,923.30 $1,767,424.77 159,500.00 $1,926,924.77 'lant Funds Invested in plant o) From gifts and accumiila- tions $ 749,082.70 146,860.45 6) From current funds Building equipment funds (Sched- ule VII, p. 157) $ 750.00 200.00 7,462.13 895,943,15 UuEKENT Funds and Liabilities Current Liabilities Room deposits $ 8,412.13 12,478.00 850.00 14,880.68 3,216.14 Key deposits Accounts payable Funds for designated purposes Special (Schedule VIII, p. 158) . General (Schedule IX, p. 161) . . $ 6,907.54 5,570.46 Income credits Room rent paid in advance Reserves (Schedule X, p. 162) . Surplus (Table II, p. 130) 39,836.95 Total $2,862,704.87 130 COLLEGE AND UNIVERSITY FINANCE TABLE II Surplus and Deficit Account 1920-21 The current operations of the college resulted in a total surplus of $3,293.88, shown below: Surplus Deficit College of Liberal Arts (Table III, p. 134) $ 986.34 41.43 1,018.00 688.05 270.09 289.97 Dormitories (Table V, p. 136) Dining-halls (Table VI, p. 137) Bookstore (Table VII, p. 138) School of Music (Table VIII, p. 139) Annuities (Schedule VI, p. 156) Sxirplus from current operations for the year $3,293.88 Disposition of Surplus — Carried to dormitory equipment and expense reserve $ 41.43 Carried to dining-hall equipment and ex- pense reserve 1 , 018 . 00 Carried to annuity income reserve 289 . 97 Total carried to "Reserves" (Schedule X), p. 162 $1,349.40 Balance carried to surplus 1,944.48 Balance in surplus July 1, 1920 $1,271 .66 Added this year 1,944.48 Balance in surplus July 1, 1921, carried to ''Balance Sheet," p. 129 $3,216. 14 ;,293.88 TREASURER'S REPORT 131 TABLE III College op Liberal Arts — Income The income for educational piu-poses for the year was $191,628.79, and for certain special objects in connection with the college it was $15,517.04, as follows: This Year 1920-21 Last Year 1919-20 Increase Decrease 1 . Student fees Tuition S 69,576.30 2,640.15 1,950.00 156.18 $ 53,329.50 2,610.30 1,800.00 140.92 $16,246.80 29.85 150.00 15.26 Laboratory Matricvilation and graduation . . . Other fees and fines $ 74,322.63 $ 57,880.72 $16,441.91 2. Income from endowments (net) General — unrestricted $ 54,876.44 33,263.60 $ 52,590.68 31,755.46 $ 2,285.76 1,508.14 General — restricted (Schedule IX, p 161) $ 88,140.04 $ 84,346.14 $ 3,793.90 3. Gifts General (Table X, p. 143) $ 16,130.00 $ 16,630.00 $500.00 $ 16,130.00 $ 16,630.00 $500.00 4. Miscellaneous Rentals from dormitories, din- Sundry receipts $ 11,675.30 1,360.82 $ 11,675.30 1,290.40 $ 70.42 $ 13,036.12 $ 12,965.70 $ 70.42 Total income available for educational expense S191,628.79 $171,822.56 $20,306.23 $500.00 5. For specially designated pur- poses not a part of educa- tional expense Lectures — extra-curriculum Special (Schedule VIII, p. 158) $ 1,500.00 280.00 6,900.78 2,475.00 310.00 $ 1,500.00 General (Schedule IX, p. 160) $ 280.00 4,500.26 2,425.00 210.00 Scholarships (Schedule IX, p, 160) 2,400.52 50.00 100.00 Student aid (Schedule IX, p. 160) Prizes (Schedule IX, p. 161) . . 132 COLLEGE AND UNIVERSITY FINANCE TABLE lU— Continued College of Liberal Arts — Income This Year 1920-21 Tiflst Year 1919-20 Increase Decrease Dormitory (Underwood) Li- brary (Schedule IX, p. 161) Atiiletics (Schedule IX, p. 161) $ 784.00 3,001.40 265.86 $ 784.00 2,560.18 640.34 $ 441.22 Athletic field (Schedule IX, p 160) $374.48 $ 15,517.04 $ 11,399.78 $ 4,491.74 $374.48 Total income S207,145.83 $183,222.34 $24,797.97 $874.48 TREASURER'S REPORT 133 TABLE III— Continued College of Liberal Arts — ^Expense The expenditures for educational purposes for the year were ),642.45, and for special purposes connected with the college, but not a part of educational cost, $15,517.04. Tliis Year 1920-21 Last Year 1919-20 Increase Decrease Administration and general 1. Executive oflSces Salaries $ 26,640.50 4,360.20 2,450.55 2,590.70 1,743.48 960.12 $ 25,340.00 3,860.18 2,043.91 2,140.63 1,721.31 1,094.53 $ 1,300.50 500.02 406.64 450.07 22.17 Supplies and expense 2, General Catalogues and publications . . Publicity Commencement and public occasions Miscellaneous $134.41 $ 38,745.55 $ 36,200.56 $ 2,679.40 $134.41 Operation and maintenance of physical plant (Schedule XI, p. 163) $ 32,068.60 $ 31,288.15 $ 780.45 Instructional 1. Salaries College $103,218.75 2,892.30 1,041.75 4,430.00 2,628.42 304.80 75.30 2,402.13 2,615.24 219.61 $ 92,329.93 2,584.23 1,035.25 3,430.00 2,463.71 296.18 85.12 2,143.97 1,875.14 33.50 $10,888.82 308.07 6.50 1,000.00 164.71 8.62 Library Sherman Museum Premiums — ^retiring allow- ances 2. Supplies and expenses College Library Sherman Museum $ 9.82 3. Equipment and books — edu- cational College 258.16 740.10 186.11 Library Sherman Museum $119,828.30 $106,277.03 $13,561.09 $ 9.82 Total expense for educa- tional purposes $190,642.45 $173,765.74 $17,020.94 $144.23 134 COLLEGE AND UNIVERSITY FINANCE TABLE III— Continued College op Liberal Arts — ^Expense This Year 1920-21 Last Year 1919-20 Increase Decrease BvOUOhit fOTWOiTdt • $190,642.45 $173,765.74 $17,020.94 $144.23 4. For specially designated pur- poses Lectiires — extra-curriculum Special (Schedule VIII, p. 158) $ 1,500.00 280.00 6,900.78 2,475.00 310.00 784.00 3,001.40 265.86 $ 1,500.00 General (Schedule IX, p 160) $ 280.00 4,500.26 2,425.00 210.00 784.00 2,560.18 640.34 Scholarships (Schedule IX, p. 160) 2,400.52 50.00 100.00 Student aid (Schedule IX, p. 160) Prizes (Schedule IX, p. 161) . . Dormitory (Underwood) Li- brary (Schedule IX, p. 161) Athletics (Schedule IX, p. 161) Athletic field (Schedule IX, p 160) 441.22 $374.48 $ 15,517.04 $ 11,399.78 $ 4,491.74 $374.48 $206,159.49 $185,165.52 $21,512.68 $518.71 Summary Total income (p. 132) .... Total expense (see above) , Deficit 1919-20 Surplus 1920-21 (Table II, p. 130) $207,145.83 206,159.49 986.34 $183,222.34 185,165.52 $ 1,943.18 $24,797.97 21,512.68 $ 3,285.29 $874.48 518.71 $355.77 TREASURER'S REPORT 135 TABLE IV Analysis of Income and Expense of College of Liberal Arts Analysis of the income and expenses (excluding items for specially- designated purposes of $15,517.04 in 1920-21 and $11,399.78 in 1919-20, which do not enter into the cost to the college of furnishing instruction to the students) shows the following as to source, purpose, and percentage of total: Income 1920-21 1919-20 Amount Per- centage Amount Per- centage Student fees $ 74,322.63 88,140.04 16,130.00 13,036.12 38.8 46.0 8.4 6.8 $ 57,880.72 84,346.14 16,630.00 12,965.70 33.7 Income from endowments 49.1 Gifts 9.7 Miscellaneous (rentals, etc.) 7.5 Totals S191,628.79 100.0 $171,822.56 100.0 Expenses Administration and general Executive oflSces General Operation and maintenance of physi- cal plant Instructional Salaries Supplies and expenses Equipment and books Totals $ 31,000.70 7,744.85 16.3 4.1 32,068.60 16.8 111,582.80 3,008.52 5,236.98 58.5 1.6 2.7 $190,642.45 100.0 29,200.18 7,000.38 31,288.15 99,379.41 2,845.01 4,052.61 $173,765.74 16.8 4.0 18.0 57.2 1.7 2.3 100.0 136 COLLEGE AND UNIVERSITY FINANCE TABLE V Dormitories The current operations of the dormitories for the year 1920-21 resulted in a gain from the two larger buildings and a loss on the cottage, a net gain of $41.43, as shown below: Christie Hall Underwood HaU Carver Cottage Totals Receipts Rent of rooms $ 7,670.00 $ 7,480.00 $ 1,575.00 $16,725.00 Disbursements Supplies, including inventory of July 1, 1920 $ 628.32 235.20 $ 664.80 267.53 $ 282.30 132.45 $ 1,575.42 Less inventory of supplies of June 30, 1921 635.18 Net cost of supplies used $ 393.12 1,432.41 500.00 3,364.20 1,200.00 300.00 108.00 131.40 72.50 $ 397.27 1,596.29 528.26 3,264.00 1,000.00 280.00 200.00 108.80 52.25 $ 149.85 288.31 39.78 780.00 300.00 108.00 52.00 26.00 11.13 $ 940.24 Services 3,317.01 Repairs — buildings and equipment . Rent, including charge for deprecia- tion 1,068.04 7,408.20 Heat 2,500,00 Light 688.00 Water 360.00 Insurance 266.20 Miscellaneous 135.88 Total $ 7,501.63 $ 7,426.87 $ 1,755.07 $16,683.57 $ 168.37 $ 53.13 $ 180.07 Net gain carried to "Surplus Ac- count " Table II p 130 . $ 41.43 TREASURER'S REPORT 137 TABLE VI Dining-Halls The current operations of the dining-halls for the year 1920-21 yielded a net gain of $1,018, as shown below: Christie HaU Receipts From meak served. Disbursements Subsistence and supplies, including inven- tory of July 1, 1920 Less inventory of June 30, 1921 Net cost of supplies and subsistence used. Services (salaries and wages) , Laundry Repairs Rent, including charge for depreciation . , Heat Light Water Insurance Miscellaneous Total. Gains Total gain transferred to "Surplus Ac- count," Table II, p. 130 $14,652.63 7,313.24 820.00 6,493.24 4,200.00 997.23 497.90 975.10 570.00 142.00 148.00 68.00 48.16 $14,139.63 $ 513.00 Underwood Hall $17,028.48 8,937.17 935.00 8,002.17 5,026.00 984.18 390.00 1,022.00 630.00 180.00 172.00 70.00 47.13 $16,523.48 $ 505.00 Totals $31,681.11 $] 6,250.41 1,755.00 $14,495.41 9,226.00 1,981.41 887.90 1,997.10 1,200.00 322.00 320.00 138.00 95.29 $30,663.11 $ 1,018.00 138 COLLEGE AND UNIVERSITY FINANCE TABLE VII College Bookstoke The current operations of the college bookstore for 1920-21 resulted in a net gain of $688.05, as shown below: Receipts Sales $21,092.93 Disbursements Books and merchandise, including in- ventory of July 1, 1920 $20,401 .23 Less inventory of June 30, 1921 1 , 602 . 01 Cost of stock sold $18,799.22 Salaries and wages 1 , 233 . 42 Freight and cartage 83 . 24 Repairs 16 . 00 Rent, including charge for depreciation and interest 120.00 Postage 30.00 Insurance 75 . 00 Miscellaneous 48.00 Total $20,404.88 Gain transferred to "Surplus Account," Table II, p. 130 $ 688.05 TREASURER'S REPORT 139 TABLE VIII School of Music The current operations of the School of Music for the year 1920-21 resulted in a total net gain of $270.09, as shown below: Receipts Fees $13,037.83 Concerts and recitals 1 , 630 . 00 Miscellaneous 237.28 Total $14,905.11 Disbursements Administrative a) Salaries $ 1,280.00 b) SuppHes and expense 128 . 00 General a) Concerts and recitals 1 , 780 . 00 6) Miscellaneous 86.00 Operation and maintenance of physical plant a) Equipment repairs 246 . 52 b) Reserve to replace equipment (credited to "Equipment Re- serve") 800.00 c) Heat 760.00 d) Light 290.00 e) Water 80.00 /) Rent 2,150.00 g) Insurance 80 . 00 Instructional a) Salaries 6,718.50 b) SuppHes and expense 236 . 00 Total 14,635.02 Gain transferred to "Surplus Account," Table II, p. 130 1 270.09 140 COLLEGE AND UNIVERSITY FINANCE TABLE IX Heat, Light, Power, and Water Account The total cost of supplying heat and water, electric light and power for the year 1920-21 amounted to $21,535. The itemized list of disbursements for supplying this service, together with the distribution of this cost between the academic and the income- producing activities of the college is shown below: Disbursements Engineer's office Salaries $1,920.00 SuppHes and expense 38 . 00 Wages of power-plant employees 2 , 945 . 00 Fuel and freight, including in- ventory of July 1, 1920 ... 9 , 830 . 00 Electric current 2,888.00 Water 1,132.00 Repairs — building and equip- ment 1,563.00 Reserve to replace boilers and equipment (credited to "Equipment Reserve")- • • 2,000.00 Supplies and expense 498 . 00 Insurance 36 . 00 $22,850.00 Inventory of coal and suppHes, June 30, 1921 1,315.00 Total expense of year 1920-21 $21,535.00 DISTRIBUTION OF TOTAL EXPENSE Heat Light and Power Water Totals College $13,055.00 760.00 2,500.00 1,200.00 $ 1,588.00 290.00 688.00 322.00 $ 372.00 80.00 360.00 320.00 $15,015.00 School of Music 1,130.00 Dormitories 3,548.00 Dining-halls 1,842.00 Totals $17,515.00 $ 2,888.00 $ 1,132.00 $21,535.00 Note. — A proportionate amount of interest on cost of power plant has been included in sums charged to the School of Music, dormitories, and dining-halls, and deducted from the college's share of expense^ TREASURER'S REPORT 141 TABLE X Gifts Paid In during the Fiscal Year Ending June 30, 1921 The total gifts received by the college during the year for additional construction, equipment, and for current uses amounted to $71,745.61, distributed as follows: SUMMARY I. Capital account 1. For additional endowment $27 , 420 . 21 2. For buildings and equipment 26,461 .40 $53,881.61 II. Current uses 17,864.00 Total $71,745.61 details I. Capital account 1. For additional endowment a) General 1908 Fund James Brown $ 300.00 Mary Grey 100.00 John Lamson , 17 . 00 $ 417.00 1913 Fund Jane Jones $ 2.43 Patriotic Fund William Amster 50 . 00 Class of 1910 Charles Henry 40 . 00 Undesignated A friend 1,150.00 Alumni Association First instahnent .... 21 , 148 . 78 $22,808.21 142 COLLEGE AND UNIVERSITY FINANCE TABLE X— Continued Brought forward $22,808.21 h) Restricted Sherman Museum James T. Sherman. . $ 612 . 00 Scholarships Mary W. Ladd, for tuition of boys living in Smith County (subject to 5 per cent annuity) 4 , 000 . 00 4,612.00 $27,420.21 2. For buildings and equip- ment a) Buildings Students' Christian As- sociation and Rec- reation Building Mrs. A. B. Swif t . . . . $15 , 000 . 00 Henry Bond 3,500.00 Justin Smith 1,000.00 Charles Wilder 500 . 00 $20,000.00 RemodeUng dormito- ries and residences Samuel Chapin (to complete fund) ... 1 , 373 . 60 b) Equipment Art Department Additional sum from Thomas French . . 5 , 000 . 00 Carried forward . . $26 , 373 . 60 $27 , 420 . 21 TREASURER'S REPORT 143 TABLE X— Continued Brought forward . . $26 , 373 . 60 $27 , 420 . 21 Dormitories and resi- dences furniture Samuel Chapin (to complete fund) ... $ 87 . 80 26,461.40 $53,881.61 II. Current uses 1. For Student Loan Fund Class of 1914 .....$ 234.00 2. Included in income of College of Lib- eral Arts a) Books George Walker for English books $ 500 . 00 Richard Olney for mathematic books.. . 200.00 700.00 b) Scholarships James Read for local students. . 200.00 c) Prizes Charles Howe for best essay on "Civil Government" 100.00 d) General expenses Northwest Synod $12,430.00 Mary Avery 1,200.00 Alumni Association. . . 2,500.00 16,130.00 3. For student aid Noah Jones 500.00 17,864.00 Total $71,745.61 144 COLLEGE AND UNIVERSITY FINANCE SCHEDULE I Investment of Endowment Funds The endowment funds of the college on June 30, 1921, were invested as indicated by the following summary and lists of investments: Summary Amount Per- centage of Total Average Yield I. Funds consolidated 1. Real estate owned (see p. 145) 2 Bonds (see p. 145) $ 126,000.00 475,212.60 41,643.83 1,040,545.00 7.5 28.2 2.5 61.8 5.84 4.98 3 Stocks (see p. 145) 6.9 4. Real estate mortgages (see p. 146) . . 5.95 Total $1,683,401.43 100.0 5.69 II. Funds separately invested 1 Bonds (see p. 147) $ 12,840.00 53,002.00 19.5 80.5 4.4 2 Stocks (see p. 147) 7.1 Total $ 65,842.00 100.0 6.6 Total carried to "Balance Sheet," p 128 $1,749,243.43 TREASURER'S REPORT 145 SCHEDULE I— Continued Investments of Endowment Funds in Detail Face Value Cost I. Funds consolidated 1. Real estate owned a) Business building in Chicago $ 75,509 10 6) Business building in Minneapolis 50,490.90 Total — ^real estate $ 126,000.00 2. Bonds a) Railway A.T. & S.F. Ry. Co. 4's $ 25,000.00 25,000.00 25,000.00 357,500.00 $ 18,962 50 C.C.C. & St.L. Ry. Co. Equipt. 6's 25,000 00 K.C. Terminal Ry. 4's 24,250 00 Other bonds to be listed in report 349,250.00 Total $432,500.00 $ 417,462 50 6) Public utility Havana Electric Co. 5's $ 35,000.00 $ 30,800 00 c) Industrial Western Electric Co. 5's $ 2,500.00 $ 2,479 38 d) Government and municipal Chicago West Park Com. 4's $ 10,000.00 4,400.00 7,000.00 3,000.00 $ 10 080 72 U.S. 1st Liberty Loan 3 14% 4,390 00 U.S. 3d Liberty Loan 4 M % 7,000 00 U.S. 4th Liberty Loan 4M% 3,000 00 Total S 24,400.00 $ 24,470.72 Total bonds $494,400.00 $ 475 212 60 3. Stocks a) Railway 200 shares C, St.P., M.&O. Ry. Co. Pref. 7% 20,000.00 21,000.00 $ 19,600.00 22,043.83 6) Industrial 210 shares U.S. Steel Corp. Pref. 7% Total 41,000.00 $ 41,643.83 146 COLLEGE AND UNIVERSITY FINANCE SCHEDULE I— Continued Real estate mortgages o) City mortgages Illinois-Chicago Wisconsin— Milwaukee . . Minnesota-Minneapolis . 6) Total city mortgages . Farm mortgages Illinois Indiana Iowa Minnesota "... South Dakota Washington Wisconsin Total farm mortgages Total real estate mortgages. Number of Loans 39 9 37 30 19 15 50 199 205 Amount 35,000.00 55,000.00 14,270.00 $ 104,270.00 141,225.00 42,000.00 233,800.00 123,700.00 68,000.00 63,100.00 264,450.00 $ 936.275.00 $1,040,545.00 Mortgage loans classified as to interest rate 16 at 5% $ 128,445.00 25 at 5%% 203,000.00 147 at 6% 582,200.00 17 at 7% 126,900.00 205 .$1,040,545.00 Average rate 5.95% TREASURER'S REPORT SCHEDULE I— Continued 147 II. Funds separately invested The Joseph Hamm Fund A.T. S.F. Ry. Co. Pref. Stock 6% Evansville & Terre Haute Ry. Co. 1st Mortgage 6% Bonds Northern Pacific Ry. Co. Prior Lien 4% Bonds. . . Union Pacific R.R. and Land Grant 4% Bonds . . The William Bushnell Fund Inland Steel Co. 1st Mortgage 6% Bonds The Fleugel Field Fund United Light & Ry. Co. Pref. Stock 6% The J. T. Sherman Fund Consumers Co. Pref. Stock 7% Consumers Co. Com. Stock 7 % Northern States Power Co. Pref. Stock 7% Total III. Classification 1, Bonds Railway Industrial 2. Stock Railway Public Utility Indiistrial Total Face Value $16,000.00 1,000.00 6,000.00 5,000.00 $28,000.00 $ 1,000.00 $12,500.00 $10,000.00 8,600.00 11,000.00 $29,600.00 $71,100.00 $12,000.00 1,000.00 $13,000.00 $16,000.00 23,500.00 18,600.00 $58,100.00 $71,100.00 Cost $16,160.00 1,000.00 5,940.00 4,900.00 $28,000.00 $ 1,000.00 $11,500.00 $ 8,300.00 7,912.00 9,130.00 $25,342.00 $65,842.00 $11,840.00 1,000.00 $12,840.00 $16,160.00 20,630.00 16,212.00 $53,002.00 $65,842.00 148 COLLEGE AND UNIVERSITY FINANCE SCHEDULE II Investment of Annuity Funds SUMMAKY I. Funds consolidated (see below) II. Funds separately invested (see below) Total carried to "Balance Sheet," p. 128 Cost $ 68,300.00 90,000.00 $158,300.00 Investments in Detail Face Value Cost I. Funds consolidated 1. Bonds A T & S F Ry. Co. General 4's $20,000.00 25,000.00 10,000.00 $18,400.00 So Dak Rural Credit 5's 25,000.00 U S 4th Liberty Loan 4i^% 8,870.00 $55,000.00 $52,270.00 2. Mortgages $16,030.00 Total funds consolidated $68,300.00 II. Funds separately invested 1. The George Bouton Annuity Fund Black Mill & Lumber Co. Com. Stock 7 % Pullman Co Com Stock 8% $15,000.00 5,600.00 15,000.00 $15,797.00 9,128.00 Bogue Phalia Drain Dist Bonds 6% 15,075.00 $35,600.00 $40,000.00 2. The Joel Polleus Annuity Fund Consumers Co. Pref. Stock 7% $20,000.00 17,200.00 17,000.00 $16,600.00 Consumers Co Com. Stock 7 % 15,824.00 United Light & Ry Co Pref Stock 6 % 17,576.00 $54,200.00 $50,000.00 Total funds separately invested $90,000.00 TREASURER'S REPORT 149 SCHEDULE III Buildings, Grounds, and Equipment The total cost of the college campus, buildings, and equipment on June 30, 1921, amounted to $750,843.50, divided as follows: Inventory Value Cost 1. Buildings 2. Grounds 3. Equipment $563,600.00 89,000.00 171,650.00 $512,580.80 89,000.00 149,262.70 Total carried to "Balance Sheet," p. 128 .. . $824,250.00 $750,843.50 Type Built Cubical Contents Cu. Ft. Additions during Year Cost June 30, 1921 1. Buildings — a) Educational Art Hall Frame Stone Brick and steel Stone Stone Stone Stone Stone Brick Brick and concrete Stone 1883 1858 1892 1882 1868 1850 1880 1855 1878 1910 1860 50,300 340,000 520,000 250,500 128,000 150,000 420,400 110,000 60,200 580,000 180,800 $ 5,000.00 34,300 00 Chapel Gymnasium 42,560 00 Library 50,000 00 Memorial Hall. . . 22,000.00 Middle Hall 12,000.00 Music Hall 30,000.00 North Hall 11,000.00 Observatory 8,000.00 Science Hall 82,000.00 South Hall 20,000.00 Total 2,790,200 $316,860.00 6) Dormitories Men Christie Hall . . . Stetson Lodge . . Women Carver Cottage . Brick Brick Frame Brick Frame Frame Brick Frame Frame 1870 1921 1900 1890 1890 1900 1860 1880 1910 250,000 110,000 68,000 250,000 80,000 20,000 90,000 32,000 18,000 (1) $15,000.00 (1) 16,000.00 $ 49,650.00 16,000.00 10,000.00 Underwood Hall c) Residences Dean's (1) 3,000.00 (1) 3,000.00 48,000.00 17,000.00 Nelson Cottage . . . 3,000.00 President's 15,300.00 Sulzer Cottage. . . 5,300.00 Superintendent's. . 2,630.00 Total 918,000 (1) $37,000.00 $166,880.00 150 COLLEGE AND UNIVERSITY FINANCE SCHEDULE HI— Continued Type Built Cubical Contents Cu. Ft. Additions during Year Cost June 30, 1921 d) Central Heating Plant Brick and concrete 1910 130,000 $ 27,080.00 e) S. C. A. and Rec- reation Building under construc- tion .... ... (1)$ 1,760.80 $ 1,760.80 Total buildings (1) $38,760.80 $512,580.80 Additions diiring Year Cost June 30, 1921 Grounds Campus — 160 acres. . . . Fleugel Field (athletics) - Total grounds Equipment Books Scientific equipment , Furniture Total equipment . 87,000.00 2,000.00 $ 89,000.00 (2) $ 3,050.00 (1) 10,347.80 $ 76,080.40 20.140.30 53,042.00 $13,397.80 $149,262.70 Note. — Items under "Additions" marked (1) are provided from special funds, see Schedule VII, p. 157; the item marked (2) was provided by $700 from gifts, see p. 143, and $2,350 from current funds. TREASURER'S REPORT SCHEDULE IV 151 Temporary Investments of Building and Equipment Funds On June 30, 1921, $143,750 of the iunds available for building construction and the piirchase of new equipment were temporarily- invested as follows : Face Value Cost Certificate of Deposit First National Bank — 4% U S Treasury Certificates — 5 ^% $35,000.00 90,000.00 19,000.00 $ 35.000.00 90,000.00 Michigan Central Ry. Equipt. Bonds — 6% 18,750.00 Total carried to "Balance Sheet," p. 128 $143,750.00 152 COLLEGE AND UNIVERSITY FINANCE SCHEDULE V Endowment Funds The endowment funds of the college amounted on June 30, 1921, to $1,767,424.47. The amount invested and cash uninvested on that date, and the objects for which the income was used, are shown below: Name and Object Amount on July 1, 1920 Additions 1920-21 Deductions Amount on 1920-21 June 30, 1921 I. Unrestricted II. Restricted 1. President 2. Professorships. . . . 3. Departmental. . . . 4. Lectureships 5. Books 6. Building mainte- nance 7. Grounds mainte- nance 8. Scholarships 9. Student aid 10. Prizes 11. Dormitory library. III. Loss, gain, and premi- um $ 968,673.15 40,000.00 367,263.71 35,730.00 5,000.00 32,415.00 105,159.55 11,500.00 100,653.55 40,000.00 4,500.00 14,000.00 20,560.82 Total. $1,745,455.78 Total carried to "Bal- nace Sheet," p. 129.. Invested (Schedule I, p. 144) 22,808.21 $ 281.57 612.00 3,000.00 3,579.48 $ 29,999.69 7,000.00 749.13 $ 991,199.79 40,000.00 367,263.71 36,342.00 5,000.00 32,415.00 105,159.55 11,500.00 103,653.55 33,000.00 4,500.00 14,000.00 23,391.17 $ 8,030.70 $1,767,424.77 $1,749,243.43. Cash awaiting invest- ment ("Balance Sheet," p. 128) 18.181.34. Funds consolidated, P- 154 $1,701,582.77 Invested $1,683,401.43 Cash awaiting invest- ment 18,181.34 Funds separately in- vested, p. 154 65,842.00 Invested $ 65,842.00 Total $1,767,424.77 TREASURER'S REPORT SCHEDULE Y— Continued 153 Name and Object Amount on July 1, 1920 Additions 1920-21 Deductions 1920-21 Amount on June 30, 1921 A. Funds consolidated — I. Unrestricted Alumni Fund . ... $21,148.78 $ 21,148.78 1901 Fund $328,083.22 110,946.58 386,765.37 425.00 742.00 26,066.00 100,000.00 15,644.98 328,083.22 1908 Fund. , . . 417.00 2.43 111,363.58 1913 Fund Exp. $281.57 386,486.23 Class of 1900 . . . 425.00 Class of 1910 40.00 50.00 782.00 Patriotic Fund . . . 26,116.00 Pearson Fund 100,000.00 Undesignated. . . . 1,150.00 16,794.98 Total $968,673.15 $22,808.21 $281.57 $991,199.79 II. Restricted 1. President $ 40,000.00 $ 40,000.00 2. Professorships Alumni . . $ 20,805.88 5,000.00 14,865.00 326,592.83 $ 20,805.88 Borden 5,000.00 Brewer. . 14,865.00 Others (list in detail) . . . 326,592.83 Total $367,263.71 $367,263.71 3. Departmental Biblical (Blake) .... $ 1,000.00 10,000.00 $ 1,000.00 Art (Elsom) 10,000.00 Total $ 11,000.00 $ 11,000.00 4. Lectureships Phillips Missionary. . . . $ 3,000.00 2,000.00 $ 3,000.00 Schnaelzer Memorial. . . 2,000.00 Total $ 5,000.00 $ 5,000.00 5. Books Academy $ 500.00 500.00 5,000.00 26,415.00 $ 500.00 Burnside 500.00 Carey 5,000.00 Others (list in detail) . . . 26,415.00 Total $ 32,415.00 $ 32,415.00 6. Building maintenance Observatory $ 7,000.00 88,506.09 9,653.46 $ 7,000.00 Science Hall 88,506.09 South Hall 9,653.46 Total $105,159.55 $105,159.55 154 COLLEGE AND UNIVERSITY FINANCE SCHEDULE Y— Continued Name and Object Amount on July 1, 1920 Additions 1920-21 Deductions 1920-21 Amount on June 30, 1921 8. Scholarships Sunn . . . . $ 3,500.00 $ 3,500.00 Clark Tfr. $ 3,000.00 3,000.00 1,000.00 96,153.55 1,000.00 Others (list in detail) . . . 96,153.55 Total $100,653.55 3,000.00 $103,653.55 9. Student aid Dowling Memorial.. . . Education $ 1,000.00 4,000.00 $ 1,000.00 4,000.00 Total S 5,000.00 $ 5,000.00 10. Prizes Art Essay $ 500.00 1,000.00 1,000.00 1,000.00 $ 500.00 1,000.00 IVIoehlman Memorial . . 1,000.00 Russell Memorial 1,000.00 Total $ 3,500.00 $ 3,500.00 11. Dormitory Library $ 14,000.00 $ 14,000.00 III. Loss, gain, and premium. . . $ 20,560.82 $ 3,579.48 $ 749.13 $ 23,391.17 Total funds consoli- dated $1,673,225.78 $29,387.69 $ 1,030.70 $1,701,582.77 B. Funds separately invested — Restricted 3 Sherman Museum $ 24,730.00 $ 612.00 $ 25,342.00 7. Grounds maintenance Fleuffel Field $ 11,500.00 $ 11,500.00 9, Student aid Hamm, Joseph $ 35,000.00 $ 7,000.00 $ 28,000.00 10. Prizes $ 1,000.00 $ 1,000.00 Total funds separately invested $ 72,230.00 $ 612.00 $ 7.000.00 $ 65,842.00 TREASURER'S REPORT 155 SCHEDULE VI Annuities Endowment funds of the college subject to annuities amounted on June 30, 1921, to $159,500. The amounts invested and the cash uninvested, the objects for which estabhshed, the name of the annui- tants, and the disposition of the surplus are indicated below: Name and Object Amount on July 1, 1920 Additions Deductions Amount on June 30, 1921 Rate of Annuity (Per- centage) Summary I, Annuities consoli- dated $ 68,500.00 90,000.00 $4,000.00 $ 3,000.00 $ 69,500.00 90,000.00 II. Annuities sepa- rately invested. Total $158,500.00 $4,000.00 $ 3,000.00 $159,500.00 Total carried to "Bal- ance Sheet," p. 129. Schedule II, p. 148) $158,300.00 Cash carried to "Bal- anceSheet,"p. 128 1,200.00 Annuities in detail I. Annuities consoli- dated 1. General endow- ment Ben] . L. Smith . $ 10,000.00 25,000.00 25,000.00 3,000.00 3,000.00 $ 10,000.00 25,000.00 25,000.00 5 2. Instruction James S. Ginn, 4 Thos. P. Moore 4J^ 3. Scholarships Nath'l Clark. . . Tfr. $ 3,000.00 John S. Hunt . 3,000.00 4,000.00 2,500.00 4 Mary W. Ladd. $4,000.00 5 Ann Minot .... 2,500.00 4 Total . . . $ 68,500.00 $4,000.00 $ 3,000.00 $ 69,500.00 II. Annuities sepa- rately invested 1. General endow- ment George Bouton. $ 40,000.00 50,000.00 $*40,000.00 *50,000.00 4. Library main- tenance Joel PoUeus . . . Total .... $ 90,000.00 $ 90,000.00 Original gift; net income paid to annuitants. 156 COLLEGE AND UNIVERSITY FINANCE SCHEDULE Yl— Continued Income Received 1920-21 Annuities Paid 1920-21 Balance in Excess of Annuities Paid I. Annuities consolidated $3,364.97 6,022.00 $3,075.00 6,022.00 $289.97 II. Annuities separately invested $9,386.97 $9,097.00 Carried to "Surplus Account," Table II, p. 130 $289.97 TREASURER'S REPORT 157 • C '■ c > c a 00 oc • « > oc CD • • ■Ti :66c '■ t> 06 q_ i> • cr ) CC i-( 3 '$ CO 0- '. C ' c 6 ? ^ X • m §f '■ 5 # f ^ W iH <-zi CO O '• ?S ^ ' ; ir 3 t*H • ^>— y CO o •s 10 c ij: c ) c 10 1 IC o - q Tt< c 6 6c c QC 6 i> oc cq oc 00 i> 6 M -S 10 (© c r- 10 Tt c Tt CO -tf CO r-< C--' '-^' C ) r- ■^ t> CD a 10 (T IC CO r- Tf 0> rt ■* p) ^ ^ ^ ^ T-l ^ 1 •^ O 5 m m a O ^ ir 3' c3 00 ■^ •' ^ ^ CO ^ N-^ i^i r-l 10 .2 ^ 35 <^ 20c CO 00 02 ^qoc 6 6 6 fl o to -^^ _s 1> 10 t}< CD co_ t> a Q -^ « ^ ' CO r-^T- p -♦J EH O ^ a G -3^^ 1—1 s > OiO c cr 00' C c a a ■ 00c CC OC QC -^ cd CJ 6 CO 6 cc T— 1 6 6t> r- cr a -H IN lO t> 1> c 10 oc CO c -u a> — 1 V <1 "J^ CC C CC c c CC ^ tS (T . M ^ 6 (N CC 00 C 6 c c c oc '0 a; a • e8 S ^ -*-^ -e '^ 00 CO (0 i=i •-5 03 s ■3 3t '■+3 OS a 61 S -J3 cr !=! a '3 -Li o" t: T3 a a ■ •-5 • cl 4) - 0: ^ 'V a 73^ <» o3 "*^ >-Cl 73 .to ° fl 1 a> Is 3q<1^ W r— H fH f^'Sb 03 i> i-H 00 o 00 1 Q CO r-i, I> o t^ g A 05 iC ni 6 M< P 2 t^ t^ »o o lO P^ C3 o CO T-l lO CO* o o ^ m m s& o Q) Oi l> CO CO H lO l-H t> I> 1-1 i-H N (N ■s > 00 1> lO lO ►2'S 00 Oi 00 00 m C 6 i> CO T)< o o o N T-\ ^. lO Oi (M* iH CO CO co' pqi-5 m m s© m o jr> Q o o o i* lOJG o iC o »o PEND URE8 d "= 6 (M' o (N 00 -d •^ (N o 1> « B -a T-\ i-j w €^0 m m m 03 (M o1 D (N o ■^ 1> ' 4 ic i6 H CO 1H V5 rH TH M N CO CO o e© m m Q ^ o > 0( 1 ^ ) 00 Cs »- T- ^ iH e !- e i. p. * ^ ^ ^ •* ^ -»- J + 5 -(J a ) a J © a > a J 1 3 "T i 73 "c _( i .1 ) « ( a * a 'E 4 'i 3 *C is c 1- I c 3 c -1 «-i 3 c3 o z^ ( 1— < rH cl o m 5 3 c 3 ^ c I "c S c 3 03 3 O t3 to 5 03 O pi So tc QJ e 1-1 N (N i-i 00 «^ m a o O 55 TREASURER'S REPORT 159 o 00 O o o O 03 ^ Is CI ^ CO O ^ -C ^ a .2 M S^ - "3 §-^ a 2 Of? '^ .&! CD n, O s (T OS o o • 05 1 S o ■^ ^ o o Ttl " ^ ^ «^ ^ -5 SSS c 1> O O CC CO o ■* c I* O rf* C; cc o c N O O CC CO o cq c iM O CO 10 o- o cludt CoUe pens blel c C£ 6 to cc (N d lo c lO 81 >^ m ©& m m^ ^ m \ m 1 c t> o o ic U5 O Tf< c -^ O "* 0- cc 05 c t> O O ph iH owe M O CO 10 c- o "3 c CC 6 d iH l> d lo c id C (M CO m ^ 9& S© &l> m m ^1^1 o I> O O iC lO O rj< c -^ O Tf< C cc 05 c 1> O O 1> l> O (N C C,— ^-~. —^ y- ^^y^^ ^ ^ 1-H T-l 1— 1 T— (M rH ■ Tt( '^ o o "*. lane lyi 920 ^ i-t d d 1—1 l> i> »o lO m €^ ^ m C d 1 k o: C «. "C c m ■«! a C or a « •a > ~k3 o u a a e "t -t- ^ 3s si si 2 o3 d •3 b 3 ^7 c a ) to hI tmen epart alDe on IVl ^ "S is Building rai Observator; Science Hal a "5 c ;. PL < to c Depar ArtD Biblici \ Books Englis Genen IVr a til f O ^ (M* CO »d d 1 160 COLLEGE AND UNIVERSITY FINANCE • o X W Q 02 g CO .-I 03 S 1-1 TJ fen CO I— I PI WH o O O q q 00 (M" CO "-H o o o o 00 (M' CO 1—1 o o o o 00 d CO y-< CO • CO m '■ m 00 o 1> o 6 d o o CO lO o CO d t^ o CO' Oi o lO o d d M o 1> d 00 1> o o o o lo d C<^ O 03 CO rH O 00 O CO lo (N q CD 1> rJH d lO 00 o o CD i-l Tfl CO o o o o o o o o d CO •*■ d O lO (M O »0 (M »0 CO CO 10 r-H I— I O >>.2 05 a o S aj 03 ft U3 to S 03 §3 ft 43 •J a (OrS3 f. hI^oq 03 ^ to '^ is a rH O 00 O CO »o IN q CD rH d d lO CO 00 o "2 i="s! rt fl t) „ o a> o C ? 03 o3 O 73 CO CO (M CO lO" oQtUQHiz; Th 00 TREASURER'S REPORT 161 •to o I— I Q O 1 «C OO o " O C 5 O \ c CO Balance June 30, 1921 cc O O O ■ OC 5 O ■* If; 00 d d : d cc 5 d '. a d >r (^^ o rH • 05 Tt < 00 c- i> 1— 1 '. ^ ^ <=i ^ ^ Tt- ' o o o o c ) O C > c ) ri • « 05 1— 1 . (U (U 1— 1 (M o o o o c ) o c 5 Tj < CC uded oUegi pensi blel K ■ 6 d d)d c ) d Tt ^ C oc • LO •* o Tt< a tH a ) c 5 a iH CO t> c 5 Cv o O .^ eS cc c s" ^ fl KH Tj T) h5 "^ m • ^ m ^ ¥ ¥ ^ ¥ ^ c o o o o o c o c ) C > C cc q q q q o c ) o c > ir 5 r- "eS c cc S (6 d> ^ ^ d Tt C > r- ■^ iM lO lO O CO Cv 05 oc 0- 5 ir O Tf rH i-H 1-H 1- »o t^ c 5 OC H oc c^ ^ * ^ ^ ^ ¥ ¥ ^ ¥ OO O O O O O c o c c ) OC C<1 q q q q q c o c >r ) t> to l> 00 d d d d cc d •^ c J l> O IN f— (M CO lO o »o iC lO oc N Cv iH CO 1> a > Cv is cc Cs ^ ^2 ^ r-l tH f-H C; 1— 1 T- ?^ m > ¥ > ¥ iM o O c o C C^ 05 - cc o O c o c a- oc d d c d c 0- (N 05 00 )> ^ cc ^ -§ 'S'^ cc 00 bO (N (N. O «c 1> a iM 1-1 4-^ ¥^ T3 3 -S fi fl a 3 "^ o TJ CO a) CO 00 a> 00 > ro CO «^ a «(-l o o (i> a a ^ o •^ « <1> fl-£] o iH o 1 CO CO H o H O IN iz; CO ro 162 COLLEGE AND UNIVERSITY FINANCE SCHEDULE X Reserves During the year Reserves were increased by $4,149.40 as shown below: Equipment and expense Dormitories Dining-halls Power plant School of Music .... Annuity income reserve. Total. Total reserves carried to Balance Sheet, p. 129 Balance July 1, 1920 $ 4,418.72 2,582.10 2,100.00 660.00 970.46 $10,731.28 Added during 1920-21 Balance June 30, 1921 41.43 1,018.00 2,000.00 800.00 289.97 $ 4,149.40 $ 4,460.15 3,600.10 4,100.00 1,460.00 1,260.43 $14,880.68 TREASURER'S REPORT 163 'o l§ ^ o to H o3 &. (£i O) T5 <5 5 § h] O 0^ -< +=§£).. Ph and power the buildin lown below o ^ ^ ^ S^.^ o 1 ^^n U .'S fl )— 1 eT light in ca buildi X A Q < o lying h and la mong t W W Dh »r 5^ W Pk sup plie sms O 1^ CQ o H *»-" 02 (3J o ^ •> ?^ !?; ^ E S H — ' ^*S H 03 g O ^ « ^ d <1 V3 o o ring the insuranc distribut !?^ ^ t-t „■, O 'Z^^ fl ^ Eh o 03 &D o CO Tt< OS 1— 1 00 00 00 O l> CO 05 I-H c 1 fo t> «q cc i> (M_ CO CO ■* 00 CO CO e3 (N cci c o 00 -tJ OClkOMOOOCOOlOJ^-* CO o lO -"l 05. 05_ N -* CO_ »0 -*_ "* O o H r-T lo" co" iH ■** i-T locf-* 1 CO «^ 1 OOOSCOlOrHCOOC^lOrH 1—1 CQ »o 00 i> «q C5 ■* 00 c<} iq i> o 1-1 (h d CO 1-H d (N (m" 00 d d 'S rHTt<'^0 »c i> rt oo" o-^ooioocoocococo i> '3 ^ ioooo»oiocoioc i-H i-H i-H T-l t>. 1^ m s i>cooooO'*c M TJH r-H CO >-* ■* lO 00 IC lO p4 a '*cdcd-^"idi>'*»cddo" CO i-lTHiOiOCiopi-;io q 03 d t> 00 i> ■*' i-I N »o d i> l-H O-^t^OOTft'^rH^CqW 05 fl r-l T-H i-H 1-1 o .^ t> -; d »o r-l I-H CO ^ m 73 O(M'ddt>-'codcorji 00 d i-H-^iooqco-^Or-it^cj 00 MfL, i-l C<1 ■^ iH iH d iq hJ h^ TH 1-1 9^ €^ ^ 3 COCO00(N»OlCt>»O00rH O co>0'*cooocqcoi©coi> o C3 +3 cd 00 F-i i> oo" r-! d 10 ■> o iri H 03 OOOOONO(NCOOOOCO lO » (NOoqpocqosiHioco q iH C^ i-T CO iH co' c €# iH Q. OI>O»COOOO00iCt> 00 a> p CO p 00 p rjj p CO p i> T- o p iodddi>iHcodddcc CO -2 '> iOCOOI>'H"' ^J -^^ O N f>'_\°' >> '^' -^ 1-^ <^^ ^^-'^^ C, vP c- \ On o 4 O^ ^^-;^. >0" <^, 4 c> .^^ -^0^ x^ x> V V .^^ •^J .,^ Kf, V ^^ " ° " ° * A V •>*. *b^r ^^•^ ^^ G * •0? ♦P' -J H 4 c* '<^. ■^