As summer furlough days wind down at Averett, questions remain about the financial damage discovered there

Temporary pay reductions for some employees at Averett University will end in about a week. But school officials haven’t provided many details about how the university’s financial health declined so quickly as to require the sudden furloughs.

The private university in Danville revealed in early July that it was facing a budget shortfall due to what it’s calling mismanagement by a former finance staffer at the university, including unauthorized withdrawals from its endowment.

The university has said it’s looking to recapture about $6 million, but officials have not publicly put a dollar figure on the amount that was mismanaged.

“There’s not one specific amount. There truly is not,” President Tiffany Franks said in an interview July 11, instead indicating a “broad range of misreporting” that took place over the course of about a year.

“The spending decisions made during that time were based on erroneous data, resulting in living beyond our means without realizing it at the time,” Averett spokesperson Cassie Williams Jones said in an email on July 23. Jones said it appears that misspent funds were used to “benefit the university in some capacity,” including spending on technology and facilities as well as “debt-reduction measures.”

The university has said publicly that no embezzlement or other similar criminal activity has taken place.

A single difficult year for a university’s finances doesn’t necessarily indicate a downward trend for the institution, said Kevin McClure, an associate professor of higher education at the University of North Carolina-Wilmington’s Watson College of Education.

“Sometimes stuff does happen, and even things that are unforeseen can happen,” he said.

But it might not take much for unforeseen circumstances, such as those Averett is dealing with, to affect faculty and staff. “At all colleges and universities, the primary expense is people, in salaries and benefits,” McClure said. “So any time you’ve got to reduce the budget to account for a mistake or mismanagement, it’s very difficult to find efficiencies … that don’t eventually come for positions” in terms of pay cuts or layoffs.

The final authority on financial matters is typically the board, McClure said. “There should absolutely be checks and balances,” and the ultimate decision-making should not be in the hands of single person, he said, speaking broadly about private university governance.

When asked about checks and balances in place at the university to manage the endowment and other funds, Franks said the board of trustees has a finance-focused committee with three subcommittees under it.

“Those committees meet regularly,” she said. “So they’re very, very involved.”

The university doesn’t provide much information about the board’s role or practices on its website. Jones said by email that the board monitors the university’s finances, safeguards its fiscal health and “fosters an environment where decisions are made in the best interest of the institution, consistent with its mission.”

Averett’s board has met weekly since the financial issues were discovered in the spring, Jones said, with trustees most involved in governance, financial matters and fundraising working with Franks and interim CFO Gary McCombs on a daily basis.

Out of more than 20 current and former university board of trustees members Cardinal News contacted to ask about their work on the board and their reactions to the school’s financial issues, only two returned a call or message and both declined to comment. One current board member said on July 12 that the body was preparing a statement about the financial discoveries but didn’t know when it would be ready for release.

Despite what Franks described as close oversight by the board, she said she discovered the financial discrepancies while reviewing quarterly reports during the spring semester. She ultimately blamed the mismanagement on a former finance employee who worked there for several years and left this spring. Jones previously confirmed to Cardinal News that the person had made unauthorized withdrawals from the endowment.

Cardinal News attempted to contact that person by phone, social media and postal mail to give the person an opportunity to comment but has not received a response. Two organizations where the former Averett employee appears to have served as a consultant have not responded to inquiries.

About 125 of Averett’s more than 200 full-time employees have been working four-day weeks since June 2.

Along with faculty and staff pay cuts, which included nine furlough days over the course of the summer or an equivalent reduction in pay, Averett has cut the employer match on its retirement plan from 6% to 4% for the next year. The university has also implemented a hiring freeze.

University faculty and staff were told at a pre-summer workshop that the university was dealing with some “things related to our financial picture,” Franks said, but they were not notified about the summer pay cuts that would affect them until the last week of May, about a week before the furlough days started.

Franks herself took a 25% reduction to her annual salary to help make up the shortfall. The university paid Franks about $322,000 for the fiscal year ending June 2023, according to the most recent tax records available.

Since learning about the temporary pay cuts, which were first reported by the Danville Register & Bee , Cardinal News has reached out to more than 25 current and former Averett employees via social media and email to learn about their experience working for the university. No one was willing to speak for this story.

Franks said she wasn’t aware of any departures from the university this summer as a direct result of the temporary pay cuts. “Our employees have been wonderful. They have been very, very resilient,” Franks said. She said a variety of approaches were considered prior to deciding to cut employee pay, but she did not describe what those alternatives could have entailed.

The school has said it is making about $6 million in operating adjustments “to align within our revised revenue projections,” Jones said in early July. She and Franks later clarified that that figure is not directly tied to the amount of money that was misspent.

The university is also working with consultants to conduct a broad review of finances, Franks said. An employee newsletter dated July 10 noted that “an anonymous funding source” is paying for at least some of that consulting work.

Private colleges and universities aren’t required to be as transparent about their governance or finances as public institutions are.

Averett submits a tax return each year, as well as regular financial audits required by federal law. It also discloses a variety of data about enrollment, program completion and costs of attendance.

But whether a private institution publishes governance policies, board meeting minutes or even contact information for their board members is largely up to the institution. And that can make it difficult to understand the inner workings of a private college.

Franks said that donors had contributed approximately three quarters of a million dollars over the course of about 40 days since the issues were discovered. “Gifts have really shifted to unrestricted, which is such a wonderful way to be supportive,” she said. In the past, donors might have been more likely to restrict their donation to something specific at the university.

“I couldn’t be more thankful,” she said of the school’s donors. “There’s been not one person who has not been supportive.”

Those unrestricted donations can make a big difference to a school like Averett. “Schools that have smaller endowments don’t really have wiggle room for a multiyear financial mismanagement issue,” said Felecia Commodore, associate professor of higher education at the University of Illinois Urbana-Champaign.

The financial resources of a small private university can range widely. For the fiscal year ending June 2023, Averett had an endowment of nearly $25 million. Emory & Henry College, which will become a university this fall, has a similar enrollment of about 1,300 students across undergraduate and graduate programs. It has an endowment of about $100 million.

Commodore warned against assuming that a financially strapped private university can simply dip into its endowment to fill budget gaps.

“Sometimes it doesn’t translate into liquid money,” she said. A donor’s contribution may be earmarked for a certain purpose, or it may be a multiyear pledge that hasn’t been completed yet, for instance.

Schools typically cap how much can be taken from the endowment each year in order for those investments to continue growing. At Averett, the cap is just under 5%, which is a typical spending limit for university endowments, according to the American Council on Education, a nonprofit higher education association.

If a school keeps turning to its endowment to cover operating costs or other expenses and isn’t able to grow the endowment at the same rate, “over time you put yourself in a vulnerable space,” Commodore said. A small school could eventually find itself at a disadvantage, especially in a time of fierce competition for students and accompanying tuition revenue.

“If you are going to be an institution that either offers greater access” to students via institutional financial aid “or is trying to compete nationally, you need a nest egg to be able to fall back on,” Commodore said.

Jones said Averett’s financial issues will not impact university-sponsored financial aid for students for the upcoming fall and spring semesters.

One point of optimism for the university despite its recent financial challenges has been its enrollment growth — which in turns boosts its revenue. Franks said Averett is expecting around 340 new first-year students this fall, and that student retention from the fall to spring semester has improved.

In the changing higher education landscape, where small colleges are trying to attract a shrinking pool of first-time students , strong enrollment and financial strategies must go hand in hand, Commodore said.

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