The University of Missouri-Kansas City allowed its business school to run up a nearly $11 million operating deficit as it pursued a national and global reputation, since tarnished by a rankings scandal.
The link between the deficit and that bid for greater status is the conclusion of a new internal audit focusing on financial issues at the Henry W. Bloch School of Management.
The report comes on the heels of an earlier audit requested by Gov. Jay Nixon after a Kansas City Star investigation reported that faculty members submitted false data to get top rankings for the Bloch School’s entrepreneurship program from the Princeton Review.
In addition to raising concerns about the deficit, the new report calls for better internal controls over travel and expense budgets, among other issues.
“The school, along with campus leadership, has made historical decisions to invest in and build the school’s national and global brand,” said the summary report by the PricewaterhouseCoopers auditing firm. “These decisions have contributed to an increase in school expenditures and the resulting deficit.”
Both audits cover roughly the same time frame, fiscal years 2009-2014.
Although he is not mentioned by name in either report, former dean Teng-Kee Tan was head of the Bloch School during much of that time. Tan retired last year after developing health problems. He was not available for comment Wednesday.
The new audit shows the Bloch School’s operating shortfall increased sixfold in the past five years, from $1.5 million in 2009 to $10.6 million in the fiscal year that ended June 30, 2014.
The Bloch School has been able to balance its budget each year by dipping into the university’s reserve fund, UMKC spokeswoman Stacy Downs said.
The $10.6 million eventually will be repaid from the school’s revenue, she said.
The school’s total revenue in fiscal 2014 was $19.4 million.
The Bloch School’s problem, according to the PricewaterhouseCoopers auditors: Projected revenue increases did not keep pace with added expenses aimed at boosting the number of tuition-paying students.
Tan had set a goal of doubling enrollment at the Bloch School during his five years there. Instead, enrollment increased just 21 percent between 2009 and 2014, the audit said.
As a result, the tuition revenue collected didn’t cover the expenses of new, higher-paid faculty members.
“It’s not out of the ordinary for an academic unit to run a deficit on occasion, based on a variety of factors from enrollment shifts to state funding decreases to program investments,” Downs said by email.
But officials at other area universities said it is not their practice to operate on a deficit.
“In fact, K-State has never done this,” Kansas State University spokeswoman Bethany Bohn said.
The University of Kansas School of Business is required to balance its budget, spokesman Austin Falley said.
In its response in the audit, UMKC said it was already focused on plans to improve the school’s financial performance.
The University of Missouri Board of Curators ordered the financial audit last spring when current dean David Donnelly replaced Tan. Audits are routine when new deans come on board, Downs said.
Even before the audit began, UMKC was working to reduce the deficit, according to documents obtained by The Star as part of a 2014 open records request.
In a Feb. 14, 2014, letter to Tom Bloch, son of Bloch School namesake Henry W. Bloch, UMKC chancellor Leo Morton outlined those plans going forward.
“Starting no later than the third year,” Morton wrote, “the Bloch School will annually contribute to the deficit account and eliminate the deficit by the tenth year.”
In her written statement, Downs said UMKC’s plan for reducing the deficit was well under way.
“The university has great confidence in the current direction of the Bloch School,” she said. “Under David Donnelly’s guidance, the school has implemented a new culture of fiscal responsibility based on increased training, attention to detail and strong tone from the top, supporting UMKC goals of fiscal responsibility and compliance.”
Until last year, the Bloch School was becoming well known for its rapid rise on the national scene, especially for its entrepreneurship program.
But the school’s reputation has suffered in the wake of the rankings scandals first reported by The Star last summer.
The review Nixon requested confirmed The Star’s findings that Bloch School faculty had taken shortcuts and submitted false or misleading information to achieve rankings. Two faculty members have since resigned, and the Bloch School’s entrepreneurship program was stripped of four years’ worth of rankings.
One of the faculty members, professor Michael Song, also played an improper role in the publication of a study that named UMKC No. 1 in the field of innovative management research, according to the Journal of Product Innovation Management, which published the study.
Recently the editor of that journal backed away from the study and admonished UMKC for touting its results.
Morton has apologized for the lapses committed during his watch and vowed that the Bloch School is reforming its practices.