Audit reveals deficits, but no surprises in ECU athletics
By Nathan Summers
The Daily Reflector
Sunday, April 15, 2018
An internal audit of East Carolina’s athletics department revealed a sports program that is more than $2.3 million in debt, but people at the forefront of the school’s finances remain optimistic about the future of its teams both financially and competitively.
The review of the school’s athletic wing was triggered by a complaint alleging misuse of funds and improper accounting. The audit finalized last week shows the Pirates went from a budget surplus of $3.5 million in 2012 to a $2.3 million deficit at the end of the 2016-17 fiscal year. It does not show any misappropriation of funds.
Rick Niswander, former vice chancellor of administration and finance, said the deficits reflect major expenses including conference entry and exit fees associated with the switch to the American Athletic Conference that soon will be paid in full. He said ECU athletics is competing in a “complex environment” on and off the field and has been taking measures to improve its financial management. He said he was not surprised by anything in the report.
“No. 1, it didn’t reveal any unaccounted-for funds or any (inappropriate) expenses or misuse of university resources,” Niswander said in an interview on Wednesday. “That’s the guts of this document. There is nothing there to many of the allegations in the complaint.”
The document shows the department overspent revenues in four of the last five fiscal years, incurring its largest deficit of $3 million in 2013-14, when it paid a $1.4 million fee to exit Conference USA. Fees to enter the AAC, expenses related to personnel changes including the firing of football coach Ruffin McNeill, a commitment to pay full cost of attendance for all student-athletes and adding a women’s lacrosse team also contributed to the deficits, according to the audit and Niswander.
The audit found the department regularly failed to achieve budget and revenue projections between fiscal year 2013-14 and 2016-17. It also found instances in which coaches and administrators in individual sports programs overspent their expense budgets, which Niswander attributed to accounting procedures that have since been addressed.
“Ticket revenue was over-budgeted for three of the four years,” the audit said. “Also, athletics has consistently not estimated enough for repairs and replacements. This category of expenses has be under-budgeted for the last three complete fiscal years.”
Repair costs largely were the result of deferred maintenance, Niswander said. Funds were not dedicated for known problems with plumbing, buildings and equipment in hopes repairs could be delayed.
Revenue streams include ticket sales, student fees, alumni support from the Pirate Club, distributions from the conference and media partners and funds from other areas such as concessions and parking. The university covers cost overruns though its State Treasurer Institutional Funds account, into which all auxiliary units including athletics, housing, dining and others contribute amounts annually. Athletics will have to repay the fund at a small interest rate of about 1 percent.
The Office of Internal Audit conducted the review after ECU alum and football season ticket holder John Bream lodged a detailed complaint in December. Niswander said the school was addressing its athletic finances before then, including instituting 10 percent spending cuts across the department.
The complaint asks not only about the use of funds to offset the athletic debt but also the transparency of the department in making numbers public. Bream questioned the decision to grant a lengthy contract extension and raise to now-departing director of athletics Jeff Compher (something the audit, by rule, does not address) and also the school’s payback strategy.
“The athletic business, like any business, goes in cycles, and they have a deficit right now,” said Niswander, himself a certified public accountant and auditor who added that ECU athletics has faced deficits in the past. “Now we’re in a down time, but if everything goes like we think it’s going to go, it’s going to come back up. This isn’t terribly unusual.”
The department last summer began implementing steps to address deficits, the audit said. In addition to the 10 percent spending cuts, which don’t include payroll, benefits and scholarships, measures include:
• Developing more realistic operating budgets and a five-year operating budget projection.
• Closer communication with the new vice chancellor for administration in finance, Sara Thorndike.
• Providing expense data to coaches, budget managers and sports administrators on a weekly basis.
• Providing training on budget-related reports and tracking tools.
• Requiring purchases greater than $250 be approved by sports administrators, not just the coaches.
The audit also reviewed questions about the $55 million southside stadium expansion. It said the university secured a $55 million line of credit from BB&T until bonds were issued this spring. The bonds will be settled with payments of about $3 million annually. The Pirate Club has provided about $6 million for a contingency fund, the audit said.
“This funding will serve as a cushion in the event that future revenue stream cannot pay the bond payments. Management’s current anticipation is that additional revenues from seat licenses, the field level club and premium parking will be sufficient to cover the bond costs,” the audit said.
The contract for construction also caps costs at $60 million. Any expense over that amount must be assumed by the contractor.
The review acknowledge a degree of risk in the endeavor and said the authority to accepts such risk rests with senior management, the ECU Board of Trustees and UNC Board of Governors.
Niswander said the decision was thoroughly researched and debated at all levels. Officials determined support from alumni and fans was sufficient to move forward, even in light of recent poor attendance and losses by the football team.
They also looked ahead to the satisfaction of conference fees and other major expenses and better financial management going forward, he said. It’s a long-range outlook, and it’s predicated on what they believe will be a more competitive football team.
“If we’re 3-9 every year, we’re going to have a challenge,” he said. “It’s a calculated judgment with a lot of thought and consideration behind it. ... Underlying all of it is the football team has to do better.”
The review was conducted by a team led by ECU auditor Stacie Tronto, and Niswander noted that such audits, even though they are internal, are independent, objective and subject to scrutiny by outside sources. He also said the university and the Pirate Club both are routinely audited by outside and state entities.
While not every claim warrants an audit, Niswander said the amount of chatter created by Bream’s complaint pushed it to that level.
Despite the negative balance sheet, he said the good news in the audit is that it provides a detailed account of spending versus revenue by the athletic department while also answering to critics that “nothing bad is going on.”
Bobby Burns contributed to this report. Contact Nathan Summers at firstname.lastname@example.org, 252-329-9595 and follow @NateSumm99 on Twitter.
Visit this story at reflector.com to read the report from ECU Office of Internal Audit.