2.11: The institution has a sound financial base, demonstrated financial stability and adequate physical resources to support the mission of the institution and the scope of its programs and services. The member institution provides the following financial statements: (a) an institutional audit (or Standard Review Report issued in accordance with Statements on Standards for Accounting and Review Services issued by the AICPA for those institutions audited as part of a system wide or statewide audit) and written institutional management letter for the most recent fiscal year prepared by an independent certified public accountant and/or an appropriate governmental auditing agency employing the appropriate audit (or Standard Review Report) guide; (b) a statement of financial position of unrestricted net assets, exclusive of plant assets and plant-related debt, which represents the change in unrestricted net assets attributable to operations for the most recent year; and (c) an annual budget that is preceded by sound planning, is subject to sound fiscal procedures, and is approved by the governing board.  Action Plan: The FY2006 audit requirement will be fulfilled by a Standard Review Report issued by the Texas State Auditor’s Office. The Standard Review Report is in accordance with the Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. The audit report will be submitted with the January 15, 2007 Focused Report. The University of Texas (UT) at Arlington is in compliance with all other aspects of Core Requirement 2.11.   Narrative:  UT Arlington has a sound financial base, demonstrated financial stability and adequate physical resources to support the mission of the institution and the scope of its programs and services. As evidence of this, UT Arlington places its annual financial reports and operating budgets on its website. [1]  Institutional Audits:  According to the UT System Board of Regents Rules and Regulations, Series 20401, [2] member institutions of the UT System are not required to conduct an annual independent audit, as member institutions are included in a statewide audit conducted by the Texas State Auditor’s Office. [3] The Texas State Auditor’s Office conducts a review and issues a Standard Review Report in accordance with the Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. [4] However, the UT System and its member institutions voluntarily elected to undergo an independent third party audit performed by Deloitte & Touche for the fiscal year ending in August 31, 2005. The audit report and management letter were released in February 2006. [5]   UT Arlington also conducts an annual internal audit [6] using the internal audit guidelines established by UT System Business Procedures Memorandum 18-02-04. [7] UT Arlington’s Internal Audit Charter [8] outlines the Office of Internal Audits: (a) mission and scope of work, (b) accountability, (c) independence, (d) responsibility, (e) authority and (f) standards of audit practice. The table below shows UT Arlington’s Audit Committee Members.   UT Arlington’s Internal Audit Membership Member Position James D Spaniolo President Dana Dunn Provost and Vice President for Academic Affairs Rusty Ward Vice President for Business Affairs and Controller John Hall Vice President for Administration and Campus Operations Peggy Swanson Faculty Representative Tom Craves External Member Jennifer Chapman Ex-officio, Executive Director of Assurance Services Ken Schroeder Director of Internal Audit *Attends as unofficial member Financial Reports: The UT Arlington’s Office of Accounting and Business Services, under the direction of the Vice President for Business Affairs and Controller, [9] prepares Annual Financial Reports (AFR) at the end of each year. [10] [11] [12] The AFR is then submitted to the UT System’s Financial Reporting Division of the Office of the Controller, where it is consolidated with the annual reports from other institutions of higher education in the UT System. Annual financial reports are prepared in accordance with Generally Accepted Accounting Principles (GAAP) set forth by the Governmental Accounting Standards Board. [13] Unrestricted net assets for operations are reported to the UT System annually and included in consolidated financial statements. The UT System also requires each of its institutions to prepare an annual Analysis of Financial Condition. [14] [15] [16] The Analysis of Financial Condition provides the Board of Regents and UT System Administrators key financial indicators, enabling them to monitor financial stability. In an effort to maintain AAA bond rating, the UT System also monitors financial ratios aggressively. Tables 1-5 show UT Arlington’s: (a) net assets, (b) revenues, expenses and changes in net assets, (c) three-year financial statement excerpts, (d) three-year actual operating budget excerpts and (e) three-year revenues, expenditures and changes in assets.  Annual Budget:  UT Arlington follows the budget guidelines set forth in Series 20501 of the UT System Board of Regents Rules and Regulations. [17] UT Arlington’s annual operating budgets for the current [18] and previous fiscal years [19] are posted on the homepage of its website.   Budget Development:  Development of the annual UT Arlington budget is strategic plan-oriented and begins with a series of conversations within the University’s Executive Administration. The University President, Provost, Vice President for Administration and Campus Operations and Vice President for Business Affairs and Controller form the University’s Budget Committee. The President takes each Division’s strategic plans into consideration when determining budget priorities, as he has final approval on all funding allocation requests. With assistance from the President, the Budget Committee and the Budget Office, UT Arlington Vice Presidents work within their areas of responsibility to develop budget plans that are aligned with the goals identified in the University Strategic Plan [20] and the Campus Master Plan. [21] This process assists administrators with the task of determining what physical resources meet the needs of UT Arlington’s programs and services.  Goal alignment begins with the Strategic Planning Committee’s annual institutional planning priorities. [22] Institutional planning priorities are derived from the University’s Strategic Plan and are reviewed, edited and approved by the President for use in the next operating budget cycle. Each budget unit is required to link budgets to one or more of the institutional planning priorities by describing what action plans or steps they will take to meet institutional planning priority objectives, along with the expected outcomes from implementing the action plans or steps. Information outlining each unit’s budget plans and expected outcomes is stored in a protected, limited-access Internet database. [23] UT Arlington is also guided by the UT System Administration Budget Office, which lists budget services and resources on its website. [24]    UT Arlington’s Budget Office sends its budget data to the UT System’s Chancellor, Executive Vice Chancellor for Academic Affairs and Executive Vice Chancellor for Business Affairs. When the Chancellor and the Board of Regents approve the annual budget, it becomes the institution’s operating budget for the next fiscal year. UT Arlington’s 2005-2006 operating budget was approved by the Board of Regents on August 11, 2005. [25]  UT Arlington continually monitors annual budget progression by projecting semester credit hours and student headcount by lower and upper undergraduate, master’s and doctoral levels. These revised projections are then compared to original budget projections and adjustments are made accordingly. This method allows the University to examine and revise expenditures to match the revised income being generated, thus assuring sound financial stability for the University.     If budget changes are required during the fiscal year, they must be initiated through the appropriate administrative level and passed through the administrative hierarchy for approval. Approval of final budget changes is made by the Board of Regents and said changes are noted in the Board’s Minutes. [26]  Tuition Discounting: UT Arlington discounts tuition for qualified students. Tuition discounting is allocated across the various fund groups based on scholarship expenditures applied to tuition and is calculated according to GAAP. Table 1 The University of Texas at Arlington Increase (Decrease) in Net Assets 2004-2005       Increase (Decrease) % Change 2005 2004 Capital Assets (net of Debt) $354,822,910 $317,476,860 $37,346,050 11.76% Non-expendable true and term endowments, & annuities 41,920,903 35,375,261 6,545,642 18.50% Expendable - capital projects, funds functioning as endowment restricted, and other  25,134,551 49,898,543 (24,763,992) -49.63% Unrestricted  85,549,716 68,649,686 16,900,030 24.62% Total Net Assets $507,428,080 $471,400,350 $36,027,730 7.64% Table 2 The University of Texas at Arlington Increase (Decrease) in Revenues, Expenses & Changes in Net Assets       Increase (Decrease)   2005 2004 % Change Operating Revenues  $ 198,928,343  $ 173,569,984  $25,358,359 14.61% Operating Expenses     280,614,668     248,512,705    32,101,963 12.92% Net Non-Operating Revenues     108,390,654     104,854,308      3,536,346 3.37% **Reclass from (to) Other Institutions     (27,536,905)       29,733,835   (57,270,740) -192.61% Other Revenues, Expenses, Gains, Losses & Transfers               36,860,306       19,251,812    17,608,494 91.46% Change in Net Assets       36,027,730       78,897,234   (42,869,504) -54.34% **Reclass from / (to) Other Institutions number is the amount from the anticipated bond proceeds and is provided by The U.T. System for inclusion on our Annual Financial Reports. The change in anticipated bond proceeds at 9/1/04 is 30,252,108 and the change in anticipiated bond proceeds at 8/31/05 is 57,789,013 which had a deduction effect of 27,536,905 on fund balance. The change in anticipated bond proceeds at 9/1/03 is 59,985,943 and the change in anticipated bond proceeds at 8/31/04 is 30,252,108 which had an addition effect of 29,733,865 on fund balance. Table  3 The University of Texas at Arlington Three-Year Financial Statement Excerpt   FY 05 FY 04 FY 03 Net Tuition    110,406,274      102,831,678      81,829,610 Auxiliaries      21,823,478        18,593,924      15,704,590 Federal Fin Aid Grants      39,911,497        31,093,619      28,090,433 Other Income      26,787,094        21,050,763      20,851,922 Total Operating Revenue    198,928,343      173,569,984    146,476,555         State Appropriations      94,977,377        96,766,632      95,979,038 Gifts        3,155,133          1,898,447        1,334,117 Investment Income        5,038,376          3,626,176        2,169,845 Gains (Losses)            (56,747)           (415,626)         (626,897) Other Non-operating Income        5,276,515          2,978,679           121,812 Total Non-operating Revenue    108,390,654      104,854,308      98,977,915 TOTAL REVENUE    307,318,997      278,424,292    245,454,470         Instructional      96,474,037        90,928,729      85,387,967 Academic Support      23,800,610        21,366,155      20,355,018 Student Services      19,661,752        16,589,468      13,668,617 Institutional Support      26,385,538        20,233,118      21,525,229 Scholarships        9,567,011        12,764,039      10,891,333 Auxiliary      31,263,587        28,437,568      24,412,419 Research      23,368,940        16,975,017      19,226,359 Public Service      10,601,510          8,444,735      10,126,370 Operation & Maintenance of Plant      21,808,358        20,667,905      17,756,274 Depreciation & Amortization      17,683,325        12,105,971        9,587,269 TOTAL EXPENSES    280,614,668      248,512,705    232,936,855                 Change      26,704,329        29,911,587      12,517,615 Table 4 The University of Texas at Arlington ThreeYear Actual Statement Excerpt - Operating Budget*         Revenues FY 2005 FY 2004 FY 2003**           Net Tuition and Fees 112,187,482 96,740,721 90,788,761   Contracts, Grants and Gifts 43,226,701 35,642,405 34,978,794   Sales and Services 5,605,170 6,444,777 5,257,548   Net Auxiliary Enterprises 18,911,418 15,884,522 16,284,875   Other Operating Revenues 5,981,296 6,160,452 4,937,502 Total Revenue 185,912,067 160,872,877 152,247,480         Operating Expenses         Instruction 105,310,009 73,457,288 70,855,019   Research 15,788,661 30,027,312 15,415,288   Public Service 3,741,634 3,809,379 25,417,326   Academic Support 20,722,200 20,522,312 17,289,787   Student Services 17,137,348 8,692,483 10,874,362   Institutional Support 38,077,635 51,120,533 42,662,666   Operations and Maintenance of Plant 20,191,228 14,561,671 16,174,182   Scholarships and Fellowships 13,676,551 3,655,181 18,223,502   Auxiliary enterprises 29,373,972 26,015,350 24,535,872   Depreciation and Amortization 11,020,225 8,978,531 8,590,281 Total Operating Expenses  275,039,463 240,840,040 250,038,285         Operating Income (Loss) (89,127,396) (79,967,163) (97,790,805)         Net Nonoperating Revenues (Expenses) 100,245,230 101,879,499 109,758,252         Transfers       Capital Appropriations, gifts, and sponsored programs 300,000 155,000 31,200 Additions to permanent endowments 600,000 625,000 2,289,572 Transfers for Debt Service (16,261,425) (14,945,449) (10,205,551) Other 130,491 249,531 96,737,196 Total Transfers (15,230,934) (13,915,918) 88,852,417         Net Change in Fund Balance (4,113,100) 7,996,418 100,819,864   *  These are original operating budget totals. **The FY 2003 budget was developed prior to the GASB 34/35 budget changes.  These were      adopted in the FY 2004 budget.  Therefore, in this transitional year only, a projected amount       was used. Table 5 The University of Texas at Arlington Three-Year Financial Statement Excerpt Statement of Revenues, Expenses, & Changes in Net Assets         Revenues FY 2005 FY 2004 FY 2003           Net Tuition and Fees 110,406,274 97,306,050 81,829,610   Contracts, Grants and Gifts 52,795,273 41,516,372 38,347,803   Sales and Services 7,061,321 5,814,417 5,570,468   Net Auxiliary Enterprises 21,823,478 18,593,924 15,704,590   Other Operating Revenues 6,841,997 4,813,593 5,024,084 Total Revenue 198,928,343 168,044,356 146,476,555         Operating Expenses         Instruction 96,474,037 88,789,529 85,387,967   Research 23,368,940 16,860,274 19,226,359   Public Service 10,601,510 8,377,464 10,126,370   Academic Support 23,800,610 21,177,608 20,355,018   Student Services 19,661,752 16,470,736 13,668,617   Institutional Support 26,385,538 20,054,177 21,525,229   Operations and Maintenance of Plant 21,808,358 20,591,937 17,756,274   Scholarships and Fellowships 9,567,011 11,514,045 10,891,333   Auxiliary enterprises 31,263,587 28,186,221 24,412,419   Depreciation and Amortization 17,683,325 12,150,617 9,587,269 Total Operating Expenses  280,614,668 244,172,608 232,936,855         Operating Income (Loss) (81,686,325) (76,128,252) (86,460,300)         Net Nonoperating Revenues (Expenses) 108,390,654 104,854,308 98,977,915         Transfers       Capital Appropriations, gifts, and sponsored programs 92,644 294,796 367,292 Additions to permanent endowments 998,937 527,978 2,400,609 Transfers for Debt Service (13,749,360) (18,424,762) (11,339,899) Other 21,981,180 68,515,278 54,948,363 Total Transfers 9,323,401 50,913,290 46,376,365         Net Change in Fund Balance 36,027,730 79,639,346 58,893,980