Quote of the Day

Thursday, June 4, 2009

Monticello Project, Non Profit Accounting, and Accreditation

Based on GW's financial statements, it appears the school paid about $2,180,000 for its 520-acre parcel in Monticello, Utah. That comes out to about $4,200/acre. About $1.1 million of the purchase price appears to have been paid with cash (from donations) and the rest with debt.

The going price for comparable land in Monticello is currently around $1,000/acre, putting the current market value of the land at $520,000. It appears the school bought near the top of the market and may, possibly, be underwater on its loan (like so many homeowners across the country).

Given this, it's puzzling to hear Oliver DeMille say in April that "the Monticello project has especially helped our finances." He must mean that donations for that campus -- plans for which have been suspended -- are still flowing in. That's good, because those donations could be used to pay down the loan. But apparently they are being used for more than that.

Apparently at least a portion of donations for the Monticello development project are being used to subsidize the on-campus program in Cedar City. DeMille again: "[The Monticello development project] is still in the black [and has] helped provide income to help maintain our on-campus program."

This is a problem.

According to Andrew Groft, the AALE (the group from which GW is seeking accreditation) determined that the school's financials were not in line with non-profit accounting. Indeed!

Here's a quick lesson in non-profit accounting: When someone makes a donation to a non-profit and attaches a purpose to the donation, that donation becomes a "permanently restricted asset" and can only be used for the donor's purpose, even if the non-profit has other, worthy uses for it. Donations made with no restrictions are called "unrestricted assets."

Thus, a donation made to GW for "the Monticello development project" would, theoretically become a permanently restricted asset that could only be used on that project. That the Monticello project has "helped provide income to help maintain our on-campus program" is troubling to say the least, as this implies the school has been treating restricted assets as if they were unrestricted.

Based on this analysis (which is based on the facts available to this writer), it makes sense that the AALE would have concerns about the school's accounting. And if these accounting issues are to be overcome, it certainly presents a high hurdle for the school, in addition to the endowment hurdle.

The school could possibly correct this by going to the Monticello donors and asking that they revise their donations to unrestricted. Or perhaps this is not an issue at all, and DeMille misspoke when he said Monticello donations were being used to subsidize school operations.

Again, I am basing my analysis on the facts available to me. With 2008 cash expenses of $1.5 million, only $250K in the bank at 6/30/08, and enrollment at half of what it was last year (less than 100), one hopes the school will be able to scrape through this economic downturn, period -- accredited or not.

(Images from www.gw.edu)

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