Compliance Certification Report

2.11.1

The institution has a sound financial base and demonstrated financial stability to support the mission of the institution and the scope of its programs and services.

The member institution provides the following financial statements: (1) 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 systemwide 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; (2) 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, (3) an annual budget that is preceded by sound planning, is subject to sound fiscal procedures, and is approved by the governing board.

Audit requirements for applicant institutions may be found in the Commission policy "Accreditation Procedures for Applicant Institutions." (Financial Resources)

Narrative:

The University of Texas Medical Branch at Galveston (UTMB) is part of The University of Texas System and an agency of the State of Texas. The System is composed of nine academic and six health-related institutions of higher education, as well as the System administrative offices and reported over $ 17 billion in net assets in FY 2006 (1). The System is governed by a nine-member Board of Regents appointed by the Governor. All campuses follow common reporting and budget guidelines established by the State of Texas and The University of Texas System and are subject to the same audit standards (2). All campuses share a common fiscal year end which is August 31. Budget figures for FY 2007 are anticipated to be available in September 2007 and financial information shown below will be updated at that time.

UTMB develops its annual operating budget in accordance with guidelines approved by The University of Texas System (UT System) Board of Regents (3). The guidelines are prepared by the Executive Vice Chancellor for Academic Affairs, the Executive Vice Chancellor for Business Affairs, and the Executive Vice Chancellor for Health Affairs, and presented by the Chancellor to the Regents for their approval. As a component institution of UT System, the UTMB annual operating budget comprises a portion of the overall UT System budget, which ultimately is approved and adopted by the Board of Regents, the governing board for UT System.

As an agency of the State of Texas, UTMB receives a portion of its funding as an appropriation from the state. The Texas Higher Education Coordinating Board (THECB) compiles data from public institutions in Texas regarding tuition and funding support by the Texas Legislature. The THECB reviews student data and makes recommendations regarding funding of higher education to the Texas Legislature. The Texas Legislature then determines the amount of funding to be appropriated to support institutions of higher education in Texas. The Texas Legislature convenes on a biennial basis, and during the legislative session passes an appropriations bill for the upcoming biennium. That bill serves as an important basis for the budget guidelines established by UT System.

Development of the UTMB annual operating budget is guided by the Strategic Executive Council (SEC), which provides strategic direction associated with the Financial Improvement Plan approved in September 2006, and is charged with overseeing the plan during the next three years (4). The SEC defines the institutional strategic priorities and establishes institutional and entity specific financial performance targets. Each operating entity (e.g., School of Medicine, School of Nursing) within UTMB is responsible for developing its own detailed operating budget. Each entity has a chief financial officer or finance administrator who leads the budget development process on behalf of their entity leader (e.g., Dean or C.O.O.). The entity leader ultimately approves the entity budget and submits that budget to the SEC for approval. As a result, we expect the three-year improvement program that was initiated in FY 2006 to generate an additional $30-40 million annually in operating funds available for capital investment.

The annual operating budget development process typically begins in early spring and is completed by August, prior to the start of the fiscal year on September 1. The budget development process is coordinated by the Finance, Budget and Planning Department.

The mission of UTMB is to provide scholarly teaching, innovative scientific investigation, and state-of-the-art patient care in a learning environment to better the health of society (5). UTMB has experienced increases in net assets, growth in endowment funds market value, and steady revenue growth in recent years (6) (7) (8) (9). As a result of cost reduction/containment efforts and revenue growth, the university’s recent operating margins have been stable despite ongoing pressures on clinical revenue from government programs (Medicare, Medicaid, and Correctional Care), and from unsponsored care. In addition, education and general net assets have been stable.

Net assets have increased from $945.5 million in FY 2003 to $1,157.5 million in FY 2006, an increase of 22.4% (10) (11).

The university’s endowment funds continue to grow in number, and increase in total value. Market value of endowments increased from $280.3 million in FY 2003 to $402.2 million in FY 2006, an increase of 43.5% (12) (13). On Sept. 1, 2003, UTMB launched a five-year, $250 million Timeless Values, Pioneering Solutions campaign as an invitation for individuals and organizations to join in the university’s vision for health care’s future. In May of 2007 The university successfully completed a $250 million fund raising campaign, eighteen months ahead of schedule.

The university continues to attract federally sponsored contracts. Federal contracts and grants revenue increased from $96.0 million in FY 2003 to $123.6 million in FY 2006, an increase of 28.7% (14) (15).

Increases in student enrollment and tuition and fee rates were realized over the last four years. Student tuition and fee revenue increased from $7.9 million in FY03 to $12.0 million in FY 2006, an increase of 51.0% (16) (17). The State of Texas allows institutions of higher education the ability to charge designated tuition, that is, tuition in excess of statutory tuition (18). UTMB began charging designated tuition in FY 2005. Since that time, increases in rates and in student enrollment have contributed to the increase in tuition and fees. Enrollment data is shown in Table 2.11.1.a below.

Table 2.11.1.a. Enrollment by School 2002 through 2006

School	2002	2003	2004	2005	2006
Graduate School of Biomedical Sciences	315	350	361	341	348
School of Allied Health Sciences	334	356	369	428	464
School of Medicine	813	819	824	830	861
School of Nursing	543	533	567	573	582
Total	2,005	2,058	2,121	2,172	2,255

Revenues attributable to the Faculty Group Practice have grown over the last four years. Faculty Group Practice revenue increased from $127.7 million in FY 2003 to $157.1 million in FY 2006, an increase of 23.0% (19) (20).

The university’s Educational and General (E&G) budget has continued to increase over the last five years as a result of these activities. The E&G budget increased from $590.7 million in FY 2003 to $697.7 million in FY 2007, an increase of 18.1% (21) (22).

In summary, UTMB continually evaluates and adapts its financial operations to support its mission of dedication to excellence in teaching, research, and patient care.

The institution has adequate physical resources to support its mission. Information related to physical resources is covered in detail in Core Requirement 2.11.2.

Institutional Audit
Deloitte & Touche, an independent auditing firm, was selected by the UT System Board of Regents to audit the consolidated financial statements of the System for FY 2005 and FY 2006. An opinion was issued by the auditing firm for the consolidated University of Texas System. Although audit work was performed on the campuses of the member institutions, such as UTMB, an opinion is not expressed on the member institution’s financial statements as a result of this process. An audit report and management letter was issued at the consolidated level for The University of Texas System (23). The University of Texas System elected not to exercise the final option year of the contract with Deloitte and Touche for FY 2007. As such, UTMB is awaiting a Standard Review Report to be issued by the Texas State Auditors Office for FY 2007. The Texas State Auditors Office will issue a review of UTMB’s FY 2007 basic financial statements and an OFI (Other Financial Information) schedule of unrestricted assets attributable to operations, exclusive of plant assets and plant-related debt. The financial statements will be reviewed in accordance with standards within SSARS (Statements on Standards for Accounting and Review Services).

Statement of Financial Position
UTMB, as a public institution, prepares its financial statements in accordance with accounting principles generally accepted in the United States of America, as prescribed by the Government Accounting Standards Board (GASB). Financial statements for FY 2003 through the present are prepared in conformity with the GASB Statement 34/35 reporting model. At the end of each fiscal year, the Office of the Vice President of Finance publishes and distributes the UTMB financial report to executive leadership.

The University of Texas System component institutions, including UTMB, access the credit markets on the strength of The University of Texas System taken as a whole. Debt is issued in the name of The University of Texas System on behalf of component institutions. The University of Texas System has a Moody’s rating of Aaa and Standard and Poor rating of AAA.

The financial position of the university exhibits a sound financial base, financial stability, and adequate physical resources necessary to accomplish its mission. Additional documentation of financial results and position over time is presented in Comprehensive Standard 3.10.1.