An institution’s website is like an old-fashioned pep rally: lists and stats scream, “We’re No. 1 (on a list, somewhere, for something)!” Pervasive images paint a picture of happiness and prosperity – students studying away, a donor handing someone a check, and dramatic video of campus filmed with a drone. Everything seems so ideal on .edu, and then a ding announces an email calling for a campus-wide meeting about the institution’s poor financial health. Everyone thinks (and some respond with a three- to five-page rant): “What the hell is going on here? Why didn’t we know? We need transparency! But in the words of X files‘ Fox Mulder, the truth is out there. You just need to know where to look.
Many people believe that the only way to get truthful information from a public institution is to file a request under the Freedom of Information Act. Created in 1967, FOIA is the “law that keeps citizens informed about their government. Federal agencies are required to disclose any information requested under the FOIA,” with some exceptions. While the FOIA offers a way to find out more about public institutions, other readily available information exists on both public and private institutions.
US federal law requires that certain forms and reports be filed annually. They must be truthful, accurate and filed within the deadlines under penalty of prosecution. A few include an audited financial statement, Internal Revenue Service Form 990, and an Integrated Post-Secondary Education Data System report. All detailed information regarding the financial and operational health of an institution. An institution’s credit rating and financial outlook can be viewed on reviewer websites such as Moody’s Investors Service, Standard & Poor’s Global, and Fitch.
The following information provides an overview of these four sources, including the purpose of data collection, what you can learn, and where to find it. Some clarifications and caveats are also listed.
Audited Financial Statements
Goal: The US Internal Revenue Service requires nonprofit organizations to prepare audited financial statements annually. Independent external certified public accountants prepare the report using generally accepted accounting principles. The financial statements are evaluated by independent auditors in accordance with generally accepted auditing standards. The statement provides information on the institution’s financial condition and performance.
What you can learn: An audited financial statement for nonprofit organizations consists of five parts: audit report, statement of financial position, statement of activities, statement of cash flows, and notes.
- The auditor’s report states the auditor’s opinion on whether management has provided “true and fair” representations: unqualified (good), qualified (not good), adverse (bad), or denial. liability (probably wrong, but not enough information to determine).
- The statement of financial position details the assets and liabilities: are the assets increasing from one year to the next? Good. Are there more assets than liabilities? Good. Disclaimer: Having a lot of real or personal property as assets may not be good for your institution if there is not enough cash to operate (see cash flow statement). More debt than assets? Not good and probably bad.
- The statement of activities details income and expenditure. Are revenues stable, growing or declining? Are expenses stable, growing or falling? Compare income to expenses. Are revenues lagging behind expenses? Wrong.
- The cash flow statement provides information on the amount of cash generated (operating, investing, and financing activities) versus the amount spent. It indicates an institution’s ability to pay its bills.
- Notes (or footnotes) provide context for understanding how the institution operates and note any unusual activity. Always read the notes. If something is important and needs further explanation, it will be in the notes.
Where to find it: Typically, these statements can be found on the institution’s website under the office of administration and finance. Sometimes a summary can be found in the institution’s annual report. A copy can be requested from the Comptroller’s office. In addition to a statement for the institution, public institutions have audited financial statements for each separate but related foundation or organization that receives and manages assets in support of the institution.
Remarks: Reading audited financial statements is not for amateurs. No matter how smart you are, if you don’t have a CPA, you’re an amateur. (And, no, having a math degree is not the same as being a CPA.) Pull yourself together and ask for help interpreting these statements.
U.S. Internal Revenue Service Form 990
Goal: According to the IRS, “Form 990 is the IRS’ primary tool for gathering information about tax-exempt organizations, educating organizations about tax law requirements, and promoting compliance. Organizations also use Form 990 to share information with the public about their programs.
What you can learn: Information from audited financial statements is used to complete IRS Form 990. The 990 is a little easier to understand, but not much (and does not include the auditors’ opinion). Bonus material: the compensation of the highest paid people in the institution is listed on the 990.
Where to find it: GuideStar non-profit
Remarks: Access to the site requires registration, but there is no charge to view basic information. Typically, multiple 990 years are listed on this site for each institution. Comparing multiple 990 years can be a useful way to identify trends.
Private establishments are listed on GuideStar. Since public institutions are government agencies, they are not listed here. However, private foundations associated with public institutions are listed by their official names (not by the name of the public institution only, i.e., _______ Foundation Inc.). In addition, the financial information listed for the foundation of a public institution relates only to the operations of the foundation (and not the entire institution). Does that make sense? No? Just go to the site and look around. Believe me.
U.S. Department of Education’s National Center of Education Statistics Integrated Postsecondary Education Data System
Goal: According to NCES, “IPEDS collects information from every college, university, and technical and vocational institution that participates in federal student financial assistance programs. The Higher Education Act of 1965, as amended, requires institutions that participate in federal student aid programs to report data on enrollment, program completion, graduation rates, faculty, and personnel, finances, institutional awards and student financial aid.
What you can learn: Basically, all statistics about an institution are here, and institutions can be compared with data from apples to apples. There are 14 categories of information: general information; student tuition, fees and estimated expenses; financial aid; net price; registration; admissions; retention and graduation rates; outcome measures; programs/majors; military and veterans; varsity track and field teams; accreditation; campus safety and security; and cohort default rates.
Where to find it: College Navigator
Remarks: Slim. This whole thing—IPEDS—is wonderful. Seriously. I am in love with IPEDS. You can get lost in the conciseness of it all. So much data in one place. I want to marry IPEDS.
Further information: IPEDS Data Center allows you to compare establishments. Learn more about the components of the IPEDS survey. So much love.
Example credit rater: Moody’s Investors Service
Goal: Moody’s researches commercial and government bonds and provides financial outlooks and credit ratings for various sectors and institutions. Information affects an institution’s ability to obtain loans and is a determining factor for interest rates.
What you can learn: Moody’s rates both the higher education sector as a whole and many, but not all, institutions. Moody’s characterizes the financial outlook as positive, stable, negative or no outlook. In addition to indicating the overall outlook for a specific institution, Moody’s provides an investment risk or credit rating. The lowest to highest risk ratings are Aaa, Aa, A, Bbb, Bb, B, Ccc, Cc, C. After each rating, it is noted whether the change was an upgrade or a downgrade from to the previous rating. Bottom line: Before accepting a job offer, check the institution’s rating (among other things) to find out what you’re up against and to make sure your new employer can actually pay you. Don’t say you weren’t warned.
Where to find it: Moody’s Higher Education and Nonprofits
Remarks: Access to the site requires registration, but there is no charge to view basic information. The list of establishments is alphabetical. Not all establishments are included. Current and past grades can be found by clicking on the institution. Two other sources of higher education ratings are Standard & Poor’s Global and Fitch.
Further information: Moody’s Methods for Higher Education are available here.