Question

Harvey Hogan was in his 31^st year as Director of Athletics at Wilson College, a coeducational, private liberal arts college that offered 16 sports and was a member of the Champions Intercollegiate Athletics Conference (CIAC). Mr. Hogan was proud of the fact that, although his budget was the smallest in the conference (which consisted of 10 schools), he had always operated in the black.

    However, the college faced some serious financial issues in the current school year due to a drop in enrollment during the spring semester. As a result, the Chief Financial Officer (CFO) told all department heads that their individual budgets could NOT go over what had been appropriated at the start of the year.

     Mr. Hogan met with the coaching staff and apprised them of the financial crisis that faced the college. He asked for their help but really did not foresee a problem since the Athletics Department had never gone over budget in his previous 30 years.

     On June 30^th, the fiscal year ended and the CFO (Ms. Newman) put an emergency call into Mr. Hogan. She scheduled a meeting with him so he could explain why he was over budget by $12,000.00. She told him that 4 sports had exceeded their budgets—men’s lacrosse, women’s volleyball, men’s tennis, and football.

     When Mr. Hogan returned to his office he immediately called each coach and scheduled meetings with them. According to the women’s volleyball coach, she had failed to check her monthly computer printouts because she was “too busy coaching and recruiting” to spend time on the printout. She said she was sure she stayed within her budget and did not overspend. After some investigating by Mr. Hogan, the coach admitted that she had been asked to serve as a chaperone for the intramural flag football team which travelled to New Orleans for the national tournament. She had transferred some volleyball funds to their account to help them cover their costs. She also paid for their uniforms, but indicated that it was the first time she had ever gone over budget.

     The football coach was also shocked to learn he was over budget by $5000.00. He discovered that the company that washed the team practice and game uniforms failed to send a monthly statement as he had requested. Instead, the owner of the cleaning company waited until the end of the school year to send a bill for $5000.00. Moreover, in previous years several football student athletes who were offered grants-in-aid did not report for practice choosing to enroll at other institutions. The coach assumed this would happen again. However, every scholarship athlete reported for practice which put him over by two grants ($40,000.00). While he was still in compliance with the conference, he was above the institutions limit.

     The men’s tennis coach has always ignored Ms. Newman’s directive to turn in all receipts by June 1^st. Instead, he regularly procrastinated until as late as mid-July when he would turn in receipts for the national tournament held in May. He was $2000.00 over budget.

     Men’s lacrosse exceeded its budget because the coach, who had built a nationally ranked team, had decided to take a trip north to play several games over spring break. He had no other excuse except that he felt the tough competition would help his national ranking and bring good publicity to the college and help his recruiting.

     In addition to these problems, another serious one surfaced. The track and field coach wanted a new computer. When he was told that the request would not be approved until the next year, he worked out a deal with a local computer store. The salesperson agreed to let him get a computer and hold the bill until the next year when he was told he could purchase the computer. Unfortunately, the salesperson was fired and the store owner demanded payment immediately.

     The final frustration came when 12 dozen pairs of athletic socks arrived. The bill had no identifiers on it so Mr. Hogan could not tell who ordered them. No one would admit it and it was a mystery as to how the purchase order got through the business office without the approval of the Athletics Director, Mr. Hogan.

     In the next meeting that Ms. Newman had with Mr. Hogan, she was furious. She asked Mr. Hogan “who is in control of the Athletics Department budget—you or your coaches!” What should Mr. Hogan do?

Questions for Discussion

1. It’s now the middle of July. What can Mr. Hogan do, if anything, about what happened in the last fiscal year? (5 pts.)

2. Make a list of all of the problems you see in the situation above. (10 pts.)

3. Describe how Mr. Hogan can remedy those problems to prevent them from happening in the future. (20 pts.)

The following content is

Answer 1

Introduction: This case study highlights the need for a sound and effective budgetary control system and demonstrates how its absence can lead to a lot of problems for a department or organization.

What can Mr. Hogan do, if anything, about what happened in the last fiscal year?

Mr. Hogan cannot undo what has happened in the last fiscal year. Moreover, the bills already raised by the vendors and suppliers have to be paid if Wilson College is to maintain its credit in good standing with its suppliers.

What Mr. Hogan can do, and he must do it without fail, is to analyze the reasons for the exceeding of budget by various teams under his control. He must fix accountability for the budget overspends and warn the coaches of not repeating it in future. He must put in place strict cost reporting and control measures in his team to ensure that the situation faced in the last fiscal year is not faced again hereafter.

Make a list of all of the problems you see in the situation above:

I list below all the problems I see in the above situation:

1. A lax control over the team coaches who are responsible for the budget spends.

2. Too much delegation of authority to the team coaches for making spends

3. Delays in reporting of expenditure by team coaches

4. Too much trust in the capability of team coaches to handle finances

5. Coaches assigned to other teams without the Director's permission

6. Inter-team transfer of budget by coaches bypassing the Director

7. Lack of a centralized ordering system

8. Lack of follow-up with vendors for timely submission of bills

How Mr. Hogan can remedy those problems to prevent them from happening in the future.

Mr. Hogan must undertake the following steps to avoid the happening of the situation that has emerged in the last fiscal year:

1. First of all, Mr. Hogan should put in place a strict cost control in his team. He must design a control system, clearly specifying what items of budget spends can be incurred by the team coaches and what should need his prior approval. This will put an end to the problem of the coaches spending as per their sweet will. For instance, the Men’s Iacrosse team exceeded its budget by $2000 because the coach, who had built a nationally ranked team, decided to take a trip north to play several games over spring break which Mr. Hogan didn't even know about.

2. Demarcating the exact limits of delegation of powers for budget spends is another step Mr. Hogan should undertake. For instance, he must specify an amount, say $500, beyond which it should be mandatory for the team coaches to take his prior permission. This will keep him informed about how the budget is being spent by the coaches and also act as a safeguard against budget over runs

3. He must put in place a deadline for the reporting of the spends with bills by say, the 7th day of the month following the one in which budget spends were made. This will avoid the situations like a coach reporting of the spends with inordinate delay because he was “too busy coaching and recruiting”.

4. Mr. Hogan must understand that a coach may not necessarily be a good manager of finances. While it is good for Mr. Hogan to trust their professional abilities in their respective fields of sports, he must also track how and where they are spending money.  

5. Mr. Hogan must make it clear to all the coaches under his control that no coach should be assigned to another team without his knowledge and permission.

6. Mr. Hogan also needs to enforce a strict discipline of each team adhering to its own budget so that its surplus, if any, helps towards keeping the overall departmental budget within the limits. He must enforce a rule strictly that there is no inter-team transfer of budget funds by coaches made without his specific permission in writing.

7. Mr Hogan must form a committee for discussing, evaluating and approving the orders required to be made by the teams for supplies etc. No order should be made to any vendor without the approval of this committee. This will help in control over budgetary spends as each of the decisions of the committee will be recorded for an effective monitoring of budget spends. More specifically, a nodal person should be designated for making orders say, the Secretary of the Committee. It will help avoiding a situation like where the bill received for 12 dozen socks had no identifiers on it about who ordered them and how the purchase order got through his office. It will also help in avoiding situations like the track and field coach making his own payment arrangements with the supplier for buying a new computer for which no budget had been assigned during the last fiscal year.

8. Lastly, Mr Hogan must make team coaches accountable for any delay in submission of bills by the suppliers and vendors. Coaches must be required to record in writing the reasons for delayed receipt of bills from the suppliers also explaining what steps had they undertaken to follow-up for timely submission of the bill by the supplier concerned. This will put an end to situations like the football team thinking that it was quite within its budget but had actually exceeded the budget due to non-submission of bill by cleaning company.

To conclude, all is not lost for Mr. Hogan. If he undertakes the above measures and monitors the budget spends by the teams diligently, he will be successful in keeping his Athletics Department well within its budget at all times.