Editor’s note: This is the first in an ongoing series of articles based on material presented to the University of Virginia Board of Visitors — material that never sees the light of day in standard news sources. We aim to provide a more complete understanding of how the university is governed.
Auditors found a “material weakness” in the University of Virginia’s Fiscal 2022 financial statements but said they had uncovered no indication of fraudulent or illegal activity.
“We have resolved any significant difficulties experienced,” David Rasnic, head of the Auditor of Public Accounts’ higher-ed auditing team, told the Board of Visitors Wednesday.
The audit revealed two sources of concern that increased the risk that might give rise to financial misstatements. First, there was no central authority to align the financial reporting of UVa’s academic division and its healthcare division. Creating a central authority, said Rasnic, “would be helpful.”
Another set of issues arose from UVa Health’s acquisition last year of Community Health. The purchase of the company with $470 million in assets made necessary a mid-year switch from FASB accounting used by the private sector to GASB accounting used by government agencies.
The issues resulted in a “delay” in the completion of the audit — not something that financial markets want to see in a university with a AAA bond rating.
The Board reaction to the findings was muted.
“While this is not a happy thing, it’s a prophylactic thing,” said Victoria Harker, a Northern Virginia business executive and former UVa board member who was in attendance.
Fixing material weaknesses in the financial statements would reduce the risk of incurring material misstatements, which could hurt the university’s credibility in the financial marketplace. UVa is one of only three public universities in the country with a AAA bond rating.
With the acquisition of a large private enterprise, said a business school professor, “we’re moving into new territory now. You don’t know what you don’t know until you get into it.” The learning experience will serve UVa well in the event of other acquisitions, she said.
The Board went into executive session to discuss “the performance of specific administrative personnel” related to the audit. No action was announced.
Great article, Jim. Stay on this. It’s a big deal.
Our beloved UVA is starting to look as much like a fast growing corporation (ie. Salesforce) with all the associated challenges as it does a world class university. We will see if that is a good thing….?
You identified the key issue here. UVa has expanded aggressively into commercial enterprises beyond the university and teaching hospital. The Boar’s Head Inn, for instance. I think UVa owns a golf course, too. And a lot of real estate in the Charlottesville area. It’s getting into affordable workforce housing development. And then, of course, the $470 million acquisition of Community Health.
Is this a good thing or bad thing? I don’t know. But the trend warrants close scrutiny.
I believe “prophylactic” means a preventive measure. I’m not sure what it means in this context. I do know, as a former CPA & CFO, that a “material weakness” is a big deal in an audit finding as it relates to internal controls. It is something that Ryan and the BOV need to address and follow up in internal audits. Be assured the state auditors will be monitoring this issue. I assume they have required periodic reports from UVA.
I interpreted the remark to mean that if UVa fixed the “material weaknesses,” it could prevent the occurrence of any “material misstatement,” which would be a serious blemish. I did not make the distinction clear in the post.