November 15, 1996 Mr. Enos Cabell, Jr., Chairman Board of Regents of Texas Southern University 4103 Frost Lake Ct. Missouri City, Texas 77459 Dear Mr. Cabell: In response to your August 1996 request, the State Auditor’s Office has conducted a financial and operational review at Texas Southern University (University). Neither proactive leadership nor fundamental oversight systems are in place to prevent a future financial crisis and to ensure accountability for the achievement of fiscal and administrative goals. The University does not currently have the information systems necessary to provide accurate, timely data required for monitoring and decision-making, nor the human resources support necessary to build reliability and effectiveness in the implementation of policies and procedures. As a result, Texas Southern University is projected to incur operating deficits totaling over $8 million during fiscal year 1997 unless radical changes are instituted in the University’s financial management practices. The potential shortfall is primarily a result of the University’s inability to collect two major sources of revenue on a timely basis; federal student financial aid and grants receivable. Although the Board of Regents and management have begun to address the revenue shortfall, they must move from crisis management to demonstrating sustained progress in achieving defined goals and objectives. Our review included an examination of cash flows, financial controls, and management systems such as human resources and information management. Also at the request of the University, the State Auditor’s Office assisted University management in addressing a crisis in financial aid. These efforts included assisting with the University’s corrective action plan for re-engineering the Financial Aid Department and addressing federal noncompliance issues. LACK OF UNIVERSITY ACCOUNTABILITY SYSTEMS CONTRIBUTE TO CRISIS MANAGEMENT Comprehensive internal oversight systems are not in place to provide early warning of fiscal crisis and promote achievement of the University’s mission. Specifically, current human resource, financial, and information systems do not consistently support goals and strategies that have University-wide impact.

November 15, 1996 Mr. Enos Cabell, Jr., Chairman Board of Regents of Texas Southern University 4103 Frost Lake Ct. Missouri City, Texas 77459 Dear Mr. Cabell: In response to your August 1996 request, the State Auditor’s Office has conducted a financial and operational review at Texas Southern University (University). Neither proactive leadership nor fundamental oversight systems are in place to prevent a future financial crisis and to ensure accountability for the achievement of fiscal and administrative goals. The University does not currently have the information systems necessary to provide accurate, timely data required for monitoring and decision-making, nor the human resources support necessary to build reliability and effectiveness in the implementation of policies and procedures. As a result, Texas Southern University is projected to incur operating deficits totaling over $8 million during fiscal year 1997 unless radical changes are instituted in the University’s financial management practices. The potential shortfall is primarily a result of the University’s inability to collect two major sources of revenue on a timely basis; federal student financial aid and grants receivable. Although the Board of Regents and management have begun to address the revenue shortfall, they must move from crisis management to demonstrating sustained progress in achieving defined goals and objectives. Our review included an examination of cash flows, financial controls, and management systems such as human resources and information management. Also at the request of the University, the State Auditor’s Office assisted University management in addressing a crisis in financial aid. These efforts included assisting with the University’s corrective action plan for re-engineering the Financial Aid Department and addressing federal noncompliance issues. LACK OF UNIVERSITY ACCOUNTABILITY SYSTEMS CONTRIBUTE TO CRISIS MANAGEMENT Comprehensive internal oversight systems are not in place to provide early warning of fiscal crisis and promote achievement of the University’s mission. Specifically, current human resource, financial, and information systems do not consistently support goals and strategies that have University-wide impact.

November 15, 1996 Mr. Enos Cabell, Jr., Chairman Board of Regents of Texas Southern University 4103 Frost Lake Ct. Missouri City, Texas 77459 Dear Mr. Cabell: In response to your August 1996 request, the State Auditor’s Office has conducted a financial and operational review at Texas Southern University (University). Neither proactive leadership nor fundamental oversight systems are in place to prevent a future financial crisis and to ensure accountability for the achievement of fiscal and administrative goals. The University does not currently have the information systems necessary to provide accurate, timely data required for monitoring and decision-making, nor the human resources support necessary to build reliability and effectiveness in the implementation of policies and procedures. As a result, Texas Southern University is projected to incur operating deficits totaling over $8 million during fiscal year 1997 unless radical changes are instituted in the University’s financial management practices. The potential shortfall is primarily a result of the University’s inability to collect two major sources of revenue on a timely basis; federal student financial aid and grants receivable. Although the Board of Regents and management have begun to address the revenue shortfall, they must move from crisis management to demonstrating sustained progress in achieving defined goals and objectives. Our review included an examination of cash flows, financial controls, and management systems such as human resources and information management. Also at the request of the University, the State Auditor’s Office assisted University management in addressing a crisis in financial aid. These efforts included assisting with the University’s corrective action plan for re-engineering the Financial Aid Department and addressing federal noncompliance issues. LACK OF UNIVERSITY ACCOUNTABILITY SYSTEMS CONTRIBUTE TO CRISIS MANAGEMENT Comprehensive internal oversight systems are not in place to provide early warning of fiscal crisis and promote achievement of the University’s mission. Specifically, current human resource, financial, and information systems do not consistently support goals and strategies that have University-wide impact.

November 15, 1996 Mr. Enos Cabell, Jr., Chairman Board of Regents of Texas Southern University 4103 Frost Lake Ct. Missouri City, Texas 77459 Dear Mr. Cabell: In response to your August 1996 request, the State Auditor’s Office has conducted a financial and operational review at Texas Southern University (University). Neither proactive leadership nor fundamental oversight systems are in place to prevent a future financial crisis and to ensure accountability for the achievement of fiscal and administrative goals. The University does not currently have the information systems necessary to provide accurate, timely data required for monitoring and decision-making, nor the human resources support necessary to build reliability and effectiveness in the implementation of policies and procedures. As a result, Texas Southern University is projected to incur operating deficits totaling over $8 million during fiscal year 1997 unless radical changes are instituted in the University’s financial management practices. The potential shortfall is primarily a result of the University’s inability to collect two major sources of revenue on a timely basis; federal student financial aid and grants receivable. Although the Board of Regents and management have begun to address the revenue shortfall, they must move from crisis management to demonstrating sustained progress in achieving defined goals and objectives. Our review included an examination of cash flows, financial controls, and management systems such as human resources and information management. Also at the request of the University, the State Auditor’s Office assisted University management in addressing a crisis in financial aid. These efforts included assisting with the University’s corrective action plan for re-engineering the Financial Aid Department and addressing federal noncompliance issues. LACK OF UNIVERSITY ACCOUNTABILITY SYSTEMS CONTRIBUTE TO CRISIS MANAGEMENT Comprehensive internal oversight systems are not in place to provide early warning of fiscal crisis and promote achievement of the University’s mission. Specifically, current human resource, financial, and information systems do not consistently support goals and strategies that have University-wide impact.

OFFICE OF THE STATE AUDITOR
TWO COMMODORE PLAZA
206 EAST NINTH STREET, SUITE 1900
LAWRENCE F. ALWIN, CPA
AUSTIN, TEXAS 78701
State Auditor
November 15, 1996
Mr. Enos Cabell, Jr., Chairman
Board of Regents of Texas Southern University
4103 Frost Lake Ct.
Missouri City, Texas 77459
Dear Mr. Cabell:
In response to your August 1996 request, the State Auditor’s Office has conducted a financial and
operational review at Texas Southern University (University). Neither proactive leadership nor
fundamental oversight systems are in place to prevent a future financial crisis and to ensure
accountability for the achievement of fiscal and administrative goals. The University does not currently
have the information systems necessary to provide accurate, timely data required for monitoring and
decision-making, nor the human resources support necessary to build reliability and effectiveness in the
implementation of policies and procedures.
As a result, Texas Southern University is projected to incur operating deficits totaling over $8 million
during fiscal year 1997 unless radical changes are instituted in the University’s financial management
practices. The potential shortfall is primarily a result of the University’s inability to collect two major
sources of revenue on a timely basis; federal student financial aid and grants receivable. Although the
Board of Regents and management have begun to address the revenue shortfall, they must move from
crisis management to demonstrating sustained progress in achieving defined goals and objectives.
Our review included an examination of cash flows, financial controls, and management systems such
as human resources and information management. Also at the request of the University, the State
Auditor’s Office assisted University management in addressing a crisis in financial aid. These efforts
included assisting with the University’s corrective action plan for re-engineering the Financial Aid
Department and addressing federal noncompliance issues.
LACK OF UNIVERSITY ACCOUNTABILITY SYSTEMS CONTRIBUTE TO CRISIS MANAGEMENT
Comprehensive internal oversight systems are not in place to provide early warning of fiscal crisis and
promote achievement of the University’s mission. Specifically, current human resource, financial, and
information systems do not consistently support goals and strategies that have University-wide impact.
SAO Report No. 97-018
P.O. BOX 12067 AUSTIN, TEXAS 78711-2067 l PHONE: (512) 479-4700 l FAX: (512) 479-4884 l INTERNET: AUDITOR@sao.state.tx.us

Mr. Enos Cabell, Jr., Chairman
Board of Regents of Texas Southern University
November 15, 1996
Page 2
Human Resources
The University’s Human Resources Department is a critical function that has not contributed to
efforts to improve management systems. Only by employing and retaining qualified people can the
University hope to achieve its educational and administrative goals. The University faces several
challenges in this area, including management and staff turnover, availability of training, inadequate
staffing, and personnel performance issues. The Human Resources Department does not currently
address related strategies such as:
C
Conducting staffing analysis to determine what positions are needed in each department
C
Identifying and meeting training needs as well as evaluating results of training
C
Assessing selection process for filling key executive positions
C
Guiding recruiting and screening of job applicants
C
Ensuring implementation of performance evaluations to provide feedback about weak
performance to employees and management
These strategies are critical to successful operations University-wide. Once enhanced procedures and
automation are established, qualified, capable employees are needed to carry out the new systems
and procedures and to bring the University to a stable financial position.
Finance and Accounting
The existing finance and accounting systems are not adequately controlling and maximizing the
resources that are relied upon University-wide. During fiscal year 1996, the University’s
accounting system did not reflect all relevant transactions. While the University plans to convert
financial data to the recently purchased BANNER system, the existing system does not generate
complete, current, and accurate data regarding certain fiscal activities. For example, auditors noted
unaccounted-for checks and checks with the same identification number issued to different parties.
Cash receipts accounts in the general ledger were not updated for several months. During fiscal year
1996, $1.3 million in checks not accurately identified in the University’s accounting records were
cashed.
Additionally, the University is not maximizing revenue enhancing opportunities in response to
shrinking or delayed funding sources. Appropriations totaling $948,000 have lapsed between 1991
and 1995. Further, cash balances are generally held in low- or no-interest bearing accounts, versus
more lucrative short-term liquid securities.

Mr. Enos Cabell, Jr., Chairman
Board of Regents of Texas Southern University
November 15, 1996
Page 3
Management Information Systems
Installation of a multi-million dollar student services and financial information system is behind
schedule. The University made a $6.9 million commitment to replace aging and disjointed
administrative applications by purchasing BANNER, an integrated student services and
administrative system. However, implementation of BANNER’s financial module has been delayed
while problems are being resolved with the student services module already on-line. Nonetheless,
the University is spending approximately $71,000 each year to maintain its two nonintegrated
finance and accounting systems pending the installation of BANNER’s financial module. There is
no detailed implementation plan for this module specifying dates when each phase of installation
will be initiated or operational.
Post-installation problems with the student financial aid module of BANNER persist. Employees’
access is not adequately restricted or monitored, increasing the risk that unauthorized modifications
are being made to the system. Additionally, employees have not been adequately trained and no one
in the Financial Aid Department is reviewing the module’s program modifications or data entry for
accuracy. As a result, incorrect processing of financial aid data is occurring. Also, the Financial
Aid Department is not fully utilizing all aspects of the student financial aid module. Employees still
use manual processes in many areas, which is an inefficient use of resources and a costly misuse of
the new system.
Planning and Communications
While the University developed a strategic plan in 1994, there is not a systematic approach to
holding responsible parties accountable, coordinating implementation of goals among departments,
and monitoring their achievement. According to this plan, some departments are not expected to
demonstrate any milestone accomplishments until 1997. Other departments have developed
alternative operational short-term goals which have not been evaluated to determine their alignment
with strategic objectives. Further, executive management does not have a system for tracking
departmental performance using relevant output and outcome measures.
THE UNIVERSITY MAY INCUR MATERIAL OPERATING LOSSES DURING FISCAL YEAR
If fiscal practices exhibited during fiscal year 1996 continue, Texas Southern University will run
into monthly operational deficits during fiscal year 1997, which at worse could total $8 million by
August 1997. Delays in obtaining both federal student financial aid and grants receivable leave the
University struggling to meet payroll expenses for the year.

Mr. Enos Cabell, Jr., Chairman
Board of Regents of Texas Southern University
November 15, 1996
Page 4
Management has taken action to postpone the impending shortfall by reallocating the sources of
revenue used for payroll expenses. Typically, the University’s monthly payroll expenses are funded
two-thirds by state appropriations and one-third by local funds to comply with state law regarding
proportional funding. The University will postpone the deficit and maintain proportional funding
compliance by using appropriations to cover all payroll expenses for the first eight months of the
fiscal year and local funds for the last four months. However, if financial aid reimbursements have
not been recouped by April, the deficit could be severe in the last four months of the year, especially
if delays in collecting local grant funds have also continued.
The University’s fiscal year 1997 cash position has been evaluated based on expected expenditures
and revenues related to federal grants and local funds. State appropriations were not included in the
analysis since the realization of those funds is not in question. Following are projections of the
University’s cash flows under three scenarios of financial aid reimbursement:
Table 1
Cash Flow Projections For Fiscal Year 1997
Operating Surplus/(Deficit) By Month*
SCENARIO 1:
SCENARIO 2:
SCENARIO 3:
MONTH
No Federal
Receive 50 percent of
Receive 75 percent of
Reimbursement of
Estimated Financial Aid
Estimated Financial Aid
Financial Aid
Reimbursement
Reimbursement
SEPTEMBER 1996
$ 2,257,233
$ 2,257,233
$ 2,257,233
OCTOBER
2,042,006
2,042,006
2,042,006
NOVEMBER
1,714,000
1,714,000
2,014,000
DECEMBER
1,555,431
1,755,431
1,855,431
JANUARY
2,822,629
3,372,629
3,722,629
FEBRUARY
4,074,432
5,074,432
5,724,432
MARCH
2,948,031
4,583,031
5,398,031
APRIL
657,026
2,927,026
4,107,026
MAY
(1,472,892)
1,547,108
2,977,108
JUNE
(4,242,589)
(562,589)
1,157,411
JULY
(6,512,878)
(2,172,878)
(262,878)
AUGUST 1997
($8,133,499)
($3,133,499)
($883,499)
*The surplus(deficits) projected each month are cumulative representations.

Mr. Enos Cabell, Jr., Chairman
Board of Regents of Texas Southern University
November 15, 1996
Page 5
If the University is able to maintain appropriate eligibility documentation on its students and submit
these records on a timely basis during the year, it can potentially collect 100 percent of its financial
aid reimbursement for fiscal year 1997. In light of the school’s historic difficulties in certifying the
accuracy of student records, it should be noted that the break-even point for the University avoiding
an operational deficit is to collect at least 79 percent of financial aid claims submitted to the
Department of Education.
Since several audits have identified repeated noncompliance with federal requirements, the
University also faces liabilities for financial aid distributed in prior years. Conditions in the
University’s Financial Aid Department were first identified in a State Auditor’s Office 1993
financial and compliance audit. The most significant problems were that the University was not
maintaining adequate documentation to support payments made to students and that students
ineligible to received aid were in fact receiving it. The U.S. Department of Education has issued a
letter of determination indicating the University is potentially liable for as much as $13 million of
financial aid payments made to students during 1993. Subsequent audits in 1994 and 1995 by our
Office and a programmatic review by the Department of Education in early 1996 found that no
improvements have been made and that, in some areas, further deterioration of controls has
occurred. The Department of Education has not yet determined potential liabilities for 1994 and
1995.
KEY REVENUE SOURCES ARE UNAVAILABLE DUE TO PROCESSING CLAIMS IN AN
INACCURATE AND UNTIMELY MANNER
The University’s tenuous fiscal position is primarily a result of two major revenue sources being
delayed at the same time: federal student financial aid and federal and local grants receivable.
Student Financial Aid
The University is at risk of losing the ability to participate in federal student financial aid programs
as a result of a failure to adequately maintain eligibility records for students receiving aid. The
University processed approximately $39 million in federal student financial assistance for 74 percent
of its enrolled students in the 1995-1996 school year. Since a high percentage of students depend
on this aid for tuition, participation in the Department of Education programs is vital to the
University’s ability to continue funding these students’ education and to continue its operations.
The University is currently in the process of preparing a report and accumulating the necessary
documentation to request federal reimbursement for the 1995-1996 Spring and Summer semesters
as well as the 1996-1997 Fall payments made to students. The total to be reimbursed is
approximately $3.9 million.

Mr. Enos Cabell, Jr., Chairman
Board of Regents of Texas Southern University
November 15, 1996
Page 6
Grants Receivable
While the University successfully secured alternative funding in the way of federal, local, and
private grants for academic research, it has not been able to collect reimbursements for grant
expenditures on a timely basis during fiscal year 1996. Once expenditures allowed under a particular
grant are incurred, the University must submit a billing statement to the grantor to receive
reimbursement for the expenditures. At the time of our review, 70 percent of reimbursable local and
private grant expenditures had not been billed, representing $2.7 million. In addition, $1.7 million
in federal grant expenditures had not been drawn down.
A contributing factor to the delay in processing is the dramatic growth in the grants administered by
the University. The total number of grants has increased 150 percent, from 100 in 1990 to 250 in
1995. University management recognized this issue and developed a plan to re-engineer the Grants
Department, but some of the recommended actions, such as securing temporary personnel to alleviate
the workload, have not been implemented. In fact, the number of staff members in the Grants
Department has decreased from four to three personnel.
ATHLETICS DEFICIT COMPOUNDS FINANCIAL CONDITION
Texas Southern’s athletics program deficit continues to increase at a rate of nearly $500,000 per year.
Although experiencing an athletics deficit is not unique to Texas Southern University, other schools
are not concurrently facing the same significant revenue constraints described at the University.
The University is allocating approximately 50 percent of student service fees to athletics each year
to offset the losses. In addition, enrollment at the University has declined from 10,000 to 8,000
students in the past two years; therefore, the associated fees used to subsidize athletics will be
declining as well. Also, there is no evidence of efforts to reduce program expenditures. In fact,
expenditures have increased from $1.8 million in fiscal year 1994 to $1.9 million in 1995. Other
auxiliary enterprises experiencing losses over $100,000 include the Student Life Center and Student
Health Insurance facility.
BOARD OF REGENTS AND MANAGEMENT TAKE ACTION ON CRISIS, BUT MUST
REDESIGN ADMINISTRATIVE PROCESSES TO ENSURE FUTURE SOLVENCY
The Board of Regents and management of Texas Southern University have initiated efforts to
address the fiscal crisis, but must exercise aggressive leadership and develop monitoring and
accountability systems that will ensure needed management system changes are made. Positive
measures taken by University officials include requesting assistance from the State Auditor’s Office
and the Department of Education to re-engineer their student Financial Aid Department. Further,

Mr. Enos Cabell, Jr., Chairman
Board of Regents of Texas Southern University
November 15, 1996
Page 7
the Board is recruiting experienced business executives to join the University’s management team.
To build on these efforts, University management must develop a short-term action plan to address
weaknesses identified in this report. The action plan should specify prioritization of tasks, personnel
responsible for implementation, and frequency and type of reporting for purposes of monitoring by
the Board and external oversight bodies.
Texas Southern University management must immediately demonstrate leadership to secure the
solvency of the University as well as the educational opportunities it offers to the local community.
Sincerely,
Lawrence F. Alwin, CPA
State Auditor
cc:
Mr. James Douglas, President
Texas Southern University Board of Regents
The Honorable George W. Bush, Governor
The Honorable Bob Bullock, Lieutenant Governor
The Honorable James E. “Pete” Laney, Speaker of the House
The Honorable Garnett Coleman
The Honorable Harold Dutton, Jr.
The Honorable Al Edwards
The Honorable Rodney Ellis
The Honorable Sylvester Turner
The Honorable Ron Wilson