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    Business Intelligence for Independent Schools: Everything a Trustee Should Know

    ISACS Trustee DayChicago, IL

    November 9, 2017

  • Jeffrey Shields, FASAE, CAE Nearly 20 years of experience working with business officers

    in higher education and independent schools NBOA President and CEO since 2010 NBOA serves 1,365+ US independent schools and 250

    other schools and orgs around the globe, 17 FTE, $6million budget, headquartered in Washington, DC

    Previously Senior Vice President, National Association ofCollege and University Business Officers (NACUBO)

    Certified Association Executive (CAE) Fellow, American Society of Association Executives

    (FASAE) Trustee, Online School for Girls (currently) Trustee, Georgetown Day School (2013-17)

  • Jennifer Hillen, CPA, CGMA Director, Accounting and Tax Programs and Interim Director,

    Professional Development, NBOA 3.5 years in public accounting at Ernst & Young 8 years as Controller and Associate Director of Finance and Operations

    at Harpeth Hall School in Nashville, TN (all girls school with 690 students in grades 5-12)

    Created and teach Stewarding Donor Dollars: Financial Reporting for Contributions for business and development professionals

    Non-profit board positions include the Junior League of Nashville (President-Elect) and the Vanderbilt Childrens Hospital; volunteer service includes Leadership Nashville, Young Leaders Council, the W.O. Smith Music School, LEAD Public Schools, and Association of Junior Leagues International

  • Mary Kay Markunas Interim Director, Member Resources and Research 2.5 years on staff with NBOA 12 years as a DFO at The Avery Coonley School, Pre-K

    8 day school (outside Chicago, IL) Faculty, Long Range Financial Modeling and Essentials

    of the Business Office (NBOAs online courses) Previous careers include corporate finance and

    engineering consulting Board service with high school music parents association

  • 1,365+ member schools

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  • What would you like to get out of this session?

  • Independent School Finance: Myths and RealitiesNot-For-Profit does not equal For-Loss (a tax status and not how to run our schools)

    Being mission driven doesnt mean we cant or shouldnt plan to have a financial surplus to re-invest in our mission To maintain our value, and retain and attract families, we must have a long-range plan to invest financial resources into our facilities and

    programsThe independent school business model isnt ideal

    In most cases, schools dont charge what it costs We staff up long before we know how many students will be enrolled Our budgets are balanced through fundraising and endowment draws

    We are in the ultimate people business People make up 80% of our budgets The people we hire need to be the very best they can be and we have to invest in them

    We too often equate quality learning with class size An easy metric for parents to understand, and that differentiate us from other PK-12 providers, is smaller class sizes However, the real differentiator is the quality of our faculty and the flexibility in our methodologies Small class size is an expensive model to maintain if that is all we offer ITS NOT!

    Were all on financial aid Unless your tuition is equal to the actual cost of attending your school, all of your families are on aid.


  • shieldsNBOA

    Problem solver Systems thinker A Realist/pragmatist Credible consultant Honest Broker

    The Evolving Role of the Business Officer*

    Understands budget is the financial expression of the schools mission and priorities

    *Adapted from By The Numbers and Beyond: Independent School Business Operations, published by NBOA, 2015

  • SourceMaterialSource


  • Governance as Leadership

    Type III: Generative

  • The Three Modes of Governance


    Whats wrong?

    Problems are to be spotted

    Boards decide by reaching resolution


    Whats the plan

    Problems are to be solved

    Boards decide by reaching consensus


    Whats the question?

    Problems are to be framed

    Boards decide by grappling and grasping


    BEST Trustee Advice You Will Get All Day!


  • Stewards of the public trust Must always act for the good of the school rather than

    for the benefit of themselves Exercise reasonable care in all decision-making Do not place the school under unnecessary risk


    The fiduciary role of the Board of Trustees


  • Understanding financial basics Setting up and monitoring key financial indicators Ensuring adequate control mechanisms Approving the budget Overseeing the organizations legal obligations


    Fiduciary Role in Action

  • The Boards Fiduciary Role: In Depth


  • Many forms of conduct permissible in a workaday world for those acting at arm's length are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.

    Judge Benjamin Cardozo (1928 New York court opinion)

  • CareAct with prudence and in good

    faith Loyalty

    School before individual Obedience

    Ensure pursuit of schools mission


    Fiduciary Duties of the Board

  • Evaluate HOS performance and review/set executive compensation Conflict-of-interest disclosure Approve the annual operating budget Attain an independent audit Ensure compliance with IRS exempt-organization requirements

    (primarily, 990 filing) Review investment policies and performance Review/update/create/assess strategic plan (depending on where you

    are in the cycle) Other duties as assigned (fundraising, etc.)

    Fundamental Annual Board Duties


  • Formal, written review of performance every year Annual goal-setting process Regular review of compensation Use of external salary benchmarks Full board approval of the compensation package

    Executive Compensation



  • Complete annual conflict of interest disclosure Conflicts of interest include:

    Financial Interests Payments for services: vendors, attorneys, contractors, etc. Other business relationships

    Non-Financial Interests Competing fiduciary obligations Competing employment obligations Family relationships/conflicts

    Conflicts of Interest


  • Annual Operating Budget

  • Fiscal YearBegins

    Fiscal YearEnds

    July Aug Sept Oct

    Nov Dec Jan Feb

    March April May June

    July Sept: Review of final prior-year financial performance; overall budget parameters set for following year and key assumptions made between business officer and finance committee

    Oct Nov: Division and department requests collected

    Nov Dec: Benchmarking analyses completed with comparative peer data; creation of proposed budget by business office

    Dec: Finance Committee reviews proposed budget, including next

    years tuition, financial aid, & salary increase pool

    July June: Budget-to-actual monitored by business office with significant variances reported to Finance Committee

    July June: Budget-to-actual monitored by business office with significant variances reported to Finance Committee

    July June: Budget-to-actual monitored by business office with significant variances reported to Finance Committee

    Jan: Full board votes on proposed budget

    Oct Nov: Division and department requests collected

    May June: Revised budget finalized after enrollment contract binding period

  • Primary drivers:TuitionSalaries and benefits

    Other considerations:Financial aidDebtAnnual fundProgramming decisionsRisk management/securityCapital assets/needs

    Significant Budget Inputs

  • Few or no assets on-hand for emergencies Reduction in permanently restricted net assets Underwater endowment funds Asset imbalance Extremely high A/R balances Deficits or increase in expenses outpacing income High interest rates (esp. on short-term debt) Pending lawsuits Related party transactions

    Independent Audit: Yellow Flags


  • The words going concern (or anything other than an unqualified audit opinion)

    Year-end and audit date are more than 120 days apart

    Unexplained or unplanned, sustained, consistent net losses

    Steady decline in net assets, revenue

    Independent Audit: Red Flags


  • Appropriate policies in place Related parties or conflicts of interest Foreign investments or other

    transactions Unrelated business income (UBIT 990-T) Compensation reporting Highest paid vendors Fundraising: events, compliance,

    contractors Grants paid Schedule O Reconciliation between audit and 990

    990: What to Look For

  • Source:

    Ten Considerations for Financial Sustainability Debt Management Reserves Revenue Integrity Financial Resources Investment Management Leadership Succession Reporting Capital Improvement Planning Financial Planning Strategic Planning

  • Board Committees:Fiduciary Responsibility


  • Finance Investment Audit Retirement and/or Human

    Resources Buildings and Grounds Development Strategic Planning

    Board Committees with Fiduciary Roles

  • NBOAnet

  • Major budget/long-range financial modeling assumptionsTuition considerations/scenariosCompensation philosophies/parametersComfort level with debt

    Long-range/strategic financial planning and sustainability Conversations that may blur the line between philosophical and

    transactionalWhich programs to prioritize and howRisk managementGift acceptance policies or issuesReserves

    Finance Committee


  • Engages independent auditors and monitors their independence and performance

    Assesses quality and integrity of financial reporting process, regulatory compliance, and internal control structure

    Educates board for high-level understanding of financial statements and related risks

    Aware of accounting/tax legislation as well as legal/regulatory requirements affecting independent schools

    Audit Committee


  • Establishes investment policies and practices (typically endowment-focused)

    Manages relationship with third-party investment manager

    Evaluates and reports investment portfolio composition and performance to full board

    Investment Committee


  • Financial Metrics


  • Data-Driven Decision-MakingUtilizing data:

    Perspective: to know what is going on with your school big picture

    Prioritize: Allocate resources for maximum impact Context: Understand industry trends

    Business officer shares results with: Head of School Finance Committee/Trustees Banks or rating agencies Auditor

  • The Financial Position Survey

    There are 51 data points in entire study. Most of the items come from the annual audit.

    A few come from the Admissions Office. Shadow Moodys credit analysis and rating

    system they developed for independent schools. (Note: Moodys no longer issues an independent school industry credit report)

    This presentation focuses on some of the most important ratios from the survey.

    In 2011 NBOA began taking a comprehensive look at the balance sheets of independent schools. Hundreds of schools have participated and we are going to use the data from the day schools to show you how you can use it to quickly assess your financial health:

  • 39

  • Enrollment


  • EnrollmentThe number of students on opening day of the school year

  • Enrollment - Day

    The combined picture is better than expected. The annualized rates of increase over the five

    year period 2009 2014 surpass the decreases during the same period.

    While overall, the trend continues to show a decline in overall











    no change

    2) Enrollment

    inc reased decreased

    44%increased 58% 50%no change

    60%12% 9% 10% 10%

    44%decreased 32% 40% 31%

    FY10/ 11 FY11/12 FY12/13 FY13/142010 2011 2012 2013 2014 2015 2016

    10th Percentile 277 281 300 361 293 235 250Median 570 550 560 659 610 547 56790th Percentile 1,352 1,143 1,143 1,127 1,153 1,153 1,167Average 719 704 722 734 696 650 651










    Midwest Day Schools

    10th Percentile Median 90th Percentile Average

  • Application CoverageApplications

    divided byNewly enrolled students

  • Application Coverage

    Application Coverage is an admissions statistic. It is calculated by dividing the number of applications received in a given admission season by the number of new students who start school at the beginning of the new school year. A higher ratio means stronger demand. In short, the application coverage ratio shows the depth of the candidate pool.

    2010 2011 2012 2013 2014 2015 201610th Percentile 134 136 133 132 138 140 133Median 189 195 202 176 168 186 17290th Percentile 400 411 284 302 279 390 459Average 230.3 230.2 220.1 206 195.1 228.1 228.8












    Midwest Day Schools

    10th Percentile Median 90th Percentile Average

  • Tuition: Pricing, Dependency and Discounting

  • 2002 2016 (CPI Only) 2016 Actual Grades9&12Nat'l Day $13,795 $18,470 $22,784Nat'l Boarding $27,400 $35,304 $51,800










    l Med



    des 9



    Average yearly CPI increase for the past 12 years is 1.96%.

    Has your school had a tuition increase in any given year that was less than 2%?

    Its not just about affordability, but about managing expectations.

    Tuition Increases: CPI versus Reality

    Source: NAIS and US Bureau of Labor Statistics

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    How Tuition Dependent is your school? Tuition revenue includes tuition and related mandatory/optional fees for the regular school year. Other earned revenue includes revenue from facility rental, summer school tuition and fees, summer camp/program fees, and other revenue NOT included above. Annual giving and fundraising includes funds contributed/donated from all sources. Funds drawn from the school's accumulated surplus/reserves Funds drawn from the school's endowment Interest and investment income All other sources

  • Net Tuition & Fees per student

  • Net Tuition & Fees (net of FA and TR) per student

    If the financial aid budget expands or enrollment falls, net tuition and fees can easily stagnate or decline despite tuition increases. While mission-driven increases in financial aid are perfectly acceptable, using this indicator will help ensure efforts to meet the schools mission dont derail the school overall.

    2010 2011 2012 2013 2014 2015 201610th Percentile $6,128 $6,562 $6,301 $7,092 $7,742 $7,996 $8,048Median $11,796 $12,411 $13,025 $14,571 $12,950 $13,174 $13,39890th Percentile $18,784 $18,892 $19,648 $20,100 $20,324 $21,558 $21,887Average $12,243 $12,558 $12,930 $14,051 $13,622 $14,422 $14,583







    Midwest Day Schools

    10th Percentile Median 90th Percentile Average

  • Total Tuition Discount as a Percent of Gross Tuition & FeesFinancial aid + tuition remission

    divided byGross tuition and fees

  • Total Tuition Discount (FA+TR) as a percent of Gross Tuition

    While this topic is similar to financial aid as a percent of gross tuition and fees, keeping track of tuition remission as a portion of the total discount is important. Providing the appropriate amount of tuition remission relative to the schools mission should be monitored by the administrators and Board.

    2010 2011 2012 2013 2014 2015 201610th Percentile 12.6% 12.4% 14.2% 13.6% 14.1% 11.7% 13.3%Median 16.9% 19.5% 16.2% 18...


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