Sunday, October 26, 2014

The Management of the University of Minnesota

The Management of the University 

 1. Internal Audit.

 In September 2014 the Audit Committee of the Board of Regents received an internal audit update. The expected implementation rate of outstanding essential recommendations since June 2014 was 40%. You might think that the U of M administration would easily clear such a low bar. You would be wrong. The actual implementation rate of 23% did not even come close. See p. 8 of the October 2014 BOR FRI Docket.

The report on this dismal performance did not rouse the somnolent Regents who asked nary a question. But there are serious questions to ask. What is the effect of the failure to meet even the low expected implementation rate for essential recommendations? What are the essential recommendations that have not been implemented? Are the multiple levels of administration at the University an obstacle to achieving even essential goals? How many resources of the University are being squandered as a result of the failure to implement the recommendations?

2. External Audit.

The Deloitte Consulting firm, the external auditor for the University, is about to expand its role (and profits) by providing advisory services for the Enterprise Asset Management project. For this service the University will pay to Deloitte the sum of $1,744,000 in fees and expenses.

When this matter was presented to the Audit Committee of the Board of Regents in September 2014 Regent Brod asked about the effect of this contract on the role of Deloitte as an external auditor. An associate vice president responded that the appearance of independence is at the heart of the issue in retaining an external auditor. He acknowledged that there is general guidance for the examination of non-audit services but no clear dollar amount or ratio to determine when the independence of the external auditor may be affected. He promised to provide the general guidance at a later meeting.

So did the Regents decide to wait until they had at least some general guidance on whether $1.7 million (and the prospect of millions more in income for non-auditing services now that the wall has been breached) might cause an external auditor to go easy on the administration on future audits? No, instead the docile Regents voted unanimously to approve the contract. See p. 9 of the October 2014 BOR FRI Docket.

As the external auditor Deloitte knew that the U of M spent more than $37,000,000 on administrative consulting and professional services in fiscal year 2014. See line 18(d) of the Expense Summary in the Administrative Cost Benchmarking Report at p. 77 of the October 2014 BOR FIN Docket. Having seen the explosive growth of the university administration--consulting firm complex Deloitte hopped on the gravy train. Who now is left to be vigilant about the escalating costs of administration?

 3. Facilities Management. 

The condition of 50% of the facilities at the University is below average or worse. It would require an investment of $1 billion to bring all facilities to at least fair condition. In September 2014 the associate vice president in charge of facilities management informed the Finance & Operations Committee of the Board of Regents that the current approach to facilities management is unsustainable. Expenses have increased by 75% over the last decade. The increase is due to rising service costs and the addition of space even though there has been a reduction in operations cost per square foot. See p. 23 of the October 2014 BOR FRI Docket.

Although the addition of space is a major factor in the soaring expenses, the Regents are planning a 10 acre Education District in downtown Rochester that would accommodate 587,000 square feet of development. See p. 60 of the October 2014 BOR FAC Docket.

Constructing the Education District before the administration comes to grips with the current unsustainable approach to facilities management will accelerate the deterioration of existing facilities. See Crumbling Academic Infrastructure.

4. Budget Management.

For the last three fiscal years the administration has presented an Administrative Cost Benchmarking Report to the Regents. The Report divides expenses into three broad categories: direct mission activities (instruction, research, and public service); mission support and facilities, and leadership and oversight.

 Once again in fiscal year 2014 there were net increases in all three categories. See the Report at pp. 72, 74, and 76 of the October 2014 BOR FIN Docket. Vice president Pfutzenreuter noted that savings within each category "are masked by program growth and service increases." See p. 79 of the Docket (emphasis added).

Yes, the University budget operates like a giant balloon. When one side is pinched to reduce expenses, another side expands with even greater costs. See The Phantom Reduction Part II.

Just as the Wall Street bankers created a housing bubble using other people's money, the senior administrators and the Regents have created a higher education bubble. The U of M budget exploded from $2 billion in fiscal year 2002 to $3 billion in fiscal year 2012. See p. 18 of the 2002 annual financial report and p. 15 of the 2012 annual financial report. Skyrocketing tuition far exceeded the reduction in state appropriations. See Ten Year Review of University Inc.

When this budget balloon bursts, the senior administrators and the Regents will walk away unscathed just as the investment bankers did. The students (and their parents) will suffer the harm from the student loan debt that inflated the balloon. They will be shackled by that debt for many years (or even decades for many students in the graduate and professional schools).

5. Cost of Administration.

Many hours are wasted on unneeded and unexplained paperwork and permissions, making University authorities seem both oppressive and out of touch. 
U of M Strategic Plan at p. 84 of the October 2014 BOR FRI Docket.

The Expense Summary in the Administrative Cost Benchmarking Report for fiscal year 2014 is a list of personnel and non-personnel expenses for the three broad categories of expenses: direct mission activities (instruction, research, and public service); mission support and facilities; and leadership and oversight. Here are the administrative expenses for mission support and facilities and leadership and oversight:

The Report shows total operating expenses of $3,171,787,000 for fiscal year 2014. So the cost of administration ($918,956,000) accounts for 29% of those total expenses. See the Expense Summary in the Report at p. 77 of the October 2014 FIN Docket.

 Is 29% in administrative overhead excessive? There is no national system for comparing administrative costs at universities so we have to look to the world outside the campus. With an administrative overhead of 20% American private health insurance companies have the highest administrative costs of any health insurance system in the world. See T.R. Reid, The Healing of America (New York: Penguin Press 2009) at pp. 36--38.

 The Affordable Health Care Act now requires health insurance companies to send rebates to consumers if administrative costs and profits consume more than a set percentage of premiums (20% for individual and small group markets and 15% for large group markets). See the August 17, 2014 Star Tribune report on Health Insurers Must Pay Up or Pay Back.

 It is likely that there would be an immediate and sharp reduction in the cost of administration if the legislature were to require the University to send rebates of state general appropriations to the state treasury if the U of M administrative costs exceeded 15% of its total expenses.

 The U of M administrators might resist by asserting that the University enjoys the privilege of a separate constitutional status. Then it is also likely that the citizens of Minnesota, outraged by the spectacle of highly paid senior administrators claiming special privilege, would vote to abolish that status. See The Cost of "Top Talent" Part III.

6. Finding Solutions. 

 Our system of higher education is broken. Over the past decade we have seen escalating costs, skyrocketing tuition, and staggering student loan debt.

Freezing tuition in return for an increase in state appropriations is a shell game and not a solution.

The U of M administration should revise its new Strategic Plan to include the steps necessary to reduce the escalating costs of higher education--not just ways to reduce the rate of increase but to actually reduce the costs. The very expensive report produced last year by Huron Consulting fails too often to describe the specific actions necessary to get from point A to point B just as it fails too often to provide even ball park estimates of the costs of implementing its recommendations and the savings to be realized. See The $495,000 Report.

The state legislature should obtain a commitment from the University to review the increase in administration over the past 40 years. If there has been an increase in the number of administrators that is disproportionate to any increase in the number of students or in the level of research, we should ask why.  If there has been a substantial increase (in constant dollars) in the compensation of any administrator, we should ask why.

We should also compare the compensation paid to senior administrators in state government who have similar qualifications and duties to University administrators. For example, the annual salary of the state commissioner of human rights is $108,000. The annual salary of the vice president at the U of M Office of Equity & Diversity is more than twice that amount at $225,000. See Nice Work If You Can Get It.

Each biennium the citizens of our state now invest more than $1 billion in the U of M in general appropriations. With that much at stake the legislature should appoint a qualified person to monitor on a continuing basis the operations of the University and the use of state appropriations. This legislative liaison (or watchdog) should have the responsibility to review the information produced by senior administrators, to collect additional information through his or her own independent research, and to meet with all groups at the University so that the perspectives of other well-informed and thoughtful members of the University community are presented to the legislature.

 Michael W. McNabb

 University of Minnesota B.A. 1971; J.D. 1974

 University of Minnesota Alumni Association life member

Monday, September 15, 2014

The Phantom Reduction Part II

The Conjurer
"The Conjurer," painted by Hieronymus Bosch. The painting accurately displays a performer doing the cups and balls routine, which has been practiced since Egyptian times. The shell game does have some origins in this old trick. The real trick of this painting is the pickpocket who is working for the conjurer. The pickpocket is robbing the spectator who is bent over. Source

The Phantom Reduction Part II

"OK, so you're not raising tuition; why do the costs increase so much that we have to buy that freeze?"

State Senator Terri Bonoff in the September 12, 2014 Star Tribune report.

There are two principal reasons for the continuing escalation of costs at the University of Minnesota:

(1) The promise to reduce the cost of administration by $90 million over a six year period will not reduce the U of M budget by a single penny. President Kaler intends instead to simply spend the $90 million on "mission and mission support." See The Phantom Reduction.

(2) Reductions in some categories of expenses are more than offset by increases in other categories.

There was a net increase of $41.7 million in expenditures for mission support and facilities (from $956,896,120 in fiscal year 2012 to $998,643,697 in fiscal year 2013). There was a net increase of $7.9 million in expenditures for leadership (from $263,801,546 in fiscal year 2012 to $271,699,441 in fiscal year 2013).

The one expense that is most symbolic of the cost of administration is the compensation for leadership. The highly paid senior administrators, deans and directors collected an additional $2,250,198 in compensation for fiscal year 2013. (The total compensation for those leaders in fiscal year 2013 was $104,088,093.) See A Complete Accounting.

A former interim U of M president observed in November 2013 that "with real productivity gains, tuition could actually be reduced, assuming that state funding for the U holds where it is at currently." (emphasis added) See A Question of Productivity.
The Star Tribune has advocated a concentration on greater efficiency:
A freeze at the price Kaler and Rosenstone propose appears to resume a pre-2008 growth rate that had long exceeded the rate of inflation. It wouldn't appear to give the institutions much incentive for changes in higher education that might slow that growth rate or bring costs down. 
See the September 18, 2014 Star Tribune editorial
It will be necessary to stop and then reverse the escalating costs of higher education in order to reduce the staggering amount of student loan debt. The eventual solution will involve substantial reductions in the cost of administration and better allocation of state appropriations. See Whose Fault--Crushing Student Debt  and Devouring Our Children.

Michael W. McNabb

University of Minnesota B.A., 1971; J.D. 1974
University of Minnesota Alumni Association life member

Tuesday, September 9, 2014

For the Record: Most damning evidence in #Markingson case from Minnesota Board of Social Work

The U of M administration uses this 2005 FDA conclusion as a primary reason to reject calls for another investigation. But in 2012 the Minnesota Board of Social Work took corrective action against the social worker who was the study coordinator. Perhaps the most damning findings were these:

2(g)(1) Despite the large amount of data gathered as part of the CAFE study, the records are devoid of any evidence that the data was critically analyzed or used in the treatment planning process. . . 
2 (g)(4) There were critical omissions in Licensee's [U of M study coordinator] documentation that were relevant to suicide prevention and chemical dependency treatment. . . 
2(h) On March 17, 2004 Licensee received an e-mail message from the CAFE study sponsor warning of a new risk of hyperglycemia and diabetes for patients taking medications used in the CAFE study. This new information effectively invalidated client #1's [Dan Markingson's] original informed consent.

See pp. 3--4 of the report of the Minnesota Board of Social Work (emphasis added).

See also A Question of Accountability

Monday, September 8, 2014

For the Record: Univ. of Minnesota faculty concerns about investigation into clinical trials

Sep 7, 2014

Last fall 14 faculty senators at the University of Minnesota called for the Faculty Senate to take action to address ethical concerns arising from the tragic death of Dan Markingson in a clinical trial conducted at the University of Minnesota. The Faculty Senate passed a resolution last December calling for an independent investigation, and President Kaler agreed to conduct such an investigation. Unfortunately, events since then have led some of the senators who called for a review to have serious concerns about both the scope of the review and the impartiality of the team conducting it. The letter appended below, which we have sent to Vice President for Research Brian Herman and Professor Will Durfee, expresses some of our concerns. 

The team conducting the investigation will be on campus this week (Tuesday and Wednesday).

Two of the signatories of the letter, Naomi Scheman  have agreed to serve as our media contacts.

In addition, at the end of the email, you will find useful links that provide background information about the independent investigation.


Teri L. Caraway
Associate Professor and Faculty Senator
Department of Political Science
University of Minnesota, Twin Cities


Dear Vice President Herman and Professor Durfee 

As members of the University of Minnesota Faculty Senate who called for an investigation into human subject research at the University in the wake of the Markingson case (as detailed in the "whereas" sections of the resolution), we would like to express our concerns with the process as it is unfolding so far. Although the resolution passed by the Senate and supported by President Kaler called for a review of present policies and practices, it has been clear to us that a review can serve the stated purpose of clearing the cloud of suspicion about the treatment of vulnerable human subjects only if it also looks at relevant aspects of the past. In particular, an investigation of "present practices" needs to include how the University has dealt and is dealing with--including learning from--serious allegations concerning past practices. 

Our intention of communicating that conviction to the review team has, however, come up against concerns regarding conflicts of interest on the part both of members of the review team and of AAHRPP, which selected the team and is supervising the review. Put simply: we are convinced that a credible review would need to investigate the Markingson case, but that such an investigation would itself need to be credible, especially in light of the history of the University's appealing to clearly noncredible reviews as supposedly exonerating; and the conflicts of interest raise serious questions about the credibility of the present review. 

We do not want to prejudge the work of the review team or to impugn the integrity of its members. We do, however, want to put on the record our sense that the review is not proceeding in a way that seems likely to satisfy the principal requirements behind the resolution we brought to the Senate: for a genuinely credible, independent review that takes a hard look at how the University dealt--and continues to deal--with activities that are widely perceived as profound breaches of ethical responsibility.


Teri L. Caraway, Associate Professor, Political Science
Cesare Casarino, Professor, Cultural Studies & Comparative Literature
Francis Harvey, Associate Professor, Geography, Environment, & Society
Amy Kaminsky, Professor, Gender, Women, & Sexuality Studies
Rick McCormick, Professor, German, Scandinavian, & Dutch
William Messing, Professor, School of Mathematics
Kevin P. Murphy, Associate Professor, History and American Studies
David Pellow, Professor, Sociology
Riv-Ellen Prell, Professor, American Studies
Naomi Scheman, Professor, Philosophy
JB Shank, Associate Professor, History
Karen-Sue Taussig, Associate Professor, Anthropology 

cc: Eric Kaler, Eva von Dassow, and Rebecca Ropers-Huilman


October 2013 letter from 170+ scholars calling for an investigation:

List of signatures from October 2013 letter:

November 2013 letter from faculty senators to the FCC:

Minutes from the Faculty Senate meeting that passed the resolution calling for an investigation (starts on page 16; the resolution was amended as described in the minutes):

The RFP:

The AAHRPP's proposal:

Professor Trudo Lemmens's et al April 2014 letter to President Kaler regarding the RFP:

Public Citizen's letter expressing concerns about the investigation:

Professor Trudo Lemmens's et al June 2014 letter to President Kaler:

Professor Leigh Turner's July 16, 2014, letter to the AAHRPP regarding conflicts of interest:

Wednesday, September 3, 2014

U of M Scoreboard: Athletics Department 84, All Other Departments 16

U of M Scoreboard: Athletic Department 84  

All Other Departments 16

The U of M administration has announced a $25 million donation from Land O' Lakes. Of the total amount $21 million (84%) goes to the athletic department and $4 million (16%) goes to all other (academic) departments.

This new commitment and innovative model of support . . . will further position the U as a continued leader in addressing society's pressing challenges.

President Eric Kaler in the September 3, 2014 Star Tribune report at (emphasis added).

Especially that pressing challenge of winning football and basketball games.

The writer of a letter to the editor in the September 5 Star Tribune argued for excellence in both sports and academics at the U of M. But there is a limit to available funds. Most large universities, including the U of M, continue to provide annual multi-million dollar subisdies (in direct and indirect support) to their atheltic departments despite the exponential increase in TV revenues. See Athletic AccountingBeyond the cost, big time sports are simply irrelevant to the purposes of a university.

The window to the U of M is not athletics (as President Kaler claimed in the September 5 column of Sid Hartman) but rather its performance in the fields of education, research and public service. Imagine the effect of the Land O' Lakes $25 million donation if the U of M administration had persuaded the company to give most of the funds for those purposes. A donation for agricultural research would have promoted the University and the state economy as well as the corporate purpose of Land O' Lakes, the purpose of its foundation, and the financial interests of its shareholders.

Michael W. McNabb

University of Minnesota B.A. 1971; J.D. 1974

University of Minnesota Alumni Association life member 

Comment by Bill Gleason:

I noticed a tweet from the Ministry of Propaganda this morning:

Seems a little misleading in light of the distribution of the loot ...

Perhaps they are embarrassed? 

Monday, June 23, 2014

For the Record: A necessary audit of University of Minnesota drug research

"It is time to eradicate this stain on the reputation of 
a splendid university."

Arne Carlson, former governor of Minnesota 

The announcement by the legislative auditor that he will be reviewing the drug-testing program at the University of Minnesota is welcome news. Most of the concerns revolve around the suicide of an enrollee, Dan Markingson, in May 2004. However, the ongoing problems center on large amounts of money being afforded universities by drug companies in return for extensive testing of experimental drugs on human subjects. At best, it brings together a problematic mixture of conflicts of interest and human tragedy.

Over the span of the program, it has drawn considerable negative press, including headlines in the Star Tribune in August 1993 — “University kept silent for 4 years on research misconduct by Garfinkel” (Dr. Barry Garfinkel was convicted and sent to prison) — and continuing to May of this year, when Science magazine published a lead article analyzing the Markingson case and continuing issues.”

During this time, Dr. Carl Elliott, a professor in the Department of Bioethics, and his colleague, Dr. Leigh Turner, have been critical of the oversight of this program, including the various reports that cleared the university of wrongdoing. A large and distinguished cadre of doctors, researchers and scientists from the United States, as well as Canada and New Zealand, has joined in this criticism. As a result of the publicity, Elliott and Turner continue to receive calls from parents and families of enrollees declaring their concerns over mistreatment, failure to protect the harmed and misinformation given to potential subjects. This has been verified by a local TV investigation.

Unfortunately, instead of this compelling matter being resolved internally, the debate has continued to spill out to the public, drawing national media attention from the likes of the New York Times and the Boston Globe.

The legislative auditor now has the opportunity to conduct a thorough and professional audit of this operation covering the past 10 years. It is imperative for the well-being of all concerned that his report be exhaustive and credible in order that the necessary changes are instituted. This means that inherent conflicts of interest be closely monitored, that the integrity of the study be improved and that the subjects be fully protected.

This audit should involve:

1) A thorough review of the finances, including the number of studies, payments to doctors and clinicians, administrative costs, etc.

2) An examination of the conflicts of interest built into the process. This should include a background inspection of all program personnel as well as those who serve on an oversight board. Transparency should be the rule.

3) A disclosure of the number of tests, enrollees, injuries and deaths.

4) A full understanding of the oversight process, commencing with the Board of Regents. Are its members independent of management? How do they manage dissent involving management, faculty and/or the public? Why did they not intercede, particularly knowing the ills of the past involving criminal misconduct and continuing with public reports of ongoing concerns relative to the care of enrollees?

5) That the legal and human rights of the enrollee are fully protected and that the family is involved. This includes upfront disclosure of all needed information, professional monitoring and care, if harm is caused.

Logic would indicate that certain areas of management require more oversight than others, particularly when significant money comes from drug companies for testing on humans. Somehow, that special attention appears not to have been there, even when respected members of the faculty raised red flags.

I am most hopeful that the legislative auditor not only will deal with these concerns but also will come forth with standards that will significantly improve independent oversight and be fully protective of our enrollees, who all too often are our most vulnerable citizens. It is time to eradicate this stain on the reputation of a splendid university.