Regents briefed on draft $1.3 billion budget; external auditors flag accounting elimination error

Washington State University regents on Feb. 6 received an expanded budget document and midyear performance review for the system’s roughly $1.3 billion annual budget, and heard from the university’s external auditors that the fiscal 2024 financial statements carried a clean audit opinion but required a correction for internal accounting eliminations.

The budget presentation, prepared by university finance staff and shown in draft form on the university website, described the $1,300,000,000 total university budget and called out the $671,000,000 “core funds” operating budget as the primary area the regents will review and ultimately approve. “This is the vehicle by which you will approve the university’s budget,” said Leslie (staff member), who led the budget education segment.

The budget briefing traced how the document ties to the strategic plan and to campus- and unit-level information: enrollment trends, carry‑forward balances, auxiliary enterprises (athletics, housing and dining, parking and health services), and sponsored research and indirect cost recovery. Presenters said the document is intended to standardize how the university explains allocations, reductions and one‑time priorities and to make budget assumptions accessible to regents and campus units.

Why it matters

The regents will be asked to approve a version of the budget in May, but presenters emphasized the budget remains contingent on the state legislature’s actions. Glenda Brecken (vice president for external affairs and government relations) told the regents that the state’s upcoming biennial process and the new governor’s preliminary guidance create uncertainty: targeted one‑time state funds and the timing of legislative action can materially change the university’s final operating plan.

Auditors: clean opinion, restatement and a material weakness

Kristen Diggs, an audit partner with iBailey, told the regents the firm issued an unmodified (clean) audit opinion on the university’s FY‑24 financial statements. “It is a clean audit opinion,” she said during the committee meeting.

Diggs also reported a material weakness tied to internal service activity eliminations: transactions where one university unit charges another had not been fully eliminated in the consolidated financial statements, which “grossed up” both revenue and expense lines. The auditor said the current‑year impact of the error totaled about $23,600,000 across multiple revenue categories; the prior‑year impact was about $26,000,000. Diggs said management prepared a prior‑period adjustment and included an emphasis‑of‑matter paragraph to explain the correction in the financial statements.

Leslie and accounting staff described the source as a process and data‑migration issue tied to the university’s move to Workday and to how journal entries and eliminations were identified across funds. Angie Dobbins (executive director and controller) and Matt Skinner (senior associate vice president and deputy CFO) told the regents they are implementing technical changes in Workday and strengthening reconciliation procedures so internal charges are consistently identified and eliminated. Heather Lopez (chief audit executive) said internal audit and compliance will continue to coordinate coverage of control areas.

Key numbers and fiscal condition

- Total draft university budget (all funds): $1,300,000,000 - Core funds (operating): $671,000,000 - FY‑24 athletics internal accumulated cash deficit noted elsewhere in meeting: approximately $102,000,000 (presented in athletics briefing) - Auditors’ material weakness (current year): ~$23,600,000; prior year impact: ~$26,000,000

Presenters reviewed financial health metrics showing modest improvements in net position over a five‑year span but ongoing pressure: tuition and fees have declined with enrollment trends; operating expenses, led by salaries and benefits, continue to outpace revenue growth; working capital (spendable cash and investments) remains lower than some peer benchmarks; and discounting (tuition underwrites and waivers) remains elevated.

Midyear performance and near‑term priorities

Matt Skinner and the budget team presented six‑month (through Dec. 31) budget performance: roughly 49% of core funds had been spent at midyear (close to seasonal expectations), net tuition billed was above budget due to spring charges but expected to settle at the budgeted level once discounts and waivers are recorded, and sponsored program revenues and indirect cost recovery were tracking at or ahead of last year’s pace.

The team highlighted several budget moves and priorities already in the FY‑25 draft: $4.3 million allocated to support a new graduate student contract (partly funded by a $2 million one‑time legislative appropriation), $1.7 million in nonrecurring marketing funds, and differential reductions that produced more than a 1% budget reduction (about $5 million) across units.

State budget risk

Brecken told regents the incoming governor’s early guidance and reports of a multi‑billion dollar state revenue shortfall mean the university faces upside and downside scenarios. The regents were told to expect final, actionable impacts to the university budget after the state revenue forecast and the legislature’s work later in spring; the board’s May approval will be sensitive to the legislature’s outcome.

What the regents directed and next steps

Regents and staff agreed on next steps for education and decision points. The board’s schedule includes a focused budget education session (Regent Budget Ad‑Hoc) on Feb. 17 and multiple follow‑ups before the May budget approval. Staff will: - Continue implementing technical and control fixes to correct elimination entries and improve reconciliations in Workday (controller’s office). - Complete the multi‑campus carry‑forward policy and guidance for use of fund balances. - Continue monthly performance‑to‑plan reporting and scenario planning for FY‑26 assuming different state appropriation outcomes.

Quotes

“This is the vehicle by which you will approve the university’s budget,” Leslie (staff member) said when introducing the draft document.

“We do have a material weakness associated with it because it was a significant dollar amount,” said Kristen Diggs, partner at iBailey, describing the internal eliminations issue and the related restatement.

Ending

Regents praised staff for preparing the new draft budget document and for the increased transparency of unit‑level schedules. Staff noted the budget remains a draft until state negotiations conclude; the board will consider a formal budget resolution after the state budget is known and the regents have completed their scheduled educational reviews.

For more

The university’s draft FY‑25 budget document and FY‑24 financial statements (including note 21 and the auditors’ governance letter) were posted to the Board of Regents materials and the university budget website. The auditors’ full report and the university’s corrective action plans for the material weakness were discussed in the Finance & Administration Committee meeting packet.