The University of North Texas faced a financial crisis when it was discovered they had overstated their finances by $23 million in 2012-2013. An audit found the university had improperly used state funds to pay employee salaries and benefits. As a result, the state auditor recommended UNT repay $75.6 million to the state over 10 years. UNT leaders acknowledge the financial issues and have implemented budget cuts while working on a repayment plan.

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A Financial Case Study on
The University of North Texas
Alexandra Pescador
PA 3314.0W1
Professor Benavides
November 6, 2014

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Recently the University of North Texas embarked on a financial crisis that put their
future on the line. Financial issues arose when the State Auditor’s office received an anonymous
complaint in 2012 stating that there were problems in the University of North Texas financial
reporting. It had been speculated that the University of North Texas had been using state funds to
pay for employee benefits and salaries when it shouldn’t have. These problems began to surface
in November of last year when the university told library officials there would be cuts of $1.7
million in order to pay for employee benefits. Although the library budget comes from student
fees the university had been drawing money out of their state funds to cover such costs. It has
also been noted that the University of North Texas reported shortcomings with their bookkeeping
and their financial checks and balances. In addition University of North Texas leaders came out
to say that they had overstated their finances by $23 million in the fiscal years of 2012 and 2013.
In the midst of all these issues three top finance officials resigned and it was rumored the reason
had to do with them knowing about the irregularities in their finances and in order to not deal
with the issue they resigned. With the upcoming issues the university has been forced to conduct
an audit on their accounting books.
The Audit Report
As soon as the state auditor’s office was informed about the university’s situation
according to John Keel, state auditor, the state began an investigation on the university’s
financial issues. As an outcome of the investigation the University of North Texas decided to
hire Deloitte and Touche firm to conduct an audit as part of the state’s investigation. In the audit
report conducted by the Deloitte and Touche it was found the university had made a journal entry
to account for unresolved collections and instead where represented as accounts receivable. This
journal entry was made on August 1, 2012 and recorded miscellaneous cash and cash

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equivalents, accounts payable and receivable as well as state appropriations. During the time the
journal entry was made the University of North Texas annual budget was of $520 million. Jim
Smith, former chairman at the Texas Society of CPA’s and a current director at a Dallas
accounting firm, said “because they’re a public institution and receive state and federal funds,
they have to be open with everybody,” and “they have a transparency obligation to everyone
from whom they receive money or benefits.”1 In addition the report by Deloitte also stated that
the university overstated its cash my $5.9 million. Overall the University of North Texas
received a total of $83 million in excess state funds. The report concluded that the university
received such funds in two ways by manipulating payroll expenditures and paying employees
and benefits with state funds when such employees where ineligible to be paid in such a matter.
UNT’s Plan
From the reports and the investigation the state auditor’s office recommended that the
university repay the state $75.6 million in the course of ten years. Lee Jackson, the University of
North Texas System Chancellor, expressed that he reviewed the findings from the audit report
and found them to be accurate and also hopes that they figure the university will have to repay
may be dropped in the course of upcoming months. In his own words Jackson expressed such
thoughts, “it’s encouraging that the total figure has moved down because the state auditor made
some adjustments, and we have informed his office our accounting review has identified some
other corrections.”2 The university’s president Neal Smatresk hopes that the state and the
university can come up with a reasonable plan to repay what the university owes the state and
1 Duncan, Jenna and Ed Timms. “UNT Finances off by $23 million”. Denton Record-Chronicle,February 14, 2014.
Accessed October31, 2014, http://www.dentonrc.com/local-news/local-news-headlines/20140417-unt-finances-off-
by-23-million.ece
2 Hacker, Holly and Jenna Duncan. “State audit bad news for UNT”. Denton Record-Chronicle,September 24,
2014. Accessed October31, 2014. http://www.dentonrc.com/local-news/local-news-headlines/20140924-state-audit-
bad-news-for-unt.ece

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hopefully that burden will not fall on students and their tuition rates. Smatresk revealed that the
university will have a 2% cut to academic units and a 3% cut to administrative units in the
mission to repair the university’s financial issues.3 In his recent letter to the Mean Green
community Neal Smatresk maintains positive that the financial issues that the university faces
will be resolved in a timely manner he expresses in his words, “while we await the final
resolution of this matter, let’s not lose sight of the opportunity we have to change UNT for the
better, especially if we continue to work together. As I’ve said before, sometimes challenges,
internally and externally, are the best opportunities for transformation.”4
Reactions on the issue
Various people have given their opinion on the current situation the University of North
Texas faces one of them is Phillip Young, a financial planner, who had worked with the
university in the years of 1992-2006 where he helped set up retirement plans. Phillip Young sent
letters to various university administrators warning them of a potential financial issue regarding
the retirement plans and other financial controls. Young had also recently been involved in a
state investigation regarding other financial irregularities and thus he felt the need to let the
university in on this. In addition to warning administrators he also offered to help them with their
financial issues although the university’s System Chancellor, Lee Jackson, dismissed his
concerns. Overall Young did admit to have committed certain mistakes during his time at the
University of North Texas he expressed in his own words that, “no client lost any money, and it
3 Hacker, Holly. “UNT president announces budget cuts in wake of financial problems”. The Dallas Morning News,
May 14, 2014. Accessed October28, 2014. http://educationblog.dallasnews.com/2014/05/unt-president-announces-
budget-cuts-in-wake-of-financial-problems.html/
4 Smatresk, Neal. “State auditor’s report consistent with UNT’s internal findings.” IN house, September 25, 2014.
Accessed October28, 2014. https://inhouse.unt.edu/state-auditors-report-consistent-unts-internal-findings

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was not a ‘Ponzi’ scheme, I did no harm, and UNT did no harm; but, since UNT did not have the
proper auditing controls in place, we could have been running a ‘Ponzi’ scheme with the trust,
and the university would have been none the wiser for it.”5 It is pretty clear that Phillip Young
warned and foresaw the current problems the university is facing.
Students from the university also knew there was trouble when they found out
cuts were being made to the library’s funds. Which angered a few since they knew funds for their
library did not come from the state but from their tuition fees so they did not really understand
why such cuts were being made until later on. As a response to the cuts the students at the
University of North Texas began a “Save the Library” campaign to avoid such cuts and save
their library since it is a vital resource to them. Joining the students in their cause was Dr.
Masood Raja, an ex-associate English professor at the University of North Texas, who stated that
“if our library doesn’t have a level of quality… it will affect our students’ and faculty’s ability to
do their research that’s the immediate effect.” 6 Dr. Raja knew that the university was headed
towards a serious financial crisis and for that reason he decided to move out to Ohio and seek a
job at Kent State University. He knew there were deeper financial issues other than the cuts that
were being made to the library and therefore decided to take measures into his own hands.
President Neal Smatresk in a recent Faculty Senate meeting Smatresk admitted that over
the past six years the university had been using money it did not have and that led them to dip
into their state reserves. Although Smatresk has only been at the university since February of this
year he maintains positive along with System Chancellor, Lee Jackson about the future of the
5 Duncan, Jenna. “Finance planner tried to alert UNT in ’09.” Denton Record-Chronicle,July 5, 2014. Accessed
October 28, 2014. http://www.dentonrc.com/local-news/local-news-headlines/20140705-finance-planner-tried-to-
alert-unt-in-09.ece
6 Lindgren, Jennifer. “University of North Texas Faces Budget Problem”. CBS Dallas, February 21, 2014. Accessed
October 28, 2014. http://dfw.cbslocal.com/2014/02/21/university-of-north-texas-faces-budget-problem/

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university and thus have let students and faculty know that. In response to the unfortunate issues
the University of North Texas is facing Ricky Perry, Governor of Texas, has sent out a letter to
all the state public universities expressing that they should learn from UNT’s mistakes and has
instructed them to conduct an audit on their financial books and report them to the state.
My Point of View
I believe the financial issues UNT is facing are very unfortunate although I do believe
they could have been prevented. The University of North Texas in my opinion was not
completely naïve their financial issues and that is very noticeable since three of their top
financial directors resigned shortly after the whole financial crisis was made public. These
officials had been aware of the irregularities that were being made throughout the years they just
did not want to confront the situation and face the consequences. I cannot understand how an
organization like the University of Texas did not notice what was going on in their financial
books or why in previous audits such irregularities went unnoticed. I personally believe public
universities should always let the public and the state in on what it is that’s going on in their
accounting books they should always maintain that level of transparency.
As a student this situation angers one because this leads one to question whose best
interests the university has at heart. It is noticeably that not paying attention to certain issues and
being ignorant to the situation that UNT did not have the student’s interest in mind when
deciding to receive excess state funds and that now those mistakes may reflect on the students in
the future. Perhaps I would have understood more if the extra money had been used in other
areas for example in things that aided students in their education but as one can see that was not
the case. Now who knows if the burden of $75 million won’t affect students in the future,

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although Smatresk says otherwise I certainly cannot see how UNT will be able to repay the state
without harming student’s pockets or education. At the end one can only hope for the best
outcome for the university and for its students.

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Bibliography
Duncan, Jenna and Ed Timms. “UNT Finances off by $23 million”. Denton Record-Chronicle,
February 14, 2014. Accessed October 31, 2014, http://www.dentonrc.com/local-
news/local-news-headlines/20140417-unt-finances-off-by-23-million.ece
Duncan, Jenna. “Finance planner tried to alert UNT in ’09.” Denton Record-Chronicle, July 5,
2014. Accessed October 28, 2014. http://www.dentonrc.com/local-news/local-news-
headlines/20140705-finance-planner-tried-to-alert-unt-in-09.ece
Hacker, Holly. “UNT president announces budget cuts in wake of financial problems”. The
Dallas Morning News, May 14, 2014. Accessed October 28, 2014.
http://educationblog.dallasnews.com/2014/05/unt-president-announces-budget-cuts-in-
wake-of-financial-problems.html/
Hacker, Holly and Jenna Duncan. “State audit bad news for UNT”. Denton Record-Chronicle,
September 24, 2014. Accessed October 31, 2014. http://www.dentonrc.com/local-
news/local-news-headlines/20140924-state-audit-bad-news-for-unt.ece
Lindgren, Jennifer. “University of North Texas Faces Budget Problem”. CBS Dallas, February
21, 2014. Accessed October 28, 2014. http://dfw.cbslocal.com/2014/02/21/university-of-
north-texas-faces-budget-problem/
Smatresk, Neal. “State auditor’s report consistent with UNT’s internal findings.” IN house,
September 25, 2014. Accessed October 28, 2014. https://inhouse.unt.edu/state-auditors-
report-consistent-unts-internal-findings

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