MIT Reports to the President 1994-95

Vice President for Finance and Treasurer


In fiscal 1995, revenues were $1,172.9 million and expenses were $1,183.0 million. This produced a deficit of $10.1 million, and compares with a projected deficit of $8.9 million approved by the Executive Committee in May 1994. The deficit was brought into balance by using the investment income earned on the Research Reserve, and partial decapitalization of that Reserve. The causes of this increased deficit were reduced overhead recovery, lower than expected unrestricted gifts and Industrial Liaison Program fees credited to operations, the on-going costs of reengineering, and the net costs of employee benefits. On the positive side, total expenses in certain academic and support areas were less than budgeted.

MIT had modest surpluses in the operating budget in fiscal 1984-1988, and modest deficits in fiscal 1989-1994. The deficit in fiscal 1994 was $6.2 million and, as noted above, the deficit for fiscal 1995 is $10.1 million. Current projections indicate deficits of $8.7 million in fiscal 1996, $6.4 million in fiscal 1997, and $4.1 million in fiscal 1998. It is expected that over time the results of reengineering will have a significant impact on the Institute's expenses and can bring financial operations into balance.

It is important to note that MIT is a financially strong institution with its over $2 billion endowment at market value, and continues to add to its financial resources. Its total invested assets exceeded $2.4 billion at June 30, 1995. Over the past five years the market value of all investments increased by 33%.

The Institute continues to control costs and has been engaged in a reengineering effort during the last two fiscal years. In financial operations this effort is focused on management reporting affecting all fiscal accounting, purchasing and payroll procedures. A decision was made to redesign MIT's management reporting procedures and systems, and the R/3 system from SAP AG in Walldorf, Germany was selected to replace the present applications. Work continues on this project, looking to initial implementation in fiscal 1997. Members of the administrative staff in financial operations, academic and administrative departments, centers and laboratories have been involved in all phases of this project. Their cooperation and valuable input assure the successful design and implementation of the management reporting system.

Since the end of the fiscal year, six staff members in financial operations have transferred to a new department dedicated to the Management Reporting/Financial Operations (MR/FO) Reengineering Project. Most of the staff involved in reengineering have continued their primary affiliation with their home departments.

The following reports of each department (Comptroller's Accounting and Lincoln Fiscal Offices, Purchasing and Stores, Audit Division and Office of Financial Planning and Management) will highlight the activities in their respective departments during the year.

This is my first report as Vice President for Finance and Treasurer. I am grateful to the financial operations staff for their dedication to the effective management of MIT's resources, and for their cooperation and support during this challenging time. It is my expectation that the changes envisioned in our new management reporting system will bring us to a higher level of efficiency with the ability to provide improved financial information while also simplifying administrative processes.

Affirmative Action Efforts in Financial Operations

The past year was a period of uncertainty relating to staffing needs to fulfill the requirements associated with reengineering. The Office of Laboratory Supplies in the Department of Purchasing and Stores was closed and resulted in layoffs and reassignments. Several positions vacated by terminations, retirements, promotions, and transfers remain open awaiting decisions based on reengineering. Women represent more than 50% of the staff in financial operations, and underrepresented minorities comprise about 11%. During the year there were opportunities to promote women, including promotions from support to administrative staff positions. Financial Operations remains dedicated to increasing the diversity of its work force at every level and seeks qualified women and minority candidates for all openings.

Glenn P. Strehle


While significant changes are occurring throughout the Institute with business process reengineering efforts in progress, the Audit Division continues to serve the Institute in accordance with the stated mission of providing reasonable assurance to management that an adequate internal control structure is maintained, policies are being adhered to as intended, and assets are properly safeguarded. We accomplish this through reviews, both on campus and at Lincoln Laboratory, which encompass the diverse aspects of MIT operations.

Our audit coverage is coordinated with Coopers & Lybrand, the Institute's Certified Public Accounting firm, and the Defense Contract Audit Agency (DCAA), MIT's cognizant federal audit agency. Internal audits are conducted consistent with the Standards for the Professional Practice of Internal Auditing which guide us in the discharge of our duties to ensure proper objectivity, independence and audit quality control.

The Institute's continued budget shortfall remains a critical issue and the reengineering of major administrative processes aims at addressing this by reducing operating expenses. This year will continue to bring significant changes to MIT as reengineered business processes are put into place and the examination of other processes is started. Substantial Audit Division involvement has been devoted during the redesign efforts thus far with five members of our staff involved as members of reengineering teams and the entire staff serving as a resource to the process. Two individuals on our staff have been identified as key members to continue serving 100% time on the reengineering of financial operations. The Audit Division will maintain its effort so that we may help MIT maintain a strong internal control structure before, during and after reengineering.

Departmental Reviews have been a staple of our audit plans for several years. These are fundamental compliance audits aimed toward proper financial accountability within each department, center and laboratory. Many Institute guidelines and policies mirror expectations of Federal sponsors for responsible trusteeship of funds. This year's planned departmental review coverage will mark the beginning of our third Institute-wide departmental review cycle.

Our effort was re-focused this past year to keep abreast of the active growth of information technology, and the numerous and rapid changes within the Institute. Each auditor was given the responsibility for gaining a baseline understanding of several computer-based information systems and functions through ongoing contact with key individuals in various administrative areas. This approach will better equip us with an up-to-date broadened knowledge of MIT's information systems' risks and help us better prioritize audit coverage.

Staff highlights this past year included one member's completion of requirements for certification as a Certified Public Accountant. It is expected that all audit staff will pursue professional certification as a CPA, CIA (Certified Internal Auditor), or CISA (Certified Information Systems Auditor). Collectively, the Audit Division now holds 2 CPA, 5 CIA, and 2 CISA designations.

Charles A. Shaw



The task to reprogram the automated deferral programs to comply with the federally imposed salary limit for retirement plan participants was completed. The electronic SANDI (Staff labor/distribution) project, which allows departments to record the labor/distribution for exempt employees, was successfully implemented in May 1995, and the Electronic Time (E-Time) Sheet System was implemented at the Lincoln Laboratory. As part of the E-Time Sheet procedures, paper time sheets have been suppressed for departments using the E-Time Sheet System. A special procedure was developed for the Physical Plant to electronically pass time sheet input directly to the Payroll Office bypassing the E-Time Sheet System used by the rest of the Institute.

Testing has begun on receiving appointment forms in anticipation of the appointment process (TAP) under development by the Reengineering Team.

Work continues on the project to automate the recording of the Sponsored Research Staff vacation procedures; a project which was interrupted while other more critical projects were addressed.

Internal Revenue Service (IRS) audits continue to proceed both from the regional IRS office as well as the Coordinated Examination Program audits at the national level.

Financial Systems

Several personnel from this area are participating on the MR/FO Team as well as participating in training sessions.

New procedures are being put in place to accept electronic feeds from three new procurement partnerships. To meet requirements of the Financial Accounting Standards Board, several changes were made to the Chart of Accounts along with requested changes from the Purchasing and Budget Offices. Changes were made to the General Ledger System to remove overhead from allocation, but charge employee benefits. We have completed the supplemental overhead changes and fund transactions fee changes for July 1995. Work was done to provide the MR/FO Team all Fiscal Year 1995 financial transactions that will be loaded into SAP R/3 in order that balance sheets and similar reports may be compared between our current systems and R/3 implementation.

Benefit Accounting

The project to modify the Pension Accounting System to recognize a monthly valuation for the Variable Fund was begun in early 1995 with a scheduled completion date of July 1995. New deductions were implemented in the Pension Payroll System to provide greater service and convenience to annuitants.

Investment Accounting

New procedures were implemented to process State Street Bank electronic advices; and a special appraisal extract was created for Coopers & Lybrand L.L.P.

The Property Office

The Property Office is responsible for the accounting and asset management of more than 100,000 items of equipment which are both MIT-owned as well as sponsor-owned. During the year, 12,500 newly acquired items of moveable equipment were identified and tagged. The scanning phase of the biennial inventory was completed with the reconciliation of the unlocated items in progress. Two hundred and eight final inventories were submitted as part of closing out contracts, grants, and agreements. There were 473 financial reports prepared and submitted to various government agencies.

Property management responsibilities increased with the added tasks of tracking all capital space changes, major renovations, and new building construction. The Property Office also has the added responsibility of capitalizing and tracking the 13,000 telephone lines at the Institute.

A Property Application (SumPROP) was developed by the Comptroller's Accounting Office programming staff which will give SumMIT users the ability to query and report on equipment data. Requests from various academic and administrative departments for equipment information resulted in over 600 reports being generated and distributed to the departments.

Lincoln Fiscal Office

A new Check Writing System was introduced in the Cashier's Office in May 1995. This system eliminates the need for pre-numbered check forms and combines the separate functions of preparing the check, including the microcodings, and signing the check into one smooth operation. This system is currently limited to special quick checks, but plans are underway to incorporate travel reimbursement checks and purchase order draft checks for implementation in 1996.

The Lincoln Executive Information System (LINEIS), which was developed by a cooperative effort between the Comptroller's Accounting Office, Lincoln Laboratory Fiscal Office, and Lincoln Laboratory, was introduced, implemented, and is considered a success. It replaces the Lincoln Information System (LFOINFO) which has been operational since 1981 and will be discontinued at the end of September 1995. The LINEIS System will be an ongoing task of new development and enhancement.

Philip J. Keohan


The Institute, in accordance with the Financial Accounting Standards Board guidelines in FAS 116 and FAS 117, is revising the schedules used in the Report of the Treasurer for 1995. The new schedules are not available at this time, but it is likely that the actual amounts used in the new schedules will differ from those available now. The differences will result solely from different organization and presentation of the accounting information.

Reengineering was the dominant focus of management work during the year and will result in new processes for budgeting and reporting. The results of reengineering should hold expenses to modest increases or show a decline in terms of constant dollars.

Capital Budget

The Institute's capital and major renovations budget is $406 million for 13 active projects, as outlined in the fiscal 1995 Capital Budget. These figures include land acquisition, construction, financing, and, where appropriate, funds to cover the unrestricted portion of building operating costs for ten years. Direct construction costs are $233 million with interest expense of $166 million on financings extending from ten to thirty years, depending on the project. The remaining costs include $5.1 million for property acquisition and $2.9 million for operating expenses.

Major projects completed during the year include the renovation of 311-312 Memorial Drive as an annex to McCormick Hall, the Institute's all-female dormitory, to house approximately 25 women; the renovation and upgrade of three undergraduate teaching laboratories and the student projects workshop for the Department of Mechanical Engineering, renamed The Pappalardo Engineering Projects Laboratory; and the renovation of 40 Massachusetts Avenue to accommodate the MIT religious counselors, the Kosher Kitchen, and other student religious activities. The construction of the Cogeneration Plant on Vassar Street, including the upgrade of the electrical distribution and control systems in the existing plant, continued during the year. Construction of the addition to 70 Memorial Drive, which will be called the Jack C. Tang Center for Management Education and used by the Sloan School of Management, is ongoing. The schematic design for the renovation and upgrade of the Dorrance and Uncas A. Whitaker Buildings was substantially completed during the year, and construction will begin in the Fall of 1995.

As part of the reengineering effort, three members of the staff were directly involved in the MR/FO Project. Two of these have joined the reengineering staff to work on a team to configure the new software to meet MIT's needs. The responsibilities of these valued staff members have been assumed by other members of the department.

John A. Currie


Major projects completed, continued, or initiated this year include:

Reengineering Partnership Arrangements

The Office of Laboratory Supplies (OLS) ceased operations and was closed as of June 30. This was in accordance with an approved cost reduction reengineering plan which provides for the replacement of the OLS, commencing next year, with three major commercial suppliers with whom the Institute has done business for many years under new procurement partnership arrangements. The selected partners are VWR Scientific for laboratory supplies, chemicals and solvents; Office Depot (formerly L. E. Muran) for office supplies; and BOC Gases (formerly Airco) for the purchasing, distribution, and tracking of gaseous and liquefied cylinders.

A partnership arrangement with Sterling/Olsten Staffing Services, a temporary help agency, was implemented this year. This was in accordance with an approved cost reduction reengineering plan which, in its full scope, will coordinate and support all of the Institute's substantial needs for temporary secretarial and clerical services.

EREQ System

EREQ, the Institute's on-line and interactive electronic requisitioning system, is a free service available to all members of the MIT community. Use of the EREQ system increased by 36% this year. A similar increase is expected next year with the use of the EREQ system for transmitting electronic requisitions to the new business partner suppliers.

Cambridge First Day

"Cambridge First Day"is the theme developed to remind and inform City of Cambridge officials, business owners, and residents of the substantial purchasing business which MIT places each year with Cambridge companies.

MIT's purchasing offices employ a "Cambridge First" policy in their purchasing activities, with the goal of placing as much business as possible with Cambridge companies. This resulted in over $42 million of purchasing business placed this year with over 700 Cambridge companies.

Minority and Women-Owned Business Purchasing Programs

Business placed Institute-wide under these affirmative action procurement programs resulted in the award of over $18.4 million to minority and women-owned business concerns. Over $7.7 million was awarded to 450 minority businesses and over $10.7 million was awarded to 950 women-owned businesses.

Subcontracting Plans Under Federal Contracts

Subcontracting Plans are required (by law) for each contract proposal to a federal agency which exceeds $500,000. The Subcontracting Plan specifically identifies the efforts that will be taken under a resulting contract to assure the award of a fair proportion of subcontract and purchasing dollars to small business concerns and small minority business concerns. The Subcontracting Plan includes both dollar and percentage goals which are negotiated with the sponsor and become a material part of the resulting contract.

As a service to departments, laboratories, and centers, the Assistant Director for Subcontracting coordinates with the Office of Sponsored Programs and principal investigators, prepares Subcontracting Plans for submission, negotiates changes when necessary, and reports accomplishments to federal sponsors and principal investigators. This year there were over 50 active Subcontracting Plans under Institute federal contracts which necessitated the submission of over 100 separate reports of accomplishments to federal sponsors. Additionally, in order to provide guidance and assistance to principal investigators, over 100 internal progress reports were issued.

Barry Rowe

MIT Reports to the President 1994-95