MIT Reports to the President 1997-98


In fiscal 1998, revenues and funds of $1,219.3 million were used for operations. Total operating expenses were $1,223.5 million. The resulting need for additional general funds of $4.2 million was met by using Research Reserve investment income and decapitalizing a portion of Reserve principal. Improved operating results relate to growth in research and increased indirect cost recovery.

The Institute continues to tightly control costs and reengineer management reporting and financial systems. These activities impact the Controller's Accounting Office, Audit Division, Office of Sponsored Programs, the Office of Budget and Financial Planning, Purchasing, and the Treasurer's Office . Implementation of the SAP R3 financial accounting system centrally and throughout the departments, laboratories and centers is moving forward. Pilot programs initiated to test functionality have been very effective, including successfully using the SAP system for fiscal year 1998 closing entries. Training of personnel in the departments, laboratories and centers has moved into high gear in anticipation of full utilization of SAP in fiscal 1999.

The staff involved in the SAP project share a sense of pride in their accomplishments during this very challenging process. Their commitment to assuring that the Institute will achieve the goals set for improving our financial systems and simplifying administrative processes is greatly appreciated.

Key accomplishments during the year include : introduction of a comprehensive Budget Book; making steady progress on developing a 10-year budget model and financial strategy; transitioning to SAP for all fiscal 1998 year end journal voucher entries; negotiating an agreement with the government relating to voluntary faculty effort on a sponsored research project and government/university cost sharing; achieving discounted air fares; and concluding IRS audits for past years without significant findings against the Institute.

The following reports by the Audit Division, Controller's Accounting Office, Property Office, Lincoln Fiscal Office, Office of Budget and Financial Planning, Office of Sponsored Programs, and MIT Press will highlight the activities in their respective departments during the year.

Over the past year, each department has addressed its staffing needs to implement SAP, to replace staff through normal turnover, and to bring in staff with the necessary management and systems skills to meet the demands of the new systems and reporting requirements. At year end, women represented more than 57 percent of departmental employees, and minorities 10 percent. We continue our efforts to diversify our workforce and to hire and promote women and minorities, in keeping with our commitment to the Institute's affirmative action program.

Glenn P. Strehle


The Audit Division continues to stay closely involved with MIT's rapidly changing environment. As a large effort continues to be invested across the Institute into complex change processes, we have joined in many collaborative efforts to assess impacts of change on existing internal controls, identify opportunities for improving operational effectiveness and efficiency, and recognize potential areas of Institute risk.

Internal Auditing remains an integral part of MIT's internal control structure. We maintain the flexibility to respond to the needs of management by addressing potential audit areas identified by management as well as through assessment of Institute risk. We continue to serve the Institute in accordance with the stated mission of providing reasonable assurance to management that Institute policies are being adhered to as intended, adequate internal controls are being maintained, and assets are properly safeguarded. The last two items are of critical importance during these times of significant organizational and information systems change. We fulfill our role 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 (now PricewaterhouseCoopers), 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.

Compliance with governmental regulations continues to be a focus of audit attention. In particular, our departmental audit approach has been effective in verifying proper fiscal responsibility throughout departments, labs and centers. As the new SAP financial system rolls out to the community at large, we will be working with management to determine how financial accountability processes will be impacted, while developing new audit tools and techniques to take full advantage of SAP's functionality. Another area of concern involving regulatory compliance is environmental health and safety. At management's request, we recently conducted a review of the Institute's Hazardous Waste program.

Traditionally, a significant segment of audit work revolves around financial analysis and evaluation of internal controls. While most audits termed "financial" involve aspects of both operations and information systems, the reliability of financial data is of primary concern. Several significant reviews were undertaken this past year in the areas of outsourced services, construction, SAP Accounts Payable, and telecommunications. In all cases, we were able to recommend opportunities for improvements with financial controls and related operational issues. As construction volume is expected to rise over the next several years, we are working closely with the Design and Construction unit of Physical Plant to better protect MIT's interests and help ensure full financial accountability by contractors. Several other upcoming reviews in this category include continued focus on functions utilizing outside service providers, accounting for royalties and licensing income, reviewing MIT Press financial operations, and the increasing use of credit cards to streamline purchasing and accounts payable functions.

Perhaps the highest areas of exposure for MIT and the Audit Division will be related to information technology, with the Year 2000 approaching, a new gifts management system readying for implementation, and the rollout of SAP to the broader MIT community. We continue to be actively involved in each of these efforts to offer our perspectives on internal controls.

Charles A. Shaw



Fiscal 1998 continued to be a year of change as was fiscal 1997 for the Controller's Accounting Office, (CAO), and the Institute due to the implementation of SAP - Business Process Software.

The second phase of the SAP rollout, to the departments, laboratories and centers, touched all administrative offices with a variety of SAP functionality during fiscal 1998. This trend will continue in fiscal 1999 as additional functionality is made available to the MIT administrative community. A number of other administrative systems, such as Payroll and Telecommunications, will be converting to the financial architecture implemented in SAP in fiscal 1999. We are also supporting the Legacy system until SAP is fully operational.

During fiscal 1998, the CAO introduced SAP Journal Vouchers Documents to the MIT Community. The goal was to have the MIT Community use SAP Journal Voucher Documents by Fiscal Year closing. It was first piloted in the CAO in September of 1997. With an aggressive training program, the MIT Community began using SAP Journal Voucher Documents in March of 1998. As of June 26, 1998, all paper and electronic vouchers were processed in SAP and the classic system was turned off. Also, SAP reports are being used for fiscal 1998, which provide real time access to financial data.

In accounts payable, a software package was purchased from ixos, an sap partner, to allow mit the capability to pay invoices from a scanned image. The accounts payable department started to pay on purchase order invoices and requests for payment from scanned images in march and in early fiscal 1999, purchase order invoices will begin to be paid from scanned images. At some future time it is anticipated that the departments will have access to these images.

During fiscal 1997, MIT joined and took a leadership role with MASCO, (Medical Academic Scientific Community Organization), for a travel consolidation. As a result of newly discounted airfare contracts, during fiscal 1998 MIT has the potential of achieving $1 million in savings.

In October 1997 the Accounts Receivable Department established an SAP Users Group comprised of various MIT departmental personnel who work with the Controller's staff to improve the SAP Accounts Receivable system.

The IRS closed the IRS employment tax audits covering the calendar years 1987 to 1990, inclusive without any findings against the Institute. This closure followed the IRS Appeals Division's earlier decision in favor of the Institute for calendar years 1985 and 1986. This brought to a conclusion the examination activities of the Boston IRS Employment Tax Division, which began over eleven years ago.

The IRS Coordinated Examination Program (CEP) tax agents concluded their examination regarding payroll issues and have identified two minor areas of concern with which the Institute has strongly disagreed. Both parties will continue to move forward to a resolution over, hopefully, the next year.

The Year 2000 Compliance project, which will ensure the compatibility of the payroll system with the issues regarding the Year 2000, has continued during the past year with good progress and results. We expect to complete this project during the final quarter of calendar year 1998.

The project to change the method of recovering the cost of the Research Assistant tuition awards from the employee benefit rate methodology to a direct charge to the specific research project, affected through the Payroll System, was completed after some last minute Institutional policy changes. This project proved to be considerably more involved and time consuming than originally expected.

A project has begun to modify the Payroll System to accommodate the SAP account number and expense classification codes structures. We expect to devote major effort to this project when other critical projects have been completed and anticipate a completion date by the end of calendar year 1998.

Retirement Plans Accounting (RPA) is responsible for the accounting and reporting requirements of the MIT Retirement Plan and Trust. RPA maintains records for over 19,000 members and disburses retirement benefits to former employees. This includes maintaining records for the basic retirement benefit provided by MIT and the Supplemental Plan in which the Institute matches employee contributions on a dollar-for-dollar basis


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, 14,600 newly acquired items of moveable equipment were identified and tagged. Over 14,400 financial transactions regarding invoices, purchase orders, requisitions, journal vouchers, and cash vouchers were reviewed resulting in 2,600 corrections, thereby ensuring the integrity of the Property database. The scanning phase of the equipment biennial physical inventory was completed and the reconciliation cycle was begun. Four hundred forty (440) final inventories were submitted as part of closing out contracts, grants, and agreements. There were six hundred eleven (611) financial reports prepared and submitted to various government agencies. Forty-nine (49) items of excess government equipment with an original acquisition cost of $4,805,954 were acquired from government sources at no cost to MIT. Nine hundred eighty-nine (989) items of equipment with an acquisition value of $741,750 were transferred between MIT departments as part of a reutilization program. Equipment unneeded or unusable by the MIT community was sold for $200,017, providing funds for replacement equipment. Three hundred eighty-eight (388) items of equipment with an acquisition value of $3,504,204 were donated to nonprofit organizations.

The annual indirect cost study for the equipment and building pools was conducted in conjunction with the Office of Cost Analysis, which resulted in a recovery of $20.9 million. Thirty-seven (37) capital projects were begun during the year. The costs of capital space changes, major renovations, and new building construction continue to be tracked.

The Office of Naval Research conducted a Property Control System Analysis (PCSA) resulting in the continued approval of MIT's property control system.


The Lincoln Fiscal Office (LFO) provides financial support to MIT's Lincoln Laboratory by providing accounting, payroll, cashiers, cash management, and property control services.

1998 continued to see system changes to support the Laboratory operations. The major changes were continued development in the Year 2000 conversion for the General Ledger System which should be completed in the last quarter of 1998, completed version 2.8.5 of Lincoln Executive Information System (LINEIS) with Group 68, implemented access to SAP via the LLEN (Lincoln Lab External Network) for Journal Vouchers to post closing entries, and completed and implemented the new Ship Order system.

Accounting changes made in 1998 were restructuring the Lincoln Laboratory Advance Payment Pool Agreement, as well as reconciling of the "old" pool, and converting from preprinted stock checks to Checkguard, a laser check writing system.

The Property Department of the fiscal office continues to make progress on the reconciliation of property to the Property Control System for the 1996 inventory. This has required effort from all units of the Laboratory as well as from Campus Property Office. We continue efforts to fully comply with the inventory requirements of our sponsors.

More information about this department (CAO) can be found on the World Wide Web at the following URL:

James L. Morgan


The fundamental mission of the Office of Budget and Financial Planning (Budget Office) is to support MIT's goal of continued excellence in education and research by providing senior management with accurate and timely financial information, projections, and recommendations. The Office is responsible for:

The long-term strategic objectives of the Budget Office continue to be to:

During fiscal 1998 the Budget Office continued to substantiate its role in providing information to support long range planning and the definition of strategic goals at the Institute level. The financial model of the MIT operating budget, which was introduced in 1997 to project resources and expenses over a ten-year period, has evolved in response to its application during 1998 to support financial deliberations of the Provost and Executive Committee. We will continue to develop this model, which is used to help senior leadership explore the impact of varying needs scenarios on operating results. In addition to the financial model, the Budget Office has focused on the development of a multi-year Capital Plan. This Plan will be used internally to analyze funding options for capital needs under different marketing scenarios and externally to support the Institute's funding agency requirements.

In January 1998 the Budget Office published a Budget Book for fiscal 1998, the first of a continuing series. In April 1998 the office published the Budget Book for fiscal 1999, establishing the normal annual publication schedule. The Budget Book is the definitive MIT Operating Budget document and includes sections on Research, Tuition, and Individual Schools, as well as an extensive section on Capital planning and operations.

In supporting the Institute's requirements in the immediate future, the Office will be called upon to help revise processes, streamline procedures and introduce new budgeting tools, while at the same time maintaining current functionality and preserving existing controls. To achieve these goals, the office is now fully staffed and is flexibly organized. The Budget Office has a full Budget Officer complement for the first time in over four years and looks forward to providing truly responsive service to its constituencies.

The Budget Office has commenced a project to design, test, and deploy a SAP-integrated budget system to replace and enhance its current system, BEERS, which is not compliant with Year 2000 requirements. In undertaking this significant project, the Office is teamed with the Institute's IT leadership, the Management Reporting function, and the user community. Specifically, a new budget system Advisory Committee, with key representatives from the Institute's academic community and its administration, has been convened. The constituency of this committee will help ensure that the system meets user community requirements as well as provide continuity with previous re-engineering design studies for new budget system development. The Institute should see the first new system application during the budget submission process for fiscal 2000.

Stefano Falconi


For fiscal 1998 the total volume of sponsored research performed on campus was $386,355,000. This represents an almost steady state with the fiscal 1997 volume of $387,880,000. The breakdown by sponsor is shown in the table at the end of this report.

Activities in the Office of Sponsored Programs during 1997-1998 were significantly affected in two distinct areas: externally, by ongoing policy issues related to federal funding of research; internally, by the continued development of a major new emphasis on computerization and automation within the office. Each of these is described below:


Adopted in June, 1998, another set of revisions to OMB Circular A-21 ( the Federal cost principles applicable to universities), was issued which included provisions that further constrain the ability of institutions to fully recover the costs of performing research for the federal government.

One of the significant changes in 1998 is the adoption of a review process to ensure the reasonableness of facilities costs for research facilities costing over $10 million, of which 40% or more is expected to be used for federal research. There is a requirement for additional documentation for buildings costing greater than $25 million with more than 50% allocated to federal research. These requirements will cause additional administrative efforts to ensure appropriate reimbursement for the Institute's research facilities.

With the implementation of Cost Accounting Standards and more rigid interpretations by federal auditors, issues surrounding cost-sharing are now creating additional areas of audit activity in the research arena. Stated simply, there are serious issues around what constitutes cost sharing and academic year faculty effort and how those activities are documented, reported, and used in the construction of the indirect cost proposal.


OMB decided that MIT and three other major research universities are not permitted to continue charging the tuition of graduate student research assistants to the employee benefit pool but are required to treat it as a direct cost to the individual research projects on which they are employed. The implementing regulations, which appear in OMB Circular A-21, provided a transition period but require the treatment of tuition as a direct charge beginning in fiscal 1999. Although the Institute decided to support with general funds 30% of the stipend and tuition for each graduate research assistant, the problem remains for NIH awards because that agency is now restricting graduate student compensation (defined as salary plus employee benefits plus tuition charges) to a "reasonable" level and, furthermore, will limit funding from NIH for these costs to $23,000.


Significant effort has been devoted toward streamlining some internal processes related to the management of research awards at the Institute. These have provided relief to schools, labs, and departments, as well as to central administrative offices. We have given additional flexibility to principal investigators in the use of federal research grant funds by relaxing many of the internal approvals previously required and have streamlined the Research Proposal Summary form, to reduce the items on the form and make the remaining items more useful.

The major internal effort of the office again this year has been in the area of computerization and automation. In addition to full development and implementation of an OSP computerized database (COEUS&tm;) to capture award and proposal information, efforts have also been devoted to using this database as the initial feed into the Institute's accounting system for research awards. The automated feed from COEUS&tm; to SAP was activated in March, 1998. Deployment continues to departments, laboratories, and centers of this system, which will permit more effective and efficient management of awards by OSP staff, will permit Institute personnel to access the database, and will provide the capability to produce standard and custom reports quickly and independently. We are currently beginning the testing phase of MIT's electronic proposal system, which is targeted for testing in Summer 1998 and implementation in Fall 1998. This will enable any researcher at MIT using the technology already available in the researcher's office or laboratory to electronically create and submit proposals to federal agencies.


In May 1998 OSP added a senior staff member charged with responsibility for heading a team specifically designed to enhance capabilities in the area of negotiation and contracting with industrial concerns on individual research projects. That effort will be enhanced in fiscal 1999.

CAMPUS RESEARCH VOLUME BY SPONSOR - 1990-1998 (in thousands of dollars)




































































































































More information about this department can be found on the World Wide Web at the following URL:

Julie Norris


Fiscal 1998 was an excellent year for the book list, sales, program development in journals, and internet/web activity and initiatives. It was also an unusual year. Export sales were down year to year for the first time in memory, domestic backlist sales were up 20%, and internet sales through and Barnes and increased from $142,000 to $722,000. This represents continuing turbulence in the distribution side of our business.

At $15.5 million, overall book sales were up $1 million or 7.3% over last year. Journal sales were up 2% at $4.6 million. The operating net for the year was $10,000 compared to a budgeted loss of ($288,000), and ($177,000) for fiscal 1997. There was also an overall charge for RA/TA tuition in the benefit rate of $522,000 which ends this year.




Total Net Book Sales



Cost of Sales



Gross Margin on Sales



Other Pub. Income



Bookstore Net



Total Income



Operating Expenses



Net Books Division


( 93)

Journals Net



Net Pub Operations



Add: Investment Income



Subtotal: Interest Paid MI



Net Operating Gain (Loss)


$ 10

The top five titles experiencing the highest sales were:

Krugman - Age of Diminished Expectations(3rd edition)

Balken - Arthur Dove: A Retrospective

Kluver - A Day with Picasso

Pozen - The Mutual Fund Business

Diffie - Privacy on the Line

Faculty serving on The MIT Press Editorial Boards in 1997-98 were Harold Abelson, Julian Beinart, Olivier Blanchard, Joshua Cohen, Anita Desai, Deborah Fitzgerald, Bengt Holmstrom, Samuel Jay Keyser, Albert Meyer, Gregory McRae, William Mitchell and Donald Prinn. Dean William Mitchell served as Chair. Frank Urbanowski , Glenn Strehle and Ann Wolpert served as ex-officio members.

The MIT Press Management Board met twice during the year. Members of the Board were: Mary Curtis, President of Transaction Publishers; Joseph Esposito, President and CEO of Tribal Voice, Inc.; Jack Goellner, former Director of Johns Hopkins University Press; John Hanley, Chairman and CEO of Scientific American; Steven R. Lerman, Professor, MIT Civil Engineering Department; William J. Mitchell, Dean, MIT School of Architecture and Planning: Dr. Richard Rowe, President RoweCom; Jerome S. Rubin, Group Vice President of Times Mirror; Ann Wolpert, Director of MIT Libraries. William Mitchell and Frank Urbanowski served as ex-officio members of the Management Board; Glenn Strehle served as Chairman of the Board.

Domestic sales this year showed very strong gains, increasing 16.5%, or about $1.4 million. For the first time in many years we saw a decrease in our foreign sales of about 6% from last year. Web booksellers are now becoming a significant customer, and this year accounted for about $350,000 in direct sales. In addition, we sold about $105,000 through our own web site., the largest web seller, relies heavily on a major wholesaler to supply books for its customers, and when these sales are included, our total internet sales were about $830,000 for the year. Because several of our major customers have begun to stock virtually all of our in print titles, older books were an important contributor to this year's unit sales increase of about 2%, or 797,400 copies sold.


Overall, subsidiary rights income in fiscal 1998 decreased by 7% since fiscal 1997. The core of our subsidiary rights program is the sale of translation rights to our books. Since fiscal 1997, income generated by the licensing of foreign rights decreased by 16%. Although we signed a larger number of contracts in fiscal 1998 than previously, the initial advances offered by publishers abroad decreased due to the unstable economic situation especially affecting Asia, and to the disproportionate strength of the dollar. The royalty scales agreed upon, however, remained favorable, so that in the long term these transactions will generate sufficient income to make up for the smaller advances.

Income from our reprint program, which includes permission to photocopy and to publish excerpts from our books, increased by 13% in fiscal 1998. We had several first-serial rights sales, most prominent among them excerpts from Wodiczko's Critical Vehicles, and Bourgeois' Destruction of the Father, both to Grand Street, a publication of the New York Foundation for the Arts.

Book club income decreased by 68% in fiscal 1998, reflecting extensive changes in the book club industry in the past two years. Most sales to book clubs are now in smaller quantities, and are handled as special sales; thus they do not generate subsidiary rights income.

During fiscal 1998, income from the licensing of electronic rights decreased by 5% since fiscal 1997.


Following very strong export sales in fiscal 1996 and 1997, MIT Press export sales decreased by 7.3% in fiscal 1998. The downturn was broad-based in terms of geography and appears primarily to result from the growing strength of the U.S. dollar against almost all foreign currencies. In addition, MIT Press books were noticeably more expensive than previously almost everywhere outside the United States, resulting in fewer books being sold. Annual variations in the exportability of the new titles issued by the MIT Press list, along with changes in buying channels brought about by the rise of internet bookselling, will affect export sales results over the coming years. However, these sales will remain broadly depressed until the U.S. dollar weakens against a broad spectrum of foreign currencies.


Fiscal 1998 showed marked improvement for direct mail over last year. Traceable sales through the end of June were $391,601, up 42% . Economics continues to be our strongest direct mail subject area, followed by Cognitive Science, and Computer Science.

Text sales in the U.S. and Canada were $2.4 million, an increase of 1% over last year. Unit sales decreased 12%. Bestsellers in terms of dollars were Barro/Macroeconomics 5E, Kennedy/Macroeconomic Essentials for Media Interpretation, Krugman/Age of Diminished Expectations 3E, and Viscusi/Economics and Regulations of Antitrust 2E.

The MIT Press exhibited books with our own staffed booth or table at more than 55 U.S. academic conferences in fiscal 1998, and displayed books at over 90 others through free and combined exhibits. Sales generated from exhibits are currently at $195,851.

Advertisements for MIT Press books appeared in almost 600 trade and scholarly journals and magazines, as well as conference programs. All of these ads were produced in-house.

Press books and authors continue to be covered by an enormous number of general and scholarly media, including The New York Times Book Review, The Wall Street Journal, Nature, Science, The New Scientist, The Washington Post, The New Yorker, Wired, Foreign Affairs, The Times Literary Supplement, and others. Press authors discussed their books on radio and television programs broadcast by National Public Radio, C-Span, The Bloomberg Business Network, and others. One of the most widely reviewed titles of the year was Arthur Dove: A Retrospective edited by Debra Balken et al. Another very widely and favorably reviewed title was Billy Kluver's A Day With Picasso, .

Electronic promotion was considerably expanded in fiscal 1998. We posted announcements of all new professional and many new trade titles to e-mail listservs and Usenet newsgroups in the relevant fields; and we negotiated links from many related websites to our own. With the help of our Digital Products Laboratory (DPL), we developed a system to track the number of responses ("hits") generated by each announcement or link.

For the Press's website we prepared a number of substantive promotions in the form of book-of-the-month features. These typically featured a single book in depth, using graphics, author biographies and interviews, author photos, praise from endorsers and published reviews, descriptive copy, excerpts from the books themselves, and further internet resources for readers interested in the subjects covered.

Press books and authors received numerous awards. Among these are City Center to Regional Mall: Architecture, the Automobile, and Retailing in Los Angeles, 1920-1950 by Richard Longstreth - the Lewis Mumford Prize; and Robert Giard's Particular Voices: Portraits of Gay and Lesbian Writers - the prestigious 1998 Lambda Literary Award for Best Book in the Photography and Visual Arts category. The MIT Press author, Torsten Persson, was awarded the 1997 Yrjö Jahnsson Prize sponsored by The Yrjö Jahnsson Foundation and The European Economic Association given to the best young economist active in Europe. Three Press titles were awarded the eighth annual International Architecture Book Awards, sponsored by The American Institute of Architects; the Press received awards for three titles in the 1997 Professional/Scholarly Publishing Division Annual Awards Competition, sponsored by The Association of American Publishers, Inc.; and received awards for ten titles in the 1998 Book, Jacket, and Journal Show, sponsored by The Association of American University Presses.


In fiscal 1998, the Journals program had gross sales of $4.6 million, a 2% increase over last year. Because of the sale of one of our established journals (International Journal of Robotics Research), only $1,159 was added to the deferred subscription reserve account during the year, making the total reserve essentially flat at $2 million. We also ceased publication of Adaptive Behavior and The Ecologist, and added Real Estate Economics and Videre: Journal of Computer Vision Research to our program. The division ends the year publishing 34 journals.

Frank Urbanowski

MIT Reports to the President 1997-98