Susan Brooks, Director of the University Daycare Center, was reviewing the year-to-date Budget Performance Report from the Finance Department of the university. As she tried to analyze the components of each report, she realized that something needed to be done about the Center’s financial status. The variance analysis for the Daycare Center showed a shortfall of over $89,000 (Exhibit 1).
The University Daycare Center (UDC) was affiliated with a large urban university and maintained a facility located two miles from the main campus. It had passed state inspection in April, and had opened in July, just in time for the beginning of the fiscal year. The building in which the UDC was located had formerly been an elementary school. The Center occupied one corridor, with four large classrooms on each side. Two other corridors in the same building were unoccupied and had not been renovated. At the the end of the hallway was the Director’s office and a small reception area where parents arrived with their children, usually by eight o’clock in the morning.
The rooms had been carpeted and all of their doors had been removed to decrease the possibility of injuries. Additionally, the walls had been remodeled so that glass panels occupied the upper half of each wall on the corridor side. This made it possible for Teachers and Aides to observe children directly from the hallway. Each room was supplied with furniture, supplies and toys appropriate to different age groups of children. The infant room, for example, had cribs and bassinets and was stocked with various sizes of disposable diapers. The facility was cleaned and maintained, respectively, by the housekeeping and maintenance departments of the university.
In December of the previous year, the university’s Department of Human Resources had surveyed 300 of the 1250 university employees, including professors, administrative personnel, laboratory workers, and office assistants, to determine whether they would utilize a daycare center. The survey included questions regarding fees, hours of operation and coverage for emergencies. The response was overwhelmingly in favor of providing such a service. The Human Resources Director, therefore, had drafted a proposal for the following year’s budget and received approval for a one-year $160,000 subsidy for the operation of a daycare center. Funds for the remodeling and furnishing of the Center were to be obtained from the Capital Improvement fund and the building was to be rented at a cost of $60,000 a year, with a one year renewable lease.
The Human Resources department began promoting the Center two months prior to its opening. Flyers were posted throughout the university and were placed in the mailboxes of virtually every permanent employee. A Human Resources representative attended orientation sessions for new employees and answered questions regarding the Center’s services. The promotion approach emphasized the presence of the Center as an employee benefit, despite the fact that employees . . .
- What is the source of the financial problems at the UDC? Please be as specific as you can, explaining all the reasons why actual results differ from budgeted ones.
- What might Ms. Brooks do to correct the financial problems? Please be as specific as you can in outlining a course of action that you believe she should follow.
- What action would you recommend the Trustees take at their March meeting?