S3406

An Act concerning the financial monitoring of public institutions of higher education and supplementing Title 18A of the New Jersey Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. In addition to submitting the annual audit pursuant to section 6 of P.L.2009, c.308 (C.18A:3B-51), a public institution of higher education shall submit an annual fiscal monitoring report to the Office of the Secretary of Higher Education according to a schedule and in a format established by the secretary.

2. a. Pursuant to a schedule established by the secretary, a public institution of higher education shall undergo a comprehensive audit. The secretary shall facilitate the audit which shall examine the institution’s fiscal and governance operations.

b. In addition to the scheduled comprehensive audit established by subsection a. of this section, the Secretary may direct a comprehensive audit of an institutions fiscal and governance operations at any time if the secretary determines that conditions may exist within the institution that significantly or negatively impact an institution’s operations.

3. Notwithstanding any other provision of law to the contrary, the secretary shall have the authority to appoint a State monitor and additional staff as necessary, to provide direct oversight of a public institution of higher education’s fiscal and governance operations if the institution meets the following criteria:

a. the fiscal monitoring report or comprehensive audit submitted pursuant to sections 1 and 2 of this act includes a finding of financial instability of the institution, as determined by the secretary;

b. the institution receives an adverse or a disclaimer opinion by its independent auditor in the annual audit submitted pursuant to section 6 of P.L.2009, c.308 (C.18A:3B-51); or

c. the institution meets any two of the following criteria:

(1) the institution ends the fiscal year with a deficit balance as calculated for budgetary purposes in the general fund, special revenue fund, or capital projects fund, with the exception of a capital projects fund deficit caused by the issuance of bond anticipation notes;

(2) the institution fails to develop and implement a plan acceptable to the secretary, or the secretary’s designee, to address a deficit balance in the general fund, special revenue fund, or capital projects fund, with the exception of a capital projects fund deficit caused by the issuance of bond anticipation notes;

(3) the institution receives a qualified opinion by its annual auditor in the annual audit submitted pursuant to section 6 of P.L.2009, c.308 (C.18A:3B-51) or the fiscal monitoring report submitted pursuant to section 1 of this act;

(4) the institution receives an adverse, disclaimer, or qualified opinion by its independent auditor under the single audit section for State or federal awards in the annual audit submitted pursuant to section 6 of P.L.2009, c.308 (C.18A:3B-51) or the fiscal monitoring report submitted pursuant to section 1 of this act;

(5) the institution receives any audit findings by its independent auditor identified as material weaknesses in internal controls in the annual audit submitted pursuant to section 6 of P.L.2009, c.308 (C.18A:3B-51);

(6) the institution fails to implement a plan from the prior fiscal year which causes any findings from the independent auditor to be repeated;

(7) the institution fails to submit the annual audit required by section 6 of P.L.2009, c.308 (C.18A:3B-51) or the fiscal monitoring report required by section 1 of this act; or

(8) the institution fails to comply with the timely training of governing board members as required by section 17 of P.L.2009, c.308 (C.18A:3B-62) or any other State laws or regulations.

4. Notwithstanding any other provision of law to the contrary, a State monitor appointed pursuant to section 3 of this act shall:

a. oversee the fiscal management and expenditures of funds of the public institution of higher education including, but not limited to, budget reallocations and reductions, approvals of purchase orders, budget transfers, and payment of bills and claims;

b. oversee the operation and fiscal management of facilities, including developing and implementing recommendations for restructuring the institution offered by the governing board of a public institution of higher education;

c. ensure development and implementation of an acceptable plan to address the circumstances which resulted in the appointment of a State monitor pursuant to section 3 of this act that includes measurable benchmarks and specific activities to address the deficiencies of the institution;

d. oversee all staffing, including the ability to hire, promote, and terminate employees, as well as the ability to deny proposals by the administration of the institution to hire, promote, or terminate employees;

e. have authority to override any action by the president of the institution or a vote by the governing board of the institution on any of the matters set forth in this section except that all actions of the State monitor shall comply with the “New Jersey Employer-Employee Relations Act,” established pursuant to P.L.1941, c.100 (C.34:13A-1 et seq.), and any collective bargaining agreements entered into by the public institution of higher education;

f. attend all meetings of the governing board of the institution, including closed sessions;

g. meet with the governing board of the institution at least quarterly to provide governing board members with education and training that address the deficiencies and actions leading to the appointment of a State monitor pursuant to section 3 of this act; and

h. report directly to the secretary or the secretary’s designee.

5. a. A State monitor appointed pursuant to section 3 of this act shall be considered a State officer for purposes of the “New Jersey Tort Claims Act,” established pursuant to P.L.1972, c.45 (C.59:1-1 et seq.). For all other purposes the State monitor shall be considered an employee of the public institution of higher education.

b. The State monitor shall provide oversight of the institution until the secretary determines that all remedial actions required by the institution have been implemented and the necessary capacity and fiscal controls have been restored to the public institutions operations.

c. The salary of a State monitor shall be fixed by the secretary and may be adjusted from time to time as the secretary deems appropriate. The institution shall assume the total cost of the State monitor and any additional staff appointed pursuant to section 3 of this act. A State monitor shall have the authority to appoint legal counsel if legal action is taken against the State monitor while performing the official duties of a State monitor or as needed upon approval of the secretary.

6. The secretary shall adopt rules and regulations, pursuant to the “Administrative Procedure Act,” P.L.1968, c.410 (C.52:14B-1 et seq.), necessary to carry out the provisions of this act.

7. This act shall take effect immediately and shall first apply to the first full academic year following enactment.

STATEMENT

This bill requires public institutions of higher education to submit an annual fiscal monitoring report, establishes provisions for a scheduled comprehensive audit of public institutions of higher education, and authorizes the Secretary of Higher Education to appoint a State monitor of a public institution of higher education.

Under current law, the president and chief financial officer of a public research university or a State college is required to submit an annual audit prepared by an independent auditor. This bill requires that in addition to the annual audit prepared by an independent auditor, all public institutions of higher education are required to submit an annual fiscal monitoring report to the Office of the Secretary of Higher Education..

The bill establishes comprehensive audits of public institutions of higher education as determined by a schedule set by the secretary. If the secretary determines that an institution of higher education has conditions that may significantly or negatively impact the institutions operations, the secretary may direct a comprehensive audit of an institutions fiscal and governance operations at any time.

This bill specifies circumstances in which a State monitor may be appointed to provide direct oversight to an institution’s fiscal and governance operations. A State monitor is appointed by the secretary if the institution meets the following criteria: the fiscal monitoring report or comprehensive audit include a finding of financial instability; the institution receives an adverse or disclaimer opinion in its annual audit; or the institution meets any two of the following criteria: the institution ends the fiscal year with a deficit balance in certain funds, the institution fails to develop and implement a plan to address a deficit balance in certain funds, the institution receives a qualified opinion in its annual audit, the institution receives an adverse, disclaimer, or qualified opinion under a single audit section in its annual audit, the institution fails to implement a plan from the prior fiscal year, the institution fails to submit the annual audit or the fiscal monitoring report, or the institution fails to comply with the timely training of governing board members.

A State monitor that is appointed pursuant to this bill would be responsible for: the fiscal oversight of the institution; the development and implementation of recommendations for restructuring the institution offered by the governing board of the institution; ensuring the development and implementation of an acceptable plan to address deficiencies at the institution; oversight of all staffing; overriding any actions taken by the president of the institution or by vote of the governing board; attending all meetings of the board; meeting with the board on a quarterly basis; and reporting directly to the secretary.

The bill specifies that a State monitor appointed pursuant to the bill is considered a State officer for purposes of the “New Jersey Tort Claims Act.” Additionally, the State monitor would provide oversight of the institution until all remedial actions required by the institution have been implemented. Finally, the salary of a State monitor would be fixed by the secretary and may be adjusted from time to time.

This bill takes effect immediately and first applies to the first full school year following enactment.