Budget questions linger regarding depreciation

Last month, when a member of Missouri Southern’s Board of Governors asked about depreciation expenses on the University’s budget reports, University officials called the issue complex. Nothing has changed.

At the Aug. 15 meeting, Governor Charles McGinty said he was not sure he understood the role depreciation played in Southern’s budget.

According to members of the University’s financial team, depreciation is defined as an asset’s — a building or a piece of equipment’s — loss in value due to use and the passage of time. At last month’s Board meeting, University Budget Director Jeff Gibson told the board that the University did not have to list depreciation as an expense, but changes in accounting regulations “seven or eight years ago” took effect and now require it.

The line item for depreciation appears on the University’s financial statements as a cash expense, but is not a true cash outlay. If depreciation did not appear in the expense column, Southern would show a budget surplus rather than a deficit.

But answers to the role of depreciation seem to depend on who is answering the questions.

“Depreciation is not a cash cost,” said Rob Yust, Southern’s vice president for business affairs. But Yust said it needs to be listed among the institution’s expenses.

“Every year we are scrutinized by the local auditors and they would not let us get away with that,” Yust said.

The attribution of depreciation varies from institution to institution. Schools such as Southeast Missouri State University and Missouri State University do not list depreciation under their expenses.

“I assume it’s because we don’t own these buildings, the state does,” said Mona Hughey, director of financial services at SEMO.

Yust said Southern’s listed depreciation represents money already spent on current assets over the course of their lifetimes.

“Depreciation is a very difficult thing to understand,” he said. “It is definitely not a snow job.

“We are reflecting those expenses. It’s just a lack of understanding.”

Missouri State’s Chief Financial Officer, Nila Hayes, tried to offer some perspective.

“There is a theory behind budgeting depreciation as an expense, that way it can cover your cost of replacement of equipment,” she said.

However, Board of Governors chairman Dwight Douglas doesn’t believe depreciation to be an issue.

“All of this discussion is rather silly, because [depreciation] is a standard accounting practice,” he said, “We clearly have one of the best auditors in the Midwest. To me that puts the issue to bed.”