When Hugh Scott was inaugurated as the 12th president of Piedmont University in 1991, the university was experiencing a financial crisis. For several years enrollments had been declining and costs had been increasing. The resulting deficit had been made up by using the principal of “quasi-endowment” funds. For true endowment funds, only the income could be used for operating purposes; the principal legally could not be used. Quasi-endowment funds had been accumulated out of earlier years surpluses with the intention that only the income on these funds would be used for operating purposes; however, there was no legal prohibition on the use of the principal. The quasi-endowment funds were nearly exhausted. Questions 1. How should each of the issues described above be resolved? 2. Do you see other problems with the introduction of profit centers? If so, how would you deal with them? 3. What are the alternatives to a profit center approach? 4. Assuming that most of the issues could be resolved to your satisfaction, would you recommend that the profit center idea be adopted, or is there an alternative that you would prefer?
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