A meeting of the Audit and Enterprise Risk Committee of the Board of Trustees convened at 10:03 a.m. Friday, December 2, 2022, in Room 326 of Stewart Center on the campus of Purdue University in West Lafayette, Indiana.

All members of the Committee were present: Vanessa Castagna, chair; JoAnn Brouillette; and Theresa Carter. All other trustees were present: Sonny Beck; Michael Berghoff; Malcolm DeKryger; Mark Gee; Michael Klipsch; Gary Lehman; and Shawn Taylor.

Officers and administrators in attendance were: Mitch Daniels, president; Jay Akridge, provost and executive vice president for academic affairs and diversity; Chris Ruhl, chief financial officer and treasurer; Eva Nodine, senior vice president, assistant treasurer, and assistant secretary; Steve Schultz, general counsel; Cindy Ream, corporate secretary and senior executive assistant to the Board; Ron Elsenbaumer, chancellor, Purdue University Fort Wayne; and Tom Keon, chancellor, Purdue University Northwest.

I. REVIEW OF FY22 AUDITED FINANCIAL STATEMENTS

At the request of Treasurer Ruhl, Kathy Thomason, comptroller, began by sharing the only significant FY24 governmental audit standard was related to the IT software agreements. Those agreements that used to be expensed will now be looked at for the entire life of the agreement, calculate what the liability is and book that liability on the balance sheet. She stated it is merely a change in the accounting method. She mentioned that Governmental Accounting Standards Board (GASB) has a couple of projects coming in the next four or five years, revenue recognition and their change in reporting standards for the entire financial statement. GASB is still in deliberation and not a lot of information is available.

Ms. Thomason provided a review of the FY22 audited financial statements noting a continued positive trend with an increase of $154 million in net position driven by increased revenue in excess of increased expenses. Ms. Thomason stated that the results include all campuses, West Lafayette, Northwest, Fort Wayne as well as our blended component units Purdue Applied Research Institute and Purdue Global. She provided a summary statement of Revenues, Expenses and Change in Net Position which showed an End of Year, Net position of $6.25 billion. Ms. Thomason shared that as of June 30, 2013, the Net position for Purdue University was $3.8 billion and as of June 30, 2022, the Net position was $6.25 billion showing an increase of 64% in that time period. She commented that this was a testament to the leadership and the financial stability of the University. A copy of the presentation and supporting material was filed with the minutes. No Committee action was required.

II. OFFICE OF RISK MANAGEMENT ANNUAL REPORT

Mark Kebert, director of domestic and global risk, reported on fund financial health, reviewed the status of market conditions and shared renewal highlights. He shared that the viability ratio are the assets and fund divided by the obligations of the fund which are losses, outgoing insurance premiums, and operating costs. He noted that we currently sit slightly below the desired number of 1.5 times obligations at 1.23. Mr. Kebert shared that there have not been increases in the internal recharge rate for several years to ease the budgets for the departments with COVID and other things going on which is why that number is 1.23. Those charges are used to replenish the fund and keep it healthy. There will be one increase effective July 1, 2023. Other increases will be reviewed on an annual basis.

Mr. Kebert reported the insurance market remains in turmoil. He shared some reasons are severe weather, the Russia/Ukraine conflict, lingering uncertainty regarding potential COVID-19 claims and the “social inflation” from adverse jury verdicts still affecting liability sectors. Attention was drawn to the cyber rate drivers by noting that the education industry as fallen out of favor with cyber insurers due to the nature of the networks and the need for more stringent prevention controls. He stated there are only a handful of underwriters who are willing to underwrite in the education industry noting the reason for that is the large increases in ransomware claims.

He shared the results of the 2023 renewal process. He noted property insurance rate was up by only 1%. The liability premium increased 7% and the program structure now includes United Education, Ironshore and Lexington to obtain the desired coverage. There was 0% increase for Cyber coverage with enhancement of full $15 million compared to previous coverage of $7.5 million. A copy of the 2022 Office of Risk Management Annual Report and the presentation were filed with the minutes. No Committee action was required.

III. ADJOURNMENT

By consent, the meeting adjourned at 10:24 a.m.