The Division of Legislative Audit released at noon today its investigative report on spending in the University of Arkansas’s advancement division. This is the red ink-bathed operation that led to the ouster of the division chief, Brad Choate, and more recently, the firing of university spokesman John Diamond. Diamond said the UA had not been fully forthcoming in responses to media requests for information about the mess.
* Audit found deficit cash balances in the division of $2.14 million at the end of fiscal 2011 and $4.19 million on June 30, 2012.
* The treasurer’s office posted account receivables of $2.1 million and $2.5 million in each year that partially obscured the deficits.
* The vice chancellor for the division (Choate) “did not exercise proper fiscal oversight and did not comply with University policies and procedures.”
* Advancement revenues remained relatively constant over the four-year review, but expenditures increased significantly, from $7.94 million to $13.23 million, resulting in an overall decline in the combined advancement and foundation cash balance.
Sounds to me like deficits were greater that the UA has depicted. There was substantial failure to follow policy and procedures, the audit said.
Serious business,, it seems to me, that the UA treasurer masked shortfalls by booking money expected from the UA foundation when the foundation had already expended current-year funding in each of the two years. The treasurer also didn’t disclose “loans” from the foundation in each of four years, ranging from $1.5 million in 2009 to $382,000 in 2012.
The audit says it found no fraud or personal gain from the activities. The driver of deficits was “the addition of staff with no permanent funding. ” This is ironic in light of UA’s recent decision that it needed yet another vice chancellor in this division.
The report has been forwarded to the prosecuting attorney in Fayetteville for review.
The University submitted a seven-page response. It said the audit in many respects reflected findings it had already made earlier in admitting the deficit balances. It first agreed that Brad Choate was primarily to blame, along with Budget Officer Joy Sharp, who was relieved of those duties. It defended the handling of receivables from the foundation and said it was not an effort to obscure the deficits. Similarly, it defended internal transfers among foundation accounts.
The legislature’s audit committees will consider the report Friday. It was released early so that legislators could have time for study in advance. The university will take media questions this afternoon, likely around 3 p.m.
The University of Arkansas Board of Trustees audit committee will discuss the audit at 8 a.m. Saturday morning in Fayetteville.
UPDATE: Chancellor David Gearhart and other officials met the press Thursday afternoon in person and by conference call. Also, UA System President Donald Bobbitt made remarks so similar to Gearhart’s messaging that they seem clearly coordinated.
He said there some technical disagreements on accounting issues, but adjustments had been made.
Clearly, he said, there was “overspending by employees who failed to maintain proper budgetary oversight.” But he said the spending was all legitimate — including the increased expenses — for a capital campaign and “every penny was accounted for.”
Was it a black eye for the university?
Gearhart said no.
“I don’t think it’s a black eye for the university at all,” he said. He said the campus was in the best position it had been in in “the history of the university.” He said enrollment was up, there’ve been hundreds of millions in physical plant improvemnts and alumni continue to give at levels equal to those of the past.
The supervision of the division was “not acceptable,” he said.
“We had two employees who were not watching the budget,, but they didn’t steal anything….and two employees lost their job over it.”
UA System President Donald Bobbitt issued a statement hewing to the same line.
“The audit report released today by the Division of Legislative Audit regarding the advancement division of the University of Arkansas confirms the issues that contributed to the overspending in the division. While the expenditures were for legitimate needs leading up to a major fundraising campaign and the auditors found no theft or fraud, it’s clear that there was a lack of budget oversight within the advancement division. As Chancellor Gearhart has said, this was a case of overspending the budget of a division within the university.
“As leaders of a vital public institution, we must ensure that we are closely monitoring and appropriately accounting for all of the university’s resources. We will address all of the issues raised in the report and move forward in a positive way. Since becoming aware of the problem last fall, Dr. Gearhart and his team have worked steadily to identify the causes of the overspending and have taken steps to ensure this does not happen again. I want to reiterate and confirm my full support for Chancellor Gearhart in this effort. In calling for these audits, Dr. Gearhart invited a transparent review of the advancement division finances with the goal of determining steps needed to correct the problem. I am grateful to the auditors for their diligent work and for their recommendations, which we will begin to implement immediately.
“While the unanticipated deficit in the advancement division was and is unacceptable, the university itself remains in very good shape financially. With growing enrollment and strong reserves, the university is in the best financial shape in its history.”