The budget director blamed for a multimillion-dollar deficit in the fundraising arm at the University of Arkansas at Fayetteville was “intimidated” by her boss and “afraid” to tell him the division was out of money, according to investigation documents released Friday.

Joy Sharp was “overwhelmed, overworked and intimidated by Brad Choate,” according to Denise Reynolds, who replaced Sharp as budget director in UA’s Advancement Division.

Sharp “knew there was a problem but didn’t know how to get out of it,” according to a summary of a March 7 interview that Reynolds had with Jacob Flournoy, director of the UA System’s internal audit department.

“Ms. Sharp was afraid to tell Mr. Choate” about the deficit, according to the document.

Choate was vice chancellor for Advancement from 2008 until November 2012, when he was reassigned for the remainder of the fiscal year after the discovery of the deficit in July 2012.

Choate and Sharp both lost their jobs at UA because of the deficit. Sharp had worked on the campus since 1973.

On Thursday, David Bercaw, deputy prosecuting attorney for Washington County, completed his investigation of the Advancement Division, saying he found no evidence of criminal activity in connection with the deficit. He said there was no evidence of theft or fraud. But Bercaw cited several examples of problems with UA budgetary processes and internal controls that left UA open to fraud and mistakes.

Bercaw released about 3,000 pages of working documents Friday after a request was filed under the Arkansas Freedom of Information Act. His working papers included summaries of interviews by UA auditors, who referred the possible criminal acts to the prosecutor’s office Sept. 9.

Choate and Sharp were expected to testify Friday at a Legislative Joint Auditing Committee meeting. Before that could happen, legislators voted 21-13 to accept the audit, with some committee members saying they had heard enough on the issue. Others said they didn’t know that accepting the audit meant testimony wouldn’t be heard.

UA Chancellor G. David Gearhart and his top financial officers testified for two hours before the committee Sept. 13.

UA officials have said the deficit in the Advancement Division was driven by the hiring of staff members for a fundraising campaign when there was no money to pay those salaries.

“When Mr. Choate would ask Ms. Sharp to fund a position or give a raise, she would always say ‘yes,’” according to Flournoy’s summary of his interview with Reynolds. “The various directors within the Advancement Division don’t like to hear ‘no.’”

When Reynolds tells division directors “no,” they go around her, she told Flournoy.

In a May 20 letter to Roger Norman, Arkansas’ legislative auditor, Choate seemed incredulous that Sharp hadn’t told him “no.”

“The reason for the budget deficit was the creation of and filling of positions when funds did not exist for those positions,” wrote Choate. “It should be obvious that my team and I would not hire additional staff if we knew we did not have the money. …In every case where we hired staff, we were told by Joy that we did have sufficient funds.”

The Advancement Division added 28 employees between 2008 and 2013, according to UA records, but UA officials haven’t answered questions about how many of them had “unfunded salaries.” In some cases, Advancement pays a fraction of an employee’s salary and another UA department pays the rest.

Gearhart has said the positions were needed because UA was ramping up for Campaign Arkansas, a donation drive expected to last several years. Gearhart has said he asked Choate if he needed additional funds for the campaign, and Choate said no. The money would have been transferred on the front end and the deficit could have been avoided, Gearhart has said.

The audit was critical of Choate, saying he provided little oversight of the division’s finances.

THE DEFICIT

In February, seven months after the deficit came to light, Gearhart requested investigations by UA System auditors and the Arkansas Division of Legislative Audit.

State auditors determined that the Advancement Division had a cumulative deficit of $4.2 million as of June 30, 2012.

UA officials said the cumulative deficit was reduced to $3.2 million a year later, after $4 million was transferred from university reserves to cover $1.9 million that would have come from the University of Arkansas Foundation and to offset overspending in fiscal 2013, which ended June 30.

The Advancement Division continues to spend about $2 million more a year than it receives in funding, according to Chris Wyrick, current vice chancellor for Advancement. Some cost-cutting has taken place, but there have been no layoffs in the division as a result of the unfunded hiring and deficit, Wyrick said.

Throughout the investigation, Sharp has taken responsibility for the deficit.

“I did not perform my duties as I should have,” she told Flournoy in a May 24 interview.

Sharp didn’t monitor revenue, expenditures or projections of revenue from the foundation, according to the summary. During the time period under investigation, 2009-12, the foundation was providing an average of about $4.5 million a year in private funds to the Advancement Division. That was supposed to make up almost half of the division’s annual funding.

The Advancement Division would spend money during a fiscal quarter and be reimbursed in the next quarter from the foundation. Auditors and Bercaw found that to be one of the biggest problems leading to the division’s deficit.

UA officials have since changed the procedure so that Advancement receives transfers from the foundation at the beginning of the quarter in which the money will be spent.

BUDGET MATTERS

Sharp said she knew there was overspending in 2011, wrote Flournoy. But his summary doesn’t make clear when Sharp came to that realization or whether she considered it serious before mid-2012. It also doesn’t indicate whether she told others.

The foundation covered some of Advancement’s quarterly overspending, but the foundation doesn’t let units spend beyond two quarters of expected investment earnings, according to Bercaw’s report.

“Prior to 2011, the deficit had always been covered,” Flournoy wrote in his summary. “In 2011, [Sharp] thought with revenue coming in, there would be enough to cover expenses.”

But there wasn’t, according to Legislative Audit. In fiscal 2011, Advancement had a $2.1 million deficit. That cumulative deficit doubled a year later.

“A problem arose” in July 2012 when the foundation refused a request from Sharp for $200,000, according to Flournoy. Sharp was “surprised” to learn that Advancement was overdrawn in its foundation account, Flournoy wrote. After she looked into the matter further, Sharp said she realized the problem was much larger than just the $200,000, according to the summary.

UA records show it took officials months to unravel Advancement’s financial position.

Sharp told Flournoy that she had no budget training. She holds a bachelor’s degree in computer information systems, according to her resume, and Bercaw’s report said she has a master’s degree in education.

Advancement Division department heads who were interviewed as part of the audit and prosecutor’s inquiry said they operated without budgets and that Sharp approved all expenditures.

In an interview with prosecutors, retired Associate Vice Chancellor for Development Bruce Pontious, who headed Advancement’s largest department, said he wouldn’t know if he was ahead or behind or what budget amount was targeted. He said he hadn’t seen budget reports regarding actual expenses since he first joined UA in 2008.

Sharp told auditors that she didn’t have scheduled budget meetings with Choate, but the two talked every day because she sat right outside his office.

“They did not have meetings where she gave him reconciliations of any kind of status report on the division’s financial picture,” wrote Flournoy. “She would give Mr. Choate spreadsheets with budget information. … Ms. Sharp said she would set up spreadsheets, put the budget in them and then track monthly expenses and have a balance.”

When Flournoy asked Sharp where the numbers came from, she said, “They came from past history,” according to the summary.

PASSWORD POLICY

Gearhart was vice chancellor of Advancement from 1998 to 2008, when he became chancellor of the Fayetteville campus and hired Choate as his replacement.

Sharp told auditors that when Gearhart was head of the Advancement Division, he would meet with her monthly to “review the budget sheets.” Choate didn’t do that, according to the document.

Legislative auditors said Choate delegated most of his financial responsibilities to Sharp.

The audit noted that Choate had given his password to the university’s computer system to Sharp so she could make financial transactions, in violation of UA policy. Choate had asked for permission to do this and was told no, but he did it anyway, Gearhart told prosecutors in a Nov. 20 interview.

Sharp told Flournoy that she knew it was against UA policy for Choate to give her his password.

In Choate’s interview with Flournoy and two other UA auditors May 31, Choate said he met daily with Sharp. He told auditors he trusted and relied on Sharp for information.

But he also told Flournoy that Sharp was difficult to work with, specifically because “she did not want to delegate work.”

Choate also criticized the university’s financial system, calling it “antiquated.”

Choate said he and Gearhart were very close and he considered the chancellor to be like a “big brother.”

Likewise, Gearhart told prosecutors Nov. 20 that he’d tried to help Choate, according to handwritten notes in Bercaw’s file.

Gearhart didn’t feel that Choate or Sharp had done anything illegal, and he wanted them to be able to leave the university with “dignity,” according to the notes.

Gearhart allowed Choate and Sharp work through the end of their June 30 appointments.

Front Section, Pages 1 on 12/15/2013