UA releases deficit report; unit slammed

Paper sued to see review

— A University of Arkansas at Fayetteville report on its fundraising division’s $3.37 million deficit found “overwhelming” evidence of “lack of management oversight, noncompliance with university policies and procedures and deliberate efforts to disguise poor financial management.”

The four-page report by university treasurer Jean Schook was written Oct. 19, but released Friday along with 84 pages of other documents in response to a Freedom of Information Act lawsuit filed by the Arkansas Democrat-Gazette this week.

Much of Schook’s report, the university’s only formal internal review of the budget overspending, criticized Vice Chancellor of University Advancement Brad Choate as providing “essentially no oversight of the financial activities of the division.” Instead, the report said, he handed over financial supervision and spending authority to his budget director, longtime university employee Joy Sharp.

Choate’s written response, contained in the university’s release Friday, denied claims he poorly supervised the Advancement Division’s financial activities, and he blamed the budget problems on a failure of the university’s “checks and balances.”

“I provided significant oversight of the financial activities of the Division,” he wrote. “However, the two systems of checks and balances that all senior administrators rely on - the long-time budget officer in Advancement and the University’s own mechanism for validating that budget officer’s accounting - both failed.”

On the basis of information in the Schook report, Chancellor G. David Gearhart informed Choate and Sharp in early November that their appointments would not be renewed after June 30 .

He removed Choate from administrative duties and asked the vice chancellor to concentrate on fundraising but didn’t cut his $348,175 annual salary.


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When university officials learned in early July that the Advancement Division had significantly overspent its roughly $10 million budget, the report said, “it was clear neither [Choate] nor [Sharp] could provide reasonable answers to budget or expenditure questions as the magnitude of the problem was being ascertained.”

The Schook report also raises questions about exactly how much the advancement division’s overspending was for fiscal 2012.

University officials have said recently that it was $3.37 million. But Schook’s report, written almost four months after the end of the fiscal year on June 30, estimates the fiscal 2012 deficit at $4.34 million. The university expects another, smaller deficit in the Advancement Division this year, Gearhart said in a Feb. 8 interview.

On Feb. 5, Gearhart asked two state agencies to audit the Advancement Division’s deficit. Auditors for the Arkansas General Assembly and the University of Arkansas System will meet within the next two weeks to decide how to go about the examination.

Just as university officials have said since December, the treasurer’s report found “no evidence of intentional acts to misappropriate resources for personal gain.”

However, the report cautions that “a review of accounting records specifically to identify misappropriated resources has not been performed and [it] will likely be some time before staff resources are available to conduct such a review.”

NEWSPAPER’S REQUEST

The Democrat-Gazette first requested the treasurer’s report into the budget deficit Dec. 5, two days after Gearhart issued a statement about the deficit. Financial reports are typically available to the public under the state’s Freedom of Information Act, according to freedom of information experts.

Gearhart and other university officials declined to release the report, saying it was a personnel record and performance evaluation that was exempt from public disclosure. The Democrat-Gazette filed a lawsuit Monday, citing a “compelling public interest” in learning the causes of the budget overspending. A hearing regarding the lawsuit is scheduled in Pulaski County Circuit Court on Wednesday.

A letter to the newspaper contained in Friday’s release said the university still believes that Schook’s report, responses from Choate and Sharp and other documents “have been correctly identified as ‘employee evaluation or job performance records,’ and therefore exempt from disclosure” to the public.

“However, Mr. Choate and Ms. Sharp have today notified the University that they authorize the release of all pertinent records,” the letter said. “We are pleased that the university can now share these records with you and others ... without violating the legal rights of these public employees or the applicable law.”

The university’s letter didn’t explain why the university previously released some e-mails about the budget deficit under Freedom of Information Act requests but did not release numerous emails contained in Friday’s response. Sharp could not be reached for comment Friday night. Choate responded in an e-mail late Friday that he had no comment beyond his response to the treasurer’s report. The university released the documents about 6:30 p.m ..

Choate and Sharp still work for the university though neither has budget supervision duties. Sharp was paid $91,086 annually as budget officer, but Choate reassigned her within the Advancement Division last summer before the deficit inquiry was completed and cut her pay to $68,314, according to university officials. Later, she was reassigned to the human-resources department.

CHOATE BLAMED SHARP

Other key points in Schook’s report and other documents released by the university Friday:

In Choate’s four-page response to the report, written Oct. 20, he blamed Sharp for the overspending, saying she was “quickly identified” as “the source of the problem.”

“Joy clearly became overwhelmed with the duties of her position as the complexity of the budget grew over the years and ultimately worked to deceive us,” he wrote in e-mail to Gearhart and Don Pederson, vice chancellor for finance and administration. “As hard as that is for me to accept, the evidence makes that clear: Once she found she was unable to manage the budget accurately, she took a series of actions over several years to conceal her mismanagement.”

Those actions included moving funds to “mask” the problems until the problems became so large that funds weren’t sufficient to cover them, he wrote.

Data “suggests that the primary driver of accumulated deficit balances was the addition of staff with no permanent funding.”

Schook’s report says Choate authorized the addition of 20 positions, an 18 percent increase in staff, without determining whether there was sufficient funding to support those positions. University officials have said Choate was hiring employees in preparation for a capital campaign.

Information in the report said that while no fraud took place, the lack of budget controls created a situation where fraud was possible.

One issue, Schook wrote, was Choate’s providing his computer credentials to Sharp, which violated university policy and “circumvented the internal controls. ...”

Choate admitted handing over his computer credentials to Sharp, which he said he regretted. He said it was an effort to be more efficient when he was traveling.

“It would not surprise me if other senior officials on campus have, on occasion or on an ongoing basis, granted similar log-in credentials ...” he wrote.

In response to concerns in the treasurer’s report that Sharp had processed some transactions with “a family member,” Choate said Sharp worked with her sister, Betty Sharp, to process “less than ten” payment forms.

Upon review, he found each of them to be appropriate, he wrote, adding that “their actions did not produce any results that would not have occurred if proper procedures had been followed.”

“Did the opportunity for foul play exist? Of course, but none took place,” he wrote

Another criticism in the report was that Choate didn’t maintain copies of budget reports. Choate said he didn’t retain budget reports because those documents were all kept in Sharp’s office and on her computer. “It seems unreasonable to expect me to keep copies ofall files in my office,” his response said.

Schook’s report also described Sharp as providing inaccurate budget reports and becoming “more and more delinquent” in processing reimbursements for spending.

Sharp’s five-paragraph response cast no blame on Choate, never mentioning him, and includes an apology. “I deeply regret that through my lack of performance I have caused this problem.”

Sharp acknowledged that she did not provide timely budget reports “due to my workload.” She wrote that she did not monitor revenue correctly and that “when the revenue decreased I did not adjust my projections accordingly.”

Sharp said she would “never intentionally try to damage the University of Arkansas in any way.”

GEARHART’S E-MAIL

E-mails included in Friday’s release show Gearhart repeatedly pressed Choate and Sharp for an explanation of the deficit.

In an Aug. 6 e-mail, Gearhart told Choate and Sharp he would “feel an obligation to involve our auditors” if they couldn’t provide him an explanation for the funding issues by the end of the week.

“It is not in our best interests to involve the auditors as that information goes to the [board of trustees], but I feel I have a fiduciary responsibility to get answers and that may be the only way,” Gearhart wrote.

Echoing a prior e-mail UA released in December, Choate expressed a desire to keep the deficit quiet. Choate complained Sept. 26 to Gearhart that he heard two development employees had conferred about the budget situation.

“I don’t know who else he has talked with. It would probably be better to keep this info among those with need to know,” he wrote Gearhart.

Gearhart fired back: “Rumors are quite rampant. I think you will find knowledge to be very widespread. ... I did not lie about the problem but rather was direct with [the employee]. I don’t plan on keeping it a secret from anyone who asks me.”

E-mails show Gearhart’s growing frustration with the deficit and Choate’s failure to address it.

After he received the treasurer’s report Oct. 19, Gearhart vented in an Oct. 20 e-mail to Choate:

“Brad, it appears that you had no idea how much revenue you had or how much your division was spending and this went on from the first day you arrived on campus. ... You were told by [Pederson] that you had to approve expenditures of a certain level and totally ignored this requirement and even argued about the necessity. You did not follow strict university policy, even after [Pederson] told you it was required. In fact, you ignored the policy directive as if the rules don’t apply to you.

“While we do not suspect theft, you created an environment where it would have been very easy for her [Sharp] to steal the university blind if she had desired to do so. No one else created this environment but you.

“Brad, you have been a friend and colleague for many years. I brought you here to help me. But your lack of oversight has created a colossal fiscal crisis.” Information for this article was contributed by Tracie Dungan and Bill Bowden of the Arkansas Democrat-Gazette.

Front Section, Pages 1 on 02/16/2013

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