Washington County deputy prosecutor David Bercaw says he’s asked legislators to postpone their inquiry into overspending by the fundraising division of the University of Arkansas at Fayetteville while the prosecutor’s office interviews witnesses in connection with four possible criminal offenses.
State legislators will postpone until November their wider-ranging hearings into the division’s deficit, and accounting and management by top university officials.
“The prosecutor wanted more time to interview some of the people involved. We didn’t want to interfere with that,” said state Sen. Bryan King, co-chairman of the Legislative Joint Auditing Committee that is examining auditors’ findings. “But there are still going to be questions and a desire to hear the other side of this story.”
Bercaw, who’s in charge of the investigation for Washington County prosecutor John Threet’s office, says he’s interviewing witnesses.
“So far, we haven’t sworn anyone in,” Bercaw said last week. “I haven’t felt that was necessary. But everyone has been very candid so far.”
Washington County prosecutors in Fayetteville and joint auditing committee legislators in Little Rock are examining issues raised in a 48-page investigative report released Sept. 10 by the Legislative Audit Division and the University of Arkansas System’s internal audit section.
The prosecutor is looking for potential crimes. Legislators are examining how the deficits happened, what controls the university had in place to prevent them, why those controls failed and broader managerial issues.
Performed at the request of UA Chancellor G. David Gearhart, the state auditors’ report found $4.19 million in overspending by the University Advancement Division in fiscal 2012 and $2.14 million in 2011. Some of the 2011 deficit carried over into 2012’s total.
Auditors also found deficits going back to at least 2008. The report said the problem involved escalating spending by the fundraising division even though revenue remained flat.
University officials didn’t discover the overspending until July 6, 2012, records show, when a funding transfer request to the University of Arkansas Foundation for $225,000 in deferred compensation for Gearhart was rejected for lack of funds.
The auditors’ report also criticized top university officials’ accounting, budget oversight and failure to disclose certain issues to auditors. And the report noted that auditors “experienced difficulty” obtaining financial records, “which potentially limited the scope of this review.”
When the auditors’ report was first presented to legislators Sept. 13, two top university officials also hurled conflicting charges under oath regarding purported destruction of documents.
The university’s former top spokesman, John Diamond, told legislators that at a Jan. 14 meeting, Gearhart ordered officials in the Advancement Division to destroy and stop creating budget-related documents, so they wouldn’t be available to the public.
Gearhart, also under oath, said he had never ordered anyone to destroy documents and described Diamond as a “disgruntled” employee. He went on to say he had never ordered anyone to get rid of documents requested under Arkansas’ Freedom of Information Act. It’s illegal under state law to destroy documents requested under that act, experts say.
At least six other school administrators who were in that meeting have refused to answer questions from the Arkansas Democrat-Gazette about what happened or could not be reached by telephone or email. Only one, Advancement Division budget officer Denise Reynolds, responded through a university spokesman.
Reynolds said Gearhart had never asked her to destroy documents or to refrain from creating them.
However, the newspaper obtained an email by Reynolds written about three weeks after the Jan. 14 meeting that opened: “Please delete after reading.” Reynolds acknowledged that the Feb. 6 email contained a budget-related message and was sent to two others who were present at the Jan. 14 meeting - Diamond and former Associate Vice Chancellor for Development Bruce Pontious.
Reynolds said she didn’t recall why she wrote: “Please delete.”
Diamond said he had no doubt when he received Reynolds’ email that it related to Gearhart’s purported orders in January regarding destruction of documents.
Pontious could not be reached for comment. A university spokesman said Gearhart and other university officials can’t comment while investigations are underway.
Diamond, who was fired effective Sept. 22, said he was terminated because he disagreed with Gearhart, current Vice Chancellor for Advancement Chris Wyrick and others over the release of documents that Diamond believed should be made public under the state Freedom of Information Act. School officials have said Diamond was fired for insubordination.
Bercaw said last week that his office is looking into four issues raised by auditors that could violate the law.
According to letters from auditors to the prosecutor’s office, the issues are:
One duplicate expense payment involving former Vice Chancellor for Advancement Brad Choate for $2,052, which he repaid.
An improper deposit by former budget officer Joy Sharp of $1.35 million in restricted funds into an unrestricted spending account that was running a deficit.
Two accounting entries by treasurer Jean Schook’s office that “partially obscured” deficits, according to the audit.
Diamond and Gearhart’s “contradicting testimony” concerning “the alleged destruction of budget-related documents in the Division of University Advancement.”
Bercaw refused last week to comment on his progress, including who had been interviewed, how many witnesses he still plans to talk to and any findings so far.
He said investigators are looking at all four possible legal violations at the same time.
“Each one of the witnesses will know about one, two, three or all of the issues,” he said.
Bercaw did say that auditors asked for input from the prosecutor’s office on the best scheduling for legislators’ forthcoming joint auditing committee meetings on overspending.
“We told them we preferred that they hold off until November to give us time for our interviews,” he said.
“I didn’t know what questions the legislators would be asking,” Bercaw said. “I didn’t want to take a risk of it creating some kind of interference. What the nature of that interference would be, I don’t know.”
The prosecutor’s office has amassed “voluminous” working papers from the legislative auditor’s office and the University of Arkansas System auditors, he said.
Asked if he thought prosecutors could complete their interviews and investigation by early November, Bercaw said: “I’m pushing it along to try to get all the individuals talked to that I think are critical.”
His office has not issued subpoenas for witnesses so far because all have agreed to talk when asked, he said.
Leaders of the Legislative Joint Auditing Committee say they now plan to pose their questions about the university Advancement Division’s deficit at their Nov. 8 meeting in Little Rock.
They had hoped to follow up at their October meeting next Friday.
King said he’s been hearing more questions about the fundraising division’s overspending from legislators.
Gearhart and other university officials have said since Dec. 3, when they announced the deficit to the media, that it was because of poor budget management by Choate and Sharp. Both were reassigned and left the university June 30.
Sharp has acknowledged making accounting mistakes. Choate, who said he had no idea a deficit existed untilafter fiscal 2012, cites lax accounting standards across the university.
King, a Republican from Green Forest, said he hopes to hear testimony from Sharp and Choate at the November audit committee meeting, as well as from others.
“Regardless of what the prosecutor’s outcome is on this, there’s still a lot of questions to be answered about the whole audit, the direction of the University of Arkansas at Fayetteville and who was actually responsible,” King said.
Front Section, Pages 1 on 10/06/2013