UA unit’s audit near to release

Report’s focus on handling of fundraising arm’s budget

Arkansas lawmakers and taxpayers can expect to learn more soon about how the University of Arkansas at Fayetteville overspent its fundraising division’s budget in 2012 by more than $3.3 million.

On Sept. 13, state auditors expect to present their findings to the Legislative Joint Auditing Committee in Little Rock. Legislators say they hope to make the report public several days before the meeting.

“I don’t know what the report says,” Sen. Bryan King, R-Green Forest and co-chairman of the Joint Auditing Committee, said last week.“But I can assure you there are going to be questions that are going to be asked.”

“If there are issues the audit reveals, I hope that putting them out in the open will give the public a chance to see how dollars given to the university are invested and spent,” said the Joint Auditing Committee’s House co-chairman, Rep. Kim Hammer, R-Benton.

If the audit reveals flaws in how money was handled, Hammer said, he hopes “proper measures will be put into place to maintain public trust and hold anyone who may have done wrong accountable.”

The audit is the first look by an independent state agency into overspending by the university’s Division of Advancement, which spearheads fundraising and other outreach efforts for the state’s largest university.

The division overran its roughly $10 million budget by about one-third in fiscal 2012. School officials didn’t discover the problem until six days after the end of that fiscal year, on July 6, 2012, according to UA documents.

Legislative auditors are likely to make their report public by Sept. 10, said King. He and Hammer said they favor early release, especially of high-profile audits, to give legislators more time to read and discuss findings.

University of Arkansas System President Donald Bobbitt, who oversees the UA-Fayetteville and other system schools, and a spokesman for Gov. Mike Beebe declined to comment until they can read the report.

Most members of the UA board of trustees could not be reached for comment late last week. One who was contacted - C.C. “Cliff” Gibson III, a Monticello lawyer - said he wants to see the audit before discussing it.

UA-Fayetteville Chancellor G. David Gearhart said he and other school officials will be present to answer questions at the Sept. 13 meeting. Gearhart also declined to talk about the audit before its release.

“The audit has not been completed yet, and I do not want to do anything that would possibly be perceived as trying to influence the auditors,” Gearhart said in an email.

‘AT THE ROOT’

Hendrix College political science associate professor Jay Barth said he thinks the audit report will attract interest.

“I think there are at least two audiences for this,” said Barth, who also is a Democratic activist and member of the Arkansas Board of Education. “One is the broader public. These are taxpayer dollars at the root of this.”

The other interested group will be “lawmakers and those with power and responsibility to oversee how taxpayer dollars are being spent,” he said.

On one level, Barth said, it’s not unusual for state auditors to look into a spending question involving a state agency.

“What is different [in this case] is the visibility of the agency,” he said. UA is “very high-profile.” And he pointed to the size of the deficit. “This is not a $30,000 grant,” he said.

Other questions the audit could answer include whether top university officials should have known about the problem sooner.

“I guess in all issues like this, it all goes back to who knew what when,” he said. “That’s the ultimate question. How high was the knowledge about what might be shown to be problematic practices? If it wasn’t known higher up, should it have been? Was there proper oversight ?”

UA TREASURER’S REPORT

Gearhart first announced the deficit Dec. 3, saying the Advancement Division had overspent its budget by more than $3 million and the division’s vice chancellor, Brad Choate, and budget officer Joy Sharp had been reassigned.

Gearhart said then that “the funds were properly used for advancement activities” and “filled staffing needs.” But, he said, the division had been “miscalculating the funding levels necessary to support those positions” and “using anticipated investment revenues to meet current budget obligations.”

The Arkansas Democrat-Gazette sued UA on Feb. 11, requesting a school treasurer’s report into the overspending, saying it was a public document.

Four days after the suit was filed, on Feb. 15, Gearhart’s office released the findings by treasurer Jean Schook that included “overwhelming” evidence of “lack of management oversight, noncompliance with university policies and procedures and deliberate efforts to disguise poor financial management.”

UA ended Choate’s and Sharp’s employment June 30.

UA administrators said in late July that they had balanced the fiscal 2013 budget for the Advancement Division, which spent $13.37 million. That’s roughly $3.37 million more than the division’s 2012, deficit-troubled budget. School finance officials told the Democrat-Gazette that they had made spending cuts in the division and increased its funding, but provided no details.

Legislative Auditor Roger Norman, whose office conducted the audit, described the document as “an investigative report. … We’re looking at particular issues” that Gearhart asked auditors to examine.

Asked what those issues were, Norman referred to a Feb. 5 email from Gearhart. It said: “I would like to formally invite the Legislative Auditors to perform an audit of the Advancement overspending at the University of Arkansas.”

Norman declined to talk further about the audit in advance of its release.

ALTERNATIVES

Generally in carrying out such investigations, Norman’s Legislative Audit Division office performs fieldwork, examining records and talking with the audited agency’s staff. His auditors write a draft report. They then hold a conference with officials of the agency that’s under scrutiny, who are “given a chance to respond. The division then determines if a report should be changed in any way,” Norman said.

Norman’s office prepares a final report and releases it to the Legislative Joint Auditing Committee and the public. Sometimes reports are made public before the meeting, posted on the Legislative Audit office website at arklegaudit.gov.

The Legislative Joint Auditing Committee can file the report and take no further action, defer the report or refer it to a committee for more action. Legislators also can pass along the report to other agencies or investigators.

Through Aug. 17, Norman said, his Legislative Audit office logged 793.5 hours preparing the UA-Fayetteville Advancement Division’s audit. Norman said hours spent on audit reports occasionally top 800.

“Since each special report or investigative report varies, it is difficult to give a range of hours or costs,” Norman wrote in an email.

The Legislative Joint Auditing Committee is to meet at 9 a.m. on Sept. 13. Among items to be discussed is an audit report on overspending by the University of Arkansas at Fayetteville’s Advancement Division. The meeting, which is open to the public, will be in Room A of the Multi-Agency Complex at 1 Capitol Mall in Little Rock. Information can be obtained by calling (501) 683-8600.

UA Advancement Division deficit

Here is a timeline of events associated with the discovery of an estimated $3.37 million budget deficit in UA’s Advancement Division for fiscal 2013. The Division of Legislative Audit's investigation into the matter is expected to be released this month.

2012 JULY 6 UA discovers the Division of University Advancement has depleted UA Foundation accounts meant to pay for Chancellor G. David Gearhart’s annual deferred income after the foundation delays a cash transfer “due to a lack of availability of funds.” JULY 20 Vice Chancellor for Finance and Administration Don Pederson tells Gearhart that the Advancement Division is over budget by millions; Pederson asks UA’s treasurer, Jean Schook, to investigate.

SEPT. 4 Vice Chancellor for Advancement Brad Choate demotes his budget officer, Joy Sharp.

OCT. 17 Pederson gives Gearhart the treasurer’s office findings, which are not made public.

NOV. 6 Gearhart relieves Choate of administrative duties in the Advancement Division and agrees to allow him to work through June 30.

NOV. 15 Sharp is reassigned to the Human Resources Department and allowed to work through June 30.

DEC. 3 After a newspaper article about the deficit is published, Gearhart issues a statement saying an internal review “determined flaws in the division’s budget management process at the senior level.” He explains that the division hired staff members in preparation for a capital campaign despite lacking funds to support them.

2013 JAN. 10 Gearhart says in an email to deans that the Advancement Division deficit won’t result in layoffs.

FEB. 5 Gearhart requests an audit by the Arkansas General Assembly and UA System.

FEB. 11 Arkansas Democrat-Gazette sues the university over its refusal to release certain documents about the deficit, including the treasurer's report.

FEB. 13 Gearhart announces he has hired Razorback Foundation Executive Director Chris Wyrick to head the Advancement Division.

FEB. 15 UA obtains permission from Sharp and Choate to release their personnel records; UA also releases the treasurer’s report, which is critical of Choate, saying he provided “essentially no oversight“ of the division’s finances. In response, Choate blames Sharp for the deficit, saying she was “overwhelmed” by her duties and gave him misleading information; in Sharp's response, she says she made mistakes, fell behind due to her workload and failed to accurately project the division's revenue.

JULY 10 Wyrick announces Advancement Division restructuring; says no employees were laid off.

JULY 17 In response to a Freedom of Information Act request, UA releases a settlement agreement with Choate in which Choate agreed not to sue the school or the UA System or make other claims in exchange for remaining on the payroll through June 30.

JULY 23 More than three weeks into the fiscal year, administrators at UA contend they are unable to produce official budgets for the Advancement Division for the current and recently ended fiscal years or provide information about whether the Advancement Division continues to deficit-spend.

JULY 25 University Relations Division issues a news release saying the Advancement Division's budget has been balanced by increasing revenue.

AUG 22 UA fires its chief spokesman, citing insubordination to his supervisor, Wyrick; Associate Vice Chancellor for University Relations John Diamond says he was fired for objecting to UA administrators’ efforts to obstruct release of information about the deficit.

SOURCE: University of Arkansas records Arkansas Democrat-Gazette

Front Section, Pages 1 on 09/01/2013

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