Choate expected to air his side of what caused UA unit deficit

Brad Choate, one of the University of Arkansas at Fayetteville’s most successful fundraisers, is expected to talk publicly this week for the first time about how the Division of University Advancement under his leadership last year became mired in a surprise, multimillion-dollar deficit.




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Choate is expected to testify Friday before the Legislative Joint Auditing Committee about the financial mess that cost him his $348,175-a-year job in June. The deficit spending also ended the employment of the division’s longtime budget officer Joy Sharp, who was paid $91,086 a year before she was reassigned and demoted last year.

UA Chancellor G. David Gearhart and state auditors have said Choate and Sharp didn’t monitor their division’s spending and that Sharp made accounting errors. But state auditors, whose report was made public Sept. 10, also criticized accounting by the university’s top finance officials and questioned whether those officials disclosed all information to auditors that they should have.

Choate said last week that he couldn’t talk to a reporter about what he’ll say Friday because he signed an agreement with university officials in February that prohibits him from disparaging top staff members, including Gearhart.

The only arenas in which Choate can speak critically are in court proceedings and audits, the agreement says. Friday’s legislative meeting will qualify, he said, because it’s part of state auditors’ investigation into the fundraising division’s overspending.

“I’m coming of my own free will, on my own time, at my own expense,” Choate said. “I appreciate the invitation to speak.”

Sharp, who also has said little publicly since Gearhart announced the unit’s deficit Dec. 3, 2012, has been invited to speak to the committee.Legislators say she hasn’t said whether she will attend. Like Choate, Sharp has not been subpoenaed, so her attendance would be voluntary.

Sharp didn’t answer repeated calls placed to her Northwest Arkansas home last week.

Friday’s audit committee meeting is likely to focus on questionable accounting by the university and whether top finance officials have been open and truthful as the financial problems unfolded. Those topics were central to the first Legislative Joint Auditing Committee hearing Sept. 13 on the Advancement Division deficit.

“Anybody makes mistakes and bad judgments, those things happen,” state Sen.Bryan King, R-Green Forest, said last week. “But anytime you have a problem, you want to hear the whole story.”

“We want to hear from Mr. Choate and Ms. Sharp,” said King, co-chairman of the Joint Auditing Committee. “Chancellor Gearhart has said Mr. Choate was responsible. I think we want to hear [Choate’s] side of the story.”‘BOTH FAILED’

If Choate and Gearhart both appear as expected at Friday’s Joint Audit Committee hearing, it will likely be an awkward reunion for the two former longtime friends and colleagues.

Records obtained by the Arkansas Democrat-Gazette show that the two disagree sharply over who and what were responsible for one of the largest deficits ever in a UA-Fayetteville division.

Gearhart and other officials blame Choate and Sharp.

Choate has said in memorandums and emails - written before he signed his February no-comment agreement with the university - that the problem is wider.

The “university’s checks and balances failed,” he wrote in an email obtained by the newspaper through Arkansas Freedom of Information Act requests.

“Trusting information I was given by Joy and relying on the University’s systems and staff to identify anything that looked out of the ordinary proved insufficient,” he wrote in an October 2012 email to Gearhart and others.

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

Choate, 57, and Gearhart, 61, go back at least 23 years, according to news accounts. During that time, Gearhart hired Choate twice. The two men and their wives occasionally traveled together and flew cross-country to visit each other’s homes.

The first time Gearhart hired Choate was at Pennsylvania State University at State College, Pa., in 1990. Gearhart was chief fundraiser. After reading a glowing article in a higher-education magazine about a young, up-and-coming fundraiser at Ohio State University, Gearhart telephoned Choate and wound up offering him the second-in-command job in Gearhart’s Penn State advancement division.

In a 2010 Arkansas Democrat-Gazette article, Gearhart described Choate as “young and vigorous and … [with] a high energy level … he had gone pretty far in a short period of time.”

A Fayetteville native, Gearhart returned to the University of Arkansas as chief fundraiser in 1998. He spearheaded the university’s “Campaign for the 21st Century,” which raised more than $1 billion between July 1998 and June 2005.

In July 2008, Gearhart was tapped to replace then-Chancellor John White. One of Gearhart’s top priorities was to pick his successor for fundraising, one of UA-Fayetteville’s highest-paying andpremier jobs. He asked Choate to take the job.

“I would consider Brad one of the best advancement people in the country,” Gearhart said in a 2010 Democrat-Gazette article.

For his part, Choate told the newspaper that he liked working for a chancellor who had an impeccable reputation for university fundraising.

Choate was hired shortly after the nation’s economy sank into the worst recession since the 1930s. For the past three fiscal years, 2011-13, UA-Fayetteville posted more than $100 million each year in private gifts - the school’s first back-to-back, nine-figure fundraising years.

In 2012, Choate, Gearhart and others were kicking off another major fundraising campaign.

Then they got a surprise from the UA Foundation, a partner agency at the Fayetteville campus that banks and manages monetary donations and other private gifts for the university, until the school needs those funds or assets.

NO FUNDS AT ALL

On July 3, 2012, Sharp sent a routine funding transfer request to the UA Foundation, seeking a total of $225,000 from three accounts to transfer into a “Chancellor’s special projects” account from which Gearhart would draw his annual deferred compensation.

The foundation refused the transfer, records show, “due to lack of availability of funds.”

Emails obtained by the Democrat-Gazette show that the financial crunch surprised Gearhart, Choate and others. At first, emails indicate Gearhart supporting Choate as they tried to understand what had happened.

On July 18, Choate emailed the chancellor: “My apologies for the ‘frozen funds’ issue. This, of course, came as a complete surprise to me.”

Gearhart responded by suggesting that Choate assign spending goals to each unitof the Advancement Division, as Gearhart said he had done when he was in charge there. Choate responded that he already used that approach.

The chancellor went on to say about Sharp: “She has been doing it for so long, it really surprises me. There must be something wacky about the budget to cause this.”

Gearhart could not be reached through a university spokesman for comment late last week.

As weeks passed, emails show Gearhart’s impatience rising as more bad financial news rolled in, not just about Advancement spending, but chancellor accounts handled by the Advancement Division.

On Aug. 6, Gearhart wrote Choate and others: “I just learned … that the Chancellor’s Society funds are much lower than we thought. Apparently we only have about $110,000 in the quasi account down from $500,000 in the report I received in December and $80,000 below the recent report of two weeks ago. That is dangerously low.”

Gearhart also wrote that his deferred-income account “has no funds in it at all.”

“If you don’t have an answer to me by the end of week I feel an obligation to involve our auditors,” Gearhart wrote.

NO LONGER CLOSE

By October 2012, university treasurer Jean Schook assembled a report into what caused a more than $4 million cumulative deficit in the Advancement Division in fiscal 2012. Deficits could be traced back to at least fiscal 2011, she said.

An Oct. 20 email shows her findings focused on Choate and Sharp.

Choate provided inadequate oversight of the financial activities of the Advancement Division, Schook wrote. He also gave his budget system password to Sharp, which was against school policy.

The report also said that Choate didn’t keep copies of budget reports, monitor his personal expense reimbursement claims and added staff members without money to pay for them.

Choate responded that he did provide budget supervision but that it was based on incorrect information from Sharp showing that the Advancement Division’s finances were in the black. And he charged that the university’s central financial accounting system, headed by Vice Chancellor Don Pederson and Schook, didn’t notice or sound an alarm.

“I had formal monthly meetings with Joy and countless informal meetings to discuss financial activities, and never once did she indicate that financial problems existed or that she was experiencing any difficulties performing her job,” Choate wrote.

“I trusted Joy to give me accurate numbers and the University’s Financial Affairs staff and system to contact me if they detected any problems with our finances.”

In November 2012, Gearhart removed Choate from administrative responsibilities but kept him on the payroll at full salary until June 30.

By late November 2012, their close relationship had eroded.

On Nov. 20, Gearhart wrote to Choate: “I have had several folks tell me recently that you are blaming your situation on [university finance chief] Don Pederson. That you are disparaging his name and using him as the reason for your demise. I have also been told that you are telling folks that you inherited this problem and the budget deficit existed before you arrived. Neither are accurate. … If I continue to hear these reports I will be forced to remove you from this [administration] building and assign you space elsewhere. The other alternative is to dismiss you immediately for cause.”

Choate responded: “I have not said one bad word about you and in fact have been explicit to say I don’t want this to hurt you or the University. I have said that I think Don and the financial affairs system should have helped spot this issue before now.”‘HEAR THEIR SIDE’

The Legislative Joint Auditing Committee’s role is “to provide guidance and accountability standards” for state agencies, according to the Division of Legislative Audit’s website.

And King says that’s what lawmakers hope to do when they meet Friday. After the hearing into the UA-Fayetteville fundraising division’s financial troubles, the lawmakers could decide to send more matters to prosecutors for investigation, to accept the auditors’ reports and essentially close their examination, or to keep the audit open for a further look.

“We understand from the people we rely on that the biggest concern is the way they were doing their accounting,” King said last week. “That’s a problem. We want to know what steps they’ve taken to correct it. How it won’t happen in the future.”

But, King said, Choate and Sharp lost their jobs over the Advancement unit’s financial crisis.

“They deserve to have people hear their side of the story.”

Front Section, Pages 1 on 12/08/2013

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