FBI agent pokes into UA audit’s 4 concerns

Correction: A state auditors’ report released Sept. 10 said the University of Arkansas-Fayetteville Advancement Division showed a deficit of $4.19 million at the end of fiscal 2012 — a cumulative total that includes a $2.14 million deficit from fiscal 2011. Stories in editions of Nov. 6 incorrectly characterized the cumulative total as a one-year deficit.

An FBI agent who specializes in financial matters has joined a Washington County prosecutor’s team that is investigating concerns that arose in an audit of the University of Arkansas at Fayetteville’s fundraising division.

Finance “is his specialty,” deputy prosecutor David Bercaw said of the federal agent. “Whenever you’re dealing with something this complex, quite frankly you need to use your resources.

“This agent is a really good resource,” Bercaw said.

University Chancellor G. David Gearhart announced in December that the fundraising unit, formally known as the Division of University Advancement, had overspent its revenue by millions of dollars. Gearhart has said that two university employees overspent on hiring and other expenses.

A state auditors’ report released Sept. 10 said the Advancement Division’s spending went $4.19 million over budget in fiscal 2012. Auditors also found smaller deficits going back to at least fiscal 2008.

University finance officials didn’t notice the overspending until after the close of the fiscal year on June 30, 2012.

State auditors sent their findings and four concerns of potential criminality to the prosecuting attorney’s office in Fayetteville for further investigation. Auditors said sending such concerns for prosecutors to review is not unusual.

Bercaw said it’s also typical to “borrow” from another agency when the prosecutor’s office needs help.

Bercaw, the lead prosecutor on the case, and deputy prosecutor Meika Hatcher have been working on the investigation since September. The prosecutor’s office invited help from the FBI, which supplied an agent in late September, Bercaw said. Bercaw declined to name the agent.

“We’re getting down pretty close to having talked to everybody we have to talk to,” Bercaw said in a recent interview. “We’re probably going to have some follow-up interviews. They probably won’t be as long.”

“We’re pushing on it as hard as we can,” he said.

Bercaw declined to say how much longer his inquiry might take.

Letters from auditors asked the prosecutor’s office to look into four matters:

One duplicate expense payment to Brad Choate, a former vice chancellor for advancement, for $2,052. Choate repaid it.

An improper deposit by former budget officer Joy Sharp of $1.35 million in restricted funds into an unrestricted spending account that was running low.

Two “accounts receivables” entries by university treasurer Jean Schook’s office that “partially obscured” deficits. according to the audit.

Contradictory testimony under oath by Gearhart and former university spokesman John Diamond at a Sept. 13 hearing by the Legislative Joint Auditing Committee.

Diamond told legislators at a Jan. 14 meeting that Gearhart ordered Advancement Division officials to “get rid” of records.

Gearhart responded that he had never ordered anyone to destroy documents and described Diamond, who was fired Aug. 23, as a “disgruntled” employee.

Gearhart went on to say he particularly had never ordered anyone to get rid of documents requested under Arkansas’ Freedom of Information Act.

University officials discovered the Advancement Division’s overspending July 6, 2012, records show.

That’s when the nonprofit University of Arkansas Foundation rejected a funding transfer request from Sharp for $225,000 in deferred compensation meant for Gearhart.

An October 2012 report by Schook said no fraud took place in the division’s overspending.

Choate and his budget officer, Sharp, were reassigned last fall and left the university June 30.

On Feb. 5, Gearhart asked auditors from the state Legislative Audit Division and the University of Arkansas System to examine the deficit spending. Their report, the one released Sept. 10, said spending increases, while revenue remained flat, contributed to the problem.

The report also criticized top university officials’ accounting, budget oversight, internal controls and failure to disclose certain matters to auditors.

Auditors also “experienced difficulty” obtaining financial records, “which potentially limited the scope of this review,” the auditors’ report said.