Lawmakers raise issue of UA ‘trust’

The state audit that is critical of the University of Arkansas at Fayetteville’s deficit-ridden fundraising unit raises questions about competency, transparency and accountability, “which all go to an overall trust issue among the individual supporters of the University of Arkansas and the taxpayers of the state,” Rep. Andy Mayberry said Friday.

Mayberry made the comment during a hearing of the Legislative Joint Auditing Committee that reviewed the findings of the Legislative Audit Division’s report on the University Advancement Division, which overspent its fiscal 2012 budget by $4.19 million.

Mayberry, R-Hensley, was among several lawmakers who voiced skepticism about whether the Fayetteville campus operates in a transparent manner with Chancellor G. David Gearhart at the helm.

The expressions of skepticism came after a discussion of the audit findings but before the university’s former chief spokesman John Diamond accused Gearhart of ordering the destruction of documents that would have shed more light for auditors on the overspending.

Gearhart disputed Diamond’s allegations.

Among other findings, legislative auditors reported that Vice Chancellor for Finance and Administration Don Pederson and Associate Vice Chancellor and Treasurer Jean Schook, a former staff member for the Legislative Audit Division, failed to disclose in an Oct. 25 meeting with auditors pertinent information related to the possibility of fraud in connection with the University Advancement Division’s overspending.

UA officials disagreed with legislative auditors and maintained that neither Pederson nor Schook knew “of any allegation of fraud or suspected fraud.”

Several lawmakers referred to the Arkansas Democrat-Gazette filing a lawsuit against the UA on Feb. 11 to obtain additional documents, including the results of an investigation by Schook. In response, the UA obtained consent from two former employees to release the documents - while continuing to maintain that those files were personnel records and protected from release - and the newspaper agreed to drop the lawsuit.

Mayberry noted that the Democrat-Gazette reported that the UA redacted information about how much money it agreed to pay the University of Southern Mississippi to play football in Fayetteville today, in response to the newspaper’s request for the information under the Freedom of Information Act.

Mayberry said the fact that UA agreed to pay $975,000 to Southern Miss became public knowledge because another newspaper, The Commercial Appeal of Memphis, obtained the information through its own public-records request with Southern Miss.

The $975,000 game guarantee is believed to be the most paid to an Arkansas opponent, surpassing the $950,000 received by the University of Louisiana at Lafayette in the season opener last year, the Democrat-Gazette reported this week.

“I guess I fail to see what would be so proprietary in nature that the university would be so protective of that,” Mayberry said.

“But it seems to be part of a more overall approach or perhaps a lack of transparency, or maybe it’s just a perception of such,” Mayberry told Gearhart. “How can the university in your opinion address that perception that the university is not being as open and forthcoming with information as perhaps it should be with people of the state?”

Gearhart said that if the UA releases information that it will pay a particular school $1 million to play the UA football team, “it’s going to be very difficult to have another team come in and pay them $500,000.”

“We believe it is a competitive disadvantage to us if we released that information. We are trying to keep our expenses at the Razorback Foundation and intercollegiate athletics as low as we can, and our feeling is that this is information that would hurt us in contract negotiations with other teams,” he said.

“I do believe we are transparent. I do believe we work very hard to comply with the law, but there is a competitive advantage [exemption] in the law,” Gearhart said.

He later added, “We believe we are as transparent as is required by the law and as required to be able to say to our constituency that we are an open university.”

Arkansas Rep. Nate Bell, R-Mena, said he’s bothered that Pederson signed a letter stating that he doesn’t believe there is any suspected fraud in the UA’s Advancement Division when UA internal documents “directly conflict with that.”

“How can this body have any level of trust that you all are going to be open and transparent with us when you clearly didn’t in this case following this scandal? You talk about transparency. There is a high degree of opacity in how you misrepresented this to our auditors,” Bell said.

Pederson said the UA’s internal documents referred to “risks of fraud, not fraud or suspected fraud.

“I signed the document that I had no knowledge of any allegation of fraud or suspected fraud because I believed that to be the case,” he said. “We did not believe there was fraud, or suspected that there was any fraud at that time. We had already determined that the risk of fraud did not lead to fraud or suspected fraud.”

But Bell said, “We depend on having an honest and fair and open representation, not parsing words.

“I think any fair-minded person would look at what you just told me and say that’s walking a very narrow line in parsing words,” he said. “It’s very opaque. That’s not indicative of transparency.”

Gearhart said there was no fraud in the UA’s Advancement Division.

He said he asked for the audit by the Legislative Audit Division and UA System auditors “so that we would be totally and completely transparent.”

“Had we been trying to cover up anything, had we been trying to keep anything from this committee, I don’t think we would have ever done that,” Gearhart said.

Bell said it appears that UA officials “have taken reasonable steps to deal with this situation, [but] I believe it is fair to say that there was a fraudulent misrepresentation of facts on more than one occasion.”

Gearhart disagreed: “To suggest that we have been fraudulent, I just have to disagree with you. I don’t think you can point to any place in the audit that suggests that.”

Afterward, state Sen. Larry Teague, D-Nashville, said it seems like UA officials are fixing the problems in their fundraising division that led to the overspending.

But he added, “I don’t know whether Diamond is right, whether they shredded documents.”