A committee of the University of Arkansas System board of trustees voted unanimously Thursday to accept two investigative reports concerning a multimillion-dollar deficit in the fundraising division at the Fayetteville campus.
The four-member audit committee spent seven minutes on the subject before voting to accept reports from UA System auditors and the Arkansas Legislative Audit Division. The investigations began almost a year earlier and have been the subject of three legislative hearings.
“For some people this has been a very painful experience,” committee member John Goodson of Texarkana told about 70 people attend-ing the meeting at the University of Arkansas for Medical Sciences campus in Little Rock. “But I view it as a beneficial experience for two reasons. We accepted today new budgetary policies that we’re looking at, new guidelines.”
“And then I think, maybe more importantly, it has brought to light all the good things that have happened on that campus,” he said. “Exactly how fortunate we are to be a part of such a prosperous university as the University of Arkansas.”
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University of Arkansas-Fayetteville Audit
Before the trustees could accept the Legislative Audit report, it had to be accepted by the Joint Legislative Auditing Committee, which approved it Dec. 13. Thursday’s trustees-committee acceptance of the investigative reports now sends the matter to the full board, which meets today on the UAMS campus.
UA administrators became aware of a deficit in the Fayetteville campus’s Advancement Division in mid-2012. Chancellor G. David Gearhart acknowledged the deficit in an announcement in December 2012, and in February, he requested the auditors’ investigations.
“I appreciate the support,” Gearhart said after the vote Thursday. “Hopefully we’ll be able to continue on doing what we’ve been doing, which is building a great university.”
Through its investigation, the Legislative Audit Division determined that the Advancement Division had accumulated a deficit of $4.2 million as of June 30, 2012, over two fiscal years. Before the deficit accumulated, the division’s annual budget was about $10 million, UA administrators have said.
UA officials have said the cumulative deficit was reduced to $3.2 million as of June 30, but the division continues to struggle with annual operating deficits and will be shored up with $8 million from university reserves.
State auditors had referred some matters to a Washington County prosecutor, but he found no evidence of criminal activity in connection with the deficit. However, some UA employees’ actions are still under investigation by prosecutors in Washington and Pulaski counties.
The Washington County prosecutor’s office is looking into an accusation that UA’s chief financial administrator lied to state auditors during a routine annual audit last year when he said he knew of no fraudulent activity in the Advancement Division.
Neither Donald Pederson, UA vice chancellor for finance and administration, nor Treasurer Jean Schook mentioned to state auditors during an Oct. 25, 2012, exit conference that an internal investigation had revealed the multimillion-dollar deficit in the Advancement Division, according to a letter that 14 legislators sent to the prosecutor’s office last month.
Six days earlier, on Oct. 19, 2012, Schook issued a report to Pederson referring to a “likelihood” of conflict-of-interest violations, misdirection of funds and risk of fraud, the letter stated.
Also, Pulaski County prosecutor Larry Jegley is deciding whether to launch an investigation into a Sept. 13 meeting of the Joint Legislative Auditing Committee, in which Gearhart and former UA spokesman John Diamond gave conflicting testimony under oath. Diamond said Gearhart ordered public documents to be destroyed. Gearhart denied it.
Investigators have said the division’s deficit was the fault of two employees who weren’t monitoring the budget as additional employees were hired for a fundraising drive. Brad Choate, former vice chancellor of advancement, and Joy Sharp, the division’s budget officer, ultimately lost their jobs over the deficit.
New budgetary processes recommended by auditors are being followed, Pederson told the committee Thursday. Six of the 16 recommendations have been implemented, and another four will be soon, he said. The remainder will be implemented by June 30, according to the plan, Pederson said.
Of the total, 10 recommendations were from internal auditors and six were from the Legislative Auditing Committee.
The Legislative Audit recommendations included budgeting all job positions and anticipated revenue for the Advancement Division, something that the audit said did not happen under Choate. Further, auditors said, the division should develop financial reports that includeall revenue and expenditures for both public and private funds, which did not happen previously.
Among the UA System auditors’ recommendations was that administrators “monitor and resolve significant deficit spending issues monthly or quarterly rather than waiting until year end.”
According to Pederson’s response, UA is monitoring revenue and expenditures monthly and is developing plans to resolve the deficit issues.
Previous public records requests showed deficits in other university units, such as Garvan Woodland Gardens in Hot Springs - which is part of the architecture school - and the University of Arkansas Press. But UA officials have said those deficits were different because they were not surprises.
Also, a plan must be made to annually resolve deficits, according to the UA System recommendations. Plans to resolve deficits that are too large to resolve within a year should be presented to the board of trustees for review and approval.
The full board of trustees went into executive session for three hours Thursday. When trustees emerged from the executive session, Chairman Jane Rogers adjourned the meeting and said the executive session would resume today. The board can go into executive session to consider matters of personnel and certain other matters, such as election of board officers.
No matters related to the Fayetteville campus Advancement Division deficit were listed on an agenda for the executive session Thursday or today.
Front Section, Pages 1 on 01/24/2014