The chief financial officer for the University of Arkansas at Fayetteville’s fundraising division, Denise Reynolds, directed staff members to destroy hundreds of pounds of documents this year, according to emails and interviews obtained by the Arkansas Democrat-Gazette.
The document-disposal project at three storage sites took place as state auditors investigated millions of dollars in overspending by the fundraising division, officially called the Division of University Advancement.
The auditors reported in September that the division overspent its budget and ended fiscal 2012 with a $4.19million deficit. The auditors’ report criticized top university officials’ accounting practices, budget oversight, internal controls and failure to disclose certain issues to auditors.
Auditors also noted that they “experienced difficulty” obtaining financial records, “which potentially limitedthe scope of this review.” Listed among missing or unavailable documents were “payment authorization” forms and other records of transactions with the private, nonprofit UA Foundation, as well as ongoing budget reports.
Reynolds, UA Advancement Division chief Chris Wyrick and other staff members said in a group interview last week that they’re certain no one involved in the storage cleanout project discarded records needed for the audit.
“The records in storage were largely irrelevant and predated the audit period [fiscal 2008-2012] by several years,” Wyrick said. Many were pre-2000 and involved matters generally unrelated to the audit, he added.
Asked if university staff members kept a log showing what they dumped or shredded at the three storage sites, Reynolds and university spokesman Mark Rushing said they did not.
College-finance and public-records experts are critical of agencies that call in auditors - as Chancellor G. David Gearhart did for the Advancement Division on Feb. 5 - and at the same time destroy potentially relevant records.
Robert Steinbuch, a University of Arkansas at Little Rock law professor who specializes in public-information law, said the issue involves best accounting and business practices.
“If you’ve called in auditors, you generally want to make sure you have all the documents,” said Steinbuch, who teaches business groups that include private companies and nonprofits. “If you’re doing a forensic audit, I don’t think you want to bury the body at the same time.”
Federal court rulings and regulations also have pushed government agencies and businesses to think more about preserving documents if they face court action. The same is true if litigation is “reasonably foreseeable,” according to an article on the website of the National Association of College and University Business Officers.
It’s not always easy to spot “reasonably foreseeable” court action, wrote two attorneys for the California State University System, whose offices are in Long Beach. Situations that may apply, they wrote, include “a special investigation or regulatory audit.”
University emails obtained by the Democrat-Gazette and interviews with Advancement Division officials show at least one instance in which Reynolds approved the destruction of “payment authorization” records dated as recently as fiscal 2011.
A Feb. 11 email from division employee Renea Dillard to Reynolds, obtained under an Arkansas Freedom of Information Act request, said: “I’m going to start putting old files in the shred bin upstairs. … Can you tell me how long we keep payment authorizations?”
Dillard’s notes show Reynolds replied by phone, saying “save current year plus one,” a university spokesman said.
The email and phone call took place within a week after Gearhart called in auditors from the Legislative Audit Division and the University of Arkansas System to investigate the division’s overspending.
Reynolds’ response would have allowed for the destruction of payment authorization forms for fiscal 2011 and earlier.
Since auditors released their report in September, university officials have said they aren’t responsible for retaining copies of payment authorization forms, which they say are available to auditors through the UA Foundation.
State auditors have refused to answer questions about their report’s findings while it is pending before the Legislative Joint Auditing Committee.
Reynolds told the Democrat-Gazette that she undertook the storage clean-out project last fall to save money. The effort involved at least five division employees, including Reynolds, according to emails.
Asked if worker hours for emptying the storage units could have cost as much as $20,000 or $30,000, Reynolds said she didn’t know.
“It did cost a lot” in work hours, she said.
How much did the division save in storage costs?
“$3,600” a year, Reynolds replied.
‘NO DOUBT’
In mid-October, the Democrat-Gazette requested public records concerning document destruction by the university’s Advancement Division. A university spokesman responded with more than 175 pages of emails and other documents.
The newspaper’s Freedom of Information Act request followed auditors’ Sept. 10 report complaining of difficulty obtaining records.
The request also was spurred by allegations of document destruction during a tense hearing before the Legislative Joint Auditing Committee in Little Rock three days after the audit report’s release.
Lawmakers met Sept. 13 to consider the audit report and ask questions of UA officials. Gearhart, finance chief Don Pederson, university treasurer Jean Schook and UA System President Donald Bobbitt testified.
The legislative committee also invited former university spokesman John Diamond, who was fired Aug. 23 though his last work date was Sept. 22.
Testifying under oath, Diamond told the committee that Gearhart became angry during a Jan. 14 meeting of Advancement Division leaders and ordered Reynolds, Diamond and others in the room to “get rid of ” budget-related records. Then in February, Diamond said, a directive was given to certain division employees to “destroy boxes of records as part of a housekeeping matter.”
Diamond said he believed that’s one reason auditors couldn’t find all of the budget records they wanted.
Gearhart, also testifying under oath, said he never told anyone to destroy documents, particularly documents that state law requires agencies to keep. He called Diamond a “disgruntled” employee.
Wyrick has said he fired Diamond for insubordination. Diamond has said he disagreed with higher-ups over which documents the university was legally required to release to the public.
Reynolds told the newspaper that Gearhart never ordered her to destroy documents.
Washington County prosecutors are still looking into the allegations.
University records and interviews show that Advancement Division leaders met with Gearhart on Jan. 14. Reynolds and Diamond were present.
Reynolds also sent a Feb. 6 email to Diamond and another division administrator, which Diamond said referred to the purported order to destroy documents. Reynolds denies it.
Reynolds’ email opened: “Please delete after reading,” the Democrat-Gazette reported in October.
“I feel like Bond, James Bond 007 after saying that,” Reynolds’ email went on.
Reynolds told the newspaper that she didn’t recall why she started her email with “Please delete.”
Diamond said that he had “no doubt” Reynolds’ email “was referring to the Jan. 14 directive from the chancellor not to maintain documents about the Advancement Division’s budget problems.”‘PERFECTLY FINE’
Over the past 12 months, the division carried out the biggest storage clean-out of records and other items in at least 14 years, officials disclosed in an interview last week.
Reynolds said she initiated the document-shredding effort last fall, soon after she was named to replace longtime budget officer Joy Sharp.
The clean-out was part of a larger effort to cut spending in the deficit-troubled division, Reynolds has said. The work “was careful and designed to comply” with university guidelines, including those regarding document retention.
The division does not have any mandatory policy or guidelines for document retention, UA spokesman Rushing said.
Reynolds said her staff followed guidelines adopted for the university’s Division of Finance and Administration.The guidelines didn’t include retention periods for certain documents, such as payment authorizations related to the UA Foundation.
Division employees focused on two storage sites off campus in Fayetteville, on West Martin Luther King Jr. Boulevard and on Gregg Street. The third was beside University House, near the division’s offices on campus at West Maple Street.
By last November, workers were organizing clean-outs of the Gregg Street and West Martin Luther King Jr. Boulevard sites, emails show. The division rented at least four units at Gregg Street. Then workers put plans on hold for several weeks about Dec. 1. University emails supplied to the newspaper don’t say why.
By the end of July, employees had cleared out the University House storage building and several units at Gregg Street. By mid-August, they had emptied the third storage site on West Martin Luther King Jr. Boulevard.
The destroyed documents weighed at least several hundred pounds.
Regarding records disposal at a single unit, Brenda Brugger, an assistant vice chancellor for the Advancement Division, wrote on July 17: “We calculate the equivalent of two shred bins … I’d like to go ahead and get that scheduled if that’s okay with everyone.”
A commercial shred bin generally holds 100 to 300 pounds, according to industry promotions.
In that same email, Brugger also approved discarding financial records pertaining to the UA Foundation.
“I checked with the foundation, and they retain copies of all the forms and ledgers that were in the storage shed, so it’s perfectly fine to shred our copies,” her email said.
UA Foundation officials maintain that their records do not have to be made public under the Freedom of Information Act. Even though the foundation works through the taxpayer-supported University of Arkansas, they say the foundation and its records are private.
UALR law professor Steinbuch said the public-access issue isn’t open-and-shut. He’s generally “highly skeptical” of universities’ foundations that claim they are exempt from public-records laws “when they at the same time have public employees soliciting money for them and often have public employees expending their funds.”
Courts in many cases “have properly found these entities can and should be subject to the FOIA,” Steinbuch said.
MISSING RECORDS No one in the Advancement Division talked about preserving records for auditors, Wyrick and Reynolds said last week.
University higher-ups and auditors themselves did not caution against document destruction, division officials said in last week’s interview. No one issued a “litigation hold” that would have required the division to preserve documents in case the university was sued, they said.
Auditors’ Sept. 10 report cited two instances of difficulty obtaining records related to transactions with the UA Foundation:
Payment authorization forms. The report found 765 “payment authorization” forms for fiscal 2012. But when auditors looked back to fiscal 2011 and 2010, they located “only 20.”
“Worksheets and files detailing all foundation reimbursement requests” and budget reports prepared by former advancement budget officer Sharp.
Auditors also wrote that Sharp’s computer was reissued to another employee and that the contents of its hard drive “were not ‘imaged’ or backed up for future review.”
The UA Foundation “payment authorization form” shows which university employee requested money from the foundation, how much, its purpose and who approved the transaction, as well as other information.
After former UA spokesman Diamond told legislators at their Sept. 13 hearing that Advancement Division staff members were told to get rid of boxes of records, he said employees specifically asked about “payment authorizations.” They were told to discard those from fiscal 2011 and earlier, he said.
“So they went to the shredder,” Diamond said.
In response to Diamond’s allegations, university treasurer Schook told the joint auditing committee: “The [payment authorization] document is owned by the foundation.”
Schook said she advised auditors that “it would be appropriate for them to go to the foundation to request the original source document. We have sent numerous requests to the University of Arkansas Foundation for the payment authorization forms. Those have been provided to the audit staff.”
Auditors did not return several calls and emails for comment on the issue last week.
Wyrick and Reynolds told the newspaper that they know why auditors couldn’t find other documents, such as worksheets, files or budget reports prepared by Sharp.
University executives believe the former budget director did not create budget reports after early 2008, when Gearhart - a former chief of advancement himself - was promoted to chancellor, Wyrick and Reynolds said.
Former advancement head Brad Choate disagrees. He said Sharp did create budget documents from 2008 forward.
“Joy and I met one-on-one monthly and went over the budget,” Choate wrote in a text message last week. He said healso reviewed the budget regularly with his three associate vice chancellors.
“The budget sheets Joy prepared and apparently other documents were not to be found when we began trying to figure out what happened” to cause the division’s deficit, Choate wrote.
Gearhart and other university officials have said since Dec. 3, when they publicly announced the deficit, that it happened because of poor budget management by Choate and Sharp. Gearhart and other officials have said the overspending went for needed purchases and that no fraud was found.
Choate and Sharp were reassigned last fall and left the university June 30. Sharp has acknowledged making accounting and financial mistakes because of a heavy workload. Choate, who said he had no idea a deficit existed until after fiscal 2012, cites lax accounting standards across the university.
Sharp has steadily refused to respond to Democrat-Gazette requests for interviews and comment.
The state Legislative Joint Auditing Committee is still looking into the auditors’ report on the Advancement Division’s deficit. Legislators say they will hold more hearings in December.
The Washington County prosecutor’s office also continues investigating four possible criminal violations sent by state auditors, including Diamond and Gearhart’s conflicting testimony under oath concerning document destruction.
Meantime, Reynolds and Rushing said last week that they still think the division’s storage site clean-outs were a good idea.
“That’s one piece of a larger pie [Reynolds] was looking at,” Rushing said. “It was an effort to see how much money could be saved.”
Said Reynolds: “It needed to be done.” Information for this article was contributed by Chris Bahn of the Arkansas Democrat-Gazette.
Front Section, Pages 1 on 11/03/2013