University harmed by resistance to accountability, transparency

The long awaited Investigative Report (pdf) by the Arkansas Division of Legislative Audit (DLA) was published Tuesday. Along with it, an Internal Audit Report (pdf) by University System auditors was also published. Both analyze the events and failures that led to the accumulated $4.2 million budget deficit in the University of Arkansas’ Advancement Division under then Vice Chancellor for Advancement Division (VCAD) Brad Choate. Academic Daylight has published an initial analysis. More analyses and background info can be found at Arkansas Blog, mostly written by Max Brantley (also here, here and here) and in the reporting of Arkansas Democrat Gazette journalists Tracie Dungan and Lisa Hammersly.

Self-inflicted PR desasters

The report constitutes the latest in a sequence of self-inflicted PR disasters for the University: first, a budget shortfall over several millions, accumulated due to sloppy accounting practices, was not detected for more than a year; then the University attempted to keep the details from the public, which prompted a FOIA (Freedom of Information Act) lawsuit by the state’s most powerful newspaper, the Arkansas Democrat-Gazette. The University’s position was legally untenable if not outright deceptive and officials soon had to disclose the records in question, as well as initiate audits both by the University System’s own internal audit division and the Legislative Audit, a step that had been contemplated earlier but wasn’t deemed necessary until public outcry made it inevitable. The newly appointed Division head Chris Wyrick went to work restructuring the unit with much fanfare but when the media wanted to know details, University officials again opted to stonewall, a tactic which was protested by the Media Relations director John Diamond and allegedly led to his firing. Diamond’s revelations about a hostile work environment and an institutional culture averse to transparency and accountability to the public inflicted further damage on the University’s reputation. Have officials, first and foremost Chancellor David Gearhart (who Diamond alleges issued a “no-talk-directive”) learned any lessons? Time will tell.

So, the audit report – initially expected around May – is finally here. The University’s reaction has been the claim that it just confirms what their own internal investigation (conducted by Treasurer Jean Schook and reproduced as appendix C in the DLA report) already revealed. But while the DLA confirmed the misconduct of VCAD Brad Choate and his budget manager Joy Sharp (both were terminated as of June 30, 2013 but interestingly, only Sharp suffered a salary cut from $91k to $68k while Choate’s $350k pay was continued), Treasurer Schook and Vice Chancellor for Finance and Administration (VCFA) Don Pederson are also held responsible for their lack of oversight and perhaps collusion (reported in the Democrat-Gazette after this blog). In this light the Chancellor’s decision to rely exclusively on an internal report prepared by Schook herself under Pederson’s supervision, rather than calling in external auditors right away, seems inexcusable. Ultimately the question remains unanswered how a deficit amounting to almost $2 million by June 2011 was only “discovered” by the VCFA a full year later.

Flawed budget procedures

The UA System audit has received less attention than the DLA report but its findings concerning shortcomings in the UA’s general budget process are highly relevant. This audit observes a general lack of financial documentation: “financial documentation was not sufficiently available to audit the decentralized budgeting controls within the Advancement Division in accordance with generally accepted auditing standards. (…) we never received any budget files for the Advancement Division.” (p. 4). Schook “stated there were very few accounting records and no organized historical records for the Advancement Division” since 2008 (p. 5). DLA auditors also “experienced difficulty obtaining Advancement financial records” and point out that the content of Sharp’s computer’s hard drive was not backed-up when she was reassigned.

UA System auditors found that “there were no written procedures governing the budget process for the University and that the University does not budget all available funds campus-wide. (…) “We noted Finance and Administration has not provided written instructions on how to effectively monitor the budgetary process to the colleges and divisions.” Further:

“We were informed by the Controller that Finance and Administration did not monitor college and division accounts in a deficit position until May of each year (eleven months into the fiscal year). (…) The Vice Chancellor for Finance and Administration also informed us that unappropriated reserves are not budgeted. Requests for funding from the reserves are made by the college or division’s management to the Vice Chancellor for Finance and Administration. The Vice Chancellor for Finance and Administration makes final decisions on fund transfers from unrestricted reserves. However, requests are approved in consultation with the Chancellor for any questionable items. We observed that there was no consistent documentation when requests were not approved.

The University’s current centralized budget process creates an audit risk environment (related to impact and likelihood) that adverse transactions may occur and not be detected on a timely basis.”

Will lessons be learned?

The University has promised to revise its budget procedures (and, true to form, created a new highly paid administrative position for the task). But it resists some of the recommendations of both audits. And clearly, these reforms, if they materialize, would not have been considered without the audit reports and the public pressure that made them necessary.

Again: will University officials learn the lessons? Do Gearhart, Pederson and Wyrick understand that their resistance to transparency and accountability has damaged the institution far more than the budget deficit? Do they understand that the ability and willingness to honestly assess and correct mistakes made – one’s own mistakes, not just those of one’s underlings – is a strength, not a weakness?

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One thought on “University harmed by resistance to accountability, transparency

  1. Pingback: Doing well: Gearhart’s inner circle | Academic Daylight

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