Prosecutor: No Perjury Charges Against Gearhart

The last remaining judicial investigation in connection with the financial crisis in the University of Arkansas’ Advancement Division has been closed.

  • Chancellor Gearhart, January 14, 2013: “Why do we have these documents? Get rid of them!”
  • Gearhart under oath, September 13, 2013: “I have never said to anybody that they should destroy documents.”
  • Prosecutor Larry Jegley, June 2, 2014: “there may be differing versions of the events and discussion concerning the matters at issue”.

Pulaski Prosecutor Larry Jegley announced on June 2 that he’d found no probable cause to take action against University of Arkansas officials (via Arkansas Blog). At issue was whether Chancellor Gearhart or other officials had committed perjury at a hearing of the Legislative Auditing Committee; Jegley’s office had jurisdiction because the hearing was held in Little Rock. Jegley’s letter gives no detailed reasoning for his decision. According to ArkansasOnline, Jegley could not be reached for further comment. For the University, and in particular for Chancellor Gearhart, an embarrassing  chapter has been closed for good but the damage is considerable.

On January 14, 2013, Chancellor Gearhart told staff members at a meeting, after a budget document had been handed out: “Why do we have these documents? Get rid of them!”. This version of events was confirmed by three witnesses: former Associate Vice Chancellor for Development Bruce Pontious, now retired; Associate Vice Chancellor Graham Stewart, who left to take a position at Vanderbilt University; and former university spokesman John Diamond, who was fired in 2013 and recently was appointed as spokesman for the University of Wisconsin in Madison.

2 quote Gearhart: ‘Get rid’ of papers, Lisa Hammersley, Arkansas Democrat-Gazette, December 19, 2013

At the meeting of the Legislative Audit Committee on September 13, 2013, confronted by Diamond, Gearhart stated under oath: “I have never said to anybody that they should destroy documents.”

Washington County assistant prosecuting attorney Dave Bercaw, investigating possible FOIA violations, redacted the “get rid” quote out of his final report. Now the Pulaski County prosecutor closed the remaining perjury investigation, stating: “While there may be differing versions of the events and discussions concerning the matters at issue, none rise to meet the standards [of the perjury statute].

UA finance chief cleared in criminal investigation

The Washington County District Attorney has cleared University of Arkansas finance chief Don Pederson of criminal wrongdoing in connection with financial irregularities in the Advancement Division (find all related documents here). An attempted cover-up was not illegal. Was it ethical?

At issue in this particular investigation was the fact that the UA leadership had not disclosed the budget trouble to state auditors when it was discovered in 2012. The state audit conducted in 2013 states (p. 12):

“On October 25, 2012, during the exit conference for the University’s financial audit report for the fiscal year ended June 30, 2012, neither the Treasurer [Jean Schook] nor the Vice Chancellor for Finance and Administration [Don Pederson] disclosed to DLA staff information about the Treasurer’s report on Advancement issued six days earlier.”

The auditors concluded that the information about financial irregularities and the potential of fraud should have been disclosed to auditors, as (one would think) common sense would also dictate. But, it turns out, it wasn’t required by law, and the statement that Pederson did make to auditors in what is known as a Management Representation Letter – in which no mention of financial irregularities was made – was not technically false. Pederson’s base salary is currently $295,000, up from $250k in 2010. Treasurer Schook’s salary is $164,450, up from $118k in 2010.

Report by Arkansas Democrat-Gazette, April 30, 2014
University of Arkansas news release, April 30, 2014
Comment by Arkansas Blog, May 1, 2014

The new (and presumably final) investigation of the Washington County DA was prompted by of a group of state representatives, led by Nate Bell (best known for his far-right politics), who were surprised to see that the DA’s initial investigation had not addressed this particular matter. The result was predictable. The attempted cover-up was certainly unethical as well as poor judgment but apparently not technically illegal. As Arkansas Times’ Max Brantley put it:

“The University of Arkansas shaded, obscured and hid the truth about a huge deficit  in its advancement division. It got caught. Underlings took the fall. Dishonest behavior is not necessarily a  crime and sometimes it has no consequences, outside of public shaming.”

Update: Pederson will retire June 30, 2014 (announcement).

Speaking of dishonest behavior, it is interesting to note that the University of Arkansas Board of Trustees recently enacted a Code of Ethical Conduct (along with new policies on accounting, budgeting, and transparency). The new code states:

“Employees shall conduct themselves in a manner that strengthens the public’s trust and confidence by adhering to the following principles:

  • conduct that is beyond reproach and integrity of the highest caliber;
  • honesty and fairness; and
  • accountability, transparency and commitment to compliance”

Revolutionary stuff! In addition to admonishing everybody to follow all applicable laws (seriously!), the code states:

“Employees involved in the preparation of reports and documents (and information included therein) filed with or submitted to federal, state, and local authorities by the University are required to make disclosures that are full, fair, accurate, timely, and understandable. They may not knowingly conceal or falsify information, misrepresent material facts, or omit material facts. These same obligations also apply to other public communications made by the University.”

The code requires all employees to report suspected violations but there is no specific requirement to actually follow up and investigate such reports. The Academic Daylight blog has reported a number of dubious practices, including the under-reporting of the compensation of certain top administrators, dubious accounting practices in the UA Athletic Department, and violations of internal procedures in the approval of extra compensation to UA faculty. We also found that required workforce audits had not been conducted and that certain reports required by law to be posted online were not.

In none of these issues have corrections been made.

Compensation of top UA administrators underreported

The University of Arkansas has significantly underreported the compensation of Chancellor Gearhart, athletic director Jeff Long, and Vice Chancellor Chris Wyrick.

State law requires Arkansas universities to prepare an annual report detailing the compensation of top administrators. Uark Transparency has made all editions of the Administrators Compensation Survey available on its web site (see The Proliferation of Administrators in Higher Education). Comparison of the reported data with the UA’s expenditures database reveals significant discrepancies:

  • Jeff Long's FY 2013 salary

    Jeff Long’s FY 2013 salary

    Athletic Director Jeff Long received a total of $1,140,000 in cash payments during fiscal year 2013 (July 2012 to June 2013) but the survey discloses only $865,000. A $275,000 bonus payment in July 2012 is not disclosed in the survey. The University has declined to comment.

  • The Chancellor house provided by the UA to Gearhart is a benefit worth $21,788 per year but was omitted from the fiscal 2012 and 2013 surveys. UA spokesperson Mark Rushing acknowledged the mistake, stating: “The tables are put together by Human Resources Payroll Office. Since the Housing under IRS rules is not a taxable compensation for a chancellor required by the BoT to live on campus, it is not in their data base and has to be added manually. The lack of this data was simply an unintentional omission. We will add it in the future.”
  • Chancellor Gearhart also received a payment labeled “Special (retirement,etc.)” of $22,986.68 in 10/2012. This doesn’t seem to be disclosed in the FY 2013 survey. The University has declined to comment.
  • Vice Chancellor Chris Wyrick, who became head of the Advancement Division in April 2013, receives a $12,000 per year car allowance in cash that was omitted from disclosure in the FY 2013 survey. Vice Chancellors Gaber, Pederson and Robinson also receive the allowance.

Arkansas law ACA 6-63-316 requires state-supported universities to file the Administrators Compensation Survey with the Arkansas Department of Higher Education (ADHE) by July 15 of each year. The law was enacted in 2009 as “AN ACT TO INCREASE SALARY TRANSPARENCY FOR ADMINISTRATORS IN STATE-SUPPORTED INSTITUTIONS OF HIGHER EDUCATION” (Act 321 of 2009). According to ADHE director Shane Broadway, so far no corrected report was submitted.

The reports are posted on the ADHE web site. In addition, state law (ACA 25-1-118, Act 742 of 2011) also requires all state entities to post mandatory reports, including the Compensation Survey, on their own web sites. The University of Arkansas so far does not comply with that requirement and many reports remain unavailable that by law should be accessible online.

Diamond’s Damning Testimony

John Diamond’s testimony at yesterday’s legislative hearing (find all related documents here) was even more damning than what he revealed back in September. He offered a number of clear-cut violations of the state Freedom of Information Act, and shared emails documenting the condescending attitude of top University officials toward the press. Under Arkansas law, failure to comply with the Freedom of Information Act is a criminal violation. Among the cases cited by Diamond:

  • “There was a large budget notebook for FY14 that was kept in Denise Reynolds/ office. (…) That notebook was clearly responsive to the FOIa but he [Chris Wyrick] did not provide it.”
  • “Chris [Wyrick] himself maintained a large notebook of materials related to his reorganization plan. (…) That information was responsive to the FOIA but was not provided.”
  • There were four copies of a video of the June 20 staff meeting Chris had had us make when he announced the reorganization plans. Under the law, videos are lectronic documents – the kind sought in the July 22 FOIA. Those videos were not provided in response to the FOIA.”
  • “There were countless email exchanges dealing with these topics between and among individuals, including the Chancellor, Chris, and Don Pederson, that were specifically asked for by name or title. But none of these was provided as responsive to the July 22 FOIA. I gave the Washington County prosecutor’s office over one hundred pages of potentially responsive documents related just to the July 22 FOIA alone. In Arkansas, knowingly and negligently violating a FOIA request is a criminal offense.”

The emails provided by Diamond give insight into the attitude and mindset of officials like Gearhart and Pederson with respect to dealing with inquiries and demands for transparency and accountability from the public. Below is a January 23, 2013 email by CFO Pederson announcing that he would not respond to inquiries and FOIA requests from the Arkansas Democrat-Gazette any more. Nowhere has it been expressed so clearly that University officials regard compliance with Freedom of Information as a matter of their own discretion rather than an obligation of the law. Pederson implies that this had been cleared with Chancellor Gearhart, Provost Gaber, President Bobbitt, and unnamed legal counsel. Diamond further reports that the next day, Gearhart told him “he had been getting a lot of pressure from President Bobbitt and trustees to stop me from answering reporters’ questions on the Advancement situation.” Gearhart then allegedly yelled: “Don Bobbitt and the board told me to shut John Diamond up!”

Pederson email January 23, 2013

Pederson email January 23, 2013

Gearhart, Choate, Diamond to testify before Legislature

UPDATE II:
Arkansas Blog relates this tidbit from the hearing:

There was a five-minute break during which Gearhart, Schook, and Pederson huddled up with fellow well-dressed persons and seemed in good spirits. Much of what Choate and (especially) Diamond said painted top UA officials in an ugly light, but little if any of it can be substantiated as unethical or illegal.
One man in the group of UA officials said to Gearhart and Schook, “after they finish asking all these questions, what are they going to do? I mean, what can they do?”

“Nothing,” someone else replied, “they have no authority.”

That’s the attitude.

UPDATE:
Full audio from the committee meeting
Brad Choate: Says UA ‘snookered’ legislative auditors. John Diamond describes Gearhart anger and freeze-out of newspaper
6 tell their sides of UA unit woes

All the main players in the saga of the University of Arkansas Advancement Division budget trouble are scheduled to appear and testify before the Legislature’s Joint Performance Review Committee today at 1 pm (agenda, meeting documents, press coverage here, here, and here). The meeting will give Brad Choate, who says he was scapegoated by Chancellor Gearhart, the chance to finally present his side of the story. This is significant because Choate signed an agreement with the University barring him from discussing these matters in public, except to assist an official investigation. The Legislative Audit Committee, at its December meeting, declined to hear Choate’s testimony. Choate’s prepared statement (actually, two versions of it) still found its way to the press (for a full list of related documents, see previous post). He says that he was “thrown under the bus” by Gearhart, contending that he merely continued practices that he inherited from his predecessor (Gearhart). His statement might be dismissed as self-serving but does make some plausible points. It is hard to understand why the Legislative Audit (DLA) never interviewed him, or several other officials with intimate knowledge of the Division, during their investigation. DLA also failed to interview Chancellor Gearhart and the time period under investigation was restricted to the years 2009-2012, excluding Gearhart’s own tenure as head of Advancement. DLA adopted many of the conclusions blaming Choate from treasurer Schook’s report despite her own (and finance chief Pederson’s) implication in questionable practices.

Former budget director Joy Sharp will for the first time testify in public to her role in the fiasco. She was the only UA employee punished with a pay cut. Both Sharp and Choate ultimately lost their jobs but Choate kept his $350k salary.

Former PR chief John Diamond will also testify, for the second time. His allegations that financial documents were destroyed were confirmed by investigations and other witnesses. Nevertheless, assistant prosecuting attorney Dave Bercaw chose to find that no laws were broken. The statement by Gearhart, confirmed by several witnesses, to “get rid” of Advancement Division budget documents was redacted out of the prosecutor’s final report. The prosecutor states that the document in question did not fall under a Freedom of Information request of the Arkansas Democrat-Gazette (failure to comply with FOIA is actually a criminal violation). Diamond and the newspaper dispute that. Diamond’s frustration about this “significant error” is palpable – he blew the whistle on outrageous behavior (albeit only after he had been fired), only to find that investigators are going out of their way to not see anything.

Legislators have also been unhappy with omissions in the prosecutor’s report and have demanded further investigation of CFO Pederson. And the Pulaski County prosecutor is reviewing whether Gearhart committed perjury when he denied, at the September meeting, ever having ordered the destruction of documents.

Legislative Audit Committee to discuss UA file shredding

Another chapter in the saga of the University of Arkansas Advancement Division troubles will be written next Friday, December 13. It will be the main topic at the next Legislative Audit Committee meeting. At the September meeting, the committee voted to reopen the audit and prosecutors were asked to look into allegations of intentional destruction of relevant files, as well as into some financial irregularities.

Meanwhile, an extensive investigative report by Lisa Hammersly in the Arkansas Democrat Gazette raised additional serious issues about file shredding and will be sure to be considered by auditors and legislators. Here’s a flavor of what UA officials seem to regard as standard record-keeping practice:

“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. (…) 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. (…) 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.”

This is consistent with allegations made by former communications director John Diamond:

“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.” (…)
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. (…) 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.””

Notice what is going on here. The University leadership stubbornly claims that any financial transactions involving the UA Foundation are not of public record. The financial statements that the public gets to see are grotesquely incomplete (see also “The UA’s Athletic Budget”). Foundation records are shielded from the public eye, a practice decried by Freedom of Information experts. In the above case (of which many questions remain open), it appears that foundation records kept by the University were deliberately shredded to prevent them from becoming public (records stored by the UA are subject to FOIA – Schook’s claim that they are “owned by the foundation” is absurd). It is hard to believe that the people responsible weren’t aware how suspicious this shredding action during an ongoing audit investigation must look, and that it might even be illegal. That they went ahead anyway shows to what extraordinary length the UA leadership is willing to go to keep public scrutiny away from foundation finances. And that may be the real scandal behind the scandal.

Worth noting also is a new report showing that the Advancement Division is still in the red:

“The University of Arkansas at Fayetteville will transfer $2 million from its publicly funded reserves to offset overspending in its Advancement Division this fiscal year, said Mark Rushing, a UA spokesman.
A total of $6 million from reserves has been committed to the Advancement Division since a multimillion-dollar deficit was discovered in the division in July 2012. A $4 million transfer was made from reserves in January.”

Chancellor Gearhart has said that had he known about the division’s additional funding needs, he would have provided the funding. If it was so easy, one wonders, why hasn’t he? Why does the division keep drawing on UA reserves?

Other relevant links:
When the University of Arkansas speaks, people listen — carefully
UA evasive on emails with a columnist
University of Arkansas gang can’t shoot straight