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.

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