Auditors unable to satisfy reported amounts

The AG office noted certain matters involving FAMU’s internal control over financial reporting and its operations that the AG considered to be material weaknesses or reportable conditions. The AG office also indicated that FAMU may not have been able to successfully submit their financial statements without the assistance of KPMG.

Some highlights from the audit are:

FAMU has lost a considerable amount of institutional knowledge, which has compromised its ability to operate at an effective level. The loss of employees in key positions, such as vice president of finance and administration, controller, associate controller, accounting coordinators and internal auditors were cited in this audit. Remember readers these are the key personnel that were on Castell and Corbin’s hit list. The AG office believes that this may have contributed to inadequate separation of duties as discussed in finding #8. It seems currently, Grace Ali (hired by Castell) has both recording responsibility and custody of assets.

FAMU reported a cash deficit of $3,132,341 which Castell presented as a temporary cash overdraft on the statement of net assets. The cause, Castell did not ensure that periodic bank account reconciliations were performed for FAMU’s operating bank account. Castell claimed that this account was reconciled before the fiscal year ended, however, the AG office was not provided with adequate documentation to support these claims. Consequently, the AG has reported even this $3M deficit/overdraft is suspect/erroneous and could be greater than what was reported.

Per the AG’s audit, as of June 30, 2005 following Castell’s announcement that FAMU’s was in the black there were some $3,310,527 in outstanding checks. The AG’s review disclosed $44,184 of these checks as having cleared by August 30, 2005. By October 11, 2005, Castell sent a letter under her signature to alumni, friends and supporters of FAMU claiming an $11M turnaround. Remember Gainous had a $3M income loss. The reality is Castell, as the CEO of FAMU (as well as the BOT audit chair) was fully aware of issues dealing with our financial statements. Mounting questions from meetings held with and communications from the AG office raised questions and sounded the alarm as far back as October 2005.

Castell’s claim that she got the contracts and grants in order is questionable after the AG did a random sampling of contract and grants and revealed that the allowable rates established for indirect cost by the grantor agencies did not agree and as such were incorrect, expenses did not reconcile with the draw downs from these agencies, and there still is an unreconciled difference of about $8M reported as bank deposits by the assistant director of sponsored research. Is this why NSF set up the 1 800 fraud hotline?

Revenues
Net tuition and fees changed by -6.1% (-$2.3M); grants and contracts changed by -26.4% (-$20.9M); other changed by -36.7% (-$5.7M) and sales and services -5.5% (-$1.2M). Total revenues changed by -19.1% (-$29.7M).

Expenses
Compensation and benefits up by 5% ($7.4M); utilities up by 82.3% ($6.1M) and depreciation by 9.5% ($1.3M).

Difference between revenues and expenses is -$140,575,884. After nonoperating revenues were applied (state appropriations - $103,459,956; federal and state financial aid; investment income, etc.) the difference is -$10,418,252.

Net Assets, Beginning of the Year - $371,356,031
Adjustments to beginning Net Assets – ($5,435,950)

Net Assets, Beginning of Year, as Restated - $365,920,081

Net Assets, End of Year - $368,656,200 (this includes Castell’s elusive “2.7M Surplus”)