Auditor General Comes before JLAC re: FAMU

The players: Chair Gwen Margolis

The presenters: Mr. Ted Sauerbeck

Mr. Sauerbeck is now discussing the first finding: Office of the Inspector General eliminating the office of inspector general. The old charter dated March 2003 was still in effect during this audit.

Inspector General should report to the president administratively, however, he/she should report directly to the audit committee chair (Trustee W. George Allen). This did not happen at FAMU during the time of this audit review.

Sauerbeck noted that review reports were not done in the last five years. The vice president of audit and compliance, Mr. Rufus Little indicated that he was unaware of these types of reports, however, the former inspector general did report this to the president as indicated by correspondence seized through this audit. Castell indicated that she was unaware of any such reports; however, we were able to come across documents that supported that she was made aware. These same reports based on accounting standards should be provided to the chair of the audit committee (W. George Alllen).

Margolis: isn’t this legal trouble not to do this?

Sauerbeck: yes, this is a problem.

Margolis: What about the $8M surplus. Have you ever found the $8M?

Ted: No. the actual number wasn’t there when we did the audit in ‘06. We will look again when we do the next financial audit this year.

Margolis: Was there a surplus?

Sauerbeck: No.

Bucher: If the IG (Mr. Michael Brown) reports had been released do you think this could have helped with the missing surplus?

Ted: Yes, the IG should not be prohibited from releasing these reports.

Wise: Is the IG a CPA?

Ted: not sure, but he may have been. F.S. doesn’t apply anymore to the IG, but previously yes. There is some uncertainty as how these IG will operate. This is something you might want to consider in the future.

Domino(?): Can you draw a line between this screw-up and other universities?

Ted: We try not to do comparisons. We individually assess each university and try to look at the areas that would be high risk.

Domino: You are going to discuss some other findings and I am trying to understand these violations that a freshman accounting major could have identified.

Sauerbeck: The peer review would have identified this. The peer review that has not been done in 5 years.

Ring: After the payroll findings, should we look closer at the chair of the audit committee or the IG.

Sauerbeck: the chair of the audit committee was not made aware and did not have the info to go forward and make sure things were corrected.

Sauerbeck: The president prepared the budget and submitted it to the board for approval w/ certain exceptions. We compared the original budget to the budget that was recorded in the accounting records. The university spent $39M that was not approved by the board. It was a common place to not include this amount in the board approved budget. $1.9M spent was not approved by the president or the board. Castell has not provided the specifics of these expenditures, i.e., ticket sales. We still are waiting on these documents.

Ring: I don’t get this who did this?

Domino: Those checks didn’t bounce. It had to be in someone books.

Sauerbeck: Let me clarify that. The $39M was in the records, but the board was not provided the opportunity to review these expenditures.

Bucher: I am assuming the board had an no idea. Just wondering what responsibility the board had or is there any?

Sauerbeck: The problem isn’t that there wasn’t funds to cover the expenses, but they weren’t approved by the board.

Ring: is there a total on the amount of money that was misappropriated?

Sauerbeck: we didn’t say money was misappropriated. We don’t have a total of what was not approved.

Bcher: you don’t want to use the word, misappropriate, off the books, misused, what is the correct word to use.

Sauerbeck: I wouldn’t use those terms.

Bucher: In the day it was called a kitty or slush fund.

Bucher: who is prepared to make that conclusion?

Sauerbeck: maybe someone at the university. I can’t say definitely say that someone took $39M and did something wrong.

Bucher: Perhaps this is a matter for FDLE; the attorney general and have someone to analyze this. We need to know ultimately what happened to the money and the property.

Margolis: we can certainly ask for a forensic audit. These are not even final findings. We need something more substantiated, if I am not mistaken.

Domino: I spoke with Castell and she has 30 days to respond. The reason the audit was brought early because we may not have another time to have at it before the session is over. Sen. Wise dealt with this 2 years ago and we thought that we had a solution.

Margolis: I think we should listen to all of the solutions and talk with the chancellor and see what can happen.

Domino: I thought we had a university with a president and board that committed to this issue 2 years ago. It looks like there are two lines going up to the legislature.

Margolis: please continue

Domino: How much does this current president get paid?

Sauerbeck: I don’t know

Margolis: Senator Lawson said $300,000.

Bucher: this is not a kitty or slush fund (laughing). This is money not brought before the board and prioritized.

Sauerbeck: returned checks, from students, people buying tickets or what have you. The board is responsible for collecting the funds. The procedure now is to just take it off the books.

Bucher: do you have an estimate?

Sauerbeck: 2005 -- about $12,000 in returned checks.

Margolis: they never sent them to collections.

Sauerbeck: not that we could see documented.

Suaerbeck: in terms of items they could not be found. We are talking about 900 items, about $2.7M that date back to 1984. A great number were in 2005 year along, especially computers. Just before we delivered the preliminary findings, they stated that they turn over 115 items to law enforcement.

Domino: This is beginning to sound like Enron to me; this needs to go the attorney generals office.

Sauerbeck: Capital Outlay expenditures: University had not done a report and picked up all of the expenditures purchased over $1,000.

Domino: is this a calendar year?

Sauerbeck: yes 2006 and I believe the previous fiscal year.

Sauerbeck: a test of receipts not deposited timely; athletic report $1.8M sales and the documentation inadvertently discarded; Childcare – receipts not computer generated sequentially.

Domino: the Athletic could this allow someone to sale tickets for $10 and pocket $5.

Sauerbeck: yes, the 2004, 2005 ticket sales have been discarded.

Bucher: who’s responsible in athletics and wouldn’t there be another area to check for this info.

Sauerbeck: I believe the AD (Nelson Townsend) is responsible for this report. I am not aware of any other records discarded inadvertently. Maybe the VPAC should follow-up and check if there are other areas.

Bucher: I’m just assuming that the University should want to know where these funds are.

Sauerbeck: I receive a letter from the AD that several boxes were removed and discarded that were in the concession area.

Domino: why would ticket sales be in the concession area?

Sauerbeck: I don’t know. They have computer generated reported.

Margolis: we have subpoena powers. Can we subpoenas computers and get those computer records, Terry? Do we have that ability?

Terry: It is a violation of FL laws not to turn over records that the AG has requested. I hope they turned them over. Or maybe they are just so disorganized that can’t find them.

Margolis: The computer records can you get them.

Sauerbeck: The university contracts out the various operations, bookstore, food services, they are required to get independent audits of contractors’ records. However, for 3 of contractors the reviews had been started and not complete. The explanation was due to staff shortages. Agreements did not specify timelines for audits and other required reports.

Sauerbeck: Tuition refunds are governed by board regulations and statute. The University had a procedure, but it had not been adopted by the board. We did a test of 5; 3 were calculated wrong; the refunds and payments.

Sauerbeck: the department records were out of balance in the collection of fees and did not match up with the ledger.

Saurbeck: Late payments – budget office begin to receive notices about employees not getting paid. In Jan 07, 1900 positions is a lot of people. The budget office was required to get confirmation. The requirement was not communicated in the writing to dept heads. The president became aware of this situation in Feb 07. She met with the provost and VPs and asked that these people send the names in. This was not communicated in writing to department heads. At the time of our review, 400 had been paid; 231 had not; but there is also 49 employees the university is making a determination on.

Domino: Then they should be former provost and VPS, then.

Bucher: I specifically asked if the on-demand check was documented and it not seems that response from the president is incorrect. Has anyone been able to ascertain how far this goes back and reconstruct how much they are demanding they are owed?

Sauerbeck: I think I can answer this over the next slides. Regarding the list that the sent us. I will speak about the other folks soon. We were advised that this information is all around the campus and not maintained in an orderly fashion to aid us in determining if payments had been properly made.

12 given on-demand payments; out of 12 – 8 did not have proper paperwork.

Domino: I am confused because the president testified that she was eyeballing each payment.

Sauerbeck: I don’t want to say that president did not see it. But the documents were here and there and everywhere. It was not organized.

Snyder: Process questions: what % of budget does an average university spend on accounting?

Sauerbeck: I can’t answer those questions.

Snyder: What about our government?

Sauerbeck: I can’t really answer that because each organization is so diverse.

Snyder: Can you give me idea for the SUS.

Sauerbeck: I can’t get that information.

Margolis: we appropriated 4 additional CPA at the university and they refused it.

Sauerbeck: While the university was processing these claims and notice that some were from May 2006. There were 81 employees before Feb 07. It would have seemed appropriate to do all employees that did not get paid. Remember during our audit, there were not written communications to people. We think they need to make an effort to go back as far as possible. Make sure they do this in writing.

August 2005, there were 18 faculty members for whatever reasons they did not receive their pay timely. We were told it was a misunderstanding. These individuals owed back pay and told to sign a settlement agreement. Two did that and the other members asked the UFF to intervene and a settlement agreement was reached Dec 06. As of our review, the individuals were not paid.

Margolis: we have 20 some findings left and we want to have you back next week and bring Chancellor Rosenberg here .

Bucher: if there was a lawsuit this was a court directed and they should have done it.

Suaerbeck: Our concern was that it reached this level in the first place.

Rosenberg: I can assure you that we share you deep concern and sense of urgency and grateful to the AG for the work they have done under incredible. We have worked with Bryant and Lowe to encourage proper policies and procedures, this has failed. There seems to be more intense oversight needed to management. BC the BOG does. Chair Roberts will convene a task force to help FAMU administrators to. This was made in consultation with IP, the Chair and incoming president. It would be under the guidance of Lynn Pappas who will work to make sure that there is a road map to address and correct financial deficiencies. We expect the Task Force to complete its work this fall and work with the board, faculty, and staff of this community.

It will undertake, reviews, identify gaps in compliance and controls it will insure that all activities surely comply with policies and procedures to routinely carryout procedures. It will report to the BOG on March 28.

Margolis: Thank you. These acts seem criminal.

We have to make sure that no free passes are given to what has happened.

Bucher: I sat on this committee when it was previously audit. I don’t think a fluff task force is what is needed. Don’t you think the Legislature is required to insure that professionals are on the ground. Don’t you think it’s time to impose those 4 CPAs on the.

If you deem it is appropriate to impose these individuals, then I concede.

Stroms: I really don’t see what we can do by imposing anything, by currently flagrantly disobeying these rules so that someone can set up another kitty, and this. I personally believe that documents are being carried out by the boxes for $1.8M, I think a forensic audit should be done sooner rather later.

Rosenberg: I think there should be a mix of responses, some identified by you. There are significant transformation that all SUS have had to undergo. If you were to involve the attorney general, okay.

Strom: The students and alumni are suffering and their degree is being besmirched.

What would be the ultimate bottom line if they want come in line. What is the worst thing that could happened to FAMU.

Rosenberg: The legislature not fund it.

I would leave that hanging in the air.

Would you recommend an outside firm and are other

Rosenberg: No, but other institutions have challenges, but not to this extent of this audit.

I believe that there is an accounting firm providing advice.

Domino: a couple of years ago I anonymously made a donation to the university. Someone has to be held accountable for this or others will not continue to donate.

Lawson: I spent a fair amount of time with Wise on this issue. We attempted to send 5 CPAs to assist the university. When we changed from BOR to BOT it caused FAMU some problems that we did not have those resources that were once provided by the state. I believe that leadership is going to be an issue. We need to put in the infrastructure to assist. Hundreds of people have been fired and you don’t have the human resources to put these things on the table. We are still producing and graduating a lot of students. They are still recognized on a national basis more than any other university especially among HBCUs. I have talked to the chancellor, BOG Chair, IP, BOT Chair and the incoming president about these issues. We have paid over $2M to KPMG and now they are asking another $300,000. It was brought before this committee. It has been a full year void in leadership. I have asked everyone to set up a game plan. How can you provide the information needed and there is not infrastructure in place? There has been a decrease in students. This is what you expect when there hasn’t been any recruitment done in 4 years. Each time we have gone out there.

The new president coming has a tremendous job. He can’t perform his job without the support of the BOG Chair, chancellor and the BOT Chair.

We have chair coming up under confirmation this year and this has happened under her watch.

I wanted to say this and give the chancellor a commendation because he has been willing to help out.

Margolis: Aside from the chancellor comments, we must move this forward and come back next week.