Posted on: Saturday, March 22, 2003

Auditor criticizes UH fund controls

By Beverly Creamer
Advertiser Education Writer

Six University of Hawai'i non-general funds totaling $124.7 million are being mismanaged and not receiving "adequate oversight and controls," according to state Auditor Marion Higa, who yesterday released findings of a partial audit of the university and UH Foundation.

As a result, Higa said, the university cannot ensure that these resources — about one-fifth of the total UH budget — are being used efficiently or effectively, or that the institution has an accurate picture of its overall fiscal condition.

The university responded that the auditor's contention of fiscal mismanagement is inaccurate. Over the period covered by the state audit, 1997-2002, UH has undergone full annual outside audits, plus at least five other partial audits, said James R.W. "Wick" Sloane, the university's chief financial officer.

"On every audit the university received an 'unqualified' opinion," he said. "This means that the financial statements the university maintains are 'fairly stated in all material aspects.'"

The state audit was requested by the 2002 Legislature, which asked for more detailed financial information from UH covering a span that includes the administrations of former president Kenneth Mortimer and current president Evan Dobelle.

Auditor's access limited

In auditing the UH Foundation, the university's fund-raising arm, Higa complained that access to some records was limited. A foundation spokesperson said that because of privacy concerns the auditor had been denied access to donor names. The auditor said she will "vigorously" pursue legal measures for further access because of "the prevalence of improper usage of student tuition and fees."

In reacting to the audit, House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo, Wilhelmina Rise), said there was no "smoking gun," although he said "there should be more internal controls by the board and the university in how monies are spent." Higa calls for the same thing.

Say also said that while the auditor was critical of the foundation, "I feel the foundation has tried its best to procure more monies for the improvement of the UH system."

And he said a bill passed by the Senate to limit financing for the foundation is an attempt "to throw out the baby with the bathwater."

"Personally I don't think we need the bill," Say said. "I feel the Legislature is trying to micro-manage the operation of the foundation, which is a separate entity. I'd voice my concerns about passing a measure that micro-manages the foundation."

Say also noted that he feels the audit was prompted last session "when some irate individuals were upset by the spending for Janet Jackson tickets." (Last year Dobelle used some of his protocol money to buy tickets to the Janet Jackson concert for several UH donors; the tickets bought by the foundation were for employees to "staff" the event.)

In looking at the foundation, Higa cited as "inappropriate" expenditures that included: "holiday, farewell and thank you parties" for employees; purchase of six rock concert tickets; a $300 gift for a potential donor; a tuxedo rental; and purchase of 50 football tickets costing $1,450.

'Donor cultivation' defended

In response, UH Foundation chief financial officer William R. King said: "Participating in special events within the community is a common practice for fund-raising organizations which support institutions of higher education.

"The fund-raising profession refers to this as 'donor cultivation.' "

King said that while many of the incidents cited occurred prior to the current management team, the foundation had begun an internal policy review and would apply even closer scrutiny in the future.

Higa also criticized "commingling" of public funds with private funds — something a spokesperson said had ended, even before the audit.

Overriding many individual issues in the report is Higa's concern over a general lack of clear policies and procedures governing non-general funds.

Dobelle said specific issues pinpointed by the auditor also have been identified by his budget staff, which he said is strengthening fiscal accountability in all areas. For instance, the newly appointed vice president for research — part of the university's systemwide re- organization — will have new oversight of the research fund. As well, consolidated procedures to manage the Tuition and Fees Special Fund will be implemented by May 1.

"The university constantly examines the use of these funds and will continue to do so," said Sloane.

In her scrutiny of specifics in the six UH funds, Higa pointed in particular to poor collection policies for $2.5 million in delinquent student loans, and what she considered "abuse" of some funds for expenses she believes inappropriate.

Higa cited two gatherings at the home of the dean of the School of Ocean and Earth Sciences and Technology, paid for by the Endowment Fund. As well, she said payment of $453,000 in utility costs, plus carpeting, doors, koa picture frames and restoration of a painting for Hamilton Library came from the Research and Training Revolving Fund.

"Although the amount in questionable expenditures may not be significant to the total fund, the prevalence of improper usage indicates the lack of oversight," said Higa.

The university supported the events at the dean's home, saying they were "in compliance" with the purposes of the endowment fund to discuss and promote research initiatives. "The University's School of Ocean and Earth Science and Technology (SOEST) is ranked No. 3 in the nation in ocean sciences research," said Sloane, "and has brought in over $500 million in contract and grant funding to the state and university."

Regarding delinquent student loan repayments, Sloane said the university has turned over $2.5 million in delinquencies to a collection agency.

Reach Beverly Creamer at bcreamer@honoluluadvertiser.com or 525-8013.