Prosecutor: No Criminal Activity, But Breakdown of Controls in UA's Advancement Division

by Lance Turner  on Thursday, Dec. 12, 2013 4:38 pm  

An investigation by a northwest Arkansas prosecutor found no evidence of criminal activity in the University of Arkansas Advancement of Division, but cited "a breakdown of internal controls" in the division and recommended the university make changes suggested by the Arkansas General Assembly's Legislative Audit Division.

In a 14-page letter submitted to Fourth Judicial District Prosecutor John Threet, Deputy Prosecuting Attorney David Bercaw detailed findings in his investigation into matters surrounding a multimillion-dollar budget deficit in the advancement division.

The Arkansas Times posted a PDF of the complete letter here.

In several instances, Bercaw and his team found evidence of errors, breakdowns of internal controls, breakdowns of the budgeting process, inadequate bookkeeping systems and incomplete document retention policies.

The letter specifically questioned the UA's policy of zeroing out account deficits on the last day of the fiscal year by inserting an equivalent amount as an account receivable, only to then remove that the next day to start a new fiscal year. That practice allowed the Advancement Division's deficit to grow unnoticed for two fiscal years.

But even that was not considered criminally suspicious.

"We did not find evidence of criminal activity in this matter," Bercaw said. "This is very unfortunate situation of a breakdown of internal control with the Advancement Division. We strongly recommend that the University implement all of the recommendations of Legislative Audit."

Prosecutors and legislators have been working to get to the bottom of exactly how the division overspent its budget by $4.2 million in the 2012 fiscal year and had deficits dating back at least until 2008. The audits, conducted by the Legislative Audit and the University of Arkansas System's internal audit section, show that the division hired new employees without yet having the revenue in place to cover their salaries.

The division was $2.1 million over its budget in 2011. Some of that deficit carried into the 2012 budget year. University officials didn't know about the overspending until the June 30, 2012, close of the fiscal year. The school is covering the shortfall from its reserves.

Legislative Audit presented its report on the matter to legislators on Sept. 13. During the hearing, two top university officials hurled conflicting charges under oath regarding purported destruction of budget-related documents. The university's former top spokesman, John Diamond, who was fired, said school officials ordered the destruction of documents relevant to the audits. Chancellor David Gearhart has denied Diamond's claims.

Matters contained in the audit, along with Diamond's claims that documents were destroyed, were referred to Threet's office for investigation. In the letter released Thursday, Bercaw detailed his findings:

* Looking into a duplicate payment involving a $2,051.87 reimbursement to Brad Choate, the former vice chancellor for advancement, and an identical payment to a university vendor, the prosecutors concluded that the payment was simply an error that "does seem to indicate some internal confusion in using their accounting system."



Please read our comments policy before commenting.