Some University of Arkansas for Medical Sciences employees saw red flags long before auditors discovered a deficit at the Myeloma Institute for Research & Therapy that was allowed to grow to $29 million over nine years.
The University of Arkansas System Internal Audit Department’s summaries of UAMS employee interviews also reveal that former Myeloma Institute director Dr. Gareth Morgan wasn’t happy last year with the announced merger of the Myeloma Institute and UAMS’ Winthrop P. Rockefeller Cancer Institute. One employee told auditors that Morgan suggested that a donor complain about the planned merger, and Morgan’s call resulted in the philanthropist rescinding $10 million in promised donations.
In January, the UA System released a preliminary audit showing the institute’s operating losses had grown to $29 million between fiscal 2010 and fiscal 2018. The audit came with recommendations for stricter accounting controls. The final audit was approved by the UA System’s board of trustees in March.
In conducting the audit last year, UA System auditors interviewed several UAMS employees. Summaries of those interviews were released to Arkansas Business under the state’s Freedom of Information Act. The summaries don’t contain direct quotes from the employees, but they provide some insight into the operation of the Myeloma Institute, which is now called the Myeloma Center, and some of the concerns employees raised.
Susan Henry, an administrator for cancer services, told an auditor that she felt that Morgan and his predecessor as director of the Myeloma Center, Dr. Bart Barlogie, “did a shell game with the money,” according to the summary of her interview.
Morgan started at UAMS in 2014 and left in February for a job at NYU Langone Health in New York. In an email response to questions from Arkansas Business, he denied any allegations of wrongdoing at the Myeloma Institute. He said finances had been handled properly.
Morgan also said he was committed to working toward the merger of the Myeloma Center with the Cancer Institute. “However, I wanted to do so in a thoughtful way that would have a minimal impact on the world renowned myeloma research and clinical care we were providing,” he wrote.
He also said it wasn’t accurate that he pressured a donor to let UAMS know the donor wasn’t happy about the merger.
“Unfortunately, some philanthropic research funding was withdrawn as a result of the merger,” Morgan wrote. “Several people who had been supporters of our research rethought their investment, this was not of my doing.”
The Myeloma Center now is led by Dr. Frits Van Rhee.
Deficits Not a Surprise
The auditor summaries of interviews obtained by Arkansas Business show that William Bowes, who was the senior vice chancellor for finance, told auditors that he knew about the deficits at Myeloma. Bowes retired in December after having served at UAMS since July 2013.
During his tenure, Bowes reported directly to Chancellor Dan Rahn, who started in 2009 and retired in July 2017, and then to Stephanie Gardner, who served as interim chancellor until Dr. Cam Patterson assumed the chancellor’s job last June.
Jana Casteel, the director of finance for the Myeloma Center, told auditors that the deficit was not hidden and UAMS officials had known about it for more than 10 years. Rahn knew about the decifict, she told auditors.
Bowes told auditors that he thought a donor had committed $3 million a year for three years and that UAMS would match that money, which would have covered the deficit in most years.
Auditors, however, found that the operating losses at the Myeloma Center should have been recorded and closed out at the June 30 end of each fiscal year, but journal entries to record those losses to the financial statements weren’t made. Instead, the operating losses were assigned to a Myeloma Center restricted account, which should have been used only for specific purposes.
Jacob Flournoy, the chief audit executive of the UA System’s Internal Audit Department, said in an email response to questions from Arkansas Business last week that “allowing the deficit to accumulate over multiple years was considered to be an accounting error.”
UAMS spokeswoman Leslie Taylor told Arkansas Business, also in an email, that “while the results of the audit may not be something we are proud of, the audit provided us with much-needed insight. It highlighted issues we needed to know about.”
UAMS Chancellor Patterson asked for the audit because the Myeloma Institute was being combined with the Rockefeller Cancer Institute, a required step in getting a National Cancer Institute designation for the program.
The designation would bring clinical trials and therapies not currently available in Arkansas. To get the NCI designation, UAMS needed all cancer programs to be under one administrative structure.
Dr. Bart Barlogie founded the Myeloma Institute in 1989 and made it the crown jewel of UAMS. Susan Henry told auditors that she had worked for the program before she became administrator of the Cancer Service Line at UAMS.
Henry told an auditor that she “believed money moved from foundation funds to cover items that weren’t allowed,” the audit summary said. No example was given.
Henry also said that the culture at the Myeloma Institute was to spend excessively on functions and parties, according to the summary of her interview. She said at one conference Barlogie “rented out the restaurant and spent a lot during those functions.”
No more details were explained, but she said that she thought the culture continued or got worse after Morgan arrived.
Morgan said in his email to Arkansas Business that in the short time Henry worked for him, she was responsible for clinical operations and had no involvement with Myeloma Institute finances.
He also disagreed with her that the institute’s culture included excessive spending.
He said the Myeloma Institute held one annual holiday party for about 300 invitees. “It was a way that we could reward the staff for their dedication and hard work and celebrate our successes during the year,” Morgan said. “It was never excessive and we always followed UAMS policy for such events and received prior approval.”
David Ashmore, an executive director at UAMS, told auditors that Barlogie “ran some pretty good deficits when he was here.”
Under Barlogie, the deficit in the restricted fund was $237,234 as of June 30, 2011. A year later, it had grown to $3.6 million.
And when Barlogie stepped down as the Myeloma director in 2014 to focus on clinical care and research, the deficit had grown to $13 million. He left UAMS in 2015.
Grant Funding Dwindles
Morgan took over the Myeloma Institute from Barlogie with great fanfare. Morgan came from the Myeloma UK Research Centre at the Institute of Cancer Research in London, where he was a clinician and researcher.
Mike Beebe, then Arkansas’ governor, said in 2014 that he was providing $5 million from his “rainy day fund” to support the Myeloma Institute and for Morgan’s recruitment. Another $15 million in donations helped finance new laboratories and the institute’s research, a 2014 UAMS news release said.
In London, Morgan was responsible for more than $10 million in research grant funding from several government and private sources. But those grants wouldn’t follow Morgan.
Making things worse, the National Cancer Institute, part of the National Institutes of Health, which awarded a grant for $19.5 million in 2009, didn’t renew it in 2015.
Morgan told Arkansas Business in February that he figured the grant wouldn’t be renewed.
“It was always thought that having it renew was a long shot, especially as I was told that the NIH was moving away from these large program grants,” Morgan said in the February email. “I believe the grant had just run its course, as frequently happens after such long time periods.”
But other grants didn’t replace the NIH funding. For fiscal 2018, the Myeloma Center’s funding included $15,281 in federal grants and $14,346 in private sponsored grants.
Barry Gentry, CFO at the Cancer Institute, told an auditor that the Cancer Institute used to provide the Myeloma Center with $800,000 annually out the Cancer Institute’s general fund. But in the last couple of years, the Cancer Institute stopped most of its funding to Myeloma.
Myeloma “wasn’t bringing in grants,” and UAMS couldn’t justify the funding to the National Cancer Institute, according to the auditor summary of Gentry’s comments.
Gentry also questioned the Myeloma Center’s foundation spending. He said he became concerned around 2014 when he saw a request for large sums to be reimbursed from the Myeloma foundation accounts, according to the auditor’s summary.
Gentry said he contacted Bowes, the former senior vice chancellor for finance, asking about the activity.
“Bowes stated that it was budgeted so it was OK to release,” the auditor’s report said.
“Mr. Gentry said that he has not been comfortable with approving some of the spending out of the foundation accounts,” according to the auditor. “He said that it is always higher at the end of the fiscal year.”
Gentry added that he was concerned that the “Myeloma Center could be using these foundation funds not with the intent of the donor,” the auditor’s summary said. “He shared that he didn’t know for a fact but thought that foundation funds were being used to fund clinical faculty.”
Flournoy, the UA System auditor, said in his email to Arkansas Business that the auditors’ sample testing didn’t find Myeloma foundation funds were being used to pay clinical faculty.
Donations Fall Through
In October, Dr. Laura Hutchins, the interim director of the Cancer Institute, told auditors she had concerns over how Morgan talked to a donor about the merger.
Hutchins said that Morgan “had called one of the donors and pressured them to let UAMS know that they weren’t happy about the merger of Cancer and Myeloma,” according to the auditor’s report.
She said Morgan should have mentioned “all the positives that could happen from the merger” and she “feels like that is the reason the donor pulled out their funding.”
The summary didn’t say who the donor was or how much was committed. But Jana Casteel, Myeloma Center director of finance, said the center hadn’t received a $3 million gift in 2018 from a donor, whose name was redacted, “because of the announcement made to combine Cancer and Myeloma.”
Casteel also told auditors that the donor was going to give $10 million starting on July 1, 2018 — the beginning of fiscal 2019 — but that had fallen through.
She said the Myeloma Center also missed out on a total of $750,000 in donations from two donors “due to the same announcement,” according to the auditor’s note.
Hutchins also “shared she is concerned with the Myeloma spending a huge amount of money.” She said that “everyone” in Myeloma had been provided with cellphones, which was costing around $6,000 a month.
Morgan denied that everyone in the program had a UAMS-provided cellphone. “However, mobile devices were an area that we had identified where we could reduce some operating expense,” he wrote.
Henry, the administrator for the Cancer Service Line, also had raised concerns about the Myeloma Center’s spending. She told auditors that when Barlogie left UAMS in 2015, the center’s patient volume dropped by a third, “but no staff was ever reduced until” January 2018. That’s when UAMS eliminated about 600 positions — 258 of them filled — as a way to keep UAMS’ budgeted deficit from ballooning to $72 million by the end of June 2018.
Morgan said in his email that patient volume actually remained stable following Barlogie’s departure and new patient volume was increasing during the last two years of his tenure as director.
Taylor, the UAMS spokeswoman, also said that UAMS has since moved $29 million from its unrestricted funds to cover the deficit in the restricted funds account. UAMS also is correctly accounting for that money on its balance sheet, she said.
UAMS has reorganized its finance division and taken steps to put more checks and balances in place and have more oversight, Taylor said.
“In the past, finance operations at UAMS were divided, with the hospital and clinics having their own chief financial officer and finance team and the colleges and research and the rest of UAMS having a separate team and CFO,” Taylor wrote.
Patterson has combined the two finance divisions. And UAMS has one CFO, Amanda George. George and her team have oversight over finances for all of UAMS.