Accounting Maneuvers Hid Funding Failures at UAMS

Dr. Gareth Morgan, former director of the UAMS Myeloma Center

When the University of Arkansas for Medical Sciences announced in April 2014 that Dr. Gareth Morgan would lead the Myeloma Institute for Research & Therapy, it was cause for a celebration.

The cheers didn’t last long.

Morgan replaced Dr. Bart Barlogie, the founder who had grown the institute into a world-renowned center. Morgan, a clinician at the Myeloma UK Research Centre at the Institute of Cancer Research in London, was also considered a leading researcher in the field, and his hiring made the front page of the Arkansas Democrat-Gazette.

Millions of dollars in research grants that Morgan was expected to bring, however, didn’t materialize and had practically dried up by the fiscal year that began on July 1, 2017.

Then a preliminary audit released on Jan. 30 showed — for the first time — that the institute’s operating losses grew under Morgan’s leadership, reaching $29 million from fiscal 2010 to fiscal 2018.

The extent of the operating losses had been concealed through accounting maneuvers dating back to 2010. William Bowes retired as senior vice chancellor for finance in December after serving UAMS since July 2013. During his tenure, Bowes reported directly to former 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.

Patterson asked for an audit of the institute, which was renamed the Myeloma Center in August and has been combined with UAMS’ Winthrop P. Rockefeller Cancer Institute.

Morgan, who also faced allegations of threatening behavior and nepotism during his tenure, tendered his resignation Jan. 16 — two weeks before the preliminary audit was discussed at a UA System board meeting. Morgan’s wife, Dr. Faith Davies, the institute’s deputy director, resigned the same day in an identical letter. Their last day was Feb. 18.

As director, Morgan’s salary for the fiscal year that ended June 30, 2018, was $878,886. The salary dropped to $398,900 this fiscal year after he was no longer the director. Davies’ salary was $410,000.

They were hired at an academic medical center, NYU Langone Health in New York, and started last week. Questions for this article were emailed to Morgan at his request, but he did not respond.

Update: Arkansas Business mistakenly gave Morgan an incorrect deadline to respond to questions. His responses are avaialble in a follow-up article here.

The operating losses at the Myeloma Center were no surprise to some UAMS administrators. The center’s business officers and the “associate vice chancellor for finance/treasurer,” who weren’t named in the audit, had “ongoing discussions about the Myeloma Center’s budget deficits” in monthly finance meetings that were held with individual departments at UAMS, the audit said.

The operating losses should have been recorded and closed out after June 30 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 account that should have been used only for restricted funds, which could only be used for specific purposes.

“That [accounting tactic] has to come from the chancellor, because the senior vice chancellor [Bowes] reports to the chancellor,” said an ex-UAMS employee familiar with operations. The red ink was known only to managers of the Myeloma Center and people “at the highest level” of UAMS, the former employee said.

Auditors learned that the Myeloma Center’s business officers were told by Bowes, through the unidentified associate vice chancellor for finance/treasurer and the divisional director, that they wouldn’t need to make transfers from the chancellor’s reserves to cover the deficits. “We were not provided sufficient documentation to support these ongoing discussions,” the preliminary audit said.

A cellphone number for Bowes wasn’t working and he couldn’t be reached for comment as of press time last week.

Meanwhile, departments on campus were closely monitoring budgets due to a deficit budgeted at $39.2 million for the fiscal year that began in mid-2017. By eliminating about 600 positions in January 2018, 258 of them filled, that budgeted deficit was kept from ballooning to $72 million by the end of June 2018.

Finance Operation Reorganized
UAMS spokeswoman Leslie Taylor said in an email to Arkansas Business last week that she couldn’t go into many details about the audit because it’s not expected to be final until next month.

She said the problem was “one with accounting practices,” and that the $29 million isn’t missing or unaccounted for, but was just incorrectly classified. UAMS has moved $29 million from its unrestricted funds to the restricted funds account to cover the deficit, she said.

She also said UAMS has reorganized its finance division “and taken steps to put more checks and balances in place and have more oversight.”

In the past, Taylor said, finance operations at UAMS were split, with UAMS Medical Center and clinics having a chief financial officer and finance department separate from the colleges and the rest of UAMS. Patterson combined the finance divisions into one for all, she said, and the state-owned academic medical system now has one CFO, Amanda George.

The Myeloma Center is now led by Dr. Frits Van Rhee, who has been on staff since 2001, and Dr. Laura Hutchins is the interim director of the Cancer Institute.

Dr. Bart Barlogie founded the Myeloma Institute in 1989, and it became the crown jewel of UAMS.

“The Myeloma Institute’s team … pioneered many advances that have become standards of care, leading to improved survival rates,” the interim audit said.

UAMS has treated nearly 12,000 patients from every state and more than 50 countries, according to its website, and has done more stem cell transplants for myeloma than any center on earth.

A Grant That Got Away
At its 20th anniversary in 2009, the myeloma program got a five-year, $19.5 million grant from the National Cancer Institute, part of the National Institutes of Health. The grant was for continued research, UAMS said at the time.

“The $19.5 million NCI grant is the fourth five-year renewal of continuous fundings from the NCI, which supports much of the ongoing research at the Myeloma Institute,” a news release said.

The NCI grant wouldn’t be renewed in 2015. But even with the grant, the Myeloma Center showed an operating loss of nearly $675,000 for the fiscal year that ended June 30, 2010, the audit said.

When Barlogie stepped down in 2014 as Myeloma Institute director to focus on clinical care and research, Dr. Gareth Morgan took over with great fanfare.

Mike Beebe, governor at the time, attended the event that introduced Morgan. Beebe said 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.

At the time, Morgan was responsible for more than $10 million of research grant funding in London from several government and private sources. Then-Chancellor Rahn told the Democrat-Gazette at that event, “We have a bolder, more ambitious view for the future.”

Complaints about Morgan soon surfaced as the funding sources dried up.

In 2015, the $19.5 million grant from the NIH was not renewed, and the millions in grants that Morgan enjoyed in London didn’t follow him to UAMS.

“Historically, the [NIH] grant covered several research projects by various principal investigators in the Myeloma Center,” the audit said. “After the discontinuation of the grant, Myeloma’s dependency on foundation funds increased.”

The former employee said Morgan continued to spend money on research despite lacking funding. The audit didn’t total the grants received under Morgan, but for fiscal 2018, the Myeloma Center’s funding included $15,281 in federal grants and $14,346 in private sponsored grants. “Private donor funding from the foundation accounts and Governor’s Rainy Day fund accounted for 80 percent of the total budget,” the audit said.

Complaints of Bullying
In addition to money woes, Morgan was accused of bullying employees. A 2016 anonymous letter to the Arkansas State Medical Board accused him of leading a “culture of nepotism and systematic institutional bullying.” After Morgan arrived in July 2014, his wife, Dr. Davies, joined him as a professor of medicine and the institute’s deputy director.

The couple’s “complete control of the institution” made life hard for employees, the letter said. “Morgan routinely uses sentences such as ‘Remember who signs your pay check, remember whom you are working for.’ There are instances when research nurses have raised important issues, they have been verbally threatened and completely shunned… .”

Workers also felt they couldn’t complain to Davies because of her relationship to Morgan, the letter writer said.

In response, Morgan said some workers were perhaps disgruntled by changes he’d made, which he said led to improved patient care. He denied any nepotism and said Davies didn’t report directly to him under a management structure Rahn had created to avoid conflicts.

“Moreover, during my directorship, we have made a systematic attempt to purge the Myeloma Institute of any bullying,” Morgan wrote. The Medical Board found no evidence that Morgan violated the Arkansas Medical Practices Act and closed the case in April 2016.

UAMS’ Taylor said she couldn’t discuss personnel matters, but said employee complaints are taken seriously and investigated by human resources units.

In June 2018, the board refused to renew Morgan’s educational license until he completed a three-day course for distressed physicians. The board had received a complaint that “Dr. Morgan was a bit of a disruptive physician,” the board’s attorney said in June.

His license was reinstated in October, but by that time changes to the Myeloma Center were underway. Morgan was no longer the director but continued working on his research during the audit.

Last week the Medical Board made Morgan’s educational license inactive after receiving notice that he had resigned from UAMS.