University of Louisville Won’t Release High-Profile Audit

Students pass under the 3rd Street bridge moving off the University of Louisville's campus on June 16, 2014.

Eleanor Hasken / Kentucky Center for Investigative Reporting

Students  exiting an underpass on 3rd Street  on June 16, 2014, at the University of Louisville's Belknap campus.

University of Louisville officials refuse to release a report by an outside auditing firm that examined the school’s internal controls following a series of high profile – and high dollar – thefts.

This comes after the university signed an additional $100,000 contract amendment for the auditing firm to help implement its recommendations.

The Kentucky Center for Investigative Reporting has tried to obtain a copy of the audit since April. University officials have denied an open records request, saying the audit is still a draft, and KyCIR has appealed to the state attorney general’s office.

The status of the report has raised questions from at least one university trustee and prompted wide speculation from others close to the school. The university has paid Strothman and Company more than $160,000 this quarter and authorized an additional $100,000 for the company’s help in implementing recommendations.

It remains unclear whether the university is already putting the consultant’s recommendations in place.

Last fall, President James Ramsey recommended hiring an outside firm to review the financial management of the university in response to an accusation of theft in the school’s Department of Family and Geriatric Medicine. The school’s board of trustees approved that recommendation.

A draft of the report was presented to the trustees during the board’s April meeting. But U of L spokesman Mark Hebert said the company is still working on the document.

“We’re hoping that Strothman will have the final report done and ready to present to the board of trustees sometime next month, in July,” he said. “That may or may not happen. But that’s what we’re hoping for.”

Strothman and Company is a Louisville-based auditing firm known for working with large governmental organizations, including Jefferson County Public Schools, Louisville-Jefferson County metro government and the Kentucky Higher Education Student Loan Corporation.

The contract stated Strothman would be paid no more than $175,000 for fees and expenses. So far, the university has cut two checks to Strothman totaling $160,522. Under the new amendment, the company stands to receive an additional $100,000.

In its proposal, the company outlined five areas it would review at the university’s request:

  • All internal reports issued by the U of L’s Office of Internal Audit since 2007 to determine whether or not recommendations have been implemented.
  • The operations of the Office of Internal Audit itself to make sure all audits are current.
  • The qualifications of employees with signature authority for bank expenditures and deposits.
  • Financial controls for faculty professional practice plans at the Health Science campus.
  • Bank accounts in a 50-mile radius that exist in the name of University of Louisville, University of Louisville Physicians or any derivative.

contract snip

The contract was scheduled to end March 31. But on Feb. 10, an extension was signed by Kathleen Smith, Ramsey’s chief of staff, and Mitchell Payne, senior associate vice president for business affairs. Now, the contract goes through June 30.

The same two employees approved a further amendment March 26, authorizing a $100,000 increase to the original payment to cover Strothman’s “consultation for implementation of recommendations.”

During their April board meeting, trustees heard a short presentation from Strothman officials and were given 30 to 40 minutes to review the draft report. But they couldn’t keep copies, board member Steve Wilson confirmed through a spokeswoman. Wilson has publicly questioned why the university still considers the audit a draft.

University of Louisville, a school with a nearly half-billion-dollar annual budget, has had a series of high profile thefts in recent years.

In 2010, former Dean of Education Robert Felner pleaded guilty to mail fraud and tax evasion. According to his plea agreement, Felner executed a scheme to defraud the University of Rhode Island, the University of Louisville and the Rock Island County Council on Addictions of more than $2 million. Of that, more than half a million belonged to U of L.

In April 2012, Alisha Ward, who worked in the school’s equine industry program, pleaded guilty to wire fraud and money laundering. Ward embezzled more than $463,000.

And in April of this year, Perry Vaughn, former executive director of the Department of Family and Geriatric Medicine at U of L’s medical school, was indicted on seven criminal counts charging theft and bribery in programs that receive federal funds, money laundering, mail fraud, and filing false federal income tax returns, according to court documents.

Vaughn was in charge of managing the finances of the department as well as the affiliated private medical practices. He allegedly diverted contractual checks and patient payments to the school’s Family and Geriatric Medicine Associates account and then withdrew more than $2.8 million for his personal use.

“We’re hoping that Strothman will point us in the direction of changes we can make in our financial controls and our entire financial management system to shore it up, to try and make sure these thefts don’t happen again,” Hebert said. “We can’t guarantee that they’re not going to, because thieves are very ingenious and will figure out a way to steal from the University of Louisville and any other agency they can steal from.

“But if you can cut down the probability, that’s what we’re really trying to do,” Hebert added.

Reporter Kristina Goetz can be reached at kgoetz@kycir.org or (502) 814.6546.

 

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