Irregularities uncovered in Kentucky State University audit will be referred to prosecutors

by McKenna Horsley, Kentucky Lantern

An audit that uncovered millions of dollars in undocumented credit card and federal grant expenditures at Kentucky State University from 2018 to 2021 will be referred to prosecutors  and other federal agencies, State Auditor Mike Harmon said Wednesday. 

Interim KSU President Ronald A. Johnson appeared with Harmon at a news conference and said KSU welcomes the constructive input from the audit’s findings. 

“The release of today’s report presents a moment of tremendous difficulty and great potential,” Johnson said. “Only by working together will we be able to reach the potential of an institution that’s been here since 1886 in order to achieve the intended future for a stronger, better Kentucky State University.”  

Harmon said, “Ultimately, changes within the university will need to be made and carried out by the KSU president, KSU Board, university administrators, and, to a certain degree, the Kentucky General Assembly.” 

The full report, imore than 100 pages, details issues that cannot be solved, nor were they created, overnight, Harmon said.

The Office of the Auditor of Public Accounts began reviewing activity at the university last April at the direction of 2022 legislation, House Bill 1, and focused on activity between July 2018 and June 2021. The General Assembly passed and Gov. Andy Beshear signed another bill, House Bill 250, that appropriated funding to the university based on meeting certain goals and created more oversight for the institution.

Harmon wrote in a letter to the interim President Johnson and Board of Regents Chairman Gerald Patton that because of the seriousness of the findings, “referrals will be made to the Kentucky Office of the Attorney General, the U.S. Attorney’s Office for the Eastern District of Kentucky, the U.S. Department of Treasury, and the U.S. Department of Education.” 

Significant findings in the audit include undocumented credit card transactions and “crippling budget and procurement failures, all occurring in a chaotic accounting environment that lacked effective safeguards and responsible management and Board oversight,” a press release from the auditor’s office said. 

The audit identified  $3.34 million in federal grant dollars being at risk because of weak internal controls and $2.7 million withdrawn from internal endowed funds used to supply cash balances.

“KSU did not maintain a strong internal control system over federal grant expenditures to ensure compliance. In addition, some internal controls were deliberately circumvented by KSU executive staff,” the audit says.

Other findings include: 

  • A poor internal communication system, which created a fear of retribution among employees, allowing known financial problems to go unaddressed.
  • Failure to complete internal audit work associated with the fiscal year 2021 due, in part, to directives from the university’s former executive vice president for finance to not assist the university’s internal auditor, as well as incomplete records.
  • Missing or unsupported documentation on the expenditure of federal grant funds by KSU, putting the university at risk of having more than $3.34 million in questioned costs.
  • More than $1.3 million in credit card transactions made each of the three-fiscal years reviewed, with little to no documentation on most of the purchases selected for review.
  • Use of a fund designated for recognition of faculty, staff, and students by the former university president to pay for rental of the Kentucky Castle for a daylong retreat for the university’s board of trustees.
  • Former university administrators receiving unallowable benefits, including bonuses, and supplemental health insurance. In addition, KSU’s former president received a retroactive housing allowance or more than  $84,000 and the university spent nearly $4,000 towards the former president’s utilities at his personal residence.
  • Inaccurate accounts-payable amounts submitted by the former executive vice president for finance  to KSU’s former president and former board chair amid rumors of unpaid bills by KSU.
  • KSU’s former executive vice president for finance held dual employment with Tennessee State University without notifying KSU.

Doug Allen, the former executive vice president for finance referred to in the audit, now works at Tennessee State University as the vice president of Business and Finance. The audit found that he worked at both universities between May and June of 2021, violating KSU’s Conflict of Commitment policy. 

KSU  has been without a president since July 2021. The Herald-Leader reported M. Christopher Brown II resigned amid concerns about KSU’s financial health and pending lawsuits alleging misconduct from university leaders.

Located in Frankfort, KSU is Kentucky’s only public historically Black college or university. 

On Wednesday, Harmon said university employees had a “fear of retribution” because information was shared with select groups. An example of this, he added, was the lack of support for internal audits. 

He also noted his office’s difficulty in procuring documents from the university as some records didn’t exist or were partially complete. Budget documents or projections given to the board could not be recreated by the state auditor’s office to mirror what the university was using at the time. A high rate of employee turnover also added to the difficulty of documenting the university’s processes, Harmon said. 

Because he is running for governor, Harmon said he was rescued from the audit. 

Johnson said the Board of Regents will further discuss ways to correct the university’s course on Thursday. 

The auditor’s office previously conducted a special examination of KSU in 2000 under Auditor Ed Hatchett and reported 16 findings regarding university financial controls.

Senate committee asks about KSU’s progress

Last week, the Senate State and Local Government Committee discussed resolutions to confirm the reappointments of Patton and KSU board member  Robert Ramsey Sr. The committee questioned both about actions they’ve taken to improve the university since joining the board and did not vote on either resolution. 

“You will find that the General Assembly wants Kentucky State to be successful, but more importantly, we want the students to be served properly,” said Sen. Chris McDaniel, R-Ryland Heights, to Ramsey before asking him if he and other board members intend to hold members of the previous administration accountable. 

Ramsey said he did not think the board could hold them accountable at this point. 

“The previous board did not pay close enough attention to what was going on at the university. I think the board that we have in place now will do a much better job,” Ramsey said. “And we meet almost monthly now to try to ensure that we’re moving the university into a positive direction.” 

Patton became the chairman of the board last April. Much of his career has been in higher education, including serving as deputy commissioner for higher education at the New York State Education Department and as New York’s higher education executive officer. 

Since last April, the board has met 25 times, Patton said. Typically, university boards meet quarterly.  

The board also selected an interim president “in record time,” Patton said. A presidential search for a permanent leader is underway, he told the committee. 

“We now get periodic updates on the legal status of the institution including all litigation for the university,” Patton said. “We also get updates on the finances of the administration of the university and how we’re doing in that regard.”

Senate Majority Floor Leader Damon Thayer, R-Georgetown, asked Patton how many days he has been on campus during the course of the year and noted he lived in California. The chairman replied that he had been part of all board meetings but had not been to campus because of difficulty traveling during the coronavirus pandemic. Patton said he intends to travel to campus more in the future.

In 2022, Senate Bill 265 directed Beshear to replace the Board of Regents that spring. 

After the audit was release Wednesday, Sen. Gex Williams, R-Verona, said in a statement that the findings were “what many of us both feared yet expected” and the referral to prosecutors for review was “certainly appropriate.” His district includes Frankfort.

Williams’ full statement is below:

“The findings from Auditor Harmon’s office are, unfortunately, what many of us both feared yet expected. The special examination of Kentucky State University finds the height of bureaucratic corruption and abuse of taxpayer and donor trust. It uncovers unlawful bonuses and personal expenses using university funds—which are ultimately taxpayer funds—mismanagement, abysmal recordkeeping, and other negligent practices.

“KSU is Kentucky’s second oldest state-supported institution and a historically Black university and has enjoyed significant support from the commonwealth. The fact that students, staff and alums have been subject to the turmoil the audit has uncovered is a tragedy in my mind.

“I am encouraged by the words and leadership of KSU Interim President Ronald Johnson, but I hope those responsible are held accountable.

“The auditor’s referrals to prosecutors are certainly appropriate. As senator for Franklin County and the 20th Senate District, I will continue monitoring prosecutors’ reviews and work to set the university on a more successful path forward.”

Photo: Interim KSU President Ronald A. Johnson, left, appeared with Kentucky Auditor Mike Harmon for release of an audit critical of KSU’s financial management under a previous president. (Screenshot)