AP Newsbreak: Audit faults Mo. loan agency for wasteful spending
Thursday, October 11, 2007
JEFFERSON CITY, Mo. (AP) -- An audit of Missouri's student loan authority depicts it as flush and loose with cash, rewarding executives with luxury perks and wasting money on buildings, parties and no-bid contracts.
Officials at the Missouri Higher Education Loan Authority acknowledged most of the problems highlighted in the report released Thursday by State Auditor Susan Montee. But they said the troubles were in the past, and the agency has righted itself for the future.
"I know it sounds cliche, but we're committed to transparency and accountability and efficiency, and we are going to take our responsibility seriously," said Raymond Bayer Jr., the loan agency's chief executive officer.
Montee put it more bluntly.
Missouri's loan agency officials amassed huge amounts of wealth while "running under the radar screen" and "then spent a lot of the money on themselves," she said. "I think now that everyone knows about them, the jig is up."
The Missouri Higher Education Loan Authority, which has more than $5 billion in assets, is the latest student lender to come under scrutiny for its practices.
New York Attorney General Andrew Cuomo has launched a national probe of student loan providers and college administrators. He claims there is a pattern of favoritism for lenders who provided kickbacks, trips and other gifts in exchange for steering students their way.
The Missouri audit doesn't allege any kickbacks. But it says the loan agency paid for massages during an annual conference for student financial aid personnel as an enticement to attract customers to its booth.
The Missouri audit comes as the nonprofit loan authority is undergoing its largest mission change since it was created by a 1981 state law as a means of ensuring access to low-cost student loans for Missouri college students.
Under a new law championed by Gov. Matt Blunt, the loan authority is paying $350 million to the state over the next six years to help finance the construction or renovation of dozens of college buildings around the state.
The state had never audited the loan agency. But with Blunt's plan as a backdrop, Montee announced upon taking office in January that it would be one of her first targets.
The audit takes no position on whether the asset sell-off needed to finance Blunt's construction program will financially weaken the loan agency, though Montee said she believes it is a bad idea.
Instead, auditors focused on how loan agency officials lavished luxuries upon themselves. Although a public entity, Montee said the loan authority acted like a private business not accountable to any stockholders.
Montee said the loan agency owes almost $2.3 million for "excessive" severance benefits to four former executives who either resigned or were fired in recent years. The report didn't identify the officials, but the loan agency provided their names to The Associated Press under an open-records request.
-- Michael Cummins, who was fired as executive director in January 2006 after voicing opposition to Blunt's plan, received the largest severance package of $853,381.
-- Rick Fouts, who resigned as chief financial officer in October 2004, got a $650,000 severance package.
-- John Wild, fired as executive director in November 2003, got a severance of $535,445.
-- Ann Hollenberg, fired as associate director in October 2005, received a severance of $244,732.
From the 2001 to 2004 fiscal years, the audit said the student loan agency paid almost $1.5 million in performance bonuses to five executives, including the four who also got severance payments.
Those executives also got temporary bump-ups in their base salaries; 12 weeks of annual time off, which three of the five converted to more than $200,000 in cash; car allowances totaling more than $146,000 over that five-year period; and life insurance policies that they could convert to cash, the audit said.
Bayer, who took over for Cummins, said he is the only remaining employee guaranteed a severance package if he is fired without cause. He said the large performance bonuses have been done away with and he has declined a car allowance.
Six of the seven board members of the loan agency have left -- some under pressure or protest -- since Blunt first proposed in January 2006 to sell the agencies for his building plan.
The new board members have put an end to many of the excesses of the past and have either already implemented many of the audit's recommendations or will do so, board chairman John Smith and the agency's audit committee leader, Thomas Reeves, said in a letter to Montee.
The audit said the loan agency failed to seek competitive bids for its new $11 million headquarters built along the Missouri River flood plain in Chesterfield. After moving into the building in April 2002, MOHELA paid more than $1.2 million in lease payments over 18 months for its old headquarters because it couldn't get out of the lease, the audit said.
Until March 31, the loan agency had no formal purchasing policy so it made numerous expenditures without soliciting competitive bids, the audit said.
The agency also failed to always keep supporting documents for invoices, including for a $198,514 payment to a financial consulting firm hired in 2006 to review the financial feasibility of Blunt's plan, the audit said.
The audit also cited as unreasonable more then $46,000 spent on board retreats, including $1,500 for alcoholic beverages in 2004 at a Branson resort and $1,200 for alcohol two years later in St. Louis.
Additionally, more than $688,000 was spent on Christmas gift cards and bonuses for employees, and $28,716 on annual holiday parties that included disc jockeys and a magic show, the audit said. Bayer said the holiday bonuses will stop.
Still unresolved from the audit is a dispute over whether Montee's staff should have access to the records from closed MOHELA board meetings. The agency has refused to comply with subpoenas seeking the records, and both sides have filed suit over the dispute.