Audit report gives good marks to Southeast Missouri State, flags some problems

Missouri State Auditor Tom Schweich released an audit of Southeast Missouri State University on Tuesday that gave the university an overall good rating but found areas where he said improvements could be made and one item that he said violates the state constitution.

The audit covers operations of the university by using financial statements for years ending June 30, 2010, 2009 and 2008.

Among the items flagged in the audit was the university's provision of money to its foundation. The audit said that practice could be a violation of the state constitution because the subsidization appears to be the granting or lending of public funds to a private entity.

"The university also subsidizes a significant portion of the foundation's operating expenses, in an apparent violation of the Missouri Constitution," the audit report said.

The auditor also recommended the university discontinue subsidization of salaries and benefits of employees who perform activities for the foundation. In the audit, the university rebuts the claim by saying it hasn't actually subsidized the foundation and that reimbursements and gifts to the foundation well exceed personnel costs.

Schweich's recommendation on the finding also said good interest rates charged on foundation property leases to the university should be ensured and that appraisals be conducted before the purchase of property on behalf of the university. The university responded that it is paying well below market value on the property leases from the foundation and that it will continue reviewing interest rates.

University president Dr. Ken Dobbins said the university does not consider its relationship with the foundation as subsidization, but that the university will make some changes in response to the auditor's findings. Those changes will include review of interest rates for foundation leases, clearer definitions of fundraising activities, conducting a time study to determine fundraising allocations and revision of reimbursement requests from the foundation as needed.

"We just don't think it's appropriate," Schweich said in an interview about the audit. "It's not a crime, or fraud, or of an act of intentional misconduct. It's more like a business arrangement that's not envisioned under the Missouri Constitution."

There is no real penalty related to the violation, Schweich said, except that the state legislature could consider the information in the audit as it works to determine appropriations for the university for fiscal year 2013. Gov. Jay Nixon proposed cutting $106 million from higher education appropriations in January, including 12.5 percent from Southeast's budget, but announced Tuesday that a 7.8 percent cut to colleges and universities could be possible because of a pending settlement with mortgage lenders. The settlement could mean $40 million back on the books for higher education appropriations should the legislature approve.

"We hope that legislature will read our audits of universities in deciding the budget going forward, and they will want to see that the university is engaging in the kind of belt-tightening measures that we recommend, but it's not a direct relationship," Schweich said.

The university released a statement from Dobbins following Nixon's announcement, thanking the governor for proposing the amendment to the budget and stating confidence that the university could hold increases in tuition to no more than the Consumer Price Index.

The "good" rating given to the university is the second-highest attainable rating and reflects that the university is well-run overall, Schweich said. Schweich recommended improvements to internal controls, compliance with legal provisions, management practices and procedures and records of the university foundation.

"If they address those issues and we come back, they'll probably get our highest rating," he said.

Other findings

Another audit finding was the university did not document the reasons for closing board of regents meetings and could not demonstrate how some topics discussed in the closed sessions complied with Missouri's Sunshine Law. The university agreed that motions to go into closed session should only reflect topics actually discussed but said in its response that topics listed in the audit should have been discussed in closed session due to personnel issues, contracts and contract negotiations.

Other findings included a recommendation to improve the competitive bidding process for legal services; that amounts spent for employee recognition were excessive; that around $2,000 in Show Me Center concession sales receipts are missing; and that the university lacks comprehensive food policy guidelines and an adequate disaster recovery plan to restore computer operations.

Schweich said probable Sunshine Law violations are common for universities, as are the commingling of staff and assets between universities and foundations, a lack of competitive bidding and problems with collecting and accounting for concessions money at various games and events.

Two findings Schweich said are fairly unusual are that Southeast paid $700,000 in credit card convenience fees, which are normally paid by credit card users, and that it paid $286,300 in severance to its former basketball coach. Generally, public organizations don't pay severance, Schweich said, and the auditor's office thinks the payment of the credit card fees is unnecessary.

Dobbins said since more people than ever use credit cards for various amounts and many purposes, like buying books, tickets to Show Me Center events and tuition payments, the university considers those payments a cost of doing business. The university has reviewed its policy regarding convenience fees in the past and will revisit how to best handle that issue.

Dobbins said his view of the audit process and the findings is that audits are conducted to give a look at how well universities are complying with state laws and for the purpose of improving the university's management of finances and services.

The Associated Press contributed to this report.

eragan@semissourian.com

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