More financial problems for K-state

[Husker_Power]

Audit uncovers questionable financial practices at K-State

The Kansas City Star

 

A scathing audit of Kansas State University reveals a pattern of undisclosed payments, conflicts of interest, poor accounting and possible tax problems for the school, several of its former employees and its athletic department.

 

The audit, released by the Kansas Board of Regents on Friday, describes thousands of dollars paid to companies owned by current and former university employees. They include head football coach Bill Snyder; former athletic director Tim Weiser; and Bob Krause, a former vice president for institutional advancement and former athletic director.

 

Auditors found that some of those payments could result in additional tax liability for the university and may violate Internal Revenue Service regulations. But the report stops short of concluding that any payments or other irregularities were illegal, and notes that virtually all the money came from private donations, not taxpayers.

 

The new K-State president, Kirk Schulz, said he welcomed the regents' decision to release the audit, which is dated April 27. The board discussed it in closed session Friday.

 

"There is nothing we can do about the past," Schulz said in a news release. "However, steps have been taken to ensure these situations do not happen again."

 

K-State officials and regents said the audit, prepared by Grant Thornton LLP, would be the basis for a thorough examination of the university's financial controls. Schulz is expected to make recommendations to the regents by October.

 

The 34-page report details a $2.4 million shortfall in the university foundation's scholarship fund in 2007. It also found questionable spending on fees, travel and fringe benefits, plus a $500,000 loan from the athletic department to Weiser in 2008 that he was not required to "justify or explain."

 

Thirteen payments totaling $845,000 to Snyder, Weiser, Krause and others had no supporting documentation, auditors said.

 

The report was prepared as an "exit analysis" of former K-State president Jon Wefald, who left this year. Similar audits are under way for the University of Kansas and Pittsburg State University, whose presidents also recently departed.

 

Auditors made several recommendations to improve oversight of the athletic department at K-State and other entities affiliated with the university to improve "structure, formality and transparency."

 

Wefald said Friday that he was most troubled by the lack of documents for the $845,000 in payments.

 

"I think we should do everything we can to uncover that," he said.

 

Wefald added that he gave Krause too much authority, a decision he now regrets.

 

"He did do a lot of good," Wefald said. "But Bob had too much to do. I probably delegated too much authority to him. I wouldn't do that again."

 

Krause could not be reached for comment. He recently resigned from his job on the university's Olathe Innovation Campus following revelations of previously undisclosed contractual obligations of more than $3 million to a company owned by former head football coach Ron Prince. Kansas State is now suing to declare that agreement — which was not mentioned in this audit — void.

 

Weiser, now deputy commissioner for the Big 12 Conference, declined to comment on the audit until he could read it.

 

"I was not aware they were going to release that," he said from the College World Series in Omaha, Neb.

 

Snyder was traveling on Friday and said he wanted to thoroughly review the report before commenting

 

Regent Gary Sherrer of Overland Park said he was disappointed by the practices revealed in the audit.

 

"An audit that brings up these kinds of issues is a very sensitive document," Sherrer said, noting the regents held on to the audit until they had time to read it thoroughly and meet with lawyers.

 

"Breathtaking," said regent Dan Lykins in response to the findings. "We are going to be looking at things differently now."

 

While the audit was not limited to K-State athletics, much of its focus involved decisions made by Krause involving the athletic department in recent years.

 

The department, the audit found, maintains a bank account outside the purview of the university's controller, primarily to pay the department's travel costs.

 

But auditors found that roughly 5 percent of the payments made from the account — about $100,000 each year since 2005 — were not for travel, but for contract payments to companies linked to K-State officials, such as Snyder's SSM Inc., Weiser's The Weiser Way and Krause's Horizon Ranch.

 

"It is not clear why contract payments would be made through the … account as they do not relate to travel," the audit noted. "As with other payments to employees' personal corporations, the supporting documentation was minimal."

 

The payments, auditors said, could cause the university tax problems.

 

"Many universities do pay their coaches for appearances and endorsements through a contract with the coach's personal corporation," auditors wrote. "However, it is our understanding that the taxing authorities do not look favorably on those situations if it is the athletics department or the university who is arranging for/negotiating the appearances and the endorsements on behalf of the coach, such as is the situation at K-State."

 

As of the end of last year, auditors said Snyder is owed $900,000 in deferred compensation from payments due after he quit as coach in 2005. He returned as head coach three months ago.

 

The audit also outlined Snyder's fringe benefits package in his 2001 contract, which, among other things, included two courtesy vehicles, undergraduate education expenses for his daughters, and a guaranteed five-year contract extension as associate athletic director for his son after Snyder's departure.

 

The report also said Snyder's complete compensation package for his current service as coach remained unsettled three months after his most recent hiring. His announced annual salary is $1.85 million.

 

Other concerns cited in the audit:

 

•The Kansas State University Foundation, which provides funds for scholarships, had a $2.4 million deficit in 2007. The athletic department eventually replaced part of the shortfall.

 

"We questioned the athletics department's responsibility for involvement in this transaction and were told that as the athletics department fell under the purview of Mr. Krause, Mr. Krause elected to solve the issue in this manner and that the athletics department clearly did not have any responsibility for the payments. Per President Wefald, this arrangement was negotiated with his knowledge and approval," according to the audit.

 

•Wefald had access to a $385,000 discretionary fund from which a few transactions "did not appear to be an appropriate use … or was missing." Among those payments: $1,191 to pay for Kerry Wefald, his daughter-in-law, to fly to New York as part of an arts program.

 

"Various monthly payments made in 2005 and 2006 in the $700 to $800 range to RB Enterprises Inc. carries no explanation at all," the auditors found.

 

•A conflict of interest existed involving Wefald, Krause and Krause's wife, all of whom were investors in companies assisted by the National Institute for Strategic Technology Acquisition and Commercialization (NISTAC), a nonprofit organization based in Manhattan with ties to K-State.

 

Wefald and Krause invested in a company called NutriJoy, founded in 2000 to develop and market "nutritional technologies." Krause invested $37,500 and Wefald $35,000 in 2002.

 

That investment, combined with their oversight responsibilities at K-State, "can call into question their decision-making in situations such as that involving NutriJoy," auditors wrote.

 

In spring 2005, NutriJoy experienced cash-flow problems that were undermining its plans to partner with a large food or beverage company, according to the audit.

 

At an April 2005 meeting of NISTAC's board, which Krause led at the time, it adopted a resolution that said any future capital raised was first to be used to repay investors, such as Krause. Auditors said minutes of the meeting did not reflect whether Krause and Kent Glasscock — a former Kansas House speaker and NISTAC president who also was a NutriJoy investor — recused themselves from the vote.

 

Auditors said they were denied access to a NutriJoy stockholders agreement.

 

In other financial transactions, auditors found that the Colbert Hills Golf Course in Manhattan — which has connections to K-State — was built on 315 acres purchased from the Vanier family, in-laws of Krause.

 

The report warned that future conflicts of interest remained a possibility and that university officials should increase their oversight.

 

While citing many problems, the audit also noted many of Wefald's accomplishments, including increased enrollment at K-State. Wefald announced his retirement from the university in May 2008 and officially stepped down this month.

 

Wefald arrived at K-State in July 1986 when the university was suffering declining enrollment, low faculty morale, and limited research and graduate programs. It also had one of the worst football programs in the nation.

 

Wefald turned the university into an academic, athletic and economic powerhouse. He also hired Snyder, who turned the Wildcats into a highly successful team and became a major player in the money-driven world of college football.

 

Krause and Wefald had worked side by side since 1977, when Wefald was the president at Southwest Minnesota State University and Krause was its vice president of student affairs.

 

Wefald named Krause as K-State's athletic director in April 2008 and approved nearly $300,000 in additional compensation to Krause for "consulting fees" in 2001-08, mostly while Krause was vice president of institutional advancement.

 

When the secret agreement between Krause and Prince, the former football coach, came to light last month, Wefald said he had been unaware of its existence and asked Krause to resign. The agreement pays Prince, who was fired last November, $3.2 million in addition to his $1.2 million buyout.

 

When asked Friday whether he thought the report tarnished his 23-year tenure at K-State, Wefald said: "That would be for others to judge. I think we did a lot of great things here. We made a few mistakes here and there."

Audit points

•Documents for $845,000 in disbursements "could not be located."

 

•A golf course was built on land bought from A.D. Bob Krause's in-laws.

 

•A $500,000 loan was made to A.D. Tim Weiser that he didn't have to justify.

 

•Football coach Bill Snyder and Weiser received payments as "independent contractors."

[caveman99]

You have to wonder if KSU is close to not being able to have an athletic department. I mean they have all of this misdirected money, $2.4M shortfall WOW! On top of that if they don't win the lawsuit vs. the former coach that is another $3M. Snyder is named in that report. Maybe saying that they won't have an Athletic Department is a stretch, but if Snyder doesn't come out of this clean then they may not have a football program. Maybe that thread about who would you like to see added to the Big XII isn't that far off.

[HSKRNOKC]

They will right the ship IMO but Snyders name kept coming up with questionable payments. That is UGLY!

[caveman99]

K-State’s golden era tarnished by financial audit

JASON WHITLOCK COMMENTARY

Related:

Audit uncovers questionable financial practices at K-State

 

These trees didn’t fall in the woods.

 

The Kansas Board of Regents chopped down Jon Wefald, Bob Krause and Bill Snyder in the public arena, choosing to disclose a financial audit the regents surely understood paints Wefald, Krause and Snyder as shady, clueless and drunk on power.

 

I read the 34-page report. I read the newspaper accounts summarizing the audit. I’m still unclear of who did what, when and where.

 

My impression is that Wefald, Krause, Snyder and anyone connected to Kansas State athletics during the school’s “football powerhouse era” cashed in on the record and off.

 

Even Tim Weiser, who had little to do with the golden era, received a no-questions-asked $500,000 loan. Thirteen payments to Krause, Snyder, Weiser and others totaling close to $1 million cannot be accounted for or explained.

 

The $3 million secret buyout Krause agreed to give Ron Prince seems to be part of a pattern of financial mismanagement at K-State under Wefald’s presidency.

 

No wonder Kirk Schulz, Kansas State’s new president, said he welcomed the regents’ decision to make the audit public. Schulz is the lone winner in this fiasco. He escapes Wefald’s shadow and gains valuable leverage over Snyder, the iconic football coach.

 

“The Miracle in Manhattan” now has an enlightening postscript, “The Madoff in Manhattan.”

 

In retrospect, there is virtually no reason for surprise.

 

You do not dig out from an NCAA football hell hole, become celebrated as the saviors of a self-esteem-challenged university without cutting a few corners and believing you’re above the ethical standards of transparency that you preach.

 

My opinions of Jon Wefald and Bill Snyder have not changed. I respect them immensely. I’m astonished by their accomplishments. But I always regarded them as human and therefore flawed. Greed, arrogance and a sense of entitlement can invade their mind-set as easily as yours.

 

The truth is, Wefald, Krause and Snyder needed to be chopped down for the university to move forward.

 

I suspect the audit would’ve remained private had Wefald and Krause not renamed Snyder as head football coach on their way out the door. Re-installing Snyder as the unofficial president of the university was/is a serious impediment to Schulz.

 

Prince should’ve been left in place for one more season, which would’ve allowed Schulz and the new athletic director to fire Prince and hire their own football coach.

 

Now, after the disclosure of the audit, Snyder can be removed as coach without sparking a civil war in Manhattan. Unless Snyder ignites an amazing resurgence, I expect the university to convince him to re-retire after the 2010 season.

 

There is also the possibility that Snyder will retire again after the conclusion of the upcoming season. This would be the ideal solution.

 

Krause’s influence has already been stripped. He resigned from his golden-parachute job at the school’s Olathe campus after the Ron Prince payoff came to light.

 

Wefald’s influence in Manhattan has now been substantially diminished. He will be fondly remembered as the man who hired and empowered Snyder. Wefald will still get credit for energizing the entire campus, elevating enrollment and improving the school’s academic standing.

 

But it’s now clear Wefald’s time has come and gone. He spent the last five years trying to duplicate the Bill Snyder hire. That desperation led to Bob Huggins using and embarrassing the university. That desperation led to Ron Prince demanding and receiving a raise after doing very little. That desperation led to Dalonte Hill receiving a ridiculous salary for an unproven assistant basketball coach.

 

K-State’s athletic department has been completely out of control for years.

 

The release of the audit gives Kirk Schulz a chance to restore order to the university’s front porch.

 

People who love the university should politely pressure Wefald and Snyder to resist any urges to fight the changes that Schulz plans to implement.

 

Wefald and Snyder had their era. It was an incredible success largely because people allowed them to lead. They should give Schulz the same freedom.

 

To reach Jason Whitlock, call 816-234-4869 or send e-mail to jwhitlock@kcstar.com. For previous columns, go to KansasCity.com.

K-State’s golden era tarnished by financial audit

[caveman99]

This is the best part of the article above:

 

You do not dig out from an NCAA football hell hole, become celebrated as the saviors of a self-esteem-challenged university without cutting a few corners and believing you’re above the ethical standards of transparency that you preach.

[Scarlet Overkill]

K-State Fans: Snyder has integrity and there is nothing wrong with what he did, in fact, it's common practice. It's just a glitch in accounting practices amounting to poor documentation, but it's valid.

 

How long before he's ousted and they have to face reality that he is NOT the savior, nor does he have integrity?

[fro daddy]

I think he walks away at the end of the year.

[SOCALHUSKER]

Why anyone would support this institution is beyond me!!

[Reebsker]

Why anyone would support this institution is beyond me!!

The Big XII does it on a yearly basis.

[Vince from ShamWOW]

Why anyone would support this institution is beyond me!!

The Big XII does it on a yearly basis.

 

 

That doesn't make it right.

[SOCALHUSKER]

Why anyone would support this institution is beyond me!!

The Big XII does it on a yearly basis.

 

Didn't even think of it that way!! As another poster pointed out, maybe it's time for a little Big 12 restructuring.