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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."
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."
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