Fresno State Athletics
Fresno Bee Newspaper Admits Several Errors in Last Sunday's Story on University Auxiliaries
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Feb. 22, 2004
FRESNO, Calif. - Recently you may have read an article that was published in The Fresno Bee on Feb. 15, 2004 detailing a CSU audit of Fresno State's auxiliary organizations.
The newspaper story on Page A1 of The Bee on Sunday, Feb. 15, about an audit of auxiliary organizations at Fresno State contained several errors.
| (Editor's note: On Sunday, Feb. 22, The Fresno Bee published a correction admitting "several errors" in its report regarding Fresno State's auxiliary organizations. The Fresno Bee admitted that it "was incorrect in its estimate of the amount of money auditors questioned" in both its story and headline. Also, contrary to the story and headline, "the audit did not find any money had been wasted or stolen, but rather cited numerous instances of faulty accounting, poor documentation and lack of oversight." An embezzlement of funds by a foundation employee was not linked to the audit as claimed in the story. To read the full correction listing other inaccuracies in last week's article now acknowledged by The Fresno Bee, click here. Of course, the original story was printed in bold headlines on the front page of The Fresno Bee. The correction was printed in small type in the back of the paper in the regular "Setting it Straight" column. The full university statement in response to the original article follows.) |
We were very disappointed in the overall tenor and accuracy of the article. We are in communication with The Fresno Bee about numerous inaccuracies and misinterpretations presented in the story and are preparing a formal response to the article.
Below is a fact sheet about the article that we are providing to you in the event you are asked about the audit in the community.
Any audit is composed of three components: the findings of the auditors, the response of the organization or person being audited, and the corrective actions proposed to be taken. Unfortunately, The Fresno Bee chose to focus most of its article on the findings of the auditor, with little coverage of the university's responses found in the audit itself or the corrective actions that have been taken.
Imagine you were the subject of an IRS audit and a newspaper chose to focus on the IRS auditor's findings in your situation without adequately addressing your responses to the audit or the corrective actions you had taken. Such a one-sided report would fail to show where you successfully answered the auditor's questions or how you were able to justify deductions or other concerns in an audit. That wouldn't be fair, just like the Bee's version of this story just isn't fair.
In short, while the audit did identify issues that need to be improved in the auxiliaries, state auditors have been pleased with the progress made to ensure proper operation of the university's auxiliary organizations. In fact, the CSU auditor has commended us for actually going beyond the requirements set forth in the audit.
The purpose of any audit is to identify areas for improvement. We have quickly responded to any areas of weakness in the auxiliaries, have developed procedures to correct any problems, and provided information about the progress we have made.
If you have any questions about this, please do not hesitate to contact me or refer to audit response updates on www.FresnoStateNews.com or www.gobulldogs.com.
Thank you for your patience and understanding.
John D. Welty
President
Response to The Fresno Bee article of Sunday, Feb. 15, on the audit of auxiliary organizations at Fresno State
The full version of the audit report, which includes the audit findings as well as the university's response, is available here:
General Facts:
The auxiliary organizations exist for one purpose - to provide support to the University and its students.
The auxiliary organizations have a system of internal controls in place, including audit committees. The Audit Committee for the California State University, Fresno Association was established in June 2002 as an independent panel to review audit functions, financial reporting and financial statements. The Audit Committee's purpose is to assure that the highest level of internal controls is maintained so that the work of the Association is conducted properly. The Audit Committee includes representation from the Association Board of Directors, two community members who have extensive accounting and finance expertise, and the Chair of the Academic Senate. The Chair of the Academic Senate is also a ex-officio, non-voting member of the Association Board of Directors. The Association's Audit Committee is modeled after similar committees for the Athletic Corporation and the California State University, Foundation.
The composition of most auxiliary governing boards (depending upon date of incorporation) includes administration, faculty (senate) representatives, students, and community members in accordance with Education Code 89901 and Title 5, Section 42602.
This audit was the first phase of compliance audits done by the CSU on its auxiliary corporations. Many of the audit findings for Fresno State's auxiliary corporations were very similar to other CSU auxiliary corporations.
The auditors from the Chancellor's Office conduct about three routine audits per year at Fresno State, as they do at all CSU campuses. It is doubtful that many campus personnel ever know of these audits. The Fresno Bee implies that the auxiliary audit was kept secret.
Other clarifications:
In several places in the audit there is a reference to "lack of a written procedure." The lack of a written procedure does not in and of itself indicate a lack of management oversight as is assumed by The Fresno Bee.
In many cases the auditor is not criticizing the University, but is making a recommendation designed to help us improve practices and/or oversight.
In many cases the auditors quote very general support for their findings, such as - "Title 5 Section 42402 and Education Code Section 89900 indicate that the president of each campus is responsible for the effectiveness, academic excellence, and general welfare of the campus over which he presides." In these cases, therefore, it is safe to assume that the CSU has provided no specific guidance for auxiliary organization management.
Although 107 recommendations are listed in the CSU audit, many of those are duplicates.
The following specific assertions were made in The Fresno Bee article. The university response follows:
FRESNO BEE COMMENT #1: "More than $3.6 million was lost, poorly documented or even stolen.....
UNIVERSITY RESPONSE: What findings from the audit did The Fresno Bee use to come up with this amount? What was stolen? The audit did not find any instances of theft. If The Fresno Bee was referring to a previously reported Association employee fiscal misconduct issue, this was not included in the CSU audit nor did the audit identify any deficiencies in the Foundation's procedures that would have lead to the discovery of any fiscal misconduct (In fact, the Association discovered the employee problem through its own internal process and pursued prosecution).
COMMENT #2: "The security issue is linked to one case last year......."
RESPONSE: There is no direct security issue link between the audit findings for the Foundation and the employee fiscal misconduct issue that was discovered in October 2003.
COMMENT #3: The headline states that $3.6 million was wasted.
UNIVERSITY RESPONSE: The audit never states that money was wasted.
COMMENT #4: According to The Fresno Bee: "The report also describes a culture that allowed the university's auxiliary operations to run with almost total autonomy."
RESPONSE: Not true. This is not a direct comment from the auditors in the report. The composition of all Fresno State auxiliary governing boards is in full accordance with Title 5 of the Education Code. The composition includes representation from the university administration as appointed by the University President. The Fresno Bee asserts that auxiliary organizations were allowed to handle money and administer programs with little or no oversight. The report does not make this conclusion. Instead, it says that in some cases there was not written documentation of specific procedures or practices. Oversight is provided through the auxiliary management and independent audit committees.
COMMENT #5: "...some boards failed to hold regular, public meetings announced by posted agendas and conducted with required quorums, a legal condition for taking action.
RESPONSE: This was a common finding among many of the CSU auxiliary audits. It was not that the university auxiliary organizations did not post meeting notices in a public area, but it was a matter of defining an appropriate public area. Therefore, it was agreed with the auditors that the auxiliary corporations would post their meeting notices at the University Student Union since this is a highly utilized building and open for extended hours. In addition, the Fresno Bee story asserts that regular Board meetings were not held, which is not correct. The audit finding for the Association was specifically related to posting of meeting notices in a public area.
COMMENT #6: "The Ag Foundation essentially fabricated documentation that made it appear the money from the sale was used to reimburse expenses."
RESPONSE: The CSU auditors did not indicate that documents were fabricated. Their comment was "Based on inquiry and analysis, a large portion of the expenditures were never paid by the Ag Foundation." These expenditures were legitimate expenses incurred by Ag Operations on behalf of the Ag Foundation enterprise units. The proceeds from the acquisition of land needed for State Route 168 were properly deposited into a University Trust Account.
COMMENT #7: "The CSU Fresno Foundation exercised lax security over checks..."
RESPONSE: Not sure what is meant by this comment as this was not a finding in the audit report. The only finding for the Foundation related to checks was the need to restrictively endorse checks upon receipt and having a check log for all checks received.
COMMENT #8: The seventh paragraph of the article implies some tie between the audit and the current budget situation the University is facing.
RESPONSE: There is no tie whatsoever between the state budget situation and audit. The budget of the auxiliary organizations is not tied to Fresno State's state operating budget.
COMMENT #9: "The existence of the audit was known to a fairly small circle on campus."
RESPONSE: The Board of Directors and Audit Committees for each auxiliary corporation were fully aware of the CSU audit and were provided with copies of the findings and responses. Each Board/Audit Committee is also responsible for final approval of any new or revised policies and procedures that will be implemented to close any finding.
COMMENT #10: "The Budget Committee "for years" tried to get information about the university's commercial enterprises run by the CSU Fresno Association, he said, including food services and the bookstore."
RESPONSE: The California State University, Fresno Association, Inc. has been included in the University's Budget Book since 1996-97. In addition, copies of the Annual Reports for the Association as well as other auxiliary corporations are available to the general public in the Madden Library.
COMMENT #11: "The flaws include lack of resources, faulty judgments, unintended errors and "circumvention by collusion."
RESPONSE: This was not a finding of the Audit Report. On page 4 there is a general statement under the Opinion section that reads as follows: "As a result of changing conditions and the degree of compliance with procedures, the effectiveness of controls change over time. Specific limitations that may (emphasis is ours) hinder the effectiveness of an otherwise adequate system of controls include, but are not limited to: resource constraints, faulty judgments, unintentional errors, circumvention by collusion, and management overrides. Establishing controls to prevent these limitations would not be cost-effective; moreover, an audit may not always detect these limitations."
COMMENT #12: The Fresno Bee implies that the campus is not exercising adequate oversight of auxiliary organizations.
RESPONSE: The auditor refers to the first audit recommendation in the report, noting that the campus needed to develop procedures to oversee the various ancillary organizations. From this the reporter seems to be confusing ancillary organizations and auxiliary organizations. They are not the same.
COMMENT #13: "The campus should seek the chancellor's guidance on how to handle proceeds from the sale of state land, which, if handled improperly, could be an illegal "gift of public funds."
RESPONSE: The transaction for the loss of land due to the construction of State Route 168 was approved by the Chancellor's Office. The actual wording of the campus finding in the audit report is as follows: "Failure to properly administer and distribute proceeds from the sale of campus land increases the risk that a "gift of public funds" claim could be asserted (emphasis ours) against the campus or its legally separate auxiliary organizations."
COMMENT #14: "The Ag Foundation's incomplete accounting of how it received money left it open to potential penalties and review by the IRS."
RESPONSE: The actual audit finding states "The Ag Foundation had not accounted for, or tracked, all unrelated business income (UBI). We found that certain units that generated sales revenue off-campus were not included in the Ag Foundation's UBI analysis." The Ag Foundation accounts for all funds received by its enterprise units; however, the audit suggested that we have our external auditors analyze all of the Ag Foundation's operations for UBI compliance.
COMMENT #15: "Cash at the farm market was sometimes left in an unlocked desk drawer..."
RESPONSE: The cash drawer at the farm market, even though possibly unlocked, is never left unguarded.
COMMENT #16: The Fresno Bee asserted that Athletics spent thousands of dollars without documentation.
RESPONSE: Athletics did not spend thousands of dollars without documentation. Some documentation was simply not found during the period of time the auditors were reviewing cash disbursements
COMMENT #17: The Fresno Bee indicated a lack of approval for use of first class airfare.
RESPONSE: The university did not pay for first class airfare. Coaches may have adequate frequent flier miles to allow for a free upgrade, and sometimes travel agents provide coaches with free upgrades in appreciation for their business.
COMMENT # 18: The Fresno Bee notes that the athletic ticket office and business office were allowed to consolidate duties in some areas, leading to the segregation of duties issue.
RESPONSE: The Fresno Bee's report is inaccurate - in fact, the consolidation of duties was due to changes in personnel requiring the consolidation. Staff members left those offices, and positions were not filled as quickly as we would have liked, necessitating the consolidation of duties.
COMMENT #19: The Fresno Bee notes that athletic ticket sales could not (emphasis ours) be consistently reconciled to cash receipts.
RESPONSE: Actually, the audit report indicates that tickets sold were not consistently reconciled to cash receipts. The auditor states that reconciliations were not always prepared - the report does not say that a reconciliation was not possible. There is a difference.
COMMENT #20: The Fresno Bee asserted that country club memberships were provided to entertain guests.
RESPONSE: Country club memberships were included in the coaches' contracts for public relations purposes, and Athletics is expected to be the primary beneficiary of those PR efforts. Regarding the country club memberships the auditor apparently wanted to see on each disbursement document a justification for how the expenditure met the educational mission of the university. No justification was deemed necessary at the time of the expenditure because the expenditure was required per the coaches' contracts.