Chancellor: Problems found in N.D. university audit intolerable

FARGO

Violations revealed in a North Dakota University System audit will not be tolerated, the system's chancellor pledged Wednesday.

Bill Goetz said the state Board of Higher Education will review recommendations and take action following an audit that found a lack of accountability in university building projects.

However, adding new policies may not be the answer because some violations were intentional, said board President Richie Smith.

The audit showed that North Dakota State University and the University of North Dakota circumvented policies to avoid getting approval for president's office remodeling projects.

"When you have people that intentionally go astray of the policies, it to some extent doesn't make a difference what the policy is," Smith said.

The board asked the Office of the State Auditor to do an audit of the president's homes at NDSU and UND after cost overruns were discovered.

The auditors expanded the scope of the audit to examine whether major building projects in the university system are adequately monitored.

Auditors reviewed 14 projects at five campuses, including six projects at NDSU.

"The audit reveals that there's a lot of work to do within the university system to ensure that there's sufficient accountability for their capital projects," said Gordy Smith, audit manager.

The state board has very limited to no effective monitoring related to capital projects, the audit said.

Auditors recommend the board establish a system-wide monitoring function to make sure campuses follow policy and state law.

Jon Backes, chairman of the board's Budget, Audit and Finance Committee, said board members agree with that recommendation, but they need to balance how much money is appropriate to spend on compliance.

"The challenge from a fiscal management standpoint is how many people do you hire to look after the people that you hire to do the job that you've hired them to do?" Backes said.

Goetz said he is advocating for legislative funding next session to add a new position to review building projects for the system.

The staff person would have expertise in estimating building costs and would closely monitor projects on each campus, Goetz said. The proposal, which is in the board's budget request, would cost $208,000 for the biennium.

Goetz said it is "troubling" to him that NDSU and UND broke office remodeling projects into smaller projects to avoid bringing it before the board.

The NDSU office cost $640,000, and the UND office cost $228,000, the audit states. The threshold for bringing projects for board approval is $250,000. At the time of the UND project, it was $100,000.

"What is bothersome to me is that it sets a culture within the institution that begins to accept the fact that yes, there's policy, but we don't necessarily need to abide by them," Goetz said.

Goetz said he will be clear with college and university presidents that they are responsible for making sure policies are adhered to or it will affect their performance evaluation.

Board members will discuss the audit at a retreat next week, as well as potential consequences for campuses or individuals involved, Richie Smith said.

However, the key players responsible for many of the decisions raised in the audit are no longer at the institutions.

President Joseph Chapman resigned last October amid criticism for the president's house overruns and the cost of a trip to President Barack Obama's inauguration.

John Adams, former vice president for finance and administration, who split the president's office project into smaller ones on the advice of his counterpart at UND, was asked to resign in March.

The UND vice president, Bob Gallagher, is retired, and President Robert Kelley arrived after the decisions were made.

Bruce Bollinger, who recently replaced Adams as NDSU's vice president for finance and administration, said officials will conduct a complete business practice review of facilities management.

"The bottom line is that there was a lack of oversight at NDSU in regards to the policies and procedures," Bollinger said.

Checks and balances will be added to ensure that this doesn't happen again, Bollinger said.

Alice Brekke, UND's vice president for finance and operations, said officials there are also reviewing their internal processes.

"There certainly are things that we have learned, and as we go forward we can improve," Brekke said.

Eight pages in the 29-page document focus on findings for NDSU, including:

E Costs and other information about the president's house were not accurately reported. Information provided by NDSU on other projects was misleading.

E Inadequate planning and budgeting is leading to additional costs. No budget was set for Richard H. Barry Hall. Several changes to the project were made during construction, including finishing the basement for $231,000 and adding a $78,000 stock ticker.

E Some issues with Barry Hall are left unresolved because the auditors requested an attorney general's opinion. NDSU is using public funds to make lease payments for the facility, which was approved to be funded with donations.

Four pages of the audit focus on UND. In addition to concerns about the president's house and office, UND did not obtain board approval to spend more on the National Center for Hydrogen Technology.

UND also has not complied with local matching fund requirements for the O'Kelly Hall project. Legislators required a local match of $220,000 for the project and UND used asbestos settlement funds instead of money specifically raised for the project.

Dickinson State University was found to be in noncompliance with state board policy for changing how the Badlands Activities Center was financed without getting approval.

Auditors said improvements need to be made to ensure proper approval when projects are significantly changed or when authorized amounts are exceeded.

The Legislative Audit and Fiscal Review Committee will discuss the audit next week.

"This is something that simply will not be tolerated in terms of the conduct of our campuses relative to the construction of capital projects," Goetz said. "We cannot operate this way."

Audit highlights

An audit released Wednesday found a lack of accountability in North Dakota University System building projects. The findings include:

- Capital projects in the university system are not adequately monitored.

- North Dakota State University and the University of North Dakota did not get approval to exceed authorized budgets for the president's house projects.

- Costs and other information about the NDSU president's house were not accurately reported.

- Officials at NDSU and UND split president's office remodeling projects into several smaller projects to avoid bringing them to the state Board of Higher Education.

- Auditors said improvements need to be made to ensure proper approval when projects are significantly changed or when authorized amounts are exceeded.

- At NDSU, inadequate planning and budgeting is leading to additional costs. This occurred at Richard H. Barry Hall at NDSU's downtown campus.

- An attorney general's opinion has been requested on Barry Hall. Auditors question whether it's appropriate to use public funds for lease payments because the project was supposed to be funded with donations.

- Dickinson State University was found to be in noncompliance with state board policy for changing how the Badlands Activities Center was financed without getting approval.

The Forum of Fargo-Moorhead and the Herald are Forum Communications Co. newspapers.