Report faults UND, NDSU

UND deliberately split a renovation project into a series of smaller projects to avoid the need for state approval and, on two other construction projects, it spent more money than authorized, an audit released Wednesday concluded.

The tone of the report from State Auditor Robert Peterson's office was blunt and unequivocal.

"It is apparent the project was split by UND to avoid obtaining approval from the State Board of Higher Education," the report said. "At the time this project started, SBHE policy required authorization to proceed with an improvement for which the cost exceeds $100,000."

The recommended solution was also unequivocal: "We recommend the University of North Dakota obtain proper approval to proceed with improvement projects."

While the university agrees with the recommendation, officials said there was no deliberate attempt at subterfuge. The renovation project, for example, was split up, legitimately they thought, because UND wanted it done whenever there was a lull in the workflow of its maintenance staff.

The audit was triggered by an investigation into the 100 percent cost overruns at the president's house at North Dakota State University, which became an investigation of the same project at UND. The scope of the audit then broadened to include other projects at several universities and the oversight role of the North Dakota University System.

The burning question for auditors was "Are North Dakota University System capital projects adequately monitored?"

The answer was mostly "no." Besides rapping UND, NDSU and some other campuses, the audit said the system office or the state board should've monitored the spending better.

"There is very limited to no effective monitoring of institutions' compliance with State Board of Higher Education (SBHE) policies," the report said.

Asked about this, Chancellor Bill Goetz placed the blame on the individual universities for failing to follow system policies or issuing correct reports on spending. He wouldn't say that his office should've kept better tabs on its universities.

Different approach

At UND, as was the case elsewhere in the university system, there was no disagreement with the audit's recommendations, which were fairly simple: Document projects properly and get proper approval.

Alice Brekke, vice president for finance and operations, said some recommendations will be implemented as soon as possible. UND would then review changes and make more changes as necessary, she said.

But university officials disagreed with the way the university was portrayed, as if there were deliberate abuses.

According to Rick Tonder, associate director for facilities and planning, the story of the split-up renovation project goes like this:

Altogether, it would've been a $228,000 remodeling of the president's office suite in Twamley Hall. Approval for such a small amount would not have been hard because the institution has a budget of $346.9 million.

"Getting authorization has never been a problem," Tonder said. "It's not even a question. We do that as a routine."

UND simply split up the renovation into different projects because it wanted to keep maintenance crews busy. Electricians, carpenters, plumbers and other trades at UND are not paid to come in for a set number of hours each day as is the case with other staff. Instead, they charge different departments for individual work projects. That means that when the workflow slows down, they get paid less and, if there's no work, they're effectively furloughed.

Tonder said the university's goal is to keep the workflow as smooth as possible because if it's too disruptive, it'll lose valued employees who possess intimate understanding of campus facilities.

So, a big project is broken up so that crews can work on them during slow periods.

The added advantage, Tonder said, is it keeps costs down. Projects where construction costs exceed $100,000 must, by law, be put up for bid to outside contractors, he said, which means the university has to pay cost plus profit. With university employees, there is no profit, he said.

For an auditor looking at the project from the 20,000-foot level, Tonder said, it's understandable that remodeling of the reception office, administrative support, conference room and the president's office should appear to be one project. But at his level, it just didn't appear that way, he said. "When you're in the trenches for too long, you can't see the horizon."

If the auditor wants similar projects in the future treated as one project, Tonder said, UND will comply. "I consider this to be constructive criticism. An audit find is an audit find; it's serious business, but it should be a learning experience."

Possible confusion

Another problem at UND identified by the report was cost overruns that were not authorized. As the state board discovered last fall, this was an issue with the president's home, though board members admitted that their policy may not have been clear.

The board had authorized spending of up to $900,000 on the home -- this was the case with the NDSU president's home as well -- but the overall project totaled $1.3 million. UND had not counted landscaping and site preparation costs as part of the project. Tonder said then that this was a longstanding practice and those costs are seen as part of the cost of having a unified campus and not as belonging to a particular project.

Auditors disagreed, saying UND should've gotten board approval for spending more than $900,000.

They also called attention to the construction of the Energy and Environmental Research Center's National Center for Hydrogen Technology. The board authorized $3 million for the project, but UND spent an extra $65,000. That added amount was the interest that had accrued from the funding.

Brekke, the vice president for finance and operations, said the interest could not have been spent on anything but that project so there was never a question of the money going back to the state or anywhere else. UND simply didn't ask for formal authorization, she said.

UND spokesman Peter Johnson speculated that it wasn't clear that authorization was really needed as the money wasn't going anywhere.

No oversight

But if the university was confused about what it should've done, shouldn't the system office have noticed things weren't done right and corrected the problems?

Auditors thought so. The report noted that the system office was "relying on institutions to comply with requirements," which meant that noncompliance would've only been uncovered if there were an audit, or a campus bringing up an issue or the news media making an issue, as was the case with the NDSU president's home.

In the aftermath of the investigation into that project, the state board changed spending policies for campuses, the report acknowledged. However, it said, "until there is monitoring of institutions' compliance, the mere fact policies were changed does not mean institutions will be in compliance."

In other words, universities can't be monitoring their own compliance.

Auditors recommended the state board create a monitoring system, and, they reported that the system office agreed with them.

Goetz seemed to disagree, though.

"We have policies in place that are not adhered to," he said. "What bothers me is no matter how many policies you have in place, if the campuses are not going to follow them, where does the burden rest?"

Asked if the burden doesn't rest with the state office, as the report suggested, he said: "The responsibilities rests with the campus on each capital project. Policy is very clear on this.

"We can always second guess what this office is doing," he said, "but, again, the burden rests with each campus."

Asked if there would be any reprimands for any officials, he said that'll be up to the state board when it meets later this month.

Reach Tran at (701) 780-1248; (800) 477-6572, ext. 248; or send e-mail to ttran@gfherald.com .