Legislative Joint Auditing
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Thank you.
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Thank you.
All right, members, if you'll start taking your seats, we'll call this
meeting to order. All right, members, thank you for getting ready pretty quick.
I guess let's move first let's take the take up the adoption of the minutes from the December 13th 2019 meeting I think everybody has seen that if there are no objections we're going to consider those adopted all
right thank you and now I'm going to turn it over to Mr. Norman for a
Speaker 11
5:56
second Thank you, Mr. Chairman. I'd just like to inform you all of one of our auditors, Mark Avery, 51, passed away suddenly last Saturday at his home.
Mark was a senior auditor for us, had 24 years of experience, and he leaves behind a wife and two daughters. But his funeral is tomorrow, and so I'd appreciate it if you all remember Mark and his family and your thoughts and prayers. Thank you. We will
move to the next order of business now. Item C is the adoption of reports of executive and standing committees.
Representative Vaught, you're recognized. Members, our computer is completely blanked this morning on seats, so be extra patient with us figuring out it may take a little trial and error today. Can you hit it again, Representative?
Representative DeAnn Vaught
Unverified
7:03
I think I'm on, Mr. Chair. Thank you. Thank you, Mr. Chair. The executive committee met Thursday, January the 23rd, 2020. Staff reported to the committee the audit, special investigative, and shortage reports
scheduled to be presented to the standing committees and the full legislative joint auditing committee this month. The committee discussed but did not take action on a request for a special report for CIMS Volunteer Fire Department located in Montgomery County. Senator Rappert updated the committee on the status of a pharmacy benefit manager's report that staff is currently working on. With no additional business to discuss, the meeting was adjourned. The next meeting of the committee will be held on Thursday, January the 27th, 2020,
and I move for adoption of the report. Thank you, Representative. Is
there a question? We had one pop up. No questions. All right, we have a motion for adoption. May I have a second? We have a second. All those in favor say aye. All opposed, no. All right. Thank you, members. We'll consider that adopted. Next on the agenda is a report from the Standing Committee on Counties and Municipalities. Representative Watson,
Representative Danny Watson
Unverified
8:27
you are recognized. okay thank you mr. chair standing committee on counties and municipalities the committee
adopted the minutes of the december 12th 2019 meeting there were four reports deferred from December 12, 2019 meeting. Officials from three of these entities were present to address their repeat findings. The committee filed all four reports. The committee reviewed 103 current reports including one investigative report and one investigative letter. Three of these were certified to the bond board and 21
were referred to prosecuting attorneys. Officials from four entities were present to address the repeat findings in their current reports the committee filed 100 current reports and deferred three I move for adoption of this report thank you representative Watson thank you any questions
all right we have a motion to adopt and I have a
second I have a second all those in favor say I all opposed no all right we'll consider that one adopted thank you next is this
report on the standing committee on educational institutions senator pitch you're recognized
Senator Mathew Pitsch
Unverified
9:42
thank you mr chairman the standing committee on educational institutions chairman's report the committee reviewed one previously deferred school district audit report in 18 current school district audit reports for the year into june 30 2019 representatives from the pine bluff school district and the arkansas division of elementary and secondary education were present and answered questions from the committee relating to findings some of which were repeat findings contained in
the district's audit report as well as the district's fiscal distress status the committee deferred acceptance of the district's audit report at its december 2019 meeting without review representatives from the earl and marvel school districts and the arkansas division of elementary and secondary education were present and answered questions from the committee related to findings some of which were repeat findings contained in each district's audit report as well as each district's fiscal distress status the audit report of the hermitage school district was
referred to the applicable prosecuting attorney the committee filed the one previously deferred audit report and 18 of the current audit parts that were brought before it mr chairman i move for adoption of this report thank you senator any questions on
this report seeing none we have a motion may have a second we have a second all those in favor of adoption say aye all opposed no thank you we'll consider that adopted uh next item on the agenda is a report on the standing
committee on state agencies uh senator garner you're recognized thank you
Senator Trent Garner
Unverified
11:18
mr chairman nine reports were on the committee's agendas yesterday one deferred report and five current reports were finding were presented at the board of architects landscaper and archa architects twice and interior designer reports contain findings for not properly appropriating expenditures, not retaining support documentation for expenditures, employing contract labor for more than six consecutive weeks, not properly adding equipment items to the agency's asset list, failing to adhere
to state travel regulations, and making wasteful expenditures. The Arkansas Education Television Commission report containing a finding summarizing an internal audit report by the Arkansas Department of Education regarding $400,000 of questionable costs related to the ideas program the state crime lab report contains an ethical finding regarding an agency's assistant director not properly disclosing her relationship with pinpoint testing llc a company selling tox box products to the agency in addition the agency had purchasing
card expenditures totaling 1700 that were not for agency purposes the nursing board overpaid a former employee for the lump sum sick leave payout due to a cleric error various agency staff member were present to report on how the agency intended to address the audit findings and had to answer committee questions during the meeting the committee adopted a motion to file the one deferred report and the five current
Speaker 32
12:37
reports mr chairman i move to adopt this report thank you senator any questions on that
Representative Julie Mayberry
Unverified
12:43
report senator hickey you're recognized yes sir not not really
Senator Jimmy Hickey, Jr
Unverified
12:50
a question and uh senator garner wherever you're sitting on the nursing board i think we should just make a clarification that although the finding was in their name i don't know that they had any control over that because the clerical error was something through dfna also so
i just think it's important that even though that finding was under their name that we do put that out there thank you senator garner is
Senator Trent Garner
Unverified
13:13
that i agree with senator hickey it was an issue between df and a issuing a check for the 7 500 total payment both the nursing board and
the employee had no wrongdoing from our audit uh just the way that it was technically on their books so i'm happy senator hickey addressed that they they really had no say there was no fault
of their own since senator hickey uh if you have no objection we'll make sure that that is addressed in the minutes
okay thank you uh may have a second to adopt all right we have that all those in favor adoption say aye all opposed no all right that will stand adopted thank you members next item on the agenda is a review of reports our first one today
will be on Henderson State University presented by mr. Solorio thank you mr. chair this
Speaker 41
14:05
presentation covers the 2018 and 2019 audit reports Henderson State University. Located in Arkadelphia the university had an enrollment of 3,300 students in the fall 2017 semester and nearly 4,000 students in the fall 2018 semester. During recent years the university has experienced
significant financial difficulties. The university's unrestricted net position at June 30th 2019 was a deficit 14.6 million dollars. In addition the university's cash and cash equivalents decreased from 9.1 million dollars to less than 1 million dollars over a two-year period. The university president resigned in July 2019. The next six slides present the 2018 audit findings and management responses. The university's
internal control system did not detect or prevent material misstatements in the financial statements. Allowance for doubtful accounts on student accounts receivable was understated by 2.3 million dollars which resulted in net student accounts receivable being overstated by that same amount. Accounts payable was understated by almost $184,000. Deferral of debt defecence was understated by a net amount of $78,000. Student tuition and fees revenue was overstated by $474,000. Athletics auxiliary revenue was
overstated by $31,000. Housing and food service auxiliary revenue was overstated by $200,000. A restatement for a prior period adjustment of almost 1.8 million dollars was not recorded. Supplies and other services were overstated by a net amount of almost $118,000. Bond issuance costs were understated by $150,000. Interest and fees on long-term debt were understated by a net amount of over $72,000. The University corrected these
misstatements during the audit. The University had an unwritten policy of allowing students with a current balance of less than $4,800 to register for the upcoming semester and of automatically enrolling students in an installment plan each semester. During our examination of 26 student accounts we noted 17 students were allowed to enroll with a balance that exceeded $4,800 and 17 students did not make any payments during the fall but were allowed to re-enroll for subsequent semesters.
Additionally we examined 12 delinquent student accounts to determine compliance with the university's policies and procedures and state regulations regarding collection of outstanding debt. Our review revealed that the university was not diligently and actively pursuing collection of outstanding balances for eight student accounts and three students were allowed to enroll with a balance that exceeded the university's policy. The university concurred with finding one and stated that a new vice president for finance and administration had been
hired and additional review procedures will be implemented. The university also concurred with finding two and stated that a plan to address the student account issues has been developed. Additionally the Board of Trustees approved student account policies for current and future students. The next three slides present the 2019 audit findings. As in 2018, the university's internal control system did not detect or prevent material misstatements in the financial statements. Net pension liability was overstated by over five
hundred thirty thousand dollars. Deferred inflows related to pensions were understated by over $364,000, deferred outflows related to pensions were overstated by $685,000, and cash and accounts payable were understated by $196,000. The University corrected these misstatements during the audit. As noted in the previous audit, the University allowed students with a current balance of less than $4,800 to register for the upcoming semester and automatically
enrolled students in an installment plan each semester during our examination of ten students we noted that eight students were allowed to enroll with a balance that exceeded forty eight hundred dollars and five students did not make any payments during the fall but were allowed to re-enroll during subsequent semesters additionally for eight of ten delinquent student accounts we examined the university was not diligently and actively pursuing collection of the outstanding balances in non-compliance with university and
state law. It should be noted that legislative audit is currently reviewing the university student financial aid program and will issue a report at a later date. Management concurred with the 2019 findings and provided responses that were similar to those provided in 2018 as shown on the slide. Due to financial issues detected in the audits presented today, we were
required by auditing standards to question the university's ability to continue to exist and operate as a going concern. As stated previously, the university's unrestricted net position at June 30th 2019 was a deficit $14.6 million dollars for purposes of evaluating going concern the net pension and other post-employment benefits liabilities are excluded making the deficit unrestricted net position approximately four million dollars in July 2019 the University requested a six million dollar advance on its general
revenue appropriation from the state and Moody's investor service downgraded the university's bond writing. In response the board of trustees and university management have implemented several corrective actions. First the university implemented a 3.5 million dollar budget reduction for the current year including reductions and professional staff and faculty salaries, retirement match contributions, and supplies and services budgets. The university also implemented
a hiring freeze and travel restrictions. Second, the Board of Trustees voted unanimously in November 2019 to merge with the Arkansas State University system with an estimated effective date of January 1, 2021. Finally, the University has determined it will not be feasible to repay the six million dollar advance by the end of the 2020 fiscal year as initially agreed upon. Discussions with state officials to extend the repayment terms are ongoing. This concludes my presentation of the 2018-2019 honor reports
for Henderson State University. Officials from the university
Speaker 43
21:06
and from the ASU system are present to answer committee questions. Thank you, Mr. Solario. The
Representative Julie Mayberry
Unverified
21:12
screen is lighting up, as you can
imagine, so if our guests from ASU and Henderson wouldn't mind coming on down to the table. If you don't mind, just please remain standing. As our custom in audit, we're going to put you under oath.
We'll start to my right here. Would you please state your name, employer, and position? Chuck Welch, president of
Speaker 50
21:43
the Arkansas State University System. Thank you. Would you please
raise your right hand? Do you solemnly swear or affirm that the testimony you're about to give will be the truth, the whole truth, and nothing but the truth, so help you God? I do. Thank you, sir. Ma'am, please state your name, employer, and position for
Speaker 51
22:00
the record. Julie Bates, Executive Vice President, ASU System Office. Thank you,
ma'am. Would you please raise your right hand?
Do you solemnly swear or affirm that the testimony you're about to give will be the truth, the whole truth, and nothing but the
truth? So help you God? I do. Thank you, ma'am. Dr. Welch, do you have an opening statement you'd like to make before we get into questions?
Speaker 54
22:24
Absolutely. You're recognized to do so. Thank you. Thank you, Mr. Chairman, and good morning to the committee. I appreciate the opportunity.
Chair
Unverified
22:30
Of course, Julie and I both are from the Arkansas State University system. We did that primarily because the individuals who were in place at the time,
most of the things happened are no longer there, and so we are the ones that have been there since that time. It was mentioned earlier that we have been working closely with the university. the university signed a memorandum of understanding with the ASU system in July for us to come in and provide the types of services that we would provide our own member campuses and to assist during a time of transition. That was agreed upon by the Henderson board on a Friday. On Monday, Moody's investor services stabilized Henderson's rating,
which I think was an indication that they felt a greater sense of comfort that there was going to be some additional oversight and assistance. when the Henderson board voted to formally join our system Moody's actually issued a report and called this a credit positive for the university so I do think that the external entities view this as positive moves while understanding obviously that there's going to still be some work that is required to be done I will say that in the slide it said that formal membership in our
system would not likely occur until January 1st of 2021. That is almost solely due to the amount of time it takes for our regional accrediting agency to sign off on these types of things. That could take nine to 12 months. In recognition of that, though, as part of the merger agreement document that was approved by the ASU System Board and the Henderson State University Board, there's an interim management plan. So the acting president of Henderson is now reporting directly to me and so we are operating as if that has already occurred but it won't be formal as was
said until January of 2021. With regard to the findings in both the 2018 and the 2019 audits as you could see they're essentially the same in both in terms of the categories in which the findings occurred. The first were a number of material misstatements in the financial statements and I wish I had a real easy and clean answer for you as to why that occurred. I don't I don't know I can assure you that that's not something that we're accustomed to in our system.
It's not something we would see regularly, but it was. I feel more comfortable moving forward for a couple of reasons. One of the things that fairly simple response that we provided to audit was, well, we have a new CFO in place. And that's not the only response, but Rita Fleming, who is in the audience today, joined in early December. Rita has an extraordinary history in higher education finance, has worked for the Department of Higher Education, UCA, the University of Arkansas system. She has a world of knowledge, as one CFO in the state said when it was announced she was hired, that's a walk-off grand slam, and I would agree to that, so we feel much better.
Elaine Kneebone, who's the acting president of Henderson, also in the audience today, has also worked very hard to try to correct some of the actions that are occurring. Julie obviously is our system executive vice president and chief financial officer she has been working very closely we've ensured that the board has much more regular reporting documentation quarterly reports that we're actually doing on a monthly basis now cash flow statements that we're providing for that board really trying to make sure that they fully understand the situation that's there certainly review at our level so after something
is done on the Henderson campus it comes to the system office and we do a secondary review to ensure that any kinds of potential errors or things are caught and fixed. We will be utilizing our internal audit function to try to find additional areas. We have recently retained a third party independent forensic auditor to assist us to also ensure that we have uncovered everything and make sure we fully understand what is there. The misstatements and all those things is effectively an overspending issue.
At the end of FY14, Henderson had 120 days cash on hand, which is what we sort of use as our liquidity index as defined by Moody's. At the end of FY18, they had 15 days cash on hand. Currently, it's less than that. And so it's a matter of controlling expenses, and it's also a matter of understanding what those real revenues are. I do believe we're making progress in that. As was noted in the slides, we have made some fairly significant cuts to the budget that we worked with Henderson personnel and recommended to the tune of $3.5 million.
A big part of that has come from our faculty and staff, a 3% cut across the board to salaries and a 4% reduction in the match that we provide to their retirement accounts. And I want to say publicly that the faculty and staff at Henderson have responded in a way that I don't think I could have imagined. I mean, obviously no one loves that, but they've been very understanding, appreciative that we're recognizing the issue and trying to address it moving forward. There were certainly other areas of cuts. Supplies and services were cut by almost half.
No non-essential travel is being allowed. We have a hiring freeze that has to go through multiple levels of review to determine whether or not that is a critical. We have recently implemented an academic cost accounting model. We did a study in our system a couple of years ago with assistance from the governor to look how we could be more efficient. This was one of our great deliverables is to really have much more data and analytics on how we strategically are able to make expenditures. Last spring, Henderson spent approximately $526,000 on adjunct and overload pay.
This spring, we're going to be shy of $50,000 in those expenses. Now, that's not sustainable long-term. We've had to do more drastic cuts this year than what we would probably do in years before. But even if we triple that, we're still going to be talking about a savings of a quarter million dollars or more for one semester. So we really feel good about long-term where we're headed there. We tried to identify some other high-risk areas. One of those certainly is health insurance. Henderson had made the decision, I guess, three years ago to go to a self-insured insurance plan.
They were losing money every year on that self-insured insurance plan. We worked very closely with officials from EBD and other areas in looking at options, made a recommendation to move to a fully insured plan just because you don't have that inherent risk there, and we're able to get a plan that was actually better financially for the university than the self-insured plan was. So we're trying to reduce some of those other unanticipated expenditures and risk categories. and then certainly the accounts receivable which obviously has been one of the most
discussed because of the amount of money and the fact that students were being allowed to incur such huge amounts of debt. I hesitate to say the word policy because I don't think it was really a formal policy but the practice during the last couple of years at Henderson had been to allow students to incur as much as $4,800 in debt before there was a hold placed on their account, not allowing them to register for another semester. But that practice wasn't even always followed.
Speaker 56
29:56
There were some students that incurred far more than that, upwards of
Chair
Unverified
30:00
$20,000 plus. One of the first things that we did when we came on in the MOU was work with the Henderson staff to change that policy. The new policy very closely tracks the policy that we have in our system and what's considered, I guess, best practice in higher education, and that is that a student, a hold is placed on a student's account when they reach $200 in debt. You want to give a little bit of room there because parking tickets,
things of that nature that may come up and you want to work with them, but certainly nothing to the level of $4,800. So we got that policy put in place for this fall, fall 2019, and that applies to all new students and it applies but for old students we're having a kind of we're having to sort of phase in that when you have a student that owes ten or twenty thousand dollars if you tell that student you got to get this down to two hundred dollars they're just gonna walk and you're probably not gonna see any of that and so we worked up a a plan to try to stair step down and
allow them to make payments on their old debt they can occur incur any new debt on top of that but on their old debt let them pay that down as of July 1st from July 1st to yesterday we have actually collected 1,044,201 dollars in that old debt that is a staggering figure to me it really is considering that that we're having to do it in smaller chunks than what you did so we're making great progress on that. 988,650 of that, so essentially all of it, is from those
students in the last couple years in that 4,800. The balance comes from some students that maybe had an old ep and they came back or something. So we are making great progress. Still have work to do on that, but I feel good about where we're headed. We utilize multiple collection agencies. We work with our own staff and really have tried to very closely monitor that and work on those students. It was mentioned that the $6 million advance that was provided by the state, there's going to be some challenges in repayment of that. To be quite frank with you, when that advance was
provided to Henderson back in the summer, it was almost immediately spent. There were about $4.7 million in invoices that were being held that we had to pay off immediately once we got in there. I want to commend Secretary Walter, Paul Lothian, the governor's office. They've been very understanding, working closely with us. We have a plan, but as I said to them, you know, this is going to be a multi-year process of getting this fixed, but we're certainly moving in the right
directions, all the key markers. Remarkably, enrollment has remained strong. We've seen very little downturn in that. I think as of a couple of days ago, we were one student behind where we were a year ago so we're tracking well there and as I sort of joke they're paying so obviously that helps too when you have that going on but I think that that all of the external agencies feel better about where we are one of the bond insurers for Henderson wanted to put a clause in some of their
documentation that we were a little uncomfortable with and so they changed it to say they were unwilling to take that clause out but they changed it to say if Henderson joins the ASU system we will consider this null and void so I think there is some confidence there that the things that we're doing but I want to be very frank this is not going to be fixed this year it's not going to be fixed next year but certainly we're moving in those right directions we feel good about the things that are happening we've got a good team in place that are working well there and I think the progress is something we should we can all be proud of and so with that Mr. Chairman I'll
conclude my statement we'll certainly be open
to any questions. Thank you Dr. Welch. It looks like our first question, Senator
Senator Mark Johnson
Unverified
33:58
Johnson, you recognize her question. Thank you, Mr. Chair. And, Dr. Welch, thank you for your candor and, frankly, for stepping in to your former university and helping them out. As the presentation was made by Mr. Solorio, there were a couple things that jumped out at me. Sure. Mr. Broadway has kept me abreast of some of the things going on,
but a couple things that he hadn't mentioned appeared to be fraudulent things that were put forth even related to outgoing income on the pension side of things that were troubling in their – they weren't just, gosh, we've got a cash flow problem, which was obviously the biggest problem. And the issue of the student accounts being set high, and I guess I should start out by simply asking you,
is that allowed at any other ASU-affiliated institution to go over? You mentioned around $200. Is that a policy that you can't carry anything close to that? Absolutely, Senator. I see Dr. Bobbitt is in the audience, and you can just nod or shake your head, Dr. Bobbitt. Was that a similar policy in the University of Arkansas system? So this was a unique policy that only applied as far as state-supported schools at Henderson State Universities, which, while it might not be the only problem,
Speaker 63
35:27
it was certainly a large chunk of it. And, Senator, I would reiterate, to my knowledge, it was
Chair
Unverified
35:36
never a formal policy. I think it was just a practice that, and why that started occurring, I can't that's a difference that a distinction from oh it is no but I just I want to be I don't think that was something the board adopted or anything of that nature right and I understand but no
Senator Mark Johnson
Unverified
35:53
other institution has that policy or practice to my knowledge yes my last my last question is related to this the stuff that came up on that I mean when you when you say well we
they specifically understated the pension outgo and specifically overstated the pension influx To me, this is a pattern of, frankly, it worries me that it could be a pattern of fraud. And I don't know how that, I mean, there's ERISA implications. There's a lot of things that seriously concern me. Is this something that your new finance people are looking at that we can get a more detailed report later about where that stands?
because theoretically we could have another $6 million problem if that's not checked out and nipped. Are y'all aware of that and on top of that? I'm going to let Julie
Speaker 69
36:52
Yes, sir, we are. And, in fact, we have our own actuarial services for our pension liabilities, and I'm going to have a discussion on Monday to roll them into our actuarial services to begin looking at those numbers great right
Senator Mark Johnson
Unverified
37:07
thank you very much both of you for the work
you're doing i know folks in southwest arkansas really appreciate what you're doing and dr wetts thank you for returning in a different light to henderson to help them out and thank you mr thank
Chair
Unverified
37:21
you senator you can imagine the the smart alecks are quick to say that henderson's never recovered from my two and a half years there so uh i'm having to live through that but i'm proud do it it's an institution worthy of helping and it's an important asset to southwest Arkansas and the entire state and we're certainly going to continue these efforts but I
appreciate those comments thank you senator representative
Speaker 76
37:43
love you recognize for a question thank you mr. chair my first question though well first of all good morning dr. good morning and thank you for for the work that you're doing at Henderson State but my first question actually is for staff because we we discussed the advance on the gr that henderson state received and so who approves the who approves if if we could extend give them an extension or what what uh
what plan is is made for repayment of that gr who approves that i can
Chair
Unverified
38:20
actually speak to that representative love if you'd like sure so um uh what would the discussions we've had to date would be to convert that into a revenue stabilization trust fund loan to give us additional time. There's precedence for that. It was done for, I think, most recently ADEQ that would just be placed in. It gives us a time period to pay it, you know, give us a little bit longer to pay that off. We have worked with the F&A officials.
We've worked with the governor's office. Ultimately, it'll have to be approved by the General Assembly through our appropriations bill during the fiscal session. Okay.
Speaker 76
38:56
want to know that's a great question. Okay Secondly, I know that when we talk about benefits and we cut salaries we cut benefits and it is understandable but I Guess number one. Let me ask you. How did those benefits, you know Across the board. How did those benefits equate to other other?
Systems as far as like say for instance, you cut you cut their
Speaker 83
39:21
pension by four percent, right? How did their pension stack up against ASU's systems pension? It was
Chair
Unverified
39:29
identical. They had the same match that we did, so it's actually 4% less now than what we do at our system schools. One thing I should have qualified, when I said 3% across the board, we did not apply that 3% to our classified staff. Our classified staff are those individuals that are part of the state pay plan.
They're typically our lowest paid individuals, and we did not want to put that on them. It wasn't going to generate enough, so it was only to faculty and non-classified, which are going to be your directors and your administrators, but the 4% that we cut, it actually takes them below what we currently do in our system. We certainly hope, Representative Love, that we can put that back at some point, but we've
Speaker 54
40:10
been very open and honest with the faculty and staff that it's going
Speaker 76
40:13
to take some time. Okay, well, that was my next question because I'm worried about if you go too long, then the retention of your professors
Speaker 81
40:21
and different things like that absolutely no we're
Speaker 76
40:23
sensitive to that all right that was it thank you
Chair
Unverified
40:27
thank you mr chair that will be our top priority is trying to to i mean obviously we're going to pay our debt and those kinds of things first but our second top priority will be to ensure that we can
get that put back in place as quickly as possible thank
Senator Mathew Pitsch
Unverified
40:42
you dr welch senator pitch you're recognized for a
question thank you mr chairman And Dr. Welch, you and Dr. Babcock have both sat in our Education Audit Report meetings, and we thank you for that. And I thank you for taking this on.
But oftentimes the horse is out of the barn at this phase, and that's the case with Henderson. So what I guess I'm asking for from you and from the UA system and all the others, how do we keep this from happening again? the key thing to get done here because we we heard presentations in my short tenure down here of a little over five years about how we had this thing fixed we need this grant from the state we gave that money to bail out and yet a
lot of these things we're dealing with now I had to have been already in play not under your watch but in play and I think that's something that you can counsel us on because on our committee i chair that with representative barry we focus more on how does this never ever ever happen again and i don't know what the answer is and i wouldn't put you on the block to answer do we have some of our other fine institutions in this same fiscal
distress at the higher ed level but we've got to figure out how to get to this earlier than oh my gosh look where we're at
Chair
Unverified
42:09
now. I agree and I can tell you that some of the things that we do first of all we try to be as proactive as possible at all times internal audit is a very important component of our operations and I know the same can be said for the University of Arkansas system in fact over the last few years the vast majority of our legislative audit findings were
previously found by our internal audit function so you try to identify on the front end we do that through risk surveys and a lot of different ways that we determine what we're going to look at and then of course you have things pop up secondly is you know utilizing those external agencies Moody's investor services has been mentioned multiple times today we we provide those reports to our board we utilize Moody's calculations as part of our strategic plan so you know days cash on hand so that is so if if Henderson for example
if you'd seen that 120 days go to 85 and go to 60 and go to 40 we would have known something's going wrong here we've got to reverse this thirdly I'll use our Jonesboro campus they had a slight decrease in enrollment this year that resulted in a little over a million dollars in lower than what they had budgeted for now they could have probably just absorbed that or said oh well we'll just worry about it with reserves you know and move along they made the decision probably knew they didn't have a choice but made the decision we're gonna cut right now in
this year that amount and not go to our reserves and touch those kinds of things so some of it I think is just discipline making sure that you're looking at data constantly and just trying to be as proactive as possible and and fortunately we've had instances where we've said to our campuses hey we don't like the way this is trending we want to plan for how to trend this back in a different direction to constantly
Senator Mathew Pitsch
Unverified
43:57
stay on top of it follow-up yeah you're recognized help help me or help this group the
actions you took at Henderson the cutting salary the cutting benefits that lower adjunct pay right I didn't
get them all written down sure but I feel fairly strongly that we've got other academic institutions that are on or headed towards the line of distress that should probably be looking at their outflow as one of my colleagues mentioned long before we get into the trains in the ditch and maybe this is the forum to say folks you don't want to sit in that chair as the past president of Henderson had to you need to go make those tough calls now if you're seeing
that come and that comments to that because I do think that's probably the answer to not having this happen again I think that's a great point
Chair
Unverified
44:46
and something else I would say to that that I failed to say earlier that kind of goes, speaks a little bit to Representative Love's question. You know, there are cuts that can be made within an academic year, and then there's cuts that really can only be made for the next academic year. If you want to look at program production, if you want to look, it's kind of difficult to cut some of those in the middle of a year when you've already got students enrolled. We plan on fully looking at those for the next year, so we'll be able to move in some different directions.
We're going to move, I think Rita has said maybe as early as Monday, she'll be distributing the documents to the campus to a zero-based budgeting process for Henderson to go back and really look at every dollar and determine strategically whether or not it's important. So there will be a whole different level of potential cuts and things coming for the next year. But I agree with you, Senator, that it's something we need to be looking at constantly and making immediate changes.
All of us do, absolutely. Dr. Welch, I have a question. Given your experience with higher ed and your
intimate knowledge of this situation specifically who would you say is ultimately responsible for where we ended up that's that's a great question and
Chair
Unverified
45:58
thousand times I'm not sure I know the answer to that I don't know who made the final decisions this is what we're doing and we're going I mean there's a lot of assumptions that you could make is it people in the finance department is it people in the president's office is it people in academic administration it's just very very hard to tell and one of the problems is it was so widespread
across different areas i mean where it just wasn't being uh managed properly but i think some of that is just a matter of um not appropriate amount of reporting oversight i mean the board is obviously one that some individuals have indicated well they should have known i mean some of that comes down to reporting. If we're going to be very candid, in May of last year, the board received a document that we have reviewed that indicated they expected, the Henderson expected to finish fiscal year 19 with about a $26,000 surplus in ENG. That was in May. Fiscal year is going to end
in six weeks. Henderson finished FY19 with a $4.9 million deficit. So the board's making decisions with false information i mean that was certainly that was certainly not accurate um i mean raises were given based on that information and um you know which exacerbated an already bad situation so you know there's just so many different pieces that that were challenging and of course budgets are estimates i mean we know that but obviously that's a pretty big swing so i mean that's the kinds of things that we've looked at and have just said we're going to be
extraordinarily candid transparent and open um it was suggested to me early on when we got involved we don't need to air a lot of dirty laundry and i said i think that horse has already left the barn i mean i think you know right now the best thing we can do is just lay it all out there make everybody understand get greater buy-in and greater participation and helping us work through that and as i said earlier to their credit
that's exactly what the faculty and staff have done would you say that those that false reporting had any fraudulent tones uh i'm just curious i really
where did the false where those numbers come from i guess
is my question if the board was making decisions with i mean that's what a 20 30 million dollar sling overnight i just find it hard to believe that somebody somewhere didn't have a clue yeah and sure I'm just
Speaker 106
48:23
curious how we get you know you've been through it now I know you know how it
Speaker 56
48:30
works I think certainly the absence of regular board reporting was problematic and that's something that we're already trying to
Chair
Unverified
48:37
address by I mean the Henderson board did not receive quarterly board reports which is something we provide to our board every quarter they didn't risk I mean they essentially approved a budget and then saw the year-end documentation they didn't get provided with some of those external entities so that absence certainly hurts clearly there were some challenges within the budget part of that was something that we don't allow in our system which is budgeting of future enrollment growth and then when that enrollment growth didn't materialize
you're immediately in a hole we don't allow that I mean the the best will allow our campuses to do is budget based on the prior year's actuals. We prefer they budgeted about 98% or so to give a little bit of room in case you have a little downturn because we've seen that downturn in higher education. So some of it was just the infrastructure, the policies, the parameters that were placed into that budget setting. But I'll be very honest with you. I bet I've said I don't understand a million times because some of it I just don't understand how
this happened why it happened how it got there and unfortunately a lot of people that are still on campus also we're not privy to
that and don't understand that either okay I may have a question in a minute
Senator Kim Hammer
Unverified
50:00
but I appreciate that we'll move to somebody else center hammer wherever you are you're recognized thank you mr. chair to the point that was just being discussed how many of the people that were in key decision-making positions that should have known about this and should have been more forthcoming are still employed by the university or did
Chair
Unverified
50:15
you let those individuals go once you identified who they were? Senator, I believe those individuals were already gone. I will tell you that one of the things that we have learned is that there was there was a lot of silos that were built. Information wasn't exchanged across different departments and lines as we would ordinarily be accustomed to and so where you might say why didn't individual A know or why did individual B know, there are times that they didn't have access to the information themselves and so it is my firm belief that the individuals that
would have known are no longer employed at
Senator Kim Hammer
Unverified
50:48
the institution does that include dr jones yes okay and then why didn't audit pick up on this sooner that the flags would have gone up the poll quicker to where you know we would have at least become exposed to it or or others and what about their auditing procedures that it seemed to be a breakdown in the process so of course henderson didn't have an internal
Chair
Unverified
51:08
audit function as an independent institution that they will now enjoy because of us. And so the audits that they received came from legislative audit, and that would be a
Speaker 97
51:18
question I would ask legislative audit may want
Senator Kim Hammer
Unverified
51:23
to address. I'll come back on that one. One more, Mr. Chair, if I may. The students who have stacked up the debt, listening to your explanation, some of it may be their fault some of it may have been the university's fault that they allowed them to keep you know incurring debt and everything so with regards to the payback program and everything are we charging them interest or are how how lenient are we being
with those students without being overly lenient right right so that they can just walk away for what's their part we
Chair
Unverified
51:59
are not charging them interest senator um and you're exactly right for some of these students i mean you know they were allowed to do it and uh um with regards to leniency um as i said earlier we have a stair step program um we had one young lady who owed twenty one thousand dollars um i can tell you that now she's had some and and she came in and
paid $10,000. And that didn't quite meet our policy per se. But I said, if she's going to make a $10,000 policy on one day, let's try to work with this individual. She has since made another $12,000 payment. So she is actually now down below that amount. So we're really trying to be as open and flexible as we can be while also having some standards and making sure the situation doesn't get worse. Because you're right, for so many of them, I mean, they were given that opportunity and they took it and so we're trying to work closely with them for new students and
certainly we still have payment plans available for students where they sign promissory notes and they pay you know over maybe four payments during the semester or something of that that's not uncommon and and we've not had any major issues with that because we're but we're really having to be much more disciplined and focused on working with those students and then some of it's just been very hands-on by the staff working with the students explaining their options financial aid I failed to mention financial aid earlier the first week of August of 2019 Henderson still had
1,000 students awaiting their financial aid verification that same week Arkansas State and Jonesboro had 14 students awaiting their financial aid verification and you've got four five times the students so that's been a real problem and obviously that adds to your accounts receivable issue i'm happy to say that as of wednesday of this week every single one of the spring students had had their financial aid processed and submitted and so we've made great
progress still got some work to do there as well but that's another complicating factor that even when you're allowing the students you're making it even worse by not having access not counseling with those students on what it is certainly very careful not to say well just take out much more loans you know because we know that's not good for anybody either so it's working with here are the different scholarship opportunities have you completed your lottery scholarship application have you applied for this have you done this so it's really a lot more hands-on counseling and working with students we've had to bring in people from our recruiting call center to help with that
i mean there's been a lot of hands on deck but but but it's
Speaker 56
54:35
paying off and and it's something that you know we're going to continue to look for
Senator Kim Hammer
Unverified
54:40
ways those processes can be improved well i'd like to commend you for stepping in and taking it on and doing a good job what appears to be up till now mr chair could i get some input from legislative audit as to why it escalated based on testimony today uh to the point that it did without any earlier indicators that might have alerted to us to this situation yes sir
Speaker 124
55:01
uh yes this is patrick new with a deputy legislative auditor for
educational institutions. Of course, we're a post-audit agency. We're usually six months to a year after the year end. Most of the negative trends that appeared, although they had a negative trend since 2015, the significant negative trends were within the last two years, which are in the audits that we presented today the 18 and 19 audits and as JJ had brought up
earlier one of the for example for instance the cash had decreased from 14 million at 6 30 15 to just under a million dollars by 6 30 19 but the majority of that decrease was within the last two years of 9 million dollars so there was no issue before the 18 audit with a going concern at that time those those issues popped up in the 18
Speaker 125
56:03
and 19 audits okay thank you and if i may
Senator Kim Hammer
Unverified
56:08
mr chair ask one last question of
audit did was there anything that indicated there's a difference between just poor mismanagement and fraudulent activities was there anything that you found that is not in the report that would indicate that there were fraudulent activities involved in the processes down there that got HSU to the condition they're in or are we just chalking it up to mismanagement? No
Speaker 129
56:37
sir there wasn't any evidence of any fraudulent activity with this with these negative trends it was just kind of
mismanagement. Okay thank you thank you Mr. Chair. All
Chair
Unverified
56:50
right, Senator Hickey, you're recognized. Thank you, Mr. Chair,
Senator Jimmy Hickey, Jr
Unverified
56:55
and my comments are going to be along the lines of what everybody's just talking about. I guess the first thing that I want to point out, and I don't know if staff can put it back up there, and I'm going to stop short of saying fraud, unlike what that may be. I know that it looks like to me it was definitely intentional, and we can sit here and say mismanagement, But if you look at the interest part, it looks like to me that there was an understatement on the amount of interest.
And I understand some of the other items could have been subjective, you know, as far as tuition and things like that. And, Dr. Welch, I know that this is a question you can't answer, but I'm going to ask it. okay how do you understate interest on your long-term debt by seventy two thousand dollars because that's as easy as an amortization schedule there's not a business one that doesn't pull that
and just knows that's how they're going to enter it in their books for that year is this going to going to accrue and that's and again there's numbers that are a whole lot larger than that but from an interest misstatement i would think that that would be huge any idea on how much debt was there at that particular time so that we'll know how that equates to the principal amount so that to figure the understatement on that let her look
Speaker 121
58:23
one second senator she will look that up
Speaker 69
58:35
They have $62 million in debt outstanding as of June 30th,
Senator Jimmy Hickey, Jr
Unverified
58:50
2019. Okay. And that was basically the same back during the audited period? Yes, sir. Okay. One additional question, Mr. Chair, if that's okay. back the board the board that was there whenever all this was transpiring those
particular board members how does that relate to who is still there so and I'm gonna go one step further I can say who's ultimately responsible it is the board I mean and that's one of my things we sit down here a lot of times and Everybody's appointed to boards and commissions, and they get their name and picture in the paper. But whether it's this or other things, they have got to start realizing they have a fiduciary responsibility. So I apologize for cutting you off. I had to make that statement also.
Chair
Unverified
59:41
No, I understand, Senator. The governor just made one new appointment in January, so six of the seven were preexisting. I would point out, Senator, that once Henderson joins our system, that board will no longer exist. And because of the interim management plan, while that's still the formal governing board, we're operating in a little bit different manner. For example, we are about to launch the chancellor search for the permanent CEO of the institution.
And while the board is, again, still the formal governing authority until the merger is final, In the merger agreement, it clearly says I leave that search and make that selection. And so we're trying to put in that interim as well. But for the next year or so, it would be six of the seven that were there, Senator. And
Senator Jimmy Hickey, Jr
Unverified
1:00:30
do we have an approximate date that all that's supposed to take place? And if you said
Chair
Unverified
1:00:35
that, I apologize. No, no, no, no problem. Probably going to be January 1, 2021. And, again, just because of our regional accrediting agency, it's a maddening process.
I'd love to get it changed. I got hung up on by the regional accreditors for complaining about the mountain when we took ASU Three Rivers and Malvern. We submitted our information in February, and they didn't get it approved until December the 16th. There's no reason it should take that long, but that's the only thing really standing in our way. Right now, we will have to have a few legislative changes made to eliminate that board and some changes in code, but we're acting now, Senator, as if that's already occurred. It still may not
Speaker 56
1:01:13
be formal on paper, but we're certainly acting as if they're an active member of our system.
Senator Jimmy Hickey, Jr
Unverified
1:01:19
Okay, and I was in reference to the interest here. Was the debt also misstated on the balance sheet? So the debt was correct. It
was just the interest that was misstated, interest and fees. Yes, sir. And I
Speaker 69
1:01:33
will say that typically we have set templates that we use at the system when we do our consolidated. So a lot of these errors, I think you're going to find, are going to be cleaned up pretty immediately. Okay. Moving forward.
Thank you, Mr. Chair. Representative Gonzalez, you're recognized for a question. Thank you, Mr.
Representative Justin Gonzales
Unverified
1:02:02
Chair. Mr. Wiltshire. Yeah, over here. I see. I know you didn't want to answer the question about individuals responsible for this, but you did mention that you believe the individuals responsible are no longer there, but the board is there so can you tell us who is no longer there on the board no who is
Chair
Unverified
1:02:19
no longer there at the university well I mean I think in any institution you would look at the president
of the institution and the chief financial officer when you're talking about these kinds of issues and I mean whether how much they knew or when they knew it anything to me is almost irrelevant because those individuals should know and that's part of that responsibility but the president and the chief
Representative Justin Gonzales
Unverified
1:02:39
financial officer no longer with the institution okay so are either one of those individuals still drawing a
Chair
Unverified
1:02:46
salary from university um no the president uh had a separation agreement but that is now being funded with private funds until that runs out um he no longer lives in the
Speaker 56
1:02:55
campus residence or anything of that nature and the chief financial officer has actually
Representative Justin Gonzales
Unverified
1:03:00
moved out state okay i'm a little confused how is he funded by by private funds who who is the henderson foundation it's
Speaker 154
1:03:08
coming through the henderson foundation okay all right
Speaker 155
1:03:16
uh looks like senator garner you're up next thank you mr
Senator Trent Garner
Unverified
1:03:21
chair give me one second okay i had a question from a member senator davis who's not
here so i'll ask for her she said when hsu came before us in 2019 they we were told that you're having an interest-free loan from the state will be paid back by the end of the fiscal year there seems to be discussions that between dfna and the governor's office that to extend the payment period over a three to five year period can you tell us in detail what is the change from the initial payment terms and if this
Chair
Unverified
1:03:52
timeline is correct um so so the advance senator comes
with an automatic june 30th of that fiscal year repayment deadline um when we when we came into this process started looking at it realized that there was 4.7 million in held invoices immediately That $6 million was literally gone within a couple-of-week period. And so what we have asked of DF&A is to have some grace of extending the timeline to pay that back. The time periods are accurate, I think, that you're describing. There's been no definitive decision made, obviously, because that's something that the General Assembly will have to make on how many of those years are.
But it was a situation, like I said, there's been precedence of other agencies doing that. um and you know we weren't we weren't part of this equation when the six million was originally requested and now we're just trying to figure out how we can work through that follow up mr
Senator Trent Garner
Unverified
1:04:49
chairman nice uh so if that is approved explain the process to us also we'll understand when we have a the authority or the authorization to do that how's that process work from here on out if dfna improves it what's your process on your end how would that work sure so
Chair
Unverified
1:05:03
So ultimately, the General Assembly has to approve it. DF&A can't unilaterally approve it. The governor can't unilaterally approve it. They can recommend it or say they think this is a process that can be done and would be done. The General Assembly would have to make that part of Henderson's appropriation during the fiscal session for the next year, and then we would have a timeline for when that money had to be repaid. Okay. Thank you,
Mr. Chairman. Representative Fortner, you're recognized for a question.
I'll try again there you go well can you grab the one next to you maybe try that one it well representative Gonzales could you get yours on they can jump over again okay how's that
Speaker 165
1:06:09
okay perfect thank you it was me not the microphone thank you for coming and being frank with us uh what's the graduation rate at school i do not have that
Speaker 56
1:06:19
information information for i can certainly get it for you is it could you give it
Speaker 165
1:06:23
to me roughly do you have any good guess i don't even
Speaker 56
1:06:26
know if i know that um i don't i haven't looked at those numbers in a in a few years um since i well nine years since i was there i
Chair
Unverified
1:06:35
guess so i i i would hate we could probably look that up pretty quickly and get back to you in a couple minutes okay i just wonder if
Speaker 165
1:06:42
if there's any correlation to the teaching and the managing. If you could get that, I'd be interested. Thank
Chair
Unverified
1:06:50
you. One of the things that we would point out is actually they have received increases in productivity funding in the most recent productivity formula that was run, which obviously indicates that they've made some progress. For the next year, they actually do not receive new funds, actually lose funds, but it's to the tune of about $16,000, dollars which can just be a handful of students so I think that if you look at
their productivity over the last few years it's remained at least static if not improving in most cases but we'll get you an exact number on that
graduation figure as well. Thank you. Thank you. Representative Gene
Speaker 172
1:07:31
you're recognized for a question. Thank you Mr. Chairman. Mr.
Representative Lane Jean
Unverified
1:07:35
Welch how are you doing today? I'm doing well thank you. We saw a sample and I think the henderson enrollments around 3 300 how many students owed over 4 800 or that 3 300
Chair
Unverified
1:07:47
exact number we'll get that number for you real quickly um it was i don't know if legislative audit jay do you have that handy
Representative Lane Jean
Unverified
1:07:57
we just had a sample size of what they right right
Chair
Unverified
1:08:00
right i'll get that for you they're going to get it right now so i
Representative Lane Jean
Unverified
1:08:04
don't remember the exact and also most policies of 200 how many old old over 200 oh I mean are we talking that one as well I'm sure that's a very big number over half the student body you think in old death though I
Chair
Unverified
1:08:20
don't know that could be accurate but we'll get you
an exact number all right I don't hesitate to and one other
Representative Lane Jean
Unverified
1:08:26
question I think you said you had 1.1 1.3 million
collected 1 million 44,000 1 million forty four thousand is that a net or on top of the collection fee services taken out of that that's gonna be the gross
Speaker 179
1:08:39
right oh okay yeah that's net that'd be
Speaker 178
1:08:45
the net yes okay thank you representative right you're recognized
Representative Johnny Rye
Unverified
1:08:53
thank you mr. chair sir just so that the public actually knows exactly where we're at with this situation you know we're talking about the deficit here right okay then you're talking about scholarships and you have loans then you have federal government that's probably involved in a lot of the folks going to school um on the federal loans and
on the college loans where what percentage do you think that would be and well the college doesn't issue
Chair
Unverified
1:09:26
loans per se representative I mean certainly you know allowing a student not to pay could be considered a loan I guess but they don't issue formal loans we have not decreased any of our scholarship amounts for the students because we feel comfortable that's a promise we made to them and we're going to try to work through that but none of that and then of course federal loans are based on a whole different standard that comes from federal government as
Representative Johnny Rye
Unverified
1:09:55
As you said, just to make it easy for everyone to understand, the biggest part of this deficit,
what do you think that is occurring from folks that actually are just going to school and maybe not being able
Chair
Unverified
1:10:08
to pay or what? I think the biggest part of the deficit, Representative Rye, was just overstating revenues and understating expenditures. It was a situation where the institution was spending more money than they
Senator Linda Chesterfield
Unverified
1:10:19
were bringing in and not adjusting to that thank
Speaker 95
1:10:23
you thank you mr chairman uh representative uh scott i think you're up next
it's actually better than state average look at state average i can't hear you
members i'm sorry about these well we're having trouble i don't know that moving over is helping or not today where'd you get that
Speaker 191
1:11:04
try that one please okay thank you mr welch um i just want to thank you
Speaker 193
1:11:17
for your leadership and um this is a lot that y'all are taking on. I know it can't be easy. I think as I watched the presentation, I thought about the students because I
Speaker 194
1:11:27
remember when I was in school, my father passed away and I was trying to figure out how I was going to pay my balance to go back the next semester. So I appreciate you
working with the students because as a young adult, I was trying to figure out how to make payment plans now that my father normally took care of for me. And so there are students who have stories connected to these balances and so I appreciate your leadership and thank you for thank you for working with the students you got it you got it I appreciate that that's very important and
Speaker 56
1:11:57
you're exactly right because uh and and I will say they've responded and I appreciate that if I might Mr. Chairman
Chair
Unverified
1:12:03
Representative Fortner to answer your question the graduation rate at first time full time uh for Henderson most recently was 36 percent the national um average is 33
Speaker 56
1:12:11
so they're actually slightly ahead of the
national average all right senator Chesterfield you
Speaker 198
1:12:23
recognize for a question thank you mr. chair and good morning morning
Senator Linda Chesterfield
Unverified
1:12:28
senator I'm from Hope Arkansas God's country and that's right I know the value of this institution to those young people in southwest Arkansas and representative Scott has gotten to the heart of the matter for me what happens to our kids right we've got to be diligent about the
money I am one of those hawkish persons about spending but I do appreciate the fact that you are working toward solutions there has been no indication of fraud there has been an indication of inadequacy of management I'll put it that way right going forward you have put in place I hope those things that will make it possible for this university with its great history to continue to serve those kids what percentage of those kids parents are below the poverty level oh man i don't
know even where we'd have that it would be high senator we'll try to get an exact number but it would
be a high percentage but as we move toward it are we making sure because it's always amazing to me that some kids don't realize that if they don't qualify for the lottery scholarship the first year if they do the 27 hours and the two five they qualify the next year are we making sure they're aware of all of that through our counseling yes because we've gotten so into the everything is online that the one-on-one counseling right is is disappearing to some extent are we
Chair
Unverified
1:13:53
making sure absolutely actually calling students directly because i'm sensitive to that senator i was first generation college student and so my parents knowledge of how those processes worked with those words was limited as well-meaning as they were they didn't have that um the the fortunate enough to have that background so we recognize that certainly have a lot of first generation college students and and so we are trying to be as hands-on and personal as possible to help them work through this reaching out to them being proactive and uh so absolutely because you're exactly right well i anticipate
Senator Linda Chesterfield
Unverified
1:14:24
great things for henderson state university we do as
well senator even though i graduated across the
Chair
Unverified
1:14:30
street we won't hold that against you senator We like them every day of the year, except when we play in football, basketball, and other sports. So, otherwise, we're friendly. All right. We wish you well. Thank you.
I appreciate it. All right. Thank you. Senator Stubblefield, you're recognized.
Senator Gary Stubblefield
Unverified
1:14:48
I think your mic's not working. Sorry for all these troubles. While
Speaker 56
1:14:52
we're working on that, I'll tell you, Senator Cheshirell, 87% of students receive some grant in aid. So, a very large percentage.
Senator Gary Stubblefield
Unverified
1:14:58
I'm sorry, Senator. No, you're good, Mr. Welch. Mr. Welch, what was
Chair
Unverified
1:15:03
the salary of the president? It was approximately $230,000.
Senator Gary Stubblefield
Unverified
1:15:06
And when was the last time he received any kind
Chair
Unverified
1:15:10
of raise? Ooh, last time he received a raise. He did not get one during this fiscal
Speaker 54
1:15:16
year, correct? No administrator got one during this year, so it would have been two
Senator Gary Stubblefield
Unverified
1:15:21
years ago. Do you know how much general revenue you received, Henderson State received, during 2018?
I can get that for you. It's $21 million. $21 million? Yeah. you know how much you received in 2019 with the six million that's 27 million if right if we if you stood if you had to stand before the arkansas taxpayers and give an account for stewardship of these taxpayer dollars what
Chair
Unverified
1:15:52
would you tell them i would say uh senator that um the institution in the last few years has not been good stewards of
those tax funds but moving forward we intend to correct that and be extraordinary stewards of those tax funds all right if
Senator Gary Stubblefield
Unverified
1:16:04
this had been a private business and they uh took care of business like this university did they would be out of business or file bankruptcy would you agree they would have a lot
Speaker 153
1:16:17
of challenges yes sir it would be tough but we've cut
Senator Gary Stubblefield
Unverified
1:16:19
a lot of slack to hire yet haven't
Speaker 54
1:16:22
we um the state's been very um they've assisted this institution very well yes sir? Well, I'm
Senator Gary Stubblefield
Unverified
1:16:28
going to say, I'm going to make a statement. This is a perfect time for the
legislature, I think, to start holding some of these higher ed institutions who receive millions and millions of dollars, public dollar, taxpayer funds, to hold them accountable for these kind of financial fiascos. And that's what this is. That's exactly what this is. We're not talking about hundreds and we're talking about hundreds of millions of dollars so I just think that the legislature needs to look into this because some of this doesn't seem accidental to me
it's very difficult in the age in which we live to get to the truth and it's very easy to make things that are illegal seem legal in this day and age in which we live I appreciate you being
here, Mr. Welch. Thank you, Mr. Chairman. Representative Gonzalez,
Representative Justin Gonzales
Unverified
1:17:28
you're up again. Thank you, Mr. Chair. So it still bothers me that this guy is getting paid anything, the former president of the university. And I know it's partially due because he had a
five-year contract that the majority of the board approved. I know there were at least two dissents to that decision so would you recommend any changes to university president contracts legislative changes that would help address that
Chair
Unverified
1:17:54
i think um so so let me maybe explain to everybody representative gonzalez i know you understand but um the the henderson board um back in july i guess when the president resigned um had a negotiated separation settlement with him
this was prior to when we were involved with the institution half of those funds were to be paid he was to take a one-year sabbatical as a tenured faculty member and then you know depend what goes from there half of those were paid from the fall semester was paid from public funds the spring semester was to be paid from private funds so that's where we are right now I don't recall you know more better than I do I think it was probably five years I think the five years probably really wasn't the relevant part the relevant part was the lack of language in the contract
that directly spoke to the board's ability to terminate four calls and things of that nature the contract itself wasn't nearly as detailed or provided as many protections for the institutions as the contracts we utilize for our system chancellors are or that i know i can speak for the u of a having gotten one of those from the u of a in years past so we'll certainly be be converting that. I think that anything is just to ensure that appropriate language and protections are in place so that the institution can make those terminations with cause without
fear of, you know, lawsuits or things of that nature. I
Representative Justin Gonzales
Unverified
1:19:20
know you and I have had this conversation. Oh yeah, absolutely. So would you recommend any legislative changes that would just be just covered across the board to protect state dollars from going into this? I think if there was going to be any legislative changes it would it
Chair
Unverified
1:19:33
would be to ensure that appropriate language exists about termination for calls and things of that nature because that really addresses any of the other issues that are there okay thank you and we can i'll certainly be happy to work with you on that if you'd like to and i appreciate what y'all are doing too i don't i think y'all
are doing a great job i appreciate you appreciate you staying mr chair i've got representative gene's questions um to answer so representative gene as of august of 2019 there were 268 students who owed more than $4,800. There were 767 students who owed between $200 and $1,000. That's the way that's crafted with an average balance of $413.82. I should clarify one thing. 200 is when we put the
hold. What most institutions will do is if it's between 200 and 1,000, if there's some, you have to go to a certain committee, there has to be a plan, there's got to be some justification, they may work with you a little bit but for most students it just stays in that small area but 268 for over 4,800 767 that we're in that other category
Representative Julie Mayberry
Unverified
1:20:45
representative mayberry you're recognized for a question
thank you mr. chair appreciate you answering all these questions we we as members
understand that we really can't ask you certain questions because you can't answer them. And that kind of leaves some of us with just a very frustrated. Understood. And we don't expect you to come up with the answers for these. So I would like to make a motion that we hold this audit and treat it as presented, as not, I'm sorry, treat it as not presented, and to ask Lynn Jones, the former president of the university and Brett Powell who was the finance and administration director to come to
our next meeting on February 28th and to ask them kindly to come and if they don't kindly come that we subpoena them to be here to answer those questions so we can wrap this up and make sure that this does not happen again. All right may I I'm not
sure how we do this but may I add to your motion that miss miss kneebone who's been at the university through the entire process and did she be here sure at the same time absolutely i think she might have a lot of insight absolutely
okay so that that i believe that motion is on the table senator hickey you recognize
Speaker 227
1:22:12
i apologize for jumping into that but would
Senator Jimmy Hickey, Jr
Unverified
1:22:15
it be would it be prudent if if we are going to pass a motion like that to include the chair of the board let's just have
an open discussion among members it honestly i'd like to hear everybody's thoughts it might be prudent to have the entirety
of the board show up also it
Chair
Unverified
1:22:37
could be it's just if we're going to
Senator Jimmy Hickey, Jr
Unverified
1:22:40
have them here i mean again and i know i made the comment earlier that unfortunately the buck does stop with that board uh so ultimately you know this was their fiduciary responsibility so if we are going to go down this route i think that we ought to uh ought to proceed and do our due diligence that way just a comment thank you
Representative Mayberry, after a little discussion, maybe the best route would be to change your motion to go ahead and subpoena
dr. Jones dr. Powell and the chairman of the board go ahead and subpoena those three and just invite the rest of the board and Ms. Kneebone and ASU people to come at the next meeting? I would agree
Representative Julie Mayberry
Unverified
1:24:16
with that. Do I need to take my motion away and remake the motion?
Or can I just amend the motion? Just amend your motion on the floor, please. I amend the motion that we will treat this audit as not presented and that we will ask the former president of the university, Glenn Jones. Subpoena. Subpoena. okay uh glenn jones brett powell and the president of the board to be here and they will be subpoenaed the
other members of the board will be asked to be in attendance
and and and we'll invite miss kneebone and asu yes Senator Chesterfield you recognized here
Senator Linda Chesterfield
Unverified
1:25:12
the chairperson of the board has one vote and one vote only he or she just happens to be the chair why is the chair being treated differently than the other members of the board who make up the
majority of that board why is a subpoena being issued to that individual and not the others who are the majority of the board which has made the decision
do you want to answer well I I think what has been presented to me and was
Representative Julie Mayberry
Unverified
1:25:45
just shared is that having all the board members speak it might be a little cumbersome to have all of them we would ask the those other members of the board and has been also asked to include the vice president of the board as well so maybe
be two of the members of the board, president
Senator Linda Chesterfield
Unverified
1:26:02
and vice president. This was not your original motion. The motion to subpoena came from
Speaker 242
1:26:06
the chair. No, I did have subpoena in there. She's
Senator Linda Chesterfield
Unverified
1:26:10
amending the motion. She amended the motion. She said to ask. That was the original motion. And then the suggestion, excuse me, then the suggestion came to say subpoena. Whoever said it, I'm trying to figure out why, if we're going to delve into this more deeply than we have today, while all of the members of the board are not being treated the same.
The chairperson makes no decisions without a vote of the majority of the board. So my concern would be that that individual is being singled out for a particular request that is not being given to the other members of the board. And having chaired committees, sometimes you have some power, sometimes you don't so I'm just wondering why we would not treat them all the same that is my only concern thank you senator I would I
would I note your concern and I don't think it's invalid the
I think the point is we don't want to be issuing subpoenas willy-nilly and all of the members will be invited and I'll give you my word that they'll have an opportunity to speak or defend themselves or whatever they feel is
Representative Julie Mayberry
Unverified
1:27:19
necessary that day and and if if it's okay if I clarify I did in my original motion say that we would ask and if they don't come then subpoena so I did have that in my original motion that I made but you know we could always have those that we've we would subpoena
and then if we feel like we need more information and delve into it more then we invite more to come back but I think having all of them here subpoenaed would be kind of cumbersome Mr.
Speaker 101
1:27:50
Sherwin. Dr. Wilt, you recognize the comment? I
Speaker 49
1:27:53
might ask, too, for a clarification, and I realize I misspoke to, I believe it was
Chair
Unverified
1:27:58
Senator Hickey's question earlier. I said that one member was appointed in January. There were actually two new members appointed
last year. I wasn't thinking correctly. We had one come in January and one come in the middle of the year because of a resignation. But to that point, so those individuals came in laid in the process to that point though representative maybe i guess we might want to clarify which board members do we want you know the ones that do you want the one that just got appointed or you want the one that just went off and do you want you know that
Representative Julie Mayberry
Unverified
1:28:30
sort of thing so well the the motion was for the president of the board and is that president of the board the same one that was there in 2018 and 2019 so that would be the same so the other board members do
Speaker 250
1:28:43
subpoena there at the end of the most recent
Representative Julie Mayberry
Unverified
1:28:45
calendar year and then all the other board members past or present we can invite to have them here perfect and be
in the audience perfect uh center hickey you're recognized
is it is it on center hickey you're out
Representative Justin Gonzales
Unverified
1:29:16
gonzalez are you yeah thank you so i think uh mr welsh just made my point that i know at least one of the board members that was on there at the time is no longer on the board so i just wanted to clarify make sure that we were we were getting the board members who were on the board at the time all this went down so okay i think we got that clarified yeah i
think so yeah i'm gonna say something representative stirs do you have a question or comment senator i'm
Senator James Sturch
Unverified
1:29:47
sorry that's all right mr chair thank you i i'm an alternate so i had a procedural
question i suppose um to representative mayberry's motion she's wanting to treat this report as if it was not reviewed so then procedurally what would that entail as far as are we just then giving ourselves another opportunity to have them come or is it actually holding up anything or delaying any kind of you know pressing charges anything like that or yes sir that's exactly it we'll just it'll stay it'll be an item
on the agenda on the agenda for the full audit committee next time okay thank you sir
correct uh are there any more questions or comments about where we're headed
Speaker 56
1:30:28
mr chairman i did want to make one more point i'm not sure if i clarified this closely
Chair
Unverified
1:30:33
enough earlier but acting president kneebone is in attendance today she was on the list um i didn't make her come set up here and listen to me but she was certainly here and available for questions today and will be at other times and i just
want to make that point i'm sorry if i didn't thank Thank you. Along those lines, she is here, but I think she's more than willing to come back next time. So if a member has a specific question for her today, I am happy to call her to the table.
But I know she's more than willing to be back next
Speaker 162
1:31:06
time. Are we good with just waiting until we review next time? Okay. all
right so i guess uh representative mayberry i hate to do this to you could you could you just start walking us through your motion just for clarity
so everybody in the room is on the same page and we we
Representative Julie Mayberry
Unverified
1:31:26
know where we're going so my motion is to treat this audit as not presented
and to subpoena glenn jones brett powell and the current board president and send a letter of request of attendance to the previous board members from 2018 2019 and current board members as well as miss am i saying it correctly nebo nebone okay that sounds like an appropriate motion. Do I
have a second? Second. All those in
favor say aye. Aye. All opposed, no. All right.
Thank you. That motion carries. Dr. Welch, I appreciate y'all being here today. I know this is tough to answer a lot of questions you might not have all the answers to. And just for the record, I'd appreciate it if you guys could make it to the next meeting. Absolutely. We'll be here. Absolutely. All right. Well, thank you very much. I appreciate you. Thank you, Mr. Chairman. All right, members. Thank you. That will take us to item D2, special report on the Arkansas School for Mathematics, Sciences, and Arts. Mr. Thompson is going to present
Speaker 113
1:32:40
that report, and you're recognized as soon as you're ready.
Senator Mark Johnson
Unverified
1:32:55
Thank you, Mr. Chair. This presentation covers a special report issued pursuant to a motion approved by this committee for legislative audit to review the financial records of the Arkansas School for Mathematics, Science, and the Arts. Established in 1991, the school is a residential two-year high school for gifted and talented students with a current enrollment of approximately 230 students. The school joined the University of Arkansas System in 2004 and is governed by the system's board of trustees, which hires the school's
director. The current director, who assumed the position in July 2012, reports to the University of Arkansas System president. Because the school is state-funded, the tuition, books, room, and board are covered by the school's state funding. However, students pay an annual assessment of $850 for residential fees and the concurrent credit program. The school also utilizes two advisory boards, the Board of Ambassadors, which focuses on fundraising, and the Board of Visitors, which assists the director with educational policies and programs
and other campus-wide concerns. The school's foundation fund is a part of the University of Arkansas Foundation. As a member of the UA system, the school is included in the UA system annual financial audit. The most recent report was issued in November of last year. our objectives of this review were to one determine if several complaints and allegations were substantiated and to provide information relating to the school's foundation fund and its relationship with the ua foundation and
also to disclose information involving other issues and activities brought to our attention including transactions with the director and his spouse the first area we reviewed involved complaints and allegations that were voiced at a May 2019 Board of Visitors meeting. The UA system president requested an independent review of the school and issued a letter in September that is attached to our report. According to the letter, the evaluator concluded that the majority of allegations were unfounded, unsubstantiated, or based on
inaccurate or incomplete information. The allegations included sexual assault of a student and racism, classism, bullying, and mistreatment of students by staff. The evaluator also provided UA system staff with feedback on ways to improve the school experience for both students and their families. The secondary we reviewed involved the school's foundation fund. As previously mentioned, the school does not operate its own foundation outside of the UA Foundation, which is the custodian of donations made on the school's behalf, as well as financial
record keeper. The school maintains a foundation fund to track donations to and related expenditures by the UA Foundation on its behalf. We obtained a list of payments that the UA Foundation made to or on behalf of the school and traced all payments to the school's bank deposits and records without exception. A review of payments made on behalf of the school indicated the director received six reimbursements totaling just over $5,000, which were for expenses related to promoting the school and its mission.
The remaining slides address other issues and activities brought to our attention. First, according to the job description and job posting, the school director position requires a master's degree with a doctorate preferred. The current director, hired in 2012, holds a master's degree but not a doctorate degree. Secondly, we determined that the school did not make payments to the director's spouse or to a business she owns. During 2018, the school did hire an individual who was employed by the spouse's company. However, the individual was hired as contract labor by the school and paid a total of $8,000 to update and redesign the school's website.
Third, for fiscal year 2018, the school had 129 positions appropriated. 29 staff members left employment from January of 2018 through August of 2019. Of these, 23 voluntarily resigned, 3 retired, and 3 were terminated with cause. Fourth, we noted four instances of travel in which the director was accompanied by his spouse from July 2012 through September 2018. The school finance director stated that the school did not pay for any travel expenses
incurred by the director's spouse, and we confirmed this assertion for the two trips taken after June 30, 2015. Fifth, we verified that for the speaker at the school's May 2019 commencement, no speaking fee was incurred and travel costs were paid through the UA Foundation. Next, of the eight vehicles owned by the school, five were in the general vehicle pool, one van was designated as emergency transportation, one truck for maintenance use, one 15 passenger van for
student group activities. These vehicles were non-luxury models. Last, although the school does not own any electric vehicles, there are four electric vehicle charging stations on campus. The school purchased two of these stations at a cost of approximately $3,600 and the director donated the other two stations. Using general operating funds, the school paid approximately $5,900 for installation of the four chargers. None of the stations have usage meters and electricity charges are not itemized on the school's electric bills.
This includes my presentation of our special report and officials from the school and the UA system are present to answer committee questions. Thank you, sir.
All right, do we have any questions for the director? I believe he's here today. We do,
so if the director wouldn't mind coming on up. If our guests wouldn't mind standing,
we'll, as is our custom here, we're going to
put you under oath. We'll start on my right. Would you please state your name, employer, and position for the record? Do you mind, can
you reach that microphone? I think it might help. My name is Donald
Speaker 260
1:39:17
Bobbitt. I'm president of the University of Arkansas System. Thank you, sir. Please
raise your right hand. Do you solemnly swear or affirm that the testimony you're about to give will be the truth, the whole truth, and nothing but the truth, so help you God?
Speaker 262
1:39:30
I do. Thank you, sir. Next. I'm Corey Aldernice, Director of the Arkansas School
for Mathematics, Sciences, and the Arts. Thank you, sir. Will you please raise your right hand? Do you so solemnly swear or affirm that the testimony you're about to give will be the truth, the whole truth, and nothing but the truth, so help you God?
Speaker 263
1:39:53
I do. Thank you, sir. Ma'am? Melissa Rust, University of Arkansas System, Vice President for University
Relations. Thank you, ma'am. please raise your right hand do you solemnly swear or affirm that the
testimony you're about to give will be the truth the whole truth and nothing but the truth so help
you God yes sir thank you I think we'll just move right in a question senator Chesterfield
Senator Linda Chesterfield
Unverified
1:40:19
you're recognized for a question thank you mr. chair and good morning I'm concerned about the turnover and in staff could you tell me because it seems a little high in my estimation so tell
me what what is going on why so many people leaving either voluntarily or involuntarily sure
Speaker 266
1:40:37
thank you Senator Hester-Phil for that question in our analysis of those
Speaker 268
1:40:40
numbers I would agree that the number is higher than I think we would prefer a few points that I'd like to make on that of those numbers only to our faculty one was a retirement of a long-standing employee and the other was a faculty member who had an incredible opportunity for advancement based on some of the work that she had been doing with our outreach initiative so both were naturally in in their their rationale among that that group then we
noted that four were temporary employees three were retirements and three related to the performance of duties thirteen of those departures were a result of articulated opportunities for advancement seeking employment that that aligns more closely with their career goals. Many of those positions are also early stage, entry level positions that are intended to have some natural level of turnover over time. So in brief, I would say that the number is higher than we would expect or prefer, and that in turn we do offer competitive pay and benefits
that should help recruit and retain quality individuals. But at the end of the day, the responses provided to us by the employees did not indicate any dissatisfaction with the institution itself as
Senator Linda Chesterfield
Unverified
1:41:50
their rationale. I notice also that a number of the allegations have proven to be unfounded. Based
Speaker 271
1:42:01
on what? Dr. Wapu, would you care to answer that? So there's several issues here. And I want to start off by simply saying that although the findings for the most part didn't
rise to the level of anything of tremendous significance, it doesn't mean that the report was not extremely valuable to the system, to the director, and to the institution, nor did we take the concerns, because there were legitimate concerns of parents, of employees, et cetera, students, and dismiss them. And so a number of initiatives have been instigated. And I want to just add to the previous question that one of the things that we would like to know a little bit in more depth is the rationale for why some of these employees
have been leaving. valuable, and some, as the director said, were really temporary employees that we assumed would have find positions of greater responsibility. So I've instituted a program, if you will, at a system level in which we will survey, and we're working on the questions, we're working on what we want to know when the employees leave, but we hope to have a more detailed, more detailed knowledge of what's going well, what's going wrong, and what we can do to fix this turnover issue.
But in terms of the issues, I think the thing that I want to emphasize is the most serious issues concerned a potential alleged sexual assault, other issues. And I think that I feel comfortable that our outside evaluator, who is a very experienced, trained investigator, I didn't find any support for those. Nonetheless, that doesn't mean that we can't do a better job. And we have with additional training for our staff. And we also have worked with the staff in our general counsel office to effectively
suggest that any such allegation that comes forward in the future will be immediately reported to the hotline, independent of whether our investigation shows that we should or shouldn't do so. And so I think that you will see changes. We've already seen changes. The communication structure that exists within the institution between my office and Director Alderdice, between Director Alderdice and his employees and his
Senator Linda Chesterfield
Unverified
1:44:15
faculty, has improved immeasurably. Well, I'm equally concerned about the other allegations of racism, classism, bullying,
and mistreatment of students by staff. Very serious. So as you look at the sexual assault allegations, which are always to be dealt with in a very firm manner, I also would like for us to look at that. What did we find when the allegations were made about racism, classism, bullying, and mistreatment? What did the report say, that these were unfounded? Because many times it's in the eye of the beholder.
Speaker 271
1:44:53
So if you will, I'll take a stab at it, and then Director Alderdice or Melissa can jump in. In the case of classism, there was an exercise which was designed to create empathy in the new class of students, but also to sort of a team-building exercise. I think that the exercise might be appropriate at a college level, but when dealing with not-of-age students who are still under the control and responsibility of their parents, this is probably not appropriate.
And, in fact, we have not, when that was brought to our attention, that has been discontinued. In the case of racism, there was a mentor in the resident's life. And there were allegations made that this individual only held events for individuals of a particular race. The evaluator talked to students both of that race and other students and found out that everyone was invited. but you obviously can't control who eventually comes to these events okay thank you thank you
mr. chair all right are there any more questions
or comments from the committee all right seeing none we will consider this reviewed i'd like to thank
you guys for coming today i appreciate it we'll move down the agenda to item a the next meeting of legislative joint Audit Committee will be held on February 27th and 28th, 2020, or at the call of the chair. Is there any new business that any member needs to bring before the committee?
All right, seeing none, we will consider this meeting adjourned. Thank you for being here. You
Agenda
A. Call to Order by Chairman
B. Adoption of Minutes
C. Reports of Executive and Standing Committees:
D. Review of Reports:
E. Other Business: The next meetings of the Legislative Joint Auditing Committee will be held on February 27 and 28, 2020, or at the call of the Chairs.
F. New Business
G. Adjournment
Documents
| Title | Type | Pages | Source |
|---|---|---|---|
| Agenda — LEGISLATIVE JOINT AUDITING, Jan 24, 2020 | Agenda | 1 | Official source ↗ |
Speakers
Representative Richard Womack Chair
Unverified
Speaker 11
Representative DeAnn Vaught
Unverified
Representative Danny Watson
Unverified
Senator Mathew Pitsch
Unverified
Senator Trent Garner
Unverified
Speaker 32
Representative Julie Mayberry
Unverified
Senator Jimmy Hickey, Jr
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Speaker 41
Speaker 43
Speaker 50
Speaker 51
Speaker 54
Chair
Unverified
Speaker 56
Senator Mark Johnson
Unverified
Speaker 63
Speaker 59
Speaker 69
Speaker 76
Speaker 75
Speaker 83
Speaker 81
Speaker 72
Speaker 106
Senator Kim Hammer
Unverified
Speaker 97
Speaker 124
Speaker 125
Speaker 129
Speaker 121
Representative Justin Gonzales
Unverified
Speaker 154
Speaker 155
Speaker 165
Speaker 172
Representative Lane Jean
Unverified
Speaker 179
Speaker 178
Representative Johnny Rye
Unverified
Senator Linda Chesterfield
Unverified
Speaker 95
Speaker 191
Speaker 193
Speaker 194
Speaker 198
Senator Gary Stubblefield
Unverified
Speaker 153
Speaker 227
Speaker 242
Speaker 101
Speaker 49
Speaker 250
Senator James Sturch
Unverified
Speaker 162
Speaker 113
Speaker 260
Speaker 262
Speaker 263
Speaker 266
Speaker 268
Speaker 271