Report critical of UI policy
URBANA – A new state audit says the UI should improve its financial controls over utility spending, simplify accounting and improve communication about potential deficits.
The annual financial audit from Auditor General William Holland for the year ending June 30 said university policies to monitor and report utility budget deficits were "ineffective or not complied with."
The problems first were identified in an internal UI audit, commissioned after utility deficits topped $30 million annually in fiscal 2005 and '06. UI President B. Joseph White said chancellors raised concerns about rising energy costs in early 2006, and he ordered an audit that summer.
When Walter Knorr was hired as the UI's chief financial officer in early 2007, one of his first assignments was to prepare a report on the magnitude of the problem. The UI audit was not made public, but White said the findings were "very, very similar" to those in the state audit released Feb. 26.
– The UI hadn't assigned anyone the task of reporting budget deficits for activities that cross campuses, such as utilities.
– University policy called for trustees to be briefed quarterly on budgeted versus actual spending, but utility costs weren't highlighted in those reports.
– UI policy was unclear about when trustee approval is required for money transfers between state accounts and unrestricted reserve funds.
– The accounting involved with utilities was "excessively complex," spread across all campuses and the central administration.
In another finding, the audit said the UI placed too much control over utility operations with one individual, who was both associate vice president for facilities planning and programs and president of Prairieland Energy, a for-profit, university-owned organization created in 1997 to buy discounted electricity wholesale and resell it to the UI. With those two roles, he had to handle all utility accounting, reporting, rate-setting, budgeting and approval.
That individual, Lyle Wachtel, left the university in December to devote full time to his energy-development business, HWS Energy Partners, based in Champaign.
Auditors said his supervisor also did not communicate significant utility deficits to the trustees or White.
"Inadequate segregation of duties along with insufficient oversight resulted in a failure to communicate the overspending and unfavorable budget variances to university management and (trustees)," the audit said.
But the supervisor, former Vice President Steve Rugg, publicly highlighted growing concerns about utility costs in fall 2006, in the UI's annual budget request. Both Wachtel and Rugg, a longtime UI administrator who retired last summer, declined comment on the audit.
The UI has agreed to segregate duties and improve management oversight. Knorr said it has hired two staff members, one to handle finances and utilities and another to oversee regulatory matters and contracts.
Knorr is now interim president for Prairieland, and a search for a new associate VP should wrap up by May, he said.
"The whole future of Prairieland is under review," he said.
To meet auditors' recommendations, administrators also plan to brief trustees every six months on utilities, with a formal comparison of budgeted and actual costs, Knorr said. And they will notify trustees of all major fund transfers.
"We're trying to be very transparent," he said.
Though the audit classified the findings as "significant deficiencies" in financial reporting, Knorr emphasized it found "nothing misstated, nothing inappropriate." No funds were misspent or mismanaged, White said, and "there was no fraud."
"I think that there are people within the financial administration of the university who were responsible for utility operations and costs who were aware of the situation and were monitoring it and trying to do the best that they could. What the auditor general has identified is that they should have brought this to the attention of people higher within the organization, and they didn't," UI spokesman Tom Hardy said.