Auditor refers Kentucky State University findings to prosecutors

Kentucky Auditor Mike Harmon has referred the findings of his office's special examination of Kentucky State University to state and federal prosecutors, detailing a "chaotic" budgeting process that obscured the school's financial disarray.

Harmon's office was directed to undertake the special audit of KSU through a bill passed in the 2022 session, when legislation was also passed to provide $38 million of emergency funding with strict conditions to the university plagued with turmoil, resignations and significant budget shortfalls that came to light the previous year.

“The many problems found in our examination did not happen overnight, and to be honest with you, frankly, they're not going to be corrected overnight, either," Harmon said at his press conference Wednesday unveiling the report. "What is clear is that past practices at KSU detailed in our exam report, well, they just have to end."

Some of the most serious findings of the special examination involved Douglas Allen, KSU's former vice president for finance. The report found Allen would not meet with the university's internal auditor and directed employees to not cooperate as well — while also blocking preliminary audit reports with concerning information from reaching the KSU board and former President Christopher Brown.

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Another finding of the report showed that Allen provided incorrect accounts payable data to the KSU president and board, including one instance of telling a board committee in June 2021 that the university was "on track to end the fiscal year in the black" — despite more than $15 million in prior year expenditures being carried forward into the next fiscal year.

Allen also was found to have been employed at both KSU and as Tennessee State University's vice president of business and finance from May 1 to June 25, 2021, when he left his KSU position. The report showed Allen received over $37,133 in monthly gross pay for May and June of that year from both jobs, the latter of which KSU was not informed about until his May 31 resignation letter.

Harmon’s office is referring the KSU examination to the U.S. Attorney’s Office for the Eastern District of Kentucky and the Office of Kentucky Attorney General Daniel Cameron.

Harmon is also referring another finding of the report to the U.S. Department of Treasury and the U.S. Department of Education, detailing how KSU failed to implement internal controls over how federal grants were spent, which put $3.34 million of federal funds at risk.

While Brown and other current and former KSU officials agreed to interviews with Harmon's staff, Allen and the university's former controller did not.

Ronald A. Johnson, the current interim president of KSU, also spoke at Harmon's press conference, thanking the office for the report and welcoming its "constructive input" and "insightful recommendations for a sustainable Kentucky State University."

Referring to some of the actions of former KSU officials as "chicanery," Johnson said the new leadership that took over at the university last year have made "great strides" to restore the fiduciary duties owed to the state and its students.

"I assure you that we are working with with great haste to ensure that the public trust in Kentucky State University is maintained — or, essentially, returned," Johnson said.

The KSU audit report also found:

• A poor and siloed internal communication system, which "created a fear of retribution" among employees if communication lines were crossed, allowing the financial problems in the report to go unaddressed.
• A heavy reliance on credit card accounts, with more than $1.3 million in credit card transactions made each of the three-fiscal years reviewed and little to no documentation on most purchases, placing KSU "at high risk for fraud, waste, and abuse of public funds under its control."
• Former university administrators received unallowable benefits, including bonuses and supplemental health insurance. Among these, Brown received a retroactive housing allowance of more than $84,000 and KSU spent nearly $4,000 covering the utilities at this personal residence.

More:Kentucky State University needs emergency funds to stay open, official tells lawmakers

Harmon noted that many of the recent troubles of KSU highlighted in the report are far from new, as a 2000 report by former Auditor Ed Hatchett detailed 16 findings addressing its financial controls, and "many of the issues identified in that report still appear to be problems within the university."

Kentucky State University, founded in 1886, is the only public historically black university in the state, while Simmons College in Louisville is Kentucky's only private HBCU.

Brown abruptly resigned as KSU's president in July 2021, after which Gov. Andy Beshear called for an independent review of the university's finances and empowered the Kentucky Council on Postsecondary Education to “provide guidance and oversight during the review."

Months later, KSU announced it needed emergency funding to stay open past April 2022, with the legislature eventually appropriating $38 million — along with requiring strict oversight reforms, including a new board of trustees.

Reach reporter Joe Sonka at jsonka@courierjournal.com and follow him on Twitter at @joesonka.