Budgeting “an Art, Not a Science”: Whistleblower Alleges Fraud and Deception at West Chester University

West Chester University’s Director of Budget and Financial Planning, Colleen Bradley, filed a lawsuit in U.S. District Court last Thursday, alleging that she was wrongly terminated for blowing the whistle about the university’s “false and misleading” budgets. The lawsuit alleges that WCU administrators purposely misrepresented the university’s budget in order to increase its funding from the Commonwealth, position WCU to secede from the PA State System of Higher Education (PASSHE), and increase leverage in negotiations with faculty and staff unions.

The 62-page complaint, supported by multiple email exchanges between Bradley and her superiors at West Chester and the Pennsylvania State System of Higher Education’s Office of the Chancellor, documents Bradley’s repeated attempts to raise objections to the university’s accounting practices. Despite receiving excellent reviews and praise for her diligence, the lawsuit alleges that the university administration eventually terminated her for exposing the university’s fraudulent budget practices.

According to the Pittsburgh Post-Gazette, the paper that first broke the story,

The suit asserts there has been retaliation against her “directly in response to Ms. Bradley’s efforts to bring to the public’s attention and rectify a scheme she had discovered under which the conspiring defendants knowingly and willfully executed, repeatedly and over a period of at least three years, and under knowingly contrived and misleading pretenses, to acquire, misappropriate, misuse, mismanage and waste millions of dollars in Pennsylvania taxpayer funding while those same defendants made every effort, including bullying, harassing, ignoring, demeaning, coercing and intimidating Ms. Bradley and ultimately terminating Ms. Bradley’s employment to conceal from the public their ongoing pattern of malfeasance with respect to taxpayer funding.”

The suit alleges the defendants unsuccessfully tried to force Ms. Bradley to present to the state “false budgets” which “willfully and falsely understated WCU’s actual operating surpluses over at least three years, to fraudulently maintain or increase taxpayer-funded appropriations to WCU.”

Listen to Kevin Mahoney on the Rick Smith Show talking about the WCU lawsuit

Bradley’s lawyers argue that there was even more at stake than simply trying to increase the university’s funding. The complaint also alleges that the budget deception was designed to best position the university to become a state-related university if the 2014 PASSHE Secession Bill had passed; to increase WCU and PASSHE’s “leverage in negotiations with the faculty union, APSCUF, and other unions on PASSHE campuses; and, to personally benefit the Defendants with “significant personal financial gains” if West Chester were successful in breaking away from the 14 university State owned university system.

WCU administrators, according to the lawsuit, conspired to use a series of accounting schemes to better position the university to buy up state-owned buildings if Senators Tomlinson and Dinniman’s PASSHE Secession Bill (SB 1275) were to become law (it did not). The complaint argues that “the taxpayer funds that were procured purportedly for so-called anticipated plant maintenance expenditures misrepresented in the budgets were not spent by WCU on those items year after year” since Bradley started at WCU in 2011.

What were the funds used for? If what’s alleged in the complaint holds up, the answer to that question is a doozy. Rather, than the funds being used for “anticipated plant maintenance,”

these funds were squirreled away, which positioned WCU to substantially increase its unrestricted net assets {i.e. “all funds over which the University can exercise discretion and may be used to meet the general financial requirements of the institutions”} to potentially secede from the Commonwealth and transition to state-related status under Senate Bill 1275 (the “Secession Bill”) sponsored on March 12, 2014 by Senator Robert Tomlinson, a member of WCU’s Council of Trustees, and Senator Andrew Dinniman, a WCU graduate {and former faculty member}. Under the Secession Bill, if passed as sponsored, WCU would be able to purchase from the Commonwealth WCU land and buildings at a depreciated book value. Had WCU spent the taxpayer funds represented in the budgets to be needed for building and plant maintenance and improvements, the buildings would be worth significantly more than they are. By not spending the funds earmarked for building and plant maintenance and improvements, the buildings have depreciated and declined in value.

In other words, the lawsuit is claiming that WCU administrators were consciously misrepresenting their books in order to buy state-owned buildings and bargain-basement prices if SB 1275 had been successful.

While it is of course important to emphasize that these are “allegations” and not “fact” at this point, it is also important to point out that this is the not the first time that PASSHE universities have been accused of using questionable financial schemes to achieve administrators’ agendas outside the realm of public scrutiny. What is “new” here is that a top-level manager is going public and blowing the whistle.

Wall Street on the Susquehanna REDUX

SLASSHE Sinking ShipReaders of Raging Chicken Press may very well be experiencing an odd sense of deja vu right about now. That’s because in 2013, we ran a story called “Wall Street on the Susquehanna: PASSHE Bond Scheme Bleeds Education Budget for Beautiful Buildings,” that eerily resonates with Ms. Bradley’s allegations concerning WCU.

In that report, Raging Chicken Press found that as a result of a change in the PASSHE Board of Governors’ policy in 2000 regarding “Capital Facilities, Planning, Programming, and Funding,” three significant changes were made that allowed questionable financial schemes to take root across the state system:

  1. Decentralize New Building Planning. Unlike the centralized process during previous years, “universities would initiate building projects and the Board of Governors {would take} a more central role in approving those projects.” Before this policy change, building projects tended to be initiated in Harrisburg under a more centralized, but murky process.
  2. Privatize Funding for New Buildings and Capital Projects Incrementally. In effect, the new policy insisted that more of the funding for new buildings – upwards of 50% – must come from “alternative sources.” That is, each university had to raise private money to match state dollars.
  3. Finance New Buildings From University Education and General Funds. Allowing transfers from universities’ Education and General Funds into “Operations and Maintenance” or “Plant” funds, incentivized managers to squeeze the money from academics by eliminating faculty and staff, for example, so there would be more money left over at the end of the year to divert to pet projects – or simply dump into ever-growing pits of cash that could be used by administrators to do with what they pleased.

Those three changes were NOT accompanied by corresponding oversight. In some cases, such as the firing of long-time California University of Pennsylvania President, Angelo Armenti, administrators simply told PASSHE Board of Governors “oh, yeah, we’ve got our share of the money for those new buildings,” while in reality they did not. In CalU’s case, the university accumulated $97.2 million in capital debt by 2012 and was spending nearly $7 million a year to service the debt they had accumulated as a result of their unregulated building spree.

It was a different scenario at Kutztown University. As Raging Chicken Press reported in March 2013 in “The Persistence of Crisis @ Kutztown U,” then university president, Javier Cevallos had cried “fiscal crisis” for nearly a decade, while in reality the university has the second best fiscal health in the entire PASSHE system behind only…wait for it…West Chester. Kutztown’s administrators used financial schemes quite similar to what is being alleged in Bradley’s suit.

In KU’s case, the surplus transfers went to their “Operations and Maintenance” fund. Cevallos and his Vice Presidents of Administration and Finance – first James Sutherland, then Sutherland’s understudy Gerald Silberman – routinely claimed $3-8 million dollar budget deficits while spending lavishly on new buildings, building upgrades, and landscaping. So, at the same time KU led the way in austerity budget cuts leading to the elimination of faculty and academic programs in 2009-2010, it was showcasing the new “Academic Forum,” a state-of-the-art “Sharadin Art Building,” and a robust “campus beautification” campaign. After years of failing to respond to the faculty union’s questions “where’s all the money?,” Cevallos finally came clean in 2011, admitting the university was sitting on piles of cash. “It was my decision and I’d do it again,” he told the faculty union in May 2011.

You Were Warned: Faculty Union Smelled the Stench Years Ago

A November 2013 independent audit of PASSHE’s books commissioned by APSCUF, confirmed much of what Raging Chicken Press had been reporting on for the previous several years. That audit found that the use of questionable financial schemes by PASSHE university administrators was not limited to a few “bad apples” – the schemes were ubiquitous.

A press release issued by APSCUF following the release of the audit, could be a preface for Colleen Bradley’s lawsuit:

APSCUF commissioned Boyer & Ritter, a Harrisburg-area accounting firm, to study the finances of the seven universities that claimed they needed to lay off faculty to balance their budgets: Cheyney, Clarion, East Stroudsburg, Edinboro, Kutztown, Mansfield, and Slippery Rock.

In every case, the accounting firm discovered that the university created affiliated entities or used foundations to take on debt for new construction.

“We are extremely troubled by the findings. The universities and the State System are mismanaging public dollars,” said Dr. Steve Hicks, {former} president of APSCUF. “Every university is using a scheme to transfer debt to ‘component units,’ including the university foundations and student housing associations.  Money that the public believes is dedicated to academics is instead going to these affiliates to pay for buildings.”

In many cases, the affiliated entities are taking on debt to pay for new dormitories and other lavish construction.

The faculty union had been bringing increased pressure on PASSHE university administrators and PASSHE’s Chancellor for several years. As universities cried “budget crisis,” the union cried “foul!” As PASSHE universities used former Governor Corbett’s drastic budget cuts as a platform to cry “budget crisis” and make moves for unprecedented cuts in faculty and staff, APSCUF found gaping holes in the universities’ budget pictures.

It was the pressure from the faculty union that Bradley credits as one of the main reasons that PASSHE began to make some moves toward transparency and changing the way WCU and PASSHE reported their budgets. Bradley’s complaint lays it out:

Ms. Bradley believed that PASSHE was moving in the right direction attributable in some part to her efforts that had shined light on the fraudulent transfer to plant scheme beginning in 2012. She attributed most of the shift, however, to the increased heightened light of scrutiny being sought upon it by APSCUF and its requests for full Bud Reports {full accounting budget reports} for current and prior years.

The complaint suggests that if it hadn’t been for the dual pressure from an ethical financial analyst and planner on the one hand, and the power of the faculty union to demand transparency on the other, there is no telling how long WCU may have continued on its path of deception.

Art, Not Science: Give the People What We Want

The lawsuit contends that WCU administrators engaged in deliberate acts of deception when it came to presenting WCU’s financial outlook to different audiences. In one email exchange with Ginger Coleman – PASSHE’s Manager-Budget Planning/Analysis for Administration and Finance in the Office of the Chancellor – about Bradley’s discomfort with altering the PASSHE Bud Report to make a surplus look like a deficit, we get a taste of how systemic the problem is. According to the complaint:

Coleman also instructed her to change a proposed balanced 2013-14 budget into a $2-3 million deficit by increasing the transfers to plant line item, Coleman advised Ms. Bradley that the PASSHE Bud Report was only for funding purposes and would not correlate to actual internal budgets. Ms. Bradley informed Coleman that she was not comfortable with the instruction because it did not reflect WCU’s true financial condition. When Ms. Bradley refused to falsify the 2013-14 budget after reviewing it with {Vice President of Finance and Administration & Chief Financial Office Mark} Mixner, Mixner did so and submitted the report in Ms. Bradley’s name.

After a series of email exchanges included in the complaint, “Bradley confirmed Coleman’s advice that budgeting ‘was an art, not science,’ and Coleman’s advice that the PASSHE budget report would not resemble WCU’s actual internal budget, as each served different purposes, one for funding, the other for operating.”

The lawsuit explains that Bradley often turned to WCU’s Dean of Business and Public Affairs, Christopher Fiorentino, as a sounding board and mentor when she did not understand WCU’s budgeting practices. In an email exchange with Fiorentino concerning what Bradley saw as the actual budget compared to the budget that was being presented to West Chester’s Council of Trustees, according to the lawsuit, Fiorentino used the same language used by Coleman to account for the discrepancy:

Traditionally, the reports to COT {Council of Trustees} have been more art than science. I have sat at presentations wondering how they could distort the facts so much and get away with it. The fact is that the COT is more of a symbolic body than a governing body.

A few days later, after Bradley thought the manipulation of the budget to conceal WCU’s abundant surpluses was “absolute insanity,” Bradley sought out Fiorentino’s perspective again. According to the email exchange included in the lawsuit, Fiorentino replied:

[a]pparently, accounting is more art than science. The Director of Finance is more worried about the “political ramifications” of how we report numbers rather than making sure we report them correctly. I am speechless. Just make sure you keep copies of your recommendations so you are not dragged down with them.

Photo credit: "Whistleblowers," by Cool Revolution, Flickr.
Photo credit: “Whistleblowers,” by Cool Revolution, Flickr.

There is little doubt that the allegations in this lawsuit are damning in their own right, but will be of even greater consequence if they are held up in court. Bradley’s lawsuit not only points to deliberate efforts by WCU administators to cook the books – at least when it came to particular audiences – but also to a passive acceptance of WCU’s financial schemes both at the level of the university and at PASSHE headquarters in Harrisburg.

Frankly, Bradley’s 62-page complaint reads like a novel about Wall Street insider trading, or high-level corruption by billionaire bosses who think they are above the law. But it’s not fiction. At least that is what the evidence in the lawsuit contends. And, frankly, Bradley’s lawsuit fits a pattern of PASSHE’s financial practices that have been increasingly documented in this publication, in the pages of the Pittsburgh Post-Gazette, and APSCUF’s ongoing battles with PASSHE administrators.

We should never allow such practices to continue because of “tradition” or because “that’s the way things are done around here.” Those are excuses punctuated by cowardice and depravity. And, if Bradley’s allegations are confirmed by the U.S. District Court, we should follow her example and refuse to stand by and allow unethical, if not illegal, actions to take place right under our noses.

Here’s to the whistleblowers.

 

 

 

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  1. West Chester U President to Unveil “New Budget Process” Today Following Whistleblower Lawsuit | Raging Chicken Press

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