Audit: Six of the seven dining outlets on the main campus operated at a loss in 2015
A series of reports released Thursday, June 2 by the University System of Georgia revealed the results of several audits and investigations into financial misconduct by President Daniel S. Papp, university official Randall Shelton and dining services as a whole.
The Board of Regents Chancellor Hank Huckaby released a statement along with the reports.
“The reports speak for themselves,” he said. “We are in the process of addressing these issues and moving forward with KSU.”
Papp announced his retirement May 10, effective June 30. When the president of a university retires, in many instances, they are entitled to compensation for their service.
According to the report from the USG, Papp was never enrolled in the Board of Regents’ approved deferred compensation program. Instead, he participated in a variety of plans offered by the KSU Foundation. The foundation is the nonprofit organization that controls and handles all private donations and contributions to the university. According to a statement from Papp’s office, his employment contracts outlined that his compensation would be paid in advance.
The auditor’s report specifies that neither the Board of Regents nor Chancellor Hank Huckaby were aware of these early payments. This method of compensation violates policies in place for public universities statewide. The USG requires that any deferred compensation be paid after the outgoing president’s term has ended.
There were also discrepancies regarding annual leave and car allowances. According to the report, the KSU Foundation was authorized to cover up to $10,000 in vehicle allowances annually. Instead, Papp received twice that amount each year and proper procedures were not followed.
“Additionally, KSU has underreported Dr. Papp’s taxable income in the form of his car allowance,” the report stated. “Specifically, Dr. Papp has purchased new vehicles approximately every three years under an arrangement by which Dr. Papp purchases the new vehicle and the KSUF pays the monthly vehicle note.”
A statement from Papp’s office claimed that all of the violations of the USG policies were simple mistakes.
“The early payments resulted from a series of misunderstandings and miscommunication between University System officials, the KSU Foundation and Dr. Papp about the policy,” the statement read.
The statement also explained that Papp’s retirement had been discussed as early as the fall of 2015 and that this audit had no bearing on his decision to leave.
Rep. Earl Ehrhart released a statement defending Papp and urging the public to remember his legacy at KSU.
“The report is clear that he acted in good faith at all times and any issues were miscommunication and innocent mistakes,” Ehrhart said in the statement.
In the second report, the auditor outlines seven separate issues found regarding dining services at KSU. Most of the issues were labeled with the auditor’s highest severity rating, and the categories ranged from contracts that violate USG policies to criticizing the organizational structure of the management. The allegations surrounding the resignation of former dining director Gary Coltek were also discussed in the report, with a focus on KSU’s failure to properly discipline Coltek or follow proper procedure to report his actions.
One of the top issues was the realization that the dining auxiliary as a whole has been losing money over the years. Dining services had a negative fund balance of more than $5 million for the fiscal year that ended June 30, 2015.
“Six of the seven dining outlets on the Main Campus operated at a loss in FY 2015,” the report read.
Despite a business plan from the university to correct this issue and earn a profit by 2018, the auditor claims financial data does not indicate this plan will succeed. For the cause of many of these issues, the report points to an aggressive plan to provide top-notch dining services with “inadequate attention to cost efficiencies.” Recommendations include eliminating mandatory commuter meal plans.
Among other discrepancies, the audit found several terms in KSU’s contract with the dining provider that are not ideal for students, faculty or staff. The current contract includes a $750,000 catering budget for Papp and a $450,000 catering budget for his cabinet, both of which the auditor recommends eliminating.
Due to operating systems and the budget deficit, the report also explains that dining fees paid by students are essentially “subsidizing both farm operations and the culinary sustainability and hospitality academic programs.”
In the package of reports that was released was a summary of an investigation into Randall Shelton, KSU’s assistant vice president for Auxiliary Services and Programs.
The USG started investigating Shelton in late November of 2015 after they received several allegations about misconduct. Shelton violated several USG policies in the form of conflicts of interest with food vendors and dining providers, similar to the allegations against Gary Coltek.
According to the report, Shelton changed the Hoot, a restaurant on the Kennesaw campus, to a new franchise called WOW Wingery. The new restaurant lost $300,000 from 2012 to 2014. Even though the restaurant lost money, it still paid out $70,000 to Leab Enterprises, which is owned by Shelton.
Shelton also went into business with Ballard Brands while they already had a presence on KSU’s campus, resulting in a conflict of interest. Ballard Brands paid him $2,200 per month from May 2013 to May 2014.
Contact with potential suppliers is prohibited by committee members under KSU policies. Shelton signed a form on September 25, 2014 acknowledging that he could not have contact with prospective suppliers. In February 2015, however, Shelton received emails from a supplier and attended private dinners.
After listing several more violations of ethics codes and policies, including nepotism, the auditor recommended that the university take appropriate administrative action.
“Mr. Shelton should be afforded the opportunity to provide any additional relevant information regarding these matters,” the report read.
As of press time, KSU officials had not released a statement in regards to the dining services or Shelton’s investigation.