Underbidding for contracts by the Wright State Applied Research Corporation, WSU’s research funding arm, accounted for most of the losses, the audit says.
WSU Board Chairman Michael Bridges, who owns the defense research firm Peerless Technologies, said underbidding is a common strategy for an organization just starting out. But it’s not something that should have gone on indefinitely and only continued because of a “lack of oversight,” he said.
“You can’t do that for very long and in the end you have to right the ship,” Bridges said.
Time and again in the 108-page audit report, Plante Moran auditors note contract terms that were “unfavorable” to the university. WSARC lost $1 million in a contract with the non-profit Wright Brothers Institute, and $970,131 in deals with the non-profit Development Projects, Inc., according to the audit.
In both cases, a now-deceased area attorney served as a legal representative for WSARC and other parties to the contract, creating a potential conflict of interest, auditors wrote.
WSARC Director Dennis Andersh provided this newspaper with a seven-page list of changes made to prevent the actions cited in the audit from happening again. He said the problems were caused by a structure that allowed former director Ryan Fendley to run the organization with little oversight before Andersh came on board in mid-2014.
“When I got in here I noticed that contracting, and finance and other things were all conjoined into one person, and there needed to be checks and balances, and so I have been working on that since the day I got here,” Andersh said. “The paper trail on all contracts in here was abysmal.”
C.D. Moore, a WSU trustee who sits on WSARC’s board of directors, attributed the problems to a lack of “business discipline.”
“It wasn’t being run like a business as it is today,” he said. “I’m very pleased with where we are right now as a business and how we’re running this organization.”
Wright State fired Fendley in 2015 amid an ongoing federal investigation of possible misuse of the H-1B temporary work visa program, which prompted the audit. The review was completed on Oct. 3, 2016, but only released by Wright State on April 7, 2017
Many of the emails, contracts and checks cited in the audit were written or directed by Fendley, former senior advisor to the provost. He is currently suing the university alleging wrongful termination.
Fendley did not respond Friday to a request for comment placed with the attorney representing him in his lawsuit against the school.
ATIC
One area agency that embodies several of the auditors’ concerns is the Advanced Technical Intelligence Center, a Fairborn-based nonprofit that partners with WSU for research and technical training. Its website says in 2016 it became a division of the Wright State Applied Research Corporation.
WSARC’s Andersh said ATIC is valuable to the university because it is accredited to handle the highest-level of top secret government information.
“It gives the university and the community access to a facility that is pretty unique in the country,” Andersh said.
But ATIC has struggled financially and in 2014 all of its employees were put on WSU’s payroll under a management agreement that had Wright State billing WSARC for the labor.
The auditors found that Wright State underbilled by at least $410,000 — money the university won’t be able to recover, according to the audit.
In addition, at the time of the audit WSARC still owed the university another $1.4 million because of payments that weren’t made, the auditors said. Andersh on Friday said about $500,000 of that total has been repaid.
ATIC’s financial struggles were known to Wright State officials, according to the audit, but the school wanted to preserve its ties to what it considered to be a community asset. “Therefore, they agreed to hire ATIC’s employees under the management agreement,” the audit says.
Former Wright State President David Hopkins left the school in March after serving as president since 2007. He is listed on tax documents as being chairman of ATIC’s board of trustees in tax years 2011 through 2014.
The audit refers to ATIC as a “struggling organization.” But auditors say the nonprofit still “paid its CEO significant bonuses in addition to a high-level salary.”
ATIC CEO Hugh Bolton’s salary, bonuses and deferred compensation totaled $429,956 in 2011, according to the audit. He received $237,572 in bonuses in 2012, bringing his total compensation to $424,611. His compensation dropped to $205,416 in 2013 and in 2014 he was put on WSU’s payroll at a base salary of $228,000, the audit says.
All 11 pages of the management agreement between WSARC and ATIC was redacted in the audit documents released by Wright State. According to Plante Moran’s description of the management agreement, Wright State is due reimbursement for Bolton’s compensation.
Bolton did not return calls for comment.
Auditors questioned another $500,000 in contracts involving ATIC, noting that most of the money — pass-through state funds for the most part — went to overhead instead of specific projects. Auditors said finance officials “represented that these payments may have been made to ‘help out’ ATIC since the entity was struggling financially.”
But, auditors note, the checks were cut sometimes days after Bolton received six-figure bonuses and as the agency’s payroll grew.
Andersh said Bolton’s compensation plan with ATIC included bonuses, “which is common in business.” The bonuses ceased, he said, when Bolton went on WSU’s payroll.
Conflict of interest concerns
The audit questions payments from ATIC to companies and agencies affiliated with people on the agency’s board.
From 2011 to 2014, ATIC paid $140,000 to the law firm of Beverly Shillito, who was ATIC’s board secretary. The relationship was disclosed on ATIC’s tax returns, as required, auditors noted.
ATIC also donated $15,000 to support the Dayton First Four Festival in 2012, which Shillito was helping organize.
Shillito did not return calls for comment.
During that same time period, ATIC paid more than $51,000 to the Dayton Development Coalition, whose CEO, Jeff Hoagland, was on ATIC’s board.
DDC officials provided the newspaper a breakdown of what the money was used for: $35,000 supporting a program providing community events like Dayton Dragons tickets for local military members and their families; $9,800 for attendance to an annual lobbying fly-in in Washington, D.C.; $5,160 for booth membership at an unmanned vehicle system conference; and a $2,000 membership in a local non-profit.
DDC spokeswoman Shannon Joyce Neal said Hoagland recused himself from any vote that came to the ATIC board regarding the coalition.
“He was not voting on those items,” she said.
WSARC
The audit covered numerous aspects of WSARC’s finances. It looked at potential misuse of the H-1B visa program by several companies, including companies led by current and former university trustees. It noted that WSARC used a grant process to circumvent WSU’s personnel hiring procedures — a practice that resulted, the audit said, in few women being hired. Auditors also found duplicate payments made by the nonprofit and overpayments to some employees.
Andersh and Moore said they dissolved or cut ties with all of the related entities that created potential conflicts of interest, hired compliance staff, aligned their hiring policy with the university’s and completely overhauled their contracting processes to provide transparency and oversight.
WSARC handles contracting for about $15 million of Wright State Research Institute’s $27 million in research. WSRI recently announced it won about $35 million in federal defense research contracts.
WSARC officials say the organization is self-sufficient after eliminating 40 positions and reducing its budget by 41 percent.
Going forward, Moore said, WSARC “will be self sufficient.”
“There will not be a need for going back to any other entity for compensation, for support,” he said.
Wake-up call
Bridges said WSU trustees and the administration need to “change the culture” of Wright State to prevent a repeat of the issues described in the audit.
That means Wright State needs to be more transparent so issues get flagged sooner instead of going years without being noticed, Bridges said. It also means making changes so “individuals know that it’s not OK to overspend budgets.”
WSU board vice chairman Doug Fecher said the huge losses contributed to the university’s current budget crisis.
“There’s no question it had an impact,” Fecher said. “Anybody who tells you different is not telling the truth.
The audit’s release comes as many university employees fear for their jobs because of a budget shortfall trustees say has gotten out of hand and now requires a $25 million reduction.
“Every dollar contributed to that,” Bridges said of the financial losses WSARC took. “Every bad decision made by the administration contributed to that.”
Interim president Curtis McCray said the audit should serve as a wake-up call, and should be followed by more audits on an ongoing basis.
“Even though people are good, it can all start to slide and bad people can take advantage if you don’t have an audit,” he said.
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