More Transparency Needed in Higher Education Finance, Again

Lincoln -- The question reverberating around the State of Nebraska this morning, surely, is why the Omaha World-Herald, owned by Warren Buffet, is calling into question the business practices of fellow Omaha civic leader Walter Scott, Jr. The articles at issue -- fine ones at that -- are by Kate Howard and prominently featured in the newspaper.

Some of us had nearly given up on reading any real news in Nebraska papers, unless we were looking for stories about Nebraska football, which are legion. By the way, can it be that my fellow Nebraskans are really that interested in this continual football prattle? Can't we at least save it for the football season, so we can read real news the rest of the year?

The OWH news articles, which show that investigative reporting still has at least a pulse in Nebraska, point out how many Scott foundation charitable contributions come with strings attached and how University of Nebraska officials are only too eager to keep the details hidden when the donations are to one or more of the NU campuses. Much action seems to take place within various facade entities featuring interlocking and overlapping directorships. Whether all of this is legal depends on whom you ask. Former Attorney General Robert Spire didn't think so, but he left office many years ago.

It might well be that the Scott foundation is doing such wonderful things that the Scott family should be enshrined in a new civic temple created especially for them by grateful Nebraskans. Based on what I know, I'm inclined to think so, or at least to give them the benefit of the doubt.

Not so with others, whose jobs are to protect us from bad things going on behind closed doors. Here are some concerns:

1. Where are the auditors? I've written before on how the behavior of university officials anywhere can be distorted based on what is or is not auditable public information. Such officials can be tempted to act improperly in situations where they think their actions will never come to light. Auditors should be careful to report dealings between public and private entities in sufficient detail to allow the public to know how tax dollars are being used, and if they are being used in conjunction with private dollars to permit kickbacks and circumvent open records. Auditors themselves are sometimes drawn into this trap. In a Kansas State case, about which I have previously written, Grant Thornton auditors should not have agreed to a confidential audit, good as it was.* The Kansas state auditor should have required appropriate public audits in the first place. Good for the press association in Kansas to have forced the Kansas Regents to release the Grant Thornton audit exposing money-juggling to cover up a kickback scheme. Auditors are too often beholden to those paying the bills for their services, and left too unsupervised by officials elected to oversee them. Where does the Nebraska state auditor stand on such matters? Two years ago I wrote this:

The need for greater transparency in higher education auditing has never been greater, inasmuch as state cutbacks in tax support for many institutions have left them more dependent on proprietary entities and foundations, to include large corporate donors eager to move in on, and to control subtly or otherwise, university research and outreach. Agreements of dubious legality, conflicts of interest, attached strings, and ethically challenged behavior that strike at the heart of universities' integrity are correspondingly on the rise.

2. Where is tax law enforcement? If you or I give a charitable contribution to a public television station and get a mug and tote bag in return, we get a tax statement noting that the tax deduction value of the contribution is net of the premiums we received. Are contributions to a university that involve a premium back to the contributor, in the form of a no-bid contract, treated similarly? According to the OWH, the no-bid premiums were explicit; in one case they were even delivered before the contribution was made. Perhaps there is a small army of accountants at work in the facade entities calculating and reporting the premiums involved. If not, I will still reduce my tax deduction by the value of the mug and tote bag, but I won't feel as good about it.

3. What about conflicts of interest? I can't help but note the OWH's mention of the Tetrad company, headed by a Scott family member, and how it was chosen without public input to develop the Innovation Campus in Lincoln. This is the same Tetrad company that is building a large anhydrous ammonia plant in Geneva, Nebraska. Had the Innovation Campus selection process been open to the public, perhaps someone would have asked how friendly Tetrad would be to prospective innovators on the Lincoln campus who want to decrease reliance on chemical agriculture to supply our food. There is a growing movement in the country to bring back cover crops to cut back on products like anhydrous ammonia. This could be seen as a threat to Tetrad. Likewise, Tetrad owns large livestock operations. Would it be open to innovators who see grass-fed beef as the future? Perhaps Tetrad could have defended itself against conflict of interest charges, but the point is that when these decisions are made behind closed doors, no one has a chance to point out potential conflicts of interest and to deal with them.

I have had a career in public budgeting and finance. Many years ago, I was the director of administrative services in the state capitol in Lincoln. DAS was charged statutorily with making certain that distributions of state funds were legal before my name and that of the state treasurer were attached to state warrants of payment. If we in DAS had a question as to the legality of a distribution, we would ask the attorney general. This applied to all state payments, including those on behalf of constitutional bodies such as the state board of education and the state board of regents. Certainly payments for no-bid contracts would have attracted our attention. Maybe we would have been advised to approve them. In any case, all state entities knew that someone was watching out for the state fisc, which deterred tomfoolery with state funds. Why do I get the feeling that no one's been minding the store for many years? Perhaps we are all supposed to be reading those stories about Nebraska football, rather than paying attention to what's going on behind closed doors.

* From the Grant Thornton audit of KSU:

The Foundation, the Alumni Association,.. and the Athletics Department view themselves, and are viewed by others, as part of or associated with the institution of KSU. However, they are all separate legal entities apart from the University. They all have as a common goal the advancement of KSU and have at times entered into transactions with one another in support of that goal. However, as separate legal entities, any transactions among them should be appropriately disclosed, approved and documented allowing for transparency of intent and substance. The failure to do so raises the question of the legitimacy of the transaction. Our report details numerous instances where transactions between the various entities did not meet this standard.