MOHELA audit reveals ‘excessive’ spending

Thursday, October 11, 2007 | 10:13 p.m. CDT; updated 4:11 p.m. CDT, Tuesday, July 22, 2008

JEFFERSON CITY — Twelve weeks of vacation and personal days, four severance packages totaling $2.3 million and $1,500 in individual Christmas bonuses were three of the “excessive costs” discovered in an audit of the Missouri Higher Education Loan Authority, an agency that provides low-interest loans to students.

At a press conference Thursday, State Auditor Susan Montee discussed the findings from the first audit since the authority was established in 1981 by state statute. Montee said the agency’s excessive spending on benefits and gifts for top executives went unnoticed because there was little oversight of how MOHELA was spending its money.

“This is what happens when you have an entity dealing with public money, but operating like a private firm, but without any shareholders to be accountable to,” Montee said.

Both Montee and Raymond Bayer Jr., the loan agency’s chief executive officer, agreed that the agency has made strides to correct the problem.

“I will not speak to the past,” Bayer said. “We are going forward.”

The audit states and Montee repeated at the press conference that “generally” MOHELA has reinvested its operating surpluses into additional student loans.

Gov. Matt Blunt’s announcement in January 2006 of the partial sale of MOHELA to fund the construction of buildings on Missouri college campuses made officials take notice of the agency, Montee said.

“I think that none of us or at least most people in government did not know that this entity was even out there amassing assets,” she said.

Montee started the audit when she took office because a “red-flag” went up when a MOHELA official’s severance package became public.

The severance packages were only available to the agency’s top executives, and they included health care benefits, extra money for accumulated vacation leave and car allowances.

The report didn’t identify the officials, but the loan agency provided their names to The Associated Press under an open-records request. The officials included:

— Michael Cummins, who was fired as executive director in January 2006 after voicing opposition to Blunt’s plan, received the largest severance package of $853,381.

— Rick Fouts, who resigned as chief financial officer in October 2004, got a $650,000 severance package.

— John Wild, fired as executive director in November 2003, got a severance of $535,445.

— Ann Hollenberg, fired as associate director in October 2005, received a severance of $244,732.

Because MOHELA will not allow the auditor to access closed meeting documents discussing severance pay, Montee said she does not know if the benefits were justified or why some of the severance packages did not match the amount specified in agreements.

While these executives worked for MOHELA, they also received $750 minimum car allowances or a company car and performance-based raises. Montee said that even in comparison to the private sector, these benefits were “excessive.”

Other perks for employees included $13,126 in fitness center memberships and weight loss programs; more than $7,320 for an employee picnic at Six Flags; $575 for a disc jockey and $500 for a magic show at an office holiday party; and $2,419 for three catered senior staff meetings.

Raymond said MOHELA is no longer offering bonuses, and the audit said “board members are committed to not pay severance benefits to any employee in excess of what the employee is entitled to receive.”

The agency also wasted funds when it moved into a new building, but continued to pay more than $1.25 million in lease payments for an 18-month period for its old building, the audit states. There is also no documentation proving MOHELA competitively bid the contract to build its new headquarters or the contract for a new real estate property manager.

MOHELA has since established a formal proposal process that covers real estate property acquisitions, leases and capital and construction projects.

Even after the audit, Montee said she is still not sure what assets MOHELA has because they did not require a physical inventory of items less than $10,000, with the exception of laptop computers. In addition, if the assets are sold, no documentation is required.

“First, we didn’t list them, and then we sell them off in a manner that isn’t consistent with how we handle public assets,” Montee said.

During the press conference, Montee did not heavily discuss the sale of assets from the law Blunt signed into law May 23. She did say her office has not taken a position on the sale because it did not relate to the audit.

“We tried to concentrate our audit on how the entity is operating, with or without the assets of the sale,” she said.

Rep. Judy Baker, D-Columbia, said that “at first blush,” the audit shows that students paid higher interest rates than they should have.

“The excesses in operation and the sale of assets highlights that students were charged excessively for their low-interest loans in the context of the mission of the agency,” Baker said.

Baker said she does not believe the audit would have influenced the passage of the MOHELA sale because discussing interest rates did not influence the legislators who voted for the legislation.

Rep. Jeff Harris, D-Columbia, said the idea behind MOHELA is a good one, but it needs to operate efficiently and be fiscally responsible. Harris became an opponent of the sale after a third-party analyst firm, Liscarnan Solutions LLC. said the sale could hurt the agency’s ability to provide low-interest loans. He also said many House legislators had wanted an audit of the agency.

“Before you go into a sale or transaction, you need to have due diligence,” Harris said.

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