Arkansas Legislature Grills Jones, Powell

Poor Policy Procedures Cause Snafu in Financial Statement Reporting, Panicking Arkansas Legislators

Former+HSU+president+Dr.+Glen+Jones%2C+secretary+board+member+Eddie+Arnold%2C+former+vice+president+of+finance+and+administration+Dr.+Brett+Powell%2C+and+chairman+board+member+Johnny+Hudson+sit+before+lawmakers+as+they+are+questioned+regarding+Henderson%E2%80%99s+financial+situation.

Victoria Stewart-Meyers

Former HSU president Dr. Glen Jones, secretary board member Eddie Arnold, former vice president of finance and administration Dr. Brett Powell, and chairman board member Johnny Hudson sit before lawmakers as they are questioned regarding Henderson’s financial situation.

State lawmakers of the Ark. State Legislative Joint Auditing Committee heard four hours of testimony from former HSU president Dr. Glen Jones Jr., former vice president of finance and administration Dr. Brett Powell, along with three board of trustees members on Feb. 28.

 

The goal of the hearing was to ascertain why the legislative auditor’s report of the fiscal reporting period ending June 30, 2018, revealed a $4.9 million budget deficit. The committee voted last month to subpoena these men; questioning focused on what went wrong and who is responsible for allowing this deficit to climb so high. 

 

In his opening remarks, Powell explained that when he began working at HSU in 2016, the university had a culture of catering to a student population who could not afford their tuition. He maintained this was due to a gap between merit-based and need-based scholarships, citing tuition increases between 2010 and 2016 at an average of 4% per year for a total of 20% over seven years. About 44% of students paid $1,200 of an $8,000 tuition due to merit-based scholarships which was too little money to maintain a positive budget.

 

“Those who could afford to pay didn’t and those who could not afford to pay paid more,” Powell said.

 

These unpaid student account balances were increasing every year from 2012 through 2018. Powell went on to say that it was in the Spring of 2017 when he became aware of delinquent student account practices. Bills were sent to students by email, but no one followed up when there was no action taken. Students were allowed to carry a balance of up to $4,800 for up to four semesters.

 

Powell said that when he became aware of this, he started encouraging faculty to engage with students to help them to pay their debts.

 

“That’s a budget management issue, and that falls on you,” Sen. Gary Stubblefield (R-Branch) said to Powell. “So do you accept responsibility for this boondoggle?”

 

“I’m not sure what you mean by boondoggle,” Powell responded.

 

State representative Richard Womack (R-District 18) from Arkadelphia questioned Powell and Jones regarding who was responsible for overriding student account balances beyond the policy threshold. Powell testified that Scott Freeman had the authority to override these balances and his endeavor to correct the situation was “unsuccessful because the director of student accounts, [Freeman], refused [to cooperate].”

 

Powell said he tried to move Freeman from that position but was refused by Jones, citing Freeman’s “important” familial ties to the community. Jones added that he felt Freeman should be given an opportunity to “meet [Powell’s] standard.” Powell said he did not believe that Freeman met that standard and when he recommended taking action to move Freeman from that position, Jones said “we shouldn’t.” However, Jones refuted this, saying:

 

“We never had a follow-up conversation . . . where [Powell] said this wasn’t working for me.”

 

The Legislative Auditors Report notes that several “material weaknesses” and “significant deficiencies” account for the differences in financial statement reporting from the end of Powell’s employment to the final audited reports.

 

The report defines material weaknesses as “a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the university’s financial statements will not be prevented or detected and corrected on a timely basis.”

 

Listed under material weaknesses in the auditor’s report are over $2 million, which had been in an asset account in “accounts receivable,” now reported as a loss under “allowance for doubtful accounts.” This amount accounts for the unpaid student accounts that had been allowed to carry a balance for so long.

 

Also, an understatement of almost $200,000 due to unrecorded accruals in “accounts payable,” as well as a deferral of debt defeasance, which is related to refunded bond issues causing an understated amount of nearly $80,000 due to a calculation error.

 

The “change in net position” on the statement of revenues and expenses is due to overstatements of revenues from student tuition and fees, athletics, housing, and food services over $700,000. In addition to unrecorded carryovers, accounts payables, and miscalculations that total is almost $1.9 million.

 

Also listed are the miscalculated cost of bonds issued by over $150,000, and an understatement of over $70,000 on interest fees, and long term debt in unrecorded accounts payable. 

 

“Significant deficiencies” are defined by the report as “a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.” The auditors commented on the university’s unwritten policy to allow students to carry a balance up to $4,800 to register for the next semester in the section under significant deficiencies.

 

The report further states that of 26 student accounts surveyed, 17 accounts were allowed to enroll with balances that exceeded that limit and did not make any payments the following semester, while subsequently being allowed to re-enroll again in the next semester. Additionally, of 8 out of 12 delinquent student accounts surveyed, the university was not pursuing collections in “non-compliance with the University policy and Ark. Code Ann. § 19-2-305,” and of those, three were allowed to again re-enroll with a balance exceeding the policy.

 

“I think we’ve learned that we’ve got to be far more transparent with financial information,” Arkansas State University system president and former president of Henderson Dr. Chuck Welch said.

 

When Oracle correspondence attempted to ascertain if a policy is or was in place governing at what point a student account receivable should be reallocated from a balance sheet account as an asset to a loss in doubtful accounts on the statement of revenues, Freeman deferred to controller Lisa Franklin or associate vice president of marketing and communications Tina Hall who, after repeated emails at the time of this writing, has not made any clarifications on this point.

 

Taking into account the financial statements, auditor comments, and testimonies of Powell and Jones, adherence to such a policy would have accrued smaller amounts of debt in a longer period of time over prior years. This slow growing of debt would have been more easily managed by administration.

 

Legislators also wanted to know why a 3% raise to the faculty, which has subsequently been rescinded, was granted if Powell knew the dire straits of the university’s financial situation. Powell and Jones agreed that because of “faculty unrest” and demand for increases, they recommended the board authorize the raise based on a rearrangement of the budget.

 

Three board members, chairman Johnny Hudson, former vice chair Brown Hardman, and secretary Eddie Arnold, took the stand and when asked about the raises in question stated that they were following the recommendations based on their understanding of financial statements that seemed to indicate there was enough money to cover the increases.

 

Overall, the hearing lasted a little more than four hours, which is unusual. Leading into the conclusion of the session Womack repeatedly mentioned that the session should come to a close.

 

“I believe there are things that are legal, and there are things that are honorable,” sen. Jason Rapert (R-Conway) said to Jones. “Given the impact of what you’ve done, I’d really question if it’s honorable you’re still being paid.”

Senator Jason Rapert questions former HSU officials.

Jones is currently under contract with HSU and on sabbatical until the Fall 2020 semester when he may return as a professor in the business department.

 

Rapert was vocal about Jones not expressing remorse or “even the phrase that we expect from a kindergartener – ‘I am sorry.’”

 

Jones expressed that he felt sorrow that his university was going through this debacle, especially under his presidency. He also made it known that his son has been negatively affected by fellow classmates due to these accusations.

 

Afterward, representatives, senators, and HSU faculty mingled briefly in the lobby of the Big Mac building beside the Ark. State Capitol building.

 

“There was a lot of finger pointing,” state representative Julie Mayberry (R-District 27) said. “This was definitely a different meeting.”

State Representative of Arkansas Julie Mayberry

Faculty expressed optimism for Henderson’s future.

 

“My goal is to take us into the future – past this chapter in the university – so we can build the next chapter,” acting president Elaine Kneebone, JD said.

 

Kneebone was appointed acting president on July 19, 2019. She has been with HSU since 2010, originally as general council. As an alumni who graduated in 1997 with a bachelor’s degree in history, she studied law abroad in New Zealand as a Rotary Foundation Academic Year Ambassadorial Scholar in 1998 and earned a Juris Doctorate in 2001 at the University of Ark. School of Law.

 

The committee sent this case to the Joint Processing Committee for further investigation. The Oracle staff will continue to follow this investigation and report findings.