Report No. 2007-56
The following report is our audit of the Missouri Higher Education Loan Authority (MOHELA)
Since the MOHELA was created in 1981, it has generally reinvested its operating surpluses in additional student loans, resulting in the accumulation of a substantial amount of marketable assets. At June 30, 2006, the MOHELA's net assets totaled about $234 million, with operating revenues exceeding operating expenses by over $25 million in fiscal year 2006, The MOHELA's authorizing statutes do not include provisions that identify the amount of liquid assets necessary for operations nor specify how any surpluses are to be used.
During 2007, a law was enacted that will require the MOHELA to distribute $350 million to the state over the next six years, primarily for various capital improvement projects at the state's public colleges and universities. The $230 million initial distribution was transferred to the state on September 14, 2007. However, a class-action lawsuit has been filed against the MOHELA contending that this plan is an illegal diversion of MOHELA assets. This lawsuit is currently pending. Regardless of how this litigation is resolved, the MOHELA has a fiduciary responsibility to identify any available surplus funds and use them to further its public mission.
The MOHELA has paid or will pay almost $2.3 million in severance benefits to four former executives who either resigned or whose employment was terminated in recent years. Approximately $2 million of this amount represented severance pay to these individuals. These severance benefits were excessive and do not appear to have been an appropriate use of monies. The related separation agreements included: total severance payments up to 2.8 times the applicable individual's annual salary, health insurance payments, pension benefits, and other lump sum payments. Recent board decisions indicate that any future severance benefits paid to executives will be substantially reduced. However, based on past board practices, there is no assurance that severance benefits paid to outgoing executives might differ from those outlined in formal or informal employment arrangements.
From fiscal year 2001 through fiscal year 2004, five MOHELA executives (including the four discussed previously) received annual performance bonuses totaling almost $1.5 million. The performance bonuses paid to executives for fiscal year 2004 ranged from $112,500 to $157,500, and were computed based on 45 percent of those individuals' annual base salaries for that year. In addition, the executives' base salaries in fiscal years 2001 and 2004 were increased temporarily during the first three months of those periods. These temporary salary increases totaled $65,000 and $82,500 in fiscal years 2001 and 2004, respectively. This additional compensation was "in consideration for upcoming extraordinary activities required of the Employee in the next quarter …"
In late 2000, the MOHELA entered into a contract with a general contractor to build a new headquarters building at an amount not to exceed approximately $11 million. The MOHELA could produce no documentation to support how this contractor was selected and it appears competitive bids were not solicited related to these services. The MOHELA also paid over $400,000 for architectural services related to this project for which competitive proposals were not solicited. In addition, the MOHELA allowed the construction manager of a parking lot expansion project to submit two bids and perform construction work on the project, which violates state law.
After the MOHELA moved into its new headquarters building in April 2002, it paid over $1.25 million in lease payments for an 18-month period for a leased building it had previously occupied, but no longer needed. The authority's lease on the old building did not expire until October 2003. A five-year lease on the previous headquarters building had been signed and the authority was unable to get out of the lease agreement, which required a lease payment of approximately $69,600 per month, plus a monthly fee for utilities. The MOHELA was unable to find another company to sublease the leased property, so it was used to store old office furniture and equipment during the remainder of the lease period.
The MOHELA had no formal procurement policy prior to March 31, 2007. As a result, during the past three fiscal years, various expenditures were noted in which competitive bids (or competitive proposals, in the case of professional services) were not solicited and/or retained including, but not limited to: attorney services, $1,752,483; public relations and marketing, $924,254; office supplies, $716,779; automated loan data exchange services, $455,016; computer equipment, $444,073; bulk mail services, $218,296; promotional items, $199,758; and the services of a strategic planning consultant totaling more than $233,800. MOHELA officials indicated that some of these services were obtained from sole source providers; however, documentation justifying these situations was not maintained. In addition, the MOHELA did not go through a formal request for proposal process to procure trustee bank services during 2003. The trustee bank currently receives fees totaling about $750,000 annually for its services.
The MOHELA did not have a complete listing of its property items, with its accounting records only including those items costing over $10,000. In addition, periodic physical inventories are not performed, and most items are not identified with a tag or other device identifying them as MOHELA property. Also, adequate records had not been established to authorize and account for the disposition of property items, even though the authority disposed of over 1,200 property items with an original cost totaling over $3.8 million from July 1, 2003 through December 31, 2006. Many of these items were disposed of during or around October 2003, when the lease on the prior headquarters building expired. Further, it has been MOHELA's policy to offer any surplus or unneeded property items for sale to its employees (or members of their immediate families), rather than selling such items through a public auction, which is the common practice in the public sector.
The MOHELA did not always receive adequate supporting documentation prior to paying invoices. One of the examples noted included a $198,514 payment to a financial consulting firm hired in 2006 to review the financial feasibility of the Lewis and Clark Discovery Initiative. In addition, we noted over $19,300 in other payments made without adequate or detailed supporting documentation. Also, a review of some procurement card purchases disclosed that adequate supporting documentation was not always submitted to support these expenditures. In some instances, receipt slips were not submitted for items purchased. In other instances, only a credit card charge slip was submitted, rather than a detailed invoice or receipt slip.
Several internal audits could not be completed and the reports issued in a timely manner due to management's delay in providing formal responses to the auditors. This resulted in the MOHELA Board not receiving the internal audit reports timely and a delay in the implementation of some audit recommendations. The MOHELA paid an outside auditing firm over $345,000 for these internal audit-related services.
In recent years, the MOHELA Board closed its meetings on numerous occasions, which may constitute a violation of state law. Section 173.365, RSMo, in referring to the MOHELA, states, "Each meeting of the authority for any purpose whatsoever shall be open to the public" (emphasis added).
The State Auditor's Office (SAO) requested access to the closed meeting minutes of the MOHELA Board, considering a review of these records as pertinent and necessary for the completion of all planned/required audit work. The board decided not to provide the closed meeting minutes and litigation is currently pending regarding this matter. Because we have not been allowed to review the board's closed meeting minutes, this has limited the scope of our work necessary to complete this audit and prevented us from considering any pertinent information contained in those minutes in our findings and conclusions.
Missouri State Auditor's Office