Audit reveals discrepancies from Courtyard construction

The Winthrop administration is contesting an audit by the state of South Carolina.

A recent procurement audit of Winthrop University brought to light three specific issues.  It also set a precedent for the future construction of buildings used by a university and their students.

The audit, covering 2007-2010, was a procurement audit.  That reviews purchases by a state agency to ensure that these purchases followed state agency regulations. Audits are generally performed on state agencies, or universities, around every three years. The next similar audit of Winthrop is expected to cover 2011-2014.

However, during the audit, the state decided to raise an issue which stretched outside of the audit time span and went back to 2002—the building of The Courtyard.

“The state reached back to 2002 to raise an issue never raised before in any previous audit of that earlier time period,” said Rebecca Masters, assistant to the president, in an email.

According to Masters, The Courtyard was not constructed by Winthrop University or by state dollars.  Instead, the residence hall was built by the Winthrop University Real Estate Foundation (WUREF), which functions separately from Winthrop with a board made up of members from Winthrop as well as the Winthrop Foundation.  WUREF, a charitable organization, funded The Courtyard with private money.

Despite the fact that The Courtyard is actually owned by WUREF instead of the University, the construction of the building caught the attention of the auditors because it did not go through a lengthy state procurement process.  The process is required before the construction of all state-owned buildings, which includes buildings built on state-owned property by state dollars.

This restriction of this foundation marks the first of its kind in S.C., as no other constraints exist for any other S.C. foundation, according to Masters. “There is no law that requires foundations to take such projects through the state procurement process unless the building is (1) to be owned by the state, or (2) to be built on state property. The Courtyard is neither, and never has been,” said Masters.

“It is our belief that some officials in South Carolina—particularly procurement officials—do not want the charitable foundations that support respective public universities to build needed housing and such on private property because those projects can be built more quickly and cost-effectively without going through state permission/approval process,” Masters said. “But instead of seeking a law to that effect to apply to all such foundations in a statewide way, such officials are achieving their end by using state audit powers over the universities to quash any future foundation work of this type.”

Winthrop’s audit serves as an example and word of warning to other universities in S.C. “Because of what happened to Winthrop, other foundations are on notice that if they attempt to build similarly, the university they exist to help will risk the ire of procurement auditors who will go back a decade if they have to in order to put a cloud over both the project and the university itself,” said Masters.

Winthrop’s rival, Coastal Carolina University, was also criticized for a building project in previous years. While The Courtyard was built on private land, Coastal’s housing project was built on university-owned property.

“It is our understanding that USC-Beaufort may be next to be examined in this regard,” Masters said.

“Of greatest concern, however, is that the limitations on Winthrop (and even Rock Hill) from being able to benefit from WUREF projects in the future is permanent, even when no state funds are involved,” said Masters.

“That’s why we have fought this so hard,” said Masters. “No other university foundation has been limited via an audit of the university it assists to our knowledge—certainly not reaching back more than 10 years in regard to a project that has worked just fine for all involved for so many years.”

Auditors also found problems in the way that the University purchased a new computing system, “Banner.” This system is responsible for keeping “all student academic credit records, alumni degree records, personnel records and virtually anything else important,” said Masters.

The computer system that Winthrop had previously been using decided to suspend their service with short notice, causing Winthrop to need to pick a new system quickly.

The maker of Banner also had plans to increase the price of the computer system by $1 million. Winthrop decided to forgo having to spend that additional $1 million by simply making a documented sole source procurement, which is fully legal.

Winthrop would have had to procure that extra money either through state funds or raising students’ tuitions by about $200, according to Masters.

“Auditors basically said none of that mattered and we should have waited anyway and paid the extra million,” Masters said.

The audit also found an incident in which a Winthrop employee had been defrauding the University of money through using his procurement card and Paypal account for  alleged printing supplies that were never actually received. The fraud had been detected and dealt with by the University prior to the audit and had already recovered the missing money. The former employee is in jail.

Another Winthrop employee was also found to have not deposited certain money from the sale of scrap metal into the appropriate Winthrop accounts. Winthrop had detected that fraudulence as well but that Winthrop employee has since died.

Because of the audit, Winthrop now has to undergo some changes as punishment.

Winthrop now must get approval through the state procurement process for smaller than normal purchases for three years.

Winthrop’s old limit for supplies and services was $200,000. Now the new limit is $100,000. The old limit for consulting services was also $200,000. The new limit for consulting services is $100,000 as well.

The lowering of purchase prices “may slow some purchases down and involve more paperwork and trips to Columbia for staff, but otherwise, the impact is negligible— mainly inconvenience,” Masters said.

Despite the audit finding fault with The Courtyard, Winthrop has still constructed several buildings on state property that did go through the appropriate procurement process.

“Winthrop believes it did the appropriate thing in the above matters, protecting taxpayers and students from higher costs on the administrative computing system, and detecting a new fraud scheme internally and reporting it,” Masters said.

“Audit officials disagreed, and were granted their request to lower Winthrop’s procurement authority.”

It is not unusual for procurement audits to uncover mistakes in an agency. “Because there are so many rules, it is not unusual for auditors to find something to raise an ‘issue’ (concern) about; agencies then are given a chance to respond to that issue in writing with any mitigating circumstances,” said Masters.

Despite the setbacks, Winthrop is not just blindly accepting the audit. “Winthrop is continuing to look for a way to appeal the finding regarding WUREF and The Courtyard,” said Masters.

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