UPDATE: The story originally ran in the afternoon of March 23, when the meeting mentioned in the story was still going on. New information has come to light and relevant details have been added.
Administrative staff at The Kentucky Community & Technical College System have allegedly discovered an estimated $75 million system office fund balance, which was misrepresented on recent audits. At this time, it’s not clear if the money was neglected, misreported or actively concealed.
The Kentucky Community & Technical College System includes Gateway Community & Technical College in Florence, along with 15 others across the state.
During a Board of Regents meeting Thursday, the board unexpectedly entered into a closed executive session after a report on the system’s financials from acting president Dr. Larry Ferguson.
Immediately before the motion, Ferguson had given the president’s report, which included items listed on the agenda, such as an update on legislation as well as plans for transitioning the system to having a permanent or interim president.
At the end of his report, Ferguson discussed a matter related to the budget.
“The next thing I’m going to say is little more difficult, but it’s something that I…” he said, “we were compelled to share with the board.”
He went on to say that when he accepted the role, he had no idea that he would have to inform the board about such a serious matter.
“What we have found in trying to attempt to answer that question regarding fund balances is that the system office appears to have a fund balance that was reported to the board, but not specifically noted as a fund balance,” Ferguson said.
In other words, the system office had a pool of money that was not properly reported on recent audits. He said that the money was attested on the audit documents, but it was difficult to find without special accounting expertise. Moreover, it was “not labeled as a fund balance.”
“The fund balance comes from a variety of sources,” Ferguson told the board, “such as interest on investments and internal charges to our colleges.”
He compared the fund balance to a sort of institutional savings account that carries forward.
How much money was improperly reported?
Ferguson estimated about $75 million.
Ferguson then said that if he had known about this before he accepted the position of acting president, he probably would have passed.
“I caution everyone that there is still ongoing research that is pending to ensure that that is appropriate,” Ferguson said. “And we are going to have to determine what is an appropriate amount for the fund balance. We’re looking into that now.”
He then said that balances of this sort were not unusual.
“A fund balance is appropriate; the system office should have one,” Ferguson said. “The past few days, I’ve been on phone conversations with people at other systems asking them what their fund balance was. Believe it or not, a lot of them were in this range that we’re at, but some of them have many more colleges than we do; so what we’re going to determine–scientifically and through analysis–determine what should the fund balance be at the system office. But they should have one. It’s necessary to have one in the event of some sort of emergent situation.”
“Ultimately,” Ferguson added, “the college paid into where this fund balance was as well as some interest that was earned on those monies.”
Ferguson concluded by saying it is now in the regents’ hands to determine the best path forward.
“What are we going to do now,” he asked. “We’ve determined that these monies are there. The question has been answered. You know, what is the appropriate way for us to move forward?”
It was at this moment that Regent Heerdink called to close the session.
In a statement from KCTCS from after the meeting, the college system said the board of regents had voted to “ask State Auditor Mike Harmon to begin an examination of the financial systems, internal policies, controls of the system.”
The statement went on to say that system fund balance in question was typically used for things like “asset preservation or starting new programs” and that both the central system office and each of the 16 schools in the KCTCS system employ such funds.
The system will also employ a private accounting firm, FORVIS, who “will conduct a forensic audit to ensure all accounting procedures are industry best practices and to determine what the recommended fund balance should be.”
The statement did not address the outcome of the closed executive session.
LINK nky will update this story as more information becomes available.
