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 PITTSBURGH, Pa., March 5 /PRNewswire/ -- Auditor General Barbara

Hafer today announced the results of her department's special review of the University of Pittsburgh (Pitt) and renewed her call for the establishment of guidelines to ensure greater accountability for the spending of state tax dollars by state-related schools.
 "Last year, Pitt received $131 million in state funding, but like other state-related schools, was barely required to answer for that money. If we want to receive real answers about the way Pitt spends public funds, we must start asking real questions. Those questions must come from the Pennsylvania legislature in the form of established guidelines for spending," Hafer said. "The results of our review underscore this need, as well as the need for greater internal oversight on Pitt's part."
 Hafer's department conducted its special review at the request of the chairman of the Board of Trustees, following public outcry over alleged questionable spending practices by the university.
 "In response to Pitt's request, we have now completed a more extensive review of the university's spending than had ever been conducted in the past by this department," Hafer noted.
 The review, covering the period July 1, 1989, through Oct. 31, 1991, assessed Pitt's governing structure and determined that the Board of Trustees did not provide adequate oversight of the operations of the university.
 The university's charter charges the Board of Trustees to oversee the affairs of Pitt and to ensure efficient operations through the appointment of officers and managers. The act of July 28, 1966, explicitly specifies responsibilities by stating "...the entire management, control and conduct of instructional, administrative, and financial affairs of the University is vested in the Board of Trustees."
 "It is clear that the board lost sight of its goal -- oversight," Hafer said. "The board had delegated much of its authority to subcommittees and simply rubber-stamped important administrative issues that were presented in meetings. The board's job is to provide direction and oversight through policy. That's where the board fell down on the job."
 Auditors noted that many board members were chosen for their ability to provide financial support, and not for their commitment to meet the mandates of state law and the university's charter. Some often had other major obligations which prevented them from attending all meetings. The chairman stated that problems have surfaced at Pitt because the organization had gotten too big and because management controls were not fully implemented. He stated that the board did not receive nor did it solicit enough input from the faculty on strategies and resources.
 The Board of Trustees is comprised of 36 voting members: 12 Charter, 12 Commonwealth, 6 Alumni and 6 term. Twelve special trustees and an unspecified number of emeritus trustees also sit on the board.
 Chartered in 1787, Pitt has evolved into a complex weave of academic and business interests. The university employs more than 10,200 faculty and staff with a $646 million annual operating budget. During the fall term of 1989, it provided educational services to 34,686 full- and part- time students on all of its campuses. Only 12 percent, or 4,129 of these students, were non-Pennsylvania residents.
 For the fiscal year ended June 30, 1990, the Commonwealth of Pennsylvania provided Pitt with a non-preferred appropriation of $131 million, or 20 percent of its total annual budget. This appropriation is distributed in several major programs.
 Auditors found no evidence of unlawful activity in the areas reviewed, but numerous examples of questionable judgment in spending practices. The review did not examine areas of Pitt already under investigation by law enforcement agencies such as the Golden Panther's Club and Pitt's food service contractor.
 Based upon testing $829,057 in expenses, auditors concluded that Pitt's management generally complied with the policies and procedures governing bid selection, travel expense, and selection of consulting and professional services. However, policies and procedures governing entertainment expenses could be strengthened, the audit suggested. While reviewing entertainment expenses, auditors noted excessive costs, paid for by Pitt, in membership dues to social clubs and business luncheons. The audit noted virtually all management was entitled to these perks if approved by a superior.
 "Without guidelines to effectively control non-preferred appropriations, the commonwealth cannot recover any of its appropriation unless total allowable costs in a funded program fall below the amount allocated by the state. As a result, the Commonwealth may inadvertently be funding expenditures that any citizen would consider excessive," Hafer said.
 Examples of such expenditures are first-class travel, unrelated travel, entertainment and the purchase of alcoholic beverages. However, since the total of other allowable expenses usually exceeds the state appropriation to the funded program, these questionable charges are not considered to have been made with the state appropriation.
 "Recently, I have been very vocal about this questionable judgment in spending, but this judgment is not the root of the problem," Hafer said. "The root of the problem is embedded deep within the Pennsylvania appropriations system. I can only hope that this review will serve as a catalyst for the legislature, prompting them to dig deeper and uproot this problem by establishing strict guidelines which ensure that tax dollars given to institutions of higher learning are spent prudently."
 Hafer, in the audit, called on the legislature to consider some viable alternatives to the non-preferred appropriation acts which would provide more effective monitoring, or eliminate the need for monitoring. These alternatives are as follows:
 1) Restricted Funds: This method would establish restricted funds or accounts which would effectively segregate the commonwealth appropriation and the expenditures associated with it.
 2) Percentage of Total Revenues: Under this option, a percentage of each questioned expenditure would be returned to the commonwealth in the same ratio as the amount of the commonwealth's appropriation to the total institution's revenues. Using Pitt as an example, 20 percent of any questioned costs would be recovered because the commonwealth's appropriation represented 20 percent of Pitt's total current fund revenues of $646 million for the period.
 3) Payor of Last Resort: Under this system, total eligible costs would be determined first (questioned expenditures would reduce eligible costs). Total revenues received and earned by the institutions, not including the state appropriation, would be used to cover eligible expenditures. If expenditures still exceed revenues, the Commonwealth's funding would be applied up to the allocated amount, and no more.
 4) Student Specific Appropriation: Under this method, no private institutions would receive a non-preferred appropriation. Funds previously received by these institutions would be distributed in the form of grants to Pennsylvania residents to be used at the Pennsylvania college or university of the student's choice.
 The review also evaluated practices for hiring and compensating high-level management personnel, and examined the reports and corresponding workpapers of Pitt's independent certified public accountant and of its Internal Audit Department.
 "As a direct response to our questions on the board's awareness of audit issues, the Audit Department now sends audit reports directly to the chancellor and sends an audit activity report to the chairman of the board and the chairman of the Budget/Audit Committee," Hafer said. "This is a major improvement because it makes the full board aware of problems and what is being done about them."
 -0- 3/5/92
 /Editors: Copies of the review may be obtained by calling contact./
 /CONTACT: Steve Schell or Karen Gray of the Office of Auditor General, 717-787-1381, or, 717-787-4486/ CO: Office of Auditor General; University of Pittsburgh ST: Pennsylvania IN: SU:

MK-CC -- PH021 -- 5490 03/05/92 13:25 EST
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Date:Mar 5, 1992

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