Florida Public Universities Face Scrutiny Over Spending on New Construction Projects
On October 16, 2018, the Facilities and Budget and Finance Committees of the Board of Governors (BOG) for Florida's State University System met to consider, among other things, spending recommendations for capital improvement projects funded by Public Education Capital Outlay (PECO) funds and revisions to the Public Private Partnership (P3) guidelines. PECO funds are used to acquire, renovate, remodel, construct, and improve sites necessary to accommodate buildings, equipment, and special educational use areas that serve primarily educational instructional programs. The meeting took place against the backdrop of increased scrutiny over spending for new construction projects by Florida's public universities.
In August 2018, a state audit revealed that a Florida public university had misused operating funds (also known as carry-forward funds) from the Education and General (E&G) accounts to finance the construction of a new campus building. The following month, that university's Board of Trustees met to discuss the replenishment of the E&G accounts, and retained outside legal counsel to conduct a forensic audit of other funding, which, while still ongoing, uncovered additional improper expenditures. This revelation led the BOG Chair to send a letter on September 19, 2018 to Florida's 12 public universities "requesting each university to undertake a review of the funding sources for all university capital projects approved by a board of trustees since July 1, 2008 to the present" and directed each institution's President, Chief Operating Officer, and General Counsel to "certify to the board of trustees and to the Board of Governors that the funding sources used were legally available for the projects[.]" The letter did not set a hard deadline or timetable by which the review must be completed.
Universities continue to request funds for new construction to maintain their competitive edge and improve campus facilities. At the October 16, 2018 meeting alone, the BOG Facilities Committee considered funding requests for 17 new projects across the university system's footprint. As Florida universities work to comply with the recent BOG request for an internal compliance audit, we recommend that offices of general counsel, in close consultation with the appropriate finance office(s), develop a protocol that includes, among other things:
- Identifying the capital improvement projects undertaken by the university during the relevant 10-year time frame.
- Identifying the internal person(s) with most knowledge and understanding of the audited financial statements associated with each project to review and explain the accounts and source of funds used for each project.
- Forming a committee comprised of internal legal counsel, financial professionals, and compliance officers to review and synthesize the findings.
- Preparing a detailed report explaining the processes and procedures developed to respond to the BOG request, the actual findings and conclusions of the internal compliance audit, and what the university intends to do on a go forward basis to ensure compliance.
Although the BOG requested each university president, chief operating officer, and general counsel to "certify" the findings of their investigation, university leadership is encouraged to "represent" the findings (as opposed to "certify" or "warrant" them) and to clarify that they were based on a review of the regularly kept business records of the institution. Because the university president, chief operating officer, and general counsel are unlikely to have personal knowledge of the funding associated with each capital improvement project, many of which may have predated their respective employment or the employment of those tasked with conducting the internal compliance audit, caution should be taken before "certifying" such results.
Saul Ewing Arnstein & Lehr's Higher Education attorneys regularly counsel clients navigating compliance audits. For more information, please contact the author or your regular Saul Ewing Arnstein & Lehr LLP point of contact for questions or assistance.