Kansas committee asks if KBA audit did enough to expose problems

By Bob Weeks, Special to KansasWatchdog.org

Members of the joint Commerce and Economic Development Committees expressed concern that a forensic audit of the Kansas Bioscience Authority was not broad enough and that deliberate deletion of data from a KBA computer left questions unanswered.

On Wedesday James Snyder, managing partner for BKD’s Forensics and Valuation Services, told the committee that while his firm was hired and paid by KBA, Kansas Governor Sam Brownback’s administration was heavily involved. Secretary of Agriculture Dale Rodman served as the main contact for the Brownback Administration, although Caleb Stegall, the governor’s chief lawyer, and Steve Anderson, the Budget Director, also participated.

Snyder told the committee the audit process was designed to avoid a situation where after the final report was released, people would ask why certain facts were not considered or covered. “This process was specifically designed to avoid that, and it worked pretty well,” he said.

The Kansas Legislature created the KBA in 2004 and gave it $581 million to bring bioscience research and jobs to Kansas. KBA has been under fire for expenses and salaries paid to top executives and for giving grants to fund projects out of state.

Any disputes about the report’s contents were ironed out by January, but on Sunday, the day before the report was to be released, Rodman raised a difference of opinion over a possible conflict of interest involving former KBA board member Angela Kreps. Snyder characterized this as the only difference of opinion, and that it was a narrow and minor one.

Committee chair, Sen. Susan Wagle, a Wichita Republican, recognized that BKD’s position was “difficult,” as the firm was hired and paid by KBA, but it was also in frequent communication with the Brownback Administration. Snyder said the administration was involved in an oversight role, and also in defining the scope of the audit.

Senator Ty Masterson, an Andover Republican, expressed concern over possible deletion of computer files and that BKD could only “dive into that which you had, that you were provided.” BKD’s timeline of the audit showed that KBA leadership was apprised of an audit on March 10th, 2011. The next day CEO Tom Thornton accessed a computer hard drive on KBA’s network. The drive was accessible to only four people and held personnel records and confidential company information.

BKD was hired on April 11th, a fact Masterson said he found “fascinating” because KBA used a 30-day rolling backup scheme that would not have retained files deleted on or before March 10. The time lag from March 11th to April 11th means that if information was deleted from the J-Drive, it was not available to the BKD audit team.

The timing of this is “highly suspect,” Masterson said.

Snyder said the audit team had access to much information and that BKD received everything they asked for, but Masterson pointed out that we don’t know what might have been missing. Thornton’s personal laptop computer was erased or “wiped” days after the audit was called for in a way that made it impossible for the computer forensic team to recover the deleted data.

Snyder said that the committee should have high confidence in the audit’s findings and that the number of people and computers the team had access to was in many cases “extraordinary.” He also said that core KBA business records had integrity and there was no reason to suspect these systems had been compromised.

Masterson quoted from page 133 of the audit report: “Our analysis found 301 payments without a contract, including 102 payments that violated KBA’s Contract Policy. The total contract cost involved totaled $1,219,271.81 in payments without a contract, including $571,828.20 in payments which violated Contract Policy.”

Masterson noted that there’s no indication anything was technically illegal, but that the purview of the committee went beyond that. “Why do we put policies in place? It’s so that we can show best practice, best stewardship. You have shown over 300 violations of policy … I don’t know how we can paint this in the light that this is instilling confidence, and that it is clearing the air.”

Masterson also said that the best case seems to be that there was unethical management combined with inadequate oversight. He said there is the possibility of a coordinated cover up of behavior that could potentially be illegal.

Snyder answered that over time they observed “increasing sophistication” of board participation and compliance with procedures and that there had also been changes initiated by the board that offered protection.

Wagle said she received faxes from KBA employees expressing concern that the Senate Commerce Committee received altered documents. “It became very apparent that we could not rely on the information we were receiving,” she said. She asked Snyder if it was possible that documents were altered or erased so BKD did not see them.

Snyder said that although one expense report was altered, there was no indication of a “systematic issue” of alterations or erasures.

Wagle and Snyder disagreed over the extent of BKD’s contact with Wagle contending that it did not constitute an “interview” as claimed in the audit report.

Democratic Senator Tom Holland asked Snyder two questions relating to whether KBA has business policies and procedures in place to effectively run the organization, and has KBA consistently followed these? Snyder answered yes, with very few exceptions. “We found a very high level of compliance.”

Republican Senator Chris Steineger of Kansas City asked a series of questions regarding the mission of the KBA, which is, according to KBA “advancing Kansas’ leadership in bioscience” as well as creating investment and jobs in Kansas. Steineger expressed concern that much of KBA’s funding is spent on overhead, such as lawyers, architects, office buildings, travel, and dining.

Steineger distributed a series of calculations based on KBA data in the audit that he said reveals that KBA made $265 million in commitments resulting in 1,347 jobs for a cost of $196,808 per job created.

Steineger showed that removing the largest company from the mix — Quintiles, which created 1,000 jobs for a KBA contribution of $3.5 million — the remaining jobs cost more than $750,000 each.

Senator Jeff Longbine, an Emporia Republican, mentioned that there had been criticism of the KBA for insider activities among board members, conflicts of interest, cronyism, and fraud and asked Snyder if these accusations were true. Snyder said these generalized accusations were not true, although there was one instance where there was “some technical violation of a conflict of interest rule.” He said that KBA is not “fraught with fraud or self-dealing.”

The audit report also noted that KBA made regular use of executive sessions not open to the public and that, “No notes or recordings are made of Executive Sessions. This is a common business practice. Therefore, information discussed in Executive Session was not available for BKD’s review and could not be considered with regard to the findings of this report.”

In response to another question, Snyder said that no changes were recommended to the Kansas Economic Growth Act, the legislation that created the KBA. There were some recommendations to KBA board policies and procedures.

Wagle also noted that conflict of interest rules don’t really resolve conflicts. Generally, if KBA board members disclose that they have a conflict of interest — such as a company they have financial ties to getting a grant — they can refrain from voting to satisfy the rules. “To me, I don’t know if it’s okay with the people of Kansas,” Wagle said.

The joint hearing will continue tomorrow with a presentation from Rodman.

This article originally appeared on Kansas Watchdog.

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