A consulting firm recently hired by UCLA to help reduce costs and generate new sources of revenue has been plagued by scandals surrounding its accounting practices.
We reported on Monday that UCLA is paying Huron Consulting Group up to $240,000 to work with a university task force that aims to better deal with current and future budget deficits by adopting a restructuring plan.
UCLA has also worked with Huron on several other projects in the past.
The blog Changing Universities, written by University Council-American Federation of Teachers President Bob Samuels, pointed out that Huron has been embroiled in controversy in recent months.
Huron revealed in an Aug. 10 filing that the Securities and Exchange Commission was investigating the consulting group because of accounting errors that forced Huron to restate its earnings for 2006, 2007, 2008 and the first quarter of 2009.
The accounting errors relate to four businesses Huron acquired between 2005 and 2007. According to a July 27 SEC filing, the selling shareholders of the acquired businesses had an agreement among themselves to reallocate some of their payments to Huron employees – resulting in an overstatement of earnings to the tune of $57 million.
The audit committee of Huron's board of directors first discovered the suspicious payments. As a result of the fiasco, CEO Gary Holdren and two other top executives resigned, the Chicago Tribune reported.
In a press release announcing his resignation, Holdren said:
“I am greatly disappointed and saddened by the need to restate Huron’s earnings. My management team and I have continually strived to establish legal, accounting and corporate governance conventions that are above reproach. However, I am persuaded that, because of the manner in which selling shareholders’ earn-out proceeds were distributed in certain recent transactions, Huron’s accounting was incorrect. Because the issue arose on my watch, I believe that it is my responsibility and my obligation to step aside.”
In addition to the company's accounting concerns, Huron mentions in its annual report to the SEC that it is one of the defendants in a 2007 lawsuit filed by Saint Vincent Catholic Medical Centers in New York.
According to a story in the New York Times, the hospital turned its management over to David E. Speltz and Timothy C. Weis, former managing partners with Huron, in 2004:
The lawsuit accused them of hiring high-priced contractors and padding their fees, instead of using hospital employees to do work. And it says they leveraged their positions with the hospital to negotiate the sale of their consulting company to Huron Consulting Group, in Chicago, also a defendant in the case.
From 2004 until the lawsuit was filed, St. Vincent's paid Speltz & Weis, which was based in New Hampshire, $30.8 million and Huron $1.2 million in fees and expenses, according to court papers.
The expenses included a personal membership in a private university club; trips to New York for spouses; hundreds of dinners in Manhattan restaurants' opera tickets; groceries, dry cleaning and laundry bills; and travel and housing fees for consultants from outside New York, according to court papers.
Lawyers for Mr. Speltz and Mr. Weis did not return calls for comment. But they said in court papers that the creditors had written a ''revisionist'' history of events that unfairly blamed their clients for a bankruptcy that was actually caused by a $60 million shortfall in accounts receivable that had not been detected by auditors. Their firm had to bring in contractors for important jobs because previous St. Vincent's managers had unwisely eliminated key positions, the lawyers said. The lawsuit is headed for mediation.
The Aug. 11 SEC filing also said the company was facing six shareholder class-action complaints in relation to the restatement of earnings.
Huron said it planned to cooperate with the SEC's investigation and that despite problems surrounding the accounting debacle, it continued to bring in clients.
UCLA isn't the only university that is staying on that client list.
The University of Wisconsin hired Huron in September to help install a new payroll, benefits and human resources computer system – a project for which Huron and its subcontractor, Accenture, will earn an estimated $46 million. The university's choice to work with Huron has raised the ire of some state lawmakers, the Associated Press reported.