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UCLA consultant involved in accounting scandal

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.

California Watch, UCLA, Huron Consulting Group

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.

Filed under: Higher Ed, Daily Report

Comments

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uclafundmanagers's picture
We concerned fund and finance manages are planning to send the Draft open letter below to the UCLA Chancellor, UC President, the Regents and Interested Parties to alert them to these disturbing developments. Despite the budget crisis and giving as big salary reductions resulting from furloughs and increase in benefits rate, UCLA management is spending taxpayer's dollars indiscriminately. We plan to send this letter next week. If this is ignored, we plan to do the following: 1. ask the help of taxpayer's advocates and legal experts to see how a taxpayer's lawsuit can be commenced to stop this. 2. seek redress of our grievances by asking the assistance of the unions and the press. 3. various job actions. If you have comments or suggestions, pls send us an email. But create a dummy email account thru gmail or yahoo to remain anonymous. We appreciate your support for this cause. March 10, 2010 DRAFT OPEN LETTER TO THE UCLA CHANCELLOR, UC REGENTS, FELLOW FUND AND FINANCE MANAGERS, AND INTERESTED PARTIES: We the concerned UCLA Fund and FinanceManagers are outraged with the insensitive, wasteful, impractical and improper spending of millions of taxpayers’ dollars at the University of California, Los Angeles campus made especially ironic at this time of scarce resources, layoffs, pay cut through furloughs, benefit rate increases, unpaid leave and budget shortfall. A recent email sent University-wide made this open-letter more urgent and necessary because of the announced plan not only to extend but expand the role of an out-of-state consulting firm from Chicago currently paid millions of taxpayer dollars since they started early last year. This consulting firm came in the heels of the newly appointed Associate Vice Chancellor for Research (AVC). The facts: Huron Consulting was hired in late 2008 to do a study regarding the financial reporting backlog of the research awards given to the University. Huron then was hired by the new AVC in early 2009 up to the present to help make the financial reporting system become more efficient and to solve the backlog problem Huron sent two consultants who started work in February 2009 at a cost of more than $120,000 per month or over $60,000 each. Huron sent three additional junior associates in late 2009 at an additional costs of over $24,000 or an average of $8,000 each to help in financial reporting Huron has been paid over $1.2 million dollars from their billings from February 2009 through November 2009 (and counting) Another $5 million dollars was reportedly allotted recently to this AVC and 10% or $500,000 of which was immediately budgeted for Huron for their presence in the UCLA campus which would probably pay them until about April 2010. The consultants are projected to work at UCLA with expanded role and increase billings for a few more years. The only significant work done by Huron’s million-dollar work to date is making the financial report submitted by departments at the end of each research award look good and fancy. The AVC is trying to make the job look larger and comprehensive by adding other work by-products like invoicing and others. The job is actually being done thru the work and ideas of hard working UCLA employees and programmers from various offices who meet weekly with Huron only facilitating. The strange thing about this is that the components of this financial report are already being routinely use for years by the School of Medicine and are just not being introduced campus-wide. Other departments have their own similar tools. But the bottom line is the source of the information is the same, the official records of the University. The reason for the backlog is not because UCLA needs new fancy looking tools. It is because the financial reports are not submitted on time. The reasons vary from lack of personnel, lack of training and lack of active enforcement. New and fancy tools will not solve the issues if the basic roots of the problem are not addressed. UCLA management does not need out-of-state consultants to introduce existing campus financial tools and spend millions of taxpayer dollars and counting. They could have appointed and created an in-house position with a strong mandate and authority to do the same function at a small fraction of the cost. Huron is a consulting firm whose business is to get their services engaged and earn a profit at all cost. In this troubled economy, normally consultants are a luxury and the first cost to be cut precisely because they are expensive (for us, more than a million dollars in 10 months and now running $145,000+ a month). Consultants present themselves as experts who can turn around inefficiency and ineffectiveness. They are flashy and present their products as such. What are lacking are common sense, strong leadership and political will by UCLA management. It is crystal clear that UCLA management, who are government employees and being paid by us, the taxpayers, has failed again its stakeholders, its employees, students and taxpayers. When everyone is talking about layoffs, pay cuts, furlough, reduction in benefits and school fee increases, UCLA management are spending indiscriminately and wantonly. These shameful actions are being done on the backs of employees who are made to suffer pay reduction thru furloughs and layoffs, students who are given the continuing burden of double digit school fee increases and taxpayers who are provided less services and opportunities. What can the $1.2 million and the additional $5 million do for us these days? One month billing of Huron is equivalent to the annual salaries of about 3 additional fund managers One month billing of Huron is a lot more than the annual salary of the new Director hired by Corporate Accounting to modernize the entire UCLA Financial System Two-month billing of Huron is more than the $225K salary of the AVC for Research The one-year billing of Huron could fund the salaries of 36 fund managers for a year The billings of Huron could mitigate all the fund and finance manager’s salary cuts resulting from furlough with still a lot of change left over The anticipated billing for Huron could have funded the full budget, without furlough, of each of the departments of the Office of Research, consisting of about 50 employees each, with a lot of change left over. The cost of this Huron scandal could have funded the employee benefits to defray the increase in 2010 health insurance rates just like what was done last year. Who is laughing now? When you see the AVC and the Huron consultants walking in campus with their fixed big smile, you know why they are smiling. They are smiling because they have con us in accepting the salary cuts so they can enjoy the funds due us. They are smiling because the salary reduction that was taken from hard working UCLA employees are going to them. They are smiling because they will probably get hefty bonuses for garnering this contract that will earn Huron’s partners in Chicago millions of dollar. The Huron employees could not be paid higher than the AVC, so the partners of Huron in Chicago are probably counting their shares in the profit and pouring champagne. To top it off and add insult to this irony, these out-of-state consultants are more than likely not paying non-resident state taxes. Fund Managers work involves supporting the Principal Investigators, sometimes in very challenging conditions, during the pre-award and post-award phases of their research awards. Although it caused too much pain, we went along with the furlough resulting to big salary reductions after UCLA management led us to believe that there was imminent fiscal emergency. What we don’t need is for the UCLA management to look for scapegoats or do a witch hunt and retaliate. What we don’t need is doing business as usual without regard to the current crisis. What we need is for this to stop. And we need the bleeding to stop immediately. Any available funds should be used conservatively and appropriately. At this time of financial crisis, the worse thing an institution’s management can do is not prioritize its spending and do business as usual and not in crisis. The eventual result and impact of this project may be good, but the timing, incredible involvement of million-dollar consultants and extent of the cost are not only suspect and inappropriate but scandalous. We need policy and procedural improvement to comply with regulations. But do we really need out-of-state consultants to facilitate proper and timely financial reporting at a cost of over $5 million dollars? We should ask for the return of those tax dollars unwisely and inappropriately spent and make the persons responsible for this debacle accountable and sanctioned. We should always put the taxpayers, students, employees and institution’s welfare above all else. We should maximize the synergy that can be derived from our own community, a touted and reputable institution of higher learning, to make our operations more effective and efficient. We should conserve our resources so we can get thru this hard times. Sadly, the way this UCLA management acted is deplorable. But hopefully, the way it does business will change. And immediately change for the better. If changes are not immediately done, we will be forced to work with taxpayer advocates, unions, and other interested parties or conduct job actions to ensure that taxpayer’s money are wisely and appropriately spent. CONCERNED FUND AND FINANCE MANAGERS OF UCLA
Cancasa's picture
Most accounting "errors" are to be found in the off balance sheet section of company accounts. It seems like most companies are in on the act and corruption has become deeply rooted in their accounting.
Will Awnings's picture
Surely UCLA would have done proper background research on their accounting teams?! This is mad!

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