The official minutes of the University of South Carolina Board of Trustees are maintained by the Secretary of the Board. Certified copies of minutes may be requested by contacting the Board of Trustees’ Office. Electronic or other copies of original minutes are not official Board of Trustees' documents.

The Fiscal Policy Committee of the University of South Carolina Board of Trustees met on Thursday, March 20, 2003, at 11:05 a.m. in the Carolina Plaza Board Room.

Members present were: Mr. M. Wayne Staton, Chairman; Mr. John S. Long; Mr. Robert N. McLellan; Ms. Darla D. Moore; Mr. John C. von Lehe, Jr.; Mr. Mack I. Whittle, Jr., Board Chairman; and Mr. Herbert C. Adams, Board Vice Chairman. Members absent were: Mr. Michael J. Mungo; Mr. James A. Shuford, III; and Mr. Othniel H. Wienges, Jr. Mr. James Bradley was also present.

Others present were: President Andrew A. Sorensen; Secretary Thomas L. Stepp; Executive Vice President for Academic Affairs and Provost Jerome D. Odom; Associate Provost John N. Olsgaard; Vice President and Chief Financial Officer Richard W. Kelly; Vice President for Information Technology and Chief Information Officer William F. Hogue; Vice President for Human Resources Jane M. Jameson; Vice President for Student and Alumni Services and Interim Director of Development Dennis A. Pruitt; General Counsel Walter (Terry) H. Parham; Vice Provost and Executive Dean for Regional Campuses and Continuing Education Chris P. Plyler; Dean of USC Lancaster John Catalano; Dean of University Libraries Paul A. Willis; Interim Dean of the College of Social Work Leon Ginsberg; Professor and Director, School of Library and Information Science, College of Mass Communications and Information Studies, Fred W. Roper; Associate Dean, School of Library and Information Science, College of Mass Communications and Information Studies, Gayle Douglas; Executive Director of the Office of Foundations Susie H. VanHuss; Assistant Treasurer Susan D. Hanna; Director of the Department of Internal Audit Alton McCoy; Controller John H. Campbell; Assistant to the Vice President, Office of Business and Finance, Ken Corbett; Director of Business Affairs Helen Zeigler; Director of Purchasing Scott E. Reynolds; Director of Accounting Services, Controller's Office, Patrick M. Lardner; Associate Professor, USC Lancaster, Thomas H. Fox; Librarian for Administrative Services, University Libraries, C.J. Cambre, Jr.; Business Manager, College of Social Work, Beverly L. Simmons; Public Relations Coordinator, Office of Media Relations, Karen Petit; and Director of the Office of Public Affairs Russell McKinney.

Chairman Staton called the meeting to order. He welcomed everyone present and invited them to introduce themselves. Mr. McKinney stated that no members of the media were in attendance. Chairman Staton stated that notice of the meeting had been posted and the press notified as required by the Freedom of Information Act; the agenda and supporting materials had been circulated to the Committee; and a quorum was present to conduct business.

There was a personnel matter which was appropriate for discussion in Executive Session. Chairman Staton called for a motion to enter Executive Session. Mr. von Lehe so moved, and Mr. Long seconded the motion. The vote was taken, and the motion carried.

The following persons were invited to remain: Dr. Sorensen, Mr. Stepp, Dr. Odom, Mr. Kelly, Ms. Jameson, Dr. Pruitt, Mr. Parham, Dr. VanHuss, Mr. McCoy, Ms. Zeigler, Ms. Stone, and Ms. Tweedy.

Return to Open Session

1. Audit Tracking Report: Chairman Staton called on Mr. McCoy who stated that a number of audit tracking items had been removed since the previous Fiscal Policy Committee meeting in October 2002. He particularly noted the College of Social Work audit which had cited more than 30 findings; every exception had been corrected.

   Remaining on the report were an additional four findings, two of which concerned rental property and would be resolved in the near future. Problems had been encountered in the Institute of Public Affairs because an external checking account had been opened; the Internal Audit Office was working closely with the Institute's business manager to reconcile the various accounts on a routine basis. And finally, the Legal Department was in the process of settling the matter of unpaid travel advances from former Athletics Department employees.

2. Internal Audits:
   1. College of Library and Information Sciences: Mr. McCoy reported that this audit had revealed credit card violations including VISA purchases which had been charged to an incorrect account; use of a VISA card by another individual other than the responsible person; and missing invoices. He was confident that these findings would be resolved through the new credit card training process which would commence in the near future. In addition, this college had experienced a $356,000 shortfall before merging with the College of Journalism and Mass Communications during the past year; departmental funds had been used to cover the deficit. Mr. McCoy cautioned that "E" funds were no longer available to cover deficits of this magnitude. He believed that Dean Bierbauer, as the new dean of the combined colleges, would appropriately handle budgetary matters in the future.

      Mr. Adams inquired about the finding which involved the use of a VISA credit card by another individual. He was concerned that too many of these instances would create an illusion of "the normal way to conduct business." Mr. Whittle believed that a large volume of such actions would ultimately distort the interpretation of acceptable behavior beyond the boundary of an established credit card policy. Mr. McLellan suggested that using another person's credit card at the request of this individual could be defined and noted as an exception which violated a rule.

      Chairman Staton commented that handing a credit card to another individual automatically implicated the responsible person. "That's the bottom line." Appropriate business conduct mandated that all such actions should be noted and explained satisfactorily.

   2. Purchasing Department: Mr. McCoy explained that the Purchasing Department audit had involved a review of the various levels of the procurement process, including the on campus use of the VISA card; VISA transactions and statements of various departments had been meticulously examined.

      Because a large number of procedural problems had been discovered, and particularly as a result of embezzlement charges which had been filed against an employee who had purchased equipment using University credit cards and subsequently selling the items to a pawn shop for personal gain, the Chief Financial Officer, Mr. Rick Kelly, had drafted a new institutional credit card policy. The policy had incorporated various techniques including a separation of duties and a monthly reporting process which would hopefully prevent further occurrences of this magnitude in the future.

      Mr. Kelly stated that the revised payment procedure of the new credit card policy had been included in the Purchasing Department report. He particularly noted that the responsibility for verifying credit card accuracy had been raised to the level of the department chair. Compliance failure would result in the following actions:

      • the Director of Purchasing will immediately contact the department chair to reconcile problems;
      • if this intervention did not conclude favorably, the Director of Purchasing will advance concerns to the Provost's Office or to the Financial Affairs Office as appropriate;
      • failure to respond in a suitable manner could result in the removal of credit cards.

      Mr. Kelly further explained that this process "has to be administered centrally, but managed out in the field, so our policy has to be such that it allows as much efficiency and flexibility as we can, but at a level of responsibility that warrants these types of transactions."

      The other audit finding had involved VISA credit card purchasing limits. Mr. McCoy stated that $5,000 overall limit with a $1,500 per purchase limit had been established as University limits. In one particular case, an individual had misused the limit to split purchases which should have been competitively bid. Mr. Kelly indicated that the procedures for raising the limits had been reevaluated; in the future, departmental chair or responsible persons above this level must submit requests to the Director of Purchasing for approval and subsequent careful monitoring. In addition, the policy had been modified to clearly designate that electronic merchandise rebates must be returned to the University and not the individual cardholder. This information will also be discussed during the credit card training process.

      Chairman Staton commented that rebate agreements were established between the University and the vendor, not the purchasing card company. Further, it was not possible to track these payments because the vendor would not provide the information to the University. Mr. Kelly remarked that this issue, as well as other concerns of this nature, were addressed in the draft fraud policy which Secretary Stepp would present later in the meeting. He also noted that Chairman Staton had recommended that the University seek the assistance of the credit card companies because they dealt with these problems from many companies and should be able to suggest best practices. Mr. Kelly emphasized the fact that it was very difficult to monitor the activities.

      A final finding addressed file security which the Purchasing Department had satisfactorily resolved.

   3. Accounting Services: As a result of the Accounting Services audit, a minor exception had been found in the area of travel reimbursement vouchers. Mr. McCoy indicated that many individuals other than the travelers were completing and signing these forms. He referenced a statement on this form which read: "I certify that the above expenses are just and true, that they were incurred on official business of the University of South Carolina and that they have not been, nor will they be, reimbursed from any other source." He stressed the importance of the traveler signing a statement which attested to the fact that the reimbursement information was legitimate.

   4. USC Lancaster: Mr. McCoy stated that Dean Catalano had resolved the minor audit findings.

3. University Fraud Policy: Chairman Staton recognized Secretary Stepp who explained that late last year the Fiscal Policy Committee had asked him, Mr. McCoy, Ms. Jameson, and Mr. Parham to draft a policy which addressed dishonest acts and fraud; he thanked Mr. McCoy for composing the first draft. Currently, it was being presented to members of the administration and faculty for consideration. He proposed to present this document for formal approval during the next scheduled Committee meeting in June.

   Secretary Stepp noted that this policy defined extensively the meaning of dishonest acts and fraud as well as promoted high and positive standards; advised University community members of their responsibility to behave in a proer fashion; and outlined various disciplines as a result of committing dishonest acts or fraud or, if appropriate, for not reporting such acts. Disciplinary actions included internal discipline, the potential of criminal discipline, or civil action in court. "You cannot act falsely, dishonestly for yourself or for the University of South Carolina if you are an institutional representative and you cannot be aware of such activity by other people and not report that through a process that is formalized in this draft policy." Secretary Stepp advised the Committee that ultimately the Internal Audit Department was the principal investigator unless law enforcement activities or the inclusion of Human Resources and the Legal Department were required.

   Responding to Mr. McLellan's question about the investigation of criminal activities, Mr. Parham indicated that whichever law enforcement division was involved would work with the solicitor or prosecutor in the jurisdiction where the activity occurred. "Only in conjunction with that outside judicial authority (the solicitor) is a decision made about whether a charge should or should not be brought."

4. SEC and ACC Endowment Report: Chairman Staton called on Mr. McCoy who stated that each February the National Association of Colleges and Universities business officers published a report of the endowment values from most of the institutions in this country; from that report he extrapolated the SEC and ACC institutional figures for Fiscal Policy Committee review. Discussion ensued regarding the manner in which these figures were reported.

   Chairman Staton recognized Dr. Susie VanHuss, Executive Director of the Foundations, who distributed information about peer institutions which that office also tracked. This report listed the absolute endowment as well as the 1, 5, and 10 year growth projections. Of prime significance was the fact that, for the first time last year, the Foundations had experienced a drop in endowment funds since figures had been reported in 1992.

   President Sorensen noted that he had been a senior administrator at three of the listed universities. One of the institutions had incorporated a plan to match every private dollar with a dollar from the state; both the state and private dollars were reported. At another university, he explained that when a gift was given and subsequently appraised, without exception that amount would be counted. He cited a recent gift to the University from Dow Chemical which had been appraised for $31 million. This amount had not been reported because "the worth of the $31 million will not come to us until we get all of the scientific work done and we start to generate revenue"; at the other university it would have been reported as a $31 million contribution because an external appraisal had been performed.

   President Sorensen also addressed the concept of present value vs. face value stating that following the conclusion of the Bicentennial Campaign, more than $500 million of gifts and donations had been contributed; its present value had been calculated as $420 million.

   Mr. McCoy explained the distinction between a gift and an endowment. If "Carolina Press" gives the University $1 million to disperse as scholarships to worthy students in the Moore School of Business, it is considered a restricted gift. On the other hand, money received as an endowment was placed into an account and the earnings were used to disperse as scholarships. Chairman Staton thanked Mr. McCoy for noting this difference.

   Since there were no other matters to come before the Committee, Chairman Staton declared the meeting adjourned at 12:10 p.m.

Respectfully submitted,
Thomas L. Stepp
Secretary