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 Thursday, June 27, 2002, at 12:30 p.m. in the Carolina Plaza Board Room.

Members present were: Mr. M. Wayne Staton, Chairman; Mr. Alexander English; Mr. A.C. Fennell, III; Mr. Samuel R. Foster, II; Mr. Michael J. Mungo; Mr. John C. von Lehe, Jr.; and Mr. Herbert C. Adams, Board Vice Chairman. Members absent were: Mr. Robert N. McLellan; Ms. Darla D. Moore; and Mr. Mack I. Whittle, Jr., Board Chairman. Other Trustees present were: Mrs. Helen C. Harvey and Mr. Toney J. Lister.

Others present were: President John M. Palms; Secretary Thomas L. Stepp; Executive Vice President for Academic Affairs and Provost Jerome D. Odom; Vice President and Chief Operating Officer J. Lyles Glenn; 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; General Counsel Walter (Terry) H. Parham; Assistant to the Vice President, Office of Business and Finance, Ken Corbett; Assistant Treasurer Susan D. Hanna; Director of Internal Audit Alton McCoy; Associate Vice Provost, Regional Campuses and Continuing Education, Carolyn West; Associate Dean, College of Liberal Arts, Gordon Baylis; Associate Director, Institute for Public Service and Policy Research, Nancy Pursley; Executive Director and Director of the Survey Research Lab, Institute for Public Service and Policy Research, Robert Oldendick; Associate Dean, College of Journalism and Mass Communications, Kent Sidel; Assistant to Trustee Helen Harvey, Christine Seabrook; 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.

Chairman Staton directed the Committee's attention to the agenda and called on Mr. McCoy.

1. Audit Tracking Report: Mr. McCoy explained that the audit tracking report had contained four audits; ring sales, the Faculty House, the Koger Center, and the Beaufort Campus. Two of the audits, the Faculty House and rings sales, had been over six months old. Mr. McCoy noted that all items were on track for correction.

   Chairman Staton noted that this report was received for information.

2. Internal Audits: Chairman Staton called on Mr. McCoy to discuss the following audits.
   1. College of Journalism and Mass Communications: Mr. McCoy advised the Committee that Dr. Odom had requested an audit of the College of Journalism and Mass Communications. The audit had revealed eight problems. Discussions with Dean Price and his staff had taken place and an agreement had been reached to examine all of the findings and to correct all of the problems noted in the audit.

      Mr. Foster inquired about the procedures related to travel vouchers and the appropriate documentation associated with all expenditures in the future. Mr. McCoy stated that Dean Price had sent a memo to everyone in the College advising that travel authorizations would need to be approved in advance. Otherwise, travel would be paid from the individual's pocket.

      Chairman Staton commented about the audit item involving the Purchasing Cards and documentation. He was familiar with purchasing cards and remarked that there were individuals within the issuing organization who would come on site for orientation work with the appropriate people, if necessary. Mr. McCoy confirmed Chairman Staton's remark and noted that individuals from the purchasing cards' organization had come on site and had worked with people in the purchasing area. The purchasing area had worked with departmental individuals; each department had a liaison who dealt directly with the purchasing area to reconcile accounts for all charges on each charge card, as well as the charge statement for the department. Mr. McCoy commented that with so many cards in specific departments, some individuals simply did not obey the rules. Many discrepancies had been caught by audits.

      Dr. Odom stated that he had had a long discussion with the deans at Deans' Council approximately one month ago regarding this matter. Dr. Odom noted that he would recommend that the University discontinue the purchasing cards if Mr.McCoy continued to find these inaccuracies. Chairman Staton agreed with Dr. Odom's recommendation.

      Mr. Foster inquired about the follow-up procedures to ensure that the items which had been recommended for change had been adhered to, and questioned the frequency of the audits performed. Mr. McCoy stated that each item in the audit report would be placed on the tracking report and would be verified before being removed from the tracking report.

      Chairman Staton asked Dr. Sidel about implementing the policies and procedures for Audit Finding #8. Dr. Sidel stated he was confident that would occur by the fall of 2002.

      Chairman Staton noted that this report was received for information.

   2. Rental Property: Mr. McCoy stated that the audit had pertained to all the various properties that the University had rented from and to others. He noted that the 900 Assembly Street property had been vacated. An audit of rental property had revealed a number of findings. Rental property had been routinely managed through the finance division or the facilities planning area. Mr. McCoy proposed that all rental agreements should be coordinated through one particular office to administer control over them; Mr. Kelly's area would be the most appropriate office.

      Chairman Staton asked Mr. Kelly if he had taken on the rental property responsibility. Mr. Kelly replied affirmatively. All aspects concerning the agreements would be consolidated under one person: Mrs. Helen Zeigler had been the appropriate person to take on the task and would be responsible for all of the rental property contracts.

      Mr. Fennell inquired about the status of the funds being returned to the University for the National College of District Attorneys and for 425 Assembly Street. Mr. Kelly replied that the funds for the National College of District Attorneys had been in the process of being forwarded to the University; there had been no dispute about these funds. The funds pertaining to 425 Assembly Street would be advanced to the University by the Development Foundation; no problems had been anticipated.

      Chairman Staton inquired about the status of the Wedge Plantation. Mr. McCoy stated that when the Board authorized the lease agreement with Mr. Derrick Close, the use of the property had been intended for hunting and for certain recreational activities. Approximately $600,000 of maintenance and improvements on the property would be provided by Mr. Close during the ten-year term of the lease. An annual report would be submitted with invoices detailing the improvements to show that the terms of the lease had been upheld. Mr. McCoy noted that Mr. Kelly had been involved in obtaining documentation from Mr. Close to verify that the funds had been spent on the property. Mr. Kelly remarked that he had met with Mr. Close and had also written Mr. Close requesting detailed information; the contract had provided for annual reports on expenditures as well as insurance coverages and other items. Mr. Close had been extremely cooperative.

      Mr. McCoy stated that a number of years ago, the University had incurred numerous costs in maintaining the Wedge property. The agreement had been a method to transfer the maintenance costs elsewhere during the time the University had not utilized the property for academic purposes.

      In response to Mr. Adams question concerning the annual updates, Mr. McCoy replied that no annual updates had been provided, but Mr. Close had been in the process of validating the costs incurred to keep up the property.

      Chairman Staton inquired about whether a personal watch on the property had been required. Mrs. Harvey remarked that renovations to the house had been accomplished. Mr. McCoy stated that no permanent benefit would be realized by additional personnel costs, rather the benefit would be not having to pay the annual upkeep.

      Mr. von Lehe stated that matters concerning the Wedge Plantation should be monitored very closely because of its nature. He further stated that the rent on the property had been undefined and certain improvements had been required; no documentation as of yet had been provided to support those issues.

      Mr. Mungo remarked that the biggest danger to the University regarding the Wedge property had been liability insurance coverage. Mr. Adams concurred with Mr. Mungo and stated that proof of insurance had also been needed; an insurance certificate should be furnished as well.

      Mr. Kelly noted that the two major issues concerning the property had been to follow through with the contract requirements and provisions of the annual report, as well as the documentation of insurance. The $600,000 over the ten-year period of the agreement had been a separate issue.

      Discussion ensued among Committee members concerning how the amount of $600,000 during a ten-year term had been derived. Dr. Odom advised the Committee that the Baruch Institute and the School of Public Health had previously used the property; however, the property was no longer used by them. Dr. Palms noted that the federal funding had been lost; it had been hoped that the funding would be regained at some point. The University had desired to keep the property because of its value.

      Mr. Mungo questioned the value of the improvements to the buildings. Mr. Kelly stated that the University had been in the process of trying to obtain an appraisal of the property. An old plantation home existed on the property along with several outbuildings which provided shelter for equipment used on the site. Mr. McCoy interjected that horse stables had existed on the site and an individual had used one of the buildings for an extensive moth collection. Mr. McCoy also noted that approximately ten years ago the University had received grants which paid for the University to dig fish ponds. Tilapia fish had been raised in the ponds; people from Central America and Africa had been taught how to raise high protein fish at a low cost.

      Chairman Staton summarized that a clear understanding of the entire contractual agreement would be required; a report would be provided on the monies spent on an annual basis since inception; information regarding insurance would be received; and an appraisal would be obtained, if additional funds could be acquired.

      At the end of the lease period, Mr. Mungo recommended that specific requirements and standards defined by the University should be put in place concerning the maintenance and improvements of certain buildings on the property. Chairman Staton asked Mr. Kelly to provide a recommendation regarding that issue at a future meeting.

      Mr. McCoy remarked that the sale of timber from the property could offset some of the cost of maintaining the buildings. Mr. Mungo suggested that an evaluation of timber should be factored into the appraisal.

      Mr. McCoy responded to Mr. Mungo's question regarding how the University had obtained the property. He informed the Committee that the property had been donated partly to the Foundation and the remainder had been paid for. The Foundation had rented the property to the University for the amount of the principle and interest payments on the part which the Foundation had borrowed to purchase it. When that had expired, the Foundation deeded the property to the University. Mr. McCoy thought that the purchase price had been between $500,000 and $600,000 initially.

      Mr. Adams requested confirmation concerning the lease and that no cash income had been derived from it. Chairman Staton advised that the original intent had been to eliminate expenses, as well as to have a presence on the property.

      Secretary Stepp noted that a Board task force, chaired by Trustee Othniel Wienges, had been created by the Board at the time that it had seemed necessary to sell the property. The feeling of the Board had been very strong against selling the property. Secretary Stepp advised the Committee that restrictions had existed on the property. It had been the desire of the Board to ensure that the University would keep the title to the property in the face of a statewide audit about excess state properties and a recommendation from central state government that the University sell the property, as well as the fact that some grants had expired and the University could not actually say that the property had been used actively. The Wienges' task force had met with many individuals, including the Department of Natural Resources and the Federal Government, to review every opportunity to keep the property going. The lease agreement had offered that opportunity. Trustee Eddie Floyd had been involved with the property as well.

      Mr. Adams stated that a violation of the lease on the property had existed. The terms of the lease had required that annual reports be submitted; the annual reports had not been submitted and the terms of the lease had not been met. Chairman Staton noted that this report was received for information.

   3. Dining Services: Mr. McCoy noted that two items had been found in the Dining Services audit which had not been called for in the contract, but had been addressed outside of the contract; the items had been catering at the President's house and the fund in which a discount from Coke and Pepsi had been received. These items had been kept in the records of Sodexho rather than the records of the University.

      Chairman Staton asked Mr. Adams if he had discussed the items. Mr. Adams replied that he had discussed the items and that it had been put in the report. Secretary Stepp remarked that the Board of Trustees had acted on the issues.

      Discussion ensued among Committee members concerning the fund and whether the discounts would be continued in the future. Mr. Kelly advised that negotiations with Coke and Pepsi had been ongoing. The new food service contract had been approved and would go into effect July 1, 2002. Pepsi had backed away and it had been thought by Sodexho that Coke would do the same; however, that issue had not been confirmed.

      Mr. Adams inquired about negotiating with the vendors directly from the University's standpoint. Mr. Kelly replied that generic language had been used in the contract; if the University would otherwise enjoy a discount, that discount would be passed on. The discounts would be reported as requested if continued; however, the continuance was very unlikely.

      Mr. McCoy advised the Committee that national discounts or trade discounts received from companies would be passed on to Sodexho and would be kept by them. Other discounts which involved materials or labor provided to an educational institution would be attached directly to the institution.

      Mr. Fennell inquired about the line item in Exhibit A of the audit report relative to Equipment Repairs - Non USC Work. Mr. McCoy replied that an account classification had existed within the University's accounting records to identify whether work had been performed by USC workers or by outside workers.

      Chairman Staton noted that this report was received for information.

   4. Institute of Public Affairs: Mr. McCoy advised the Committee that there had been concern about Public Affairs which had also been expressed by the media. Numerous problems had been discovered at Public Affairs.

      An aside concern had been that a comprehensive fraud policy at the University had not existed. A fraud policy existed at most major public institutions which defined what employees would be required to do in the event that fraud was encountered in the workplace. Mr. McCoy recommended that a fraud policy should be developed and published. Every employee would be required to read the policy and sign an agreement advising policy abidance. Punishment related to policy violations, including job loss, would be enforced.

      Mr. Parham provided background information concerning the problems which had been forthcoming in April 2000. An individual had called the Legal Department advising that fictitious travel documents had been generated from the Institute of Public Affairs. A representative from the Legal Department had met with the individual and obtained the documents. A meeting followed with Mr. McCoy, who performed an investigation and established that the documents provided to the Legal Department had been legitimate. A very long investigation by Mr. McCoy's office proceeded which ultimately involved the University's Law Enforcement Division and the Solicitor's Office. Once Mr. McCoy's investigation had reached a certain stage, the information had been provided to Mrs. Jameson in the Office of Human Resources. The University had suspended employment for five individuals from the Institute of Public Affairs, and as the investigation continued, Dr. Palms and Dr. Odom thereafter obtained the resignation of the Executive Director of the institute.

      The Solicitor's Office had reviewed the matter and determined that the State Grand Jury should review the issue; jurisdiction had been assumed by them at that point. The University had felt comfortable that the suspension decisions for the employees had been appropriate and that sufficient investigation material, generated by Mr. McCoy's office, had existed to justify the termination of the suspended employees. Four of the employees had been terminated; one employee had previously retired from the University while under the suspension and termination had not been necessary.

      The State Grand Jury had assumed responsibility for the matter and had worked closely with representatives in Mr. McCoy's office and the University's Law Enforcement Division. During that time, the University encountered a dilemma which had involved being sworn to confidentially and not being able to speak to University employees about the nature of the ongoing investigation, the Grand Jury taking precedence over an internal investigation.

      Ultimately, the Grand Jury had indited three University employees from the institute on two counts each of criminal conspiracy and official misconduct in office.

      The investigation had been completed; the accounting work generated by Mr. McCoy's office had been relied upon exclusively in preparing the charges. On March 25, 2002, the criminal charges had come to fruition; all three individuals pled guilty to official misconduct in office in exchange for dismissal of a criminal conspiracy charge. The University had received complete restitution.

      Mr. Parham noted that the former Executive Director of the institute had been a tenured faculty member of the University. As part of the plea agreement, the Executive Director had been required to resign his tenured faculty position.

      A ten-year imprisonment sentence, suspended upon the service of one year, had been received by the former Executive Director along with three years probation. Another employee had received a ten year sentence, suspended upon the service of eleven months with three years probation. Another employee had received a sentence of ten years, suspended upon the service of 90 days - electronically at home - with two years probation.

      Mr. Foster inquired about whether the completion of the University's reimbursement form had been a complex process and if training had been required for employees to complete the form. Mr. McCoy replied that completion of the reimbursement form was not a complex process.

      Discussion ensued among Committee members concerning Mr. McCoy's recommendation concerning a fraud policy for the University.

      On behalf of the Fiscal Policy Committee, Mr. Adams moved approval that the Internal Auditor's office, the Vice President for Business and Finance, the Vice President for Human Resources, the Secretary, and the Legal Department would collaborate and would provide the Fiscal Policy Committee with a recommendation for a University fraud policy and procedures as discussed. Mr. Fennell seconded the motion. The vote was taken, and the motion carried.

      Mr. Mungo discussed a resolution which had been passed by the Board several years ago concerning payment of meals for colleagues within the same city of employment. Mr. McCoy remarked that the policy had been strictly followed for a long period of time. However, over time, new policies had been drafted; the Board had approved the changes. Chairman Staton suggested that the policy should be reviewed again. Secretary Stepp assured Mr. Mungo that the matter had come before the Committee and minor changes had been implemented, and that a copy of current Board-approved policies would be given to members for review.

When there were no other matters to come before the Committee, Chairman Staton declared the meeting adjourned at 2:40 p.m.

Respectfully submitted,
Thomas L. Stepp
Secretary