Details hazy on Cal U affiliate funds

Covey training fees never made it onto books of university

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Since 2006, California University of Pennsylvania has encouraged businesses to send their workers to campus for executive-level training in the principles of the late leadership expert Stephen R. Covey.

The tuition those employers have paid -- nearly three times the cost to deliver the training, according to records -- meant the possibility of hundreds of thousands of dollars in extra revenue for a campus that is now ailing financially.

But those instructional fees apparently never made it onto Cal U's books.

Because part of the tuition is used to endow scholarships, the funding stream for the 7-year-old training program was diverted to Cal U's foundation, which until 11 days ago had the only known records pertaining to the income and how it was spent, a university official acknowledged.

The flow of those funds is an example of what open-government advocates find troubling about the often blurred lines between Pennsylvania's 14 state-owned universities and their affiliated fundraising foundations, which generally assert they are not state agencies fully bound by Pennsylvania's Right to Know Law.

And it suggests another area of loose regulation by the State System of Higher Education, which oversees those schools and has been accused by some at Cal U of failing to act decisively in recent years to prevent the school's current financial woes.

Responding to a state Right to Know request from the Pittsburgh Post-Gazette, Cal U initially said it had no records of any tuition or scholarship income from the noncredit Covey training held on its campus, nor any record of how the money was spent. When pressed, Cal U said five days later that those records are kept by the Foundation for California University of Pennsylvania, which has long claimed an exemption from the state's Right-to-Know Law.

Ultimately, the university sought the records from the foundation and released them. They put total Covey executive training revenue since 2006 at $849,223 before expenses and a remaining fund balance of $557,149.

Total scholarship dollars for needy students awarded to date: $27,495, spread over seven years.

It's hard to argue against the importance of scholarships, and the program dates to more prosperous times on campus when Cal U's then president, Angelo Armenti Jr. -- fired in May by the State System without explanation -- made it plain his school's top need was creating financial aid.

Still, with a half-million dollars sitting in a fund balance and the school scrambling to erase a deficit that at one point this summer reached nearly 10 percent of its $120 million operating budget, the income represents funds that otherwise could have helped shore up Cal U's operations.

"I'm not going to Monday-morning-quarterback decisions that were made at a leadership level," Cal U spokeswoman Christine Kindl said.

'Not fully accountable'

Once money enters a foundation it becomes difficult, if not impossible, for the public to track.

Barry Kauffman, executive director of Pennsylvania Common Cause, said turning instructional fees into scholarships may be a noble idea. But records of that income must be maintained and available for public inspection.

"We're talking about a state university that receives substantial amounts of taxpayer dollars. We shouldn't have these subentities or affiliated entities which are not fully accountable," he said. "Apparently there is transfer of funds going back and forth between the California foundation and the university. I think a case could be made that [foundation] records are covered under the open records law."

That may well come to pass, said State Rep. John Maher, R-Upper St. Clair, a leading House participant in legislative plans to update Pennsylvania's Right to Know Law. He said the California situation struck him as troubling and yet another reason why it and other State System foundations are getting a close look as legislators examine shortcomings of the current law.

While he said donor privacy must be protected so individuals are not dissuaded from giving, "everything else should be transparent."

At Cal U, though the foundation and university assert they are legally separate, State System auditors in March noted that employees paid by Cal U perform fundraising activities on behalf of the foundation and all donor records are housed within the university.

"Where does the foundation start? Where does the university end?" asked Michael Slavin, theater and dance department chair and campus head of the faculty union. "It's a mess."

Mr. Slavin is one of 16 Cal U faculty and staff volunteers who are certified to lead Covey sessions on campus, though he has not led executive training sessions.

Mr. Slavin said he believes the Covey training itself is valuable but said he did not fully understand the foundation's role in the executive sessions.

"Typically, scholarships come from donations," he said. "They don't come from instruction, but this is obviously an atypical situation."

Leader for Life program

Campus and foundation records show 753 individuals from 10 firms and nonprofits have completed the executive training since 2006 at $1,000 a head, and that interest and other income had accrued. Companies are billed for the sessions with net revenue from the instruction going to a scholarship in the company's name.

The school released an unsigned sample agreement for the Covey training that says the university invoices for costs, but Cal U provided no signed agreements or any documents indicating the money ever arrives at the university.

One client, Monongahela Valley Hospital, said it routinely makes checks payable to the foundation.

It was unclear from campus and State System officials how fees for instruction can be deemed by campus leaders to be scholarship money and thus not documented as university revenue.

Karen Ball, a State System spokeswoman, knew of no system rules governing the practice, nor how common it may be across the 14 universities.

Ms. Ball said the State System reviews contracts for noncredit instruction that is outsourced. "We don't get into any level of detail beyond that," she said.

The executive-level training is offered through Cal U's Character Education Institute in cooperation with FranklinCovey Co. The institute's executive director, Ron Paul, declined to comment for this story.

The sessions range from four hours to three days, including a signature workshop based on Covey's best-seller, "The 7 Habits of Highly Effective People."

A promotion for that session invites employers to "let our certified trainers train your employees to develop more meaningful business relationships, increase productivity and reduce conflict in the workplace ..."

The training is part of a wider relationship between Cal U and FranklinCovey that last year led to the company's designation of Cal U as the world's first FranklinCovey Leadership University.

The designation recognized Cal U's effort to incorporate leadership principles advanced by Covey into teaching, learning and campus life, the company said at the time. The designation also signaled Cal U's commitment to attain what Covey called "Lighthouse University" status by creating Covey-based instruction campuswide for students, faculty and staff.

Cal U last year signed a five-year $2.5 million licensing agreement with FranklinCovey related to developing and delivering an online version of Covey instruction known as the Leader for Life program. The school said it had expected that most of the contract's cost would be reimbursed through a $74 leadership fee charged to students.

But on Thursday, Ms. Kindl said the Leader for Life program has been discontinued and "we are negotiating the termination of the contract with FranklinCovey." The school has rescinded the leadership fee.

This year, Monongahela Valley Hospital reaffirmed a 2006 agreement with Cal U for the executive-level Covey training, noting that scholarships of varying amounts have been awarded each year to nursing students based on need.

Hospital leaders "get outrageously good training" that in turn helps educate nursing students who later help the community, said Louis J. Panza Jr., the hospital's CEO and president.

"This relationship is a positive one and the epitome of a Covey-style win-win agreement," he said.

Though income from the executive training surpassed expenses, the reverse apparently was true for two Global Education Summit gatherings hosted by Cal U in 2010 and 2011 and sponsored in part by FranklinCovey, Cal U and AVI Foodsystems Inc., which provides campus food services.

The midsummer conferences drew attendees from dozens of states and 14 countries as far away as South Korea. The events also lost $146,019 and $157,635 in 2010 and 2011 respectively, according to records released by Cal U in response to the Post-Gazette's Right to Know request.

The university is paying those losses, Ms. Kindl said. Earlier this summer, the university under acting president Geraldine Jones announced that this year's summit would not be held.

Precedent of fund diversion

There is no indication that Covey executive training income was used for anything other than its stated purpose.

But there is precedent at Cal U of scholarship funds within the foundation being diverted for other uses.

In May, a State System auditor reported that $5.9 million in net profits from student housing had been transferred since 2003 into a foundation scholarship fund but remained under the control of Mr. Armenti and was "available for discretionary spending."

Of the $832,511 spent by the account, known as "the President's Quasi-Endowment" fund, more than half went to nonscholarship endeavors including: $352,444 to a consultant in philanthropic management for nonprofits; $100,000 related to speaking engagements with Covey; and $6,375 to the Redevelopment Authority of the County of Washington to support a hotel feasibility study.

Mr. Maher said disclosure of finances promotes confidence in government, and that applies to State System schools, which he described as public assets. "The tone from the top among leaders of state universities should exemplify transparency and accountability."

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Bill Schackner: or 412-263-1977.


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