Audit of UM System reveals millions in unpublished bonuses

UPDATE, 9:30 P.M.: R. Bowen Loftin told ABC 17 News he has not read the audit yet, but plans to access it Tuesday. The audit questioned Loftin’s pay during his transition from chancellor to his current role.

UPDATE 5:57 P.M.: Governor Eric Greitens has released a statement about the audit:

“Government needs to fight for people–not for the privileged.

In these tough budget times, we need to be extra careful with our tax dollars. In the higher education budget, we asked college administrators and executives to find ways to tighten their belts. They told us that they had done everything they could to cut costs. Then, some of them told us they might need to raise students’ tuition or fees.

Today, an audit revealed that top executives and administrators of the University of Missouri system gave themselves over $2 million in hidden bonuses over the past three years. That’s $2 million in extra cash and luxury vehicle allowances on top of their salaries. Worse, the bonuses weren’t based on any solid numbers for performance. I’m all for good pay for people who do a good job, but I won’t support giving tax dollars to people without proven results. And I definitely won’t support doing that at the expense of students and families.

Here’s the deal: Top University of Missouri leaders (anyone with dean, president, chancellor, provost, director, chief, and chair in their job titles) already get more than $62 million in combined annual salary. Salaries of those upper-level leaders jumped $4 million between 2015 and 2016. So when they say that students should have to pay more, I don’t buy it.

Building sound budgets isn’t easy. Leaders need to step up and make tough decisions, especially when money is tight. But students shouldn’t have to pay more for school because politicians have made bad budget decisions. And we can’t and won’t ask students and families to pay more so that university administrators can get raises and bonuses that they haven’t earned

The University System has been broken for too long. We need to fix it. We just appointed three new members of the Board of Curators who are going to be budget hawks. I spoke to the new president of the UM System, Dr. Mun Choi, this morning, and I believe he’s committed to greater accountability and producing excellent results.

Tomorrow, I’m meeting with the heads of several major universities across our state, and I will deliver a clear message:

1. Colleges and universities are important to our state’s future.

2. We need to cut waste from that system, just like every other area of government.

3. We want excellence in our colleges and universities, and we’re willing to invest in it.

4. We won’t balance budgets on the backs of our students.

When I was a Navy SEAL officer, the leaders ate last. Our people ate first. That’s what leaders do. They put their people ahead of themselves. That means when budgets are tight, leaders make sacrifices, not students and families. That’s what the people expect us to do, and that’s what I’m fighting for.”

UPDATE 12:15 P.M.: The University of Missouri has released another statement:

“The University of Missouri followed the provisions that were outlined in Dr. Loftin’s original contract when he was appointed chancellor. In his current role as Director of National Security Research Development, he has been connecting with researchers across the University of Missouri System’s campuses in an effort to bolster the university’s research programs in defense, intelligence and homeland security.

Over the past year, Dr. Loftin has met with national research scientists, including those with the Office of Naval Research and the Army Research Laboratory. In those meetings, he helped to identify where UM researchers could compete for upcoming projects or programs related to improving national security.

Dr. Loftin will be evaluated this spring to assess his effectiveness and success in locating funding opportunities and partnerships for MU investigators.

University of Missouri administrators are always mindful of our responsibility to be good stewards of the tax dollars entrusted to us. For more than 175 years, MU has been a resource for the state, educating the workforce, discovering life-saving and innovative technologies, and sharing this knowledge with the citizens of the state. We could not do this without the financial support from Missouri’s citizens and state government.

We will be reviewing the recent audit very carefully and taking any actions deemed necessary to improve this great university.”

ORIGINAL STORY: Missouri State Auditor Nicole Galloway released a report of the University of Missouri System today, which reviewed management operations for the Board of Curators and system administration.

The audit revealed unpublished bonus payments to top executives, including incentive payments, luxury vehicle allowances and other compensation not included in published salaries.

A former administrator continued receiving a six-figure salary after resigning from his position while doing nothing to service that position.

“Administrators appear to have forgotten that the system is a public institution, and that they are accountable to taxpayers, students and families,” Auditor Galloway said. “Missouri families often take on significant debt, even after spending years saving their hard-earned dollars, to send their sons and daughters to college. System leaders must work to accept responsibility for their actions and to regain the public’s confidence.”

The bonus pay included $2.3 million in hidden payments and incentives to top administrators. This amount includes $1.2 million in incentives awarded to 18 executives and administrators over the past three years. The payments appeared as though they were bonuses, paid out as additional salary.

$407,000 in vehicle allowance payments were made to 18 top executives and administrators in 2015 and 2016. Many administrators received more than $1,200 per month in vehicle allowance pay. In addition, the audit uncovered more than $800,000 in undisclosed retention bonuses, relocation payments and housing allowances.

R. Bowen Loftin resigned from his position as chancellor in Nov. of 2015. Loftin had been receiving a $459,000 annual salary and continued to receive his chancellor salary, totaling $230,000 over a six-month period, though he had no official duties and was not officially employed by the university

According to the report, in June of 2016, chancellor Hank Foley approved a new contract for Loftin as the Director of National Security Research Development, with a salary of $344,000. This amount was higher than the university’s other research administrators and higher than Loftin’s supervisors. Under the terms of the new contract, Loftin was allowed to keep additional compensation not required by his original contract, including a $100,000 retention bonus, a $15,600 per year luxury vehicle allowance, and a new $35,000 annual stipend.

He was also granted “developmental leave” to spend the remainder of the year traveling with no clear objectives, all while receiving his salary and an additional $50,000 travel budget.

Galloway said it was unclear how Loftin should receive these additional benefits included in the new contract, or how it was decided Loftin should receive a half million dollars over the course of one year with no responsibilities.

The University of Missouri released a statement Monday morning:

“An audit of the University of Missouri System released today by State Auditor Nicole Galloway confirmed that the UM System follows sound business practices and accounting standards in its operation of the state’s largest public university, while identifying no significant deficiencies in internal controls. The audit’s release culminates an extensive, eight-month review of a full range of the UM System’s operations.
‘The UM System strives to be more accountable and transparent in its stewardship of public resources,’ President Mun Choi said. ‘We will use the audit report to continue improving our business processes and our operations.’

While the audit reviewed a wide range of the UM System’s operations, the report’s findings were limited to the University’s executive compensation program. The program includes incentives that are used among peer higher education institutions, and generally do not exceed the median of the market. Under the UM System’s executive compensation program, executive leaders earn a portion of their annual salary based strictly on performance.

‘Our executive compensation program is critical to our capacity to attract and retain top leaders in what is an extremely competitive national higher education market,’ Choi continued. ‘Consistent with the audit report’s recommendation, the UM System will continue to establish objective executive performance goals.’
The UM System is a model of an efficient public institution. Using savings garnered through efficiency and effectiveness measures, the UM System campuses spend 75.3 percent of their operations budget on the core activities of teaching, research and service, compared to other Missouri public four-year universities, which spend an average of 64.2 percent.

Just last week, Standard & Poor’s Global Rating, one of the nation’s premier credit rating services, announced an affirmation of the UM System’s high-grade AA+ credit rating. This follows the recent July rating by Moody’s Investors Service, another leading credit rating agency, which reaffirmed its high-grade rating of Aa1 also with a stable outlook. These two ratings combined keep the UM System among an prestigious group of institutions. Less than 10% of the public institutions rated fall within both rating services’ top two rating categories.”

Auditor Galloway’s full report is attached below: