THE MISSISSIPPI LEGISLATURE

Introduction

In the fall of 1994, six of the state's fifteen community and junior college presidents resigned from the governing board of the Mississippi Community College Foundation (MCCF) in the midst of allegations of improprieties with the foundation's spending practices. In the wake of this adverse publicity, a legislator asked the PEER Committee to review the foundation's operations and to determine whether actions taken by the foundation created an obligation for the state or its political subdivisions.

Overview

What is the Mississippi Community College Foundation?

The presidents of Mississippi's fifteen public community and junior colleges established the Mississippi Community College Foundation in October 1986 to assist in development of the colleges by identifying and pursuing new programs and initiatives and by increasing funding to the colleges. Three months prior to the foundation's establishment, the Legislature had established the State Board for Community and Junior Colleges to represent the interests of the statewide community and junior college system, including raising funds on behalf of the system. Part of the justification for state-level input with respect to public community and junior colleges is that, as illustrated in Exhibit A, page viii, state appropriations constitute a large and steadily growing share of total community and junior college funding.

The foundation collects public funds from the colleges, in the form of assessments, to support its ongoing operations. From July 1, 1992, through April 30, 1995, federal, state, and local government sources provided eighty-seven percent of the foundation's revenues. Revenues and expenses for this period totaled $5.7 million and $5.5 million, respectively. Hinds Community College provides the foundation with office space, equipment, utilities, and business office services, and foundation employees receive all fringe benefits of community college employees.

By establishing an entity so similar in purpose to the state board, with public sector characteristics and a public purpose, the presidents chose to work outside of the controls that help ensure accountability in the public sector. For example, the foundation does not conduct its business in open meetings, and despite the state's open records law, the foundation grants or denies access to its records at will. Because the foundation operates outside such controls, the likelihood of public awareness of the foundation's actions is diminished, and further, the public has no direct recourse if it objects to such actions, even though substantial public resources support the foundation's operations.

Have the foundation's governing board and Executive Director properly managed the foundation in accordance with applicable state and federal laws, rules, and regulations, and in accordance with principles of good management?

No. The foundation or its employees may have violated:

• state laws prohibiting:
  • - fraud and embezzlement;
  • - use of office for the benefit of relatives;
  • - having an interest in a contract with a board within a year of having served on that board; and,
  • - reimbursement of travel expenses other than those specified in state law;
• federal laws requiring withholding and payment of taxes on the taxable portions of business meals not associated with overnight travel;
• federal grant agreements prohibiting:
  • - hiring a consultant who worked on a project to evaluate the project;
  • - diversion of grant funds to another project;
  • - hiring of service providers without formal written contracts; and,
  • - failure to control inventory.
  
  Further, the foundation has violated:
• good management principles requiring:
  • - establishment of an effective system of internal controls;
  • - separate accounting for donor-restricted funds;
  • - adequate project planning;
  • - efficient use of resources (i.e., minimization/elimination of waste); and,
  • - prudent management of funds.

Most of the above-listed violations are a direct result of poor management, including lack of proper oversight by the foundation board. Exhibit B, page x, summarizes these violations by type, financial impact, and recommended corrective action.

Do the state or its political subdivisions have any liability for foundation actions?

Yes, actions taken by the foundation could result in liabilities to the state and the public community and junior colleges. As grantee/sub-grantor of the federal Rural Health Care Corps grant (administered by MCCF to train rural health care workers), the Mississippi Cooperative Extension Service, a component of Mississippi State University, could become liable to the federal government for any grant funds that the foundation misspends. Also, should the foundation become unable to pay its debts, foundation vendors and service providers might expect the public community and junior colleges and their boards of trustees to meet the foundation's obligations.

Recommendations

The local community and junior college boards of trustees whose presidents remain on the foundation board should review the advisability of continued participation in the foundation. The local boards should pursue any future systemwide fundraising and/or developmental activities through the legislatively created State Board for Community and Junior Colleges.

If, after considering their continued participation in the foundation, a sufficient number of local governing boards want to sustain and improve the foundation, the foundation should take specific actions, including:

• adhering to the state's open meetings and open records laws;
• establishing an effective system of internal controls designed to ensure compliance with applicable laws and good management practices;
• increased foundation board oversight over financial affairs, especially arrangements with and payments to vendors and service providers;
• developing a strategic plan for using the Community College Network to address the state's rural health care needs; and,
• taking responsibility for controlling inventory.

PEER also refers the violations of state laws, federal laws, and federal grant agreements detailed in this report to the proper authorities for review and appropriate action.

The report lists specific recommendations on pages 58 through 61.

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