Topeka — Gov. Sam Brownback on Tuesday hinted that the Kansas Bioscience Authority may need more oversight and his administration has withheld payment of $22 million to the agency.
But defenders of the KBA said more oversight of the economic development agency wasn’t needed.
The long-awaited audit of the KBA that was released on Monday found instances of document destruction, misuse of funds and questionable management practices by Tom Thornton, who resigned as the authority’s chief executive office in April.
Brownback said the audit’s findings were “deeply troubling” and he noted that the KBA doesn’t go through the same scrutiny of the budgeting process as other state agencies.
The money Brownback’s administration withheld is part of KBA’s annual appropriation of $35 million approved by legislators in the 2011 session.
The state revenue is typically paid to the authority in the fall of each calendar year. But it has been on hold while auditors conducted a forensic investigation of the KBA and its management.
The nearly $1 million audit by BKD Forensic and Valuation Services resulted in the return of about $4,700 in KBA funds that Thornton received for an airline ticket, purchase of an oil painting and overpayment of a car allowance.
Last year, Brownback’s administration pushed the KBA to get audited, saying there were many questions about how money was being spent, and the relationships between the authority’s leaders and companies that received funding.
But on Tuesday, auditors told state legislators that they were confident the KBA was making sound investments and that issues raised by the audit were being addressed. The auditors said they found no evidence of conflicts of interest in investments made by the KBA.
Senate Vice President John Vratil, R-Leawood, said he didn’t see a need for more legislation to regulate the KBA and would prefer legislators and the authority’s critics accept the audit and move on.
Balanced approach needed
The KBA was created in 2004 and tasked with using $581 million in tax funds over 10 years to expand bioscience research and business in Kansas.
Kansas Department of Revenue Secretary Nick Jordan, who as a state senator helped create the KBA, said there needs to be a balanced approach to the KBA.
He said it has succeeded because of its “entrepreneurial spirt,” but it also must be held accountable.
Last year, Sen. Susan Wagle, R-Wichita, and chair of the Senate Commerce Committee, held several meetings in which she criticized the KBA over salaries, expenses and investments.
But James A. Snyder, managing partner of BKD LLP, said the audit raised no major issues with the authority’s investment programs or conflict of interest policies.
“Generally, we find things to be pretty good with a couple of exceptions that are noted in the report,” he said.
Thornton erased documents
According to the audit report, Thornton used computer cleanup and drive wiping tools to clear his computer hard drive on April 21 and 22, 2011, after his April 13 resignation, and before returning the computer to the KBA on April 26.
He told auditors he cleared the computer because he had used the KBA-owned computer for personal use and it contained “personal financial and tax information, family photos and other information of a personal nature, some of which would be embarrassing if made public,” according to the report.
The audit also identified issues with compliance with the authority’s contract policy, finding 301 payments without a contract, including 102 payments that violated the KBA’s policy. Those payments totaled more than $570,000.
The audit also indicated former board member Angela Kreps may have been in “technical violation” of the KBA’s conflict of interest policy by voting on funding for KansasBio, a bioscience trade organization of which Kreps served as president.
The audit also found Thornton failed to inform KBA board members of a relationship with a KBA staff member, Lindsay Holwick, who would become his wife.
David Vranicar, who had been president of the KBA’s commercialization arm, has served as the authority’s interim president and CEO since Thornton left the authority and took a position with the Cleveland Clinic in Ohio.
Questions over CIBOR
Wagle also alleged that the Wichita-based Center of Innovation in Biomedical and Orthopedic Research had been promised $20 million from the board, but never received the full amount.
A separate auditing firm, Meara Welch Brown, also hired by the KBA, investigated that claim. The firm could not identify documents, records or correspondence where a commitment of $20 million had been made.
The Johnson County District Attorney’s Office has confirmed it was conducting a criminal investigation into the authority, but has not disclosed details of the investigation.
Brownback has asked for a moratorium on KBA spending and investment commitments until legislators decide if any changes are needed to the KBA.
But KBA Board Chairman Dan Watkins of Lawrence disagreed.
He said the audit showed the KBA’s investment process was sound, and there were no significant findings of conflicts of interest.
“You can’t grow with moratoriums. We’ll operate within the authority of the Legislature as created unless the Legislature tells us differently,” he said.
He also said the audit report should clear the air regarding questions and allegations raised in the past year.
Wagle said the Legislature would spend a lot of time combing through the audit.