Complete 2012 forensic audit documents - Kansas Bioscience ...

Subsequently, on April 4, 2011, KBA’s Investment Committee approved an additional $424,895
award to Pinnacle. The minutes of that meeting indicate that the Katterhenry disclosed her son’s
employment and noted that she had not provided any input with regard to the Investment
Recommendation. The BOD approved the award at the May 9, 2011 meeting.
Katterhenry disclosed this potential issue in writing in a timely manner and did not participate in
the review or analysis of the proposed investment. Therefore, she complied with KBA’s Conflict
of Interest and Documentation Policy. However, additional judgment should have been given to
the potential perception of a conflict posed by this situation. Katterhenry’s son has recently
terminated his employment with the client company.
Potential for Conflicts of Interest Due to Existing Relationships
The issue of potential conflicts of interest regarding KBA has been reviewed previously. The
December 2008 Kansas, Inc. evaluation of KBA noted the following with regard to conflicts of
interest: “Given the size of the bioscience sector in the state of Kansas, it is not unexpected that
members of KBA’s staff and BOD may be acquainted with representatives of companies seeking
financial or other assistance from KBA. However, it is, therefore, imperative that KBA
appropriately disclose these relationships and manage even the smallest perception of a conflict.
A key factor in protecting KBA’s reputation and credibility with its stakeholders is total
transparency and accountability in its operations. Central to this is a governance structure that
includes a Conflict of Interest policy that is strictly adhered to by all KBA staff and directors,
and extends to the review, consideration, documentation and monitoring of investments.”
If KBA’s President/CEO and other staff members are appropriately fulfilling their job
responsibilities through their outreach activities, they will meet many individuals associated with
potential client companies prior to the companies actually making application to KBA for
funding. Mr. Thornton indicated that he probably had met someone from almost every client
company prior to its application for funding due to his attendance at bioscience industry events
and his speeches and presentations.
As previously discussed, the investment review and approval process at KBA is rigorous.
Therefore, it does not appear that any one person could champion an improper investment and
shepherd it through the investment process. In addition, the vast majority of investment awards
are staged and attached to specific milestones that must be met prior to payment. Therefore,
even the approval of an investment opportunity by the Investment Committee and Executive
Committee or BOD does not guarantee payment. The client company is required to meet their
milestones and supply supporting evidence that they have prior to receiving payments.
However, in reviewing the relational database, we identified the following specific relationships
that we believe worthy of discussion.
Tom Thornton
Dr. Terry Osborn
Tom Thornton sat on the BOD of Advanced Life Sciences with Terry Osborn. On June 1, 2008,
KBA hired Osborn through a consulting agreement to assist KBA up to three days a month
through the provision of strategic business development and commercialization services. On
January 26, 2009, KBA hired Dr. Osborn as a consultant to perform the services of a Director of
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