Complete 2012 forensic audit documents - Kansas Bioscience ...

KBA Forensic Audit Summary Page 1 of 30
Issues related to KBA investments and investment processes
Audit location Issue/Question Summary
Beginning on
page 13
Beginning on
page 13
Beginning on
page 17
Beginning on
page 66
A number of people BKD interviewed told the
auditors “that the KBA’s investment strategy was
not readily understandable; that it was not
transparent” (p. 11). “Many individuals
interviewed stated that they would look to KEGA
to determine if their project was ... within KBA’s
mission. They would then be told by KBA that the
intent of their project was not within KBA’s scope,
or in at least one instance KBA’s
[board]/management would rescind their support
after a Letter of Support had been issued” (p. 11).
BKD cites one example of this lack of
transparency, involving a potential investment at
K‐State to match a grant from the National
Science Foundation. In September 2008, KBA
provided a letter of support pertaining to the
match, but when K‐State won the award in August
2009, the KBA declined to fund the match. In
February 2011, it declined to fund a modified
match proposal K‐State had presented, writing
that the project (here BKD quotes the KBA’s letter
to K‐State) “‘does not meet our current
investment priorities’” (p. 14).
BKD reviewed the KBA’s investment process.
BKD reviewed “grants and equity investments
made by KBA since its inception … for adherence
to the investment process, the adequacy of
investment documentation, and monitoring and
the payment of milestone applications” (p. 66).
BKD reports that it discussed with interim CEO David Vranicar the “impression that over time, KBA
had focused its investment dollars on specific areas … rather than addressing all the areas of
investment that could be construed to be allowed under KEGA. Vranicar stated that KEGA sets out
the mission of KBA and describes various statutory programs that are to be available through KBA;
however, the [board] and management strategically determine KBA’s investment focus based on
the goal of leveraging strengths in Kansas’ bioscience community and research universities” (p.
14).
KBA notes that the investment focus is addressed in each annual operating plan, and that the AOP
is a public document available on the KBA website.
KBA notes that in the specific case of the K‐State proposal, the 2008 letter of support was nonbinding,
and the potential investment had not been reviewed or approved by the investment
committee or the board. The KBA provides binding letters of support only with the approval of
the board. It continues to provide non‐binding letters of support for projects and proposals it
believes will benefit the state of Kansas and its citizens, with the non‐binding nature of such
letters clearly stated.
BKD concludes, “Based on information available to BKD through interviews and the review of
investment committee minutes, it appears that opportunities that are presented to the
investment committee receive adequate consideration” (p. 18).
BKD: “Overall, the investment process appeared to be followed. The multiple levels of due
diligence, review, and approval required in KBA’s investment process appear to significantly
reduce the risk of improper grants or equity investments. In the approval process, the various
rounds of review and approval … would make it very difficult for an improper grant or investment
to be ‘railroaded’ through” (p. 66). “In addition, the review of investment committee minutes
indicated that the members of that committee are thorough in their review” (p. 66). (continued
on next page)