Complete 2012 forensic audit documents - Kansas Bioscience ...

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Table of Contents INTRODUCTION ........................................................................................................................... 1 BACKGROUND OF ENGAGEMENT ............................................................................................ 3 ENGAGEMENT SUMMARY ................................................................................................... 4 Engagement Overview, Scope and Approach .....................................................................4 ENGAGEMENT APPROACH .................................................................................................. 6 Interviews .............................................................................................................................6 Documentation Reviewed ....................................................................................................9 Computer Forensics ...........................................................................................................10 HISTORY AND OVERVIEW OF KBA OPERATIONS ................................................................. 11 START-UP PHASE .................................................................................................................. 12 Milestones of the Start-up Phase........................................................................................12 OPERATIONAL PHASE ......................................................................................................... 13 Strategic Direction of KBA during Operational Phase ......................................................13 KBA Culture under Tom Thornton’s Leadership ..............................................................15 Milestones of the Operational Phase ..................................................................................16 INVESTMENT PROCESS ....................................................................................................... 17 Application Assessment .....................................................................................................17 Scientific and Financial Due Diligence .............................................................................17 Investment Committee Review ..........................................................................................18 Executive Committee or BOD Review/Approval ..............................................................18 Investment Monitoring and Tracking ................................................................................18 Post-Award Reporting Requirements ................................................................................19 OVERVIEW OF KBA FUNDING PROGRAMS .................................................................... 19 Kansas Bioscience Eminent Scholars ................................................................................19 Kansas Bioscience Rising Stars .........................................................................................21 Kansas Bioscience R&D Voucher Program ......................................................................22 Kansas Bioscience Matching Fund Program .....................................................................23 Kansas Bioscience Expansion and Attraction Program .....................................................23 Bioscience Tax Investment Incentive Program .................................................................24 Direct Equity Investments ..................................................................................................25 Kansas Bioscience Centers of Innovation ..........................................................................25 Collaborative Biosecurity Research Initiative ...................................................................26 Kansas Bioscience Drug Development Program ...............................................................27 Proof of Concept Investment Program ..............................................................................27 Bioscience Research Facilities Program ............................................................................28 Kansas Bioscience Growth Fund .......................................................................................28 OTHER KBA INITIATIVES AND PROJECTS ..................................................................... 28 NBAF .................................................................................................................................28 Cancer Cures Project ..........................................................................................................30 Other Investments ..............................................................................................................31 KBA FUNDING CAP COMPARISON ................................................................................... 32 REQUESTED AREAS OF INVESTIGATION ............................................................................... 35 HIRING OF TOM THORNTON.............................................................................................. 35 Allegations Related to Tom Thornton’s Employment History ..........................................36 divine interVentures’ Bankruptcy ......................................................................................38 i
TOM THORNTON’S RECRUITMENT BY CLEVELAND CLINIC INNOVATIONS ....... 40 CHANGE OF EMPLOYMENT STATUS OF CFO/COO DURING FORENSIC AUDIT .... 44 ALLEGATIONS RESULTING IN CLAY BLAIR’S RESIGNATION .................................. 44 Ethics Investigation Regarding Clay Blair ........................................................................46 KBA SELF-REPORTED ETHICS MATTER ......................................................................... 46 CURRENT ALLEGATIONS RELATED TO THE SITING OF THE KANSAS BIOSCIENCE PARK ....................................................................................................... 48 KANSAS BIOSCIENCE PARK .............................................................................................. 51 Development Agreement ...................................................................................................52 VENTURE ACCELERATOR .................................................................................................. 53 Considerations for Venture Accelerator Size ....................................................................53 Existing Incubator Space ...................................................................................................54 Project Budget ....................................................................................................................55 Selection of Architects .......................................................................................................55 Construction .......................................................................................................................56 Actual Cost.........................................................................................................................56 Financing............................................................................................................................56 Loan Advances ...................................................................................................................58 Debt Service .......................................................................................................................58 Current Tenants ..................................................................................................................60 Tenant Break-Even Point ...................................................................................................60 Total Venture Accelerator Operating Budget ....................................................................61 Debt Service Payments ......................................................................................................62 HEARTLAND BIOVENTURES ............................................................................................. 62 BioEnterprise Model ..........................................................................................................62 Heartland BioVentures Model ...........................................................................................65 GRANT AND INVESTMENT REVIEW ................................................................................ 66 Discussion of Specific Grants and Investments .................................................................67 ANOxA Corporation ..........................................................................................................67 Aero Innovative Research, Inc. ..........................................................................................68 AGCO Corporation ............................................................................................................69 ChocoFinesse, LLC............................................................................................................70 ICM, Inc. ............................................................................................................................71 Kansas Alliance for Biorefining and Bioenergy ................................................................72 Quintiles .............................................................................................................................73 Innovia Medical, LLC ........................................................................................................73 Abaxis, LLC .......................................................................................................................74 CyDex Pharmaceuticals .....................................................................................................75 EnalaPed, LLC ...................................................................................................................76 MegaStarter, LLC ..............................................................................................................77 NATIONAL DRUG DEVELOPMENT ACCELERATOR PROJECT ................................... 77 KCAS, LLC .............................................................................................................................. 78 ADDITIONAL ALLEGATIONS ............................................................................................. 79 Kansas’ #5 Ranking in Top 10 States for Biotechnology Strength ...................................80 Kansas Open Meeting Act Issues Related to KBA ............................................................80 Director of Special Projects ...............................................................................................82 Allegations Related to the Hiring of Lindsay Holwick Thornton ......................................84 Melissa Lynch’s Termination of Employment ..................................................................86 ii
Page 2 and 3: KBA audit summary In meetings of th
Page 4 and 5: KBA Forensic Audit Summary Page 2 o
Page 12 and 13: KBA Forensic Audit Summary Page 10
Page 36 and 37: Other Employment Decision Allegatio
Page 38 and 39: have all provided information and i
Page 40 and 41: KBA again appeared before the Comme
Page 42 and 43: ENGAGEMENT APPROACH Interviews Inte
Page 44 and 45: • Kent Glasscock - President Nati
Page 46 and 47: Computer Forensics Computer hard dr
Page 48 and 49: START-UP PHASE KBA has operated und
Page 50 and 51: State University the proposed grant
Page 52 and 53: described Thornton as an effective
Page 54 and 55: Investment Committee. All current H
Page 56 and 57: The program goals are to: 1) recrui
Page 58 and 59: Through June 30, 2011, three Rising
Page 60 and 61: grants or bonds. KBA also works wit
Page 62 and 63: center is a public and private coll
Page 64 and 65: Some individuals BKD interviewed ob
Page 66 and 67: The Texas Consortium also requested
Page 68 and 69: Accreditation Council for Graduate
Page 70 and 71: $581.8 Million Funding Cap Breakdow
Page 72 and 73: • Tom Thornton - President, Illin
Page 74 and 75: divine interVentures’ Bankruptcy
Page 76 and 77: Sullivan indicated that everything
Page 78 and 79: On January 11, 2011, Mr. Coburn ind
Page 80 and 81: CHANGE OF EMPLOYMENT STATUS OF CFO/
Page 82 and 83: Ethics Investigation Regarding Clay
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As a result of the possible violati
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large enough to meet KSU’s needs
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On January 9, 2007, KBA’s BOD aut
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The Kansas City Area Life Science I
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The committee that reviewed the arc
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Monthly payments for Series 2009A a
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If KBA is able to maintain the abov
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Debt Service Payments Debt service
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• assisting KBA with understandin
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Business Development: HBV has a net
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Beginning in August 2009, Ryan Whit
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offered by KBA and the federal gove
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On June 8, 2010, ICM announced that
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However, the EarCheck product langu
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Furthermore, HBV Director of Commer
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industry dating back to Marion Labo
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Kansas’ #5 Ranking in Top 10 Stat
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merger, acquisition or other restru
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In summary, it appears that Lindsay
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Allegations have been made that the
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and interview. As previously stated
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Computer Solutions’ invoice detai
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After the RFQ evaluation, Ennis Knu
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venture firms that will co-invest a
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include only those guests determine
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management of KBA-owned facilities
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Audit. After additional requests of
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Mr. Eisenbrandt, Thornton’s attor
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Ms. LoScalzo further recalled that
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Based on these findings, Buck Consu
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In addition to base compensation an
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Tom Thornton Overpaid Car Allowance
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The following expenses are discusse
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either version, contradictory to po
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KBA Meeting Expenses In general, wi
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Furthermore, the required supportin
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Jan Katterhenry was reimbursed twic
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The agreements state that Akin Gump
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Midwest Research Institute Midwest
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Mr. Bret Healy Mr. Healy was origin
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Ennis Knupp & Associates, Inc. KBA
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Cedar Creek Development VI, LLC Ced
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approval. The executive staff will
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General Ledger Classification Gener
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Additionally, KBA’s BOD approved
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Subsequently, on April 4, 2011, KBA
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Cary Nourie Tom Thornton worked wit
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Tom Churchwell Tom Thornton sat on
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KBA’s Response: KBA management wi
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member of KansasBio since 2006. Mem
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statements, capital charts and payr
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Recommendation: The BOD should cons
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RELATIONSHIP APPENDIX 151
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KU Center for Research, Inc. Associ
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APPENDIX B
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Two specific software programs were
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used to remove data from a system i
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Temporary Internet Files and Cookie
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EXHIBIT 1 CCleaner Product Informat
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EXHIBIT 2 Microsoft Word Files from
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Thursday, April 14, 2011 Gov. John
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Kansas Bioscience Authority applaud
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Transition plan.docx
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Personnel Director of Marketing and
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EXHIBIT 4 Archive.PST Folder Schema
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Thornton Laptop Windows Shortcut Fi
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USBStor ControlSet001\Enum\USBStor
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EXHIBIT 8 Windows Shortcut Files Po
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APPENDIX F
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600 BKD Professional Hours through
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