Complete 2012 forensic audit documents - Kansas Bioscience ...

KBA Forensic Audit Summary Page 4 of 30
Issues related to KBA investments and investment processes
Audit location Issue/Question Summary
Beginning on
page 72
In March 2009, KBA approved a $4.1 million grant
to one of the centers of innovation, the Kansas
Alliance for Biorefining and Bioenergy, or KABB. It
has been alleged that Tony Simpson, who
occupies a seat on KABB’s board assigned to the
KBA, tried to derail “an attempt by KABB to hire a
president” (p. 73).
BKD reviewed a December 2009 email from Simpson to the other KABB board members indicating
that he “believed the candidate in question was qualified but stated that KBA would support a
compensation package up to a maximum of $250,000 for the first year. … He … indicated that
KABB should pursue other candidates if that salary package was unacceptable. Therefore, it
appears Simpson’s concerns were salary‐based rather than specific to the individual” (p. 73).
KBA notes further that the cooperative agreement between KABB and the KBA required that any
candidate hired as KABB’s CEO had to be “mutually acceptable to [KABB] and the KBA.”
On page 73
Beginning on
page 73
Beginning on
page 74
In April 2006, KBA approved a $3.5 million grant
to help attract Quintiles to Overland Park.
However, Quintiles had announced its planned
move in February 2006. Some have alleged that
the KBA grant was “unnecessary and was made in
order to claim the outcomes” (p. 73).
In July 2007, KBA approved a $650,000 equity
investment in Innovia Medical, LLC. Innovia was
preparing to have its technology for the rapid
detection of ear infections in the market later that
year. BKD: “However, the … product languished
on retail shelves … revenue generation stalled …
[and] many investors lost interest. The lead
investor moved the company to Nebraska … [and]
KBA … wrote the investment in Innovia down to
$0” (p. 74).
In May 2011, KBA approved a $650,000 grant to
help attract the Abaxis Veterinary Research
Laboratory to Kansas. However, Abaxis had
announced its plan to build the lab in Kansas in
January 2011. It has been alleged that “the grant
was unnecessary and was made in order to claim
the outcomes” (p. 74).
BKD reports that a review of correspondence indicates that KBA’s relationship with Quintiles
predated the company’s February 2006 announcement that it would move to Kansas, including a
letter in December 2005 offering an additional $500,000 “in incentives in addition to the existing
offer of $3 million” (p. 73). BKD notes public statements and correspondence from Quintiles
executives citing the KBA grant as a factor in the company’s decision to move to Kansas.
BKD reports that KBA president and CEO “indicated that the equity investment carried with it a
risk of loss. Therefore, there was no available avenue to try to recoup the investment funds” (p.
74).
BKD notes that the grant “was sought by principals of AVRL prior to Abaxis’ signing of the
agreements that created the strategic alliance with KSU and that resulted in the announcement
that AVRL would locate in Kansas and was based on an established business relationship [with the
KBA] going back to June 2009. Therefore, the allegation that KBA offered funding for a done deal
in order to claim the outcomes is false” (p. 75).