Complete 2012 forensic audit documents - Kansas Bioscience ...

KBA Forensic Audit Summary Page 6 of 30
Issues related to KBA investments and investment processes
Audit location Issue/Question Summary
Beginning on
page 77
The KBA is involved in the National Drug
Development Accelerator, or NDDA, a marketing
effort initiated in 2008 by Kansas Bio to build the
Kansas City region’s drug‐development related
companies and their services. Based on the KBA
board’s June 26, 2009, minutes, in which Tom
Thornton is reported to have said that Kansas Bio
was involved in the development of the NDDA,
“questions have been raised regarding why this
project was brought to Kansas by Kansas Bio
rather than KBA and if Kansas Bio is successful at
attracting projects, why is KBA needed?” (p. 77).
BKD: “Approximately a year and a half ago, [KBA staff members] perceived that the NDDA
marketing effort had outpaced the actual identification of resources and determination of what
services could be marketed to specific target markets. Therefore, they approached Kansas Bio and
suggested the formation of a working group of interested parties to formally address these issues.
Kansas Bio agreed and a working group was formed [including other organizations]. … KBA is only
providing the ‘seed’ funding to determine what resources are available and what can be done
with them. The other involved organizations will be expected to participate in the funding of the
marketing effort going forward” (p. 78).
On page 89
On page 90
Beginning on
page 90
BKD: “It has been alleged that KBA funded a rising
star award [to K‐State] in the amount of
$700,000” but that the award is not listed on
KBA’s annual financial audit reports and that
“there is no record that the $700,000 was
returned to KBA” (p. 89).
“BKD reviewed the NAICS [North American
Industry Classification System] codes assigned to
companies receiving funding from KBA for
compliance with the allowable codes under
KEGA” (p. 90).
BKD reviewed the operations and investments the
KBA has made from its Kansas Bioscience Growth
Fund, which is intended to attract venture capital
investments to Kansas bioscience companies.
The candidate whose retention at K‐State was intended to be secured by the rising star award
chose not to remain at K‐State. BKD notes that none of the $700,000 award was ever paid to K‐
State.
BKD: “We considered all commitments. … First, for each commitment, we determined whether or
not the commitment required a NAICS code. If funds were to be used internally by KBA, for
Centers of Innovation, by universities or colleges located in the state of Kansas, or in relation to
the Kansas Bioscience Growth Fund, a NAICS code was not deemed to be necessary” (p. 90). Of
those that did require a code, BKD found all commitments either had an allowable code or that
the KBA had received a waiver from the Department of Revenue, making the commitment
allowable.
The Kansas Bioscience Growth Fund can invest as a limited partner in bioscience venture capital
funds if they submit to a rigorous third‐party evaluation of their investment strategy,
management competence, and investment record and if they agree to certain requirements
imposed by the KBA, including
▪ raising funds to match the KBA investment by at least four‐ or five‐to‐one;
(continued on next page)