University of Louisville hiring outside auditor in wake of embezzlement cases

Following a spate of high-profile cases of embezzlement and misused funds, University of Louisville trustees agreed to take more aggressive steps to safeguard the school’s finances.

The board-approved changes Thursday that include hiring an outside auditor to review all internal audits dating to 2007 and financial policies at the health science campus and to perform other functions.

Since 2008, authorities have alleged that U of L employees have stolen, misspent or mishandled at least $7.6 million at the health science campus, at the law school, in the business school and the athletic department’s ticket office.

“If somebody is determined to steal, it’s very hard to prevent that from happening, but we’re going to put more checks and balances in place,” said Dr. David Dunn, U of L’s vice president of health affairs, who oversees the health science campus where the most recent thefts occurred.

The board’s audit committee approved the plan after meeting in executive session for more than an hour Thursday morning. The full board approved the measure later in the day without discussion.

Federal prosecutors recently alleged that Perry Chadwyck “Chad” Vaughn, executive director of the school’s Department of Family and Geriatric Medicine, stole as much as $2 million.

The allegations arose only after a co-worker raised questions with auditors about how he could afford Carribbean trips and a fleet of luxury cars on a $105,000 salary. The government alleges that he was writing checks to himself from the department and three associated medical practices for which he managed the finances.

John Olash, Vaughn’s lawyer, has said the government is conducting an extensive forensic review of Vaughn's bank records, adding that it could be a while before he is charged.

U of L President James Ramsey noted that most of the checks in the case were written on the medical practice accounts and not on official U of L accounts, making it difficult for the university to catch.

Ramsey said the outside auditor will largely focus on private medical practices associated with U of L but also will look at other areas of the university to ensure questionable spending is being flagged and investigated.

The plan also calls for additional training for those authorized to sign university checks, and it intends to bring all finance operations under a central financial “service center.” Different organizations and departments at U of L now have independent financial management offices.

“We’re going to have them (auditors) look at our bank accounts, we’re going to also begin to move forward as quickly as possible ... to a centralized financial management program,” Ramsey said.

Under the new financial oversight plan, the school will be given authority to look at audited finances of outside organizations with ties to the university and the outside auditor will search banks within 50 miles of Louisville to find all university-related accounts that weren’t authorized by the board of trustees.

Such accounts could be repositories for clinical funds as well as grant funds.

Ramsey said spot audits will be an important part of the new financial oversight system.

“We’re going to use the external firm to help do some surprise audits, which we haven’t had the staff to do before. We’re going to look at the entire university,” he said.

The misappropriation of funds at U of L have come from a variety of sectors.

In July, former Brandeis Law School admissions director Brandon Lee Hamilton was indicted on charges of promising $2.4 million more in law school scholarships than the school had available.

In 2011, former employee Kerry Johnson was charged with stealing more than $100,000 from the school’s ticket office.

That same year, Alisha Ward, who worked in the College of Business, was charged with stealing $463,636 from the student Equine Riding and Racing Club.

Also that year, dental professor Michael H. Martin was found dead in his office of an apparent suicide after he was interviewed by university police for allegedly misusing a university credit card for a $353,875 National Institutes of Health grant that he directed.

And in 2008, former education school Dean Robert Felner was charged with fraudulently obtaining $2.3 million in grant money.

Ramsey said the school believes its old policies and procedures were sound but said the changes will help “reduce the number of places where human or systemic breakdowns might occur.