January 23, 2012

Audit finds Kansas Bioscience Authority’s former leader misspent funds, destroyed documents

The former head of the Kansas Bioscience Authority misspent agency funds and destroyed documents on his computer that had been subpoenaed by a prosecutor investigating the agency, according to an in-depth audit of the state-funded authority.

The former head of the Kansas Bioscience Authority misspent agency funds and destroyed documents on his computer that had been subpoenaed by a prosecutor investigating the agency, according to an in-depth audit of the state-funded authority.

The audit, by the firm BKD LLP, found that Tom Thornton, the former KBA president, used public funds to fly to Cleveland for a job interview and that employees alleged that he engaged in inappropriate intimate relations in the KBA’s office with an employee who later became his wife.

The report concluded that the couple’s conduct hurt office morale, but quoted a KBA contract lawyer’s analysis that their actions didn’t appear to violate state law because KBA employees are not technically state employees.

The audit was made public following a nearly four-hour closed meeting of the board and the auditors at the KBA headquarters in Olathe.

KBA chairman Dan Watkins said in a written statement, “The audit report should clear the air regarding questions raised in the past year. With the release of this exhaustive review, Kansans can be confident the Kansas Bioscience Authority is a good steward of state resources.”

However, Gov. Sam Brownback called the facts brought out in the audit “deeply troubling.”

“This is not how we do business in the State of Kansas,” he said in a statement. He called on the board to place a moratorium on funding new projects until the Legislature determines how to proceed.

The forensic audit of the KBA was forced on the agency by Brownback after questions were raised in a series of legislative hearings called by Sen. Susan Wagle, R-Wichita, chairwoman of the Senate Commerce Committee.

Wagle plans to conduct two hearings later this week on the audit and its findings in her Senate committee.

"I think it clearly shows a dysfunctional agency," she said. "Clearly, they need to quit spending money.”

Contracts questioned

The 203-page audit questioned some of the agency’s contracting practices.

“Our analysis found 301 payments without a contract, including 102 payments that violated KBA’s Contract Policy,” the audit said. “The total contract cost involved totaled $1,219,271.81 in payments without a contract, including $571,828.20 in payments which violated Contract Policy.”

Watkins said the payments involved were generally routine, including a lot of phone bills, and that the audit noted the KBA improved its contracting practices over time.

The audit also concluded that former KBA board member Angela Kreps may have improperly participated in deliberations and voted on a $100,000 grant to a private bioscience association she headed.

Kreps was at the Bioscience Authority headquarters when the report was released but left before she could be asked for comment.

Watkins defended her, saying that grant was a single line item in a large spending plan and that Kreps was attending her first meeting of the authority when she voted on it.

The money was for Kreps’ agency, KansasBio, to organize a bioscience conference, he said. Now, the authority pays the vendors for the conference directly, he said.

The audit concluded that Thornton used public funds to pay for a trip to Cleveland to interview for a job with the Cleveland Clinic, a major health provider in Ohio.

Under fire at the KBA, Thornton resigned last April after landing the job with the Cleveland Clinic. His wife, Lindsay, whom he met when she applied for a job with the KBA, left the KBA with him.

Watkins said that when the relationship became serious, Thornton transferred supervision of her to a subordinate.

The audit was critical of Thornton for not reporting the relationship to the authority board in a timely fashion.

The audit also indicated the state sought recover more than $4,500 from Thornton, for the Cleveland trip and a piece of artwork he bought with KBA funds that he displayed at his home and later donated to charity.

Watkins said Thornton reimbursed the authority about a week ago.

Computer files destroyed

However, the auditors said the full scope of potential misspending could not be determined because Thornton erased and electronically shredded files kept only on his KBA-provided laptop.

The audit indicated that Thornton used a special program that overwrites data to prevent recovery.

According to a footnote in the audit, it appeared some of the files were pornography. He also electronically shredded his document files.

Investigators were unable to recover Thornton’s files despite the use of sophisticated computer forensic tools.

The timeline of the audit shows that some files were destroyed after Wagle and representatives of the governor’s office began pressing for the forensic audit, which is a deep look into the workings of an agency designed to uncover information that can, if necessary, be used as evidence in a criminal prosecution.

The Johnson County District Attorney’s Office confirmed last year that it was conducting an investigation of the authority.

Many of the files on Thornton’s laptop were deleted within two days of the district attorney issuing a subpoena to the authority, the audit indicated.

In last year’s hearings, Thornton and board members, including former Gov. John Carlin, had told Wagle and her committee that the allegations against the authority were unfounded.

Mission was jobs

The Legislature created the Bioscience Authority in an effort to attract high-paying jobs to the state. The agency’s charge was to identify and help fund promising research at the state’s universities and in private-sector companies.

The Legislature committed $581 million to the agency and placed it under the direction of an independent board in an effort to insulate it from Capitol politics. The first sign that things were going wrong came last year when scientists at the Center of Innovation for Biomaterials in Orthopaedic Research claimed that they were being shortchanged on a five-year, $20 million grant that they say they were supposed to receive from the authority.

CIBOR, a joint venture led by Via Christi Health and Wichita State University, is attempting to adapt the university’s innovative aviation materials for medical uses, such as hip and knee replacement joints, battlefield splints and lightweight stretchers.

Thornton denied that the authority committed to any funding beyond an initial $4 million investment, but lawmakers said authority executives indicated the full funding would be granted in a series of meetings with legislators at the Capitol.

An addendum to the audit released Monday found no evidence that the authority had made a binding promise to fund $20 million for CIBOR.

After Wagle began looking into the situation, employees of the agency told her they believed that funds were being misspent and that Thornton was using a state employee to perform personal errands.

According to documents provided to Wagle’s committee, 12 of the authority’s 21 employees, including Thornton and his wife, were making more than $100,000 a year. All employees received raises of 4 to 15 percent last year, when the state was instituting salary freezes and layoffs to close a $500 million budget gap.

Thornton’s base salary was $265,000, and he was given a $100,000 bonus.

His wife, director of special projects for the authority, was making $107,500, plus a $5,000 bonus.

The hearings also brought out that Thornton, while working for the authority, held a $50,000-a-year position as a director of Advanced Life Sciences, a pharmaceutical company that had received government grants to test an experimental antibiotic.

The company foundered after the drug was rejected by the Food and Drug Administration.

Last year, Republican and Democratic legislative leaders said Wagle’s investigations into the KBA could threaten Kansas’ status as the site for the National Bio and Agro-Defense Facility.

The federal government selected Manhattan as the site for the $650 million laboratory that will study ways to counter biological terrorism and threats to the nation’s food supply. The KBA was one of the lead agencies in convincing the federal government to locate the facility in Kansas.

Legislators react

Senate President Steve Morris, R-Hugoton, said he has had a couple of brief conversations with auditors but has not read the audit yet. He said he understands there are no strong allegations against the KBA board.

Morris noted that the audit cost $1 million, which he said could prove worthwhile or unjustified.

"That’s a lot of money for an audit," he said.

Morris said he is somewhat computer illiterate and doesn’t know the significance of Thornton erasing his computer’s hard drive. He said auditors told him it could be that Thornton wanted to remove personal information or information related to the KBA.

Morris also said the KBA’s investment procedures are sound.

"My observation of the KBA is that they’re operating the way they should operate and they’re still doing good things for the state," he said.

"I would hope that the Bioscience Authority would move forward and do what they were tasked to do and that people would realize that it has gone through a fairly traumatic period with this forensic audit and observe that the audit shows didn’t show that there was much there," Morris said. "And that would be a vote of confidence for the KBA to move forward."

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