SDSU Foundation Sues Over U.S. Audits

The San Diego State University Foundation filed suit in U. S. District Court on Thursday, accusing the Department of Commerce of unlawfully withholding grant money while audits concerning a disputed school program remain unresolved.

Officials for the foundation said at a press conference that the group’s fund-raising ability may be jeopardized if it cannot continue to obtain grant money while the three audits, the first of which began in 1983, are pending.

James Feldesman, the group’s Washington-based attorney, said the Commerce Department is withholding from the foundation five grant awards valued at a total of $1.2 million.

At the same time, he said, the department wants the foundation to repay $405,406 that the first two audits identified as being allegedly misused. A third, preliminary audit seeks to recover an additional $1.6 million from the foundation.

Feldesman described the demands by the Commerce Department as having a crippling effect on the foundation.

“I’ve never seen a federal agency come down on an institution the way the Department of Commerce is coming down on the San Diego State Foundation,” he said. “I don’t know what possessed them to drop the hydrogen bomb on the foundation.”

A spokesman for the department, reached Thursday night at his office in Washington, said he lacked enough information to comment on the audits or the lawsuit.

At issue is a multimillion-dollar program operated by the foundation to increase minority involvement in the Los Angeles-area economy. One of the audits alleges that managers of the program engaged in fraud and mismanagement in trying to exaggerate the program’s success.

The program is the nation’s largest recipient of federal money from the Minority Business Development Agency, a branch of the Commerce Department. The SDSU foundation manages similar programs in San Diego and Tucson, but foundation officials said those programs are not in question.

Under terms of its lucrative grant contracts with the agency, the foundation is supposed to help minority business owners obtain loans, bonds and contracts.

But, according to the most recent audit, the foundation uses phone canvassing, high-pressure sales pitches and bank contacts to create the impression that it has assisted minority-owned oil companies, real estate firms, bridal shops, liquor stores and hundreds of other businesses.

Frea Sladek, associate general manager for the nonprofit foundation, called the charges “ridiculous.”

But, she added, “now is not the time to respond to specific allegations. There will be a time for that. After all, that’s what we want, that’s what we’re asking for.”

Feldesman said the Commerce Department has denied the foundation a fair administrative hearing in defending itself against the charges, which he said will be dismissed once an impartial arbiter listens to the case. He said the foundation has pursued the matter through channels within the department, to no avail.

“We were forced to turn to the courts,” he said Thursday. “No appropriate hearing has ever been conducted on any of these matters.”

“To add insult to injury,” he said, “we’ve been denied access to all of their papers. Once it comes to a fair hearing, we’re fully confident of winning. We’d be fools to have the court give us what we want (a hearing) if we weren’t convinced we’d prevail. We’re simply asking for due process and a fair hearing.”

The foundation hopes that the suit is heard before April 30 so that money will no longer be withheld, pending the outcome of a later hearing before an impartial arbiter.

Feldesman said that, if a judge cannot hear the matter before then, the foundation may have to close its minority training centers in San Diego and Tucson, now being operated at its own expense. He assessed the cost at about $30,000 a month and added that the Los Angeles center was closed last month pending the outcome of charges against it.

Feldesman said it is “unlawful and illegal” for the Commerce Department to withhold a total of five academic grant awards, two of which do not relate to the program in question. The two unrelated to the program are National Oceanic and Atmospheric Administration grants, which the department suspended in the wake of the controversy, Feldesman said.

“They have nothing to do with this dispute whatsoever,” he said.

Feldesman also branded as unlawful a decision by the department’s inspector general to levy against the foundation a debt of $405,406 as a result of the first two audits of the Los Angeles center.

“That’s money they’re saying we have to pay back, not to mention the monies they’re withholding,” Feldesman said. “Now the big thing is the third audit, which involves about $1.6 million.

“Add all of that up--$100,000 or so in the first audit, $305,000 in the second and $1.6 million in the third--and you’re talking a potential $2-million debt. That could cripple the university.”