SDSU Foundation to Pay Settlement : Minorities: It will pay U.S. Commerce Department $1.2 million to end controversy over program to aid minority businesses.

The San Diego State University Foundation will pay $1.2 million to the U.S. Department of Commerce to settle a controversy over multimillion-dollar federal programs that the foundation operated to boost the number of minority-owned businesses, the university announced late Tuesday.

The foundation will also end any involvement with the Minority Business Development Agency, an arm of the Commerce Department that provided the foundation more than $10 million since 1982 to run three centers in Tucson, Los Angeles and San Diego.

The federal government, after a series of audits beginning in the mid-1980s, accused the foundation in March 1990 of exaggerating its successes in promoting minority-owned businesses and of mismanaging the large Los Angeles center, allegations the foundation strongly denied two years ago.

The foundation is a nonprofit operation which has since its beginning administered about $450 million in non-state tax money received by San Diego State professors in competitive bidding for contracts for research and teaching at the campus. The foundation-run centers were an outgrowth of the Small Business Institute under the university’s College of Business.

The foundation is an auxiliary of the university and a majority of its board members are either on the faculty or university administrators. University President Thomas Day is board chairman. The foundation said Tuesday that settlement of the case was preferable to continuing a years-long legal battle.

The money will be paid to the Commerce Department from a contingency reserve that the foundation maintains in case audits show overpayments or other mismanagement, Stephanie Barnett, foundation spokeswoman, said Tuesday.

The federal government had charged that the foundation owed $100,000 based on a 1983 audit, an additional $135,000 from a second audit in 1986, and $1.6 million from a hotly contested preliminary third audit specifically on the Los Angeles program.

The audits alleged that the managers of the program engaged in fraud and mismanagement in trying to exaggerate the program’s success.

As part of the compromise, the Commerce Department agreed to withdraw the first two audits and not to pursue any further action on the contested audit of the Los Angeles program.

The foundation will also drop its lawsuit against the Commerce department alleging it was denied due process by the department in trying to dispute the audits.

Chuck Shockley, an administrator who has run the San Diego center for the foundation, will take over the center on his own, Barnett said Tuesday.

The foundation gave up operation of the Los Angeles center a year ago and will cease management of the Tucson center next week, Barnett said.