CSUN Investment Error Proves Costly

Cal State Northridge could lose about $187,000 in federal relief for earthquake repairs after failing to deposit millions of dollars in surplus funds in an interest-bearing account, according to an audit released Tuesday.

The error by the school’s disaster-recovery office not only cost the campus lost interest earnings but violated federal regulations, which Cal State officials said could lead to a possible penalty of reduced reimbursements for earthquake repairs.

The disaster-recovery office was disbanded last year and its director, Jane Chatham, was reassigned following disclosures that she and her husband, another CSUN administrator, had accepted free construction work at their home from employees of a campus earthquake contractor they supervised.

But the Cal State system’s accounting director and several CSUN officials called the investment error a simple mistake that occurred during the unprecedented chaos following the earthquake. CSUN officials eventually recognized the error.

“It was just basically an oversight on their part. It’s something they [later] recognized they should have done,” said Cal State system accounting director George Pardon. “They could have done a better job.”

Chatham, who now handles other financial work for the campus, could not be reached for comment Tuesday. Last year, a state agency reviewing the conflict-of-interest allegations found insufficient evidence of any legal wrongdoing.

The mishandling of relief funds was included in a broader analysis of how the entire Cal State system handled federal funds in 1994-95. The report, by the Los Angeles office of KPMG Peat Marwick LLP, was released at the Cal State Board of Trustees meeting in Long Beach.

CSUN President Blenda Wilson, who attended the meeting in Long Beach on Tuesday, said she was not familiar with the audit’s findings. But Wilson said the campus has worked hard to avoid such problems. Recalling the post-earthquake period, she said, “We were very, very, very occupied.”

The campus sustained an estimated $350 million in earthquake damage, the most costly natural disaster ever for a U.S. university. About 107 campus buildings were damaged, and complete recovery remains 18 months to nearly five years away.

According to Pardon, federal regulations have long required that all types of federal funds received by public agencies be kept in interest-bearing accounts to maximize their value. In CSUN’s case, it was earthquake repair money from the Federal Emergency Management Agency.

The problem occurred between July 1994 and September 1995, when CSUN officials received about $60 million in FEMA funds from the Cal State system, creating ongoing balances of $3 million or more in a non-interest-bearing checking account that was used to pay for campus repairs.

The estimated $187,000 loss is based on the audit’s assumption that those types of balances could have earned 5% to 6% interest during the 12-month period of the audit between July 1994 to June 1995. CSUN officials shifted the idle federal funds to an interest-bearing account in September 1995.

Pardon said Cal State officials expect FEMA ultimately will deduct the $187,000 amount from the federal government’s final earthquake reimbursements to the campus because the money was not invested. But that deduction has not occurred yet, officials said.

Karen Hoefel, CSUN’s director of financial and logistical services, said campus officials eventually spotted the lack of interest earned and actually pointed it out to the auditors. And Hoefel said the campus might ask FEMA not to penalize the campus.

“Clearly, given everything we had to do, this was something we didn’t do very well,” Hoefel said, referring to how the money was handled. But she added: “We were new at this game, and it was bigger than any federal funds game we’d ever participated in.”