TBR could have acted sooner in advance of Northeast State financial collapse
By: Nate Morabito
Posted: Nov 09, 2017 05:36 PM EST
Updated: Nov 09, 2017 05:36 PM EST
BLOUNTVILLE, TN (WJHL)- The Tennessee Board of Regents knew Northeast State Community College's financial survival was in question as far back as 2013, according to newly obtained state records. Following our review of hundreds of internal emails and memos, the agency in charge of oversight admitted it could have acted sooner and stronger leading up to the school's $5 million budget crisis.
"We certainly have an oversight role and in hindsight, we probably could have done more earlier," TBR Communications Director Rick Locker said.
Public records show Northeast State's reserves dropped by almost 75 percent over the course of four years, from $20,849,065 in 2012 to $15,731,346 in 2014 and $5,539,172 in 2016.
The college's Composite Financial Index, a score of its overall financial health, showed Northeast State first reached what TBR now considers its watch level in Fiscal Year 2013 and only worsened in the years after. As part of a new policy implemented two years later, TBR placed Northeast State on its "watch list" in fall 2015.
"Northeast was put on Watch Level in the Fall of 2015," Locker said. "TBR's finance staff had telephone conversations with Northeast at that time. Because Northeast's CFI has remained below 1.0, it remained (and remains) on Watch Level status."
Despite those revelations, Locker called a chain of emails from August 2016 "the first real alarm." Those emails arrived to top TBR administrators almost six months before the agency sent a strategic team to Northeast State and almost a year before large scale layoffs there.
"Once the warning bells started going off we moved decisively and I think quickly," Locker said.
Top TBR administrators, including two now retired vice chancellors, received the emails from Northeast State's former president and former chief financial officer on August 9, 2016.
The emails warned of challenges in cash flow and asked for permission, if needed, to temporarily transfer money from a building fund.
The community college did not end up transferring the money. Instead, Northeast State chose to hold off on filling 13 full-time vacant positions and limit travel, but Locker said Northeast State and TBR remained in communication throughout the fall semester.
"If TBR knew there was an issue in August, why did the agency wait until February to get boots on the ground here?" we asked.
"Well, our colleges have a lot of authority to operate on their own within broad TBR policy and state law and we were definitely working with Northeast all through last fall," Locker said. "It was a process. We did step in."
Emails show former president Dr. Janice Gilliam alerted TBR that faculty members were upset with her in September and continued email conversations about the budget challenges in November.
Records show she again forwarded faculty concerns in December, along with an assurance -- just days before Christmas -- that she would turn in the college's plan to address the budget issues during the first week of January.
By the end of January, Gilliam announced, working with TBR, the school would eliminate five full-time permanent positions and would reduce travel and operating costs.
Days later, the Northeast State Faculty Senate gave her a vote of no confidence and TBR received an email about several years' worth of enrollment over projections.
TBR officially stepped in and sent a strategic team to Northeast State in early February and in the short-term, helped implement three interim measures, including shared governance of the college.
Four months later, nearly 50 employees lost their jobs.
"Do you feel that TBR is at fault in any way for what happened there?" we asked.
"There's enough blame to go around," Locker replied.
Public records show TBR administrators aren't the only ones who could've helped prevent the situation.
Gilliam detailed the college's financial status in a three-page memo on her last day of work.
In that memo, the retiring president placed much of the blame on other administrators. Gilliam said managers, including former CFO Dr. Steve Campbell, kept her in the dark about bad financial decisions, including $4.8 million in student debt she said the finance office did not budget properly.
"Someone was not doing their job for many years in managing this issue," she wrote.
She also said Campbell did not make her aware of $1.5 million worth of understated employee benefits in the 2015-16 fiscal year until "after budget submission when it was too late to take any action."
In addition, Gilliam said no one ever reported to her $2.8 million in over-expenditures in the college's Technology Access Fee budget.
"The overexpenditure of TAF was not reported to me at any time, even after asking for all accounts each year," she said.
Gilliam added the former budget manager wasn't transparent about a bad practice of taking money from conservative departments to bail out those who overspent.
"A trend over the past several years was to wait until the end of the year to fix issues," Gilliam said. "As the budget became tighter with declining enrollments, this proved to be very bad practice. Also, the former budget manager/analyst was taking funds from those who were conservative and bailed out those who overspent, also a bad practice, and also was not transparent in sharing this with VP's."
The former budget manager denied that claim.
Just last week in a text message to us, Gilliam said the finance office also let payroll get two years behind, which she said she did not find out about until earlier this year when an interim CFO took over.
"The finance office had nearly caught up by June 30, 2017 after two years of being behind on bank, payroll and benefits reconciliation," she said. "This was made known to me by the interim CFO last spring after Steve Campbell left the CFO position."
Faculty Senate Vice President Tricia Crawford is quick to defend the former CFO. While she admits Campbell holds some responsibility, she believes he spoke up with concerns.
"When you're near retirement and in fear for your job, most people would understand following orders of your superiors," Crawford said. "Ultimately, as the leader of the organization, Dr. Gilliam is responsible. It seems that the only financial issues occurred after Dr. Gilliam came to campus."
Gilliam declined an on-camera interview for this story. TBR policy says accountability for management of the budget rests with the Chief Executive Officer. By text message, she admitted she's responsible regardless of the situation.
"That is what was most frustrating to find out these things and not to have been told the full situation," Gilliam said. "I was reviewing dashboards and reports and asking for information constantly, but somehow these things were not shared."
Sen. Jon Lundberg (R-District 4) knows the responsibility that comes with being the boss. He runs his own business.
"If somebody screws up here, it is my fault, because for whatever reason, I didn't do my work," he said.
He said a pattern of bad decision making is to blame for the Northeast State situation and he said the blame starts at the top.
"You wouldn't go into that position without an administrative failure," he said. "I think they realized, the TBR did, they frankly took their eyes off the ball and let this go on."
"Is any one person to blame for the situation at Northeast State?" we asked Locker.
"No, I honestly don't think so," he said. "Everything that Northeast did they were trying to do for the students."
According to Locker, TBR has increased oversight at all community colleges as a result of the situation at Northeast State and is now "having more real-time conversations with campus financial officers."
"We're monitoring the campuses more closely," Locker said. "We've stepped up our monitoring and I don't think this problem's going to happen again."
A TBR audit released in September found, among other things, continuous warnings of overexpansion, overspending and questionable priorities at Northeast State went unheeded.
As for Northeast State, Locker said the college has turned the corner and after the painful cuts, is now in a better position moving forward. In fact, he said the community college is projected to the end the year with a small surplus.
Local Regent J. Parker Smith declined an interview for this story, but released a statement to us:
"Members of the Board of Regents became aware of the depth of the financial issues at Northeast early this year when then-President Gilliam took the first actions regarding jobs to try to bring the budget into balance," he said. "That process continued with the interim actions taken by TBR staff in February to further control spending, and then after the arrival of Interim President James King when further, even more painful cuts were taken.
However, I'm convinced that the problems have been resolved and that Northeast is in an even better position to serve the students and the communities of our region. I know that everyone there – faculty, staff, administration – is focused on making sure that our students are successful. Enrollment is up and the college's administration believes they will end the current fiscal year next summer with a small reserve that they will build on in future years."
TBR policy requires the board to know when a college is placed on the watch list.
We left multiple messages for Campbell, but never heard back.