Letter from Assistant State Auditor ..... 1 CHAPTER 1: Introduction and Background ..... 3 CHAPTER 2: Overall Control Environment ..... 12 Finding 1: KSU's Weak Internal Control Environment, Coupled with Poor Fiscal Management Practices, Led to a Pervasive Lack of Accountability ..... 12 Finding 2: Examination Procedures Were Limited Due to the Condition of KSU Records, Policies, and Significant Staff Turnover ..... 15 Finding 3: KSU Failed to Adequately Support Its Internal Audit Function and Minimal Effort was Made to Ensure Internal Audit Reviews Were Completed and Communicated to Its Board ..... 19 Finding 4: KSU Lacks Controls to Prevent Overspending and Failed to Ensure Completeness of Its Accounting Records ..... 22 Finding 5: KSU's Outdated or Rogue Policies and Procedures Result From An Undefined Policy Setting Process ..... 28 Finding 6: KSU Failed to Implement an Effective System of Internal Controls Over Federal Grant Expenditures Putting Over $3 Million Dollars in Federal Funds at Risk ..... 33 CHAPTER 3: Financial Activity, Reporting, and Monitoring ..... 39 Finding 7: The University Failed to Implement Sufficient Internal Controls to Ensure an Effective Budgeting Process and Prevent Overspending ..... 39 Finding 8: KSU Provided Insufficient Oversight of Its Procurement and Expenditure Processes ..... 43 Finding 9: KSU Failed to Fully Implement Controls Over Its Internal Endowed Funds, Then Withdrew Over $2.7 Million, Supplementing Its Cash Balances ..... 49 Finding 10: Former KSU Administration Rewarded Select Members with Unallowable Benefits, Including Bonuses, and Granted the Former President an Excess Housing Allowance and Utilities ..... 53 Finding 11: Former EVP for Finance and Administration Submitted an Inaccurate Accounts Payable Amount to Former President and Former Board Chair Amid Questions and Rumors of Unpaid Bills ..... 59 Finding 12: KSU Failed to Apply a 5% Salary Reduction to Executive Salaries Despite a Signed Resolution ..... 62 Finding 13: Insufficient Communication and Relationship Between KSU and Its Foundation Has Led to Ineffective Oversight of Public Funds ..... 64 Finding 14: Former EVP for Finance and Administration Failed to Notify KSU of His Dual Employment Creating a Conflict of Commitment ..... 69 Finding 15: KSU Violated Record Retention Requirements ..... 72