Audit and Advisory Services
401 Golden Shore, 4th Floor
Long Beach, CA 90802-4210

November 6, 2019

Larry Mandel
Vice Chancellor and
Chief Audit Officer
562-951-4430
562-951-4955 (Fax)
lmandel@calstate.edu

Report #18-202

Dr. Gayle E. Hutchinson, President
California State University, Chico
400 West First Street
Chico, CA 95929
Dear Dr. Hutchinson:
Pursuant to a request from your office and approval from the Chair of the Board of Trustees’ Committee
on Audit on August 24, 2018, Audit and Advisory Services has conducted an investigation in response to
allegations raised by California State University, Chico (campus) administrators. Specifically, we
investigated allegations that a professor (professor A) used the campus name, facilities, and other
resources inappropriately, had a conflict of interest due to his multiple roles, used University Foundation
or instructionally related activities (IRA) funds inappropriately, used grant funds inappropriately, and had
for-profit business ventures that conflicted with applicable criteria.
We substantiated that professor A misused the campus’s name and other resources to promote and operate
his non-profit business and misused campus facilities to conduct a for-profit training course without
paying for the use of the facilities. The professor also engaged in multiple roles that made it difficult to
determine in which capacity or whose interest he was acting when he solicited donations. Further, he
improperly used IRA funds to pay for travel expenses related to his non-profit for individuals who were
not students and paid a student to work on his for-profit training course using IRA work-study funds.
In addition, professor A falsified invoices in an attempt to receive reimbursement for expenses for which
he did not have proper documentation and increased students’ pay in a way that obfuscated the true
purpose of the expenditure. Professor A also violated campus policy when he required students to buy his
electronic course materials.
Included within the report are the results of the investigation, along with specific recommendations that we
believe would benefit the campus’s fiscal and operational management.
Sincerely,

Larry Mandel
Vice Chancellor and Chief Audit Officer
c: Jack McGrory, Chair, Committee on Audit
Timothy P. White, Chancellor
CSU Campuses

Bakersfield • Channel Islands • Chico • Dominguez Hills • East Bay • Fresno • Fullerton • Humboldt • Long Beach • Los Angeles • Maritime Academy • Monterey Bay
Northridge • Pomona • Sacramento • San Bernardino • San Diego • San Francisco • San José • San Luis Obispo • San Marcos • Sonoma • Stanislaus

 SPECIAL INVESTIGATION
CALIFORNIA STATE UNIVERSITY, CHICO
MISUSE OF CAMPUS RESOURCES AND IMPROPER REIMBURSEMENT CLAIMS
Investigative Report 18-202
November 6, 2019

Members, Committee on Audit

Jack McGrory, Chair
Hugo N. Morales, Vice Chair
Silas Abrego Jane W. Carney
Douglas Faigin Jean P. Firstenberg
Wenda Fong Lateefah Simon

Vice Chancellor and Chief Audit Officer: Larry Mandel
Director of Investigations: Cindy Sanford
Senior Investigative Auditor: Sharon Best

Staff

BOARD OF TRUSTEES
THE CALIFORNIA STATE UNIVERSITY

 CONTENTS
EXECUTIVE SUMMARY
Allegations and Investigation Results........................................................................................................ 1

INTRODUCTION
Background................................................................................................................................................ 3
Campus Actions and Notifications ……………………………………………………………………………………………………….5
Scope and Method of Investigation .......................................................................................................... 5

RESULTS OF INVESTIGATION
Allegations and Findings ........................................................................................................................... 6

RECOMMENDATIONS
Recommendations .................................................................................................................................. 11
Campus Response ................................................................................................................................... 11

ABBREVIATIONS
Campus
Center
COB
Foundation
IRA
SAGE
SUSI
TRIS

California State University, Chico
Center for Entrepreneurship
College of Business
The University Foundation, California State University, Chico
Instructionally Related Activity
Students for the Advancement of Global Entrepreneurship
Study of the United States Institute
Turning Risk into Success

ii

 EXECUTIVE SUMMARY
ALLEGATIONS
Allegations were made related to a professor (professor A) in the California State University, Chico
(campus) College of Business (COB). It was alleged that professor A:
•

Used the campus name, facilities, and other resources inappropriately and not in compliance with
applicable criteria.

•

Had a conflict of interest due to his multiple roles as a principal investigator on a federal grant, chief
executive officer of a non-profit, campus faculty member, and advisor to a campus student group.

•

Used University Foundation (Foundation) or instructionally related activities funds inappropriately.

•

Used Study of the United States Institute (SUSI) grant funds inappropriately.

•

Had for-profit business ventures that conflicted with applicable criteria.

INVESTIGATION RESULTS
Misuse of the Campus Name, Facilities, and Other Resources
Professor A misused the campus’s name and other resources to promote and operate his non-profit
business and misused campus facilities to conduct a for-profit training course without paying for the use
of the facilities.
Conflict of Interest
Professor A engaged in multiple roles that made it difficult to determine in which capacity or whose
interest he was acting when he solicited donations.
Misuse of Instructionally Related Activity (IRA) Funds
Professor A improperly used IRA funds to pay for travel expenses related to his non-profit for individuals
who were not students. He used Foundation funds for similar purposes but had broader spending
authority for those funds. The professor also paid a student to work on his for-profit Turning Risk into
Success (TRIS) venture using IRA work-study funds.
Misuse of SUSI Grant Funds
Professor A falsified invoices in an attempt to receive reimbursement for expenses for which he did not
have proper documentation and increased students’ pay in a way that obfuscated the true purpose of
the expenditure.
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 EXECUTIVE SUMMARY

Violation of Campus Policy Regarding Faculty Profits on Course Materials
Professor A violated campus policy when he required students to buy his electronic course materials.

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 INTRODUCTION
BACKGROUND
As part of this investigation, we found the term “SAGE” was used in reference to two organizations:
SAGE Global, professor A’s non-profit corporation, and the SAGE student organization on campus, in
which students mentor teens in creating and operating their own businesses. This ubiquitous use of the
name was a point of confusion for the campus, students, and even professor A. There was a general
lack of clarity regarding where the division lay between the two entities.

Students for the Advancement of Global Entrepreneurship (SAGE Global)
Professor A founded SAGE Global, a 501(c)(3) non-profit corporation, for which he is the chief executive
officer. It is an international entrepreneurship program for teens. According to SAGE Global’s website,
the program combines three components: curriculum, mentoring, and competition. The curriculum
helps teens identify and operate real businesses that solve critical problems. The teens are then
connected with campus students or other allies who mentor them, and the teens later showcase their
businesses with written reports and live presentations at competitions judged by community leaders.
Professor A funds the corporation’s activities through donations and income earned through registration
fees for his TRIS educational workshops described below.

SAGE Student Organization
SAGE is also the name of a campus student organization whose mission is to create the next generation
of entrepreneurial leaders whose innovations address some of the world’s most urgent needs.
Members go through a certification process created by professor A and mentor teens from across the
nation, showing them how to create and operate their own business. Professor A is the faculty advisor
for the SAGE student organization, and his classroom students can earn extra credit for participating in
it. Professor A funds the student organization from a combination of sources that include campus,
Foundation, and SAGE Global funds.

SAGE World Cup and Other Competitions
To participate in SAGE, a team of teenagers from a school or community organization is created. Teams
are often mentored by campus students who are part of the SAGE student organization. At the end of
each year, there is a regional and/or national competitive tournament in the United States where teams
present their results, both orally and in writing. For example, teams may first participate in SAGE
California, a regional competition, and advance to SAGE USA, the national tournament. The top teams
are invited to participate in an international tournament called the SAGE World Cup (World Cup). The
World Cup is held in different countries, and SAGE teams from many countries compete.
Funding for the World Cup and other competitions comes from SAGE Global, campus, and Foundation
sources.

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 INTRODUCTION

Turning Risk into Success
Professor A leads the TRIS workshops, which are marketed to teachers. The two-day workshop features
a curriculum focused on entrepreneurship and teaching teenagers how to identify and operate their
own business. Teachers are encouraged to take the course and become TRIS-Certified Master Teachers
so they can teach the curriculum to their students. In addition to charging teachers to attend the
workshop, professor A requires schools that want to implement the curriculum to pay a licensing fee to
SAGE Global, although according to professor A, as of April 2019, no one had purchased a license.

Office of Research and Sponsored Programs
The Office of Research and Sponsored Programs provides support to campus faculty and others in their
research, scholarly activity, and community service programs. Their services include orientation for new
principal investigators, management of grant funds, and submission of financial reports.

The University Foundation, California State University, Chico
The Foundation is the steward of gifts for the campus. Its mission is to support the campus’s strategic
plan by raising, investing, and disbursing funds “to fuel the growth and excellence of the University.”
Donations to the SAGE student organization go to an account within the Foundation.

Study of the United States Institute
The Study of the United States Institute (SUSI), a program of the Department of State, provides
multinational groups with a deeper understanding of United States society, education, and culture. The
SUSI program on campus brought approximately 20 student leaders from Africa to the U.S. for a fiveweek program focused on social enterprise development, with an examination of social
entrepreneurship. The program included a four-week academic seminar, meetings with U.S. peers and
regional business leaders, leadership training, community service, site visits to topically relevant
enterprises, a one-week study tour to Missouri and Washington, D.C., and the completion of teamdesigned business plans related to the students’ social entrepreneurial interests. Professor A was
involved in the campus’s SUSI program during the summers of 2017 and 2018.

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 INTRODUCTION

CAMPUS ACTIONS AND NOTIFICATIONS
In April 2018, the campus began to have concerns related to potential conflicts of interest and misuse of
campus resources on the part of a professor and began to conduct an inquiry. In August 2018, an
employee in the campus’s Office of Research and Sponsored Programs noted that some practices on
professor A’s SUSI grant were out of the ordinary and raised those concerns to administrators. On
August 24, 2018, the campus president requested that the Office of the Chancellor conduct an
investigation into the concerns that resulted from their inquiry; the request was endorsed by the
chancellor and approved by the chair of the Board of Trustees’ Committee on Audit.

SCOPE AND METHOD OF INVESTIGATION
To investigate the allegations, we reviewed applicable policies and procedures, as well as information
gathered by the campus. We also obtained various financial records from the campus and the
Foundation, online information about SAGE Global and its related activities, and professor A’s campus
email. In addition, we interviewed campus staff members, including professor A, as well as several
students involved with SAGE activities. We reviewed information for the time frame of January 1, 2016,
through December 31, 2018, unless otherwise noted in the report.

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 RESULTS OF INVESTIGATION
ALLEGATIONS AND FINDINGS
Allegations were made related to a professor (professor A) in the California State University, Chico
(campus) College of Business (COB). It was alleged that professor A:
•

Used the campus name, facilities, and other resources inappropriately and not in compliance with
applicable criteria.

•

Had a conflict of interest due to his multiple roles as a principal investigator on a federal grant, chief
executive officer of a non-profit, campus faculty member, and advisor to a campus student group.

•

Used University Foundation (Foundation) or instructionally related activities funds inappropriately.

•

Used Study of the United States Institute (SUSI) grant funds inappropriately.

•

Had for-profit business ventures that conflicted with applicable criteria.

Misuse of the Campus Name, Facilities, and Other Resources
Misuse of the Campus Name and Other Resources
The website for SAGE Global, professor A’s non-profit organization, listed the campus address, as well as
professor A’s campus phone number and email address as the contact information, even though SAGE
Global had its own email domain. In fact, in December 2018, professor A questioned why he was not
receiving emails sent to him at a SAGE Global address. The SAGE Global chief operating officer (COO)
replied that professor A had always had a SAGE Global email account and that he had lobbied professor
A to use it on more than one occasion many years ago, but professor A continued to default to his
campus email account. The COO asked professor A whether he was ready to begin using his SAGE
Global account, but professor A continued to use his campus email account for issues related to SAGE
Global.
Professor A also used COB letterhead for a section of the SAGE Information Handbook titled “How to
Start a SAGE Program in Another Country” and used a campus email address for a SAGE Global listserv.
As discussed in more detail below, professor A held for-profit workshops using campus facilities. The
marketing for the workshop on the SAGE Global website promised that students who completed it
would receive a certificate of completion from the campus’s Center for Entrepreneurship (Center).
Despite cautions from campus administrators, professor A used the campus’s logo, not the center’s, on
the certificates. Professor A told us he was never told that he could not use the campus logo, just that
he might want to be careful. However, according to a May 29, 2018, email on which professor A was
copied, the interim dean said he agreed that the certificates should not indicate an affiliation with the
campus or COB, and that the professor was “happy to clean up that language.” Nevertheless,
certificates of completion issued by professor A in January 2019 still included the campus logo.
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 RESULTS OF INVESTIGATION

In each of these situations, using the campus name and logo, using COB letterhead, and listing campusaffiliated contact information implies that the campus and/or COB supports, endorses, or is affiliated
with SAGE Global.
Misuse of Campus Facilities
Professor A developed a for-profit training workshop using a curriculum he called TRIS and hosted the
workshops in the dean’s conference room in the COB without paying for the use of the facilities. The
curriculum was designed to help teens identify and operate their own business. Teachers and SAGE
mentors were encouraged to attend the workshop and become TRIS-Certified Master Teachers.
Campus students involved in the SAGE student organization who wanted to be SAGE mentors were
required to take the TRIS workshop, and professor A offered it to them free of charge. Course costs to
teachers varied depending on the timing of the registration and whether or not the attendee was from
the U.S., but the early registration rate for U.S. attendees was $350.
Professor A said he has held six TRIS workshops since 2015, but two had zero paying attendees, because
all were campus students. He also told us that the most attendees in any one workshop was 17, but
about half of them were campus students. However, we found an email professor A wrote in January
2019 just after a TRIS workshop that said he had 17 participants attend at $350 each (a total of $5,950).
When the TRIS courses started a few years ago, participants were instructed to make their registration
payments to SAGE Global. Professor A told us he gave participants the option to have their payments go
to SAGE Global or the university (a Foundation account called SAGE fund). If they asked professor A
where he wanted their money to go, he said he told them that the Foundation took a 5 percent
administrative fee, but SAGE Global did not. Professor A said he was not sure how many payments went
to the Foundation versus SAGE Global, but he said he thought the split was about 50/50. However, we
only saw three TRIS-related payments deposited with the Foundation between fiscal years 2014/15 and
2017/18. Because not all registration fees went to the Foundation and we do not know the number of
attendees who were required to pay for the course, we were unable to determine the full amount
collected by professor A for the TRIS courses.
The interim dean of the COB told professor A that the TRIS money should go to the university because
he was using campus facilities, and for the January and May 2019 workshops, professor A listed the
Foundation as the payee on the registration forms. After that change, 25 payments totaling $11,200
were deposited in the Foundation account for these workshops. However, the Foundation was removed
as the payee for the workshop scheduled for August 2019. Instead, registrants were instructed to make
their checks out to SAGE and send them to the SAGE Global senior vice president. In addition, the
registration form still listed the campus as the location for the workshop. Despite this, the dean of the
COB told us that no campus facilities were used for the August workshop.

Conflict of Interest
Ambiguity Regarding Solicitation of Donations
Professor A is the chief executive officer of SAGE Global, as well as the faculty advisor for the SAGE
student organization. He noted in an email that “EVERYTHING I do is integrated.” However, this
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 RESULTS OF INVESTIGATION

integration can lead to confusion, and professor A told us that sometimes the delineation between the
entities is not even clear to him.
According to a campus executive, professor A said he allows and directs donors to donate directly to
SAGE Global. The professor also gives donors the option of donating to the Foundation but tells them
that the Foundation will take a 5 percent administrative fee if they choose that option, similar to what
he told TRIS participants. The executive questioned whether presenting the options this way was
misleading to donors. According to professor A, it is the donors who ask him where to send their
donations, and it is his policy to place the donation where the donors want it. According to SAGE
Global’s tax documents, the corporation received over $400,000 in donations between 2014 and 2018.
During that same time, professor A received $173,550 in donations to SAGE’s Foundation account.
He further explained that there is no SAGE California or SAGE USA entity (those are names for the
regional and national competitions), and “therein lies the fuzzy line.” Professor A said that he tries to
put funds for SAGE California and SAGE USA in the Foundation, though that explanation differs from
asking donors where they want the funds to go.
The campus does not know the amount and name of the donor for donations that go directly to
professor A’s non-profit corporation. Even though professor A frequently ties the campus name to the
SAGE name when soliciting donations, the campus has no oversight of funds deposited with the nonprofit corporation.

Misuse of Instructionally Related Activities Funds
Travel Expenses
The IRA program provides financial support for student competitions, performances, and athletics that
occur outside the classroom, as well as club, intramural, and recreational sports. IRA funds may not be
used for non-students to travel and/or participate in IRA activities. Although professor A used IRA funds
appropriately for students to attend and participate in SAGE competitions, he improperly spent more
than $5,200 in IRA funds for the following:
•

A portion of hotel and food expenses for at least 12 non-students at the 2016 SAGE USA competition
in Sacramento, California. Due to inconsistencies and a lack of relevant information in professor A’s
reimbursement claim for these expenses, we were not able to determine the exact dollar amount he
was reimbursed for the non-students.

•

Flights for three former SAGE student group members to attend the 2016 SAGE World Cup in the
Philippines. The cost of the flights totaled $2,852.39.

•

Flight, mileage, and two nights of lodging for one non-student to attend the 2017 SAGE World Cup in
Ukraine. These expenses totaled $964.23.

•

Flight for another non-student to attend the 2017 SAGE World Cup in Ukraine. This attendee was
reimbursed directly from the campus for $1,296.86.
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 RESULTS OF INVESTIGATION

In addition to using IRA funds to reimburse travel expenses related to SAGE competitions, professor A
also used Foundation funds for similar expenses for non-students. However, Foundation funds may be
used more broadly than IRA funds. As a result, we did not take exception to professor A’s use of those
funds.
Work-Study Funds
The IRA program, through its advisory committee, also allocates work-study funds annually, specifically
for students working in support of IRA-certified activities and programs. The funds cannot be used for
competitions, but can be used for students supporting a competition. Professor A received work-study
funding for SAGE, which is a certified activity, during fiscal years 2017/18 and 2018/19. In his workstudy funding request, the professor asserted that the funds would be used to provide administrative
support for SAGE students who plan, organize, and deliver three major SAGE events. However, one
SAGE student said that professor A instructed him to spend his work-study hours on creating learning
materials for professor A’s for-profit TRIS workshop, described previously. The student earned about
$3,600 from IRA work-study funds over the two years he worked for professor A. According to the
student, he charged all his work-study hours to work related to the TRIS program. Professor A’s use of
IRA work-study funds in this scenario was inappropriate because he used them to support his for-profit
venture.

Misuse of SUSI Grant Funds
Falsified Invoices
As part of the SUSI grant, students from Africa come to the U.S. to, among other things, experience U.S.
culture. Toward that end, in 2018, the students were taken to events at a local raceway and an IMAX
theater. According to professor A, he was unable to attend the events but gave cash to one of the
campus students serving as a mentor to pay for the admission tickets for the SUSI students. Professor A
told us he tried later to get receipts for the purchases but was not able to, so he created falsified
invoices totaling $510 in order to obtain reimbursement. When he was unable to obtain receipts, he
said he tried talking to campus representatives about what to do and was told he had to “get a receipt
or eat the cost.” The individuals reviewing the reimbursement requests questioned the requests
because professor A submitted invoices (i.e., bills) instead of receipts (i.e., proof of payment) and
because the invoices were identical in format even though they were ostensibly from different entities.
Because professor A could not provide a receipt, he was not reimbursed for these expenses.
In addition, professor A admitted to falsifying another invoice we questioned. This invoice was related
to a gathering of SUSI students in Ghana. Specifically, in order to recover other costs he said he incurred
but for which he did not have receipts, professor A and the consultant he hired to assist with the grant
added costs to an invoice from a Ghanaian company. The original invoice from the company converted
to $1,303 in U.S. dollars. After the modifications made by professor A and the consultant, the invoice
total increased by $2,447 to $3,750, for which professor A was reimbursed from SUSI grant funds.
Professor A acknowledged this was an error in judgment, but said that at no time were his actions
intended for self-enrichment; he said he was simply trying to recoup his losses for expenses he had not
been reimbursed for.
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 RESULTS OF INVESTIGATION

Professor A Obfuscated the True Purpose of Some Expenditures
In 2018, professor A wanted SAGE student mentors to accompany the SUSI students on a trip to Kansas
City and Washington, D.C. He said he paid for their airfare using his credit card and increased the
number of hours for which the students were paid by the grant; the students then used the additional
money to pay professor A for the cost of their airfare. This scenario was corroborated by one of the
students. According to professor A, the students earned the money but had to pay for their airfare. By
paying the students an additional amount and subsequently having them reimburse him for the cost of
their airfare, professor A obfuscated the true nature of the expenditures.

Violation of Campus Policy Regarding Faculty Profits on Course Materials
Beginning in fall 2017, professor A required his students to purchase a “course pass” (electronic
textbook) online to be used in place of a physical textbook. Students were told that if they did not do
so, they would be administratively disenrolled from the course. The cost of the course pass was $89.95.
From fall 2017 through spring 2019, professor A earned approximately $30,000, representing 50 to 75
percent of revenues from course pass sales. The remaining amount went to cover costs such as
software fees and a revenue split with the individual who administered the website that sold the
materials.
Professor A told us the now-former dean of the COB gave him approval in 2017 to sell the course pass;
however, she denied ever doing so. She told us there is a process faculty have to follow to sell their own
course materials, which includes sending them to the bookstore, whose staff check for copyright
requirements and handle the sale of the materials. The now-former dean said she would not want any
faculty to sell course materials on the side. Furthermore, campus Executive Memo 92-043, Interim
Policy Regarding Faculty Profits on Course Materials, prohibits faculty from personally profiting from the
local sale of course materials to campus students unless those materials are the result of substantial
creative effort by the faculty member and have undergone substantial peer review. Even when those
conditions are met, faculty are limited to a royalty of 10 percent of the local sales prices. According to
the current associate dean of the COB, professor A’s course pass did not undergo peer review. Because
the materials were not peer reviewed and professor A took a royalty exceeding 10 percent, professor A
violated the campus policy regarding faculty profits on course materials.

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 RECOMMENDATIONS
Our investigation was administrative in nature. The conclusions we drew were made within that
context. Recommendations that would mitigate the recurrence of similar findings are presented below.
We recommend that the campus:
1.

Remind all campus employees about appropriate and inappropriate uses of the campus’s name,
facilities, and other resources.

2.

Notify all campus employees that fundraising efforts made in their capacity as campus
employees should be coordinated with/through University Advancement.

3.

Remind the individuals responsible for reviewing requests for reimbursement about what their
review should include. This includes reimbursements from IRA funds, as well as Foundation
funds.

4.

Evaluate the appropriateness of the role of SAGE Global in activities that involve students or
campus or Foundation funds.

5.

If SAGE Global remains connected with activities that involve students or campus or Foundation
funds, consider renaming the SAGE student group to help differentiate it from SAGE Global.

6.

Require professor A to stop selling his CoursePass materials until they undergo peer review. If
the materials are approved, ensure that professor A follows the appropriate sales process and
that his royalties are reduced to the 10 percent level allowed by campus policy.

7.

File the required reports under Executive Order 1104, Campus Reporting of Fiscal Improprieties,
now that it has information pertaining to a dollar amount of the fiscal improprieties.

CAMPUS RESPONSE
We concur. The campus will:
1.

Establish a process to inform and remind employees about the appropriate and inappropriate
uses of the campus’s name, facilities, and other resources.
Estimated completion: March 31, 2020

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 RECOMMENDATIONS

2.

Develop a process to educate employees that any fundraising efforts made in their capacity as
campus employees must be coordinated through University Advancement.
Estimated completion: March 31, 2020

3.

Develop a process to ensure that employees with signature authority understand their fiduciary
responsibilities. In addition, the campus will provide training to appropriate employees related
to reimbursement requests and determining the appropriateness of expenditures based on
funding source (e.g., student fee, state, and auxiliary funds).
Estimated completion: March 31, 2020

4.

Evaluate the appropriateness of the role of SAGE Global in activities that involve students or
campus or Foundation funds.
Estimated completion: March 31, 2020

5.

Rename the SAGE student group to help differentiate it from SAGE Global.
Estimated completion: March 31, 2020

6.

Require professor A to stop selling his CoursePass materials.
Estimated completion: November 30, 2019
Further, revise the policy governing faculty profits on course materials and communicate the
changes to all faculty.
Estimated completion: September 30, 2020

7.

Comply with the requirements specified in Executive Order 1104, Campus Reporting of Fiscal
Improprieties, including reporting, determining whether to contact the appropriate prosecuting
authority, evaluating restitution, and considering discipline. Discipline should be imposed in
accordance with the California Faculty Association’s Collective Bargaining Agreement, if
warranted.
Estimated completion: March 31, 2020

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