wvmwosmm Campus Controller's Office To: Kelly Fox, Senior Vice Chancellor and CFO, Office of the Chancellor Carla Ho-a, Associate Vice Chancellor for Finance and Business Strategy From: Laura Ragin, Assistant Vice Chancellor and Controller, Campus Controller?s Office Greg Brown, Compliance Specialist. Campus Controller's Office Subject: Compliance Review of the Center for Limnology Date: April 24, 2018 The Campus Controller's Office (CCO) reviewed the financial activities of the Center for Limnology (Center). This report outlines the review, findings, and conclusions drawn by the CCO. The review was performed based on fiscal concerns raised in October 2017 concerns about the ?nancial relationship between the University and Western Environmental (WEA), a company owned by Dr. William Lewis. Jr., Professor and Director of the Center. The concerns raised include: Is any ?nancial oversight of the business relationship in place? . Does an arm's length business relationship exist between the University and . The CIRES account i CCO learned that Caroline Himes. from the Office of Industry Collaboration (OIC). contacted all Fund 29 managers in 2015 and informed them external service rates should include a facilities and administrative rate that aligns with the Campus rate. After OIC made this directive, Dr. Lewis inquired whether WEA could purchase CU-owned inventory and equipment to continue offering the services performed by the Center. Although, the purchase of inventory and equipment never happened. r. Lewis made the determination that the Center?s service activities could not continue because of the OIC directive stating the Center needed to raise its rates charged to customers. Instead, Dr. Lewis chose to continue providing the service activities through the company he owns. As a result, Dr. Lewis entered into a Con?ict of Interest Memorandum of Understanding (MOU) with the University. 2mm A. CCO ?reviewed documents associated with WEA's usiness relationship With the Universny, Including: . Notes from a meeting between Dr. Lewis and Pam Rosse dated June 20 5. . Dr. Lewis? MOU, which was signed in September 2016. . Dr. Lewis? 2015 through 2017 DEPA Forms. . Ten Center invoices. 0 Three WEA invoices (obtained from the City of Greeley). B. CCO evaluated the Center?s financial reports before and after the MOU was in place. The review included an evaluation of the Center's m-Fin Operating Summary report from FY 2016 through February 28, 2018. Page 1 of 3 C. The Controller met with the Director to discuss the review and to make him aware the concerns raised were being forwarded to Internal Audit A. The June 2015 meeting notes state. ?This comes as a result of the University of Colorado of Boulder no longer being able to support water quality lab The MOU states helps to provide a service that previously was available through the University, but funding for that program ended.? Both statements seem to imply the Center?s business operations could not continue unless changes were made. However, no relevant change to the Center's business operations occurred with the exception that WEA new contracts with the customers pays the Center for the services it performs. and appears to be earning gross margins on those contracts. CCO computed gross margins on three WEA invoices. The gross margins on these invoices range from 25.0% to 45.6%. WEA's gross margins on these invoices appear high. given understanding that: CU employees are doing the work on the WEA contracts. WEA does not own or lease commercial property. CU-owned equipment is being used to fulfill the WEA contracts. WEA does not own its own equipment. B. Review of Center Financial Reports: Between June 30. 2016 (prior to the MOU) and February 28. 2018. there has been a significant change in the Center's available balance per the m-Fin Operating Summary report. as shown in the chart: SpeedT-?ype 129223.25 Available Eulance CCO believes an int/estigation is warranted to determine if fiscal misconduct has occurred in the Center. The business relationship between the University and WEA should be reviewed in greater detail. Our conclusion is based on the following: . Despite the concerns raised in the June 2015 meeting and the MOU, about the Center?s inability to continue performing water assessment services, the operations of the Center have essentially not i it appears no other CU employee is reviewmg the Center?s business transactions With . The gross margins on the three WEA invoices reviewed appear high. 0 The Center's financial position has changed significantly since the MOU was put in place. Page 2 of 3 CCO recommends an investigation be performed to determine if fiscal misconduct exists in the Center. In addition, CCO recommends that internal controls be implemented that provide ?nancial oversight and will safeguard the business relationship between the University and WEA. Controls are needed to maintain compliance with University and Campus policies. Additionally, CCO recommends the MOU process be reviewed to evaluate whether the appropriate personnel are involved in the process and to determine if changes to the process should be considered. CCO believes an opportunity exists to improve internal controls when a MOU is implemented. Further discussion is needed to determine if exiSting MOU's should be reviewed to assess whether adequate internal controls are in place. Page 3 of 3