Ex-official's travel, other expenses for two years: $55,010

Head of student loan agencies retired abruptly, gave no reason

bmusgrave@herald-leader.com, lblackford@herald-leader.comAugust 5, 2012 

The former head of the state agencies that oversee student financial aid in Kentucky spent $55,010 on travel and entertainment in 2010 and 2011, including $42,000 for 30 out-of-state trips, according to a review by the Lexington Herald-Leader.

While traveling in New York, Florida and Washington, D.C., Edward Cunningham often treated dinner guests to meals that cost more than $100 a person, according to expense reports requested by the newspaper in February under the Kentucky Open Records Act.

Cunningham abruptly retired from his post as chief executive of the Kentucky Higher Education Assistance Authority and the Kentucky Higher Education Student Loan Corp. after a board meeting April 17. Cunningham, who had led the closely related agencies since July 2006, gave no explanation for his departure in a resignation letter and could not be reached for comment by the newspaper.

Board members and agency officials said questions about Cunningham's expenses were not behind his decision to retire and have defended most of the spending, which they said was aimed at bringing more money to the organizations at a time of upheaval in its business model. Diana Barber, a lawyer for the organizations, said all of Cunningham's expenses were vetted by an internal auditor, the finance committee of their governing board and an external auditor.

State Rep. Arnold Simpson, D-Covington, who oversees a House budget subcommittee on higher education, said he was concerned by Cunningham's spending but would need to hear more before determining whether it was out of line.

"We will have to look at that," he said. "On the surface it looks very, very bad. It would have to be a very good explanation, particularly given everything that agency is dealing with on the financial aid front."

The Kentucky Higher Education Assistance Authority, or KHEAA, oversees the state's scholarship programs, spending nearly $200 million a year provided by the Kentucky Lottery on need-based and merit-based scholarships, including the popular Kentucky Education Excellence Scholarship, known as KEES. Last year, the state's largest need-based aid program spent $60 million helping poor students, but it turned away more than 90,000 eligible applicants.

The Kentucky Higher Education Student Loan Corp., or KHESLC, services and collects loans. The agency is undergoing a sea change in how it does business, mainly because the federal government decided in 2010 not to use state agencies to service federal student loans.

The two agencies have an annual operating budget — funded by fees charged for servicing and collecting on loans and other financial products — of $34 million. Both organizations are overseen by the same eight-member board, which is appointed by the governor. They have 305 employees.

Expensive meals

Many of the out-of-state conferences attended by Cunningham charged hefty registration fees. For example, the National Council of Higher Education Loan Programs conference in Washington, D.C., charged Cunningham a $675 fee in September.

Cunningham, whose state salary was $204,000 a year, frequently went over the state's per diem limit — or set daily amount — for meals.

In January 2010, Cunningham spent $490.77 at the Union League Club, a private social club in New York, for a dinner meeting with three others. In September 2011, he spent $351 at Bibiana, an upscale Italian restaurant in Washington — for himself and two others. The receipts do not provide any details about what was consumed at those meals.

In many instances, Cunningham was dining with other executives of state financial aid organizations or officers in various non-profit higher education organizations.

Barber, the agencies' lawyer, said Cunningham's business dinners complied with the state's rules on expenses: Another person outside of the agency attended the dinners, they were used to further the agency's business and there were receipts to back up the expenses, she said.

Part of Cunningham's job was to improve the student loan corporation's bottom line. Those dinners help the agency secure more business, Barber said.

When traveling in Kentucky, Cunningham drove a state-owned Chevy Tahoe, records show. He spent $220 to have the Tahoe washed and detailed in July 2011 and charged the state $346 for a two-year subscription to OnStar, a navigation and security system.

Board members did question at least one of Cunningham's expenses, according to records and interviews.

In February, after spending $182.66 at Old Stone Inn in Simpsonville for a dinner with a consultant and another staff member, Cunningham sent the organization a check for $45. According to an email from Cunningham's assistant obtained by the newspaper, Cunningham submitted the check after Erica Horn, chairwoman of the board's finance and audit committee, suggested a cap of $45 a person on all local business meals.

Horn said she questioned the $183 tab for three people because she thought it was too much for just three people. Horn said Cunningham remembered that his wife also was at the dinner, and that's why he had reimbursed the agency.

Cunningham's expenses far outpaced those of Robert King, who oversees the state's higher education system as president of the Council on Postsecondary Education.

In 2011, King spent $5,596 on travel, which included five out-of-state trips. That same year, Cunningham spent $32,957.64 and went on 18 out-of-state trips.

Retreats at hotels, state parks

Cunningham also treated board members well using public money. He spent $1,983 at the Cincinnati Airport Marriott in Hebron in May 2011 for six board members and 12 staff members, who attended a board meeting in Hebron. Dinner at Tousey House in Burlington for the group of 18 cost $799.

Kristi Nelson, president of the board that oversees both organizations, said once a year the board meeting typically is held in the city where the board chairman is located. Nelson works in Hebron.

Nelson said spending about $150 a person for food and lodging was a reasonable expense.

"This is done as a team-building exercise to enhance communications between board members and staff to further the understanding of the complex issues that the board deals with in providing ultimate governance of these various organizations," Nelson said. "Spending about $150 per person for senior leader staff and board members is extremely reasonable for this purpose."

A board retreat at Claudia Sanders in Shelbyville in December 2011 cost $1,049 for dinner and meeting room rental.

Sixteen staff members also stayed at General Butler State Resort Park in Carrollton in September 2011 for an overnight strategic planning meeting. It cost about $1,720.

Nelson said the staff retreat was necessary because the organization was trying to figure out how to continue to do business after losing the contract to service new federal student loans.

"Given that this revenue will gradually wind down over the course of the next several years, it was prudent to proactively plan for the replacement of those revenues in the future," Nelson said. "To that end, it was extremely reasonable for the senior staff at KHEAA/KHESLC to meet for a strategic planning meeting at a time when the entire business model was being revamped. The cost of about $107 per person was entirely reasonable for this important purpose."

Nelson said the board dinner and retreat at Claudia Sanders was part of a two-step plan to adopt a new strategic plan.

"The cost of about $47 per person for this important meeting was entirely reasonable and necessary under the circumstances," she said.

Senate Education Committee chairman Ken Winters, R-Murray, said he understands the need to have retreats, particularly since the organization faced challenges. But those retreats could have been at the Frankfort or Louisville offices of the organization, he said.

"Retreats are fairly commonly done on-site," he said.

Approving expenses

For much of 2010 and 2011, one of Cunningham's subordinates was responsible for approving his expenses, a practice that then-state Auditor Crit Luallen had previously recommended repeatedly should be avoided.

In 2009, Luallen issued a host of recommendations on how agencies should tighten internal financial controls after several spending scandals, including problems at the Kentucky League of Cities and Kentucky Association of Counties.

Barber, the agencies' lawyer, was the person who frequently signed off on Cunningham's expenses, records show.

Barber said her signature was "only preliminary approval." The board's finance committee later gave final approval for Cunningham's expenses, after the money had been spent. Horn, the finance committee chairwoman, said that practice began in 2008.

"Generally, the expense reports had been forwarded to me within 10 days to two weeks of having been paid," Horn said.

She said the board recently changed its policy so the executive director's expense reports are approved by the chair of the finance committee before money is distributed.

"We believe this to be the best practice," Horn said.

The future

An interim director, Robin Morley, was hired after Cunningham's retirement April 17. Nelson, the board president, said the board is in the process of advertising for the position locally and nationally.

The agencies will need to find someone who can help them continue to thrive as revenue from the federal government withers in coming years, Nelson said.

"We are going to spend some time analyzing our business model and make some very strategic decisions," she said.

Richard Beliles, chairman of the ethics watchdog group Common Cause of Kentucky, said he hoped the board would do more to rein in expenses and monitor its new executive director more closely.

"You see this happening over and over again," Beliles said of non-profit and government-appointed boards. "They don't watch what people are doing. They think that they are there just to say yes or no and don't provide proper oversight."

Beth Musgrave: (502) 875-3793. Twitter: @BGPolitics. Blog: bluegrasspolitics.bloginky.com Linda Blackford: (859) 231-1359. Twitter: @lbblackford

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