Financial audit of KCTCS reveals no fraud, but need for additional training and policies
A forensic audit of the Kentucky Community and Technical College System’s finances found no evidence of fraud or criminal activity, but recommended a slew of changes related to internal budget operations.
The audit, released Friday, was recommended after a special examination from the state auditor’s office last year found errors in how the System Office’s unrestricted “carryforward balance” — a balance that moves forward from fiscal year to fiscal year, with no limitations on how it can be spent — was reported, and discovered the system office was overcharging individual community colleges for expenses.
“I was hired to fix KCTCS, and that’s exactly what I’m doing,” school President Ryan Quarles said in a news release. “This deep dive into our finances, policies and procedures resulted in numerous recommendations that will help us achieve greater efficiency and responsiveness across-the-board. I appreciate the recommendations and look forward to their thorough implementation.”
Quarles became president of KCTCS on Jan. 1, after the special investigation was concluded. During the period examined by the audit, the president was Paul Czarapata, who resigned in February 2023. Since becoming president, Quarels has reviewed the system’s policies and procedures, according to the system, and SJR 179, a joint resolution filed this year, directs the system to examine its current practices.
The financial audit was conducted by KPMG, an international finance and auditing firm. Among the firm’s recommendations are:
- Review all accounts that interacted with and had access to a main KCTCS budget account.
- Develop training for finance and accounting team members about state requirements and internal policy obligations.
- Create and update internal policies that align with state requirements for monitoring the System’s budget controls.
“We look forward to updating and improving our internal policies and procedures and implementing training opportunities to improve our processes and accountability,” said Todd Kilburn, who has been CFO of KCTCS since June.
Concerns were initially raised about KCTCS’ finances last May, after the system’s acting president Larry Ferguson sent a request from the board of regents to the state auditor, asking for a “thorough examination by the State Auditor’s office of actions taken by past administrators.”
The request came after it was learned the carryforward fund balance was not accurately reported to the board, and it was discovered that KCTCS had not maintained accurate documentation for transactions in the last 20 years. Additionally, a previous billing practice resulted in the System Offices overcharging community and technical colleges for expenses by $24 million.
The KCTCS System Offices, located in Versailles, oversee management and organization responsibilities for the 16 colleges in the system.
The system office also makes payments for system-wide contracts, and performs some services on behalf of the colleges, including payroll, legal and financial services, and academic support, according to the report last year. All funding for community and technical colleges received from the state budget is sent to the system office to be distributed to colleges.