Accounting problems cost WNET $1 for every $7 in federal grants

By Steve Behrens

WNET’s accounting problems have cost it $1.96 million out of a series of production grants totaling $13 million, following  a two-year federal investigation of the big New York station’s grant accounting.

Federal lawyers and the licensee — Educational Broadcasting Corp., now officially known as WNET.org — signed a settlement in which the station gave up 15 percent of the grant money:

  • $950,000 to be paid back to the feds for inadequately documented or prohibited costs, and
  • $1,015,046 that the station has spent on the productions but agreed to give up.

By the time of the settlement, the growing sum of unreimbursed expenses had cut a $7.8 million hole in the station’s financial fabric. To keep federally backed productions going, the nonprofit continued spending money on them but stopped asking for reimbursements. Robert Feinberg, general counsel, said it was a voluntary decision by the station: “If we have done something wrong, we didn’t want to compound the error.”

“It’s definitely been a drain,” Feinberg said.

The timing couldn’t have been much worse. With the recession sapping the station’s fundraising, it also struggled with a deficit for its new nightly news program, Worldfocus, which it had to scale down and then discontinue in April.

The government’s civil claim, filed June 15 in U.S. District Court in Manhattan as part of the settlement process, says the station licensee made “false or fraudulent claims” when it asked for reimbursement of expenses for grant projects.

But the government didn’t claim wrongdoing, Feinberg said. “There was never any allegation that monies were converted to personal or private use. There was never any allegation that monies were spent on projects they should not have been spent on.”

James Tisch, chair of the WNET Board, gave Current a similar summary after the investigation was revealed by Crain’s New York Business last fall. “There was sloppiness as opposed to real wrongdoing in terms of our accounting systems, which has been addressed,” Tisch said (Current, Sept. 21).

Feinberg said the inspector general’s office at the National Science Foundation started the investigation in May 2008 — initially involving one season of Cyberchase, WNET’s animated children’s series designed to promote kids’ interest and skills in math. The probe grew to cover grants from three federal agencies worth $13 million, awarded between September ’01 and January ’08.

IG staffers looked at four other seasons of Cyberchase, The Human Spark and other programs made with NSF money, plus National Endowment for the Arts aid for three seasons of American Masters and three of Great Performances, Make ’Em Laugh and other NEA-backed programs, and two grants from the National Endowment for the Humanities.

How extensive were the problems? In the settlement, WNET agreed to relinquish 13 percent of the $7.8 million it had spent on grant projects but delayed seeking reimbursement. Feinberg said the percentage was a negotiated figure based on the proportion of earlier reimbursement requests the feds found inadequately supported.

What problems did the feds find? Some were matters of process, Feinberg said, based on WNET’s own investigation and the feds’ findings. For example, under the rules, staff members whose time is attributed to various projects must keep contemporaneous records of how they spent their time: “Today I spent three hours on Cyberchase and five hours on — ” he said. “We did not have an adequately robust time allocation system,” he said. And contemporaneous records, by their nature, could not be reconstructed.

Other errors were matters of substance. For example, staff members had to fly to Canada, where Cyberchase, like many other animated programs, are produced. WNET’s corporate travel agent looked for the cheapest tickets, which were offered by Air Canada, but federal rules require grantees to use U.S. flag air carriers, Feinberg said.

“In the investigation, we provided the IGs with more than 30,000 pages of accounting records, and spent a great deal on outside legal counsel and auditors,” Feinberg said.

“There’s no question that we did not have an adequate system in place,” he said. “We simply failed to keep up with the required level of rigor. We’ve now corrected that situation.”

Under the settlement, WNET must keep grant money away from people whose conduct has been “inconsistent” with compliance.

“There’s really virtually nobody left who was involved in the grant accounting process,” Feinberg said. Some were laid off. The licensee hired a new chief financial officer, former Accenture partner Robert Clauser, in March, succeeding Thomas Conway, who retired. It also hired Evelyn Mendez for the new position of compliance officer.

WNET also agreed to adopt written policies and train employees who handle grant money, put federal “fraud hotline” posters on the walls, and create separate nonreimbursable cost centers for costs the feds don’t support.

Disclosure: At the time of this article, Current was published by Current LLC, a journalistically independent nonprofit affiliate of WNET.org.

EARLIER ARTICLES

In audits of other stations, CPB has occasionally demanded big refunds, 2003.

‘Sloppiness,’ not wrongdoing led to probe, says WNET chair, September 2009.

RELATED LINKS

Text of settlement (PDF) between the federal government and WNET.org/Educational Broadcasting Corp., June 15, 2010.

Rupert Murdoch’s New York Post uses the lawsuit as an opportunity to rail against taxpayer assistance to public TV in an editorial, June 20.

WNET discloses the federal investigations in note 12D of its annual financial statement for fiscal year 2008.

Crain’s New York Business publishes articles on the federal agencies’ reported complaints about grant handling Sept. 13 and Sept. 16.

Cyberchase Around Town encourages kids’ real-world explorations to build science, technology, engineering and math (STEM) skills, says a WNET news release.

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