Editor's Note: For an update on this topic, see "Prior to Follett, DSU bookstore was losing money."
An audit of Dickinson State University uncovered an issue with the school's contract with the company that manages the bookstore, an issue that could end up costing DSU thousands of dollars.
The contract issue was one of eight findings in an audit of DSU released Wednesday by State Auditor Joshua Gallion. The audit covered the fiscal year ending June 30, 2018.
The university's is in noncompliance with contract requirements set forth by the North Dakota University System. In its contract with Follett Higher Education Group for the bookstore, the university left out a provision required by NDUS that requires a performance review every two years on contracts that are longer than three years. DSU's contract with Follett is eight years and ends in 2025.
Such a provision could have helped DSU, as there seems to have been a misunderstanding about the commission it would receive.
"Per discussion with members of the evaluating committee, there is a possibility they were misled by the wording in the response. They believed the commissionable sales over the eight-year period were cumulative, not annual, as stated in the final contract," the report reads.
When bidding on the contract, Follett's response to DSU's request for proposal was worded as follows, "Follett offers an eight-year financial proposal that includes the commission based on the store's sales." However, the contract states that Follett is to pay the university commission in an annual amount equal to the sum of 0% of all commissionable sales up to $750,000.
"All of our contracts we have reviewed at the state level, so we had a lot of eyes on this contract. The thought, I think, from everybody was that this was cumulative, not annual," said President Thomas Mitzel.
In order for DSU to make a commission off of the bookstore, it would need to have sales over $750,000 each year. The contract requires Follett to pay DSU 5% of any part of commissionable sales over $750,000 and less than $1 million, plus 8% of any part of commissionable sales over $1 million.
According to the audit, in its first year with Follett, the bookstore's commissionable sales were $456,446, so DSU received no commission. The audit team looked at the bookstore's past five years of revenues to demonstrate the negative impact this contract will have to DSU.
"I don’t think the bookstore ever did $1 million in sales," Gallion said. "They don’t get anything until they cross $750,000. They barely creep above that in the past five years."
Even if they do make more than $750,000, they don't stand to gain a lot — or even close to what they had made in the past without Follett. Under DSU management, revenues ranged from $260,000 to $350,000, the audit states.
"We’re talking a few thousand dollars in commission, not the $200,000+ in revenue that they may have had in the past . . . If they exceed $1 million in sales, then they might get $10,000," Gallion said.
However, this revenue estimate does not take into account operating expenses, which when figured in, put the university at a loss of over $11,000 in 2017.
Mitzel said the the university does not pay for Follett's services, so worst-case scenario, at least they won't lose money.
DSU interim Vice President of Finance and Administration Laura Nelson was appointed to the position in January, well after the contract with Follett, though she was university controller at the time.
"I haven’t gone back and reviewed what the RFP was and what the contract actually came out to, to see what those differences are, so our plan is to review this audit next week with (the presidential) cabinet and then decide what actions we need to take going forward on it," she said.
In addition to the bookstore findings, the audit found that not enough adjunct professors were receiving evaluations from their students.
The audit team tested 15 adjunct faculty contracts and found that nine of them, or 60%, did not have the required evaluation of the instructors.
The university's adjunct faculty handbook requires them to be evaluated by their students every semester, with the exception of adjunct faculty who have had at least six continuous years of employment at DSU. For those faculty, the handbook allows for student evaluations every alternating semester.
"I’m surmising a little bit, but we get turnover with our chairs and our departmental leadership on occasion, and we just need to make sure that we’re training our new chair properly to make sure that the evaluations go on in a timely fashion. That is something we can correct immediately with training," Mitzel said.
Recording of Retainage
The audit team found the DSU was not recording retainage for capital projects in PeopleSoft, the university system's financial software.
"For a capital project, you would book an extra 10% retainage payable in case of project overrun, so that would be on the books. From an accounting standpoint, you assume all liabilities. That could be a potential liability that they need to record on the books, especially in these capital projects that can be significant in size," Gallion said.
Mitzel said that they do keep retainage, but they hadn't been recording in PeopleSoft.
"We do have that retainage. We were not recording it in PeopleSoft, as they need, but we do have it all . . . We were conducting ourselves correctly but didn't have it recorded in the manner that they would have liked to have seen, and that's easily correctable. We're not arguing with them on that. We will have that corrected," he said.
Nepotism and conflict of interest
The audit report stated that DSU does not have a policy for identifying, documenting, monitoring and resolving nepotism issues and conflict of interests, which it identified in its previous audit of the institution as well.
The university, as noted in the report, did create and distribute forms on which those concerns can be reported, but there was no official policy.
"We tried to cover what they asked, and we may not have covered exactly what they needed, but we are very careful on nepotism issues. We do not wish to run afoul of any of the state laws. We just need to record it correctly," Mitzel said.
The audit team also found that DSU did not properly procure commodities and services based on state and university policies and found that: "four out of 12 applicable purchases were noted to not follow proper bidding requirements; one transaction did not fill out the required alternate procurement form for a service contract; and two purchases were made by individuals who did not have the required training to make purchases of that level."
Mitzel said the mistakes could likely be corrected in the future by more training.
"With some new hires, we had people who just did not have quite the training. We have to have a broader-based training. What we try to tell everybody to do is run every procurement through (the Office of Management and Budget) at the state level, and they can help us with that. That didn't happen with a couple of folks who just didn't have the training. It was a mistake made that we can easily correct," Mitzel said.
The other finding was a lapse in blanket bond coverage.
Due to the year covered by the audit, some of the issues it mentioned have already been addressed —improper sharing of purchase cards and lack of an annual operating agreement with Edgewood Hawks Point.