Editor's Note: Have you ever had one of those deja vu all over again moments? Read on and enjoy. As always, you can find all my blog posts from 2013 to the present on my website at http://stevemarshallassociates.com/steves-blog/
Fool Me Once, Shame on You
In 2005 I was retained by a major university to do a study on the feasibility of merging a once notable, but now failing, private cancer research center with a major cancer center within the university. I worked on this project for six months, interviewing a significant number of people affiliated with either or both entities and poring over internal documents and financials within the private research entity. Everything looked good for the merger, especially since the university was not willing to assume any of the liabilities of the other organization. If approved by the University's Regents, this merger would entail a good year's worth of work to finally complete the merger process; with the sale of assets, transferring grant portfolios, and obtaining faculty appointments for the private organizations' 48 scientists. One of the biggest hurdles would be the public relations challenges with dissolving a 100-year-old organization, but still, honor its legacy in a meaningful way for the future with its nationwide constituency.
I delivered my report to the Board of Regents at the end of six months, and they approved the merger without any reservations. I was further retained to help create a transition board, made up of representatives from both organizations and put together an initial scope of work for this group, including hiring an interim CEO. At the end of two months, I was approached by the chair of the transition board and asked if I would be interested in a 12-month position as that interim CEO I had recommended in my report. With some reluctance, I tentatively accepted but decided I would try an old negotiating tactic of making the other side say, "no" by throwing in certain conditions that I thought that they would refuse, but they didn't, and I assumed the position at the beginning of 2006.
The outgoing CEO had been in place for over 30 years and wasn't especially happy about being forced out, but since he was the primary author of its failure, he had little choice but to resign. He made some last ditch efforts to get a severance, but, given a massive budget shortfall in 2005, it was easy for the Board to deflect that request. He did drag his feet somewhat for about two weeks, by giving me excuses about how long it would take to clean out his office, but I had plenty to do in the coming 12 months, and so, I said, "take your time." After all, he couldn't do any harm, since he no longer had any signature authority and he had no loyal staff left, as I had let the majority of them go when I stepped in.
The first month passed by relatively peacefully, with many people to meet both onsite and at the University, new staff to hire, and planning for the future. In early February, I received a phone call from a bureaucrat at the Department of Defense, inquiring about the summary documents for a grant they had made several years before to the private cancer center. I said I would look into it and they sent a follow-up letter, which, at first glance, seemed fairly benign, until I got to the last page of this missive. Here is where the bomb dropped, the first of many, as they stated that without a full accounting for the grant they had issued, that they would expect full reimbursement of said grant - $1.5 million! I handed the matter over to our brand new CFO, with the proviso that she keep me informed. Over the next two months, I received a mounting pile of more phone messages and letters from various government agencies asking for the same as the first call; all in all, the total came to $18 million! This got my attention, and I asked the CFO how she was doing on the accounting end for the first grant call I got. Her response was bleak; it was doable but would take several months as virtually no accounting had been done internally, and she desperately needed help to recreate the internal accounting that went with each grant, now over ten grants. I instructed her to hire accounting temps and make it a priority.
My next step was to inform the Transition Board of possible malfeasance in the worst case, and sheer incompetence in the best case. I outlined my remediation steps, to include legal action against the former CEO and CFO, but I decided to give that CFO the benefit of the doubt, and so, I called her to inquire what she knew about this situation. Her first question to me was whether the former CEO had forwarded her letter asking for her severance pay - one year's salary - promised by the former CEO. I said I had not, but, regardless, that was not a promise I could honor given the current crisis and the previous budget year's failure. She threatened legal action, to which I almost laughed, but I chose to fill her in on the magnitude of the current $18 million demand from grantors instead and asked whether she could shed any light on that? She dissolved into tears and told me the whole tale of woe of the last several years of using restricted grant money to pay for annual operational needs and keeping a second set of books to keep track of the fraud. I requested those accounting docments, but she said she would trade them for her severance. I politley declined. Now, I was shocked twice; once for not discovering this during the financial review, which I had undertaken in 2005, and, second, how to resolve it.
I called the organization's law firm; one of the biggest and most expensive in the city, and met with two of the senior partners to outline the debacle. They listened sympathetically, and then they dropped an atom bomb on me. If I gave into mounting pressure from the Board to inform the Inspector General's Office in Washington about this matter, I would become a whistleblower for the government, and they would have to recuse themselves from representing me as they still represented the organization!
My first call, after this horrifying discovery, was to the Board Chair to inform him that I was resigning immediately and then told him why. He was certainly no less horrified than I was but reminded me that lawyers always looked at the worst possible outcomes and possibly, could we find any other solutions? After meeting for several hours and involving two key University people, we decided that we would recommend that we pay back the money first and then inform the Inspector General's Office. We took that recommendation to the Board, and they accepted it but they declined to pursue any legal action against the former CEO to avoid bad press for the University.
Now, the fun part began - where do we find $18 million?
Next Week: Shame on Me!